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2017 ANNUAL REPORT
A Message from
Alain Bédard
Dear Fellow Shareholders and Colleagues:
Our improved profitability and strong cash flow in 2017 reflect the
in net repayment to reduce long-term debt, further bolstering our
successful implementation of our primary mission to continually
balance sheet which remains a source of stability and strategic
create and unlock shareholder value. The North American eco-
strength for us. We returned another $150.6 million to sharehold-
nomic recovery combined with our rigorous focus on operational
ers over the course of the year through $81.6 million of share
efficiency led to strong bottom line growth in all of our businesses
repurchases and another $69.0 million in the form of dividends.
with the exception of our U.S. Truckload operations. Looking
In December, we raised our quarterly dividend another 11%.
ahead, we are optimistic that our diversified businesses should
be clear beneficiaries of economic expansion and tightening
capacity in the trucking and logistics industries, and the resulting
rate increases.
TFI has for many years had a successful acquisition strategy,
which has allowed countless smaller companies to benefit from
the financial and operational resources that come from being
underneath the TFI International umbrella, all while adding to our
However, at TFI International we continually strive to optimize
capabilities, our route density and our world class management
our business, regardless of economic conditions. Thus, during
team. Any acquisition activity we pursue in the near future would
2017 we focused on operational efficiencies, asset rationalization,
involve smaller, accretive acquisitions, with a focus on being
and tight cost controls. We further strengthened our balance sheet
highly disciplined with our shareholders’ capital. Well-managed,
through a strategic $135.7 million sale and leaseback transac-
asset-light operations would remain our principal target. Whether
tion and through $86.4 million of debt reduction. As a result of
it’s acquisitions, debt reduction or further investment in our
the strengthening economy and our own internal accomplish-
organic business, our overarching goal is to invest in high
ments, we were able to return significant capital to our share-
return-on-capital initiatives that maximize our already strong
holders through both share buybacks and dividends.
cash flow.
TFI International generated total revenue from continuing opera-
I wish to thank our many employees who continue to embrace
tions of $4.7 billion in 2017, or $4.3 billion before fuel surcharge,
and thrive under our effective, decentralized operating structure.
which was up 15.6% from the prior year. Growth was partially
Their emphasis on delivering innovative, value-added solutions
offset by lingering weakness especially in U.S. Truckload
for our customers, and the dedication they bring to the job each
operations, along with fluctuations in foreign exchange rates.
day, are the building blocks for TFI’s continued success. I also
Operating income from continuing operations was $243.7 million,
reflecting a margin of 5.7% of revenue before fuel surcharge,
versus 6.7% last year. The lower margin was primarily the result
of U.S. Truckload operations, where we have made a concerted
effort to improve performance which is beginning to yield results.
Outside of U.S. Truckload, our organic profitability growth was
strong. Net income from continuing operations increased to
$158.0 million, or $1.70 per diluted share which was a 3.7%
improvement over the prior year’s $1.64.
want to express my sincere appreciation to our shareholders for
joining us on our journey, and to our Board of Directors for their
guidance, perspective and unwavering commitment to creating
shareholder value.
Our net cash from operating activities from continuing operations
was one of the year’s highlights, reaching $372.6 million, up
Alain Bédard
Chairman of the Board,
10% from 2016. We used $74.6 million of our excess cash flow
President and Chief Executive Officer
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2017
MANAGEMENT’S DISCUSSION AND ANALYSIS
1
GENERAL INFORMATION
The following is TFI International Inc.’s management discussion and analysis (“MD&A”). Throughout this MD&A, the terms
“Company” and “TFI International” shall mean TFI International Inc., and shall include its independent operating subsidiaries. This
MD&A provides a comparison of the Company’s performance for its three-month period and year ended December 31, 2017 with
the corresponding three-month period and year ended December 31, 2016 and it reviews the Company’s financial position as of
December 31, 2017. It also includes a discussion of the Company’s affairs up to February 20, 2018, which is the date of this MD&A.
The MD&A should be read in conjunction with the audited consolidated financial statements and accompanying notes as at and for
the year ended December 31, 2017.
In this document, all financial data are prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (“IASB”). All amounts are in Canadian dollars, and the term “dollar”, as well as the
symbols “$” and “C$”, designate Canadian dollars unless otherwise indicated. Variances may exist as numbers have been rounded.
This MD&A also uses non-IFRS financial measures. Refer to the section of this report entitled “Non-IFRS Financial Measures” for a
complete description of these measures.
The Company’s audited consolidated financial statements have been approved by its Board of Directors (“Board”) upon
recommendation of its audit committee on February 20, 2018. Prospective data, comments and analysis are also provided wherever
appropriate to assist existing and new investors to see the business from a corporate management point of view. Such disclosure is
subject to reasonable constraints for maintaining the confidentiality of certain information that, if published, would probably have an
adverse impact on the competitive position of the Company.
Additional information relating to the Company can be found on its website at www.tfiintl.com. The Company’s continuous
disclosure materials, including its annual and quarterly MD&A, annual and quarterly consolidated financial statements, annual report,
annual information form, management proxy circular and the various press releases issued by the Company are also available on its
website or directly through the SEDAR system at www.sedar.com.
FORWARD-LOOKING STATEMENTS
The Company may make statements in this report that reflect its current expectations regarding future results of operations,
performance and achievements. These are “forward-looking” statements and reflect management’s current beliefs. They are based
on information currently available to management. Words such as “may”, “could”, “should”, “would”, “believe”, “expect”,
“anticipate” and words and expressions of similar import are intended to identify these forward-looking statements. Such forward-
looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical
results and those presently anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any forward-looking statements which reference issues only
as of the date made. The following important factors could cause the Company’s actual financial performance to differ materially
from that expressed in any forward-looking statement: the highly competitive market conditions, the Company’s ability to recruit,
train and retain qualified drivers, fuel price variations and the Company’s ability to recover these costs from its customers, foreign
currency fluctuations, the impact of environmental standards and regulations, changes in governmental regulations applicable to the
Company’s operations, adverse weather conditions, accidents, the market for used equipment, changes in interest rates, cost of
liability insurance coverage, downturns in general economic conditions affecting the Company and its customers, and credit market
liquidity.
The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to revise or update
any previously made forward-looking statements unless required to do so by applicable securities laws. Unanticipated events are
likely to occur. Readers should also refer to the section “Risks and Uncertainties” at the end of this MD&A for additional information
on risk factors and other events that are not within the Company’s control. The Company’s future financial and operating results
may fluctuate as a result of these and other risk factors.
2017 Annual Report
2
MANAGEMENT’S DISCUSSION AND ANALYSIS
SELECTED FINANCIAL DATA AND HIGHLIGHTS
(unaudited)
(in thousands of dollars, except per share data)
Revenue before fuel surcharge
Fuel surcharge
Total revenue
Adjusted EBITDA from continuing operations1
Operating income from continuing operations1
Net income
Net income from continuing operations
Adjusted net income from continuing operations1
Net cash from operating activities from continuing operations
Free cash flow from continuing operations1
Per share data
EPS – diluted
EPS from continuing operations – diluted
Adjusted EPS from continuing operations – diluted1
Free cash flow from continuing operations1
Dividends
As a percentage of revenue before fuel surcharge
Adjusted EBITDA margin1
Depreciation of property and equipment
Amortization of intangible assets
Operating margin
Operating ratio1
1
Refer to the section “Non-IFRS financial measures”.
Fourth quarters ended
December 31
Years ended
December 31
2017
2016
2017
2016
1,058,990
123,481
1,182,471
1,036,446
101,288
1,137,734
4,281,823 3,704,488
320,720
4,741,019 4,025,208
459,196
131,017
66,770
120,192
120,192
54,645
116,148
102,432
1.31
1.31
0.60
1.14
0.21
12.4%
4.6%
1.5%
6.3%
93.7%
127,943
69,717
45,339
46,387
50,609
109,815
98,038
0.48
0.49
0.54
1.07
0.19
12.3%
4.1%
1.5%
6.7%
93.3%
514,481
243,724
157,988
157,988
192,571
372,601
376,487
442,351
249,265
639,579
157,059
187,391
337,908
288,340
1.70
1.70
2.08
4.16
0.78
12.0%
4.9%
1.4%
5.7%
94.3%
6.70
1.64
1.96
3.08
0.70
11.9%
3.8%
1.4%
6.7%
93.3%
Q4 Highlights
•
Total revenue from continuing operations increased by $44.7 million from Q4 2016, or 4%, to $1,182.5 million.
• Operating income from continuing operations decreased 4%, or $2.9 million from the same quarter last year, mainly as a result
of a weak performance from its U.S. Truckload (“TL”) operations.
• A decrease in income tax expense of $76.1 million was recorded as an income tax recovery arising from a reduction in deferred
income tax liabilities as a result of the U.S. tax reform.
• Net income was $120.2 million, compared to $45.3 million in Q4 2016. The increase is mainly due to the reduction in income
tax expense. The diluted earnings per share (diluted “EPS”) were up 173% to $1.31, compared to 48 cents in the prior year
period.
• Adjusted net income1, a non-IFRS measure, increased $4.0 million mainly from business acquisitions. Adjusted diluted EPS from
continuing operations1, a non-IFRS measure, increased 11% to 60 cents from 54 cents in Q4 2016.
•
•
The Company’s long-term debt remained relatively stable at $1,498.4 million compared to last quarter.
The Company returned $47.7 million to shareholders during the quarter, of which $17.1 million was through dividends and
$30.6 million through share repurchases. The weighted average number of common shares was 2% lower in this quarter
compared to last year’s same quarter.
• On October 31, 2017, TFI International completed the acquisition of Premier Product Management (“PPM”). Based in California,
PPM provides home delivery services of household appliances in the United States.
• On December 11, 2017, the Board approved an 11% dividend increase to 21 cents per share over its previous quarterly dividend
of 19 cents per share.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS
3
ABOUT TFI INTERNATIONAL
Services
TFI International is a North American leader in the transportation and logistics industry, operating across the United States, Canada
and Mexico through its subsidiaries. TFI International creates value for shareholders by identifying strategic acquisitions and
managing a growing network of wholly-owned operating subsidiaries. Under the TFI International umbrella, companies benefit from
financial and operational resources to build their businesses and increase their efficiency. TFI International companies service the
following reportable segments:
Package and Courier;
•
Less-Than-Truckload;
•
Truckload;
•
Logistics.
•
Seasonality of operations
The activities conducted by the Company are subject to general demand for freight transportation. Historically, demand has been
relatively stable with the first quarter being generally the weakest in terms of demand. Furthermore, during the harsh winter months,
fuel consumption and maintenance costs tend to rise.
Human resources
The Company has 17,044 employees who work in TFI International’s different business segments across North America. This
compares to 17,685 employees as of December 31, 2016. The year-over-year decrease of 641 is attributable to rationalizations
affecting 1,029 employees mainly in the Less-Than-Truckload (“LTL”) and TL segments offset by business acquisitions (+388). The
Company believes that it has a relatively low turnover rate among its employees in Canada, a normal turnover rate in the U.S., and
that its employee relations are very good.
Equipment
The Company has the largest trucking fleet in Canada and a significant presence in the U.S. market. As at December 31, 2017, the
Company had 7,058 power units, 24,617 trailers and 9,074 independent contractors. This compares to 8,265 power units, 25,310
trailers and 10,270 independent contractors as at December 31, 2016. The decreases in power units are due to fleet reduction
mainly in the U.S. TL businesses.
Terminals
TFI International’s head office is in Montréal, Québec and its executive office is located in Etobicoke, Ontario. As at December 31,
2017, the Company had 391 terminals. Of these, 274 are located in Canada, 172 and 102, respectively, in Eastern and Western
Canada. The Company also had 105 terminals in the United States and 12 terminals in Mexico. This compares to 398 terminals as at
December 31, 2016. In the last twelve months, 29 terminals were added from business acquisitions and the terminal consolidation
decreased the total number of terminals by 36, mainly in the Package and Courier and TL segments. In Q4 2017, the Company
closed nine sites.
2017 Annual Report
4
MANAGEMENT’S DISCUSSION AND ANALYSIS
Customers
The Company has a diverse customer base across a broad cross-section of industries with no single client accounting for more than
5% of consolidated revenue. Because of its customer diversity, as well as the wide geographic scope of the Company’s service
offering and the range of segments in which it operates, a downturn in the activities of individual customers or customers in a
particular industry is not expected to have a material adverse impact on the operations of the Company. The Company forged
strategic partnerships with other transport companies in order to extend its service offering to customers across North America.
Revenue by Top Customers’ Industry (54% of total revenue)
Retail
Manufactured Goods
Metals & Mining
Building Materials
Automotive
Energy
Food & Beverage
Services
Forest Products
Chemicals & Explosives
Waste Management
Maritime Containers
Others
(As at December 31, 2017)
CONSOLIDATED RESULTS
31 %
15 %
7 %
7 %
6 %
6 %
6 %
5 %
4 %
3 %
3 %
3 %
4 %
This section provides general comments on the consolidated results of operations. A more detailed analysis is provided in the
“Segmented results” section.
2017 business acquisitions
In line with the Company’s growth strategy, the Company acquired seven businesses during 2017, notably World Courier Ground
U.S. (“World Courier Ground”), Cavalier Transportation Services Inc. (“Cavalier”), Les entreprises Dupont 1972 Inc. (“Dupont”) and
Premier Product Management (“PPM”).
On January 13, 2017, the Company completed the acquisition of World Courier Ground, the U.S. ground transportation division of
World Courier. Established in 1983, World Courier Ground is an asset light, time critical courier provider. Operating nationally across
the U.S., the company offers same-day courier, rush trucking and warehousing services primarily to the medical industry, as well as
to the environmental, financial, chemical and industrial sectors. World Courier Ground management continues to operate the
business under the new name TForce Critical.
On January 28, 2017, the Company completed the acquisition of Cavalier. Established in 1979, Cavalier’s operations consist of LTL
services, brokerage and warehousing. Based in Bolton, Ontario, Cavalier serves corridors primarily between Ontario, Quebec, New
York and Illinois.
On May 28, 2017, the Company completed the acquisition of Dupont, a specialty truckload business based on the south shore of
Montreal. Dupont is Quebec’s leading bulk cement transport company, also serving Ontario, the Maritimes, Labrador and the
northeastern United States with its expert team and state-of-the-art equipment.
On October 31, 2017, the Group completed the acquisition of PPM. Based in California, PPM provides home delivery services of
household appliances in the United States. Based on historical information, PPM is expected to generate US$27.0 million in annual
revenue for the Logistics segment.
These transactions were concluded in order to add density in the Company’s current network and further expand value-added
services. The seven acquired businesses contributed revenue of $137.6 million in 2017.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS
5
Revenue from continuing operations
TFI International reported a revenue increase from continuing operations mainly as a result of business acquisitions offset by revenue
declines in existing operations. For the fourth quarter ended December 31, 2017, total revenue from continuing operations increased
by $44.7 million, or 4%, to $1,182.5 million from $1,137.7 million in Q4 2016. The contribution from business acquisitions was
$126.2 million, while revenue declines in existing operations totalled $81.5 million, or 7%. This reduction was due to a net decrease
in revenue before fuel surcharge of $74.1 million and a negative currency impact of $15.4 million offset by a fuel surcharge increase
of $8.0 million. The average exchange rate used to convert TFI International’s revenue generated in U.S. dollars was 4.7% lower this
quarter (C$1.2709) than it was for the same quarter last year (C$1.3341). With respect to revenue before fuel surcharge from
existing operations, decreases were mainly attributable to the Package and Courier and the U.S. TL operating segments.
For the year ended December 31, 2017, total revenue from continuing operations increased by $715.8 million, or 18%, to $4.74
billion from $4.03 billion in 2016. The contribution from business acquisitions of $824.1 million and higher fuel surcharge was offset
by decreases in revenue from existing operations. On a year to date basis, the currency movements had a negative impact of $26.9
million, or 0.7%, on revenue from continuing operations.
Operating expenses from continuing operations
For the fourth quarter, the Company’s operating expenses from continuing operations increased by $47.7 million, or 4%, from
$1,068.0 million in Q4 2016 to $1,115.7 million in Q4 2017. The increase is mainly attributable to business acquisitions for $123.0
million offset by decreases in existing operations as a result of revenue decrease.
Excluding business acquisitions, operating expenses decreased by $75.3 million, or 7%, in line with the revenue decline from existing
operations. Particularly, materials and services expenses and personnel expenses decreased respectively 6% and 11% as a result of
volume decline, rationalization and terminal optimization achieved in the previous quarters. Other operating expenses, which are
primarily composed of costs related to offices’ and terminals’ rent, taxes, heating, telecommunications, maintenance and security
and other general administrative expenses increased mainly as a result of the sale-and-leased back transactions completed earlier in
2017, which increased rent expense by $1.9 million.
For the three-month period ended December 31, 2017, depreciation of property and equipment increased by $5.3 million. Excluding
business acquisitions, depreciation of property and equipment decreased by $1.5 million, or 3%, as a result of the sale-and-leased
back transactions and the Company’s consistent focus on adjusting capacity to match fluctuations in demand and to optimize capital
allocation by using more subcontractors. For the same period, intangible asset amortization increased by $0.7 million, on a
consolidated basis, due to business acquisitions offset by decreases from existing operations.
The Company recorded lower gains on its recurring sale of rolling stock and equipment compared to last year (Q4 2017 showed a
loss of $0.6 million and Q4 2016 showed a gain of $4.1 million). The recurring gain that the Company normally generates from its
sales of rolling stock and equipment was reduced by losses generated during this quarter by the fleet renewal plan for CFI, acquired
in Q4 2016, and a softer market for used equipment. The losses pertaining to CFI are not expected to continue as most of its fleet
renewal plan is complete.
The operating ratio1, a non-IFRS measure, was 93.7% in this quarter, compared to 93.3% for Q4 2016. This ratio was negatively
impacted by a lower contribution from the U.S. TL operating segment. Excluding business acquisitions, the operating ratio remained
at 93.3% as a result of strict expense management despite the revenue decline.
For the year ended December 31, 2017, operating expenses from continuing operations increased by $721.4 million, or 19%, from
$3.78 billion in 2016 to $4.50 billion in 2017. The increase is mainly attributable to business acquisitions, for $837.2 million, offset
by decreases due to lower revenue from existing operations.
Operating income from continuing operations
For the fourth quarter, TFI International’s operating income from continuing operations decreased by $2.9 million to $66.8 million
compared to $69.7 million in 2016 and the operating margin decreased 0.4% as a percentage of revenue before fuel surcharge
from 6.7% in Q4 2016 to 6.3% in Q4 2017. Lower gains on sale of rolling stock and equipment represent 0.3% of the decrease.
Material and services expenses net of fuel surcharge improved by 0.8% as a percentage of revenue before fuel surcharge from
operating efficiencies, which were offset by higher personnel expenses and depreciation in percentage of revenue before fuel
surcharge mainly attributable to business acquisitions.
1
Refer to the section “Non-IFRS financial measures”.
2017 Annual Report
6
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s consistent focus on the quality of revenue may have slightly reduced revenue before fuel surcharge, but this strategy
in conjunction with cost control benefited the Company. As a percentage of revenue before fuel surcharge, the operating margin
from existing operations and excluding the lower gain on sale of rolling stock and equipment increased by 0.2% as a percentage of
revenue before fuel surcharge.
For the year ended December 31, 2017, TFI International’s operating income from continuing operations decreased by $5.6 million
to $243.7 million compared to $249.3 million in 2016. The decrease is attributable to an operating loss from business acquisitions of
$13.2 million offset by improvement from existing operations’ operating income for $7.6 million.
The negative contribution from business acquisitions is mainly attributable to CFI, primarily operating in the challenging U.S. TL
market. In addition to the sluggish freight environment, CFI incurred one-time transitional and rebranding costs of $17.6 million
caused by its separation from XPO Logistics, the previous owner. Furthermore, an aggressive replacement program for its rolling
stock has been put in place and is almost completed, resulting in higher equipment relocation expenses. CFI operating losses were
mostly generated in the first three quarters of the year but has recorded improved results in Q4.
Gain on sale of property from continuing operations
The gain on sale of property, which is accounted for in gain or loss on sale of land and buildings and in gain or loss of sale of assets
held for sale in the consolidated statements of income, was $77.7 million in 2017, compared to $8.9 million in 2016. In Q3 TFI
International unlocked shareholder value with a sale and leaseback transaction on selected real estate assets. The all-cash transaction
of $135.7 million, which included two facilities in each of Montreal and Toronto, resulted in a pre-tax gain of $69.8 million. The
group of properties included in the transaction represented less than 20% of the net book value of the Company’s total real estate
portfolio.
Impairment of intangible assets from continuing operations
For the year ended December 31, 2017, impairment of intangible assets was $143.0 million. The non-cash impairment charges of
2017 were $13.2 million for an impairment to the Dynamex trade name recorded in the first quarter, and $129.8 million for a
goodwill impairment in the U.S. TL operating segment recorded in Q2 due to a weak performance resulting from downward pricing
pressures experienced by the industry as a result of high competitiveness, limited economic activity growth and upward cost
pressures adversely impacting operating cost per mile and operating margins.
At December 31, 2017, the Company performed its goodwill impairment tests for operating segments, the results determined that
the recoverable amounts of the Company’s operating segments exceeded their respective carrying amounts.
Finance income and costs from continuing operations
(unaudited)
(in thousands of dollars)
Finance costs (income)
Interest expense on long-term debt
Interest income and accretion on promissory note
Net foreign exchange (gain) loss
Net change in fair value of foreign exchange derivatives
Net change in fair value of interest rate derivatives
Others
Net finance costs
Interest expense on long-term debt
Fourth quarters ended
December 31
Years ended
December 31
2017
13,102
(725 )
(10 )
(126 )
193
1,063
13,497
2016
11,931
(652 )
(1,207 )
(129 )
(2,692 )
4,015
11,266
2017
56,758
(2,638 )
2,491
(1,247 )
(365 )
6,076
61,075
2016
41,201
(2,374 )
2,110
(1,392 )
6,232
9,105
54,882
Interest expense on long-term debt for the three-month period and year ended December 31, 2017 increased by $1.2 million and
$15.6 million, respectively, mainly due to higher borrowings as a result of the Q4 2016 significant business acquisitions.
Net foreign exchange gain or loss and net investment hedge
The Company designates as a hedge a portion of its U.S. dollar denominated debt held against its net investments in U.S. operations.
This accounting treatment allows the Company to offset the designated portion of foreign exchange gain (or loss) of its debt against
the foreign exchange loss (or gain) of its net investments in U.S. operations and present them in other comprehensive income. Net
foreign exchange gains or losses recorded in income or loss are attributable to the U.S. dollar portion of the Company’s credit facility
not designated as a hedge and to other financial assets and liabilities denominated in foreign currencies. For the three-month period
and year ended December 31, 2017, $1.9 million of foreign exchange losses and $25.1 million of foreign exchange gains,
respectively ($1.7 million and $21.8 million net of tax, respectively), were recorded to other comprehensive income as net investment
hedge.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS
7
Net change in fair value of derivatives and cash flow hedge
The Company designates, as a hedge of the variable interest rate instruments, the interest rate derivatives. Therefore the effective
portion of changes in fair value of the derivatives is recognized in other comprehensive income. For the three-month period and year
ended December 31, 2017, $2.3 million and $5.4 million of gain on change in fair value of interest rate derivatives, respectively ($1.7
million and $3.9 million net of tax, respectively), was recorded to other comprehensive income as a change in the fair value of the
cash flow hedge.
The Company’s derivative financial instruments, which are used to mitigate foreign exchange and interest rate risks, saw their fair
values increase by $2.2 million in Q4 2017, of which $2.3 million was designated as cash flow hedge, while in the same quarter last
year their fair values increased by $2.8 million. For the year ended December 31, 2017, their fair values increased by $7.0 million, of
which $5.4 million was designated as cash flow hedge, compared to a loss of $4.8 million in the same period in 2016. The
derivatives’ fair values are subject to market price fluctuations in foreign exchange and interest rates.
Others
The other financial expenses mainly comprise bank charges, the net change in fair value of the Company’s deferred share unit
liability and the reclassification to income of gain on investment in equity securities.
Income tax expense from continuing operations
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“U.S. tax reform”). The U.S.
tax reform reduces the U.S. federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. As a result of the
U.S. tax reform, the Company’s net deferred income tax liability decreased by $76.1 million.
The U.S. Tax Reform introduces other important changes to U.S. corporate income tax laws that may significantly affect the
Company’s in future years including, the creation of a new Base Erosion Anti-abuse Tax (BEAT) that subjects certain payments from
U.S. corporations to foreign related parties to additional taxes, and limitations to the deduction for net interest expense incurred by
U.S. corporations. Future regulations and interpretations to be issued by U.S. authorities may also impact the Company’s estimates
and assumptions used in calculating its income tax provisions.
For the three-month period ended December 31, 2017, the effective tax rate was -128.6%. The income tax recovery of $67.6 million
reflects an $81.7 million favourable variance versus an anticipated income tax expense of $14.1 million based on the Company’s
statutory tax rate of 26.8%. The favourable variance is mainly due to variation in tax rate for $76.1 million as a result of the U.S. tax
reform and to positive differences between the statutory rate and the effective rates in other jurisdictions of $4.3 million.
For the year ended December 31, 2017, the effective tax rate was -34.7%. The income tax recovery of $40.6 million reflects a $72.0
million favourable variance versus an anticipated income tax expense of $31.4 million based on the Company’s statutory tax rate of
26.8%. The favourable variance is mainly due to variation in tax rate for $76.1 million as a result of the U.S. tax reform, to positive
differences between the statutory rate and the effective rates in other jurisdictions of $21.4 million, and to positive variance from non-
taxable income, mainly capital gains, of $10.5 million, offset by the non-tax effected goodwill impairment, which negative variance was
$34.8 million and to tax on multi-jurisdiction distributions, of $2.7 million. The more significant favourable variance from effective rates
in other jurisdictions is attributable, in part, to the impairment of intangible assets portion attributable to the U.S. operations. Having a
higher effective tax rate, this charge reduces the income tax expense in a larger proportion compared to the Company’s statutory tax
rate of 26.8%.
2017 Annual Report
8
MANAGEMENT’S DISCUSSION AND ANALYSIS
The table below presents the 2017 income tax reconciliation excluding the non-tax effected goodwill impairment recorded in Q2
2017 and the impact of the U.S. tax reform:
(unaudited)
(in thousands of dollars)
Income before income tax
Goodwill impairment
Income before goodwill impairment and income tax
Income tax using the Company’s statutory tax rate
Increase (decrease) resulting from:
Rate differential between jurisdictions
Variation in tax rate
Non-deductible expenses
Tax exempt income
Adjustment for prior years
Tax on multi-jurisdiction distributions
Net income from discontinued operations
%
Year ended
December 31, 2017
$
117,346
129,770
247,116
66,227
26.8 %
-8.7 %
0.0 %
1.1 %
-4.3 %
-1.7 %
1.1 %
14.3 %
(21,443 )
(109 )
2,719
(10,513 )
(4,091 )
2,702
35,492
As a result of the divestiture of its Waste Management segment, which was completed on February 1, 2016, and the Company’s
decision to cease its operations in rig moving services in 2015, these two operating segments have been reclassified and presented
on a net basis as discontinued operations in the consolidated statements of income and cash flows.
For the three-month period and year ended December 31, 2017, no income from discontinued operations was recorded. Last year,
the net income from discontinued operations for the year ended December 31, 2016 was $482.5 million and included a pre-tax gain
on sale of the Waste Management segment in the amount of $559.2 million or $490.8 million net of tax.
Net income and adjusted net income from continuing operations
(unaudited)
(in thousands of dollars, except per share data)
Fourth quarters ended
December 31
Years ended
December 31
Net income
Amortization of intangible assets related to business acquisitions, net of tax
Net change in fair value of derivatives, net of tax
Net foreign exchange (gain) loss, net of tax
(Gain) loss on sale of land and buildings and assets held for sale, net of tax
Impairment of intangible assets, net of tax
U.S. tax reform
Net (income) loss from discontinued operations
Adjusted net income from continuing operations1
Adjusted EPS from continuing operations1 – basic
Adjusted EPS from continuing operations1 – diluted
1
Refer to the section “Non-IFRS financial measures”.
2017
120,192
10,122
49
(7 )
424
—
(76,135 )
—
54,645
0.61
0.60
2017
2016
45,339
9,234
(2,068 )
(884 )
2016
157,988 639,579
32,744
38,346
3,546
(1,182 )
1,546
1,826
(7,504 )
(2,060 ) (66,710 )
—
138,438
—
(76,135 )
— (482,520 )
192,571 187,391
2.00
1.96
—
—
1,048
50,609
0.55
0.54
2.13
2.08
For the three-month period ended December 31, 2017, TFI International’s net income was $120.2 million compared to $45.3 million
in Q4 2016. The increase of $74.9 million is mainly attributable to the income tax recovery recorded as a result of the U.S. tax reform
for $76.1 million. The Company’s adjusted net income from continuing operations1, a non-IFRS measure, which excludes items listed
in the above table, was $54.6 million for the fourth quarter compared to $50.6 million in Q4 2016, up 8% or $4.0 million. The
adjusted EPS from continuing operations, fully diluted, increased by 11% to 60 cents.
For the year ended December 31, 2017, TFI International’s net income was $158.0 million compared to $639.6 million for 2016. The
decrease is mainly attributable to last year’s net income from discontinued operations of $482.5 million (pre-tax gain on sale of the
Waste Management segment in the amount of $559.2 million or $490.8 million net of tax) and to the 2017 intangible impairment
charge of $138.4 million, net of tax, offset by the income tax recovery recorded as a result of the U.S. tax reform for $76.1 million
and by higher gain on sale of property. The Company’s adjusted net income from continuing operations, which excludes these items,
increased by $5.2 million to $192.6 million for the year ended December 31, 2017.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS
9
SEGMENTED RESULTS
For the purpose of this section, adjusted EBITDA from continuing operations refer to the same definitions as in the section “Non-IFRS
financial measures” for the consolidated results. Also, to facilitate the comparison of business level activity and operating costs
between periods, the Company compares the revenue before fuel surcharge (“revenue”) and reallocates the fuel surcharge revenue
to materials and services expenses within operating expenses. Note that “Total revenue” is not affected by this reallocation.
Selected segmented financial information from continuing operations
(unaudited)
(in thousands of dollars)
Package and
Courier
Less-Than-
Truckload
Truckload
Logistics
Corporate
Eliminations
Total
Q4 2017
Revenue before fuel surcharge
% of total revenue1
Adjusted EBITDA
Adjusted EBITDA margin2
Operating income (loss)
Operating margin2
Net capital expenditures3.4
Q4 2016 (recasted)
Revenue before fuel surcharge
% of total revenue1
Adjusted EBITDA
Adjusted EBITDA margin2
Operating income (loss)
Operating margin2
Net capital expenditures5
2017
Revenue before fuel surcharge
% of total revenue1
Adjusted EBITDA
Adjusted EBITDA margin2
Operating income (loss)
Operating margin2
Total assets
Net capital expenditures4
2016 (recasted)
Revenue before fuel surcharge
% of total revenue1
Adjusted EBITDA
Adjusted EBITDA margin2
Operating income (loss)
Operating margin2
Total assets
Net capital expenditures5
317,331
29%
44,050
13.9%
35,804
11.3%
(14,124 )
342,016
32%
40,638
11.9%
32,254
9.4%
2,096
1,267,300
28%
158,101
12.5%
124,406
9.8%
651,345
(6,931 )
1,291,331
34%
146,798
11.4%
113,040
8.8%
700,749
10,151
194,777
19%
21,881
11.2%
14,260
7.3%
3,694
181,347
18%
20,541
11.3%
13,309
7.3%
969
799,189
19%
83,346
10.4%
52,350
6.6%
556,807
(139,769 )
732,124
20%
77,405
10.6%
47,899
6.5%
635,233
6,078
480,011
45%
68,556
14.3%
22,692
4.7%
24,510
461,360
44%
70,011
15.2%
29,032
6.3%
7,659
1,965,315
46%
274,868
14.0%
77,349
3.9%
2,232,157
142,060
1,501,224
40%
226,358
15.1%
102,511
6.8%
2,440,148
35,620
78,982
7%
8,173
10.3%
6,214
7.9%
(462 )
65,574
6%
8,195
12.5%
7,112
10.8%
1
299,525
7%
31,833
10.6%
25,534
8.5%
221,439
(17 )
236,609
6%
25,627
10.8%
21,750
9.2%
175,190
(3,774 )
—
(12,111 )
—
—
(13,851 )
—
—
(11,643 )
(12,200 )
98
—
(11,442 )
(11,990 )
1,052
—
(49,506 )
—
—
(33,667 )
(35,915 )
65,880
771
—
(56,800 )
—
—
(33,837 )
(35,935 )
75,233
1,493
1,058,990
100%
131,017
12.4%
66,770
6.3%
13,716
1,036,446
100%
127,943
12.3%
69,717
6.7%
11,777
4,281,823
100%
514,481
12.0%
243,724
5.7%
3,727,628
(3,886 )
3,704,488
100%
442,351
11.9%
249,265
6.7%
4,026,553
49,568
1
2
3
4
5
Before eliminations, except for the total.
As a percentage of revenue before fuel surcharge.
Additions to property and equipment, net of proceeds from sale of property and equipment and assets held for sale.
YTD 2017 net capital expenditures include proceeds from the sale of property for consideration of $19.5 million in the Package and Courier segment ($19.5 million
in Q4) of $148.9 million in the LTL segment ($0.5 million in Q4) and of $8.0 million in the TL segment ($0.5 million in Q4).
YTD 2016 net capital expenditures include proceeds from the sale of property for consideration of $7.1 million in the LTL segment ($5.0 million in Q4), of $10.6
million in the TL segment ($0.5 million in Q4) and of $3.7 million in the Logistics segment (nil in Q4).
When the Company changes the structure of its internal organization in a manner that causes the composition of its reportable
segments to change, the corresponding information for the comparative period is recasted to conform to the new structure.
Effective January 1, 2017, the composition of reportable segments was modified to better reflect certain changes in the Company’s
internal organization. In particular, TF Dedicated, which was previously included in the Package and Courier operating segment,
became an independent operation and was reclassified to the TL segment. In addition, a Contrans’ LTL division, which was previously
included in the TL segment, was reclassified to the LTL segment in order to better reflect the nature of services provided.
Comparative figures have been recasted.
2017 Annual Report
10 MANAGEMENT’S DISCUSSION AND ANALYSIS
Package and Courier
(unaudited) - (in thousands of dollars)
Fourth quarters ended December 31
Years ended December 31
Total revenue
Fuel surcharge
Revenue
Materials and services expenses
(net of fuel surcharge)
Personnel expenses
Other operating expenses
Depreciation of property and equipment
Amortization of intangible assets
(Gain) loss on sale of rolling stock and
equipment
Operating income
Adjusted EBITDA
2017
%
2016
%
2017
%
2016
%
344,231
(26,900 )
365,250
(23,234 )
1,361,268
(93,968 )
1,366,185
(74,854 )
317,331 100.0 % 342,016 100.0 % 1,267,300 100.0 % 1,291,331 100.0 %
174,377 55.0 % 199,777 58.4 %
71,966 22.7 % 73,648 21.5 %
8.2 %
27,032
1.3 %
4,005
1.1 %
4,241
8.5 % 27,951
4,492
1.3 %
3,892
1.3 %
712,000 56.2 %
290,879 23.0 %
8.4 %
106,571
1.3 %
16,990
1.3 %
16,705
759,723 58.8 %
276,483 21.4 %
8.4 %
108,241
1.4 %
18,191
1.2 %
15,567
(94 )
0.0 %
2
0.0 %
(251 )
0.0 %
86
0.0 %
35,804 11.3 % 32,254
9.4 %
124,406
9.8 %
113,040
8.8 %
44,050 13.9 % 40,638 11.9 %
158,101 12.5 %
146,798 11.4 %
Gain (loss) on sale of land and buildings
Gain on sale of assets held for sale
Impairment of intangible assets
679
—
—
—
—
—
567
9,156
(13,211 )
(8 )
—
—
Revenue - Package and Courier
(millions of $)
312
320
316
324
321
305
342
317
Q1
Q2
Q3
Q4
2016
2017
Revenue
On January 13, 2017, the Company purchased World Courier Ground U.S. (now
operating under the new name TForce Critical), an asset light, time critical courier.
Operating nationally across the U.S., the company offers same-day courier, rush trucking
and warehousing services primarily to the medical industry, as well as to the
environmental, financial, chemical and industrial sectors.
For the quarter ended December 31, 2017, revenue decreased by $24.7 million, or 7%,
from $342.0 million to $317.3 million compared to the same period in the prior year. The
decrease is due to loss of volume of $35.1 million and to an unfavourable foreign
exchange impact of $5.4 million offset by business acquisitions for $15.8 million. Part of
the volume decreases relates to some losses of U.S. e-commerce businesses.
For the year ended December 31, 2017, revenue decreased by $24.0 million from
$1,291.3 million to $1,267.3 million compared to the same period in the prior year;
volume decreases in the same-day business and negative currency impact of $9.8 million
offset the $69.5 million contributions from business acquisitions.
Operating expenses
For the quarter ended December 31, 2017, the Package and Courier segment’s operating
expenses decreased by $28.3 million, or 9%, from $309.8 million in 2016 to $281.5
million. Material and services expenses decreased by 3.4% as a percentage of revenue
attributable to lower subcontractor and external labor expenses in the same-day
operations. To compensate for the volume decline, Management reduced more outside
services than its own personnel, as a result, personnel expenses decreased in absolute
value but increased 1.2% as a percentage of revenue.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 11
For the year ended December 31, 2017, the Package and Courier segment’s operating
expenses decreased by $35.4 million from $1,178.3 million in 2016 million to $1,142.9
million. Materials and services expenses were down $47.7 million or 6% for the year
ended December 31, 2017 mainly due to loss of volume in the same-day business. The
employee termination cost were similar in 2017 compared to 2016 at $4.5 million.
Operating income
The Company’s operating income in the Package and Courier segment for the quarter
ended December 31, 2017 increased by 11% or $3.5 million compared to the fourth
quarter of 2016, from $32.3 million to $35.8 million mainly from existing operations.
For the three–month period ended December 2017, the Package and Courier operating
margin increased 1.9% year-over-year to 11.3% due to cost savings from right sizing
the same-day business in the U.S. and the next-day business in Canada, ongoing
strategic personnel changes focused on synergies at several operating divisions within
the segment, and lower subcontractor costs due to ongoing productivity initiatives.
For the year ended December 31, 2017, operating income increased by 10% or $11.4
million compared to the same period in 2016, from $113.0 million to $124.4 million.
The operating margin increased 1.0% year-over-year mainly from existing operations to
reach 9.8% as a result of the constant focus on profitable business and cost reduction
measures.
Gain or loss on sale of property and impairment of intangible assets
Operating income - Package and
Courier (millions of $)
34.3
31.1
32.8
31.4
32.3
35.8
22.9
16.8
Q1
Q2
Q3
Q4
2016
2017
A gain on sale of assets held for sale of $9.2 million was recorded in this segment mainly due to a sale and leaseback transaction
completed in Q3 2017.
In Q1 2017, TFI International also rebranded the divisions Dynamex Canada, Dynamex U.S. and Hazen Final Mile into TForce Final
Mile. The establishment of the new North American division should maximize opportunities in the growing same-day business, last
mile delivery category and e-commerce sector. This resulted in an impairment charge to the original trademark intangible assets
related to these businesses of $13.2 million. The future amortization period of the residual intangible related to these trademarks has
been reduced to 4 years with no significant impact on the yearly amortization expense.
Less-Than-Truckload
(unaudited) - (in thousands of dollars)
Fourth quarters ended December 31
Years ended December 31
Total revenue
Fuel surcharge
Revenue
2017
225,620
(30,843 )
%
2016
%
2017
207,576
(26,229 )
917,245
(118,056 )
%
2016
827,504
(95,380 )
%
194,777 100.0 % 181,347 100.0 % 799,189 100.0 % 732,124 100.0 %
Materials and services expenses
(net of fuel surcharge)
Personnel expenses
Other operating expenses
Depreciation of property and equipment
Amortization of intangible assets
Gain on sale of rolling stock and equipment
Operating income
Adjusted EBITDA
100,532 51.6 %
52,012 26.7 %
20,774 10.7 %
2.6 %
1.3 %
-0.2 %
5,145
2,476
(422 )
95,808
49,664
15,413
5,136
2,096
(79 )
52.8 % 415,001
27.4 % 225,259
75,933
21,307
9,689
(350 )
8.5 %
2.8 %
1.2 %
0.0 %
51.9 % 383,304 52.4 %
28.2 % 211,945 28.9 %
9.5 % 60,028 8.2 %
2.7 % 20,804 2.8 %
8,702 1.2 %
1.2 %
-0.1 %
0.0 %
(558 )
14,260
7.3 %
13,309
7.3 %
52,350
6.6 % 47,899 6.5 %
21,881 11.2 %
20,541
11.3 %
83,346
10.4 % 77,405 10.6 %
Gain (loss) on sale of land and buildings
Gain (loss) on sale of assets held for sale
(267 )
(1,088 )
2,664
—
(242 )
68,118
4,442
—
2017 Annual Report
12 MANAGEMENT’S DISCUSSION AND ANALYSIS
Revenue
On January 28, 2017, the Company acquired Cavalier Transportation Services Inc.
(“Cavalier”). Cavalier provides domestic and U.S. services in the Great Lakes region in
the LTL and Logistics segments.
For the three-month period ended December 31, 2017, the LTL segment’s revenue
increased by 7%, or $13.5 million, from $181.3 million to $194.8 million, mainly due
to business acquisitions. Excluding business acquisitions, revenue decreased by 7% or
$12.2 million to $169.2 million. The decrease is largely due to the loss of a major U.S.
partner, impact mitigated by its replacement and combination of new business and
growth in other existing businesses and negative foreign currency movements of $1.4
million.
For the year ended December 31, 2017, revenue increased by 9%, or $67.1 million,
from $732.1 million to $799.2 million mainly due to business acquisitions for $99.5
million, partially offset by decreases from existing operations.
Operating expenses
For the fourth quarter of 2017, operating expenses were up 7%, or $12.5 million, to
$180.5 million compared to $168.0 million in Q4 2016 mainly from business
acquisitions. Excluding business acquisitions, operating expenses were down by 7%, or
$11.2 million due to the decline in revenue. Operating expenses from existing
operations as a percentage of revenue were 92.7%, unchanged over the same quarter
last year. Mainly as a result of the sale-and-leased back transactions completed earlier
in 2017, the rent expense increased $1.8 million, while restructuring plan implemented
in the Company’s Eastern Canadian LTL network generated improvements mainly in the
materials and services expenses. During the quarter, a charge of $2.5 million was
recorded as employee termination expenses.
For the year ended December 31, 2017, operating expenses were up 9%, or $62.6
million, to $746.8 million compared to $684.2 million last year, mainly attributable to
business acquisitions offset by reduction in operating expenses from existing operations
due to volume decline and restructuration.
Operating income
For the quarter ended December 31, 2017, operating income increased by $1.0 million
or 7% from $13.3 million to $14.3 million mainly due to business acquisitions. Despite
the increase in rent expenses due to the sale-and-leased back transactions completed
earlier in 2017, excluding business acquisitions, the operating margin at 7.3%
remained unchanged compared to Q4 2016 largely as a result of the operating
improvements resulting from the restructuration plan.
For the year ended December 31, 2017, operating income increased by $4.5 million to
$52.4 million from $47.9 million in 2016 mainly due to business acquisitions and 0.5%
of margin improvements from existing operations, which contributed to its operating
income increase of $1.3 million.
Revenue - LTL
(millions of $)
199
177
206
188
199
185
195
181
Q1
Q2
Q3
Q4
2016
2017
Operating income - LTL
(millions of $)
16.0
14.5
14.7
13.4
13.3
14.3
8.6
5.4
Q1
Q2
Q3
Q4
2016
2017
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 13
Gain on sale of property
For the year ended December 31, 2017, gain on sale of assets held for sale of $68.1 million was recorded in this segment mainly due
to sale and leaseback transactions completed in Q2 and Q3 2017.
Truckload
(unaudited) - (in thousands of dollars)
Fourth quarters ended December 31
Years ended December 31
Total revenue
Fuel surcharge
Revenue
Materials and services expenses
(net of fuel surcharge)
2017
%
2016
%
2017
%
2016
%
545,310
(65,299 )
511,919
(50,559 )
2,209,424
1,647,177
(244,109 )
(145,953 )
480,011 100.0 % 461,360 100.0 % 1,965,315 100.0 % 1,501,224 100.0 %
241,119 50.2 % 231,667 50.2 %
991,877 50.5 %
780,865 52.0 %
Personnel expenses
151,915 31.6 % 146,715 31.8 %
633,839 32.3 %
442,912 29.5 %
Other operating expenses
17,241
3.6 % 16,252
3.5 %
66,605
3.4 %
61,254
4.1 %
Depreciation of property and equipment
38,589
8.0 % 32,740
7.1 %
168,845
8.6 %
97,846
6.5 %
Amortization of intangible assets
7,275
1.5 %
8,239
1.8 %
28,674
1.5 %
26,001
1.7 %
(Gain) loss on sale of rolling stock and
equipment
Operating income
Adjusted EBITDA
1,180
0.2 %
(3,285 )
-0.7 %
(1,874 )
-0.1 %
(10,165 )
-0.7 %
22,692
4.7 % 29,032
6.3 %
77,349
3.9 %
102,511
6.8 %
68,556 14.3 % 70,011 15.2 %
274,868 14.0 %
226,358 15.1 %
Gain (loss) on sale of land and buildings
Gain on sale of assets held for sale
Impairment of intangible assets
(18 )
—
—
(282 )
—
—
(93 )
172
(129,770 )
2,875
—
—
Revenue
For the three-month period ended December 31, 2017, TL revenue increased by $18.7
million or 4%, from $461.4 million in Q4 2016 to $480.0 million. This increase is
attributable to business acquisitions, mainly the acquisition of CFI in the last quarter of
2016. These business acquisitions contributed $56.3 million to the TL revenue increase.
Excluding these business acquisitions, TL revenue decreased by $37.6 million or 8%
compared to the same quarter last year. Part of this revenue decrease is explained by
unfavourable currency fluctuations of $7.2 million and the remaining decrease comes
from declines, particularly in the U.S. TL divisions mainly due to customer right sizing
and the driver shortage. Pricing slightly improved in Q4 2017 compared to last’s year
same quarter and is expected to improve in 2018.
As part of its asset-light strategy, the TL segment increased its brokerage revenue by
5%, or $3.0 million, to $60.3 million compared to the same quarter last year.
For the year ended December 31, 2017, revenue increased by $464.1 million from
$1,501.2 million in 2016 to $1,965.3 million in 2017. This increase is mainly due to
business acquisitions which contributed $516.2 million to the increase. Excluding
business acquisitions, revenue decreased by 3%. The unfavourable foreign currency
impact was $12.1 million.
Revenue - TL
(millions of $)
487
516
483
461
480
338
356
346
Q1
Q2
Q3
Q4
2016
2017
2017 Annual Report
14 MANAGEMENT’S DISCUSSION AND ANALYSIS
Operating expenses
Operating expenses increased by $25.0 million or 6% from $432.3 million in Q4 2016
to $457.3 million in Q4 2017 mainly from business acquisitions. Excluding business
acquisitions, operating expenses decreased by 7% or $31.8 million which is slightly
lower than the 8% decrease in revenue. The TL segment is diligently working to align
its cost structure to demand mainly on the personnel side with a year-over-year
improvement of 1.4% as a percentage of revenue. This was offset by gains on sale of
rolling stock and equipment that were not favourable this quarter resulting in a net
negative impact of $2.4 million. The Company continues to focus on being cost-
conscious and its priority remains to improve the efficiency and profitability of its
existing fleet and network of independent contractors. The U.S. divisions also
downsized their fleet to demand. This rationalization enables the U.S. assets to be more
productive.
For the year ended December 31, 2017, operating expenses increased by $489.3
million or 35% mainly due to business acquisitions. Excluding business acquisitions,
operating expenses decreased by $51.2 million or 4% compared to a 3% decrease in
revenue on a year-to-date basis. In addition, in order to return to a normal level of
rolling stock repair and maintenance expense, an extensive program of fleet renewal
has been put in place. As a result, non-recurring transition costs related to the
acquisition of CFI totalled $17.6 million in 2017.
Operating income
The Company’s operating income in the TL segment for the quarter ended December
31, 2017 decreased by $6.3 million from $29.0 million in the prior year period to $22.7
million, mainly due lower revenue and lower gain on sale of rolling stock and
equipment from our U.S. TL divisions. However, initiatives aimed at equipment cost
reductions have started to yield more positive results at the end of Q4. As a result, the
fleet was downsized and renewed which reduced repair and maintenance expense.
Operating income - TL
(millions of $)
29.8
23.4
24.7
29.0
22.7
16.6
19.0
14.7
Excluding business acquisitions, for the quarter ended December 31, 2017, operating
income decreased by $5.8 million, or 0.8% as a percentage of revenue as a result of
difficulties in the U.S. TL divisions. Both the Canadian conventional and specialized TL
operations maintained their operating margin compared to last year’s same quarter.
Q1
Q2
Q3
Q4
2016
2017
For the year ended December 31, 2017, the operating margin was 3.9% compared to
6.8% in the same period in 2016. Excluding business acquisitions, the operating margin
increased by 0.2% to 7.0%. The TL segment will continue to focus on cost initiatives to
improve its margins in light of the stable Canadian freight market and the difficult U.S.
freight market. Driver recruitment and retention, reducing empty mileage, and the
tightening of our U.S. freight network are priorities for the upcoming year.
Impairment of intangible assets
For the year ended December 31, 2017, impairment of intangible assets was $129.8
million. A goodwill impairment charge was recorded in the U.S. TL operating segment
in Q2 due to a weak performance resulting from downward pricing pressures
experienced by the industry as a result of high competitiveness, limited economic
activity growth and upward cost pressures adversely impacting operating cost per mile
and operating margins.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 15
Logistics
(unaudited) - (in thousands of dollars)
Fourth quarters ended December 31
Years ended December 31
Total revenue
Fuel surcharge
Revenue
Materials and services expenses
(net of fuel surcharge)
Personnel expenses
Other operating expenses
2017
%
2016
%
2017
%
2016
%
80,692
66,840
306,474
241,142
(1,710 )
(1,266 )
(6,949 )
(4,533 )
78,982 100.0 % 65,574 100.0 % 299,525 100.0 % 236,609 100.0 %
56,557
71.6 % 47,133
71.9 % 214,690 71.7 % 170,655 72.1 %
9,823
12.4 %
7,336
11.2 % 38,391 12.8 % 29,198 12.3 %
4,525
5.7 %
3,126
4.8 % 14,946
5.0 % 11,528
4.9 %
Depreciation of property and equipment
Amortization of intangible assets
248
1,711
0.3 %
2.2 %
280
803
0.4 %
1,051
0.4 %
1,262
0.5 %
1.2 %
5,248
1.8 %
2,615
1.1 %
Gain on sale of rolling stock and equipment
(96 )
-0.1 %
(216 )
-0.3 %
(335 )
-0.1 %
(399 )
-0.2 %
Operating income
Adjusted EBITDA
6,214
7.9 %
7,112
10.8 % 25,534
8.5 % 21,750
9.2 %
8,173
10.3 %
8,195
12.5 % 31,833 10.6 % 25,627 10.8 %
Gain on sale of land and buildings
—
—
—
1,639
Revenue - Logistics
(millions of $)
68
54
80
59
58
73
66
79
Q1
Q2
Q3
Q4
2016
2017
Revenue
On October 31, 2017, the Company completed the acquisition of PPM. Based in
California, PPM provides home delivery services of household appliances in the United
States.
For the quarter ended December 31, 2017, revenue from the Logistics segment
increased by 20% or $13.4 million year-over-year, from $65.6 million to $79.0 million,
mainly due to business acquisitions.
For the year ended December 31, 2017, revenue increased by 27% or $62.9 million
year-over-year, from $236.6 million to $299.5 million, mainly due to business
acquisitions. Excluding business acquisitions, revenue increased by 7%, or $15.7
million, attributable to higher volumes by new and current customers and some non-
recurring business offset by an unfavourable foreign exchange impact of $2.3 million.
Operating expenses
For the quarter ended December 31, 2017, operating expenses increased 24% or
$14.3 million compared to the fourth quarter of 2016, from $58.5 million to $72.8
million, mainly due to business acquisitions. Materials and services expenses
represented 71.6% of revenue, an improvement of 0.3%, as a percentage of revenue,
when compared to last year’s same quarter. Personnel expenses represented 12.4% of
revenue, an increase of 1.2%, as a percentage of revenue, when compared to last
year’s same quarter mostly due to business acquisitions being more labor intensive.
For the year ended December 31, 2017, operating expenses increased by 28% or $59.1
million compared to 2016, from $214.9 million to $274.0 million. This increase was
mostly attributable to higher year-over-year revenues.
For the three-month period and the year ended December 31, 2017, amortization of
intangible assets increased by $0.9 million and $2.6 million, respectively, due to
business acquisitions.
2017 Annual Report
16 MANAGEMENT’S DISCUSSION AND ANALYSIS
Operating income
The Company’s operating income in the Logistics segment for the quarter ended
December 31 , 2017 decreased 13% or $0.9 million compared to the fourth quarter of
2016, from $7.1 million to $6.2 million attributable to higher personnel and other
operating expenses, as well as amortization of intangible assets from business
acquisitions.
Operating income - Logistics
(millions of $)
7.4
5.6
5.4
5.0
4.2
6.3
7.1
6.2
For the year ended December 31, 2017, operating income increased 17% or $3.7
million compared to 2016, from $21.8 million to $25.5 million due to business
acquisitions. The Logistics segment’s operating margin decreased 0.7% year-over-year
mainly as a result of amortization of intangible assets from business acquisitions.
Q1
Q2
Q3
Q4
2016
2017
LIQUIDITY AND CAPITAL RESOURCES
Sources and uses of cash
(unaudited)
(in thousands of dollars)
Sources of cash:
Net cash from operating activities from continuing operations
Proceeds from sale of property and equipment
Proceeds from sale of assets held for sale
Net variance in cash and bank indebtedness
Net proceeds from long-term debt
Net cash from discontinued operations
Others
Total sources
Uses of cash:
Purchases of property and equipment
Business combinations, net of net cash acquired
Net variance in cash and bank indebtedness
Net repayment of long-term debt
Dividends paid
Repurchase of own shares
Net cash used in discontinued operations
Others
Total usage
Fourth quarters ended
December 31
Years ended
December 31
2017
2016
2017
2016
116,148
20,833
19,140
—
—
—
—
109,815
19,240
—
—
712,025
3,853
—
372,601
88,773
174,779
13,046
—
—
5,882
337,908
60,992
—
—
—
769,558
—
156,121
844,933
655,081
1,168,458
66,142
30,021
7,857
1,147
17,086
30,580
—
3,288
31,017
775,335
13,042
—
15,523
1,092
—
8,924
259,140
118,288
—
74,648
69,016
81,565
52,424
—
110,443
798,303
23,899
6,063
64,066
151,200
—
14,484
156,121
844,933
655,081
1,168,458
Cash flow from operating activities from continuing operations
For the year ended December 31, 2017, net cash from operating activities from continuing operations increased by 10% from
$337.9 million in 2016 to $372.6 million. This $34.7 million increase is mainly attributable to higher cash flow from operating
activities from continuing operations before net change in non-cash operating working capital for $78.7 million, which improvement
came from business acquisitions and existing operations, offset by higher cash used for net change in non-cash operating working
capital of $26.3 million and higher interest paid, for $21.7 million. The net change in non-cash operating working capital was
negative $11.6 million in 2017, mainly due to lower trade and other payables versus December 31, 2016, compared to a positive
contribution from working capital in 2016.
TFI International
Cash flow used in investing activities from continuing operations
Property and equipment
The following table presents the additions of property and equipment by category for the three-month period and year ended
December 31, 2017 and 2016.
MANAGEMENT’S DISCUSSION AND ANALYSIS 17
(unaudited)
(in thousands of dollars)
Additions to property and equipment:
Purchases as stated on cash flow statements
Non-cash adjustments
Additions by category:
Land and buildings
Rolling stock
Equipment
Fourth quarters ended
December 31
Years ended
December 31
2017
2016
2017
2016
66,142
(12,453 )
53,689
2,249
48,716
2,724
53,689
31,017
—
31,017
1,983
26,477
2,557
31,017
259,140
526
259,666
8,126
238,812
12,728
259,666
110,443
117
110,560
9,409
92,152
8,999
110,560
The Company invests in new equipment to maintain its quality of service while keeping maintenance costs low. Its capital
expenditures reflect the level of reinvestment required to keep its equipment in good order as well as maintain an adequate
allocation of its capital resources. In line with its asset light model, increasing the use of independent contractors to replace owned
equipment is beneficial for the Company as it reduces capital needs to serve customers. The Company intends to further pursue this
conversion strategy, particularly with the recent business acquisitions operating with more invested capital.
Higher 2017 additions of rolling stock compared to 2016 are partly attributable to the CFI business acquisition and its fleet renewal
program.
In the normal course of activities, the Company constantly renews its rolling stock equipment generating regular proceeds and gain
or loss on disposition. The following table indicates the proceeds and gains or losses from sale of property and equipment and assets
held for sale from continuing operations by category for the three-month period and year ended December 31, 2017 and 2016.
(unaudited)
(in thousands of dollars)
Proceeds by category:
Land and buildings
Rolling stock
Equipment
Gains (losses) by category:
Land and buildings
Rolling stock
Equipment
Fourth quarters ended
December 31
2016
2017
20,520
19,409
44
39,973
(694 )
(564 )
(4 )
(1,262 )
5,516
13,704
20
19,240
2,382
4,074
(15 )
6,441
Years ended
December 31
2016
21,344
39,498
150
60,992
8,948
11,587
(106 )
20,429
2017
176,359
87,107
86
263,552
77,678
2,851
(85 )
80,444
For the year ended December 31, 2017, the Company disposed of properties for total consideration of $176.4 million ($21.3 million
in 2016), which generated a gain of $77.7 million ($8.9 million in 2016). Notably, in Q3, TFI International unlocked shareholder value
with a sale and leaseback transaction on selected real estate assets. The all-cash transaction of $135.7 million, which included two
facilities in each of Montreal and Toronto, resulted in a pre-tax gain of $69.8 million.
Business acquisitions
For the year ended December 31, 2017, cash used in business acquisitions totalled $118.3 million ($798.3 million in 2016).
In 2017, the Company acquired seven businesses. Refer to the section of this report entitled “2017 business acquisitions” and
further information can be found in note 5 of the December 31, 2017 audited consolidated financial statements.
2017 Annual Report
18 MANAGEMENT’S DISCUSSION AND ANALYSIS
Cash flow from discontinued operations
For the year ended December 31, 2017, the discontinued operations used cash flow of $52.4 million mainly attributable to the
balance of income tax due on the gain on the sale of the Waste group, realized in February 2016, which was paid in January 2017.
In 2016, discontinued operations generated cash flows of $769.6 million. In the first quarter of 2016, TFI International received
$758.9 million for the sale of its Waste Management segment to GFL.
Free cash flow from continuing operations
(unaudited)
(in thousands of dollars, except per share data)
Net cash from operating activities from continuing operations
Additions to property and equipment
Proceeds from sale of property and equipment
Proceeds from sale of assets held for sale
Free cash flow from continuing operations1
Free cash flow from continuing operations per share1
Fourth quarters ended
December 31
Years ended
December 31
2017
116,148
(53,689 )
20,833
19,140
102,432
1.14
2016
2017
2016
109,815
372,601
337,908
(31,017 )
(259,666 )
(110,560 )
19,240
—
98,038
1.07
88,773
174,779
376,487
4.16
60,992
—
288,340
3.08
The Company’s objectives when managing its cash flow from operations are to ensure proper capital investment in order to provide
stability and competitiveness to its operations, to ensure sufficient liquidity to pursue its growth strategy, and to undertake selective
business acquisitions within a sound capital structure and a solid financial position.
For the year ended December 31, 2017, TFI International generated free cash flow from continuing operations of $376.5 million,
compared to $288.3 million in 2016, which represents a year-over-year increase of $88.1 million. This increase is mainly due to
higher proceeds from sale of property and equipment and assets held for sale, offset by higher additions to property and equipment.
Based on the December 31, 2017 closing share price of $32.86, the free cash flow from continuing operations generated by the
Company in the last twelve months ($376.5 million) represented a yield of 12.7%.
Financial position
(unaudited)
(in thousands of dollars)
Total assets
Long-term debt
Shareholders’ equity
Debt-to-equity ratio2
Debt-to-capitalization ratio3
As at
December 31, 2017
As at
December 31, 2016
As at
December 31, 2015
3,727,628
1,498,396
1,415,124
1.06
0.51
4,026,879
1,584,815
1,458,650
1.09
0.52
3,377,870
1,615,100
1,019,799
1.58
0.61
Compared to December 31, 2016, the Company’s total assets decreased mainly due to the impairment of intangible assets and to
the sale of certain real estate assets. The long-term debt decreased due to the sale of property and shareholders’ equity decreased
mainly as a result of the impairment of intangible assets. The debt-to-equity ratio and the debt-to-capitalization ratio were similar to
those of December 31, 2016. The Company’s current financial position reflects an appropriate debt level to further pursue its
acquisition strategy. Strict cash flow management and cash flow generated from operations have allowed the Company to pursue
debt reduction when the situation has dictated.
As at December 31, 2017, the Company’s working capital (current assets less current liabilities) was $116.7 million compared to
$56.9 million as at December 31, 2016. The increase is mainly attributable to the increase of $21.6 million of assets held for sale,
composed of properties, and to the balance of 2016 income tax paid in Q1 2017 for $57.7 million.
1
2
3
Refer to the section “Non-IFRS financial measures”.
Long-term debt divided by shareholders' equity.
Long-term debt divided by the sum of shareholders' equity and long-term debt.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 19
Contractual obligations
The following table indicates the Company’s contractual obligations with their respective maturity dates at December 31, 2017,
excluding future interest payments.
(unaudited)
(in thousands of dollars)
Unsecured revolving facility – June 2021
Term loan – June 2019 & 2020
Unsecured debentures – December 2020
Term loan – August 2019
Finance lease liabilities
Conditional sales contracts and other long-term debt
Total
Less than
1 year
1 to 3
years
3 to 5
years
After
5 years
694,116
—
— 694,116
500,000
125,000
75,000
— 500,000
— 125,000
— 75,000
—
—
—
14,956
9,959
4,793
204
95,021
42,468 39,811 12,742
—
—
—
—
—
—
Operating leases and other commitments (see commitments)
609,121 203,304 165,901 93,335 146,581
Total contractual obligations
2,113,214 255,731 910,505 800,397 146,581
As at December 31, 2017, the Company had $40.1 million of outstanding letters of credit ($40.1 million on December 31, 2016).
On May 17, 2017, TFI International reached an agreement to amend and extend its existing credit facility to June 2021. The facility is
unsecured and can be extended annually. The total available amount remained unchanged at $1.2 billion and the amendment
provides similar terms and covenants.
On December 21, 2017, the Company extended the maturity of the term loan by eight months for each tranche. The term loan is
within the confines of the credit facility for the specific purpose of acquiring CFI. This term loan remains at a total of $500 million,
with $200 million now due in June 2019 and $300 million due in June 2020.
The following table indicates the Company’s financial covenants to be maintained under its credit facility. These covenants are
measured on a consolidated rolling twelve-month basis:
Covenants
Requirements
December 31, 2017
As at
Funded debt-to-EBITDA ratio [ratio of total debt plus letters of credit and some
other long-term liabilities to earnings before interest, income tax,
depreciation and amortization (“EBITDA”), including last twelve months
adjusted EBITDA from business acquisitions]
EBITDAR-to-interest and rent ratio [ratio of EBITDAR (EBITDA before rent and
including last twelve months adjusted EBITDAR from business acquisitions) to
interest and net rent expenses]
< 3.50
> 1.75
2.96
3.17
The Company believes it will be in compliance with these covenants for the next twelve months.
Commitments, contingencies and off-balance sheet arrangements
The following table indicates the Company’s commitments with their respective terms at December 31, 2017.
(unaudited)
(in thousands of dollars)
Operating leases – rolling stock
Operating leases – real estate & others
Other commitments
Total off-balance sheet obligations
Total
87,600
446,562
74,959
609,121
Less than
1 year
41,685
86,660
74,959
1 to 3
years
36,577
129,324
—
3 to 5
years
9,338
After
5 years
—
83,997
146,581
—
—
203,304
165,901
93,335
146,581
Long-term real estate leases, totalling $446.6 million, include eleven significant real estate commitments for an aggregate value of
$250.0 million, which expire between 2024 and 2035. A total of 294 properties constitute the remaining real estate operating
leases.
2017 Annual Report
20 MANAGEMENT’S DISCUSSION AND ANALYSIS
Dividends and outstanding share data
Dividends
The Company declared $18.7 million in dividends, or 21 cents per common share, in the fourth quarter of 2017. For the year ended
December 31, 2017, dividends declared were $70.3 million, or 78 cents per common share.
On December 11, 2017, the Board of Directors approved an 11% dividend increase to 21 cents per share over its previous quarterly
dividend of 19 cents per share. This increase is in keeping with TFI International’s stated dividend policy and reflects the Company’s
ability to generate a strong free cash flow.
NCIB on common shares
Pursuant to the renewal of the normal course issuer bid (“NCIB”), which began on October 2, 2017 and will expire on October 1,
2018, the Company is authorized to repurchase for cancellation up to a maximum of 6,000,000 of its common shares under certain
conditions. The Board of TFI International believes that, at appropriate times, repurchasing its shares through the NCIB represents a
good use of TFI International’s financial resources, as such action can protect and enhance shareholder value when opportunities or
volatility arise.
For the year ended December 31, 2017, the Company repurchased 2,810,126 common shares (2016 – 6,442,702) at a price ranging
from $26.56 to $32.00 (2016 - $22.00 to $27.30) for a total purchase price of $81.6 million (2016 – $151.2 million).
Outstanding shares, stock options and restricted share units
A total of 89,123,588 common shares were outstanding as at December 31, 2017 (December 31, 2016 – 91,575,319). There was
no significant change in the Company’s outstanding share capital between December 31, 2017 and February 20, 2018.
As at December 31, 2017, the number of outstanding options to acquire common shares issued under the Company’s stock option
plan was 5,493,286 (December 31, 2016 – 5,495,887) of which 4,169,819 were exercisable (December 31, 2016 – 3,763,656). On
February 16, 2017, the Board of Directors approved the grant of 395,113 stock options under the Company’s stock option plan.
Each stock option entitles the holder to purchase one common share of the Company at an exercise price based on the closing price
of the volume weighted average trading price of the Company’s shares for the last five trading days immediately preceding the
effective date of the grant.
As at December 31, 2017, the number of restricted share units (‘‘RSUs’’) granted under the Company’s equity incentive plan to the
benefit of its senior employees was 206,396 (December 31, 2016 – 281,027). On February 16, 2017, the Board of Directors
approved the grant of 60,931 RSUs under the Company’s equity incentive plan. The RSUs will vest in December of the second year
from the grant date. Upon satisfaction of the required service period, the plan provides for settlement of the award through shares.
Legal proceedings
The Company is involved in litigation arising from the ordinary course of business primarily involving claims for bodily injury and
property damage. It is not feasible to predict or determine the outcome of these or similar proceedings. However, the Company
believes the ultimate recovery or liability, if any, resulting from such litigation individually or in total would not materially adversely
affect the Company’s financial condition or performance and, if necessary, have been provided for in the financial statements.
OUTLOOK
The North American economy has improved. Unemployment is low, consumer spending remains solid, and recent tax law changes in
the United States may further stimulate the economy. These factors should continue to produce a recovery in freight rates, although
we expect they may also further increase driver compensation costs.
In addition to generally improving economic conditions, key internal drivers of revenue and operating income growth consist of
further efficiency improvement, asset rationalization, tight cost controls, and the execution of a disciplined acquisition strategy in the
fragmented North American transportation and logistics market.
In the Package and Courier and LTL segments, TFI International’s priorities remain the consolidation of its operations, administration
and IT platforms for additional savings and efficiency gains. In Package and Courier, TFI International will remain proactive in
implementing measures to further optimize asset utilization, which includes completing the optimization of businesses in U.S. same-
day operations. The recent rebranding to TForce Final Mile should maximize opportunities in this growing market and is aligned with
TFI International’s focus on asset-light activities related to e-commerce.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 21
In LTL, the Company plans to remain disciplined in adapting supply to demand, as overcapacity continues to affect the industry. To
this end, the Company will continue to focus on major cities and high-density regions to enhance value. TFI International will also
leverage its capabilities in asset-light intermodal activities that generate higher returns.
In the TL division, Canadian performance was strong in 2017, which we expect to continue in 2018. In the U.S. TL market, the
gradual implementation of rate increases in contract renewals should lead to improvement in 2018. The Company will also continue
to focus on the quality of its U.S. freight revenue and on cost reductions. TFI International will remain disciplined in regards to supply
management in the U.S., while sustaining its efforts to optimize the utilization of existing assets. The Company will continue to
deploy leading-edge analytical tools across its North American network in order to allow its people to make appropriate business
decisions and maximize returns.
The Company believes it can further grow its presence in the Logistics sector, as these non-asset-based activities represent a strategic
complement to conventional transportation services. Logistics requires less capital, thereby generating even better free cash flow.
As the Company continues to gradually adopt an asset-light business model, capital will be increasingly deployed in initiatives that
provide a better return on capital and solid cash flow. In so doing, TFI International aims to increasingly distinguish itself by providing
innovative, value-added solutions to its growing North American customer base. In the short term, TFI International will use its cash
flow to prioritize share repurchase and debt reimbursement.
TFI International is well positioned to benefit from a rising freight rate environment, and management is confident that the steps it is
taking will continue to grow shareholder value. The Company aims to deliver on this commitment by adhering to its operating
principles and by executing its strategy with the same discipline and rigour that have made TFI International a North American leader
in the transportation and logistics industry.
SUMMARY OF EIGHT MOST RECENT QUARTERLY RESULTS
(unaudited) - (in millions of dollars,
except per share data)
Q4’17
Q3’17
Q2’17
Q1’17
Q4’16
Total revenue
1,182.5
1,154.4
1,232.2
1,171.9
1,036.4
Q3’16
975.5
Q2’16
977.8
Q1’16
934.2
Adjusted EBITDA from continuing
operations1
Operating income
Net income (loss)
EPS – basic
EPS – diluted
Net income (loss) from continuing
131,0
66.8
120.2
1.34
1.31
128.2
60.5
98.8
1.10
1.07
145.7
74.3
(75.0 )
(0.82 )
(0.82 )
109.5
127.9
113.8
116.2
42.1
14.1
0.15
0.15
69.7
45.3
0.50
0.48
69.3
51.5
0.56
0.55
71.4
39.1
0.42
0.41
84.5
38.9
503.6
5.16
5.09
operations
120.2
98.8
(75.0 )
14.1
46.4
51.1
44.3
15.3
EPS from continuing operations –
basic
1.34
1.10
(0.82 )
0.15
0.51
0.55
0.47
0.16
EPS from continuing operations –
diluted
1.31
1.07
(0.82 )
0.15
0.49
0.54
0.47
0.15
Adjusted net income from
continuing operations1
Adjusted EPS from continuing
54.6
48.8
56.2
32.9
50.6
53.5
53.3
30.0
operations - diluted1
0.60
0.53
0.60
0.35
0.54
0.57
0.56
0.30
1
Refer to the section “Non-IFRS financial measures”.
The differences between the quarters are mainly the result of seasonality (softer in Q1) and business acquisitions. In Q4 2017, higher
net income, as well as higher basic and diluted EPS, is mainly due to an income tax gain for $76.1 million as a result of the U.S. tax
reform. In Q3 2017, higher net income, as well as higher basic and diluted EPS, is mainly due to gain on sale of property for $70.1
million, $59.7 million after-tax. In Q2 2017, the Company recorded a net loss and negative basic and diluted EPS principally due to a
goodwill impairment in its U.S. TL operating segment of $129.8 million (no tax impact on this impairment). In Q1 2016, higher net
income, as well as higher basic and diluted EPS, is mainly due to the $490.8 million after-tax gain on the sale of the Waste
Management segment.
2017 Annual Report
22 MANAGEMENT’S DISCUSSION AND ANALYSIS
NON-IFRS FINANCIAL MEASURES
Financial data have been prepared in conformity with IFRS. This MD&A includes references to certain non-IFRS financial measures as
described below. These non-IFRS measures do not have any standardized meanings prescribed by IFRS and are therefore unlikely to
be comparable to similar measures presented by other companies. Accordingly, they should not be considered in isolation, in
addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with IFRS. The terms
and definitions of IFRS and non-IFRS measures used in this MD&A and a reconciliation of each non-IFRS measure to the most directly
comparable IFRS measure are provided below or in the MD&A.
Adjusted net income from continuing operations: Net income or loss excluding amortization of intangible assets related to business
acquisitions, net change in the fair value of derivatives, net foreign exchange gain or loss, gain or loss on sale of land and buildings
and assets held for sale, impairment of intangible assets, impact from the U.S. tax reform and income or loss from discontinued
operations, net of tax. In presenting an adjusted net income from continuing operations and adjusted EPS from continuing
operations, the Company’s intent is to help provide an understanding of what would have been the net income and earnings per
share in a context of significant business combinations and excluding specific impacts and to reflect earnings from a strictly operating
perspective. The amortization of intangible assets related to business acquisitions comprises amortization expense of customer
relationships, trademarks and non-compete agreements accounted for in business combinations and the income tax effects related
to this amortization. Management also believes, in excluding amortization of intangible assets related to business acquisitions, it
provides more information on the amortization of intangible asset expense portion, net of tax, that will not have to be replaced to
preserve the Company’s ability to generate similar future cash flows. The Company excludes these items because they affect the
comparability of its financial results and could potentially distort the analysis of trends in its business performance. Excluding these
items does not imply they are necessarily non-recurring. See reconciliation on page 8.
Adjusted earnings per share (adjusted “EPS”) from continuing operations - basic: Adjusted net income from continuing operations
divided by the weighted average number of common shares.
Adjusted EPS from continuing operations - diluted: Adjusted net income from continuing operations divided by the weighted
average number of diluted common shares.
Adjusted EBITDA from continuing operations: Net income or loss from continuing operations before finance income and costs,
income tax expense (recovery), depreciation, amortization, gain or loss on sale of land and buildings and assets held for sale and
impairment of intangible assets. Management believes adjusted EBITDA from continuing operations to be a useful supplemental
measure. Adjusted EBITDA from continuing operations is provided to assist in determining the ability of the Company to generate
cash from its operations.
Adjusted EBITDA from continuing operations reconciliation:
(unaudited)
(in thousands of dollars)
Fourth quarters ended
December 31
Years ended
December 31
Net income from continuing operations
Net finance costs
Income tax expense (recovery)
Depreciation of property and equipment
Amortization of intangible assets
Gain on sale of land and buildings
(Gain) loss on sale of assets held for sale
Impairment of intangible assets
2017
120,192
13,497
(67,613 )
48,298
15,949
(394 )
1,088
—
2016
46,387
11,266
14,446
42,993
15,233
(2,382 )
—
—
Adjusted EBITDA from continuing operations
131,017
127,943
Adjusted EBITDA margin is calculated as a percentage of revenue before fuel surcharge.
2017
157,988
61,075
(40,642 )
209,557
61,200
(232 )
(77,446 )
142,981
514,481
2016
157,059
54,882
46,272
139,439
53,647
(8,948 )
—
—
442,351
Free cash flow from continuing operations: Net cash from operating activities from continuing operations less additions to property
and equipment plus proceeds from sale of property and equipment and assets held for sale. Management believes that this measure
provides a benchmark to evaluate the performance of the Company in regard to its ability to meet capital requirements. See
reconciliation on page 18.
Free cash flow from continuing operations per share: Free cash flow from continuing operations divided by the weighted average
number of common shares.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 23
Operating expenses: Operating expenses, as defined in the audited consolidated financial statements.
Operating income (loss): Net income or loss from continuing operations before finance income and costs, income tax expense
(recovery), gain or loss on sale of land and buildings and assets held for sale, and impairment of intangible assets, as stated in the
audited consolidated financial statements.
Operating margin is calculated as a percentage of revenue before fuel surcharge.
Operating ratio: Operating expenses, net of fuel surcharge revenue, divided by revenue before fuel surcharge. Although the
operating ratio is not a recognized financial measure defined by IFRS, it is a widely recognized measure in the transportation industry,
which we believe provides a comparable benchmark for evaluating the Company’s performance. Also, to facilitate the comparison of
business level activity and operating costs between periods, the Company compares the revenue before fuel surcharge (“revenue”)
and reallocates the fuel surcharge revenue to materials and services expenses within operating expenses.
Operating ratio
(unaudited)
(in thousands of dollars)
Operating expenses
Fuel surcharge revenue
Fourth quarters ended
December 31
Years ended
December 31
2017
2016
2017
2016
1,115,701
1,068,017
4,497,295
3,775,943
(123,481 )
(101,288 )
(459,196 )
(320,720 )
Operating expenses, net of fuel surcharge revenue
992,220
966,729
4,038,099
3,455,223
Revenue before fuel surcharge
Operating ratio
1,058,990
1,036,446
4,281,823
3,704,488
93.7%
93.3%
94.3%
93.3%
RISKS AND UNCERTAINTIES
The Company’s future results may be affected by a number
of factors over some of which the Company has little or no
control. The following discussion of risk factors contains
forward-looking
issues,
uncertainties and risks, among others, should be considered
in evaluating the Company’s business and growth outlook:
statements.
following
The
Competition. The Company operates in a highly-competitive
and fragmented industry, and numerous competitive factors
could impair the Company’s ability to maintain or improve
the Company’s profitability and could have a materially
adverse effect on the Company’s results of operations. In
addition, the Company faces growing competition from other
transporters in the United States and Mexico. These factors
include the following:
•
•
•
the Company competes with many other transportation
companies of varying sizes, including United States and
Mexican transportation companies;
the Company’s competitors may periodically reduce their
freight rates to gain business, which may limit the
Company’s ability to maintain or increase freight rates or
maintain growth in the Company’s business;
the Company’s
some of
customers are other
transportation companies or also operate their own
private trucking fleets, and they may decide to transport
more of their own freight;
•
some of the Company’s customers may reduce the
number of carriers they use by selecting so-called “core
carriers” as approved service providers or by engaging
dedicated providers, and in some instances the Company
may not be selected;
• many customers periodically accept bids from multiple
carriers for their shipping needs, and this process may
depress freight rates or result in the loss of some of the
Company’s business to competitors;
•
•
•
the market for qualified drivers can be competitive,
particularly in the Company’s growing United States
operations, and the Company’s inability to attract and
retain drivers could reduce the Company’s equipment
utilization or
increase
compensation, both of which would adversely affect the
Company’s profitability;
the Company
cause
to
economies of scale that may be passed on to smaller
carriers by procurement aggregation providers may
improve their ability to compete with the Company;
some of the Company’s smaller competitors may not yet
be fully compliant with pending regulations, such as
regulations requiring the use of electronic logging
devices, which may allow such competitors to take
advantage of additional driver productivity;
2017 Annual Report
24 MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
advances in technology may require the Company to
increase investments in order to remain competitive, and
the Company’s customers may not be willing to accept
higher freight rates to cover the cost of these
investments; and
higher fuel prices and, in turn, higher fuel surcharges to
the Company’s customers may cause some of the
Company’s customers to consider freight transportation
alternatives, including rail transportation.
Regulation. The Company operates in a highly-regulated
industry, and changes in existing regulations or violations of
existing or future regulations could have a materially adverse
effect on the Company’s operations and profitability. In
Canada, carriers must obtain licenses issued by provincial
transport boards in order to carry goods inter-provincially or
to transport goods within any province. Licensing from
United States and Mexican regulatory authorities is also
required for the transportation of goods between Canada,
the United States and Mexico. Any change in or violation of
existing or future regulations could have an adverse impact
on the scope of the Company’s activities.
The Company is increasing the Company’s operations in the
United States, where the transportation industry is subject to
regulation from various federal, state and local agencies.
Drivers must comply with safety and fitness regulations,
including those relating to drug and alcohol testing, driver
safety performance and hours of service, and matters such as
equipment weight and dimensions, exhaust emissions and
fuel efficiency are also subject to government regulation.
The right to continue to hold applicable licenses and permits
is generally subject to maintaining satisfactory compliance
with regulatory and safety guidelines, policies and laws.
Although the Company is committed to compliance with
laws and safety, there is no assurance that it will be in full
compliance with them at all times. Consequently, at some
future time, the Company could be required to incur
significant costs to maintain or improve its compliance record.
Future laws and regulations may be more stringent, require
changes in the Company’s operating practices, influence the
demand for transportation services or require the Company
to incur additional significant costs.
to and
transportation
the
International Operations. A growing portion of
Company’s revenue is derived from operations in the United
States and
from Mexico. The
Company’s international operations are subject to a variety of
risks, including fluctuations in foreign currencies, changes in
the economic strength or greater volatility in the economies
of foreign countries in which the Company does business,
difficulties in enforcing contractual rights and intellectual
property rights, compliance burdens associated with export
and import laws, and social, political and economic instability.
The Company’s international operations could be adversely
affected by restrictions on travel. Additional risks associated
with
include
restrictive trade policies, imposition of duties, taxes or
international operations
the Company’s
TFI International
government royalties by foreign governments, adverse
changes in the regulatory environments, including in tax laws
and regulations, of the foreign countries in which the
Company does business, compliance with anti-bribery laws,
restrictions on the withdrawal of foreign investments, the
ability to identify and retain qualified local managers and the
challenge of managing a culturally and geographically diverse
operation.
Operating Environment. The Company is subject to changes
in its general operating environment. The Company is
exposed to the following factors, among others, affecting its
operating environment:
•
•
•
•
the Company’s future insurance and claims expense,
including the cost of the Company’s liability insurance
premiums and the number and severity of claims, may
levels, which would require the
exceed historical
Company to incur additional costs and could reduce the
Company’s earnings;
declines in the demand for used revenue equipment
could result in decreased equipment sales, lower resale
values and lower gains (or recording losses) on sales of
assets;
increased prices for new revenue equipment, design
changes of new engines, reduced equipment efficiency
resulting
reduce
emissions, or decreased availability of new revenue
equipment; and
from new engines designed
to
adverse weather conditions can adversely affect the
Company’s revenue, as inclement weather may impede
operations and may cause higher accident frequency,
increased claims, more equipment repairs and decreased
fuel efficiency due to increased engine idling.
General Economic, Credit, Business and Regulatory
Conditions. The Company’s business is subject to general
economic, credit, business and regulatory factors that are
largely beyond the Company’s control, and which could have
a materially adverse effect on the Company’s operating
results.
The Company’s industry is highly cyclical, and the Company’s
business is dependent on a number of factors that may have
a materially adverse effect on the Company’s results of
operations, many of which are beyond the Company’s
control. The Company believes that some of the most
significant of these factors include (i) excess tractor and trailer
capacity in the transportation industry in comparison with
shipping demand; (ii) declines in the resale value of used
equipment; (iii) strikes, work stoppages or work slowdowns
at the Company’s facilities or at customer, port, border
crossing or other shipping-related facilities; and (iv) increases
in interest rates, fuel taxes, tolls and license and registration
fees.
The Company is also affected by (i) recessionary economic
cycles, which tend to be characterized by weak demand and
downward pressure on rates; (ii) changes in customers’
inventory levels and in the availability of funding for their
working capital; (iii) changes in the way the Company’s
customers choose to source or utilize the Company’s services;
and (iv) downturns in customers’ business cycles, such as
retail and manufacturing, where the Company has significant
customer concentration. Economic conditions may adversely
affect customers and their demand for and ability to pay for
the Company’s services. Customers encountering adverse
economic conditions represent a greater potential for loss
increase the
and the Company may be required to
Company’s allowance for doubtful accounts.
Economic conditions that decrease shipping demand and
increase the supply of available tractors and trailers can exert
downward pressure on rates and equipment utilization,
thereby decreasing asset productivity. The risks associated
with these factors are heightened when the economy is
weakened. Some of the principal risks during such times
include:
•
•
•
•
the Company may experience a reduction in overall
freight levels, which may impair the Company’s asset
utilization;
freight patterns may change as supply chains are
redesigned, resulting in an imbalance between the
Company’s capacity and customers’ freight demand;
customers may solicit bids for freight from multiple
trucking companies or select competitors that offer
lower rates in an attempt to lower their costs, and the
Company may be forced to lower the Company’s rates
or lose freight; and
lack of access to current sources of credit or lack of
lender access to capital, leading to an inability to secure
credit financing on satisfactory terms, or at all.
reduce
that could materially
The Company is subject to cost increases that are outside the
the
Company’s control
Company’s profitability if the Company is unable to increase
its rates sufficiently. Such cost increases include, but are not
limited to, increases in fuel and energy prices, driver and
office employee wages, purchased transportation costs,
taxes, interest rates, tolls, license and registration fees,
insurance premiums and claims, revenue equipment and
related maintenance, and tires and other components. The
Company could be affected by strikes or other work
stoppages at the Company’s service centers or at customer,
port, border or other shipping
locations. Further, the
Company may not be able to appropriately adjust the
Company’s costs and staffing levels to changing market
demands. In periods of rapid change, it is more difficult to
match the Company’s staffing level to the Company’s
business needs.
MANAGEMENT’S DISCUSSION AND ANALYSIS
25
Changing impacts of regulatory measures could impair the
Company’s operating efficiency and productivity, decrease
the Company’s operating revenues and profitability and result
in higher operating costs. From time to time, various taxes are
also increased, including taxes on fuels. The Company cannot
predict whether, or in what form, any such increase
applicable to the Company will be enacted, but such an
increase could adversely affect the Company’s results of
operations and profitability.
In addition, the Company cannot predict future economic
conditions, fuel price fluctuations or changes in consumer
confidence.
Interest Rate Fluctuations. Changes in interest rates may
result in fluctuations in the Company’s future cash flows
related to variable-rate financial liabilities. For these items,
cash flows could be impacted by changes in benchmark rates
such as Bankers’ Acceptance or London Interbank Offered
Rate (Libor). In addition, the Company is exposed to gains
and losses arising from changes in interest rates through its
derivative financial instruments carried at fair value.
Currency Fluctuations. Significant fluctuations in relative
currency values against the Canadian dollar could have a
significant impact on the Company’s future profitability. The
Company’s financial results are reported in Canadian dollars
and a growing portion of the Company’s revenue and
operating costs are realized in currencies other than Canadian
dollars, primarily United States dollars. The exchange rates
between these currencies and the Canadian dollar have
fluctuated in recent years and may continue to do so in the
future. It is not possible to mitigate all exposure to
fluctuations in foreign currency exchange rates. The results of
operations are therefore affected by movements of these
currencies against the Canadian dollar.
armed
events,
terrorist
activities,
Price and Availability of Fuel. Fuel is one of the Company’s
largest operating expenses. Diesel fuel prices fluctuate greatly
due to factors beyond the Company’s control, such as
political
conflicts,
commodity futures trading, currency fluctuations and natural
and man-made disasters, any of which may lead to an
increase in the cost of fuel. Fuel prices are also affected by
the rising demand for fuel in developing countries, and could
be materially adversely affected by the use of crude oil and oil
reserves for purposes other than fuel production and by
diminished drilling activity. Such events may lead not only to
increases in fuel prices, but also to fuel shortages and
disruptions in the fuel supply chain. Because the Company’s
operations are dependent upon diesel fuel, significant diesel
fuel cost increases, shortages or supply disruptions could
materially and adversely affect the Company’s business,
financial condition and results of operations.
While the Company has fuel surcharge programs in place
with a majority of the Company’s customers, which
historically have helped the Company offset the majority of
the negative impact of rising fuel prices, the Company also
2017 Annual Report
26 MANAGEMENT’S DISCUSSION AND ANALYSIS
incurs fuel costs that cannot be recovered even with respect
to customers with which the Company maintains fuel
surcharge programs, such as those associated with non-
revenue generating miles or time when the Company’s
engines are idling. Moreover, the terms of each customer’s
fuel surcharge program vary from one division to another,
and the recoverability for fuel price increases varies as well. In
addition, because the Company’s fuel surcharge recovery lags
behind changes in fuel prices, the Company’s fuel surcharge
recovery may not capture the increased costs the Company
pays for fuel, especially when prices are rising. This could lead
to fluctuations in the Company’s levels of reimbursement,
which have occurred in the past. There can be no assurance
that such fuel surcharges can be maintained indefinitely or
will be sufficiently effective.
Insurance. The Company’s operations are subject to risks
inherent in the transportation sector, including personal
injury, property damage, worker’s compensation and
employment and other
issues. The Company’s future
insurance and claims expenses may exceed historical levels,
which could reduce the Company’s earnings. The Company
subscribes for insurance in amounts it considers appropriate
in the circumstances and having regard to industry norms.
Like many players in the industry, the Company self-insures a
significant portion of the claims exposure related to cargo
loss, bodily injury, worker’s compensation and property
damages. Due to the Company’s significant self-insured
amounts, the Company has exposure to fluctuations in the
number or severity of claims and the risk of being required to
accrue or pay additional amounts if the Company’s estimates
are revised or claims ultimately prove to be more severe than
originally assessed. Further, the Company’s self-insured
retention levels could change and result in more volatility
than in recent years.
Although the Company believes its aggregate insurance limits
should be sufficient to cover reasonably expected claims, it is
possible that the amount of one or more claims could exceed
the Company’s aggregate coverage limits or that the
Company chose not to obtain insurance in respect of such
claims. If any claim were to exceed the Company’s coverage,
the Company would bear the excess, in addition to the
Company’s other self-insured amounts. The Company’s
results of operations and financial condition could be
materially and adversely affected if (i) cost per claim,
premiums or the number of claims significantly exceeds the
Company’s coverage limits or retention amounts; (ii) the
Company experiences a claim in excess of the Company’s
coverage limits; (iii) the Company’s insurance carriers fail to
pay on the Company’s insurance claims; or (iv) the Company
experiences a claim for which coverage is not provided, either
because the Company chose not to obtain insurance as a
result of high premiums or because the claim is not covered
by insurance the Company has in place.
TFI International
Employee and Company’s Labour Relations. At the date
hereof, the collective agreements between the Company and
the vast majority of the Company’s unionized employees
have been renewed. The Company’s unionized employees are
all Canadian employees, and the Company does not currently
have union contracts in place with respect to any of the
Company’s United States operations. Although the Company
believes that the Company’s relations with the Company’s
employees are satisfactory, no assurance can be given that
the Company will be able to successfully extend or
renegotiate the Company’s current collective agreements as
they expire from time to time. If the Company fails to extend
or renegotiate the Company’s collective agreements, if
disputes with the Company’s unions arise, or
if the
Company’s unionized workers engage in a strike or other
work stoppage or
the Company could
interruption,
experience a significant disruption of, or inefficiencies in, the
Company’s operations or incur higher labour costs, which
could have a materially adverse effect on the Company’s
business, results of operations, financial condition and
liquidity.
Drivers. Increases in driver compensation or difficulties
attracting and retaining qualified drivers could have a
materially adverse effect on the Company’s profitability and
the ability to maintain or grow the Company’s fleet.
Like many in the transportation sector, the Company
experiences substantial difficulty in attracting and retaining
sufficient numbers of qualified drivers. The truckload industry
periodically experiences a shortage of qualified drivers. The
Company believes the shortage of qualified drivers and
intense competition for drivers from other transportation
companies will create difficulties in maintaining or increasing
the number of drivers and may restrain the Company’s ability
to engage a sufficient number of drivers, and the Company’s
inability to do so may negatively impact the Company’s
operations. Further, the compensation the Company offers
the Company’s drivers and independent contractor expenses
are subject to market conditions, and the Company may find
it necessary to increase driver compensation in future periods.
the Company and many other
trucking
In addition,
companies suffer from a high turnover rate of drivers. This
high turnover rate requires the Company to continually
recruit a substantial number of drivers in order to operate
existing revenue equipment. If the Company is unable to
continue to attract and retain a sufficient number of drivers,
the Company could be forced to, among other things, adjust
the Company’s compensation packages, increase the number
of the Company’s tractors without drivers or operate with
fewer trucks and face difficulty meeting shipper demands,
any of which could adversely affect the Company’s growth
and profitability.
to successfully
Acquisitions and Integration Risks. Historically, acquisitions
have been a part of the Company’s growth strategy. The
Company may not be able
integrate
acquisitions into the Company’s business, or may incur
significant unexpected costs in doing so. Further, the process
of integrating acquired businesses may be disruptive to the
Company’s existing business and may cause an interruption
or reduction of the Company’s business as a result of the
following factors, among others:
•
•
•
•
•
•
•
loss of key employees, customers or contracts;
in or
inconsistencies
conflicts between
possible
standards, controls, procedures and policies among the
implement
combined companies and the need to
company-wide
information
financial,
technology and other systems;
accounting,
failure to maintain or improve the safety or quality of
services that have historically been provided;
inability to retain, integrate, hire or recruit qualified
employees;
unanticipated environmental or other liabilities;
failure
organizations; and
to
coordinate
geographically
dispersed
the diversion of management’s attention from the
Company’s day-to-day business as a result of the need to
manage any disruptions and difficulties and the need to
add management resources to do so.
Anticipated cost savings, synergies, revenue enhancements or
other benefits from any acquisitions that the Company
undertakes may not materialize in the expected timeframe or
at all. The Company’s estimated cost savings, synergies,
revenue enhancements or other benefits from acquisitions are
subject to a number of assumptions about the timing,
execution and costs associated with realizing such synergies.
Such assumptions are inherently uncertain and are subject to a
wide variety of significant business, economic and competition
risks. There can be no assurance that such assumptions will
turn out to be correct and, as a result, the amount of cost
savings, synergies, revenue enhancements or other benefits the
Company actually realizes and/or the timing of such realization
may differ significantly (and may be significantly lower) from
the ones the Company estimated, and the Company may incur
significant costs in reaching the estimated cost savings,
synergies, revenue enhancements or other benefits.
Many of the Company’s recent acquisitions have involved the
purchase of stock of existing companies. These acquisitions,
as well as acquisitions of substantially all of the assets of a
company, may expose the Company to liability for actions
taken by an acquired business and its management before
the Company’s acquisition. The due diligence the Company
MANAGEMENT’S DISCUSSION AND ANALYSIS
27
in connection with an acquisition and any
conducts
contractual guarantees or indemnities that the Company
receives from the sellers of acquired companies may not be
sufficient to protect the Company from, or compensate the
Company for, actual liabilities. Generally, the representations
made by the sellers, other than certain representations
related to fundamental matters, such as ownership of capital
stock, expire within several years of the closing. A material
liability associated with an acquisition, especially where there
is no right to indemnification, could adversely affect the
Company’s results of operations, financial condition and
liquidity.
The Company intends to continue to review acquisition and
investment opportunities to attempt to acquire companies
and assets that meet the Company’s investment criteria.
Depending on the number of acquisitions and investments
and funding requirements, the Company may need to raise
substantial additional capital. Instability or disruptions in the
capital markets, including credit markets, or the deterioration
of the Company’s financial condition due to internal or
external factors, could restrict or prohibit access to the capital
markets and could also increase the Company’s cost of
capital. To the extent the Company raises additional capital
through the sale of equity, equity-linked or convertible debt
securities, the issuance of such securities could result in
dilution to the Company’s existing shareholders. If the
Company raises additional funds through the issuance of
debt securities, the terms of such debt could impose
the Company’s
additional
operations. Additional capital, if required, may not be
available on acceptable terms or at all. If the Company is
unable to obtain additional capital at a reasonable cost, the
Company may be required to forego potential acquisitions,
which could impair the execution of the Company’s growth
strategy.
restrictions and costs on
In addition, the Company faces competition from peer group
and non-peer group firms for acquisition opportunities. This
external competition may hinder the Company’s ability to
identify and/or consummate future acquisitions successfully.
There is also a risk of impairment of acquired goodwill and
intangible assets. This risk of impairment to goodwill and
intangible assets exists because the assumptions used in the
initial valuation of these assets, such as interest rate or
forecasted cash flows, may change when testing for
impairment is required.
There is no assurance that the Company will be successful in
identifying, negotiating, consummating or integrating any
future acquisitions. If the Company does not make any future
acquisitions, the Company’s growth rate could be materially
and adversely affected. Any future acquisitions the Company
does undertake could involve the dilutive issuance of equity
securities or incurring additional indebtedness.
2017 Annual Report
28 MANAGEMENT’S DISCUSSION AND ANALYSIS
Environmental Matters. The Company uses storage tanks at
certain of its Canadian and United States transportation
terminals. Canadian and United States laws and regulations
generally impose potential liability on the present or former
owners or occupants or custodians of properties on which
contamination has occurred. Although the Company is not
aware of any contamination which, if remediation or clean-
up were required, would have a material adverse effect on it,
certain facilities have been in operation for many years and
over such time, the Company or the prior owners, operators
or custodians of the properties may have generated and
disposed of wastes which are or may be considered
hazardous. Liability may be imposed without regard to
whether the Company knew of, or was responsible for, the
presence or disposal of those substances. In addition, the
presence of those substances, or the failure to properly
dispose of or remove those substances, may adversely affect
the Company’s ability to sell or rent that property. There can
be no assurance that the Company will not be required at
some future date to incur significant costs to comply with
environmental laws, or that the Company’s operations,
business or assets will not be materially affected by current or
future environmental laws.
The Company’s transportation operations and its properties
are subject to extensive and frequently-changing federal,
provincial, state, municipal and local environmental laws,
regulations and requirements in Canada, the United States
and Mexico relating to, among other things, air emissions,
the management of contaminants, including hazardous
substances and other materials (including the generation,
handling, storage, transportation and disposal thereof),
discharges and the remediation of environmental impacts
(such as the contamination of soil and water, including
ground water). A risk of environmental liabilities is inherent in
transportation operations, historic activities associated with
such operations and the ownership, management or control
of real estate.
Environmental laws may authorize, among other things,
federal, provincial, state and local environmental regulatory
agencies to issue orders, bring administrative or judicial
actions for violations of environmental laws and regulations
or to revoke or deny the renewal of a permit. Potential
penalties for such violations may include, among other
things, civil and criminal monetary penalties, imprisonment,
permit suspension or revocation and injunctive relief. These
agencies may also, among other things, revoke or deny
renewal of the Company’s operating permits, franchises or
licenses for violations or alleged violations of environmental
laws or regulations and impose environmental assessment,
removal of contamination, follow up or control procedures.
TFI International
In addition, certain environmental regulations, particularly in
the United States, limit exhaust emissions. The Company
believes these requirements will result in increases in new
tractor and
trailer prices and additional parts and
maintenance costs incurred to retrofit the Company’s tractors
and trailers with technology to achieve compliance with such
exhaust emissions standards, which could adversely affect the
Company’s operating results and profitability, particularly if
such costs are not offset by potential fuel savings.
Furthermore, any future regulations that impose restrictions,
caps, taxes or other controls on emissions of greenhouse
gases could adversely affect the Company’s operations and
financial results. Until the timing, scope and extent of any
future regulation becomes known, the Company cannot
predict its effect on the Company’s cost structure or the
Company’s operating results; however, any future regulation
impair the Company’s operating efficiency and
could
productivity and result in higher operating costs.
Environmental Contamination. The Company may have
liability for environmental contamination associated with its
current or formerly-owned or leased facilities as well as third-
party facilities. If the Company incurs liability under applicable
federal, state, provincial or local laws and regulations and if it
cannot identify other parties which it can compel to
contribute to its expenses and who are financially able to do
so, it could have a material adverse effect on the Company’s
financial condition and results of operations.
The Company could be subject to orders and other legal
actions and procedures brought by governmental or private
parties in connection with environmental contamination,
emissions or discharges. Although
the Company has
instituted programs to monitor and control environmental
risks and promote compliance with applicable environmental
laws and regulations, if the Company is involved in a spill or
other accident involving hazardous substances, if there are
releases of hazardous substances the Company transports, if
soil or groundwater contamination is found at the Company’s
facilities or results from the Company’s operations, or if the
Company is found to be in violation of applicable laws or
regulations, the Company could be subject to cleanup costs
and liabilities, including substantial fines or penalties or civil
and criminal liability, any of which could have a materially
adverse effect on the Company’s business and operating
results.
Key Personnel. The future success of the Company will be
based in large part on the quality of the Company’s
management and key personnel. The loss of key personnel
could have a negative effect on the Company. There can be
no assurance that the Company will be able to retain its
current personnel or, in the event of their departure, to
develop or attract new personnel of equal quality.
including other
Dependence on Third Parties. Certain portions of the
Company’s business are dependent upon the services of third-
party capacity providers,
transportation
companies. For that portion of the Company’s business, the
Company does not own or control the transportation assets
that deliver the customers’ freight, and the Company does not
employ the people directly involved in delivering the freight.
This reliance could also cause delays in reporting certain events,
including recognizing revenue and claims. These third-party
providers seek other freight opportunities and may require
increased compensation in times of improved freight demand
or tight trucking capacity. The Company’s inability to secure
the services of these third parties could significantly limit the
Company’s ability to serve its customers on competitive terms.
Additionally, if the Company is unable to secure sufficient
equipment or other transportation services to meet the
Company’s commitments to the Company’s customers or
provide the Company’s services on competitive terms, the
Company’s operating results could be materially and adversely
affected. The Company’s ability to secure sufficient equipment
or other transportation services is affected by many risks
beyond the Company’s control, including equipment shortages
in the transportation industry, particularly among contracted
carriers, interruptions in service due to labour disputes, changes
in regulations
in
transportation rates.
impacting transportation and changes
covenants,
restrictions
arrangement
Loan Default. The Company’s current credit facilities and
financing agreements contain certain restrictions and other
covenants relating to, among other things, funded debt,
distributions, liens, investments, acquisitions and dispositions
outside the ordinary course of business and affiliate
transactions. If the Company fails to comply with any of its
and
financing
requirements, the Company could be in default under the
relevant agreement, which could cause cross-defaults to
other financing arrangements. In the event of any such
default, if the Company failed to obtain replacement
financing or amendments to or waivers under the applicable
financing arrangement, the Company may be unable to pay
dividends to its shareholders, its lenders could cease making
further advances, declare the Company’s debt to be
immediately due and payable, fail to renew letters of credit,
impose significant restrictions and requirements on the
Company’s operations,
foreclosure procedures
institute
against their collateral, or impose significant fees and
transaction costs. If debt acceleration occurs, economic
conditions may make it difficult or expensive to refinance the
accelerated debt or the Company may have to issue equity
securities, which would dilute stock ownership. Even if new
financing is made available to the Company, credit may not
be available to the Company on acceptable terms. A default
under the Company’s financing arrangements could result in
MANAGEMENT’S DISCUSSION AND ANALYSIS
29
a materially adverse effect on its liquidity, financial condition
and results of operations. As at the date hereof, the
Company was in compliance with all of the Company’s debt
covenants and obligations.
Credit Facilities. The Company’s credit facilities and financing
agreements mature on various dates. The Company has
significant ongoing capital requirements that could affect the
Company’s profitability if the Company is unable to generate
sufficient cash from operations and/or obtain financing on
favourable terms. There can be no assurance that such credit
facilities or financing agreements will be renewed or
refinanced, or if renewed or refinanced, that the renewal or
refinancing will occur on equally favourable terms to the
Company. The Company’s ability to pay dividends to
shareholders and ability to purchase new revenue equipment
may be adversely affected if the Company is not able to
renew its credit facilities or arrange refinancing, or if such
renewal or refinancing, as the case may be, occurs on terms
materially less favourable to the Company than at present. If
the Company is unable to generate sufficient cash flow from
operations and obtain financing on terms favourable to the
Company in the future, the Company may have to limit the
Company’s fleet size, enter into less favourable financing
arrangements or operate the Company’s revenue equipment
for longer periods, any of which may have a materially
adverse effect on the Company’s operations.
Customer and Credit Risks. The Company provides services to
clients primarily in Canada, the United States and Mexico.
The concentration of credit risk to which the Company is
exposed is limited due to the significant number of customers
that make up its client base and their distribution across
different geographic areas. Furthermore, no client accounted
for more than 5% of the Company’s total accounts
receivable for the period ended as of the date hereof.
Generally, the Company does not have long-term contracts
in
with the Company’s major customers. Accordingly,
response to economic conditions, supply and demand factors
in the industry, the Company’s performance, the Company’s
customers’ internal initiatives or other factors, the Company’s
customers may reduce or eliminate their use of the
Company’s services, or may threaten to do so to gain pricing
and other concessions from the Company.
Economic conditions and capital markets may adversely affect
the Company’s customers and their ability to remain solvent.
The customers’ financial difficulties can negatively impact the
Company’s results of operations and financial condition,
especially if those customers were to delay or default in
payment to the Company. For certain customers, the
Company has entered into multi-year contracts, and the rates
the Company charges may not remain advantageous.
2017 Annual Report
30 MANAGEMENT’S DISCUSSION AND ANALYSIS
Availability of Capital. If the economic and/or the credit
markets weaken, or the Company is unable to enter into
acceptable financing arrangements to acquire revenue
equipment, make investments and fund working capital on
terms favourable to it, the Company’s business, financial
results and results of operations could be materially and
adversely affected. The Company may need to
incur
additional indebtedness, reduce dividends or sell additional
shares in order to accommodate these items. A decline in the
credit or equity markets and any increase in volatility could
make it more difficult for the Company to obtain financing
and may lead to an adverse impact on the Company’s
profitability and operations.
Information Systems. The Company depends heavily on the
proper functioning, availability and security of the Company’s
information and communication systems, including financial
reporting and operating systems, in operating the Company’s
business. The Company’s operating system is critical to
understanding customer demands, accepting and planning
loads, dispatching equipment and drivers and billing and
collecting for the Company’s services. The Company’s
financial reporting system is critical to producing accurate and
timely
analyzing business
information to help the Company manage its business
effectively.
statements
financial
and
The Company’s operations and those of the Company’s
technology and communications service providers are
vulnerable to interruption by natural and man-made disasters
and other events beyond the Company’s control. If any of the
Company’s critical information systems fail, are breached or
become otherwise unavailable, the Company’s ability to
manage the Company’s fleet efficiently, to respond to
customers’ requests effectively, to maintain billing and other
records reliably, to maintain the confidentiality of the
Company’s data and to bill for services and prepare financial
system
significant
statements accurately or in a timely manner would be
challenged. Any
failure, upgrade
complication, security breach or other system disruption
could interrupt or delay the Company’s operations, damage
the Company’s reputation, cause the Company to lose
customers, cause the Company to incur costs to repair the
Company’s systems or in respect of litigation or impact the
Company’s ability to manage the Company’s operations and
report the Company’s financial performance, any of which
could have a materially adverse effect on the Company’s
business.
Litigation. The Company’s business is subject to the risk of
litigation by employees, customers, vendors, government
agencies, shareholders and other parties. The outcome of
litigation is difficult to assess or quantify, and the magnitude
of the potential loss relating to such lawsuits may remain
unknown for substantial periods of time. The cost to defend
litigation may also be significant. Not all claims are covered by
the Company’s insurance, and there can be no assurance that
the Company’s coverage limits will be adequate to cover all
amounts in dispute. In the United States, where the Company
has growing operations, many trucking companies have been
subject to class-action lawsuits alleging violations of various
federal and state wage and the Company’s laws regarding,
among other things, employee classification, employee meal
breaks, rest periods, overtime eligibility, and failure to pay for
all hours worked. A number of these lawsuits have resulted in
the payment of substantial settlements or damages by the
defendants. To the extent the Company experiences claims
that are uninsured, exceed the Company’s coverage limits,
involve significant aggregate use of the Company’s self-
insured retention amounts or cause increases in future
premiums, the resulting expenses could have a materially
adverse effect on the Company’s business, results of
operations, financial condition and cash flows.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
IFRS
to make
requires management
The preparation of the financial statements in conformity
judgments,
with
estimates and assumptions about future events. These
estimates and the underlying assumptions affect the reported
amounts of assets and liabilities, the disclosures about
contingent assets and liabilities, and the reported amounts of
revenues and expenses. Such estimates include the valuation
of goodwill and intangible assets, the measurement of
identified assets and
in business
combinations, the provision for income taxes, and the self-
insurance provisions. These estimates and assumptions are
based on management’s best estimates and judgments.
liabilities acquired
Management evaluates its estimates and assumptions on an
ongoing basis using historical experience and other factors,
the current economic environment, which
including
management believes
the
to be
circumstances. Management adjusts such estimates and
assumptions when facts and circumstances dictate. Actual
results could differ from these estimates. Changes in those
estimates and assumptions resulting from changes in the
economic environment will be reflected in the financial
statements of future periods.
reasonable under
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS
31
CHANGES IN ACCOUNTING POLICIES
Adopted during the period
The following new standards, and amendments to standards
and interpretations, are effective for the first time for interim
periods beginning on or after January 1, 2017 and have been
applied
in preparing the audited consolidated financial
statements:
Disclosure Initiative: Amendments to IAS 7
Recognition of Deferred Tax Assets for Unrealized Losses:
Amendments to IAS 12
Annual Improvements to IFRS Standards (2014-2016
cycle)
To be adopted in future periods
The following new standards and amendments to standards
are not yet effective for the year ended December 31, 2017,
and have not been applied in preparing the audited
consolidated financial statements:
IFRS 15, Revenue from Contracts with Customers
Classification and Measurement of Share-based Payment
Transactions: Amendments to IFRS 2
IFRIC 22, Foreign Currency Transactions and Advance
Consideration
IFRS 16, Leases
These new standards did not have a significant impact on the
Company’s audited consolidated financial statements.
Annual Improvements to IFRS Standards (2015-2017
cycle)
CONTROLS AND PROCEDURES
In compliance with the provisions of Canadian Securities
Administrators’ Regulation 52-109, the Company has filed
certificates signed by the President and Chief Executive
Officer (“CEO”) and by the Chief Financial Officer (“CFO”)
that, among other things, report on:
•
•
their responsibility for establishing and maintaining
disclosure controls and procedures and internal control
over financial reporting for the Company; and
the design and effectiveness of disclosure controls and
procedures and the design and effectiveness of internal
controls over financial reporting.
Disclosure controls and procedures (“DC&P”)
The President and Chief Executive Officer (“CEO”) and the
Chief Financial Officer (“CFO”), have designed DC&P, or have
caused them to be designed under their supervision, in order
to provide reasonable assurance that:
• material information relating to the Company is made
known to the CEO and CFO by others, particularly
during the period in which the interim and annual filings
are being prepared; and
•
information required to be disclosed by the Company in
its annual filings, interim filings or other reports filed or
submitted by it under securities legislation is recorded,
processed, summarized and reported within the time
periods specified in securities legislation.
IFRIC 23, Uncertainty over Income Tax Treatments
Further information can be found in note 3 of the December
31, 2017 audited consolidated financial statements.
As at December 31, 2017, an evaluation was carried out,
under the supervision of the CEO and the CFO, of the design
and operating effectiveness of the Company’s DC&P. Based
on this evaluation, the CEO and the CFO concluded that the
Company’s DC&P were appropriately designed and were
operating effectively as at December 31, 2017.
Internal controls over financial reporting (“ICFR”)
The CEO and CFO have also designed ICFR, or have caused
them to be designed under their supervision, in order to
provide reasonable assurance regarding the reliability of
financial
financial
statements for external purposes in accordance with IFRS.
the preparation of
reporting and
As at December 31, 2017, an evaluation was carried out,
under the supervision of the CEO and the CFO, of the design
and operating effectiveness of the Company’s ICFR. Based on
this evaluation, the CEO and the CFO concluded that the
ICFR were appropriately designed and were operating
effectively as at December 31, 2017, using the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission
Internal Control –
Integrated Framework (2013 framework).
(COSO) on
Changes in internal controls over financial reporting
No changes were made to the Company’s ICFR during the
quarter ended December 31, 2017 that have materially
affected, or are reasonably likely to materially affect, the
Company’s ICFR.
2017 Annual Report
32
MANAGEMENT’S RESPONSIBILITY
The consolidated financial statements of TFI International Inc. and all information in this annual report are the responsibility of
management and have been approved by the Board of Directors.
The financial statements have been prepared by management in conformity with International Financial Reporting Standards. They
include some amounts that are based on management’s best estimates and judgement. Financial information included elsewhere in
the annual report is consistent with that in the financial statements.
The management of TFI International Inc. has developed and maintains an internal accounting system and administrative controls in
order to provide reasonable assurance that the financial transactions are properly recorded and carried out with the necessary
approval, and that the consolidated financial statements are properly prepared and the assets properly safeguarded.
The Board of Directors carries out its responsibility for the financial statements in this annual report principally through its Audit
Committee. The Audit Committee reviews the Company’s annual consolidated financial statements and recommends their approval
by the Board of Directors.
These financial statements have been audited by the independent auditors, KPMG LLP, whose report follows.
Alain Bédard, FCPA, FCA
Chairman of the Board,
President and Chief Executive Officer
February 20, 2018
TFI International
INDEPENDENT AUDITORS’ REPORT
33
To the Shareholders of TFI International Inc.
We have audited the accompanying consolidated financial statements of TFI International Inc., which comprise the consolidated
statements of financial position as at December 31, 2017 and December 31, 2016, the consolidated statements of income,
comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), and for
such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of TFI
International Inc. as at December 31, 2017 and December 31, 2016, and its consolidated financial performance and its consolidated
cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
February 20, 2018
Montréal, Canada
*CPA auditor, CA, public accountancy permit No. A109612
2017 Annual Report
34 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars)
Assets
Cash and cash equivalents
Trade and other receivables
Inventoried supplies
Current taxes recoverable
Prepaid expenses
Derivative financial instruments
Assets held for sale
Current assets
Property and equipment
Intangible assets
Other assets
Deferred tax assets
Derivative financial instruments
Non-current assets
Total assets
Liabilities
Bank indebtedness
Trade and other payables
Current taxes payable
Provisions
Other financial liability
Derivative financial instruments
Long-term debt
Current liabilities
Long-term debt
Employee benefits
Provisions
Other financial liability
Derivative financial instruments
Deferred tax liabilities
Non-current liabilities
Total liabilities
Equity
Share capital
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Equity attributable to owners of the Company
Operating leases, contingencies, letters of credit and other commitments
Total liabilities and equity
(*) Recasted (see notes 5 c) and 15)
The notes on pages 39 to 84 are an integral part of these consolidated financial statements.
On behalf of the Board:
As at
December 31,
As at
December 31,
Note
2017
2016*
7
25
9
10
11
16
25
12
15
25
13
13
14
15
25
16
17
17, 19
26
—
567,106
9,296
14,852
33,228
4,521
23,409
652,412
1,197,613
1,832,274
35,874
5,138
4,317
3,075,216
3,727,628
9,392
425,815
13,913
32,344
1,300
559
52,427
535,750
1,445,969
17,559
39,380
13,281
373
260,192
1,776,754
2,312,504
711,036
21,995
(2,811 )
684,904
1,415,124
3,654
569,181
8,520
11,370
38,746
741
1,850
634,062
1,367,161
1,973,150
42,809
8,410
1,287
3,392,817
4,026,879
—
455,175
57,717
21,370
—
2,376
40,498
577,136
1,544,317
14,282
44,406
5,447
3,707
378,934
1,991,093
2,568,229
723,390
20,230
51,977
663,053
1,458,650
3,727,628
4,026,879
Alain Bédard
André Bérard
Director
Director
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(In thousands of Canadian dollars, except per share amounts)
Note
2017
2016*
CONSOLIDATED STATEMENTS OF INCOME 35
Revenue
Fuel surcharge
Total revenue
Materials and services expenses
Personnel expenses
Other operating expenses
Depreciation of property and equipment
Amortization of intangible assets
Gain on sale of rolling stock and equipment
Total operating expenses
Operating income
Gain on sale of land and buildings
Gain on sale of assets held for sale
Impairment of intangible assets
Finance income (costs)
Finance income
Finance costs
Net finance costs
Income before income tax
Income tax expense (recovery)
Net income from continuing operations
Net income from discontinued operations
Net income for the year attributable to owners of the Company
Earnings per share attributable to owners of the Company
Basic earnings per share
Diluted earnings per share
Earnings per share from continuing operations attributable to owners of
the Company
Basic earnings per share
Diluted earnings per share
(*) Recasted for changes in presentation
The notes on pages 39 to 84 are an integral part of these consolidated financial statements.
4,281,823
459,196
4,741,019
2,739,834
1,220,871
268,599
209,557
61,200
(2,766 )
4,497,295
3,704,488
320,720
4,025,208
2,352,594
998,031
243,713
139,439
53,647
(11,481 )
3,775,943
243,724
249,265
232
77,446
(142,981 )
4,250
(65,325 )
(61,075 )
117,346
(40,642 )
157,988
—
8,948
—
—
4,832
(59,714 )
(54,882 )
203,331
46,272
157,059
482,520
157,988
639,579
1.75
1.70
1.75
1.70
6.83
6.70
1.68
1.64
20
20
20
20
20
20
21
10
23
23
24
6
18
18
18
18
2017 Annual Report
36 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2017 AND 2016
(In thousands of Canadian dollars)
2017
2016
Net income for the year attributable to owners of the Company
157,988
639,579
Other comprehensive income (loss)
Items that may be reclassified to income or loss in future years:
Foreign currency translation differences
Net investment hedge, net of tax
Changes in fair value of cash flow hedge, net of tax
Employee benefits, net of tax
Unrealized gain on investment in equity securities available for sale, net of tax
Reclassification to income of accumulated unrealized gain on investment in equity securities
available for sale, net of tax
Items that may never be reclassified to income or loss in future years:
Defined benefit plan remeasurement gains (losses), net of tax
Items directly reclassified to retained earnings:
Realized loss on investments, net of tax
Unrealized loss on investments measured at fair value through OCI, net of tax
Other comprehensive income (loss) for the year, net of tax
(80,212 )
21,761
3,927
(148 )
—
—
(1,930 )
—
(1,403 )
(58,005 )
(24,788 )
22,373
9,125
(221 )
923
(923 )
407
(260 )
(1,054 )
5,582
Total comprehensive income for the year attributable to owners of the Company
99,983
645,161
The notes on pages 39 to 84 are an integral part of these consolidated financial statements.
TFI International
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 37
YEARS ENDED DECEMBER 31, 2017 AND 2016
(In thousands of Canadian dollars)
Accumulated
unrealized
Note
Share Contributed
surplus
capital
loss on Accumulated
cash flow
hedge
employee
benefit
plans
Accumulated
foreign
currency
translation
gain differences
Accumulated
unrealized
loss on
investment
Total equity
attributable
to owners
in equity Retained
of the
securities earnings Company
Balance as at December 31, 2016
723,390
20,230
(221 )
9,125
44,127
(1,054 ) 663,053 1,458,650
Net income for the year
Other comprehensive income (loss)
for the year, net of tax
Realized loss on equity securities
Total comprehensive income (loss)
for the year
—
—
—
—
—
—
—
—
—
—
—
— 157,988
157,988
(148 )
—
3,927
—
(58,451 )
—
(1,403 )
1,287
(1,930 )
(1,287 )
(58,005 )
—
(148 )
3,927
(58,451 )
(116 ) 154,771
99,983
Share-based payment transactions
Stock options exercised
Dividends to owners of the
19
17, 19
—
7,748
6,817
(1,514 )
Company
Repurchase of own shares
Restricted share units exercised
Total transactions with owners,
recorded directly in equity
17
17
19
—
(22,231 )
2,129
—
—
(3,538 )
(12,354 )
1,765
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,817
6,234
(70,334 )
(59,334 )
(3,252 )
(70,334 )
(81,565 )
(4,661 )
— (132,920 )
(143,509 )
Balance as at December 31, 2017
711,036
21,995
(369 )
13,052
(14,324 )
(1,170 ) 684,904 1,415,124
Balance as at December 31, 2015
764,343
17,819
Net income for the year
Other comprehensive loss for the
year, net of tax
Total comprehensive income (loss)
for the year
—
—
—
—
—
—
—
—
—
46,542
— 191,095 1,019,799
—
—
— 639,579
639,579
(221 )
9,125
(2,415 )
(1,054 )
147
5,582
(221 )
9,125
(2,415 )
(1,054 ) 639,726
645,161
Share-based payment transactions
Stock options exercised
Dividends to owners of the
19
17, 19
—
8,259
6,164
(1,742 )
Company
Repurchase of own shares
Restricted share units exercised
Total transactions with owners,
recorded directly in equity
17
17
19
—
(50,478 )
1,266
—
—
(2,011 )
(40,953 )
2,411
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,164
6,517
(64,867 )
—
— (100,722 )
(2,179 )
—
(64,867 )
(151,200 )
(2,924 )
— (167,768 )
(206,310 )
Balance as at December 31, 2016
723,390
20,230
(221 )
9,125
44,127
(1,054 ) 663,053 1,458,650
The notes on pages 39 to 84 are an integral part of these consolidated financial statements.
2017 Annual Report
38 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(In thousands of Canadian dollars)
Cash flows from operating activities
Net income for the year attributable to owners of the Company
Net income from discontinued operations
Net income from continuing operations
Adjustments for
Depreciation of property and equipment
Amortization of intangible assets
Impairment of intangible assets
Share-based payment transactions
Net finance costs
Income tax expense (recovery)
Gain on sale of property and equipment
Gain on sale of assets held for sale
Provisions and employee benefits
Net change in non-cash operating working capital
Cash generated from operating activities
Interest paid
Income tax paid
Net realized loss on derivatives
Net cash from operating activities from continuing operations
Net cash used in operating activities from discontinued operations
Cash flows from investing activities
Purchases of property and equipment
Proceeds from sale of property and equipment
Proceeds from sale of assets held for sale
Purchases of intangible assets
Business combinations, net of cash and bank indebtedness acquired
Purchases of investments
Proceeds from sale of investments
Others
Net cash used in investing activities from continuing operations
Net cash from investing activities from discontinued operations
Cash flows from financing activities
Increase (decrease) in bank indebtedness
Proceeds from long-term debt
Repayment of long-term debt
Dividends paid
Repurchase of own shares
Proceeds from exercise of stock options
Payment of restricted share units
Net cash used in financing activities from continuing operations
Net cash used in financing activities from discontinued operations
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(*) Recasted (see note 15)
Note
2017
2016*
6
9
10
10
19
23
24
8
21
10
5
157,988
—
157,988
209,557
61,200
142,981
6,817
61,075
(40,642 )
(2,998 )
(77,446 )
3,809
522,341
(11,649 )
510,692
(64,538 )
(73,553 )
—
372,601
(52,424 )
320,177
(259,140 )
88,773
174,779
(2,083 )
(118,288 )
—
7,914
(1,522 )
(109,567 )
—
(109,567 )
9,392
48,316
(122,964 )
(69,016 )
(81,565 )
6,234
(4,661 )
(214,264 )
—
(214,264 )
(3,654 )
3,654
—
639,579
482,520
157,059
139,439
53,647
—
6,164
54,882
46,272
(20,429 )
—
6,577
443,611
14,659
458,270
(42,856 )
(77,099 )
(407 )
337,908
(1,631 )
336,277
(110,443 )
60,992
—
(1,835 )
(798,303 )
(29,711 )
13,404
65
(865,831 )
771,189
(94,642 )
(20,245 )
615,529
(621,592 )
(64,066 )
(151,200 )
6,517
(2,924 )
(237,981 )
—
(237,981 )
3,654
—
3,654
The notes on pages 39 to 84 are an integral part of these consolidated financial statements.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
39
1. Reporting entity
TFI International Inc. (the “Company”) is incorporated under the Canada Business Corporations Act, and is a company domiciled
in Canada. The address of the Company’s registered office is 8801 Trans-Canada Highway, Suite 500, Montreal, Quebec, H4S
1Z6.
The consolidated financial statements of the Company as at and for the years ended December 31, 2017 and 2016 comprise
the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”).
The Group is involved in the provision of transportation and logistics services across the United States, Canada and Mexico.
2. Basis of preparation
a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were authorized for issue by the Board of Directors on February 20, 2018.
b) Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis except for the following material
items in the statements of financial position:
•
investment in equity securities, derivative financial instruments, forward purchase agreement and contingent
considerations are measured at fair value;
liabilities for cash-settled share-based payment arrangements are measured at fair value in accordance with IFRS 2;
the defined benefit pension plan liability is recognized as the net total of the present value of the defined benefit
obligation less the fair value of the plan assets; and
assets and liabilities acquired in business combinations are measured at fair value at acquisition date.
•
•
•
c)
Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars (“C$” or “CDN$”), which is the Company’s
functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand.
d) Use of estimates and judgments
The preparation of the accompanying financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions about future events. These estimates and the underlying assumptions affect the
reported amounts of assets and liabilities, the disclosures about contingent assets and liabilities, and the reported amounts
of revenues and expenses. Such estimates include the valuation of goodwill and intangible assets, the measurement of
identified assets and liabilities acquired in business combinations, the provision for income taxes and the self-insurance
provisions. These estimates and assumptions are based on management’s best estimates and judgments.
Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors,
including the current economic environment, which management believes to be reasonable under the circumstances.
Management adjusts such estimates and assumptions when facts and circumstances dictate. Actual results could differ
from these estimates. Changes in those estimates and assumptions resulting from changes in the economic environment
will be reflected in the financial statements of future periods.
Information about critical judgments, assumptions and estimation uncertainties that have a significant risk of resulting in a
material adjustment within the next financial year are included in the following notes:
Note 5 – Establishing the fair value of assets and liabilities, intangible assets and goodwill related to business combinations;
Note 10 – Determining estimates and assumptions related to impairment tests for long-lived assets and goodwill;
Note 6, 15 and 26 – Recognition and measurement of provisions and contingencies.
2017 Annual Report
40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements, unless otherwise indicated. The accounting policies have been applied consistently by Group entities.
a) Basis of consolidation
i)
Business combinations
The Group measures goodwill as the fair value of the consideration transferred including the fair value of liabilities
resulting from contingent consideration arrangements, less the net recognized amount of the identifiable assets
acquired and liabilities assumed, all measured at fair value as of the acquisition date. When the excess is negative, a
bargain purchase gain is recognized immediately in income or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in
connection with a business combination are expensed as incurred.
ii) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has the right
to, variable returns from its involvement with the entity and has the ability to affect those through its power over the
entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases. The accounting policies of subsidiaries are aligned with the
policies adopted by the Group.
iii) Forward purchase agreement
As part of a certain business combination, the Company has entered into a forward purchase agreement to purchase
the non-controlling interest holders stake in the respective company. Under the forward purchase agreement the
Company will acquire the non-controlling interest in the future at a formulaic variable price based mainly on the
earnings levels in future periods (the “exit price”). The agreement does not include a specified minimum amount for
the forward purchase price.
When the forward granted to the non-controlling shareholders provides for settlement in cash or in another financial
asset by the Company, the Company is required to recognize a liability for the present value of the exercise price of the
forward.
In accounting for this transaction, the Company applies the anticipated acquisition method of accounting. Under this
method of accounting, the forward purchase agreement is accounted for on the date of the forward purchase
agreement as if the forward had already been exercised and satisfied by the non-controlling shareholders. As a result,
the underlying interests are presented as already owned by the Company in the consolidated statements of financial
position, the consolidated statements of income and the consolidated statements of comprehensive income, even
though legally they are still considered non-controlling interest.
The forward purchase agreement is considered a financial liability and is initially recognized at the present value of the
exercise price of the forward (recorded as other financial liability on the consolidated statements of financial position).
The forward is re-measured to fair value at each reporting date and any subsequent changes are recognized in the
consolidated statements of income as finance income or costs.
iv) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions,
are eliminated in preparing the consolidated financial statements.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
41
3. Significant accounting policies (continued)
b)
Foreign currency translation
i)
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Group’s entities at
exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are
translated to the functional currency at the exchange rate in effect at the reporting date. The foreign currency gain or
loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the
period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency
translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency are translated at the rate in effect on the transaction date.
Income and expense items denominated in foreign currency are translated at the date of the transactions. Gains and
losses are included in income or loss.
ii)
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on business
combinations, are translated to Canadian dollars at exchange rates in effect at the reporting date. The income and
expenses of foreign operations are translated to Canadian dollars at the average exchange rate in effect during the
reporting period.
Foreign currency differences are recognized in other comprehensive income in the accumulated foreign currency
translation differences account.
When a foreign operation is disposed of, the relevant amount in the cumulative amount of foreign currency translation
differences is transferred to income or loss as part of the income or loss on disposal. On the partial disposal of a
subsidiary while retaining control, the relevant proportion of such cumulative amount is reattributed to non-controlling
interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to income or loss.
Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the
settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is
considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income
in the accumulated foreign currency translation differences account.
c) Discontinued operations
A discontinued operation is a component of the Group’s business; the operations and cash flows of which can be clearly
distinguished from the rest of the Group and which:
•
•
•
Represents a separate major line of business or geographic area
Is part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations; or
Is a subsidiary acquired exclusively with a view to re-sale.
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be
classified as held-for-sale.
When an operation is classified as a discontinued operation, the comparative statement of income and comprehensive
income is re-presented as if the operation had been discontinued from the start of the comparative year.
2017 Annual Report
42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies (continued)
d)
Financial instruments
i) Non-derivative financial assets
The Group initially recognizes financial assets on the trade date at which the Group becomes a party to the contractual
provisions of the instrument. Financial assets are initially measured at fair value. If the financial asset is not
subsequently accounted for at fair value through profit or loss, then the initial measurement includes transaction costs
that are directly attributable to the asset’s acquisition or origination. On initial recognition, the Group classifies its
financial assets as subsequently measured at either amortized cost or fair value, depending on its business model for
managing the financial assets and the contractual cash flow characteristics of the financial assets.
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all
the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets
that is created or retained by the Group is recognized as a separate asset or liability.
Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when,
and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to
realize the asset and settle the liability simultaneously.
Financial assets are classified into financial assets measured at amortized cost or financial assets measured at fair value
depending on the purpose for which the financial assets were acquired.
Financial assets measured at amortized cost
A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any
impairment loss, if:
•
•
The asset is held within a business model whose objective is to hold assets in order to collect contractual cash
flows; and
The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of
principal and/or interest.
The Group currently classifies its cash equivalents, trade and other receivables and long-term non-trade receivables
included in other non-current assets as financial assets measured at amortized cost.
The Group recognizes loss allowances for expected credit losses on financial assets measured at amortized cost. The
Group has a portfolio of trade receivables at the reporting date. The Group uses a provision matrix to determine the
lifetime expected credit losses for the portfolio.
The Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred,
adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual
losses are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between
its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective
interest rate. Losses are recognized in income or loss and reflected in an allowance account against trade and other
receivables.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
43
3. Significant accounting policies (continued)
i) Non-derivative financial assets (continued)
Financial assets measured at fair value
These assets are measured at fair value and changes therein, including any interest or dividend income, are recognized
in income or loss. However, for investments in equity instruments that are not held for trading, the Group may elect at
initial recognition to present gains and losses in other comprehensive income. For such investments measured at fair
value through other comprehensive income, gains and losses are never reclassified to profit or loss, and no impairment
is recognized in profit or loss. Dividends earned from such investments are recognized in profit or loss, unless the
dividend clearly represents a repayment of part of the cost of the investment.
Financial assets measured at fair value through other comprehensive income
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present
subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.
ii) Non-derivative financial liabilities
The Group initially recognizes debt issued and subordinated liabilities on the date that they are originated. All other
financial liabilities are recognized initially on the trade date at which the Group becomes a party to the contractual
provisions of the instrument.
A financial liability is derecognized when its contractual obligations are discharged or cancelled or expire.
Financial liabilities are classified into financial liabilities measured at amortized cost and financial liabilities measured at
fair value.
Financial liabilities measured at amortized cost
A financial liability is subsequently measured at amortized cost, using the effective interest method. The Group
currently classifies bank indebtedness, trade and other payables and long-term debt as financial liabilities measured at
amortized cost.
Financial liabilities measured at fair value
Financial liabilities at fair value are initially recognized at fair value and are re-measured at each reporting date with any
changes therein recognized in net earnings. The Group currently classifies its forward purchase agreement liability in
connection with a business acquisition as a financial liability measured at fair value.
iii) Share capital
Common shares
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares, stock
options and warrants are recognized as a deduction from equity, net of any tax effects.
When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly
attributable costs, net of any tax effects, is recognized as a deduction from equity.
iv) Derivative financial instruments
The Group uses derivative financial instruments to manage its foreign currency and interest rate risk exposures.
Embedded derivatives are separated from the host contract and accounted for separately if the economic
characteristics and risks of the host contract and the embedded derivative are not closely related, a separate
instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the
combined instrument is not measured at fair value through income or loss.
Derivatives and embedded derivatives are recognized initially at fair value; related transaction costs are recognized in
income or loss as incurred. Subsequent to initial recognition, derivatives and embedded derivatives are measured at fair
value, and changes therein are recognized in net change in fair value of foreign exchange derivatives in income or loss
with the exception of net change in fair value of cross currency interest rate swap contracts recognized in net foreign
exchange gain or loss in income or loss.
2017 Annual Report
44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies (continued)
e) Hedge accounting
Management’s risk strategy is focused on reducing the variability in profit or losses and cash flows associated with exposure
to market risks. Hedge accounting is used to reduce this variability to an acceptable level. The hedges employed by the
Group reduce the currency and interest rate fluctuation exposures.
On the initial designation of a hedging relationship, the Group formally documents the relationship between the hedging
instrument and the hedged items, including the risk management objectives and strategy in undertaking the hedge
transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group
makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging
instruments are expected to be effective in offsetting the changes in the fair value or cash flows of the respective hedged
items throughout the period for which the hedge in designated.
Net investment hedge
The Group designates a portion of its U.S. dollar (“US$”) denominated debt as a hedging item in a net investment hedge.
The Group applies hedge accounting to foreign currency differences arising between the functional currency of the foreign
operation and the Company’s functional currency (CDN$), regardless of whether the net investment is held directly or
through an intermediate parent.
Foreign currency differences arising on the translation of a financial liability designated as a hedge of a net investment in
foreign operations are recognized in other comprehensive income to the extent that the hedge is effective, and are
presented in the currency translation differences account within equity. To the extent that the hedge is ineffective, such
differences are recognized in income or loss. When the hedged net investment is disposed of, the relevant amount in the
translation reserve is transferred to income or loss as part of the gain or loss on disposal.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a
particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect
income or loss, the effective portion of changes in the fair value of the derivatives is recognized in other comprehensive
income and presented in accumulated other comprehensive income as part of equity. The amount recognized in other
comprehensive income is removed and included in net earnings under the same line item in the consolidated statement of
earnings and comprehensive income as the hedged item, in the same period that the hedged cash flows affect income or
loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised,
or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously
recognized in other comprehensive income remains in accumulated other comprehensive income until the forecasted
transaction affects income or loss. If the forecasted transaction is no longer expected to occur, then the balance in
accumulated other comprehensive income is recognized immediately in income or loss.
f)
Property and equipment
Property and equipment are accounted for at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset, the costs of dismantling and
removing the assets and restoring the site on which they are located, and borrowing costs on qualifying assets.
When parts of an item of property and equipment have different useful lives, they are accounted for as separate items
(major components) of property and equipment.
Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from
disposal with the carrying amount of property and equipment, and are recognized in net income or loss.
Depreciation is based on the cost of an asset less its residual value and is recognized in income or loss over the estimated
useful life of each component of an item of property and equipment. Leased assets are depreciated over the shorter of the
lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease
term.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
45
3. Significant accounting policies (continued)
f)
Property and equipment (continued)
The depreciation method and useful lives are as follows:
Categories
Buildings
Rolling stock
Equipment
Basis
Straight-line
Primarily straight-line
Primarily straight-line
Useful lives
15 – 40 years
3 – 20 years
5 – 12 years
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted prospectively, if
appropriate.
Property and equipment are reviewed for impairment in accordance with IAS 36 Impairment of Assets when there are
indicators that the carrying value may not be recoverable.
g)
Intangible assets
i) Goodwill
Goodwill that arises upon business combinations is included in intangible assets.
Goodwill is not amortized and is measured at cost less accumulated impairment losses.
ii) Other intangible assets
Intangible assets consist of customer relationships, trademarks, non-compete agreements and information technology.
Other intangible assets that are acquired by the Group and have finite lives are measured at cost less accumulated
amortization and accumulated impairment losses.
Intangible assets with finite lives are amortized on a straight-line basis over the following estimated useful lives:
Categories
Customer relationships
Trademarks
Non-compete agreements
Information technology
Useful lives
5 – 15 years
5 – 20 years
3 – 10 years
5 – 7 years
Useful lives and residual values are reviewed at each financial year end and adjusted prospectively, if appropriate.
h)
Leased assets
Leases with terms which indicate that the Group assumes substantially all the risks and rewards of ownership are classified
as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and
the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in
accordance with the accounting policy applicable to that asset.
Other leases are operating leases and the leased assets are not recognized in the Group’s statements of financial position.
i)
Inventoried supplies
Inventoried supplies consist primarily of repair parts and fuel and are measured at the lower of cost and net realizable value.
j)
Impairment
Non-financial assets
The carrying amounts of the Group’s non-financial assets other than inventoried supplies and deferred tax assets are reviewed at
each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated. For goodwill, the recoverable amount is estimated on December 31 of each year.
2017 Annual Report
46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies (continued)
j)
Impairment (continued)
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest
group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other
assets or groups of assets (the “cash-generating unit”, or “CGU”). For the purposes of goodwill impairment testing,
goodwill acquired in a business combination is allocated to the group of CGUs (usually a Group’s operating segment), that
is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test
and reflects the lowest level at which that goodwill is monitored for internal reporting purposes. The recoverable amount of
an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset or group of assets.
The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be
impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated
to the units, if any, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a prorata
basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior
periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Impairment
losses and impairment reversals are recognized in income or loss.
k) Assets held for sale
Non-current assets are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale
rather than through continuing use.
Such assets are generally measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses
on initial classification as held-for-sale or held-for-distribution and subsequent gains and losses on remeasurement are
recognized in income or loss.
Once classified as held-for-sale, intangible assets and property and equipment are no longer amortized or depreciated.
l)
Employee benefits
i) Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a
separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions
to defined contribution pension plans are recognized as an employee benefit expense in income or loss in the periods
during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a
cash refund or a reduction in future payments is available.
ii) Defined benefit plans
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by
estimating the amount of future benefit that employees have earned in return for their services in the current and prior
periods discounting that amount and deducting the fair value of any plan assets. The discount rate is the yield at the
reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Group’s obligations
and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is
performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a
benefit to the Group, the recognized asset is limited to the present value of economic benefits available in the form of
any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present
value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the
Group.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
47
3. Significant accounting policies (continued)
l)
Employee benefits (continued)
ii) Defined benefit plans (continued)
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan
assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in
other comprehensive income. The Group determines the net interest expense (income) on the net defined benefit
liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the
beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the
net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest
expense and other expenses related to defined benefit plans are recognized in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to
past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains
and losses on the settlement of a defined benefit plan when the settlement occurs.
iii) Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related
service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or
income-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past
service provided by the employee, and the obligation can be estimated reliably.
iv) Share-based payment transactions
The grant date fair value of equity share-based payment awards granted to employees is recognized as a personnel
expense, with a corresponding increase in contributed surplus, over the period that the employees unconditionally
become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for
which the related service conditions are expected to be met, such that the amount ultimately recognized as an expense
is based on the number of awards that do meet the related service condition at the vesting date.
The fair value of the amount payable to board members in respect of deferred share unit (“DSU”), which are to be
settled in cash, is recognized as an expense with a corresponding increase in liabilities. The liability is remeasured at
each reporting date until settlement. Any changes in the fair value of the liability are recognized as finance income or
costs in income or loss.
v) Termination benefits
Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits
and when the Group recognises costs for a restructuring. If benefits are not expected to be fully settled within 12
months of the end of the reporting period, then they are discounted.
m) Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the
effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where
discounting is used, the unwinding of the discount is recognized as finance cost.
Self-Insurance
The self-insurance provision represents an accrual for estimated future disbursements associated with the self-insured
portion for claims filed as at year-end and incurred but not reported, related to cargo loss, bodily injury, worker’s
compensation and property damages. The estimates are based on the Group’s historical experience including settlement
patterns and payment trends. The most significant assumptions in the estimation process include determining the trend in
costs, the expected cost of claims incurred but not reported and the expected cost to settle or pay the outstanding claims.
Changes in assumptions and experience could cause these estimates to change significantly in the near term.
2017 Annual Report
48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies (continued)
n) Revenue recognition
The Group’s normal business operations consist of the provision of transportation and logistics services. All income relating
to normal business operations is recognized as revenue based on the stage of completion of the service in the statement of
income. The stage of completion of the service is determined using the proportion of costs incurred to date compared to
the estimated total costs of the service. Revenue is measured at the fair value of the consideration received or receivable,
net of trade discounts and volume rebates. Revenue is recognized as services are rendered, when the amount of revenue
and income can be reliably measured and in all probability the economic benefits from the transactions will flow to the
Group.
o)
Lease payments
Payments made under operating leases are recognized in income or loss on a straight-line basis over the term of the lease.
Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance costs and the reduction of the
outstanding liability. The finance cost is allocated to each period during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
p)
Finance income and finance costs
Finance income comprises interest income on funds invested, available-for-sale financial assets (prior to adoption of IFRS 9,
see note 3 t)), dividend income, interest and accretion on promissory note, and bargain purchase gains on business
acquisitions. Interest income is recognized as it accrues in income or loss, using the effective interest method.
Finance costs comprise interest expense on bank indebtedness and long-term debt, unwinding of the discount on
provisions and impairment losses recognized on financial assets (other than trade receivables).
Fair value gains or losses on derivative financial instruments and on contingent considerations, and foreign currency gains
and losses are reported on a net basis as either finance income or cost.
q)
Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in income or loss
except to the extent that it relates to a business combination, or items recognized directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following
temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable income or loss, and differences relating to investments in subsidiaries and jointly
controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred
tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is
measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws
that have been enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is
a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax
authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on
a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it
is probable that future taxable income will be available against which they can be utilized. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
r)
Earnings per share
The Group presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by
dividing the income or loss attributable to common shareholders of the Company by the weighted average number of
common shares outstanding during the period, adjusted for own shares held, if any. Diluted EPS is determined by adjusting
the income or loss attributable to common shareholders and the weighted average number of common shares outstanding,
adjusted for own shares held, for the effects of all dilutive potential common shares, which comprise convertible
debentures, warrants, and restricted share units and stock options granted to employees.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
49
3. Significant accounting policies (continued)
s)
Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues
and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components.
All operating segments’ operating results are reviewed regularly by the Group’s chief executive officer (“CEO”) to make
decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial
information is available.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group’s headquarters),
head office expenses, income tax assets, liabilities and expenses, as well as long-term debt and interest expense thereon.
Sales between Group’s segments are measured at the exchange amount. Transactions, other than sales, are measured at
carrying value. Segment capital expenditure is the total cost incurred during the period to acquire property and equipment,
and intangible assets other than goodwill.
t) New standards and interpretations adopted during the year
The Group has adopted the following new standards and amendments to standards and interpretations, with a date of
initial application of January 1, 2017. These have been applied in preparing these consolidated financial statements:
Disclosure Initiative: Amendments to IAS 7: On January 7, 2016 the IASB issued Disclosure Initiative (Amendments to IAS 7).
The amendments apply prospectively for annual periods beginning on or after January 1, 2017. The amendments require
disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities,
including both changes arising from cash flow and non-cash changes. One way to meet this new disclosure requirement is
to provide a reconciliation between the opening and closing balances for liabilities from financing activities. Adoption of
Disclosure Initiative: Amendments to IAS 7 did not have a material impact on the Group’s consolidated financial statements.
Recognition of Deferred Tax Assets for Unrealized Losses: Amendments to IAS 12: On January 19, 2016 the IASB issued
Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12). The amendments apply retrospectively
for annual periods beginning on or after January 1, 2017. The amendments clarify that the existence of a deductible
temporary difference depends solely on a comparison of the carrying amount of an asset and its tax base at the end of the
reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of
the asset. The amendments also clarify the methodology to determine the future taxable profits used for assessing the
utilization of deductible temporary differences. Adoption of Recognition of Deferred Tax Assets for Unrealized Losses:
Amendments to IAS 12 did not have a material impact on the Group’s consolidated financial statements.
Annual Improvements to IFRS Standards (2014-2016 cycle): On December 8, 2016 the IASB issued narrow-scope
amendments to three standards as part of its annual improvements process. Each of the amendments has its own specific
transaction requirements and effective date. Amendments were made to the following standards:
• Clarification that IFRS 12 Disclosures of Interests in Other Entities also applies to interests that are classified as held for
sale, held for distribution, or discontinued operations, effective retrospectively for annual periods beginning on or after
January 1, 2017;
Removal of outdated exemptions for first time adopters under IFRS 1 First-time Adoption of International Financial
Reporting Standards, effective for annual periods beginning on or after January 1, 2018;
•
• Clarification that the election to measure an associate or joint venture at fair value under IAS 28 Investments in
Associates and Joint Ventures for investments held directly, or indirectly, through a venture capital or other qualifying
entity can be made on an investment-by-investment basis. The amendments are effective retrospectively for annual
periods beginning on or after January 1, 2018.
Adoption of Annual Improvements to IFRS Standards (2014-2016 cycle) did not have a material impact on the Group’s
consolidated financial statements.
2017 Annual Report
50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies (continued)
u) New standards and interpretations not yet adopted
The following new standards are not yet effective for the year ending December 31, 2017, and have not been applied in
preparing these consolidated financial statements:
IFRS 15 Revenue from Contracts with Customers: On May 28, 2014 the IASB issued IFRS 15 Revenue from Contracts with
Customers. The new standard is effective for annual periods beginning on or after January 1, 2018. IFRS 15 will replace IAS
11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the
Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers, and SIC 31 Revenue – Barter Transactions
Involving Advertising Services. On April 12, 2016, the IASB issued Clarifications to IFRS 15, Revenue from Contracts with
Customers, which is effective at the same time as IFRS 15. The standard contains a single model that applies to contracts
with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-
based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates
and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The
new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments or lease
contracts, which fall in the scope of other IFRSs. The clarifications to IFRS 15 provide additional guidance with respect to the
five-step analysis, transition, and the application of the Standard to licenses of intellectual property. The Group will adopt
IFRS 15 and the clarifications in its financial statements for the annual period beginning on January 1, 2018. Following the
analysis of the impact of adoption of the standard, the Group has determined that there will be no significant impact on
the results. The standard also requires to evaluate whether there is a promise to transfer services to the customer as a
principal or to arrange for services to be provided by another party (as an agent). To make that determination, the standard
uses a control model rather than the risks-and-rewards model under current standard. Based on the evaluation of the
control model, it was determined that certain businesses mainly in the LTL segment act as the principal rather than the
agent within their revenue arrangements. This change will require the affected businesses to report transportation revenue
gross of associated purchase transportation costs rather than net of such amounts within the consolidated statements of
income. It is expected that this change will result in an approximate $100 million reclassification from operating expenses to
revenue on the consolidated statements of income for the year ended December 31, 2017.
Classification and Measurement of Share-based Payment Transactions: Amendments to IFRS 2: On June 20, 2016, the IASB
issued amendments to IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment
transactions. The amendments apply for annual periods beginning on or after January 1, 2018. As a practical simplification,
the amendments can be applied prospectively. Retrospective application is permitted if information is available without the
use of hindsight. The amendments provide requirements on the accounting for:
•
•
•
the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments;
share-based payment transactions with a net settlement feature for withholding tax obligations; and
a modification to the terms and conditions of a share-based payment that changes the classification of the transaction
from cash-settled to equity-settled.
The Group will adopt the amendments to IFRS 2 in its financial statements for the annual period beginning on January 1,
2018. The Group does not expect the amendments to have a material impact on the financial statements.
IFRIC 22, Foreign Currency Transactions and Advance Consideration: On December 8, 2016, the IASB issued IFRIC
Interpretation 22 Foreign Currency Transactions and Advance Consideration. The Interpretation clarifies which date should
be used for translation when a foreign currency transaction involves an advance payment or receipt. The Interpretation is
applicable for annual periods beginning on or after January 1, 2018. The Interpretation clarifies that the date of the
transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or
income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability
arising from the payment or receipt of advance consideration. The Interpretation may be applied either:
•
•
retrospectively; or
prospectively to all assets, expenses and income in the scope of the Interpretation initially recognized on or after:
•
•
the beginning of the reporting period in which the entity first applies the Interpretation; or
the beginning of a prior reporting period presented as comparative information in the financial statements.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
51
3. Significant accounting policies (continued)
u) New standards and interpretations not yet adopted (continued)
The Group will adopt the Interpretation in its financial statements for the annual period beginning on January 1, 2018. The
Group does not expect the amendments to have a material impact on the financial statements.
IFRS 16, Leases: On January 13, 2016 the IASB issued IFRS 16 Leases. The new standard is effective for annual periods
beginning on or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15 Revenue from
Contracts with Customers at or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17 Leases. This
standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases
with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-
of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease
payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring
enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including
the definition of a lease. Transitional provisions have been provided. The Group intends to adopt IFRS 16 in its financial
statements for the annual period beginning on January 1, 2019. The Group is in the process of reviewing lease agreements
in accordance with the new standard. The adoption of this standard will have a material impact on the financial statements.
Annual Improvements to IFRS Standards (2015-2017 cycle): On December 12, 2017 the IASB issued narrow-scope
amendments to three standards as part of its annual improvements process. The amendments are effective on or after
January 1, 2019, with early application permitted. Each of the amendments has its own specific transition requirements.
Amendments were made to the following standards:
•
•
•
IFRS 3 Business Combinations and IFRS 11 Joint Arrangements - to clarify how a company accounts for increasing its
interest in a joint operation that meets the definition of a business;
IAS 12 Income Taxes – to clarify that all income tax consequences of dividends are recognized consistently with the
transactions that generated the distributable profits – i.e. in profit or loss, OCI, or equity; and
IAS 23 Borrowing Costs – to clarify that specific borrowings – i.e. funds borrowed specifically to finance the
construction of a qualifying asset – should be transferred to the general borrowings pool once the construction of the
qualifying asset has been completed.
The Group intends to adopt these amendments in its financial statements for the annual period beginning on January 1,
2019. The extent of the impact of adoption of the amendments has not yet been determined.
IFRIC 23 Uncertainty over Income Tax Treatments: On June 7, 2017, the IASB issued IFRIC Interpretation 23 Uncertainty over
Income Tax Treatments. The Interpretation provides guidance on the accounting for current and deferred tax liabilities and
assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation is applicable for annual
periods beginning on or after January 1, 2019. Earlier application is permitted.
The Interpretation requires:
•
•
•
an entity to contemplate whether uncertain tax treatments should be considered separately, or together as a group,
based on which approach provides better predictions of the resolution;
an entity to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and
if it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most
likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty.
The Group intends to adopt the Interpretation in its financial statements for the annual period beginning on January 1,
2019. The extent of the impact of adoption of the Interpretation has not yet been determined.
2017 Annual Report
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
4. Segment reporting
The Group operates within the transportation and logistics industry in the United States, Canada and Mexico in different
reportable segments, as described below. The reportable segments are managed independently as they require different
technology and capital resources. For each of the operating segments, the Group’s CEO reviews internal management reports
on a monthly basis. The following summary describes the operations in each of the Group’s reportable segments:
Package and Courier:
Pickup, transport and delivery of items across North America.
Less-Than-Truckload:
Pickup, consolidation, transport and delivery of smaller loads.
Truckload(a):
Full loads carried directly from the customer to the destination using a closed van or specialized
equipment to meet customer’s specific needs. Includes expedited transportation, flatbed, container
and dedicated services.
Logistics:
Logistics services.
(a) The Truckload segment represents the aggregation of the Canadian Truckload, U.S. Truckload, and Specialized Truckload operating
segments. The aggregation of the segment was analyzed using management’s judgement in accordance with IFRS 8. The operating
segments were determined to be similar with respect to the nature of services offered and the methods used to distribute their services,
additionally, they have similar economic characteristics with respect to long term expected gross margin, levels of capital invested and
market place trends.
Information regarding the results of each reportable segment is included below. Performance is measured based on segment
operating income or loss. This measure is included in the internal management reports that are reviewed by the Group’s CEO
and refers to “Operating income (loss)” in the consolidated statements of income. Segment’s operating income or loss is used
to measure performance as management believes that such information is the most relevant in evaluating the results of certain
segments relative to other entities that operate within these industries.
When the Group changes the structure of its internal organization in a manner that causes the composition of its reportable
segments to change, the corresponding information for the comparative period is recasted to conform to the new structure.
Package and Less-Than-
Courier
Truckload
Truckload
Logistics
Corporate Eliminations
Total
2017
External revenue
Inter-segment revenue
Total revenue
Operating income (loss)
Selected items:
1,353,474 907,985 2,181,389 298,171
7,794
9,260
8,303
1,361,268 917,245 2,209,424 306,474
25,534
124,406
52,350
28,035
77,349
—
—
—
(35,915 )
— 4,741,019
—
(53,392 )
(53,392 ) 4,741,019
243,724
—
Depreciation and amortization
Gain (loss) on sale of land and buildings
Gain on sale of assets held for sale
Impairment of intangible assets
Intangible assets
Total assets
Total liabilities
Additions to property and equipment
2016*
External revenue
Inter-segment revenue
Total revenue
Operating income (loss)
Selected items:
Depreciation and amortization
Gain (loss) on sale of land and buildings
Intangible assets
Total assets
Total liabilities
Additions to property and equipment
33,695
567
9,156
13,211
6,299
197,519
30,996
—
(93 )
(242 )
—
172
68,118
129,770
—
—
425,653 238,995
988,773 176,487
651,345 556,807 2,232,157 221,439
145,173 154,531
12,640
2,248
—
—
—
2,366
65,880
32,704 1,602,816
771
377,280
231,936
13,823
496
270,757
—
232
—
77,446
—
—
142,981
— 1,832,274
— 3,727,628
— 2,312,504
259,666
—
7,016
1,359,169 808,430 1,624,753 232,856
8,286
1,366,185 827,504 1,647,177 241,142
21,750
102,511
113,040
47,899
19,074
22,424
—
—
—
(35,935 )
— 4,025,208
(56,800 )
—
(56,800 ) 4,025,208
249,265
—
33,758
(8 )
29,506
4,442
123,847
2,875
3,877
1,639
450,541 230,194 1,159,622 130,994
700,749 635,233 2,440,148 175,190
157,426 146,008
16,967
2,098
—
1,799
75,233
19,350 1,725,480
1,990
517,265
80,021
11,152
430
193,086
—
—
8,948
— 1,973,150
— 4,026,553
— 2,565,529
110,560
—
(*) Recasted for changes in composition of reportable segments, changes in presentation and note 5 c).
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
53
4. Segment reporting (continued)
Geographical information
Revenue is attributed to geographical locations based on the origin of service’s location. Segment assets are based on the
geographical location of the assets.
Revenue
Canada
United States
Mexico
Property and equipment and intangible assets
Canada
United States
Mexico
(*) Recasted (see note 5 c))
5. Business combinations
a) Business combinations
2017
2016
2,677,040
2,434,762
2,042,861
1,586,766
21,118
3,680
4,741,019
4,025,208
2017
2016*
1,693,190
1,771,198
1,314,635
1,543,820
22,062
25,293
3,029,887
3,340,311
In line with the Group’s growth strategy, the Group acquired seven businesses during 2017, notably World Courier Ground
U.S. (“World Courier Ground”), Cavalier Transportation Services Inc. (“Cavalier”) and Premier Product Management
(“PPM”).
On January 13, 2017, the Group completed the acquisition of World Courier Ground. Established in 1983, World Courier
Ground is an asset light, time critical courier provider. Operating nationally across the U.S., the company offers same day
courier, rush trucking and warehousing services primarily to the medical industry, as well as to the environmental, financial,
chemical and industrial sectors. World Courier Ground management continues to operate the business under the new
name TForce Critical.
On January 28, 2017, the Group completed the acquisition of Cavalier. Established in 1979, Cavalier’s operations consist of
LTL services, brokerage and warehousing. Based in Bolton, ON, Cavalier serves corridors primarily between Ontario,
Quebec, New York and Illinois.
On October 31, 2017, the Group completed the acquisition of PPM. Founded in 2004 and based in California, PPM
provides home delivery services of household appliances in the United States.
During 2017, transaction costs of $0.1 million have been expensed in other operating expenses in the consolidated
statements of income in relation to the above mentioned business acquisitions (2016 – $3.7 million, $3.2 million of which
has been recorded in personnel expenses and $0.5 million in other operating expenses).
These cash-settled transactions were concluded in order to add density in the Group’s current network and further expand
value-added services. The seven acquired businesses contributed revenue and net income of $137.6 million and $5.3
million respectively. If these acquisitions had occurred on January 1, 2017, per management’s best estimates, the revenue
and net income would have been $197.3 million and $9.7 million respectively. In determining these estimated amounts,
management assumed that the fair value adjustments that arose on the date of acquisition would have been the same had
the acquisition occurred on January 1, 2017.
2017 Annual Report
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
5. Business combinations (continued)
a) Business combinations (continued)
As of the reporting date, the Group had not completed the purchase price allocation over the identifiable net assets and
goodwill of several of the 2017 acquisitions. Information to confirm fair value of certain assets and liabilities is still to be
obtained for these acquisitions. As the Group obtains more information, the allocation will be completed. The table below
presents the purchase price allocation based on the best information available to the Group to date.
Identifiable assets acquired and liabilities assumed
Cash and cash equivalents
Trade and other receivables
Inventoried supplies and prepaid expenses
Property and equipment
Intangible assets
Other assets
Bank indebtedness
Trade and other payables
Income tax payable
Provisions
Long-term debt
Deferred tax liabilities
Total identifiable net assets
Total consideration transferred
Goodwill
Cash
Contingent consideration
Total consideration transferred
(*) Includes non material adjustments to prior year acquisitions
(**) Recasted (see note 5 c))
Note
9
10
10
2017*
1,006
22,112
5,950
27,213
70,873
859
—
(17,081 )
(1,673 )
—
(9,030 )
(12,163 )
88,066
130,958
42,892
119,294
11,664
130,958
2016**
15,794
100,333
12,981
458,804
98,677
—
(121 )
(75,099 )
(468 )
(16,251 )
(5,103 )
(154,178 )
435,369
816,393
381,024
813,976
2,417
816,393
The trade receivables comprise of gross amounts due of $21.7 million, of which $0.7 million was expected to be
uncollectible at the acquisition date.
Of the goodwill and intangible assets acquired through business combinations in 2017, $28.6 million is deductible for tax
purposes (2016 - $21.8 million).
During 2016, the Group acquired ten businesses, one of which is considered significant.
On October 27, 2016, the Group completed the acquisition of the North American truckload operation of XPO Logistics for
a total cash consideration of $747.4 million, of which, $500.0 million has been financed through a new term loan. The
acquisition represents an important expansion of the Group’s TL and Logistics services across North America. With an
operating history of over 60 years, the acquired business is a top 20 carrier headquartered in Joplin, Missouri. The business
provides an integrated offering of point-to-point dry-van TL transportation services across the United States, and is one of
the largest service providers of cross-border trucking into Mexico. This acquisition, which operates under the name of CFI,
significantly strengthens the Group’s presence in the North American truckload landscape with prominent market positions
in domestic US and cross-border Mexico freight.
The other 2016 acquisitions did not have a material effect on the Group’s financial position and results of operations.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
55
5. Business combinations (continued)
b) Goodwill
The goodwill is attributable mainly to the premium of an established business operation with a good reputation in the
transportation industry, and the synergies expected to be achieved from integrating the acquired entity into the Group’s
existing business.
The goodwill arising in the above business combinations has been allocated to operating segments as indicated in the table
below, which represents the lowest level at which goodwill is monitored internally.
Operating segment
Package and Courier
Less-Than-Truckload
U.S. Truckload
Specialized Truckload
Logistics
Reportable segment
Package and Courier
Less-Than-Truckload
Truckload
Truckload
Logistics
(*) Recasted for changes in composition in reportable segments and note 5 c).
2017
1,992
8,927
—
19,352
12,621
42,892
2016*
7,823
7,481
333,339
7,230
25,151
381,024
c) Adjustment to the provisional amounts of prior year business combinations
The 2016 annual consolidated financial statements included details of the Group’s business combinations and set out
provisional fair values relating to the consideration and net assets acquired of CFI. This acquisition was accounted for under
the provisions of IFRS 3. As required by IFRS 3, the provisional fair values have been reassessed in light of information
obtained during the measurement period following the acquisition. Consequently, the fair value of certain assets acquired
and liabilities assumed of CFI has been adjusted during the year and accordingly, the comparative information for the prior
year presented in these consolidated financial statements has been revised as follow:
Cash and cash equivalents
Trade and other receivables
Inventoried supplies and prepaid expenses
Property and equipment
Intangible assets
Trade and other payables
Provisions
Deferred tax liabilities
Total identifiable net assets
Total consideration transferred
Goodwill
d) Contingent consideration
Provisional
fair
value
Measurement
period
adjustment
Reassessed
fair
value
13,949
82,997
12,104
460,779
129,860
(57,607 )
(16,251 )
(194,680 )
431,151
747,449
316,298
—
13,949
—
—
(27,910 )
(50,198 )
—
—
44,408
(33,700 )
—
33,700
82,997
12,104
432,869
79,662
(57,607 )
(16,251 )
(150,272 )
397,451
747,449
349,998
The contingent consideration relates to one business combination and is recorded in the original purchase price allocation.
The fair value was determined using expected cash flow based on probability weighted scenario discounted at a rate of
6.0%. This consideration is contingent on achieving specified earning levels in future periods. The maximum yearly amount
payable over the next four years is $5.0 million for a total consideration of $20.0 million. At December 31, 2017, the fair
value of the contingent arrangement was estimated at $11.7 million and is currently presented in other financial liabilities
on the consolidated statements of financial position.
2017 Annual Report
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
6. Discontinued operations
On September 30, 2015, the Company decided to cease operations in the rig moving operating segment and accordingly has
classified all the property and equipment as assets held for sale.
On February 1, 2016, the Company sold the Waste Management segment (“Waste”) to GFL Environmental Inc. (“GFL”) for
total consideration of $800 million, which includes an unsecured promissory note of $25 million yielding 3% interest with a
term of 4 years.
The following table presents the net income (loss) from discontinued operations:
Revenue
Expenses
Loss on assets held for sale
Gain on the sale of Waste
Income (loss) before income tax
Income tax expense (recovery)
Net income (loss) from discontinued operations (1)
Earnings (loss) per share from discontinued operations
Basic earnings (loss) per share
Diluted earnings (loss) per share
Additional information:
Depreciation of property and equipment
Rig moving
304
1,898
(1,594 )
(8,920 )
—
(10,514 )
(3,656 )
(6,858 )
2016
Waste
14,340
15,630
(1,290 )
—
559,246
557,956
68,578
489,378
Total
14,644
17,528
(2,884 )
(8,920 )
559,246
547,442
64,922
482,520
(0.07 )
(0.07 )
5.22
5.12
5.15
5.05
—
2,256
2,256
(1)
The net income from discontinued operations is fully attributable to the owners of the Company.
During 2016, an impairment of $5.0 million was recognized on assets belonging to the rig moving segment.
The assets and liabilities of the discontinued operations were as follows:
Current assets
Current liabilities
2016
326
(2,700 )
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
57
6. Discontinued operations (continued)
Sale of the Waste Management segment
On February 1, 2016, the Company completed the sale of Waste to GFL, headquartered in Toronto, Ontario, for a sale price of
$800 million. At closing, GFL paid $758.9 million to the Company net of closing adjustments, and issued an unsecured
promissory note to the Company in an amount of $25 million, payable in four years and bearing interest at an annual rate of
3%. The table below presents the reconciliation of the gain on the sale of the Waste Management.
Sale price
Closing adjustment to sale price
Net sale price
Trade and other receivables
Inventoried supplies and prepaid expenses
Property and equipment
Intangible assets
Goodwill
Other assets
Bank indebtedness
Trade and other payables
Income taxes payable
Provisions
Long-term debt
Deferred tax liabilities
Total identifiable net assets
Fair value adjustment to the promissory note
Gain on sale of Waste
Income tax on gain on disposal
Gain on sale of Waste, net of tax
Net sale price is paid as follow:
Cash consideration received
Promissory note issued
Note
i
ii
iii
ii
2016
800,000
(16,126 )
783,874
34,014
4,364
140,089
93,408
22,369
9,576
(6,018 )
(16,576 )
(3,956 )
(26,544 )
(7,235 )
(26,398 )
217,093
(7,535 )
559,246
(68,475 )
490,771
758,874
25,000
783,874
i)
Closing adjustments to the sale price includes an assumed lease amount of $0.7 million, closure and post-closure costs of $9.1 million,
working capital adjustment of $2.4 million and income taxes payable of $4.0 million.
ii)
The fair value adjustment to the promissory note has been calculated with a discount rate of 12% over 4 years based on the specific risk of
the business.
iii)
The gain of $559.2 million on the sale of Waste generated an income tax expense $68.5 million which represents an effective tax rate of
12.2% largely explained by the capital nature of the transaction.
7. Trade and other receivables
Trade receivables
Other receivables
2017
546,160
20,946
567,106
2016
552,057
17,124
569,181
The Group’s exposure to credit and currency risks related to trade and other receivables is disclosed in note 25 a) and d).
2017 Annual Report
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
8. Additional cash flow information
Net change in non-cash operating working capital
Trade and other receivables
Inventoried supplies
Prepaid expenses
Trade and other payables
9. Property and equipment
2017
14,548
(238 )
9,060
(35,019 )
(11,649 )
2016
40,095
836
1,598
(27,870 )
14,659
Cost
Balance at December 31, 2015
Additions through business combinations*
Other additions
Disposals
Reclassification from (to) assets held for sale
Land and buildings
Rolling stock
Equipment
Total
424,593
44,420
9,409
(16,434 )
4,644
908,662
412,716
92,152
(114,207 )
(3,277 )
149,482
1,668
8,999
(6,673 )
—
1,482,737
458,804
110,560
(137,314 )
1,367
Effect of movements in exchange rates
(556 )
(6,073 )
(334 )
(6,963 )
Balance at December 31, 2016*
Additions through business combinations
Other additions
Disposals
Reclassification to assets held for sale
Effect of movements in exchange rates
466,076
4,788
8,126
(7,167 )
(133,003 )
(5,355 )
1,289,973
20,755
238,812
(219,024 )
—
153,142
1,670
12,728
(14,001 )
—
1,909,191
27,213
259,666
(240,192 )
(133,003 )
(36,113 )
(1,069 )
(42,537 )
Balance at December 31, 2017
333,465
1,294,403
152,470
1,780,338
Depreciation
Balance at December 31, 2015
Depreciation for the year
Disposals
Reclassification from (to) assets held for sale
Effect of movements in exchange rates
Balance at December 31, 2016
Depreciation for the year
Disposals
Reclassification to assets held for sale
Effect of movements in exchange rates
67,620
11,505
(3,991 )
2,067
(244 )
76,957
11,719
(3,933 )
(14,111 )
(956 )
341,707
112,441
(86,736 )
(1,388 )
(689 )
365,335
182,627
(137,243 )
—
1,066
91,549
15,493
(7,211 )
—
(93 )
99,738
15,211
(13,241 )
—
(444 )
500,876
139,439
(97,938 )
679
(1,026 )
542,030
209,557
(154,417 )
(14,111 )
(334 )
Balance at December 31, 2017
69,676
411,785
101,264
582,725
389,119
924,638
53,404
1,367,161
263,789
882,618
51,206
1,197,613
Net carrying amounts
At December 31, 2016*
At December 31, 2017
(*) Recasted (see note 5 c))
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
59
9. Property and equipment (continued)
Leased assets
The Group leases items of rolling stock and equipment under a number of finance lease agreements. For the majority of these
leases, the Group is responsible for the residual value on termination date. The leased assets secure lease obligations (see note
13). At December 31, 2017, the net carrying amount of leased assets was $32.3 million (2016 - $36.1 million). During the year
ended December 31, 2017, the Group acquired leased assets in the amount of $0.4 million (2016 – $0.1 million) under finance
lease agreements and all other new leased assets come from business acquisitions.
Security
At December 31, 2017 certain rolling stock are pledged as security for conditional sales contracts, with a carrying amount of
$120.4 million (2016 - $104.1 million) (see note 13).
10. Intangible assets
Other intangible assets
Non-
Goodwill
Customer
compete
relationships Trademarks agreements
Information
technology
Total
Cost
Balance at December 31, 2015
Additions through business
combinations*
Other additions
Extinguishments
Effect of movements in exchange rates
Balance at December 31, 2016*
Additions through business
combinations
Other additions
Extinguishments
Effect of movements in exchange rates
1,207,311
443,516
73,649
2,530
29,630 1,756,636
381,024
—
—
(11,979 )
59,992
—
(6,261 )
(5,333 )
37,010
—
(57 )
(986 )
785
—
(541 )
(48 )
890
1,835
(1,948 )
(348 )
479,701
1,835
(8,807 )
(18,694 )
1,576,356
491,914
109,616
2,726
30,059 2,210,671
42,892
—
—
(42,587 )
64,040
—
(2,100 )
(15,715 )
365
—
(2,877 )
(4,478 )
6,440
—
—
(202 )
28
2,083
(7,231 )
(978 )
113,765
2,083
(12,208 )
(63,960 )
Balance at December 31, 2017
1,576,661
538,139
102,626
8,964
23,961 2,250,351
Amortization and impairment losses
Balance at December 31, 2015
Amortization for the year
Extinguishments
Effect of movements in exchange rates
Balance at December 31, 2016
Amortization for the year
Impairment loss
Extinguishments
Effect of movements in exchange rates
60,000
—
—
—
60,000
—
129,770
—
(4,320 )
98,748
42,606
(6,261 )
(1,055 )
134,038
47,271
—
(2,100 )
(4,991 )
14,434
5,919
(57 )
(137 )
20,159
8,270
13,211
(2,877 )
(1,185 )
743
490
(541 )
(18 )
674
1,081
—
—
(41 )
20,211
4,632
(1,948 )
(245 )
22,650
4,578
—
(7,231 )
(880 )
194,136
53,647
(8,807 )
(1,455 )
237,521
61,200
142,981
(12,208 )
(11,417 )
Balance at December 31, 2017
185,450
174,218
37,578
1,714
19,117
418,077
Net carrying amounts
At December 31, 2016*
1,516,356
357,876
89,457
2,052
7,409 1,973,150
At December 31, 2017
1,391,211
363,921
65,048
7,250
4,844 1,832,274
(*) Recasted (see note 5 c))
2017 Annual Report
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
10. Intangible assets (continued)
In 2017, the Group rebranded certain package and courier companies by initiating a change of name. This rebranding was
identified as an indicator of impairment for the trade name intangibles of these companies. The group estimated the value in
use of the trade names to be $5.8 million using the relief-from-royalty method compared to its carrying value of $19.0 million,
resulting in an impairment charge of $13.2 million. Management assumed that the trade names have a value for 4 years and
used a discount rate of 9.3% in its analysis. The Group also changed the amortization period to 4 years for the remaining net
book value of these trade names only.
Goodwill impairment test
IFRS requires an entity to assess at the end of each reporting period whether there is any indication that an asset may be
impaired. If such indication exists, the entity shall estimate the recoverable amount of the assets. In Q2 2017, management
determined that such an indication existed as the results of the U.S. Truckload operating segment were substantially below the
expected results. As a result, a goodwill impairment analysis was performed only for the U.S. Truckload operating segment.
For the purpose of impairment testing, goodwill is allocated to the Group’s operating segments which represent the lowest level
within the Group at which the goodwill is monitored for internal management purposes. The aggregate carrying amounts of
goodwill allocated to the U.S. Truckload operating segment, prior to any impairment, was $441.8 million as at June 30, 2017
(December 31, 2016 - $444.8 million).
The Group performed a goodwill impairment test as at June 30, 2017. The results using the value in use approach determined
that the recoverable amount of the U.S. Truckload operating segment was lower than the carrying amount at June 30, 2017.
The Group recognized a goodwill impairment charge of $129.8 million.
The value in use methodology is based on discounted future cash flows. Management believes that the discounted future cash
flows method is appropriate as it allows more precise valuation of specific future cash flows.
The estimated future cash flows were discounted to their present value using a pre-tax discount rate of 11.2% (2016 - 11.2%)
at June 30, 2017 for the U.S.Truckload. The discount rate was estimated based on past experience, and industry average
weighted average cost of capital, which were based on a possible range of debt leveraging of 40.0% (2016 – 40.0%) at a
market interest rate of 6.8% (2016 – 6.7%).
First year cash flows were projected based on previous operating results and reflect current economic conditions. For a further
4-year period, cash flows were extrapolated using an average growth rate of 2.0% (2016 – 2.0%) in revenues and margins
were adjusted where deemed appropriate. The terminal value growth rate was 2.0% (2016 – 2.0%). The values assigned to the
key assumptions represent management’s assessment of future trends in the transportation industry and were based on both
external and internal sources (historical data).
The recoverable amount for the U.S. Truckload calculated at June 30, 2017 was $869.7 million ($1,257.6 million – December
31, 2016) as compared to a carrying amount of $999.5 million on June 30, 2017 ($960.0 million – December 31, 2016).
At December 31, 2017, the Group performed its annual goodwill impairment tests for operating segments which represent the
lowest level within the Group at which the goodwill is monitored for internal management purposes. The aggregate carrying
amounts of goodwill allocated to each unit are as follows:
Reportable segment / operating segment
Package and Courier
Less-Than-Truckload
Truckload
Canadian Truckload
U.S. Truckload
Specialized Truckload
Logistics
(*) Recasted for changes in composition of reportable segments and note 5 c).
2017
359,557
159,261
110,298
292,582
360,547
108,966
2016*
367,430
150,334
110,298
444,752
346,851
96,691
1,391,211
1,516,356
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
61
10. Intangible assets (continued)
The results as at December 31, 2017 determined that the recoverable amounts of the Group’s operating segments exceeded
their respective carrying amounts.
The recoverable amounts of the Group’s operating segments were determined using the value in use approach. The value in use
methodology is based on discounted future cash flows. Management believes that the discounted future cash flows method is
appropriate as it allows more precise valuation of specific future cash flows.
In assessing value in use, the estimated future cash flows are discounted to their present value using pre-tax discount rates as
follows:
Reportable segment / operating segment
Package and Courier
Less-Than-Truckload
Truckload
Canadian Truckload
U.S. Truckload
Specialized Truckload
Logistics
2017
9.5%
10.1%
11.9%
11.3%
11.9%
10.7%
2016
9.4%
10.0%
11.2%
11.2%
11.8%
10.6%
The discount rates were estimated based on past experience, and industry average weighted average cost of capital, which were
based on a possible range of debt leveraging of 40.0% (2016 – 40.0%) at a market interest rate of 7.0% (2016 – 6.7%).
First year cash flows were projected based on previous operating results and reflect current economic conditions. For a further
4-year period, cash flows were extrapolated using an average growth rate of 2.0% (2016 – 2.0%) in revenues and margins
were adjusted where deemed appropriate. The terminal value growth rate was 2.0% (2016 – 2.0%). The values assigned to the
key assumptions represent management’s assessment of future trends in the transportation industry and were based on both
external and internal sources (historical data).
11. Other assets
Promissory note
Investments in equity securities
Restricted cash
Security deposits
Other
Note
6
2017
20,739
6,310
4,294
3,748
783
2016
18,962
15,884
4,294
3,645
24
35,874
42,809
Restricted cash consists of cash held as potential claims collateral pursuant to re-insurance agreements under the Group’s
insurance program.
12. Trade and other payables
Trade payables and accrued expenses
Personnel accrued expenses
Dividend payable
(*) Recasted (see note 15)
2017
305,781
101,317
18,717
425,815
2016*
318,480
119,296
17,399
455,175
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 25.
2017 Annual Report
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
13. Long-term debt
This note provides information about the contractual terms of the Group’s interest-bearing long-term debt, which are measured
at amortized cost. For more information about the Group’s exposure to interest rate, foreign exchange currency and liquidity,
see note 25.
Non-current liabilities
Revolving facility
Term loans
Unsecured debentures
Conditional sales contracts
Finance lease liabilities
Other long-term debt
Current liabilities
Current portion of conditional sales contracts
Current portion of finance lease liabilities
Current portion of other long-term debt
2017
2016
690,893
572,788
124,738
52,553
4,997
—
767,034
571,663
124,552
42,758
12,401
25,909
1,445,969
1,544,317
33,502
9,959
8,966
52,427
29,807
9,869
822
40,498
Terms and conditions of outstanding long-term debt are as follows:
Currency
Nominal
interest rate
Year of
maturity
Face
value
Carrying
amount
Face
value
Carrying
amount
2017
2016
Revolving facility
Revolving facility
Term loan
Unsecured debentures
Term loan
Conditional sales
contracts
Finance lease liabilities
Other long-term debt
a
a
a
b
c
C$
US$
C$
C$
C$
BA + 2.15%
Libor + 2.15%
2021 250,400
2021 354,851
BA + 2.15% 2019-2020 500,000
2020 125,000
3.00 - 3.45%
75,000
2019
3.95%
248,720
442,173
497,957
124,738
74,831
302,900
348,953
500,000
125,000
75,000
d Mainly C$ 1.99% - 3,81% 2018-2022
e Mainly C$ 2.35% - 6.90% 2018-2022
2018
C$ 4.30% - 4.75%
86,055
14,956
8,966
86,055
14,956
8,966
72,565
22,270
26,731
301,170
465,864
496,933
124,552
74,730
72,565
22,270
26,731
1,498,396
1,584,815
In 2017, in addition to the repayments and new borrowings, the debt decreased due to currency fluctuations by $23.3 million
and increased by $2.5 million due to the amortization of deferred financing fees.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
63
13. Long-term debt (continued)
a) Revolving credit facility
On May 17, 2017, the Group extended its existing revolving credit facility, by one year, to June 2021. The facility is
unsecured and can be extended annually. The total available amount under the revolving facility is $1,200 million. The
agreement still provides, under certain conditions, an additional $250 million of credit availability (C$245 million and US$5
million). Based on certain ratios, the interest rate will vary between banker’s acceptance rate (or Libor rate on US$
denominated debt) plus applicable margin, which can vary between 125 basis points and 275 basis points. As of December
31, 2017, the credit facility’s interest rate on CAD denominated debt was 3.5% (2016 – 3.0%) and on US$ denominated
debt was 3.7% (2016 – 2.7%). The Group is subject to certain covenants regarding the maintenance of financial ratios and
was in compliance with these covenants at year-end (see note 25 (f)). Deferred financing fees of $0.9 million were
recognized on the extension.
On December 21, 2017, the Group extended the maturity of the term loan by eight months for each tranche. The term
loan is within the confines of the credit facility for the specific purpose of acquiring CFI. This term loan remains at a total of
$500 million, with $200 million now due in June 2019 and $300 million due in 2020. Early repayment, in part or whole is
permitted, and will permanently reduce the amount borrowed. The terms and conditions of the facility are the same as the
credit facility and is subject to the same covenants. Deferred financing fees of $0.2 million were recognized on the
extension.
b) Unsecured debentures
Loan agreement is in the form of unsecured debentures carrying an interest rate between 3% and 3.45% depending on
certain ratios and with a December 2020 maturity date. The debentures may be repaid, without penalty, after December
18, 2019, subject to the approval of the Group’s syndicate of bank lenders.
c) Term loan
This loan takes the form of a term loan carrying an interest rate of 3.95% and with an August 2019 maturity date. This
second ranking term loan may be repaid prior to the maturity subject to the approval of the Group’s syndicate of bank
lenders. Repayment prior to August 18, 2018 would result in an early repayment penalty. No penalty would apply after this
date.
d) Conditional sales contracts
Conditional sales contracts are secured by rolling stock having a carrying value of $120.4 million (2016 - $104.1 million) (see note
9).
e) Finance lease liabilities
Finance lease liabilities are secured by rolling stock having a carrying value of $32.3 million (2016 - $36.1 million) (see note
9). Finance lease liabilities are payable as follows:
Future minimum lease payments
Interest
Present value of minimum lease payments
Less than
1 year
10,478
(519 )
9,959
1 to 5 More than
5 years
years
5,244
(247 )
4,997
—
—
—
Total
15,722
(766 )
14,956
f) Principal installments of other long-term debt payable during the subsequent years are as follows:
Revolving facility
Term loans
Unsecured debentures
Conditional sales contracts
Other long-term debt
Less than
1 year
—
—
—
33,502
8,966
42,468
1 to 5 More than
5 years
years
694,116
575,000
125,000
52,553
—
1,446,669
—
—
—
—
—
—
Total
694,116
575,000
125,000
86,055
8,966
1,489,137
2017 Annual Report
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
14. Employee benefits
The Group sponsors defined benefit pension plans for 259 of its employees (2016 – 289).
These plans are all within Canada and include one unregistered plan. All the defined benefit plans are no longer offered to
employees and two defined benefits plan in the past have already been converted prospectively to defined contribution plans.
Therefore, the future obligation will only vary by actuarial re-measurements.
With the exception of one plan, all other plans do not have recurring contributions for employees. These plans are still required
to fund past service costs. The remaining plan is fully funded by the Group.
The Group measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as at December 31
of each year. The most recent actuarial valuation of the pension plans for funding purposes was as of December 31, 2016 and
the next required valuation will be as of December 31, 2017.
In addition to the above mentioned defined benefit plans, the Group sponsors employee severance plan in Mexico. At
December 31, 2017, total obligation under this arrangement amounted to $0.7 million (nil in 2016).
Information about the Group’s defined benefit pension plans is as follows:
Accrued benefit obligation
Fair value of plan assets
Plan deficit - employee benefit liability
Plan assets comprise:
Equity securities
Debt securities
Other
2017
48,689
(31,822 )
16,867
2016
45,942
(31,660 )
14,282
2017
33%
59%
8%
2016
32%
60%
8%
All equity and debt securities have quoted prices in active markets. Debt securities are held through mutual funds and primarily
hold investments with ratings of AAA or AA, based on Moody’s ratings.
The other asset categories are real estate investment trusts.
Movement in the present value of the accrued benefit obligation for defined benefit plans:
Accrued benefit obligation, beginning of year
Current service cost
Interest cost
Benefits paid
Remeasurement loss arising from:
- Financial assumptions
- Experience
Accrued benefit obligation, end of year
2017
45,942
591
1,729
(2,661 )
1,839
1,249
2016
46,908
541
1,744
(3,772 )
132
389
48,689
45,942
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
65
14. Employee benefits (continued)
Movement in the fair value of plan assets for defined benefit plans:
Fair value of plan assets, beginning of year
Interest income
Employer contributions
Benefits paid
Remeasurement gain arising from financial assumptions
Plan administration expenses
Fair value of plan assets, end of year
Expense recognized in income or loss:
Current service cost
Net interest cost
Plan administration expenses
Pension expense
Actual return on plan assets
Actuarial losses recognized in other comprehensive income:
Amount accumulated in retained earnings, beginning of year
Recognized during the year
Amount accumulated in retained earnings, end of year
Recognized during the year, net of tax
The significant actuarial assumptions used (expressed as weighted average):
Accrued benefit obligation:
Discount rate at December 31
Future salary increases
Employee benefit expense:
Discount rate at January 1
Rate of return on plan assets at January 1
Future salary increases
2017
2016
31,660
33,147
1,193
1,314
(2,661 )
456
(140 )
1,206
138
(3,772 )
1,077
(136 )
31,822
31,660
2017
2016
591
536
140
1,267
1,649
2017
10,692
2,632
13,324
1,930
541
538
136
1,215
2,283
2016
11,248
(556 )
10,692
(407 )
2017
2016
3.5%
1.2%
3.9%
3.9%
1.1%
3.9%
2.9%
3.9%
3.9%
2.9%
2017 Annual Report
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
14. Employee benefits (continued)
Assumptions regarding future mortality are based on published statistics and mortality tables. The current longevities underlying
the value of the liabilities in the defined benefit plans are as follows:
Longevity at age 65 for current pensioners
Males
Females
Longevity at age 65 for current members aged 45
Males
Females
2017
2016
21.7
24.1
22.8
25.1
21.6
24.1
22.7
25.0
At December 31, 2017 the weighted-average duration of the defined benefit obligation was 12.0 years.
The following table presents the impact of changes of major assumptions on the defined benefit obligation for the years ended
December 31:
Discount rate (1% movement)
Life expectancy (1-year movement)
Historical information:
2017
2016
Increase
Decrease
Increase
Decrease
(5,050 )
1,145
6,173
(1,046 )
(5,169 )
1,065
6,304
(1,097 )
Present value of the accrued benefit obligation
48,689
45,942
46,908
46,620
41,441
Fair value of plan assets
Deficit in the plan
(31,822 )
(31,660 )
(33,147 )
(32,973 )
(28,888 )
16,867
14,282
13,761
13,647
12,553
2017
2016
2015
2014
2013
Experience adjustments arising on plan obligations
Experience adjustments arising on plan assets
3,088
456
521
1,077
738
278
5,201
2,492
(1,161 )
2,736
The Group expects approximately $1.0 million in contributions to be paid to its defined benefit plans in 2018.
15. Provisions
Balance at January 1, 2017
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Revaluation of provisions
Balance at December 31, 2017
2017
Current provisions
Non-current provisions
2016
Current provisions
Non-current provisions
TFI International
Self insurance
53,424
65,694
(61,318 )
(1,408 )
(1,177 )
55,215
Other
12,352
11,310
(7,088 )
(65 )
—
16,509
Total
65,776
77,004
(68,406 )
(1,473 )
(1,177 )
71,724
26,992
28,223
5,352
11,157
32,344
39,380
21,370
32,054
—
12,352
21,370
44,406
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
67
15. Provisions (continued)
As at December 31, 2017, the current portion of provisions is being disclosed separately from the trade and other payables. The
prior period comparative figures have been recasted for this change in presentation.
Self-insurance provisions represent the uninsured portion of outstanding claims at year-end. The current portion reflects the
amount expected to be paid in the following year. Due to the long-term nature of the liability, the provision has been calculated
using a discount rate of 3.0%.
16. Deferred tax assets and liabilities
Property and equipment
Intangible assets
Derivative financial instruments and investment in equity securities
Long-term debt
Employee benefits
Provisions
Tax losses
Other
Net deferred tax liabilities
Presented as:
Deferred tax assets
Deferred tax liabilities
(*) Recasted (see note 5 c))
Movement in temporary differences during the year:
Recognized
in income or
loss from
Recognized
in income or
loss from
continuing discontinued
operations
operations
Balance
December 31,
2015
Partnership investments
(9,953 )
9,953
Property and equipment
Intangible assets
Long-term debt
Employee benefits
Provisions
Tax losses
Other
(140,986 )
(117,351 )
10,553
5,305
10,671
14,284
(1,680 )
14,222
(4,650 )
1,850
1,886
(13,734 )
(386 )
4,389
Net deferred tax liabilities
(227,863 )
12,236
—
218
(1,299 )
13
—
(572 )
—
(2,046 )
(3,686 )
2017
2016*
(181,628 )
(103,987 )
(1,890 )
3,877
9,730
13,025
6,583
(764 )
(270,191 )
(136,028 )
1,248
5,903
7,102
21,334
550
(442 )
(255,054 )
(370,524 )
5,138
8,410
(260,192 )
(378,934 )
Transfer of
Recognized
directly in
Acquired
in business
equity combinations*
Balance
group December 31,
2016*
held for sale
deferred taxes
to disposal
—
—
—
—
2,151
1,001
—
(53 )
—
—
(3,166 )
(130,659 )
(32,976 )
—
—
9,457
—
—
(67 )
(154,178 )
765
375
(13 )
—
(108 )
—
2,015
3,034
(270,191 )
(136,028 )
5,903
7,102
21,334
550
806
(370,524 )
2017 Annual Report
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
16. Deferred tax assets and liabilities (continued)
Balance
December 31,
2016
(270,191 )
(136,028 )
5,903
7,102
21,334
550
806
Recognized
in income or
loss from
continuing
operations
78,470
37,880
(2,026 )
1,862
(7,274 )
6,730
(2,052 )
Property and equipment
Intangible assets
Long-term debt
Employee benefits
Provisions
Tax losses
Other
Net deferred tax liabilities
(370,524 )
113,590
(*) Restated (see note 5 c))
Recognized
directly in
equity
11,683
4,834
—
766
(1,135 )
(697 )
(1,408 )
14,043
Acquired
in business
combinations
Balance
December 31,
2017
(1,590 )
(10,673 )
—
—
100
—
—
(12,163 )
(181,628 )
(103,987 )
3,877
9,730
13,025
6,583
(2,654 )
(255,054 )
Tax losses expire between 2027 and 2037 and the related deferred tax assets have been recognized because it is probable that
future taxable income will be available to benefit from these losses.
17. Share capital and other components of equity
The Company is authorized to issue an unlimited number of common shares and preferred shares, issuable in series. Both
common and preferred shares are without par value. All issued shares are fully paid.
The common shares entitle the holders thereof to one vote per share. The holders of the common shares are entitled to receive
dividends as declared from time to time. Subject to the rights, privileges, restrictions and conditions attached to any other class
of shares of the Company, the holders of the common shares are entitled to receive the remaining property of the Company
upon its dissolution, liquidation or winding-up.
The preferred shares may be issued in one or more series, with such rights and conditions as may be determined by resolution of
the Directors who shall determine the designation, rights, privileges, conditions and restrictions to be attached to the preferred
shares of such series. There are no voting rights attached to the preferred shares except as prescribed by law. In the event of the
liquidation, dissolution or winding-up of the Company, or any other distribution of assets of the Company among its
shareholders, the holders of the preferred shares of each series are entitled to receive, with priority over the common shares and
any other shares ranking junior to the preferred shares of the Company, an amount equal to the redemption price for such
shares, plus an amount equal to any dividends declared thereon but unpaid and not more. The preferred shares for each series
are also entitled to such other preferences over the common shares and any other shares ranking junior to the preferred shares
as may be determined as to their respective series authorized to be issued. The preferred shares of each series shall be on a
parity basis with the preferred shares of every other series with respect to payment of dividends and return of capital. There are
no preferred shares currently issued and outstanding.
The following table summarizes the number of common shares issued:
(in number of shares)
Balance, beginning of year
Repurchase and cancellation of own shares
Stock options exercised
Repurchase and cancellation of own shares - Substantial issuer bid
Balance, end of year
Note
2017
2016
91,575,319
97,632,502
(2,810,126 )
(3,742,778 )
19
358,395
385,519
—
(2,699,924 )
89,123,588
91,575,319
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
17. Share capital and other components of equity (continued)
The following table summarizes the share capital issued and fully paid:
Balance, beginning of year
Repurchase and cancellation of own shares
Cash consideration of stock options exercised
Ascribed value credited to share capital on stock options exercised
Issuance of shares on settlement of RSUs
Balance, end of year
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
69
2017
723,390
(22,231 )
6,234
1,514
2,129
2016
764,343
(50,478 )
6,517
1,742
1,266
711,036
723,390
Pursuant to the renewal of the normal course issuer bid (“NCIB”) which began on October 2, 2017 and expiring on October 1,
2018, the Company is authorized to repurchase for cancellation up to a maximum of 6,000,000 of its common shares under
certain conditions. As at December 31, 2017, and since the inception of this NCIB, the Company has repurchased and cancelled
979,400 common shares under this NCIB.
During 2017, the Company repurchased 2,810,126 common shares at a price ranging from $26.56 to $32.00 per share for a
total purchase price of $81.6 million relating to the NCIB. During 2016, the Company repurchased 3,742,778 common shares at
a price ranging from $22.00 to $27.30 per share for a total purchase price of $91.8 million relating to a previous NCIB. The
excess of the purchase price paid over the carrying value of the shares repurchased in the amount of $59.3 million (2016 –
$62.4 million) was charged to retained earnings as share repurchase premium.
On February 11, 2016, the Company announced a substantial issuer bid (“SIB”) to purchase, for cancellation, up to 10 million
common shares for an aggregate purchase price not to exceed $220 million (the ‘Offer’).
The Offer was made by way of a “modified Dutch Auction” pursuant to which shareholders may tender all or a portion of their
shares (i) at a price not less than $19.00 and not more than $22.00 per share, in increments of $0.10 per share, or (ii) without
specifying a purchase price, in which case their shares would be purchased at the purchase price determined in accordance with
the Offer.
The offer expired on March 28, 2016. The Company purchased and cancelled 2,699,924 common shares at a price of $22.00
per share, for a total purchase price of $59.4 million relating to this SIB. The excess of the purchase price paid over the carrying
value of the shares repurchased in the amount of $38.3 million was charged to retained earnings as share repurchase premium.
Contributed surplus
The contributed surplus account is used to record amounts arising on the issue of equity-settled share-based payment awards
(see note 19).
Accumulated other comprehensive income (“AOCI”)
At December 31, 2017 and 2016, AOCI is comprised of accumulated foreign currency translation differences arising from the
translation of the financial statements of foreign operations, changes in fair value of available for sale financial assets (prior to
the adoption of IFRS 9), financial assets measured at fair value through OCI, gain or loss on net investment hedge, realized gains
on investments, cash flow hedges and defined benefit plan remeasurement gain or loss.
Dividends
In 2017, the Company declared dividends amounting to 78.0 cents per common share (2016 – 70.0 cents) for a total of $70.3
million (2016 - $64.9 million). After December 31, 2017 no dividends were declared by the Board of Directors.
2017 Annual Report
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
18. Earnings per share
Basic earnings per share
The basic earnings per share and the weighted average number of common shares outstanding have been calculated as follows:
(in thousands of dollars and number of shares)
Net income attributable to owners of the Company
Net income from continuing operations
Issued common shares, beginning of year
Effect of stock options exercised
Effect of repurchase of own shares
Weighted average number of common shares
Earnings per share – basic
Earnings per share from continuing operations – basic
2017
157,988
157,988
2016
639,579
157,059
91,575,319
97,632,502
109,479
94,049
(1,191,059 )
(4,017,885 )
90,493,739
93,708,666
1.75
1.75
6.83
1.68
Diluted earnings per share
The diluted earnings per share and the weighted average number of common shares outstanding after adjustment for the
effects of all dilutive common shares have been calculated as follows:
(in thousands of dollars and number of shares)
Net income attributable to owners of the Company
Net income from continuing operations attributable to owners of the Company,
adjusted for dilution effect
Weighted average number of common shares
Dilutive effect:
Stock options and restricted share units
Weighted average number of diluted common shares
Earnings per share - diluted
Earnings per share from continuing operations - diluted
2017
157,988
2016
639,579
157,988
157,059
90,493,739
93,708,666
2,284,144
1,811,827
92,777,883
95,520,493
1.70
1.70
6.70
1.64
As at December 31, 2017, 394,056 stock options were excluded from the calculation of diluted earnings per share as these
options were deemed to be anti-dilutive (2016 – 1,909,897).
The average market value of the Company’s shares for purposes of calculating the dilutive effect of stock options was based on
quoted market prices for the period during which the options were outstanding.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
71
19. Share-based payment arrangements
Stock option plan
The Company offers a stock option plan for the benefit of certain of its employees. The maximum number of shares that can be
issued upon the exercise of options granted under the current 2012 stock option plan is 5,979,201. Each stock option entitles
its holder to receive one common share upon exercise. The exercise price payable for each option is determined by the Board of
Directors at the date of grant, and may not be less than the closing price of volume weighted average trading price of the
Company’s shares for the last five trading days immediately preceding the grant date. The options vest in equal installments
over three years and the expense is recognized following the accelerated method as each installment is fair valued separately.
The table below summarizes the changes in the outstanding stock options:
(in thousands of options and in dollars)
Balance, beginning of year
Granted
Exercised
Forfeited
Balance, end of year
2017
Number
of
options
Weighted Number
of
options
average
exercise price
2016
Weighted
average
exercise price
5,496
395
(358 )
(40 )
5,493
18.02
35.02
17.39
28.21
19.22
4,934
1,039
(386 )
(91 )
5,496
16.67
24.64
16.90
24.75
18.02
Options exercisable, end of year
4,170
16.52
3,764
14.92
The following table summarizes information about stock options outstanding and exercisable at December 31, 2017:
(in thousands of options and in dollars)
Options outstanding
Options exercisable
Exercise prices
6.32
9.46
14.28
16.46
20.18
24.64
24.93
25.14
35.02
Weighted
average
remaining
contractual life
(in years)
Number
of
options
685
620
381
665
632
988
786
354
382
5,493
1.6
2.6
0.6
1.6
2.6
5.6
4.6
3.6
6.1
3.3
Number
of
options
685
620
381
665
632
324
509
354
—
4,170
Of the options outstanding at December 31, 2017, a total of 4,456,400 (2016 – 4,667,432) are held by key management
personnel.
The weighted average share price at the date of exercise for stock options exercised in 2017 was $31.79 (2016 – $29.99).
In 2017, the Group recognized a compensation expense of $3.4 million (2016 – $3.1 million) with a corresponding increase to
contributed surplus.
2017 Annual Report
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
19. Share-based payment arrangements (continued)
On February 16, 2017, the Board of Directors approved the grant of 395,113 stock options under the Company’s stock option
plan of which 240,254 were granted to key management personnel. The options vest in equal installments over three years and
have a life of seven years. The fair value of the stock options granted was estimated using the Black-Scholes option pricing
model using the following weighted average assumptions:
Average expected option life
Risk-free interest rate
Expected stock price volatility
Average dividend yield
February 16, 2017
July 21, 2016
4.5 years
1.04%
22.46%
2.17%
4.5 years
0.56%
23.01%
2.83%
Weighted average fair value per option of options granted
$
5.34
$
3.33
Deferred share unit plan for board members
The Company offers a deferred share unit plan (“DSU”) for its board members. Under this plan, board members may elect to
receive cash, deferred share units or a combination of both for their compensation. The following table provides the number of
units related to this plan:
(in units)
Balance, beginning of year
Board members compensation
Deferred share units redeemed
Dividends paid in units
Balance, end of year
2017
260,567
27,633
(13,428 )
6,551
281,323
2016
255,053
36,031
(38,108 )
7,591
260,567
In 2017, the Group recognized, as a result of deferred share units, a compensation expense of $0.9 million (2016 - $1.0 million)
with a corresponding increase to trade and other payables. In addition, in other finance costs, the Group recognized a mark-to-
market gain of $0.3 million on deferred share units in 2017 (2016 – loss of $3.2 million).
As at December 31, 2017, the total carrying amount of liabilities for cash-settled arrangements recorded in trade and other
payables amounted to $9.3 million (2016 - $9.1 million).
Performance contingent restricted share unit plan
The Company offers an equity incentive plan to the benefits of senior employees of the Group. The plan provides for the
issuance of restricted share units (‘‘RSUs’’) under conditions to be determined by the Board of Directors. The RSUs will vest in
December of the second year from the grant date. Upon satisfaction of the required service period, the plan provides for
settlement of the award through shares.
On February 16, 2017, the Company granted a total of 60,931 RSUs under the Company’s equity incentive plan of which
36,494 were granted to key management personnel. The fair value of the RSUs is determined to be the share price fair value at
the date of the grant and is recognized as a share-based compensation expense, through contributed surplus, over the vesting
period. The fair value of the RSU’s granted during the year was $35.02 per unit.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
19. Share-based payment arrangements (continued)
The table below summarizes changes to the outstanding RSUs:
(in thousands of RSUs and in dollars)
Balance, beginning of year
Granted
Reinvested
Settled
Forfeited
Balance, end of year
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
73
2017
Weighted
average
exercise
price
Number
of
RSUs
2016
Weighted
average
exercise
price
Number
of
RSUs
281
61
8
(143 )
(1 )
206
24.78
35.02
26.14
24.93
29.14
27.74
224
143
7
(86 )
(7 )
281
25.01
24.64
24.98
25.13
24.95
24.78
The following table summarizes information about RSUs outstanding and exercisable as at December 31, 2017:
(in thousands of RSUs and in dollars)
Exercise prices
24.64
35.02
RSUs outstanding
Number of
RSUs
Remaining
contractual life
(in years)
145
61
206
1.0
2.0
1.3
The weighted average share price at the date of settlement of RSUs vested in 2017 was $32.87 (2016 – $33.53). The excess of
the purchase price paid over the carrying value of shares repurchased for settlement of the award, in the amount of $3.3 million
(2016 – $2.1 million), was charged to retained earnings as share repurchase premium.
In 2017, the Group recognized as a result of RSUs a compensation expense of $3.4 million (2016 - $3.0 million) with a
corresponding increase to contributed surplus.
Of the RSUs outstanding at December 31, 2017, a total of 129,246 (2016 – 198,832) are held by key management personnel.
20. Operating expenses
The Group’s operating expenses from continuing operations include: a) materials and services expenses, which are primarily
costs related to independent contractors and vehicle operation; vehicle operation expenses, which primarily include fuel, repairs
and maintenance, insurance, permits and operating supplies; b) personnel expenses; c) other operating expenses, which are
primarily composed of costs related to offices’ and terminals’ rent, taxes, heating, telecommunications, maintenance and
security and other general administrative expenses; and d) depreciation, amortization and gain or loss on disposition of rolling
stock and equipment.
Materials and services expenses
Independent contractors
Vehicle operation expenses
Personnel expenses
Other operating expenses
Depreciation of property and equipment
Amortization of intangible assets
Gain on sale of rolling stock and equipment
2017
2016
1,931,800
1,751,707
808,034
600,887
2,739,834
2,352,594
1,220,871
268,599
209,557
61,200
998,031
243,713
139,439
53,647
(2,766 )
(11,481 )
4,497,295
3,775,943
2017 Annual Report
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
21. Sale of assets held for sale
During the year ended December 31, 2017, the Group disposed of properties classified as assets held for sale for total
consideration of $174.8 million (2016 – nil). The Group has concluded a number of sale and leaseback transactions. The all-cash
transactions totalling $166.4 million resulted in a pre-tax gain of $78.0 million. As a result of these transactions, commitments
increased by $112.1 million at December 31, 2017.
22. Personnel expenses
Short-term employee benefits
Contributions to defined contribution plans
Current and past service costs related to defined benefit plans
Termination benefits
Equity-settled share-based payment transactions
Cash-settled share-based payment transactions
23. Finance income and finance costs
Recognized in income or loss:
(Income) costs
Interest expense on long-term debt
Interest income and accretion on promissory note
Net foreign exchange loss
Net change in fair value of foreign exchange derivatives
Net change in fair value of interest rate derivatives
Other financial expenses
Reclassification to income of gain on investment in equity securities
Net finance costs
Presented as:
Finance income
Finance costs
24. Income tax expense
Note
2017
2016
14
19
19
1,187,950
970,855
11,499
12,394
591
13,091
6,817
923
541
7,063
6,164
1,014
1,220,871
998,031
2017
56,758
(2,638 )
2,491
(1,247 )
(365 )
6,076
—
61,075
(4,250 )
65,325
2016
41,201
(2,374 )
2,110
(1,392 )
6,232
10,171
(1,066 )
54,882
(4,832 )
59,714
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“U.S. Tax Reform”). The
U.S. Tax Reform reduces the U.S. federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. The U.S.
Tax Reform also allows for immediate capital expensing of new investments in certain qualified depreciable assets made after
September 27, 2017, which will be phased down starting in year 2023. As a result of the U.S. Tax Reform, the Group’s net
deferred income tax liability decreased by $76.1 million.
The U.S. Tax Reform introduces other important changes to U.S. corporate income tax laws that may significantly affect the
Group in future years including the creation of a new Base Erosion Anti-abuse Tax (BEAT) that subjects certain payments from
U.S. corporations to foreign related parties to additional taxes, and limitations to the deduction for net interest expense incurred
by U.S. corporations. Future regulations and interpretations to be issued by U.S. authorities may also impact the Group’s
estimates and assumptions used in calculating its income tax provisions.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
75
24. Income tax expense (continued)
Income tax recognized in income or loss:
Current tax expense
Current year
Adjustment for prior years
Deferred tax expense (recovery)
Origination and reversal of temporary differences
Variation in tax rate
Adjustment for prior years
Income tax expense (recovery) from continuing operations
Income tax recognized in other comprehensive income:
2017
2016
74,148
(1,200 )
72,948
(34,455 )
(76,244 )
(2,891 )
(113,590 )
(40,642 )
63,324
(4,816 )
58,508
(14,548 )
(34 )
2,346
(12,236 )
46,272
2017
Tax
(benefit)
expense
Before
tax
Net of
tax
Before
Tax
2016
Tax
(benefit)
expense
Net of
tax
(133 )
(17 )
(116 )
(1,217 )
(163 )
(1,054 )
(80,212 )
—
(80,212 )
(24,788 )
—
(24,788 )
(2,632 )
(212 )
(702 )
(64 )
(1,930 )
(148 )
556
(316 )
149
(95 )
407
(221 )
(1,485 )
25,114
5,352
(54,208 )
(198 )
3,353
1,425
3,797
(1,287 )
21,761
3,927
(58,005 )
(300 )
25,824
12,454
12,213
(40 )
3,451
3,329
6,631
(260 )
22,373
9,125
5,582
Change in fair value of investment
in equity securities
Foreign currency translation
differences
Defined benefit plan
remeasurement gains (losses)
Employee benefit
Reclassification to retained earnings
of accumulated unrealized loss
on investment in equity securities
Gain on net investment hedge
Gain on cash flow hedge
Reconciliation of effective tax rate:
Income before income tax
117,346
203,331
Income tax using the Company’s statutory tax rate
26.8 %
31,449
26.9 %
54,696
Increase (decrease) resulting from:
Rate differential between jurisdictions
(31.0 %)
(36,405 )
(3.7 %)
(7,588 )
2017
2016
Variation in tax rate
Non deductible expenses
Tax exempt income
Adjustment for prior years
Others
(65.0 %)
(76,244 )
44.7 %
52,460
(9.0 %)
(10,513 )
(3.5 %)
2.3 %
(4,091 )
2,702
0.0 %
1.9 %
(1.2 %)
(1.2 %)
0.0 %
(34 )
3,950
(2,365 )
(2,470 )
83
(34.7 %)
(40,642 )
22.7 %
46,272
2017 Annual Report
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
25. Financial instruments and financial risk management
Derivative financial instruments’ fair values were as follows:
Current assets
Interest rate derivatives
Non-current assets
Interest rate derivatives
Current liabilities
Embedded foreign exchange
derivatives in finance leases
Interest rate derivatives
Non-current liabilities
Embedded foreign exchange
derivatives in finance leases
Interest rate derivatives
Measured at fair value
through income or loss
Designated as effective
cash flow hedge instruments
Note
2017
2016
2017
2016
a
a
a
a
—
—
311
—
311
—
—
—
—
—
1,062
162
1,224
496
—
496
4,521
741
4,317
1,287
—
248
248
—
373
373
—
1,152
1,152
—
3,211
3,211
As at December 31, 2017 and 2016, the impact to income or loss and other comprehensive income is as follows:
Finance loss (income)
2017
2016
Other comprehensive loss
2016
2017
Derivative financial instruments measured at fair value
through income or loss:
Cross currency interest rate swap contracts
Interest rate derivatives
Foreign exchange derivatives
—
(365 )
—
11,375
6,232
177
Embedded foreign exchange derivatives in finance
leases
(1,247 )
(1,569 )
—
—
—
—
—
—
—
—
Derivative financial instruments measured at fair value
through other comprehensive income:
Interest rate derivatives
—
—
(1,612 )
16,215
(5,352 )
(5,352 )
(12,454 )
(12,454 )
Risks
In the normal course of its operations and through its financial assets and liabilities, the Group is exposed to the following risks:
credit risk
•
•
liquidity risk
• market risk.
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives and processes for
managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these
consolidated financial statements.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
77
25. Financial instruments and financial risk management (continued)
Risk management framework
The Group’s management identifies and analyzes the risks faced by the Group, sets appropriate risk limits and controls, and
monitors risks and adherence to limits. Risk management is reviewed regularly to reflect changes in market conditions and the
Group’s activities.
The Board of Directors has overall responsibility of the Group’s risk management framework. The Board of Directors monitors
the Group’s risks through its audit committee. The audit committee reports regularly to the Board of Directors on its activities.
The Group’s audit committee oversees how management monitors and manages the Group’s risks and is assisted in its oversight
role by the Group’s internal audit. Internal audit undertakes both regular and ad hoc reviews of risk, the results of which are
reported to the audit committee.
a) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligation, and arises principally from the Group’s trade receivables. The Group grants credit to its customers in
the ordinary course of business. Management believes that the credit risk of trade receivables is limited due to the following
reasons:
There is a broad base of customers with dispersion across different market segments;
•
• No single customer accounts for more than 10% of the Group’s revenue;
• Approximately 94.5% (2016 – 92.9%) of the Group’s trade receivables are not past due or 30 days or less past due;
Bad debt expense has been approximately 0.1% (2016 – 0.1%) of consolidated revenues for the last 3 years.
•
Exposure to credit risk
The Group’s maximum credit exposure corresponds to the carrying amount of the financial assets. The maximum exposure
to credit risk at the reporting date was:
Trade and other receivables
Promissory note
Derivative financial assets
Impairment losses
The aging of trade and other receivables at the reporting date was:
2017
2016
567,106
569,181
20,739
8,838
18,962
2,028
596,683
590,171
Not past due
Past due 1 – 30 days
Past due 31 – 60 days
Past due more than 60 days
Total
2017
Impairment
2017
Total
2016
Impairment
2016
424,745
112,135
23,120
14,037
574,037
—
693
2,079
4,159
6,931
414,794
114,523
25,328
20,961
575,606
—
643
1,928
3,854
6,425
2017 Annual Report
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
25. Financial instruments and financial risk management (continued)
a) Credit risk (continued)
Impairment losses (continued)
The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows:
Balance, beginning of year
Business combinations
Bad debt expenses
Amount written off and recoveries
Balance, end of year
2017
6,425
651
2,147
(2,292 )
6,931
2016
10,277
1,943
113
(5,908 )
6,425
The impaired trade receivables are mostly due from customers that are experiencing financial difficulties.
The promissory note has been individually evaluated for impairment due to its significance.
b)
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far
as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to its reputation.
Cash inflows and cash outflows requirements from Group’s entities are monitored closely and separately to ensure the
Group optimizes its cash return on investment. Typically, the Group ensures that it has sufficient cash to meet expected
operational expenses; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted. The
Group monitors its short and medium-term liquidity needs on an ongoing basis using forecasting tools. In addition, the
Group maintains a revolving facility, which has $501.3 million availability at December 31, 2017 (2016 - $410.0 million)
and has an additional $250 million credit available (C$245 million and US$5 million) under certain conditions under its
syndicated bank agreement (2016 - $250 million, C$245 million and US$5 million).
The following are the contractual maturities of the financial liabilities, including estimated interest payment:
December 31, 2017
Trade and other payables
Long-term debt
Derivatives financial liabilities
Other financial liability
December 31, 2016
Trade and other payables
Long-term debt
Derivatives financial liabilities
Other financial liability
Carrying
amount
Contractual
cash flows
Less than
1 year
1 to 2
years
2 to 5
years
More than
5 years
425,815
425,815
1,498,396
932
14,581
1,657,039
932
17,000
425,815
105,490
559
1,300
—
—
352,127
249
6,555
1,199,422
124
9,145
1,939,724
2,100,786
533,164
358,931
1,208,691
455,175
1,584,815
6,083
5,447
455,175
1,741,045
6,083
5,692
455,175
91,092
2,376
1,300
—
303,998
1,649
1,300
—
1,345,955
1,953
3,092
2,051,520
2,207,995
549,943
306,947
1,351,000
—
—
—
—
—
—
—
105
—
105
It is not expected that the contractual cash flows could occur significantly earlier, or at significantly different amounts.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
79
25. Financial instruments and financial risk management (continued)
c) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the
Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage
and control market risk exposure within acceptable parameters, while optimizing the return.
The Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks. All such
transactions are carried out within the guidelines set by the Group’s management and it does not use derivatives for
speculative purposes.
d) Currency risk
The Group is exposed to currency risk on financial assets and liabilities, sales and purchases that are denominated in a
currency other than the respective functional currencies of Group entities. Primarily the Canadian entities are exposed to
U.S. dollars and entities having a functional currency other than the Canadian dollars (foreign operations) are not
significantly exposed to currency risk. The Group mitigates and manages its future US$ cash flow by creating offsetting
positions through the use of derivatives. These instruments include foreign exchange contracts and currency option
instruments, which are commitments to buy or sell at a future date, and may be settled in cash.
To mitigate its financial net liabilities exposure to foreign currency risk related to Canadian entities, the Group designated a
portion of its U.S. dollar denominated debt as a hedging item in a net investment hedge.
The Group’s financial assets and liabilities exposure to foreign currency risk related to Canadian entities was as follows
based on notional amounts:
(in thousands of U.S. dollars)
Trade and other receivables
Trade and other payables
Long-term debt
Balance sheet exposure
Long-term debt designated as investment hedge
Net balance sheet exposure
2017
2016
35,437
(6,208 )
(328,167 )
(298,938 )
325,000
37,644
(5,248 )
(332,539 )
(300,143 )
325,000
26,062
24,857
The Group estimates its annual net US$ denominated cash flow from operating activities at approximately $280 million
(2016 - $240 million). This cash flow is earned evenly throughout the year.
The following exchange rates applied during the year:
Average US$ for the year ended December 31
Closing US$ as at December 31
Sensitivity analysis
2017
1.2982
1.2545
2016
1.3245
1.3427
A 1-cent increase in the U.S. dollar at the reporting date, assuming all other variables, in particular interest rates, remain
constant, would have increased (decreased) equity and income or loss by the amounts shown below. The analysis is
performed on the same basis for 2016.
Balance sheet exposure
Long-term debt designated as investment hedge
Net balance sheet exposure
2017
2016
1-cent
Increase
1-cent
Decrease
1-cent
Increase
1-cent
Decrease
(2,383 )
2,591
208
2,383
(2,591 )
(208 )
(2,235 )
2,420
185
2,235
(2,420 )
(185 )
Net impact on change in fair value of foreign exchange derivatives is not significant.
2017 Annual Report
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
25. Financial instruments and financial risk management (continued)
e)
Interest rate risk
The Group’s intention is to minimize its exposure to changes in interest rates by maintaining a significant portion of fixed-
rate interest-bearing long-term debt. This is achieved by entering into interest rate swaps.
On October 27, 2016, pursuant to the adoption of IFRS 9, the Group entered into interest rate swaps designated for cash
flow hedges at the inception of the swap for $500 million. This variable interest debt sets interest using the 30-day Banker`s
Acceptance rate. In addition, on November 1, 2016, the Group further designated for cash flow hedges of pre-existing
interest rate swaps of $325 million to hedge variable interest debt set using the 30-day Libor rate. A $5.4 million gain, $4.0
million net of tax, (2016 - $12.5 million gain, $9.1 million net of tax) was recorded on the marking-to-market of the
interest rate derivative to other comprehensive income for these cash flow hedges.
Ineffectiveness in hedging stems from differences between the hedged item and hedging instruments with respect to
interest rate characteristics, currency, notional values and term. For the year ended December 31, 2017, the derivatives
designated as cash flow hedges were considered to be fully effective and no ineffectiveness has been recognized in net
earnings.
At December 31, 2017 and 2016, the interest rate profile of the Group’s carrying amount interest-bearing financial
instruments excluding the effects of interest rate derivatives was:
Fixed rate instruments
Variable rate instruments
2017
307,503
1,190,893
1,498,396
2016
337,661
1,247,154
1,584,815
The Group’s interest rate derivatives are as follows:
2017
2016
Notional
Notional
Notional
Notional
Average Contract Average Contract
Libor Amount
rate
B.A. Amount
rate
CDN$
Fair
value
US$ CDN$
Average Contract Average Contract
Libor Amount
rate
B.A. Amount
rate
CDN$
Fair
value
US$ CDN$
Coverage period:
Less than 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
5 to 6 years
Asset (liability)
Presented as:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
0.98% 500,000 1.92% 325,000 4,273
0.99% 300,000 1.92% 325,000 3,129
433
218
164
—
— 1.89% 237,500
— 1.92% 100,000
— 1.92% 75,000
—
—
—
—
—
—
—
0.98% 500,000 1.85% 350,000
0.98% 500,000 1.92% 325,000
0.99% 300,000 1.92% 325,000
— 1.89% 237,500
— 1.92% 100,000
— 1.92% 75,000
—
—
—
(573 )
(411 )
(605 )
(661 )
(141 )
(106 )
8,217
4,521
4,317
(248 )
(373 )
(2,497 )
741
1,287
(1,314 )
(3,211 )
The fair value of the interest rate swaps has been estimated using industry standard valuation models which use rates
published on financial capital markets.
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
81
25. Financial instruments and financial risk management (continued)
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial liabilities at fair value through income or loss. Therefore a change in
interest rates at the reporting date would not affect income or loss.
Cash flow sensitivity analysis for variable rate instruments
A 1% change in interest rates at the reporting date would have increased (decreased) equity and net income or net loss by the
amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The
analysis is performed on the same basis for 2016.
Interest on variable rate instrument
Interest on interest rate swaps
Impact on instruments used in cash flow hedge:
Interest on variable rate instrument
Interest on interest rate swaps
2017
2016
1% increase
1% decrease
1% increase
1% decrease
(2,070 )
—
(2,070 )
2,070
—
2,070
(2,272 )
245
(2,027 )
2,272
(245 )
2,027
2017
2016
1% increase
1% decrease
1% increase
1% decrease
(6,635 )
6,635
—
6,635
(6,635 )
—
(6,845 )
6,845
—
6,845
(6,845 )
—
Net impact on change in fair value of interest rate swaps is not significant.
f) Capital management
For the purposes of capital management, capital consists of share capital and retained earnings of the Group. The Group’s
objectives when managing capital are:
•
•
•
•
To ensure proper capital investment in order to provide stability and competitiveness to its operations;
To ensure sufficient liquidity to pursue its growth strategy and undertake selective acquisitions;
To maintain an appropriate debt level so that there are no financial constraints on the use of capital; and
To maintain investors, creditors and market confidence.
The Group seeks to maintain a balance between the highest returns that might be possible with higher level of borrowings
and the advantages and security by a sound capital position.
The Group monitors its long-term debt using the ratios below to maintain an appropriate debt level. The Group’s debt-to-
equity and debt-to-capitalization ratios are as follows:
Long-term debt
Shareholders’ equity
Debt-to-equity ratio
Debt-to-capitalization ratio
2017
2016
1,498,396
1,415,124
1,584,815
1,458,650
1.06
0.51
1.09
0.52
2017 Annual Report
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
25. Financial instruments and financial risk management (continued)
f) Capital management (continued)
There were no changes in the Group’s approach to capital management during the year.
The Group’s credit facility agreement requires monitoring two ratios on a quarterly basis. The first is a ratio of total debt
plus letters of credit and some other long-term liabilities to earnings before interest, income taxes, depreciation and
amortization (“EBITDA”). The second is a ratio of adjusted earnings before interest, income taxes, depreciation and
amortization and rent expense (“EBITDAR”), and, including last twelve months adjusted EBITDAR from acquisitions to
interest and net rent expenses. These ratios are measured on a consolidated last twelve-month basis and must be kept
below a certain threshold so as not to breach a covenant in the Group’s syndicated bank. At December 31, 2017 and
December 31, 2016, the Group was in compliance with its financial covenants.
The Group has sufficient liquidity to continue both its operations as well as its acquisition strategy.
Upon maturity of the Group’s long-term debt, the Group’s management and its Board of Directors will assess if the long-
term debt should be renewed at its original value, increased or decreased based on the then required capital need, credit
availability and future interest rates.
g) Accounting classification and fair values
The fair values of financial assets and liabilities, together with the carrying amounts shown in the statements of financial
position, are as follows:
Financial assets
Assets carried at fair value
Derivative financial instruments
Investment in equity securities
Assets carried at amortized cost
Cash and cash equivalents
Trade and other receivables
Promissory note
Financial liabilities
Liabilities carried at fair value
Derivative financial instruments
Other financial liability
Liabilities carried at amortized cost
Bank indebtedness
Trade and other payables
Long-term debt
2017
Carrying
Amount
2016
Fair
Value
Carrying
Amount
Fair
Value
8,838
6,310
—
567,106
20,739
602,993
8,838
6,310
—
567,106
20,739
602,993
2,028
15,884
3,654
569,181
18,962
609,709
2,028
15,884
3,654
569,181
18,962
609,709
932
14,581
932
14,581
6,083
5,447
6,083
5,447
9,392
425,815
1,498,396
9,392
425,815
1,563,730
—
455,175
1,584,815
1,949,116
2,014,450
2,051,520
—
455,175
1,647,483
2,114,188
TFI International
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
83
25. Financial instruments and financial risk management (continued)
g) Accounting classification and fair values (continued)
Interest rates used for determining fair value
The interest rates used to discount estimated cash flows, when applicable, are based on the government yield curve at
December 31 plus an adequate credit spread, and were as follows:
Long-term debt
2017
3.1%
2016
3.1%
Fair value hierarchy
Group’s financial assets and liabilities recorded at fair value on a recurring basis are investment in equity securities and the
derivative financial instruments discussed above. Investment in equity securities are measured using level-1 inputs of the fair
value hierarchy and derivative financials instruments are measured using level-2 inputs.
The forward purchase agreement liability and the promissory note are valued at the fair value using level 3 inputs in the fair
value hierarchy. The fair value of the forward purchase agreement liability represents the present value of the exercise price
of the forward and is measured by applying the income approach using the probability-weighted expected payment of the
exit price and is based on discounted cash flows. Unobservable inputs within the fair value measurement include the exit
price and the expected payment date for the written put options. The exit price is based on a formulaic variable price which
is mainly a function of earnings levels in future periods and requires assumptions about revenue growth rates and operating
margins and the expected payment date of the exit price. If the future earnings levels in the future periods would increase
(decrease), the estimated fair value of forward purchase agreement liability would increase (decrease).
The fair value of the promissory note represents the present value of the future cash flows, based on the interest rate of the
note, discounted by the company specific rate of the counterparty of the note. The company specific rate is comprised of a
risk-free market rate and a company specific premium based on their risk profile. The counterparty to the note is GFL, a
private company, for which limited publicly available information exist. At the issuance of the promissory note, the fair
value was established using public information on the source of funding to acquire the Waste Management segment.
Subsequent to the initial measurement, adjustments to the company risk premium are made based on the analysis of
published financial information and on significant macro environmental factors impacting their segment. The risk-free
market rate is publicly available.
26. Operating leases, contingencies, letters of credit and other commitments
a) Operating leases
The Group entered into operating leases expiring on various dates through March 2035, with respect to rolling stock, real
estate and other. The total future minimum lease payments under non-cancellable operating leases are as follows:
Less than 1 year
Between 1 and 5 years
More than 5 years
2017
128,345
259,236
146,581
534,162
2016
128,339
246,284
100,898
475,521
In 2017, expense of $149.5 million was recognized in the consolidated statement of income in respect of operating leases
(2016 – $134.3 million).
2017 Annual Report
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
26. Operating leases, contingencies, letters of credit and other commitments (continued)
b) Contingencies
There are pending operational and personnel related claims against the Group. The Group has accrued $6.9 million for
claim settlements which are presented in long term provisions on the consolidated statements of financial position (2016 –
$6.7 million). In the opinion of management, these claims are adequately provided for and settlement should not have a
significant impact on the Group’s financial position or results of operations.
c)
Letters of credit
As at December 31, 2017, the Group had $40.1 million of outstanding letters of credit (2016 - $40.1 million).
d) Other commitments
As at December 31, 2017, the Group had $75 million of purchase and lease commitments materializing within a year (2016
– nil).
27. Related parties
Parent and ultimate controlling party
There is no single ultimate controlling party. The shares of the Company are widely held.
Transactions with key management personnel
Board members of the Company, executive officers and top managers of major Group’s entities are deemed to be key
management personnel. Compensation totalling $0.4 million (2016 – nil) was paid to a board member for consulting services
provided during 2017. There were no other transactions with key management personnel other than their respective
compensation.
Key management personnel compensation
In addition to their salaries, the Company also provides non-cash benefits to board members and executive officers.
Executive officers also participate in the Company’s stock option and performance contingent restricted share unit plans and
board members are entitled to deferred share units, as described in note 19. Costs incurred for key management personnel in
relation to these plans are detailed below.
Key management personnel compensation comprised:
Short-term benefits
Post-employment benefits
Equity-settled share-based payment transactions
Cash-settled share-based payment transactions
2017
10,574
1,035
4,515
923
17,047
2016
18,019
975
4,231
934
24,159
TFI International
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company of Canada
100 University Avenue, 8th floor
Toronto, Ontario M5J 2Y1
Telephone: 1 800 564-6253
Fax: 1 888 453-0330
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, April 25, 2018
at 1:30 p.m.
The Exchange Tower
130 King Street West
Toronto, Ontario M5X 1J2
Si vous désirez recevoir la version française de
ce rapport, veuillez écrire au secrétaire de la société :
8801, route Transcanadienne, bureau 500
Montréal (Québec) H4S 1Z6
Corporate
Information
EXECUTIVE OFFICE
96 Disco Road
Etobicoke, Ontario M9W 0A3
Telephone: 647 725-4500
HEAD OFFICE
8801 Trans-Canada Highway
Suite 500
Montreal, Quebec H4S 1Z6
Telephone: 514 331-4000
Fax: 514 337-4200
Web site: www.tfiintl.com
E-mail: administration@tfiintl.com
AUDITORS
KPMG LLP
STOCK EXCHANGE LISTING
TFI International Inc. shares are listed on the Toronto Stock
Exchange under the symbol TFII and on the OTCQX market-
place in the U.S. under the symbol TFIFF.
FINANCIAL INSTITUTIONS
National Bank of Canada
Royal Bank of Canada
Bank of America Merrill Lynch
Bank of Montreal
The Bank of Nova Scotia
Caisse Centrale Desjardins
JP Morgan Chase Bank
Toronto Dominion Bank
Bank of Tokyo-Mitsubishi UFJ (Canada)
Canadian Imperial Bank of Commerce
HSBC Bank Canada
PNC Bank Canada Branch
Alberta Treasury Branch
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www.tfiintl.com