TFI International
Annual Report 2018

Plain-text annual report

T F I I N T E R N A T I O N A L A N N U A L R E P O R T 2 0 1 8 www.tfiintl.com 2018 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS CONSOLIDATED FINANCIAL STATEMENTS FOR THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2018 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”, “TFI International” and “TFI” 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, 2018 with the corresponding three-month period and year ended December 31, 2017 and it reviews the Company’s financial position as of December 31, 2018. It also includes a discussion of the Company’s affairs up to February 27, 2019, 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, 2018. 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”) unless otherwise noted. 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 27, 2019. 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. 2018 Annual Report 2 MANAGEMENT’S DISCUSSION AND ANALYSIS SELECTED FINANCIAL DATA AND HIGHLIGHTS (unaudited) (in thousands of dollars, except per share data) Fourth quarters ended December 31 Years ended December 31 2018 2017* 2018 2017* 2016** Revenue before fuel surcharge 1,162,279 1,069,679 4,508,197 4,378,985 3,830,931 Fuel surcharge Total revenue Adjusted EBITDA1 Operating income Net income Adjusted net income1 Net cash from operating activities from continuing operations Free cash flow from continuing operations1 Total assets Total long-term debt Per share data EPS – diluted Adjusted EPS – diluted1 Dividends 159,166 123,199 615,011 458,429 320,720 1,321,445 1,192,878 5,123,208 4,837,414 4,151,651 180,654 103,283 76,728 86,262 131,017 66,076 120,192 53,945 686,283 430,524 291,994 321,612 514,481 178,421 157,988 192,188 442,351 258,213 157,059 187,517 173,848 103,917 116,148 102,432 543,503 339,707 372,601 376,487 337,908 288,340 4,049,960 3,727,628 4,049,960 3,727,628 4,026,879 1,584,423 1,498,396 1,584,423 1,498,396 1,584,815 0.85 0.96 0.24 1.31 0.59 0.21 3.22 3.54 0.87 1.70 2.07 0.78 1.64 1.96 0.70 As a percentage of revenue before fuel surcharge Adjusted EBITDA margin1 15.5% 12.2% 15.2% 11.7% 11.5% Depreciation of property and equipment Amortization of intangible assets Operating margin1 Adjusted operating ratio1 4.5% 1.3% 8.9% 4.5% 1.5% 6.2% 4.4% 1.4% 9.5% 4.8% 1.4% 4.1% 3.6% 1.4% 6.7% 90.3% 93.8% 90.6% 94.4% 93.5% (*) Recasted for changes in presentation (see note 3 of the audited consolidated financial statements). (**) From continuing operations and recasted for changes in presentation. Q4 Highlights • The comparatives to the consolidated statement of income have been reclassified to conform to the current period presentation regarding the line items included within the subtotal of operating income, as stated in the audited consolidated financial statements. As a result, the following measures have changed from Q4 2017 and year-end 2017: operating income and operating margin. • Record fourth quarter operating and financial results. • Operating income increased to $103.3 million, up 56% from the same quarter last year, driven by strong execution across the organisation, increased quality of revenue, and cost efficiencies. • Operating income and operating margin1, a non-IFRS measure, increased meaningfully at all four of the Company’s reportable segments with the exception of Logistics and Last Mile due to an impairment: o o Package and Courier operating income increased 22% to $34.4 million, with the operating margin increasing 200 basis points to 19.4%; Less-Than-Truckload operating income increased 77% to $23.5 million, with the operating margin increasing 360 basis points to 10.1%; 1 Refer to the section “Non-IFRS financial measures”. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 3 o o Truckload operating income increased 129% to $52.3 million, with the operating margin increasing 520 basis points to 9.9%; Logistics and Last Mile operating income decreased to $2.9 million due primarily to a $12.6 million impairment to intangible assets related to a prior year business acquisition in the segment. This impairment was offset by a $13.0 million reduction in contingent consideration for the same acquisition, which was recorded in net finance costs. Excluding the $12.6 million impairment, operating income increased 9% to $15.4 million with the operating margin increasing 50 basis points to 6.5%. • Net income of $76.7 million decreased by $43.5 million compared to Q4 2017, which included a $76.1 million reduction in income tax expense as a result of U.S. tax reform. • Diluted earnings per share (diluted “EPS”) of $0.85 compares to $1.31 in Q4 2017, with the decrease primarily attributable to the income tax expense reduction recorded in Q4 2017, partially offset by higher revenues and stronger operating margins. • Adjusted net income1, a non-IFRS measure, increased 60% to $86.3 million primarily due to higher revenues and stronger operating margins. • Adjusted diluted EPS1, a non-IFRS measure, increased 63% to $0.96 from $0.59 in Q4 2017. • Net cash from operating activities from continuing operations increased to $173.8 million, compared to $116.1 million in Q4 2017. • Debt-to-adjusted EBITDA ratio1, a non-IFRS measure, stood at 2.3x as of December 31, 2018, down from 2.9x as of December 31, 2017. • The Company returned $80.4 million to shareholders during the quarter, of which $18.5 million was through dividends and $61.9 million was through share repurchases. • During the quarter, TFI International completed the acquisitions of six Canadian specialized truckload companies. • On December 17, 2018, the Board of Directors of TFI declared a quarterly dividend of $0.24. This dividend represented a 14% increase over the $0.21 quarterly dividend declared in Q4 2017. 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 and Last Mile. 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. Furthermore, during the harsh winter months, fuel consumption and maintenance costs tend to rise. Human resources The Company has 17,127 employees who work in TFI International’s different business segments across North America. This compares to 17,044 employees as of December 31, 2017. The year-over-year increase of 83 is attributable to business acquisitions that added 1,098 employees offset by rationalizations affecting 1,015 employees mainly in the Less-Than-Truckload (“LTL”) and Logistics and Last Mile segments. 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. 1 Refer to the section “Non-IFRS financial measures”. 2018 Annual Report 4 MANAGEMENT’S DISCUSSION AND ANALYSIS Equipment The Company has the largest trucking fleet in Canada and a significant presence in the U.S. market. As at December 31, 2018, the Company had 7,465 power units, 26,487 trailers and 8,527 independent contractors. This compares to 7,058 power units, 24,617 trailers and 9,074 independent contractors as at December 31, 2017. Facilities TFI International’s head office is in Montréal, Québec and its executive office is located in Etobicoke, Ontario. As at December 31, 2018, the Company had 369 facilities, as compared to 391 facilities as at December 31, 2017. Of these, 264 are located in Canada, including 170 and 94, respectively, in Eastern and Western Canada. The Company also had 93 facilities in the United States and 12 facilities in Mexico. In the last twelve months, 14 facilities were added from business acquisitions and the terminal consolidation decreased the total number of facilities by 36, mainly in the Logistics and Last Mile segment. In Q4 2018, the Company closed 11 sites. 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 operations. The Company has forged strategic partnerships with other transport companies in order to extend its service offering to customers across North America. Revenue by Top Customers’ Industry (58% of total revenue) Retail Manufactured Goods Automotive Metals & Mining Building Materials Food & Beverage Energy Forest Products Services Waste Management Chemicals & Explosives Maritime Containers Others (For the year ended December 31, 2018) CONSOLIDATED RESULTS 30 % 14 % 8 % 8 % 7 % 6 % 5 % 5 % 4 % 3 % 3 % 1 % 6 % This section provides general comments on the consolidated results of operations. A more detailed analysis is provided in the “Segmented results” section. 2018 business acquisitions In line with its growth strategy, the Company acquired nine businesses during 2018: Normandin Transit (“Normandin”), Brasseur Transport (“Brasseur”), Timeline Logistic (“Timeline”), Gorski Bulk Transport (“GBT”), Double-D Transport (“Double-D”), SAF Transport (“SAF”), A. Beaumont Transport (“Beaumont”), Hughson Trucking (“Hughson”) and Cole Carriers Corp. (“Cole”). On April 3, 2018, TFI International completed the acquisition of Normandin. Based in Québec, Normandin provides cross-border LTL and Truckload (“TL”) services. On May 1, 2018, TFI International completed the acquisition of Brasseur. Based in Québec, Brasseur specializes in liquid bulk transportation across Canada and the U.S. On July 1, 2018, TFI International completed the acquisition of Timeline. Based in Saskatchewan, Timeline provides specialized long- distance truckload transportation services across North America, primarily serving the oil and gas, forestry products, and manufactured products industries. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 5 On October 1, 2018, TFI International acquired GBT. Based in Ontario, GBT has been in business for more than 60 years and specializes in the tank truck transportation of liquid and dry bulk commodities. On November 1, 2018, TFI International acquired Double-D. Based in Ontario, Double-D has been in business since 1991 and specializes in transporting over-sized and over-dimensional freight between Canada and the U.S. On November 21, 2018, TFI International acquired SAF. Based in Québec, SAF was founded in 1994 and offers specialized transportation and storage services. On December 1, 2018, TFI International acquired Beaumont. Based in Québec, Beaumont was founded in 1987 and specializes in the bulk transport of a variety of products ranging from fertilizer to hydro sulfate. On December 4, 2018, TFI International acquired certain assets of Hughson. Based in Alberta, Hughson offers transportation solutions to the oil and gas, forestry and lumber, agriculture, mining, construction, and food processing industries. On December 14, 2018, TFI International acquired certain assets of Cole. Based in Ontario, Cole provides a complete integrated supply chain management system specializing in handling and transportation for the steel, aluminum and automotive industries. Revenue For the quarter ended December 31, 2018, total revenue reached $1,321.4 million, up 11%, or $128.6 million, from Q4 2017, attributable to organic growth of $70.7 million and the contribution from business acquisitions of $57.9 million. Excluding business acquisitions1, fuel surcharge revenue increased by $29.7 million and revenue before fuel surcharge increased 4%, or $41.0 million, from a net increase of volume and pricing of $21.6 million mainly attributable to the Package and Courier segment and from a positive currency impact of $19.4 million. The average exchange rate used to convert TFI International’s revenue generated in U.S. dollars was 3.9% higher this quarter (C$1.3204) than it was for the same quarter last year (C$1.2709). For the year ended December 31, 2018, total revenue reached $5.12 billion, up 6%, or $285.8 million, from $4.84 billion in 2017 mainly due to the contribution from business acquisitions of $190.5 million. Operating expenses For the quarter ended December 31, 2018, the Company’s operating expenses increased by $91.4 million, or 8%, to $1,218.2 million from $1,126.8 million in Q4 2017. The increase is mainly attributable to business acquisitions that added $53.7 million. Excluding business acquisitions, operating expenses increased 3%, or $37.6 million compared to Q4 2017, while total revenue increased by 6%. Operating improvements, better fleet utilization and lower material and services expenses as a percentage of revenue contributed to maintaining the operating expenses in the Company’s existing operations below the Q4 2017 level as a percentage of total revenue. For the quarter ended December 31, 2018, material and services expenses, net of fuel surcharge, decreased by 3.7 percentage points of revenue before fuel surcharge compared to the same period last year mainly due to lower subcontractors, rolling stock lease and accident costs as a percentage of revenue before fuel surcharge. Personnel expenses increased by 1.0 percentage point of revenue before fuel surcharge partially attributable to adjustments to driver compensation to improve retention and attract new drivers. Other operating expenses, which are primarily composed of costs related to office and terminal rent, taxes, heating, telecommunications, maintenance and security and other general administrative expenses increased $4.2 million in absolute terms, but decreased by 0.2 percentage points of revenue before fuel surcharge compared to last year same period, mainly as a result of higher building repairs and maintenance expenses. Depreciation of property and equipment increased by $4.1 million, or 8%, compared to last year same period. As a percentage of revenue before fuel surcharge, depreciation of property and equipment remained stable at 4.5% compared to Q4 2017. Intangible asset amortization decreased by $0.5 million compared to last year same period mainly due to intangible assets that were completely amortized during the last twelve months. Gain on sale of equipment increased by $5.2 million compared to last year same period mainly due to the Company’s TL segment which incurred losses in Q4 2017, mainly generated by the CFI fleet renewal plan. For the year ended December 31, 2018, the Company’s operating expenses increased by $33.7 million, or 1%, from $4.66 billion in 2017 to $4.69 billion in 2018. The increase is mainly attributable to business acquisitions of $174.7 million and to lower gain on sale of property of $61.5 million, partially offset by operating improvements, better fleet utilization, lower material and services expenses in the Company’s existing operations of $23.8 million or 1%, lower depreciation of $18.6 million or 9% and to lower impairment of intangible assets of $130.4 million. 1 After removing from the current period any contributions from business acquisitions for the portion of time that such business acquisitions have no comparable results. 2018 Annual Report 6 MANAGEMENT’S DISCUSSION AND ANALYSIS Impairment of intangible assets In the quarter ended December 31, 2018, the Company recorded an impairment charge of $12.6 million on a customer relationship intangible asset related to a 2017 business acquisition in the Logistics and Last Mile segment. The difficulties in retaining and recruiting qualified subcontractors and the inability to successfully increase revenue impacted the current and expected future cash flow from that company. Accordingly, the contingent consideration recorded in the original purchase price allocation of that business acquisition was completely reversed as management determined that required minimum earning levels in future periods would not be reached. The resulting $13.0 million gain was presented as a change in fair value of contingent considerations in finance income and costs. In 2017, impairment of intangible assets was $143.0 million, including $13.2 million for an impairment of 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 the second quarter. Gain on sale of property For the quarter ended December 31, 2018, 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 on sale of assets held for sale in the consolidated statements of income, was $1.8 million, compared to a loss of $0.7 million in Q4 2017. Three properties were disposed of in Q4 2018 for a total consideration of $4.1 million. For the year ended December 31, 2018, the gain on sale of property was $16.1 million, compared to a gain of $77.7 million in 2017. Fifteen properties were disposed of in 2018 for a total consideration of $31.2 million. In Q3 2017, notably, four properties were sold in a sale-and-leaseback transaction for a consideration of $135.7 million. Gain on sale of intangible assets In the quarter ended December 31, 2018, the Company transferred several customer relationships located in a low-density region in the Package and Courier segment for a consideration of $3.0 million, generating a gain on sale of intangible assets of $1.2 million. Operating income For the quarter ended December 31, 2018, TFI International’s operating income significantly increased, rising $37.2 million to $103.3 million compared to $66.1 million in the same quarter in 2017. The operating margin as a percentage of revenue before fuel surcharge increased 2.7 percentage points from 6.2% in Q4 2017 to 8.9% in Q4 2018. All reportable segments but Logistics and Last Mile, due to an impairment, reported margin increases. Notably, the TL segment reported a margin increase of 5.2 percentage points primarily as a result of better performance at U.S. TL operations. Management’s consistent focus on the quality of revenue in conjunction with rigorous cost control benefited the Company, resulting in a significant improvement in the Company’s adjusted operating ratio1, a non-IFRS measure, which reached 90.3% this quarter compared to 93.8% for Q4 2017. For the year ended December 31, 2018, TFI International’s operating income sharply increased by $252.1 million, or 141%, to $430.5 million compared to $178.4 million in 2017, driven by operating improvements and the $143.0 million of impairment to intangible assets recorded in 2017, partially offset by lower gain on sale of property of $61.5 million recorded in 2018 compared to 2017. Finance income and costs (unaudited) (in thousands of dollars) Finance costs (income) Interest expense on long-term debt Interest income and accretion on promissory note Net change in fair value of contingent considerations and accretion expense 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 (income) Fourth quarters ended December 31 Years ended December 31 2018 13,159 (747) (12,686) 1,611 (12) — (1,365) (40) 2017 13,102 (725) (955) (10) (126) 193 2,018 13,497 2018 54,609 (2,807) (12,189) 630 (311) (46) 8,420 48,306 2017 56,758 (2,638) (523) 2,491 (1,247) (365) 6,599 61,075 1 Refer to the section “Non-IFRS financial measures”. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 7 Interest expense on long-term debt Interest expense on long-term debt for the three-month period ended December 31, 2018 was comparable to the same quarter last year. For the year ended December 31, 2018, it decreased by $2.1 million mainly due to lower borrowings. Change in fair value of contingent considerations and accretion expense The 2018 gain is mostly attributable to a write off of a contingent consideration liability relating to a prior year business acquisition. See more detail in the section “Impairment of intangible assets” above. 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, 2018, losses of $18.4 million and $30.8 million, respectively, of foreign exchange variations (losses of $16.0 million and $26.7 million net of tax, respectively) were recorded to other comprehensive income as net investment hedge. Net change in fair value of derivatives and cash flow hedge The fair values of the Company’s derivative financial instruments, which are used to mitigate foreign exchange and interest rate risks, are subject to market price fluctuations in foreign exchange and interest rates. For the three-month period and year ended December 31, 2018, foreign exchange derivatives saw their fair values increase by $12,000 and $0.3 million, respectively, while in the same quarter last year and in 2017, their fair values increased by $0.1 million and $1.2 million, respectively. 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, 2018, losses of $7.1 million and $3.9 million on change in fair value of interest rate derivatives, respectively, were mostly designated as cash flow hedge and recorded to other comprehensive income as a change in the fair value of the cash flow hedge ($5.2 million and $2.8 million net of tax, respectively). For the three-month period and year ended December 31, 2017, of the $2.2 million and $5.7 million gains on change in fair value of interest rate derivatives, respectively, $2.3 million and $5.4 million, respectively ($1.7 million and $3.9 million net of tax, respectively), were designated as cash flow hedge and recorded to other comprehensive income as a change in the fair value of the cash flow hedge. Others The other financial expenses mainly comprise bank charges and the net change in fair value of the Company’s deferred share unit liability. For the three-month period ended December 31, 2018, lower other financial expenses are mainly attributable to the $3.4 million decrease in the Company’s deferred share unit liability’s fair value, while for the year ended December 31, 2018, the fair value of the deferred share units liability increased $0.9 million as a result of the Company’s share price fluctuation. Income tax expense For the quarter ended December 31, 2018, the effective tax rate was 25.8%. The income tax expense of $26.6 million reflects a $1.0 million favourable variance versus an anticipated income tax expense of $27.6 million based on the Company’s statutory tax rate of 26.7%. The favourable variance is mainly due to positive differences between the statutory rate and the effective rates in other jurisdictions of $3.6 million. For the year ended December 31, 2018, the effective tax rate was 23.6%. The income tax expense of $90.2 million reflects an $11.9 million favourable variance versus an anticipated income tax expense of $102.1 million based on the Company’s statutory tax rate of 26.7%. The favourable variance is mainly due to positive differences between the statutory rate and the effective rates in other jurisdictions of $13.1 million. 2018 Annual Report 8 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 reduced the U.S. federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. As a result of U.S. tax reform, the Company’s net deferred income tax liability decreased by $76.1 million. As a result, an income tax recovery of $76.1 million was recorded in Q4 2017. Net income and adjusted net income (unaudited) (in thousands of dollars, except per share data) Net income Amortization of intangible assets related to business acquisitions, Fourth quarters ended December 31 Years ended December 31 2018 2017 2018 2017 76,728 120,192 291,994 157,988 net of tax 10,992 10,122 44,033 38,346 Net change in fair value of contingent considerations and accretion expense, net of tax Net change in fair value of derivatives, net of tax Net foreign exchange (gain) loss, net of tax Impairment of intangible assets, net of tax (Gain) loss on sale of land and buildings and assets held for sale, net of tax Gain on sale of intangible assets, net of tax U.S. tax reform Adjusted net income1 Adjusted EPS – basic1 Adjusted EPS – diluted1 (9,292) (9) 1,180 9,129 (1,551) (915) — (700) (8,928) 49 (7) — 424 — (76,135) (262) 461 (383) (1,182) 1,826 9,129 138,438 (13,900) (66,710) (915) — — (76,135) 86,262 53,945 321,612 192,188 0.99 0.96 0.60 0.59 3.66 3.54 2.12 2.07 For the quarter ended December 31, 2018, TFI International’s net income was $76.7 million compared to $120.2 million in Q4 2017. The decrease of $43.5 million is mainly attributable to the income tax recovery recorded in Q4 2017 as a result of U.S. tax reform for $76.1 million offset by stronger operating income in Q4 2018 compared to the same quarter last year. The Company’s adjusted net income1, a non-IFRS measure, which excludes items listed in the above table, was $86.3 million this quarter compared to $53.9 million in Q4 2017, up a significant 60% or $32.4 million. Fully diluted adjusted EPS increased by 63% to $0.96. For the year ended December 31, 2018, net income was $292.0 million compared to $158.0 million in 2017. The increase of $134.0 million is mainly attributable to stronger operating income and to the impairment of intangible assets of $138.4 million, net of tax, recorded in 2017, offset by lower gain on sale of property of $52.8 million, net of tax, recorded in 2018 compared to 2017 and to the income tax recovery of $76.1 million recorded in Q4 2017 as a result of U.S. tax reform. The Company’s adjusted net income was $321.6 million in 2018 compared to $192.2 million in 2017, up 67% or $129.4 million. Fully diluted adjusted EPS increased by 71% to $3.54. 1 Refer to the section “Non-IFRS financial measures”. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 9 SEGMENTED RESULTS 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 (unaudited) Package and Less-Than- Logistics and (in thousands of dollars) Courier Truckload Truckload Last Mile Corporate Eliminations Total Q4 2018 Revenue before fuel surcharge1 177,323 231,994 528,164 235,590 — (10,792) 1,162,279 % of total revenue2 Adjusted EBITDA Adjusted EBITDA margin3 Operating income (loss) Operating margin3 Net capital expenditures4, 5 Q4 2017* 15% 36,521 20.6% 34,409 19.4% 8,342 20% 32,209 13.9% 23,461 10.1% 5,197 46% 99,376 18.8% 52,282 9.9% 55,469 19% 100% 21,555 (9,007) — 180,654 9.1% 2,851 1.2% 365 (9,720) — 103,283 15.5% 558 8.9% 69,931 Revenue before fuel surcharge1 162,041 204,136 480,951 234,975 — (12,424) 1,069,679 % of total revenue2 Adjusted EBITDA Adjusted EBITDA margin3 Operating income (loss) Operating margin3 Net capital expenditures4, 6 YTD 2018 15% 31,194 19.3% 28,144 17.4% (14,569) 20% 22,262 10.9% 13,221 6.5% 3,694 45% 68,695 14.3% 22,813 4.7% 24,510 20% 100% 20,509 (11,643) — 131,017 8.7% 14,098 (12,200) — 6.0% (17) 98 12.2% 66,076 6.2% 13,716 Revenue before fuel surcharge1 633,046 902,320 2,064,588 953,727 — (45,484) 4,508,197 % of total revenue2 Adjusted EBITDA Adjusted EBITDA margin3 Operating income (loss) Operating margin3 14% 21% 46% 19% 100% 125,197 117,006 380,707 91,348 (27,975) — 686,283 19.8% 113,214 17.9% 13.0% 85,132 9.4% 18.4% 207,723 10.1% 5.7% 9.6% 15.2% 54,492 (30,037) — 430,524 Total assets less intangible assets 151,579 380,715 1,418,743 135,374 62,054 Net capital expenditures4, 5 17,770 14,593 169,059 2,118 256 YTD 2017* Revenue before fuel surcharge1 611,359 877,489 1,974,098 965,526 — (49,487) 4,378,985 % of total revenue2 Adjusted EBITDA Adjusted EBITDA margin3 Operating income (loss) Operating margin3 14% 107,982 17.7% 20% 85,659 9.8% 45% 275,506 14.0% 21% 100% 79,001 (33,667) — 514,481 8.2% 11.7% 102,281 122,181 (51,705) 41,579 (35,915) — 178,421 16.7% 13.9% -2.6% 4.3% Total assets less intangible assets 136,653 321,140 1,243,722 130,325 63,514 Net capital expenditures4, 6 (8,147) (139,769) 142,060 1,199 771 (*) Recasted for changes in composition of reportable segments (see note 4 of the audited consolidated financial statements) and changes in presentation (see note 3 of the audited consolidated financial statements). 1 2 3 4 5 6 Includes intersegment revenue. Segment revenue including fuel and intersegment revenue to consolidated revenue including fuel and intersegment revenue. 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 2018 net capital expenditures include proceeds from the sale of property for consideration of $6.1 million in the LTL segment ($1.6 million in Q4), of $24.3 million in the TL segment ($2.5 million in Q4) and of $0.8 million in the corporate segment (nil in Q4). 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). 2018 Annual Report 9.5% 2,148,465 203,796 4.1% 1,895,354 (3,886) 10 MANAGEMENT’S DISCUSSION AND ANALYSIS 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, 2018, the composition of reportable segments was modified to better reflect the nature of the Company’s operations. In particular, the Same-Day / Last Mile delivery operating companies, which were previously included in the Package and Courier operating segment, and the Logistics operating companies became part of a new segment named Logistics and Last Mile. Also, two Logistics operations, TLS Trailer Leasing Services and Centre Mécanique Henri-Bourassa, moved respectively into the LTL and the TL segments to which they primarily render services. Comparative figures have been recasted. 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 2018 % 2017* % 2018 % 2017* % 204,428 182,010 (27,105) (19,969) 728,556 (95,510) 681,406 (70,047) 177,323 100.0% 162,041 100.0% 633,046 100.0% 611,359 100.0% (net of fuel surcharge) 76,509 43.1% 70,609 43.6% 266,301 42.1% 262,720 43.0% Personnel expenses 50,083 28.2% 46,747 28.8% 186,281 29.4% 186,349 30.5% Other operating expenses 14,235 8.0% 13,541 8.4% 55,359 8.7% 54,519 8.9% Depreciation of property and equipment 3,055 1.7% 3,337 2.1% 11,870 1.9% 13,811 2.3% Amortization of intangible assets 306 0.2% 395 0.2% 1,362 0.2% 1,728 0.3% Gain on sale of rolling stock and equipment (25) -0.0% (50) -0.0% (92) -0.0% (211) -0.0% Gain on sale of land and buildings and assets held for sale — — (682) -0.4% — — (9,838) -1.6% Gain on sale of intangible assets (1,249) -0.7% — — (1,249) -0.2% — — Operating income Adjusted EBITDA 34,409 19.4% 28,144 17.4% 113,214 17.9% 102,281 16.7% 36,521 20.6% 31,194 19.3% 125,197 19.8% 107,982 17.7% (*) Recasted for changes in composition of reportable segments (see note 4 of the audited consolidated financial statements) and changes in presentation (see note 3 of the audited consolidated financial statements). Revenue For the quarter ended December 31, 2018, revenue increased by $15.3 million, or 9%, from $162.0 million in 2017 to $177.3 million in 2018. This increase is attributable to an 11% increase in revenue per pound (excluding fuel surcharge) partially offset by a 1% decrease in tonnage. The decrease in tonnage was the result of a 7% decrease in weight per shipments offset by a 6% increase in number of shipments. Those two variations are directly related to the Canada Post strike that took place in the first two months of the fourth quarter of 2018. For the year ended December 31, 2018, revenue increased by $21.6 million, or 4%, from $611.4 million to $633.0 million. Operating expenses For the quarter ended December 31, 2018, materials and services expenses, net of fuel surcharge revenue, increased $5.9 million or 8% mostly due to an increase in sub-contractor and external labor costs required to handle the additional volume brought by the Canada Post strike and its aftermath. Personnel expenses also increased $3.3 million or 7% to handle additional volume but as a percentage of revenue, it decreased 0.6 percentage points year over year, from 28.8% in 2017 to 28.2% in 2018. Other operating expense as a percentage of revenue also decreased from 8.4% in 2017 to 8.0% in 2018. For the year ended December 31, 2018, materials and services expenses, net of fuel surcharge revenue, increased $3.6 million or 1% due to increased external labor costs, mostly to handle the additional volume in the last months of the year. Personnel expenses as a percentage of revenue decreased from 30.5% in 2017 to 29.4% in 2018. This reduction is mostly due to a $3.2 million decrease in employee termination costs year over year and the gains resulting from this restructuring. Other operating expenses as a percentage of revenue slightly decreased from 8.9% in 2017 to 8.7% in 2018. Depreciation of property and equipment decreased $1.9 million year over year due to full amortization of conveyors and other sorting equipment. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 11 Gain on sale of intangible assets In the quarter ended December 31, 2018, the Company transferred several customer relationships located in a low-density region for a consideration of $3.0 million, generating a gain of $1.2 million. Operating income Operating income for the fourth quarter ended December 31, 2018 increased by 22% or $6.3 million compared to the fourth quarter of 2017. The increase is attributable to increased volume, improvement in cost management and route optimization. For the quarter ended December 31, 2018, the operating margin improved 2.0 percentage points, from 17.4% in 2017 to 19.4% in 2018. For the year ended December 31, 2018, operating income increased $10.9 million to $113.2 million. The operating margin improved 1.2 percentage points, from 16.7% in 2017 to 17.9% in 2018. Less-Than-Truckload (unaudited) – (in thousands of dollars) Fourth quarters ended December 31 Years ended December 31 Total revenue Fuel surcharge Revenue Materials and services expenses 2018 % 2017* % 2018 % 2017* % 272,212 234,696 1,057,396 994,777 (40,218) (30,560) (155,076 ) (117,288) 231,994 100.0% 204,136 100.0% 902,320 100.0% 877,489 100.0% (net of fuel surcharge) 120,153 51.8% 109,384 53.6% 478,169 53.0% 490,313 55.9% Personnel expenses 59,272 25.5% 52,127 25.5% 227,502 25.2% 225,745 25.7% Other operating expenses 20,770 9.0% 20,853 10.2% 80,505 8.9% 76,260 8.7% Depreciation of property and equipment 6,252 2.7% 5,208 2.6% 23,656 2.6% 21,663 2.5% Amortization of intangible assets 2,750 1.2% 2,478 1.2% 10,792 1.2% 9,691 1.1% Gain on sale of rolling stock and equipment (410) -0.2% (490) -0.2% (862 ) -0.1% (488) -0.1% (Gain) loss on sale of land and buildings and assets held for sale (254) -0.1% 1,355 0.7% (2,574 ) -0.3% (67,876) -7.7% Operating income Adjusted EBITDA 23,461 10.1% 13,221 6.5% 85,132 9.4% 122,181 13.9% 32,209 13.9% 22,262 10.9% 117,006 13.0% 85,659 9.8% (*) Recasted for changes in composition of reportable segments (see note 4 of the audited consolidated financial statements) and changes in presentation (see note 3 of the audited consolidated financial statements) Operational data (unaudited) Fourth quarters ended December 31 Years ended December 31 2018 2017 Variance % 2018 2017 Variance % Adjusted operating ratio 90.0% 92.9% 90.9% 93.8% Revenue per hundredweight (including fuel) $ 16.18 $ 13.11 $ 3.07 23.4% $ 14.90 $ 13.27 $ 1.63 12.3% Revenue per hundredweight (excluding fuel) $ 13.79 $ 11.40 $ 2.39 21.0% $ 12.71 $ 11.70 $ 1.01 8.6% Revenue per shipment (including fuel) Tonnage (in thousands of tons) Shipments (in thousands) Average weight per shipment $ 324.84 $ 254.55 $ 70.29 27.6% $ 305.69 $ 254.87 $ 50.82 19.9% 841 838 895 922 (54) -6.0% (84) -9.1% 3,548 3,459 3,747 3,903 (199) -5.3% (444) -11.4% (in lbs) 2,007 1,941 66 3.4% 2,051 1,920 131 6.8% Average length of haul (in miles) Vehicle count, average 831 1,020 839 838 (8) -1.0% 182 21.7% 828 992 788 898 40 5.1% 94 10.5% Revenue per week per vehicle (incl. fuel, in thousands of dollars) $ 20.53 $ 21.54 $ (1.01) -4.7% $ 20.50 $ 21.30 $ (0.80) -3.8% 2018 Annual Report 12 MANAGEMENT’S DISCUSSION AND ANALYSIS On April 3, 2018, the Company acquired Normandin. Normandin provides LTL & TL freight shipments to and from U.S. and Canadian destinations and its results are included in the LTL segment. Revenue For the quarter ended December 31, 2018, revenue was $232.0 million, an increase of $27.9 million, or 14% when compared to the same period in 2017. This increase is mainly due to the Normandin acquisition. Excluding the Normandin acquisition, revenue increased by 3% or $5.7 million mainly due to a 32% increase in revenue per hundredweight (excluding fuel) partially offset by a 21% decrease in tonnage. The decrease in tonnage before acquisition was the result of a 12% decrease in shipments combined with a 10% decrease in weight per shipment. That volume decrease was mostly due to the termination of unprofitable domestic Canadian shipments in our over-the-road and intermodal operations. For the quarter ended December 31, 2018, the LTL segment improved its yield as reflected by the 23.4% increase in revenue per hundredweight that went from $13.11 in Q4 2017 to $16.18 in Q4 2018. For the year ended December 31, 2018, revenue increased $24.8 million or 3% to $902.3 million. Excluding acquisitions, revenue decreased 5% or $45.5 million. Operating expenses For the quarter ended December 31, 2018, materials and services expenses, net of fuel surcharge revenue, increased $10.8 million, or 10%, mostly due to an increase in sub-contractor cost and rolling stock maintenance and repair cost. Personnel expenses as a percentage of revenue remained stable at 25.5% as an increase in operation salaries was totally offset by a reduction in administration salaries. Other operating expenses decreased $0.1 million in the fourth quarter of 2018. Depreciation of property and equipment as a percentage of revenue increased from 2.6% in the fourth quarter of 2017 to 2.7% in the fourth quarter of 2018, attributable to the Normandin acquisition. The increase in amortization of intangible assets was also related to the Normandin acquisition. For the year ended December 31, 2018, material and service expenses, net of fuel surcharge, decreased $12.1 million, or 2%, due to a reduction in subcontractor costs partially offset by an increase in rolling stock maintenance and repair costs. Personnel expenses as a percentage of revenue decreased from 25.7% in 2017 to 25.2% in 2018, mostly due to administrative salary reductions. Other operating expenses as a percentage of revenue increased from 8.7% in 2017 to 8.9% in 2018, all attributable to real estate costs. This increase in real estate costs was mostly caused by additional rent that the LTL segment incurred following a sale-and-leaseback transaction of 3 properties that occurred in October of 2017 and higher building repair and maintenance expenses. Depreciation of property and equipment as a percentage of revenue slightly increased from 2.5% in 2017 to 2.6% in 2018 and amortization of intangible assets also increased by 0.1 percentage points. Both increases are related to the Normandin acquisition. Gain on sale of land and buildings and assets held for sale For the quarter ended December 31, 2018, a $0.1 million loss on sale of assets held for sale was recorded in the LTL segment following the sale of one property for a consideration of $0.4 million and a gain of $0.3 million on sale of land and buildings was recorded following the sale of another property. For the year ended December 31, 2018, a $2.3 million gain on sale of assets held for sale was recorded following the sale of four properties for a total consideration of $4.9 million. Operating income Operating income for the fourth quarter ended December 31, 2018 increased $10.2 million, or 77% when compared to the same period in 2017. Although volume decreased year-over-year, operating income was favorably impacted in 2018 by tight asset management, cost optimisation, a focus on more profitable freight, and continued improvements in route density as well as the Normandin acquisition. The fourth quarter of 2018 adjusted operating ratio was 90.0%, a 2.9 percentage points improvement when compared to 92.9% in the same period in 2017. For the year ended December 31, 2018, operating income decreased $37.0 million to $85.1 million, primarily due to a gain of $67.9 million in 2017 on sale of land and buildings and assets held for sale. The adjusted operating ratio improved 2.9 percentage points, from 93.8% in 2017 to 90.9% in 2018. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 13 Truckload (unaudited) – (in thousands of dollars) Fourth quarters ended December 31 Years ended December 31 Total revenue Fuel surcharge Revenue Materials and services expenses 2018 % 2017* % 2018 % 2017* % 610,161 546,251 2,388,865 2,218,207 (81,997) (65,300) (324,277) (244,109 ) 528,164 100.0% 480,951 100.0% 2,064,588 100.0% 1,974,098 100.0% (net of fuel surcharge) 236,226 44.7% 241,647 50.2% 956,913 46.3% 998,863 50.6% Personnel expenses 177,024 33.5% 152,108 31.6% 665,143 32.2% 634,726 32.2% Other operating expenses 19,738 3.7% 17,322 3.6% 71,621 3.5% 66,878 3.4% Depreciation of property and equipment 41,926 7.9% 38,589 8.0% 158,708 7.7% 168,846 8.6% Amortization of intangible assets 6,728 1.3% 7,275 1.5% 27,464 1.3% 28,674 1.5% Impairment of intangible assets — — — — — — 129,770 6.6% (Gain) loss on sale of rolling stock and equipment (4,200) -0.8% 1,179 0.2% (9,796) -0.5% (1,875 ) -0.1% (Gain) loss on sale of land and buildings and assets held for sale (1,560) -0.3% 18 0.0% (13,188) -0.6% (79 ) -0.0% Operating income Adjusted EBITDA 52,282 9.9% 22,813 4.7% 207,723 10.1% (51,705 ) -2.6% 99,376 18.8% 68,695 14.3% 380,707 18.4% 275,506 14.0% (*) Recasted for changes in composition of reportable segments (see note 4 of the audited consolidated financial statements) and changes in presentation (see note 3 of the audited consolidated financial statements). 2018 Annual Report 14 MANAGEMENT’S DISCUSSION AND ANALYSIS Operational data (unaudited) – (all Canadian dollars unless otherwise specified) U.S. based Conventional TL Revenue (in thousands of U.S. Fourth quarters ended December 31 Years ended December 31 2018 2017 Variance % 2018 2017 Variance % dollars) 168,451 164,500 3,951 2.4% 678,983 681,832 (2,849) -0.4% Adjusted operating ratio 93.3% 100.0% 94.6% 102.9% Total mileage (in thousands) 90,658 99,340 (8,682) -8.7% 381,195 423,232 (42,037) -9.9% Tractor count, average Trailer count, average Tractor age Trailer age Number of owner operators, average Canadian based Conventional TL Revenue (in thousands of dollars) 3,053 3,115 (62) -2.0% 3,083 3,462 (379) -10.9% 11,180 11,360 (180) -1.6% 11,199 11,331 (132) -1.2% 2.0 6.8 2.4 6.4 (0.4) -16.7% 0.4 6.2% 2.0 6.8 2.4 6.4 (0.4) -16.7% 0.4 6.2% 408 548 (140) -25.5% 457 618 (161) -26.0% 79,017 74,398 4,619 6.2% 313,305 303,613 9,692 3.2% Adjusted operating ratio 85.9% 92.0% 87.0% 92.4% Total mileage (in thousands) 26,019 27,427 (1,408) -5.1% 106,167 118,852 (12,685) -10.7% Tractor count, average Trailer count, average Tractor age Trailer age Number of owner operators, average Specialized TL Revenue (in thousands of dollars) 708 731 (23) -3.1% 712 758 3,043 3,072 (29) -0.9% 3,088 3,125 2.7 5.5 2.9 5.2 (0.2) -6.9% 0.3 5.8% 2.7 5.5 2.9 5.2 (46) (37) -6.1% -1.2% (0.2) -6.9% 0.3 5.8% 363 370 (7) -1.9% 367 420 (53) -12.6% 227,438 198,098 29,340 14.8% 877,463 788,186 89,277 11.3% Adjusted operating ratio 89.2% 91.5% 87.9% 89.8% Tractor count, average Trailer count, average Tractor age Trailer age Number of owner operators, average 1,546 1,346 200 14.9% 1,450 1,321 4,693 4,663 30 0.6% 4,653 4,599 3.5 9.7 3.5 10.7 0.0 0.0% (1.0) -9.3% 3.5 9.7 3.5 10.7 129 55 0.0 9.8% 1.2% 0.0% (1.0) -9.3% 1,102 1,242 (140) -11.3% 1,085 1,192 (107) -9.0% On May 1, 2018, TFI International completed the acquisition of Brasseur. Based in Québec, Brasseur specializes in liquid bulk transportation across Canada and the U.S. On July 1, 2018, TFI International completed the acquisition of Timeline. Based in Saskatchewan, Timeline provides specialized long- distance truckload transportation services across North America, primarily serving the oil and gas, forestry products, and manufactured products industries. On October 1, 2018, TFI International acquired GBT. Based in Ontario, GBT has been in business for more than 60 years and specializes in the tank truck transportation of liquid and dry bulk commodities. On November 1, 2018, TFI International acquired Double-D. Based in Ontario, Double-D has been in business since 1991 and specializes in transporting over-sized and over-dimensional freight between Canada and the U.S. On November 21, 2018, TFI International acquired SAF. Based in Québec, SAF was founded in 1994 and offers specialized transportation and storage services. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 15 On December 1, 2018, TFI International acquired Beaumont. Based in Québec, Beaumont was founded in 1987 and specializes in the bulk transport of a variety of products ranging from fertilizer to hydro sulfate. On December 4, 2018, TFI International acquired certain assets of Hughson. Based in Alberta, Hughson offers transportation solutions to the oil and gas, forestry and lumber, agriculture, mining, construction, and food processing industries. On December 14, 2018, TFI International acquired certain assets of Cole. Based in Ontario, Cole provides a complete integrated supply chain management system specializing in handling and transportation for the steel, aluminum and automotive industries. Revenue For the quarter ended December 31, 2018, TL revenue increased by $47.2 million or 10%, from $481.0 million in Q4 2017 to $528.2 million. Business acquisitions contributed $25.8 million to the TL segment and $12.1 million of the increase is due to favourable currency fluctuations, implying $9.3 million or 2% organic growth within the TL segment mainly due to improved pricing. In fact, while revenue increased compared to the same quarter last year, mileage decreased which indicates a strong improvement in revenue per mile along with better management of the existing trucking network. Average revenue per total mile for conventional TL operations increased 4% in the U.S. and 12% in Canada compared to Q4 2017. As part of its asset-light strategy, the TL segment increased its brokerage revenue by 15%, or $9.2 million, to $69.5 million compared to the same quarter last year. For the year ended December 31, 2018, TL revenue increased by $90.5 million or 5% from $1,974.1 million in 2017 to $2,064.6 million. This increase is due to recent business acquisitions which contributed $63.8 million while unfavourable currency fluctuations reduced revenue by $2.8 million. This resulted in organic growth of $29.5 million or 2% explained mainly by higher revenue per mile. On the brokerage side, revenue increased by 23% or $52.2 million while margins were steady. Operating expenses For the quarter ended December 31, 2018, operating expenses, net of fuel surcharge, increased by $17.7 million or 4% from $458.1 million in Q4 2017 to $475.9 million in Q4 2018. The TL segment continues to improve its cost structure and increase the productivity of its assets. The decline in miles positively impacted equipment operation costs. Personnel expenses increased by 1.9 percentage points of revenue mainly attributable to adjustments to driver compensation to improve retention and attract new drivers. Driver pay and retention remain challenging throughout the trucking industry and the Company is focused on cost effective methods of recruiting and retaining drivers. Although cost and efficiency improvements were seen this quarter, 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. For the year ended December 31, 2018, TL operating expenses, net of fuel surcharge, decreased by $168.9 million or 8% which is attributable primarily to the $129.8 million goodwill impairment in the U.S. TL operating segment recorded in the second quarter of last year and to reduced miles. Impairment of intangible assets In 2017, impairment of intangible assets of $129.8 million was related to a goodwill impairment in the U.S. TL operating segment recorded in the second quarter. Gain on sale of land and buildings and assets held for sale For the quarter ended December 31, 2018, the Company disposed of a property for a total consideration of $2.5 million, creating a gain of $1.6 million. For the year ended December 31, 2018, the Company disposed of nine properties generating $13.2 million in gains while adding $24.3 million of cash inflows. Operating income The Company’s operating income in the TL segment for the quarter ended December 31, 2018 reached $52.3 million from $22.8 million in the prior year period, which represents an increase of 129%, mainly due to higher revenue per mile, lower costs, more miles per tractor, and a more efficient truckload freight network. Initiatives aimed at equipment cost reductions have continued to yield positive results including lower repairs and maintenance costs due to a newer fleet. Operating margin increased to 9.9% compared to 4.7% in 2017. Individually, each TL operating segment was able to significantly improve its adjusted operating ratio. For the year ended December 31, 2018, the TL segment increased its operating income by $259.4 million from an operating loss of $51.7 million in 2017 to operating income of $207.7 million as a result of better performance, a $13.2 million gain on sale of property and a $129.8 million goodwill impairment recorded in the second quarter of 2017. 2018 Annual Report 16 MANAGEMENT’S DISCUSSION AND ANALYSIS Logistics and Last Mile (unaudited) – (in thousands of dollars) Fourth quarters ended December 31 Years ended December 31 Total revenue Fuel surcharge Revenue Materials and services expenses 2018 % 2017* % 2018 % 2017* % 246,990 243,694 1,000,186 996,633 (11,400) (8,719) (46,459) (31,107 ) 235,590 100.0% 234,975 100.0% 953,727 100.0% 965,526 100.0% (net of fuel surcharge) 165,484 70.2% 161,947 68.9% 661,796 69.4% 678,815 70.3% Personnel expenses 31,549 13.4% 34,734 14.8% 134,000 14.1% 141,548 14.7% Other operating expenses 17,034 7.2% 17,856 7.6% 66,736 7.0% 66,398 6.9% Depreciation of property and equipment 774 0.3% 853 0.4% 2,969 0.3% 3,873 Amortization of intangible assets 5,348 2.3% 5,555 2.4% 21,298 2.2% 20,223 Impairment of intangible assets 12,559 5.3% — — 12,559 1.3% 13,211 0.4% 2.1% 1.4% (Gain) loss on sale of rolling stock and equipment (32) -0.0% (71) -0.0% (153) -0.0% (236 ) -0.0% (Gain) loss on sale of land and buildings and assets held for sale Operating income Adjusted EBITDA 23 0.0% 3 0.0% 30 0.0% 115 0.0% 2,851 1.2% 14,098 6.0% 54,492 5.7% 41,579 21,555 9.1% 20,509 8.7% 91,348 9.6% 79,001 4.3% 8.2% (*) Recasted for changes in composition of reportable segments (see note 4 of the audited consolidated financial statements) and changes in presentation (see note 3 of the audited consolidated financial statements). Revenue For the quarter ended December 31, 2018, revenue for the Logistics and Last Mile segment remained relatively constant at $235.6 million relative to $235.0 million the prior year period. Excluding business acquisitions, revenue decreased by 1%, or $3.0 million, mainly attributable to lower volumes, non-recurring business in the prior year period of $9.0 million and a positive foreign exchange impact of $6.0 million. Approximately 60% of the new Logistics and Last Mile segment’s revenues in the quarter were generated from operations in the U.S. and Mexico and approximately 40% were generated from operations in Canada. For the year ended December 31, 2018, revenue decreased by 1% or $11.8 million year-over-year, from $965.5 million to $953.7 million. Excluding business acquisitions, revenue decreased by 5%, or $47.7 million. Operating expenses For the quarter ended December 31, 2018, operating expenses increased by $11.9 million to $232.7 million compared to $220.9 million in the fourth quarter of 2017. The increase is mostly attributable to the impairment of intangible assets of $12.6 million. Materials and services expenses, net of fuel surcharge, representing 70.2% of revenue, increased by $3.5 million while personnel expenses decreased by $3.2 million, resulting in an overall improvement of 0.1 percentage points of revenue. For the year ended December 31, 2018, operating expenses decreased by 3% or $24.7 million compared to 2017, from $923.9 million to $899.2 million. This decrease was mostly attributable to lower materials and services expenses, net of fuel surcharge, both in absolute terms and as a percentage of revenue. Impairment of intangible assets In the quarter ended December 31, 2018, the Company recorded an impairment charge of $12.6 million on a customer relationship intangible asset related to a 2017 business acquisition in the Logistics and Last Mile segment. The difficulties to retain and recruit qualified subcontractors and the inability to successfully increase the revenue impacted the current and expected future cash flow from that company. Accordingly, the contingent consideration recorded in the original purchase price allocation of that business acquisition was completely reversed as management determined that required minimum earning levels in future periods would not be reached. The resulting $13.0 million gain was presented as a change in fair value of contingent considerations in finance income and costs. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 17 In 2017, impairment of intangible assets of $13.2 million was related to an impairment of the Dynamex trade name recorded in the first quarter. Operating income Operating income in the Logistics and Last Mile segment for the quarter ended December 31, 2018 decreased $11.2 million compared to the fourth quarter of 2017, from $14.1 million to $2.9 million as a result of the impairment. Excluding the $12.6 million impairment, operating income increased 9% to $15.4 million with the operating margin increasing 0.5 percentage points to 6.5%, as a result of higher quality of revenue and cost efficiency measures. For the year ended December 31, 2018, operating income increased 31% or $12.9 million compared to 2017, from $41.6 million to $54.5 million. The Logistics and Last Mile segment’s operating margin increased 1.4 percentage points to reach 5.7%. LIQUIDITY AND CAPITAL RESOURCES Sources and uses of cash (unaudited) (in thousands of dollars) Sources of cash: Fourth quarters ended December 31 Years ended December 31 2018 2017 2018 2017 Net cash from operating activities from continuing operations 173,848 116,148 543,503 372,601 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 Others Total sources Uses of cash: Purchases of property and equipment Business combinations, net of 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 25,461 2,782 — 79,514 3,029 20,833 19,140 — — 3,055 81,051 29,226 3,237 21,727 19,874 88,773 174,779 13,046 — 14,148 284,634 159,176 698,618 663,347 113,004 81,375 258 — 18,475 61,891 — 9,631 66,142 30,021 7,857 1,147 17,086 30,580 — 6,343 314,300 156,487 259,140 118,288 — — 74,096 139,622 — 14,113 — 74,648 69,016 81,565 52,424 8,266 284,634 159,176 698,618 663,347 Cash flow from operating activities from continuing operations For the year ended December 31, 2018, net cash from operating activities from continuing operations significantly increased by 46% from $372.6 million in 2017 to $543.5 million. This $170.9 million increase is mainly attributable to higher cash flow from operating activities from continuing operations before net change in non-cash operating working capital of $146.6 million. The net change in non-cash operating working capital was positive $12.6 million in 2018, compared to negative $11.6 million in 2017. Cash flow from operating activities from discontinued operations For the year ended December 31, 2017, discontinued operations had negative 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. 2018 Annual Report 18 MANAGEMENT’S DISCUSSION AND ANALYSIS Cash flow used in investing activities Property and equipment The following table presents the additions of property and equipment by category for the three-month periods and years ended December 31, 2018 and 2017. (unaudited) (in thousands of dollars) Additions to property and equipment: Fourth quarters ended December 31 Years ended December 31 2018 2017 2018 2017 Purchases as stated on cash flow statements 113,004 66,142 314,300 259,140 Non-cash adjustments Additions by category: Land and buildings Rolling stock Equipment (14,830) (12,453) (227) 526 98,174 53,689 314,073 259,666 3,625 91,520 3,029 98,174 2,249 48,716 2,724 53,689 15,412 8,126 284,459 238,812 14,202 12,728 314,073 259,666 The Company invests in new equipment to maintain its quality of service while minimizing maintenance costs. Its capital expenditures reflect the level of reinvestment required to keep its equipment in good order and to maintain a strategic allocation of its capital resources. In the second half of 2018, rolling stock additions exceeded those of the prior year. This increase is largely due to that fact that since June of this year, we have been replacing leased tractors in Canada with purchased tractors. 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 by category for the three-month periods and years ended December 31, 2018 and 2017. (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 Years ended December 31 2018 2017 2018 2017 4,121 24,095 27 20,520 19,409 44 31,153 79,049 75 176,359 87,107 86 28,243 39,973 110,277 263,552 1,791 4,707 (40) 6,458 (694) (564) (4) 16,144 11,007 (104) 77,678 2,851 (85) (1,262) 27,047 80,444 For the year ended December 31, 2018, the Company disposed of 15 properties for total consideration of $31.2 million ($176.4 million in 2017), generating a gain of $16.1 million ($77.7 million in 2017). Business acquisitions For the year ended December 31, 2018, cash used in business acquisitions totalled $156.5 million ($118.3 million in 2017) to acquire nine businesses. Refer to the section of this report entitled “2018 business acquisitions” and further information can be found in note 5 of the December 31, 2018 audited consolidated financial statements. TFI International Free cash flow from continuing operations (unaudited) (in thousands of dollars, except per share data) MANAGEMENT’S DISCUSSION AND ANALYSIS 19 Fourth quarters ended December 31 Years ended December 31 2018 2017 2018 2017 Net cash from operating activities from continuing operations 173,848 116,148 543,503 372,601 Additions to property and equipment (98,174) (53,689) (314,073) (259,666) Proceeds from sale of property and equipment Proceeds from sale of assets held for sale 25,461 2,782 20,833 19,140 81,051 29,226 Free cash flow from continuing operations1 103,917 102,432 339,707 88,773 174,779 376,487 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, 2018, TFI International generated free cash flow from continuing operations of $339.7 million, compared to $376.5 million in 2017, which represents a year-over-year decrease of $36.8 million. This decrease is mainly due to lower proceeds from the sale of assets held for sale of $145.6 million and to higher additions to property and equipment of $54.4 million offset by higher net cash from operating activities from continuing operations of $170.9 million. Based on the December 31, 2018 closing share price of $35.30, the free cash flow from continuing operations generated by the Company in the last twelve months ($339.7 million) represented a yield of 10.9%. 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, 2018 As at December 31, 2017 As at December 31, 2016 4,049,960 1,584,423 1,576,854 1.00 0.50 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 Compared to December 31, 2017, the Company’s total assets increased mainly as a result of business acquisitions and to U.S. denominated assets converting at a higher rate. The debt-to-equity ratio and the debt-to-capitalization ratio were similar to those of December 31, 2017. 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 reductions as appropriate. As at December 31, 2018, the Company’s working capital (current assets less current liabilities) was $52.8 million compared to $116.7 million as at December 31, 2017. The decrease is mainly attributable to a $75.0 million term loan due within 12 months that is now presented in current liabilities. 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. 2018 Annual Report 20 MANAGEMENT’S DISCUSSION AND ANALYSIS Contractual obligations The following table indicates the Company’s contractual obligations with their respective maturity dates at December 31, 2018, excluding future interest payments. (unaudited) (in thousands of dollars) Unsecured revolving facility – June 2022 Unsecured term loan – June 2020 & 2021 Unsecured debentures – December 2020 Unsecured term loan – August 2019 Finance lease liabilities Conditional sales contracts Operating leases and other commitments (see commitments) Total contractual obligations Total 743,698 500,000 125,000 75,000 9,164 136,141 — — — 75,000 5,489 41,919 Less than 1 year 1 to 3 years 3 to 5 years After 5 years — 743,698 — — — 1,201 35,566 — — — — — 884 500,000 125,000 — 2,474 57,772 167,071 852,317 557,086 2,146,089 178,510 300,918 86,395 866,860 125,110 125,994 As at December 31, 2018, the Company had $39.4 million of outstanding letters of credit ($40.1 million on December 31, 2017). On May 9, 2018, the Company extended its existing revolving credit facility, by one year, to June 2022. On May 9, 2018, the Company extended the maturity of its $500 million term loan by one year for each tranche. This term loan is within the confines of the credit facility for the specific purpose of acquiring CFI. It remains at a total of $500 million, with $200 million now due in June 2020 and $300 million due in June 2021. Early repayment in part or whole is permitted, and would permanently reduce the amount borrowed. The terms and conditions of the facility are the same as the credit facility and it is subject to the same covenants. 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 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] Commitments, contingencies and off-balance sheet arrangements Requirements As at December 31, 2018 < 3.50 2.27 > 1.75 4.26 The following table indicates the Company’s commitments with their respective terms at December 31, 2018. (unaudited) (in thousands of dollars) Operating leases – rolling stock Operating leases – real estate & others Other commitments Total 81,847 424,264 50,975 Less than 1 year 35,212 92,323 50,975 1 to 3 years 37,537 129,534 — 3 to 5 years 8,213 After 5 years 885 78,182 124,225 — — Total off-balance sheet obligations 557,086 178,510 167,071 86,395 125,110 Long-term real estate leases, totalling $424.3 million, include nine significant real estate commitments for an aggregate value of $207.6 million, which expire between 2024 and 2035. A total of 268 properties constitute the remaining real estate operating leases. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 21 Dividends and outstanding share data Dividends The Company declared $20.7 million in dividends, or 24 cents per common share, in the fourth quarter of 2018. For the year ended December 31, 2018, dividends declared were $76.1 million, or 87 cents per common share. On October 22, 2018, the Board of Directors of TFI approved a $0.24 quarterly dividend, a 14% increase over its previous quarterly dividend of $0.21 per share. On February 27, 2019, the Board of Directors declared a quarterly dividend of $0.24 per outstanding common share of the Company’s capital for an expected aggregate payment of $20.4 million which will be paid on April 15, 2019 to shareholders of record at the close of business on March 29, 2019. NCIB on common shares Pursuant to the renewal of the normal course issuer bid (“NCIB”), which began on October 2, 2018 and will expire on October 1, 2019, 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, 2018, the Company repurchased 3,755,002 common shares (as compared to 2,810,126 in 2017) at a price ranging from approximately $32 to $44 per share for a total purchase price of $139.6 million (as compared to $81.6 million in 2017). Outstanding shares, stock options and restricted share units A total of 86,397,588 common shares were outstanding as at December 31, 2018 (December 31, 2017 – 89,123,588). Between December 31, 2018 and February 27, 2019, the Company repurchased 1,500,000 common shares at a price ranging from approximately $34 to $40 per share for a total purchase price of $56.7 million. As at December 31, 2018, the number of outstanding options to acquire common shares issued under the Company’s stock option plan was 5,031,161 (December 31, 2017 – 5,493,286) of which 3,863,610 were exercisable (December 31, 2017 – 4,169,819). On February 20, 2018, the Board of Directors approved the grant of 617,735 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, 2018, the number of restricted share units (‘‘RSUs’’) granted under the Company’s equity incentive plan to its senior employees was 147,081 (December 31, 2017 – 206,396). On February 20, 2018, the Board of Directors approved the grant of 95,243 RSUs under the Company’s equity incentive plan. The RSUs will vest in December of the second year following 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, has been provided for in the financial statements. Subsequent events On February 1, 2019, the unsecured term loan was amended to increase the balance from $500 million to $575 million. On February 11, 2019, the funds were used to reimburse the unsecured term loan of $75 million that was expected to mature in August 2019. On February 19, 2019, the Company completed the acquisition of Toronto Tank Lines (“TTL”). Based in Hamilton, Ontario, TTL specializes in the transportation and storage of food grade liquids, industrial chemicals, specialty oils and waxes throughout Canada, the United States and Mexico. On February 25, 2019, the Company acquired Schilli Corporation (“Schilli”). Based in St. Louis, Missouri, Schilli specializes in the transportation of dry and liquid bulk and offers dedicated fleet solutions and other value-add services throughout Midwest, Southeast and Gulf Coast regions of the United States. The Company paid $98.9 million for the two business acquisitions, subject to customary closing adjustments. 2018 Annual Report 22 MANAGEMENT’S DISCUSSION AND ANALYSIS OUTLOOK North American economic growth continues and economic conditions remain supportive for the transportation and logistics industry. Unemployment is near multi-decade lows, and consumer confidence and business optimism are currently solid, having benefitted in 2018 from U.S. tax law changes. Given this backdrop, the Company sees the potential for additional upward pressure on freight volumes and shipping rates. Potential risks in this environment include, among other things, the possibility of more pronounced driver shortages and accompanying upward pressure on wages, along with increasing fuel, insurance, interest rate and other costs. In addition, while the U.S., Canada and Mexico continue to negotiate over revising or replacing NAFTA, a continually evolving international trade environment, including between the U.S. and China, could result in higher tariffs that could slow North American business expansion. While continually monitoring the economic outlook, internally TFI International seeks to generate strong free cash flow by executing on the fundamentals of the business regardless of the economic cycle. This approach includes focusing on profitable business, improving efficiency, rationalizing assets, and tightly controlling costs. In addition, the Company plans to capture M&A-related operating synergies and continue its disciplined pursuit of acquisition candidates in the fragmented North American transportation and logistics market. In Package and Courier, TFI’s priorities include the deployment of cutting-edge technology, optimizing the business mix and asset utilization, and driving efficiencies and additional savings through the consolidation of routes and terminals, administration and IT platforms. In LTL, TFI remains disciplined in adapting supply to demand, as overcapacity continues to affect the industry. The Company expects to continue to emphasize major cities, cross-border, and high-density regions to enhance value, is focused on further cost rationalization, especially for its domestic Canadian business, is deploying customer-facing technology, and leveraging its capabilities in asset-light intermodal activities that it believes will generate higher returns. In TL, TFI is cost-conscious and focused on improving the efficiency and profitability of its existing modern fleet and its network of independent contractors. The Company has long established partner carrier relationships to benefit customer service. Within TL, management is focused on extracting costs from both its U.S. and Specialized TL operations. Further, the expected implementation of an electronic logging device (ELD) requirement in Canada may have a similar effect on the Canadian truckload environment as it had in the United States. In Logistics and Last Mile, the Company believes both online and conventional retailers increasingly view last mile delivery solutions as strategic to their business, and e-commerce continues to increase as a share of overall retail sales. TFI expects to continue to capitalize on the growing importance of e-commerce through its extensive logistics experience and last mile infrastructure. TFI International aims to distinguish itself by providing innovative, value-added solutions to its growing North American customer base. The Company is embracing an asset-light business model, and deploying capital toward initiatives that it believes provide strong returns and solid cash flow. In the short term, having achieved targeted leverage ratios, TFI expects to use its cash flow primarily for opportunistic share repurchases, dividends, and business acquisitions. TFI International believes it is uniquely positioned to benefit from the current dynamics in the North American freight environment, including the continued strength across the Canadian and U.S. transportation markets. Management believes that adherence to its operating principles, with the same discipline and rigour that have made the Company a North American leader in the transportation and logistics industry, will continue to grow shareholder value. TFI International SUMMARY OF EIGHT MOST RECENT QUARTERLY RESULTS MANAGEMENT’S DISCUSSION AND ANALYSIS 23 (unaudited) – (in millions of dollars, except per share data) Total revenue* Adjusted EBITDA1 Operating income (loss)** Net income (loss) EPS – basic EPS – diluted Adjusted net income1 Adjusted EPS – diluted1 Q4’18 Q3’18 Q2’18 Q1’18 Q4’17 Q3’17 Q2’17 Q1’17 1,321.4 1,287.6 1,317.7 1,196.5 1,192.9 1,176.6 1,263.8 1,204.1 109.5 28.9 14.1 0.15 0.15 32.9 0.35 186.7 123.6 80.4 0.92 0.89 89.9 0.99 131.0 66.1 120.2 1.34 1.31 53.9 0.59 145.7 (47.2) (75.0) (0.82) (0.82) 56.4 0.61 190.0 128.2 86.7 0.99 0.96 95.0 1.05 129.0 75.4 48.2 0.54 0.53 50.4 0.55 128.2 130.6 98.8 1.10 1.07 48.9 0.53 180.7 103.3 76.7 0.88 0.85 86.3 0.96 (*) 2017 quarters have been recasted for changes in presentation (see note 3 of the audited consolidated financial statements). (**) All of the quarters have been reclassified to conform to the current period presentation of line items included within the subtotal of operating income. The differences between the quarters are mainly the result of seasonality (softer in Q1) and business acquisitions. Higher 2018 operating income was also driven by strong execution across the organization, increased quality of revenue, cost efficiencies and improvement in the Company’s U.S. TL operating segment. In Q4 2017, higher net income, as well as higher basic and diluted EPS, is mainly due to an income tax gain of $76.1 million as a result of U.S. tax reform. In Q3 2017, higher operating income, net income, as well as higher basic and diluted EPS, is mainly due to gain on sale of property of $70.1 million, or $59.7 million after-tax. In Q2 2017, the Company recorded an operating loss, 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). NON-IFRS FINANCIAL MEASURES Financial data have been prepared in conformity with IFRS, including the following measures: Operating expenses: Operating expenses, as defined in the audited consolidated financial statements. Operating income (loss): Net income or loss before finance income and costs and income tax expense (recovery), as stated in the audited consolidated financial statements. 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: Net income or loss excluding amortization of intangible assets related to business acquisitions, net change in the fair value of contingent considerations and accretion expense and derivatives, net foreign exchange gain or loss, impairment of intangible assets, and gain or loss on sale of land and buildings, assets held for sale and intangible assets, net of tax, and impact from the U.S. tax reform. In presenting an adjusted net income and adjusted EPS, 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. In 2018, the Company added an adjustment to exclude the net change in fair value of contingent consideration and recasted the comparative measures to conform to the current year presentation. See reconciliation on page 8. 1 Refer to the section “Non-IFRS financial measures”. 2018 Annual Report 24 MANAGEMENT’S DISCUSSION AND ANALYSIS Adjusted earnings per share (adjusted “EPS”) – basic: Adjusted net income divided by the weighted average number of common shares. Adjusted EPS – diluted: Adjusted net income divided by the weighted average number of diluted common shares. Adjusted EBITDA: Net income or loss before finance income and costs, income tax expense (recovery), depreciation, amortization, impairment of intangible assets, and gain or loss on sale of land and buildings, assets held for sale and intangible assets. Segmented adjusted EBITDA refers to operating income (loss) before depreciation, amortization, impairment of intangible assets, and gain or loss on sale of land and buildings, assets held for sale and intangible assets. Management believes adjusted EBITDA to be a useful supplemental measure. Adjusted EBITDA is provided to assist in determining the ability of the Company to assess its performance. Consolidated adjusted EBITDA reconciliation: (unaudited) (in thousands of dollars) Net income Net finance costs (income) Income tax expense (recovery) Depreciation of property and equipment Amortization of intangible assets Impairment of intangible assets Gain on sale of land and buildings (Gain) loss on sale of assets held for sale Gain on sale of intangible assets Adjusted EBITDA Fourth quarters ended December 31 Years ended December 31 2018 2017 2018 2017 76,728 120,192 291,994 157,988 (40) 26,595 52,392 15,460 12,559 (312) (1,479) (1,249) 13,497 (67,613) 48,298 15,949 — (394) 1,088 48,306 90,224 61,075 (40,642) 198,492 209,557 62,101 12,559 (524) 61,200 142,981 (232) (15,620) (77,446) — (1,249) — 180,654 131,017 686,283 514,481 TFI International Segmented adjusted EBITDA reconciliation: (unaudited) (in thousands of dollars) Package and Courier Operating income Depreciation of property and equipment Amortization of intangible assets Gain on sale of land and buildings Gain on sale of assets held for sale Gain on sale of intangible assets Adjusted EBITDA Less-Than-Truckload Operating income Depreciation of property and equipment Amortization of intangible assets (Gain) loss on sale of land and buildings (Gain) loss on sale of assets held for sale Adjusted EBITDA Truckload Operating income (loss) Depreciation of property and equipment Amortization of intangible assets Impairment of intangible assets (Gain) loss on sale of land and buildings Gain on sale of assets held for sale Adjusted EBITDA Logistics and Last Mile Operating income Depreciation of property and equipment Amortization of intangible assets Impairment of intangible assets Loss on sale of land and buildings Adjusted EBITDA Corporate Operating loss Depreciation of property and equipment Amortization of intangible assets Gain on sale of assets held for sale Adjusted EBITDA MANAGEMENT’S DISCUSSION AND ANALYSIS 25 Fourth quarters ended December 31 Years ended December 31 2018 2017 2018 2017 34,409 3,055 306 — — (1,249) 36,521 28,144 3,337 395 (682) — — 113,214 102,281 11,870 1,362 — — (1,249) 13,811 1,728 (682) (9,156) — 31,194 125,197 107,982 23,461 13,221 6,252 2,750 (336) 82 5,208 2,478 267 1,088 85,132 23,656 10,792 (275) 122,181 21,663 9,691 242 (2,299) (68,118) 32,209 22,262 117,006 85,659 52,282 41,926 6,728 — 1 (1,561) 99,376 2,851 774 5,348 12,559 23 22,813 38,589 7,275 — 18 — 207,723 158,708 27,464 — (279) (12,909) (51,705) 168,846 28,674 129,770 93 (172) 68,695 380,707 275,506 14,098 853 5,555 — 3 54,492 2,969 21,298 12,559 30 41,579 3,873 20,223 13,211 115 21,555 20,509 91,348 79,001 (9,720) (12,200) (30,037) (35,915) 385 328 — 311 246 — 1,289 1,185 (412) 1,364 884 — (9,007) (11,643) (27,975) (33,667) 2018 Annual Report 26 MANAGEMENT’S DISCUSSION AND ANALYSIS Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of revenue before fuel surcharge. Debt-to-adjusted EBITDA ratio is calculated by dividing the total long-term debt by the adjusted EBITDA. 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 19. Operating margin is calculated as operating income (loss) as a percentage of revenue before fuel surcharge. Adjusted operating ratio: Operating expenses before impairment of intangible assets and gain or loss on sale of land and buildings, assets held for sale and intangible assets (“Adjusted operating expenses”), net of fuel surcharge revenue, divided by revenue before fuel surcharge. Although the adjusted operating ratio is not a recognized financial measure defined by IFRS, it is a widely recognized measure in the transportation industry, which the Company believes it 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. Consolidated adjusted operating ratio reconciliation: (unaudited) (in thousands of dollars) Operating expenses Impairment of intangible assets Gain on sale of land and buildings Gain (loss) on sale of assets held for sale Gain on sale of intangible assets Adjusted operating expenses Fuel surcharge revenue Fourth quarters ended December 31 Years ended December 31 2018 2017* 2018 2017* 1,218,162 1,126,802 4,692,684 4,658,993 (12,559) 312 1,479 1,249 — 394 (1,088) — (12,559) (142,981) 524 15,620 1,249 232 77,446 — 1,208,643 1,126,108 4,697,518 4,593,690 (159,166) (123,199) (615,011) (458,429) Adjusted operating expenses, net of fuel surcharge revenue 1,049,477 1,002,909 4,082,507 4,135,261 Revenue before fuel surcharge Adjusted operating ratio 1,162,279 1,069,679 4,508,197 4,378,985 90.3% 93.8% 90.6% 94.4% (*) Recasted for changes in presentation (see note 3 of the audited consolidated financial statements). TFI International Less-Than-Truckload and Truckload reportable segment adjusted operating ratio reconciliation and Truckload operating segments reconciliations: MANAGEMENT’S DISCUSSION AND ANALYSIS 27 (unaudited) (in thousands of dollars) Less-Than-Truckload Total revenue Total operating expenses Operating income Operating expenses Gain (loss) on sale of land and buildings and assets held for sale Adjusted operating expenses Fuel surcharge revenue Adjusted operating expenses, net of fuel surcharge revenue Revenue before fuel surcharge Adjusted operating ratio Truckload Total revenue Total operating expenses Operating income (loss) Operating expenses Impairment of intangible assets Gain (loss) on sale of land and buildings and assets held for sale Adjusted operating expenses Fuel surcharge revenue Adjusted operating expenses, net of fuel surcharge Revenue before fuel surcharge Adjusted operating ratio Truckload – Revenue before fuel surcharge U.S. based Conventional TL Canadian based Conventional TL Specialized TL Eliminations Truckload – Fuel surcharge revenue U.S. based Conventional TL Canadian based Conventional TL Specialized TL Eliminations Truckload – Operating income (loss) U.S. based Conventional TL Canadian based Conventional TL Specialized TL (*) Recasted for changes in presentation (see note 3 of the audited consolidated financial statements). Fourth quarters ended December 31 Years ended December 31 2018 2017* 2018 2017* 272,212 248,751 23,461 234,696 221,475 13,221 1,057,396 972,264 85,132 994,777 872,596 122,181 248,751 221,475 972,264 872,596 254 249,005 (40,218) 208,787 231,994 90.0% 610,161 557,879 52,282 557,879 — 1,560 559,439 (81,997) 477,442 528,164 90.4% 223,128 79,017 227,438 (1,419) 528,164 43,034 12,257 26,815 (109) 81,997 15,012 11,172 26,098 52,282 (1,355) 220,120 (30,560) 189,560 204,136 92.9% 2,574 974,838 (155,076) 819,762 902,320 90.9% 67,876 940,472 (117,288) 823,184 877,489 93.8% 546,251 523,438 22,813 2,388,865 2,181,142 207,723 2,218,207 2,269,912 (51,705) 523,438 — 2,181,142 — 2,269,912 (129,770) (18) 523,420 (65,300) 458,120 480,951 95.3% 209,174 74,398 198,098 (719) 480,951 36,674 10,098 18,728 (200) 65,300 (15) 6,049 16,779 22,813 13,188 2,194,330 (324,277) 1,870,053 2,064,588 90.6% 880,631 313,305 877,463 (6,811) 2,064,588 79 2,140,221 (244,109) 1,896,112 1,974,098 96.0% 885,978 303,613 788,186 (3,679) 1,974,098 170,673 49,693 104,464 (553) 324,277 47,820 47,793 112,110 207,723 135,058 39,767 69,631 (347) 244,109 (155,471) 23,243 80,523 (51,705) 2018 Annual Report 28 MANAGEMENT’S DISCUSSION AND ANALYSIS (unaudited) (in thousands of dollars) Fourth quarters ended December 31 Years ended December 31 2018 2017* 2018 2017* U.S. based Conventional TL Operating expenses** Impairment of intangible assets Loss on sale of land and buildings and assets held for sale Adjusted operating expenses Fuel surcharge revenue Adjusted operating expenses, net of fuel surcharge revenue Revenue before fuel surcharge Adjusted operating ratio Canadian based Conventional TL Operating expenses** Gain on sale of land and buildings and assets held for sale Adjusted operating expenses Fuel surcharge revenue Adjusted operating expenses, net of fuel surcharge revenue Revenue before fuel surcharge Adjusted operating ratio Specialized TL Operating expenses** Gain on sale of land and buildings and assets held for sale Adjusted operating expenses Fuel surcharge revenue Adjusted operating expenses, net of fuel surcharge revenue Revenue before fuel surcharge Adjusted operating ratio 251,150 — — 251,150 (43,034) 208,116 223,128 93.3% 80,102 — 80,102 (12,257) 67,845 79,017 85.9% 228,155 1,560 229,715 (26,815) 202,900 227,438 89.2% 245,863 — (119) 245,744 (36,674) 209,070 209,174 100.0% 78,447 101 78,548 (10,098) 68,450 74,398 92.0% 200,047 — 200,047 (18,728) 181,319 198,098 91.5% (*) Recasted for changes in presentation (see note 3 of the audited consolidated financial statements). (**) Operating expenses excluding intra TL eliminations. RISKS AND UNCERTAINTIES 1,003,484 — — 1,003,484 (170,673) 832,811 880,631 94.6% 1,176,507 (129,770) (214) 1,046,523 (135,058) 911,465 885,978 102.9% 315,205 7,023 322,228 (49,693) 272,535 313,305 87.0% 869,817 6,165 875,982 (104,464) 771,518 877,463 87.9% 320,137 101 320,238 (39,767) 280,471 303,613 92.4% 777,294 192 777,486 (69,631) 707,855 788,186 89.8% 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 its profitability and could have a material adverse effect on the Company’s results of operations. In addition, the Company faces growing competition from other transporters in Canada, the United States and Mexico. These factors, including the following, could impair the Company’s ability to maintain or improve its profitability and could have a material adverse effect on the Company’s results of operations: • the Company competes with many other transportation companies of varying sizes, including Canadian, U.S. and Mexican transportation companies; TFI International • • • 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 companies that also operate their own private trucking fleets, and they may decide to transport more of freight or bundle their own transportation with other services; 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 is highly competitive, particularly in the Company’s growing U.S. operations, and the Company’s inability to attract and retain drivers could reduce its equipment utilization and cause the Company to increase compensation, both of which would adversely affect the Company’s profitability; 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 recently-enacted regulations, such as regulations requiring the use of electronic logging devices in the United States, which may allow such competitors to take advantage of additional driver productivity; advances in technology, such as advanced safety systems, automated package sorting, handling and delivery, vehicle platooning, alternative fuel vehicles and digitization of freight services, 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; the Company’s competitors may have better safety records than the Company or a perception of better safety records, which could impair the Company’s ability to compete; shippers, some high-volume package as Amazon.com, are developing and implementing in- house delivery capabilities and utilizing independent contractors for deliveries, which could in turn reduce the Company’s revenues and market share; such competition from freight brokerage companies may materially adversely affect the Company’s customer relationships and freight rates; 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 material 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 U.S. and Mexican regulatory authorities is also required for the transportation of goods in the United States, in Mexico and 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. Future laws and regulations may be more stringent, require MANAGEMENT’S DISCUSSION AND ANALYSIS 29 changes in the Company’s operating practices, influence the demand for transportation services or require the Company to incur significant additional costs. Higher costs incurred by the Company, or by the Company’s suppliers who pass the costs onto the Company through higher supplies and materials pricing, could adversely affect the Company’s results of operations. The Company is increasing its operations in the United States, where the transportation industry is subject to regulation from various federal, state and local agencies, including the Department of Transportation (“DOT”) (in part through the Federal Motor Carrier Safety Administration (“FMCSA”)), the Environmental Protection Agency and the Department of Homeland Security. 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 Company also may become subject to new or more restrictive regulations relating to fuel efficiency, exhaust emissions, hours of service, drug and alcohol testing, ergonomics, on-board reporting of operations, collective bargaining, security at ports, speed limitations, driver training and other matters affecting safety or operating methods. In the United States, under the FMCSA’s Compliance, Safety, Accountability (“CSA”) program, fleets are evaluated and ranked against their peers based on certain safety-related standards. As a result, the Company’s fleet could be ranked poorly as compared to peer carriers. The Company recruits first-time drivers to be part of its fleet, and these drivers may have a higher likelihood of creating adverse safety events under CSA. The occurrence of future deficiencies could affect driver recruitment in the United States by causing high-quality drivers to seek employment with other carriers or limit the pool of available drivers or could cause the Company’s customers to direct their business away from the Company and to carriers with higher fleet safety rankings, either of which would materially adversely affect the Company’s business, financial condition and results of operations. In addition, future deficiencies could increase the Company’s insurance expenses. Additionally, competition for drivers with favourable safety backgrounds may increase, which could necessitate increases in driver-related compensation costs. Further, the Company may incur greater than expected expenses in its attempts to improve unfavourable scores. Based on the ratings of the Company’s U.S. subsidiaries in a number of the seven CSA safety-related categories, the Company may be prioritized for roadside inspection, which could have an adverse effect on the Company’s business, financial condition and results of operations. In December 2015, the U.S. Congress passed a new highway funding bill called Fixing America’s Surface Transportation Act (the ”FAST Act”), which calls for significant CSA reform. The FAST Act directs the FMCSA to conduct studies of the scoring system used to generate CSA rankings to determine if it is 2018 Annual Report 30 MANAGEMENT’S DISCUSSION AND ANALYSIS effective in identifying high-risk carriers and predicting future crash risk. This study was conducted and delivered to the FMCSA in June 2017 with several recommendations to make the CSA program more fair, accurate and reliable. In June 2018, the FMCSA provided a report to the U.S. Congress outlining the changes it may make to the CSA program in response to the study. Such changes include the testing and possible adoption of a revised risk modeling theory, potential collection and dissemination of additional carrier data and revised measures for intervention thresholds. The adoption of such changes is contingent on the results of the new modeling theory and additional public feedback. Thus, it is unclear if, when and to what extent such changes to the CSA program will occur. However, any changes that increase receiving unfavourable scores could materially adversely affect the Company’s results of operations and profitability. the Company likelihood of the In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers of FMCSA drug and alcohol testing requirements. Motor carriers in the United States will be required to query the clearinghouse to ensure drivers and driver applicants do not have violations of federal drug and alcohol testing regulations that prohibit them from operating commercial motor vehicles. The compliance date for this rule is early 2020. In addition, other rules have been recently proposed or made final by the FMCSA, including (i) a rule requiring the use of speed-limiting devices on heavy-duty tractors to restrict maximum speeds, which was proposed in 2016 and (ii) a rule setting out minimum driver training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking a hazardous materials endorsement, which was made final in December 2016 with a compliance date in February 2020. In July 2017, the DOT announced that it would no longer pursue a speed limiter rule, but left open the possibility that it could resume such a pursuit in the future. The effect of these rules, to the extent they become effective, could result in a decrease in fleet production and/or driver availability, either of which could materially adversely affect the Company’s business, financial condition and results of operations. The Company currently has a satisfactory DOT rating for each of its U.S. operations, which is the highest available rating under the current safety rating scale. If the Company were to receive a conditional or unsatisfactory DOT safety rating, it could materially adversely affect the Company’s business, financial condition and results of operations as customer contracts may require a satisfactory DOT safety rating, and a conditional or unsatisfactory rating could materially adversely affect or restrict the Company’s operations. The FMCSA has proposed regulations that would modify the existing rating system and the safety labels assigned to motor carriers evaluated by the DOT. Under regulations that were proposed in 2016, the methodology for determining a TFI International carrier’s DOT safety rating would be expanded to include the on-road safety performance of the carrier’s drivers and equipment, as well as results obtained from investigations. Exceeding certain thresholds based on such performance or results would cause a carrier to receive an unfit safety rating. The proposed regulations were withdrawn in March 2017, but the FMCSA noted that a similar process may be initiated in the future. If similar regulations were enacted and the Company were to receive an unfit or other negative safety rating, the Company’s business would be materially adversely affected in the same manner as if it received a conditional or unsatisfactory safety rating under the current regulations. In addition, poor safety performance could lead to increased risk of liability, increased insurance, maintenance and equipment costs and potential loss of customers, which could materially adversely affect the Company’s business, financial condition and results of operations. The U.S. National Highway Traffic Safety Administration, the Environmental Protection Agency and certain U.S. states, including California, have adopted regulations that are aimed at reducing tractor emissions and/or increasing fuel economy of the equipment the Company uses. Certain of these regulations are currently effective, with stricter emission and fuel economy standards becoming effective over the next several years. Other regulations have been proposed in the United States that would similarly increase these standards. The effects of these regulations have been and may continue to be increases in new tractor and trailer prices, additional parts and maintenance costs, impaired productivity and uncertainty as to the reliability of the newly-designed diesel engines and the residual values of the Company’s equipment. Such effects could materially adversely affect the Company’s business, financial condition and results of operations. 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. In March 2014, the U.S. Ninth Circuit Court of Appeals held that the application of California state wage and hour laws to interstate truck drivers is not pre-empted by U.S. federal law. The case was appealed to the U.S. Supreme Court, which denied certiorari in May 2015, and accordingly, the Ninth Circuit Court of Appeals decision stands. Current and future U.S. state and local wage and hour laws, including laws related to employee meal breaks and rest periods, may vary significantly from U.S. federal law. As a result, the Company, along with other companies in the industry, is subject to an uneven patchwork of wage and hour laws throughout the United States. There is proposed federal legislation to solidify the pre-emption of state and local wage and hour laws applied to interstate truck drivers; however, passage of such legislation is uncertain. If U.S. federal legislation is not passed, the Company will either need to continue complying with the most restrictive state and local laws across its entire fleet in the United States, or revise its management systems to comply with varying state and local laws. Either solution could result in increased compliance and labour costs, driver turnover and decreased efficiency. Changes in existing regulations and implementation of new regulations, such as those related to trailer size limits, emissions and fuel economy, hours of service, mandating electronic logging devices and drug and alcohol testing in Canada, the United States and Mexico, could increase capacity in the industry or improve the position of certain competitors, either of which could negatively impact pricing and volumes or require additional investments by the Company. The short-term and long-term impacts of changes in legislation or regulations are difficult to predict and could materially adversely affect results of operations. the Company’s 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. to and transportation the Company’s international operations 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, changes to trade agreements and other treaties, taxes or government royalties by foreign governments, adverse changes in the regulatory environments, laws and regulations, of the foreign countries in which the Company does business, compliance with anti-corruption and 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. The Company cannot guarantee compliance with all applicable laws, and violations could result in substantial fines, sanctions, civil or criminal penalties, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect the Company’s results of operations. including tax in Recent activity by the Trump Administration has led to the imposition of tariffs on certain imported steel and aluminum. The implementation of these tariffs, as well as the imposition of additional tariffs or quotas or changes to certain trade agreements could, among other things, increase the costs of the materials used by the Company’s suppliers to produce MANAGEMENT’S DISCUSSION AND ANALYSIS 31 new revenue equipment or increase the price of fuel. Such cost increases for the Company’s revenue equipment suppliers would likely be passed on to the Company, and to the extent fuel prices increase, the Company may not be able to fully recover such increases through rate increases or the Company’s fuel surcharge program, either of which could have a material adverse effect on the Company’s business. In December 2017, the United States enacted comprehensive tax legislation, commonly referred to as the 2017 Tax Cuts and Jobs Act. The new law requires complex computations not previously required by U.S. tax law. As such, the application of accounting guidance for such items is currently uncertain. Further, compliance with the new law and the accounting for such provisions require preparation and analysis of information not previously required or regularly produced. In addition, the U.S. Department of Treasury has broad authority to interpretative guidance that may significantly impact how the Company will apply the impact the Company’s results of operations in future periods. The timing and scope of such regulations and interpretative guidance are uncertain. In addition, there is a risk that states within the United States or foreign jurisdictions may amend their tax laws in response to these tax reforms, which could have a material adverse effect on the Company’s results. issue regulations and law and In addition, if the Company is unable to maintain its Free and Secure Trade (“FAST”) and U.S. Customs Trade Partnership Against Terrorism (“C-TPAT”) certification statuses, it may have significant border delays, which could cause its cross- border operations to be less efficient than those of competitor truckload carriers that obtain or continue to maintain FAST and C-TPAT certifications. Operating Environment and Seasonality. 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 its liability insurance premiums and the number and dollar amount of claims, may exceed historical levels, which would require the Company to incur additional costs and could reduce the Company’s earnings; a decline 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; trailer reduce vendors may their tractor and manufacturing output in response to lower demand for their products in economic downturns or shortages of component parts, which may materially adversely affect the Company’s ability to purchase a quantity of new revenue equipment that is sufficient to sustain its desired growth rate; and 2018 Annual Report 32 MANAGEMENT’S DISCUSSION AND ANALYSIS • increased prices for new revenue equipment, design changes of new engines, reduced equipment efficiency resulting reduce emissions, or decreased availability of new revenue equipment. from new engines designed to season because inclement weather The Company’s tractor productivity decreases during the winter impedes operations and some shippers reduce their shipments after the winter holiday season. Revenue may also be adversely affected by inclement weather and holidays, since revenue is directly related to available working days of shippers. At the same time, operating expenses increase and fuel efficiency declines because of engine idling and harsh weather creating higher accident frequency, increased claims and higher equipment repair expenditures. The Company also may suffer from weather-related or other unforeseen events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions. These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, damage or destroy the Company’s assets or adversely affect the business or financial condition of the Company’s customers, any of which could materially adversely affect results of operations or make the Company’s results of operations more volatile. the Company’s General Economic, Credit, and Business 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 material adverse effect on the Company’s operating results. The Company’s industry is subject to cyclical pressures, and the Company’s business is dependent on a number of factors that may have a material adverse effect on its 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 in which the Company’s customers choose to source or utilize the Company’s services; and 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 (iv) downturns TFI International greater potential for loss and the Company may be required to increase its 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 assets and customers’ freight demand; the Company may be forced to accept more loads from freight brokers, where freight rates are typically lower, or may be forced to incur more non-revenue generating miles to obtain loads; the Company may increase the size of its fleet during periods of high freight demand during which its competitors also increase their capacity, and the Company may experience losses in greater amounts than such competitors during subsequent cycles of softened freight demand if the Company is required to dispose of assets at a loss to match reduced 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 its 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 Company’s control the Company’s profitability if it 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. Strikes or other work stoppages at the Company’s service centres or at customer, port, border or other locations, deterioration of Canada, the U.S. and Mexico transportation infrastructure and reduced investment in such infrastructure, or actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against a foreign state or group located in a foreign state or heightened security requirements could lead to wear, tear and damage to shipping the Company’s equipment, driver dissatisfaction, reduced economic demand, reduced availability of credit, increased prices for fuel or temporary closing of the shipping locations or borders between Canada, the United States and Mexico. Further, the Company may not be able to appropriately adjust its costs and staffing levels to meet changing market demands. In periods of rapid change, it is more difficult to match the Company’s staffing level to its business needs. The Company’s operations, with the exception of its brokerage operations, are capital intensive and asset heavy. If anticipated demand differs materially from actual usage, the Company may have too many or too few assets. During periods of decreased customer demand, the Company’s asset utilization may suffer, and it may be forced to sell equipment on the open market or turn in equipment under certain equipment leases in order to right size its fleet. This could cause the Company to incur losses on such sales or require payments in connection with equipment the Company turns in, particularly during times of a softer used equipment market, either of which could have a material adverse effect on the Company’s profitability. Although the Company’s business volume is not highly concentrated, its customers’ financial failures or loss of customer business may materially adversely affect the Company. If the Company were unable to generate sufficient cash from operations, it would need to seek alternative sources of capital, including financing, to meet its capital requirements. In the event that the Company were unable to generate sufficient cash from operations or obtain financing on favourable terms in the future, it may have to limit its fleet size, enter into less favourable financing arrangements or operate its revenue equipment for longer periods, any of which could have a materially adverse effect on its profitability. Interest Rate Fluctuations. Changes in interest rates may result in fluctuations in the Company’s future cash flows related to variable-rate financial liabilities. Future cash flows related to variable-rate financial liabilities 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 the Canadian dollar, primarily the U.S. dollar. The exchange rates between these currencies and the Canadian dollar have fluctuated in recent years and will likely 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. MANAGEMENT’S DISCUSSION AND ANALYSIS 33 futures 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 events, commodity trading, currency fluctuations, natural man-made disasters, terrorist activities and armed conflicts 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 have a material adverse effect on 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 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, such as has occurred in the past. There can be no assurance that such fuel surcharges can be maintained indefinitely or that they will be fully effective. Insurance. The Company’s operations are subject to risks inherent in the transportation sector, including personal injury, property damage, workers’ 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 in the industry, the Company self-insures a significant portion of the claims exposure related to cargo loss, bodily injury, workers’ 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 in excess of the amounts originally assessed. Further, the Company’s self- insured retention levels could change and result in more volatility than in recent years. 2018 Annual Report 34 MANAGEMENT’S DISCUSSION AND ANALYSIS limit policies for automobile bodily The Company holds a fully-fronted policy of $10 million limit per occurrence for automobile bodily injury, property damage and commercial general liability for its Canadian Insurance Program (subject to certain exceptions) and a deductible of $2 million for certain U.S. subsidiaries on their primary $10 million injury, property damage and commercial general liability. The Company retains deductibles of up to $1 million per said occurrence deductibles making the Company’s insurance and claims expense higher or more volatile than if it maintained lower retentions. The Company’s liability coverage has a total limit of $100 million per occurrence. for workers’ compensation claims, 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 will 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 (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 its 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 which the Company has in place. if The Company accrues the costs of the uninsured portion of pending claims based on estimates derived from the Company’s evaluation of the nature and severity of individual claims and an estimate of future claims development based upon historical claims development trends. Actual settlement of the Company’s retained claim liabilities could differ from its estimates due to a number of uncertainties, including evaluation of severity, legal costs and claims that have been incurred but not reported. Due to the Company’s high retained amounts, it has significant exposure to fluctuations in the number and severity of claims. If the Company were required to accrue or pay additional amounts because its estimates are revised or the claims ultimately prove to be more severe than originally assessed, its financial condition and results of operations may be materially adversely affected. Employee Relations. 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 U.S. operations. Although the Company believes that its relations with its 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 or that TFI International employees in the United States will not attempts to unionize. 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 or non-unionized workers engage in a strike or other work stoppage or interruption, the Company could experience a significant disruption of, or inefficiencies in, its operations or incur higher labour costs, which could have a material adverse effect on the Company’s business, results of operations, financial condition and liquidity. At the date hereof, the collective agreements between the Company and the vast majority of its unionized employees have been renewed. The renewed collective agreements have a variety of expiration dates, ranging from December 31, 2018 to June 30, 2023. The Company cannot predict the effect which any new collective agreements or the failure to enter into such agreements upon the expiry of the current agreements may have on its operations. Drivers. Increases in driver compensation or difficulties attracting and retaining qualified drivers could have a material adverse effect on the Company’s profitability and the ability to maintain or grow the Company’s fleet. companies will in the transportation sector, the Company Like many experiences substantial difficulty in attracting and retaining sufficient numbers of qualified drivers. The truckload (TL) industry periodically experiences a shortage of qualified drivers. The Company believes the shortage of qualified drivers and intense competition for drivers from other transportation in maintaining or increasing the number of drivers and may impact the Company’s ability to engage a negatively sufficient number of drivers, and the Company’s inability to do so may negatively impact its operations. Further, the compensation its drivers and independent contractor expenses are subject to market conditions, and the Company may find it necessary to increase driver and independent contractor compensation in future periods. the Company offers create difficulties to operate existing the Company and many other trucking In addition, companies suffer from a high turnover rate of drivers in the U.S. TL market. This high turnover rate requires the Company to continually recruit a substantial number of new drivers in revenue equipment. Driver order shortages are exacerbated during periods of economic expansion, in which alternative employment opportunities, including in the construction and manufacturing industries, which may offer better compensation and/or more time at home, are more plentiful and freight demand increases, or during periods of economic downturns, in which unemployment benefits might be extended and financing is limited for independent contractors who seek to purchase equipment, or the scarcity or growth of loans for students who seek financial aid for driving school. The lack of adequate tractor parking along some U.S. highways and congestion caused by inadequate highway funding may make it more difficult for drivers to comply with hours of service regulations and cause added stress for drivers, further reducing the pool of eligible drivers. The Company’s use of team-driven tractors for expedited shipments requires two drivers per tractor, which further increases the number of drivers the Company must recruit and retain in comparison to operations that require one driver per tractor. The Company also employs driver hiring standards, which could further reduce the pool of available drivers from which the Company would hire. 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, 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. the number of increase Independent Contractors. The Company’s contracts with U.S. independent contractors are governed by U.S. federal leasing regulations, which impose specific requirements on the Company and the independent contractors. If more stringent regulations are adopted, U.S. U.S. independent contractors could be deterred from becoming independent contractor drivers, which could materially adversely affect the Company’s goal of maintaining its current fleet levels of independent contractors. leasing federal financing The Company provides to certain qualified Canadian independent contractors and financial guarantees to a small number of U.S. independent contractors. If the Company were unable to provide such financing or guarantees in the future, due to liquidity constraints or other restrictions, it may experience a decrease in the number of independent contractors it is able to engage. Further, if independent contractors the Company engages default under or otherwise terminate the financing arrangements and the Company independent contractors or seat the tractors with its drivers, the Company may incur losses on amounts owed to it with respect to such tractors. is unable to find replacement Pursuant to the Company’s fuel surcharge program with independent contractors, the Company pays independent contractors with which it contracts a fuel surcharge that increases with the increase in fuel prices. A significant increase or rapid fluctuation in fuel prices could cause the Company’s costs under this program to be higher than the revenue the Company receives under its customer fuel surcharge programs. themselves, have U.S. tax and other regulatory authorities, as well as U.S. independent contractors increasingly asserted that U.S. independent contractor drivers in the trucking industry are employees rather than independent contractors, and the Company’s classification of independent contractors has been the subject of audits by such authorities from time to time. U.S. federal legislation has been introduced in the past that would make it easier for tax and other authorities to reclassify independent contractors as the employees, legislation including increase to MANAGEMENT’S DISCUSSION AND ANALYSIS 35 for those requirements reclassification of that engage recordkeeping independent contractor drivers and to increase the penalties for companies who misclassify their employees and are found to have violated employees’ overtime and/or wage legislators have requirements. Additionally, U.S. federal sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, to extend the U.S. Fair Labor Standards Act to independent contractors and to impose notice requirements based on employment or independent contractor status and fines for failure to comply. Some U.S. states have put initiatives in place to increase their revenue from items such as unemployment, workers’ compensation and income taxes, and a independent contractors as employees would help states with this initiative. Further, U.S. class actions and other lawsuits have been filed against certain members of the Company’s industry seeking to reclassify independent contractors as employees for a variety of purposes, including workers’ compensation and health care coverage. In addition, companies that use lease purchase independent contractor programs, such as the Company, have been more susceptible to reclassification lawsuits, and several recent decisions have been made in favour of those seeking to classify independent contractor truck drivers as employees. U.S. taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status. If the independent contractors with whom the Company contracts are determined to be employees, the Company would incur additional exposure under U.S. federal and state tax, workers’ compensation, unemployment benefits, labour, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings, and the Company’s business, financial condition and results of operations could be materially adversely affected. 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 drivers, key employees, customers or contracts; in or inconsistencies possible conflicts between 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; 2018 Annual Report 36 MANAGEMENT’S DISCUSSION AND ANALYSIS • • • 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 and 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 and 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 conducts in connection with an acquisition and any 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. The representations made by the sellers expire at varying periods after the closing. A material liability associated with an acquisition, especially where there is no right to indemnification, could adversely affect financial condition and liquidity. results of operations, the Company’s that meet The Company intends to continue to review acquisition and investment opportunities in order to acquire companies and assets investment criteria. the Company’s Depending on the number of acquisitions and investments and funding requirements, the Company may need to raise substantial additional capital and increase the Company’s indebtedness. 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 TFI International Company’s existing shareholders. If the Company raises additional funds through the issuance of debt securities, the terms of such debt could impose additional restrictions and costs on the Company’s 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. In addition, the Company faces competition 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, such as interest rates 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 the incurring of additional indebtedness. Environmental Matters. The Company uses storage tanks at certain of its Canadian and U.S. transportation terminals. Canadian and U.S. laws and regulations generally impose potential liability on the present and 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 them. In addition, the presence of those substances, or the failure to properly dispose of or remove 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 material affected by current or future environmental laws. substances, may adversely affect those 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 and 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. 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 environmental- federal, contamination 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. provincial state, local or 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 key personnel or, in the event of their departure, to develop or attract new personnel of equal quality. Dependence on Third Parties. Certain portions of the Company’s business are dependent upon the services of MANAGEMENT’S DISCUSSION AND ANALYSIS 37 third-party capacity providers, including other 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 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 its customers or provide the Company’s services on competitive terms, the results could be materially and Company’s operating adversely affected. The Company’s ability to secure sufficient equipment or other transportation services is affected by including many industry, the equipment particularly among contracted carriers, interruptions in service due to labour disputes, changes in regulations impacting transportation and changes in transportation rates. the Company’s control, transportation risks beyond shortages in 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 financing and requirements, the Company could be in default under the relevant agreement, which could cause cross-defaults under 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 share 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 a materially adverse effect on its liquidity, financial condition and results of operations. As at the date hereof, the Company is in compliance with all of its 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 2018 Annual Report 38 MANAGEMENT’S DISCUSSION AND ANALYSIS Company’s profitability if the Company is unable to generate sufficient cash from operations and/or obtain financing on favourable terms. The Company’s indebtedness may increase from time to time in the future for various reasons, including fluctuations in results of operations, capital expenditures and potential acquisitions. 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 material 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 December 31, 2018. Generally, the Company does not have long-term contracts with its major customers. Accordingly, in 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. 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 TFI International 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 vulnerable The Company’s operations and those of its technology and communications to service providers are interruption by natural and man-made disasters and other events beyond the Company’s control, including cybersecurity breaches and threats, such as hackers, malware and viruses, fire, earthquake, power loss, telecommunications failure, terrorist attacks and Internet failures. If any of the Company’s critical information systems fail, are breached or become otherwise unavailable, the Company’s ability to manage its 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 statements accurately or in a timely manner would be challenged. Any significant system failure, upgrade complication, cybersecurity breach or other system disruption could interrupt or delay the Company’s operations, damage its reputation, cause the Company to lose customers, cause the Company to incur costs to repair its systems, pay fines or in respect of litigation or impact the Company’s ability to manage its operations and report its financial performance, any of which could have a material 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 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. The Company may at some future date be subject to such a class- action lawsuit. 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 material adverse effect on the Company’s business, results of operations, financial condition and cash flows. MANAGEMENT’S DISCUSSION AND ANALYSIS 39 Internal Control. Effective internal controls over financial reporting are necessary for the Company to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Inferior internal controls could cause investors to lose confidence in the Company’s reported financial information, which could have a negative effect on the trading price of its shares. CRITICAL ACCOUNTING POLICIES AND ESTIMATES IFRS to make requires management The preparation of the financial statements in conformity with 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 and the measurement of in business identified assets and combinations. 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 CHANGES IN ACCOUNTING POLICIES Adopted during the period To be adopted in future periods 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, 2018 and have 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 Annual Improvements to IFRS Standards (2014-2016 cycle) Except modifications from the adoption of IFRS 15 as reported in note 3, these new standards did not have a material impact on the Company’s audited consolidated financial statements. The following new standards and amendments to standards are not yet effective for the year ended December 31, 2018, and have not been applied in preparing the audited consolidated financial statements: IFRS 16, Leases IFRIC 23, Uncertainty over Income Tax Treatments Amendment, Plan (Amendments to IAS 19) Curtailment or Settlement Annual Improvements to IFRS Standards (2015-2017 cycle) Prepayment Features with Negative Compensation (Amendments to IFRS 9) Definition of a business (Amendments to IFRS 3) Further information can be found in note 3 of the December 31, 2018 audited consolidated financial statements. 2018 Annual Report 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, 2018, 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, 2018, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) on Internal Control-Integrated Framework (2013 framework). Changes in internal controls over financial reporting No changes were made to the Company’s ICFR during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR. 40 MANAGEMENT’S DISCUSSION AND ANALYSIS 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. As at December 31, 2018, 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, 2018. TFI International MANAGEMENT’S RESPONSIBILITY 41 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 27, 2019 2018 Annual Report 42 INDEPENDENT AUDITORS’ REPORT To the Shareholders of TFI International Inc. Opinion We have audited the consolidated financial statements of TFI International Inc. (the Entity), which comprise:       the consolidated statements of financial position as at December 31, 2018 and December 31, 2017 the consolidated statements of income for the years then ended the consolidated statements of comprehensive income for the years then ended the consolidated statements of changes in equity for the years then ended the consolidated statements of cash flows for the years then ended and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements") In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2018 and December 31, 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors’ Responsibilities for the Audit of the Financial Statements" section of our auditors’ report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our opinion. Other Information Management is responsible for the other information. Other information comprises:   the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions; the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled "Glossy Annual Report". Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. TFI International INDEPENDENT AUDITORS’ REPORT (continued) 43 We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report. We have nothing to report in this regard. The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled "Glossy Annual Report" is expected to be made available to us after the date of this auditors’ report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the 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 financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity’s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit 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. 2018 Annual Report 44 INDEPENDENT AUDITORS’ REPORT (continued)  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.  Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.  Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. The engagement partner on the audit resulting in this auditors’ report is Girolamo Cordi. Montréal, Canada February 27, 2019 * CPA auditor, CA, public accountancy permit No. A109612 TFI International DECEMBER 31, 2018 AND 2017 (In thousands of Canadian dollars) Assets 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 liabilities Derivative financial instruments Long-term debt Current liabilities Long-term debt Employee benefits Provisions Other long-term liabilities 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 Subsequent events Total liabilities and equity CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 45 As at December 31, 2018 As at December 31, 2017 Note 6 24 8 9 10 15 24 11 14 24 12 12 13 14 24 15 16 16, 18 25 27 631,727 12,755 13,015 38,546 5,430 7,572 709,045 1,396,389 1,901,495 33,676 6,409 2,946 3,340,915 4,049,960 12,334 475,585 18,951 25,063 1,972 — 122,340 656,245 1,462,083 16,130 42,801 5,907 — 289,940 1,816,861 2,473,106 704,510 20,448 64,790 787,106 1,576,854 567,106 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 4,049,960 3,727,628 The notes on pages 50 to 94 are an integral part of these consolidated financial statements. On behalf of the Board: Alain Bédard André Bérard Director Director 2018 Annual Report 46 CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2018 AND 2017 (In thousands of Canadian dollars, except per share amounts) Note 2018 2017* Revenue Fuel surcharge Total revenue Materials and services expenses Personnel expenses Other operating expenses Depreciation of property and equipment Amortization of intangible assets Impairment of intangible assets Gain on sale of rolling stock and equipment Gain on sale of land and buildings Gain on sale of assets held for sale Gain on sale of intangible assets Total operating expenses Operating income Finance (income) costs Finance income Finance costs Net finance costs Income before income tax Income tax expense (recovery) 19 21 8 9 9 4,508,197 4,378,985 615,011 458,429 5,123,208 4,837,414 2,913,996 2,836,229 1,253,975 1,220,871 279,857 198,492 62,101 12,559 (10,903) (524) 268,599 209,557 61,200 142,981 (2,766) (232) (15,620) (77,446) (1,249) — 4,692,684 4,658,993 430,524 178,421 22 22 (15,353) (4,773) 63,659 48,306 65,848 61,075 382,218 117,346 23 90,224 (40,642) Net income for the year attributable to owners of the Company 291,994 157,988 Earnings per share attributable to owners of the Company Basic earnings per share Diluted earnings per share (*) Recasted for changes in presentation due to adoption of IFRS 15 (see note 3). The notes on pages 50 to 94 are an integral part of these consolidated financial statements. 17 17 3.32 3.22 1.75 1.70 TFI International CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 47 YEARS ENDED DECEMBER 31, 2018 AND 2017 (In thousands of Canadian dollars) 2018 2017 Net income for the year attributable to owners of the Company 291,994 157,988 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 Items that may never be reclassified to income or loss in future years: 101,972 (80,212) (26,677) (2,842) (159) 21,761 3,927 (148) Defined benefit plan remeasurement gains (losses), net of tax 1,181 (1,930) Items directly reclassified to retained earnings: Unrealized loss on investment in equity securities measured at fair value through OCI, net of tax Other comprehensive income (loss) for the year, net of tax (4,693) 68,782 (1,403) (58,005) Total comprehensive income for the year attributable to owners of the Company 360,776 99,983 The notes on pages 50 to 94 are an integral part of these consolidated financial statements. 2018 Annual Report 48 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY YEARS ENDED DECEMBER 31, 2018 AND 2017 (In thousands of Canadian dollars) Note Share capital Contributed surplus Accumulated unrealized loss on employee benefit plans Accumulated cash flow hedge gain Accumulated foreign currency translation differences and net investment hedge Accumulated unrealized loss on investment in equity securities Total equity attributable to owners of the Company Retained earnings 711,036 21,995 (369) 13,052 (14,324) (1,170 ) 684,904 1,415,124 Balance as at December 31, 2017 Net income for the year Other comprehensive income (loss) for the year, net of tax Total comprehensive income (loss) for the year Share-based payment transactions 18 — Stock options exercised 16, 18 20,840 Dividends to owners of the Company Repurchase of own shares 16 — 16 (30,122) Restricted share units exercised 16, 18 2,756 (3,464) Total transactions with owners, recorded directly in equity (6,526) (1,547) — — — — 291,994 291,994 (159) (2,842) 75,295 (4,693 ) 1,181 68,782 (159) (2,842) 75,295 (4,693 ) 293,175 360,776 — — — — — — — — — — — — — — — — — — — — — — 5,926 16,831 — (76,114) (76,114) — (109,500) (139,622) — (5,359) (6,067) — (190,973) (199,046) 704,510 20,448 (528) 10,210 60,971 (5,863 ) 787,106 1,576,854 723,390 20,230 (221) 9,125 44,127 (1,054 ) 663,053 1,458,650 — — — — — — — — — — 5,926 (4,009) — — — — — — 6,817 (1,514) — — Balance as at December 31, 2018 Balance as at December 31, 2016 Net income for the year Other comprehensive income (loss) for the year, net of tax Realized loss on equity securities, net of tax Total comprehensive income (loss) for the year Share-based payment transactions 18 — Stock options exercised 16, 18 7,748 Dividends to owners of the Company Repurchase of own shares 16 — 16 (22,231) Restricted share units exercised 16, 18 2,129 (3,538) Total transactions with owners, recorded directly in equity (12,354) 1,765 — — — — 157,988 157,988 (148) 3,927 (58,451) (1,403 ) (1,930) (58,005) — — — 1,287 (1,287) — (148) 3,927 (58,451) (116 ) 154,771 99,983 — — — — — — — — — — — — — — — — — — — — — — — — — 6,817 6,234 (70,334) (70,334) (59,334) (81,565) (3,252) (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 The notes on pages 50 to 94 are an integral part of these consolidated financial statements. TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (In thousands of Canadian dollars) Cash flows from operating activities Net income for the year 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 Gain on sale of intangible assets Provisions and employee benefits Net change in non-cash operating working capital Cash generated from operating activities Interest paid Income tax paid 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 Proceeds from sale of intangible assets Business combinations, net of cash acquired Purchases of investments Proceeds from sale of investments Others Net cash used in investing activities from continuing operations Cash flows from financing activities Increase in bank indebtedness Proceeds from long-term debt Repayment of long-term debt Payment of other financial liability Dividends paid Repurchase of own shares Proceeds from exercise of stock options Repurchase of shares for exercise of restricted share units Net cash used in financing activities from continuing operations Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year The notes on pages 50 to 94 are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS 49 Note 2018 2017 291,994 157,988 8 9 9 18 22 23 7 9 5 12 12 198,492 62,101 12,559 5,926 48,306 90,224 (11,427) (15,620) (1,249) (8,289) 673,017 12,647 685,664 (62,629) (79,532) 543,503 — 543,503 (314,300) 81,051 29,226 (4,421) 2,975 (156,487) (604) — 68 (362,492) 3,237 88,907 (67,180) (3,021) (74,096) (139,622) 16,831 (6,067) (181,011) — — — 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) 9,392 48,316 (122,964) — (69,016) (81,565) 6,234 (4,661) (214,264) (3,654) 3,654 — 2018 Annual Report 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 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, 2018 and 2017 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”). The comparatives to the consolidated statement of income have been reclassified to conform to the current year presentation regarding the line items included within the subtotal of operating income. These consolidated financial statements were authorized for issue by the Board of Directors on February 27, 2019. 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 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, income tax provisions and the self-insurance and other provisions and contingencies. 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; and Note 9 – Determining estimates and assumptions related to impairment tests for long-lived assets and goodwill. TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 51 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. iii) 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. 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. 2018 Annual Report 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 3. Significant accounting policies (continued) c) 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. 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. TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 53 3. Significant accounting policies (continued) c) Financial instruments (continued) 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 contingent consideration 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 and stock options are recognized as a deduction from equity, net of any tax effects. When share capital recognized as equity is repurchased, share capital is reduced by the amount equal to historical cost of repurchased equity. The excess 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. d) 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. 2018 Annual Report 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 3. Significant accounting policies (continued) d) Hedge accounting (continued) 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. e) 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, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 55 3. Significant accounting policies (continued) e) 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. f) 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 5–20 years 5–20 years 3–10 years 5–7 years (*) Includes indefinite useful life assets. They are reviewed at least annually for impairment (see note 9). Useful lives and residual values are reviewed at each financial year end and adjusted prospectively, if appropriate. g) 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. h) Inventoried supplies Inventoried supplies consist primarily of repair parts and fuel and are measured at the lower of cost and net realizable value. 2018 Annual Report 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 3. Significant accounting policies (continued) i) 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. 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. j) 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. k) 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. TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 57 3. Significant accounting policies (continued) k) Employee benefits (continued) 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. 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. 2018 Annual Report 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 3. Significant accounting policies (continued) l) 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. m) Revenue recognition The Group’s normal business operations consist of the provision of transportation and logistics services. All revenue relating to normal business operations is recognized 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 days completed to date compared to the estimated total days of the service. Revenue is presented net of trade discounts and volume rebates. Revenue is recognized as services are rendered, when the control of promised services is transferred to customers in an amount that reflects the consideration the Group expects to be entitled to receive in exchange for those services measured based on the consideration specified in a contract with the customers. The Group considers the contract with customers to include the general transportation service agreement and the individual bill of ladings with customers. n) 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. o) 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. p) 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. TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 59 3. Significant accounting policies (continued) p) Income taxes (continued) 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. q) 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. r) 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. 2018 Annual Report 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 3. Significant accounting policies (continued) s) 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, 2018. These have 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. IFRS 15 replaces 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’s normal business operations consist of the provision of transportation and logistics services. All revenue relating to transportation and logistics is recognized 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 days completed to date compared to the estimated total days of the service. Revenue is presented net of trade discounts and volume rebates. Revenue is recognized as services are rendered, when the control of promised services is transferred to customers in an amount that reflects the consideration the Group expects to be entitled to receive in exchange for those services measured based on the consideration specified in a contract with the customers. Having completed the five-step analysis, the Group identified contracts with customers and performance obligations therein, determined transaction price and its allocation to performance obligations and confirmed the appropriateness of its revenue recognition policy being over time as the transportation and logistics services are rendered, based on costs incurred as described above. Adoption of IFRS 15 did not have a material impact on the Group’s overall revenue recognition policy or its operating income in the consolidated financial statements. The standard also requires that the Group evaluates whether there is a performance obligation 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 the previous standard. Based on the evaluation of the control model, it was determined that certain businesses, mainly in the Less-Than-Truckload segment, act as the principal rather than the agent within their revenue arrangements. This change requires 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. This resulted in a change in presentation only for the related revenues and expenses in the consolidated financial statements as noted below. There is no impact on net income, retained earnings or assets and liabilities as a result of this change. The Group adopted IFRS 15 retrospectively, by restating comparatives. The table below summarizes the impact of adopting IFRS 15 on the Group’s consolidated statement of income for its previously reported year ended December 31, 2017. 2017 Total revenue Materials and services expenses As reported Adjustments Restated 4,741,019 (2,739,834) 96,395 4,837,414 (96,395) (2,836,229) TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 61 3. Significant accounting policies (continued) s) New standards and interpretations adopted during the year (continued) 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 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. Adoption of the amendments to IFRS 2 did not have a material impact on the Group’s consolidated 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 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 was applied prospectively to all assets, expenses and income in the scope of the Interpretation initially recognized as of January 1, 2018. Adoption of IFRIC 22 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 two 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: • Removal of outdated exemptions for first time adopters under IFRS 1 First-time Adoption of International Financial Reporting Standards; • 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. Adoption of Annual Improvements to IFRS Standards (2014-2016 cycle) did not have a material impact on the Group’s consolidated financial statements. t) New standards and interpretations not yet adopted The following new standards are not yet effective for the year ending December 31, 2018, and have not been applied in preparing these consolidated 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. IFRS 16 will replace IAS 17 Leases and the related interpretations. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases but you can elect to exclude those with a term of less than 12 months, or those where 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 also 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 finalizing its review of its lease agreements in accordance with the new standard. In preparation for the adoption of the new standard, the Group is implementing a new lease module to enable the tracking and accounting of leases. Available transitional provisions have been reviewed and the Group has finalized its position with regards to the following transitional provisions: 2018 Annual Report 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 3. Significant accounting policies (continued) t) New standards and interpretations not yet adopted (continued) • • • • The Group will be applying the standard using a modified retrospective approach. This approach allows for two transition options to measure the right-of-use asset at transition; option 1 calculates the right-of-use asset as if the standard was applied at the initial date of the lease discounted at the transition rate or option 2 where the right-of-use asset is equal to the lease liability on the date of transition. As allowed by this approach, the Group has chosen to apply a mixture of both options on a lease by lease basis. The comparative figures will not be adjusted. The Group will elect to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied transitional provisions of IFRS 16 only to contracts which were previously identified as leases. New definition of a lease will be applied for leases entered into after January 1, 2019. The Group will elect to apply the practical expedient to not include any leases whose term will end within twelve months of the adoption date. The leases will be treated as short term under IFRS 16. The Group will apply the exemption for low value items. These low value items continue to be classified as a lease expense. The Group’s preliminary assessment of the impact of the adoption of the standard is an increase of the lease liability of approximately $475 million and an increase in the right-of-use asset of approximately $435 million on the consolidated statement of financial position. As amounts previously recognized as lease expenses will be replaced by the depreciation of the right-of-use asset and the lease liability finance costs, the consolidated statement of income and comprehensive income will be affected. 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. 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 will not have a material impact on consolidated financial statements. Plan Amendment, Curtailment or Settlement (Amendments to IAS 19): On February 7, 2018, the IASB issued Plan Amendment, Curtailment or Settlement (Amendments to IAS 19). The amendments apply for plan amendments, curtailments or settlements that occur on or after January 1, 2019, or the date on which they are first applied. The amendments to IAS 19 clarify that: • on amendment, curtailment or settlement of a defined benefit plan, an entity now uses updated actuarial assumptions to determine its current service cost and net interest for the period; and • the effect of the asset ceiling is disregarded when calculating the gain or loss on any settlement of the plan. The Group intends to adopt the amendments to IAS 19 in its financial statements for the annual period beginning on January 1, 2019. The extent of the impact of adoption of the amendments will not be material. 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. 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; TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 63 3. Significant accounting policies (continued) t) New standards and interpretations not yet adopted (continued) • • 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. They also clarify that an entity includes funds borrowed specifically to obtain an asset other than a qualifying asset as part of general borrowings. 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 will not be material. Prepayment Features with Negative Compensation (Amendments to IFRS 9): In October 2017, the IASB issued Prepayment Features with Negative Compensation (Amendments to IFRS 9). The amendments are to be applied retrospectively for annual periods beginning on or after January 1, 2019. The amendments to IFRS 9 clarify that negative compensation may be regarded as reasonable compensation irrespective of the cause of early termination. Financial assets with these prepayment features are eligible to be measured at amortized cost or at fair value through other comprehensive income if they meet the other relevant requirements of IFRS 9. The Group intends to adopt these amendments in its financial statements for the annual period beginning on January 1, 2019. The impact of adoption of the amendments will not have a material impact on the Group’s consolidated financial statements. Definition of a business (Amendments to IFRS 3): On October 22, 2018, the IASB issued amendments to IFRS 3 Business Combinations, that seek to clarify whether a transaction results in an asset or a business acquisition. The amendments apply to businesses acquired in annual reporting periods beginning on or after January 1, 2020. Earlier application is permitted. The amendments include an election to use a concentration test. This is a simplified assessment that results in an asset acquisition if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. If a preparer chooses not to apply the concentration test, or the test is failed, then the assessment focuses on the existence of a substantive process. The Group intends to adopt these amendments in its financial statements for the annual period beginning on January 1, 2020. The extent of the impact of adoption of the amendments has not yet been determined and would be dependent on future transactions. 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. 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 and Last Mile: Logistics services and last mile delivery of both small parcels and larger, heavy goods. (a) The Truckload reporting 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 judgment 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. 2018 Annual Report 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 4. Segment reporting (continued) During the first quarter of 2018, the composition of the reportable segments was modified to better reflect the nature of the Group’s operations. In particular, the Last Mile delivery operating companies, which were previously included in the Package and Courier operating segment, are now presented in the newly named Logistics and Last Mile segment (previously the Logistics segment). The Last Mile delivery operating companies and the logistics companies have similar economic characteristics such as expected gross margins and levels of capital expenditure. These similarities are achieved through the employment of asset and personnel-light operating models. The corresponding information for the comparative period is recast to conform to the new reportable segments. Package and Courier Less- Than- Truckload Truckload Logistics and Last Mile Corporate Eliminations Total 2018 External revenue External fuel surcharge 627,819 889,283 2,044,831 946,264 94,798 154,169 320,064 45,980 Inter-segment revenue and fuel surcharge 5,939 13,944 23,970 7,942 Total revenue 728,556 1,057,396 2,388,865 1,000,186 — — — — — 4,508,197 — 615,011 (51,795) — (51,795) 5,123,208 Operating income (loss) 113,214 85,132 207,723 54,492 (30,037) — 430,524 Selected items: Depreciation and amortization 13,232 34,448 186,172 24,267 2,474 — 260,593 Impairment of intangible assets Gain (loss) on sale of land and buildings Gain on sale of assets held for sale — — — — 275 — 279 2,299 12,909 Gain on sale of intangible assets 1,249 — — 12,559 (30) — — — — 412 — Intangible assets Total assets Total liabilities 247,280 256,009 1,065,624 329,460 3,122 398,859 636,724 2,484,367 464,834 65,176 66,057 146,852 432,010 111,097 1,717,090 Additions to property and equipment 18,268 29,345 262,719 2,675 1,066 — — — — 12,559 524 15,620 1,249 — 1,901,495 — 4,049,960 — 2,473,106 — 314,073 2017* External revenue External fuel surcharge 604,477 868,622 1,948,691 957,195 69,353 116,895 241,481 30,700 Inter-segment revenue and fuel surcharge 7,576 9,260 28,035 8,738 Total revenue 681,406 994,777 2,218,207 996,633 — — — — — 4,378,985 — 458,429 (53,609) — (53,609) 4,837,414 Operating income (loss) 102,281 122,181 (51,705) 41,579 (35,915) — 178,421 — — — — 270,757 142,981 232 77,446 — 1,832,274 — 3,727,628 — 2,312,504 — 259,666 Selected items: Depreciation and amortization 15,539 31,354 197,520 24,096 2,248 Impairment of intangible assets Gain (loss) on sale of land and buildings — 682 (242) — 129,770 13,211 (93) 172 (115) — — — — Gain on sale of assets held for sale 9,156 68,118 Intangible assets Total assets Total liabilities 250,368 242,345 990,310 346,885 2,366 387,021 563,485 2,234,032 477,210 65,880 76,000 155,497 377,815 100,376 1,602,816 Additions to property and equipment 12,607 12,640 231,936 1,712 771 (*) Recasted for changes in composition of reportable segments and changes in presentation due to adoption of IFRS 15 (see note 3). TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 65 4. Segment reporting (continued) Geographical information Revenue is attributed to geographical locations based on the origin of service’s location. Total revenue 2018 Canada United States Mexico Total 2017 Canada United States Mexico Total Package and Courier Less- Than- Truckload Truckload 728,556 882,495 1,006,340 — — 174,901 1,382,525 — — Logistics and Last Mile 317,561 659,975 22,650 Eliminations Total (50,699) 2,884,253 (1,096) 2,216,305 — 22,650 728,556 1,057,396 2,388,865 1,000,186 (51,795) 5,123,208 681,406 882,471 913,329 — — 112,306 1,304,878 — — 323,304 652,211 21,118 (52,475) 2,748,035 (1,134) 2,068,261 — 21,118 681,406 994,777 2,218,207 996,633 (53,609) 4,837,414 Segment assets are based on the geographical location of the assets. Property and equipment and intangible assets Canada United States Mexico 5. Business combinations a) Business combinations 2018 2017 1,927,241 1,693,190 1,347,574 1,314,635 23,069 22,062 3,297,884 3,029,887 In line with the Group’s growth strategy, the Group acquired nine businesses during 2018, one of which was considered significant. These transactions were concluded in order to add density in the Group’s current network and further expand value-added services. On April 3, 2018, the Group completed the acquisition of Normandin Transit Inc. (“Normandin”). Based in Quebec, Normandin focuses on the transportation of less-than-truckload and full truckload freight shipments to and from the United States and Canada. The purchase price for this business acquisition totalled $55.9 million, of which $50.5 million has been paid in cash and the remaining consists of a contingent consideration of $5.3 million (see note 5 c)). Normandin contributed revenue and net income of $78.8 million and $8.1 million during the year ended December 31, 2018, respectively. If the Group acquired the nine businesses on January 1, 2018, per management’s best estimates, the revenue and net income for these entities would have been $286.8 million and $19.0 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 acquisitions occurred on January 1, 2018. During 2018, transaction costs of $0.2 million have been expensed in other operating expenses in the consolidated statements of income in relation to the above-mentioned business acquisitions. 2018 Annual Report 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (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 the 2018 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 allocations 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 Note Normandin Others* Cash and cash equivalents Trade and other receivables Inventoried supplies and prepaid expenses Property and equipment Intangible assets Other assets Trade and other payables Income tax payable Long-term debt Deferred tax liabilities Total identifiable net assets Total consideration transferred Goodwill Cash Contingent consideration Total consideration transferred 8 9 9 c) 2,071 15,100 2,115 41,834 17,429 — 489 2018 2,560 2017 1,006 26,671 41,771 22,112 4,293 6,408 58,224 100,058 20,182 37,611 428 428 5,950 27,213 70,873 859 (7,202) (16,374) (23,576 ) (17,081) (130) 193 63 (12,289) (11,106) (23,395 ) (1,673) (9,030) (9,820) (10,920) (20,740 ) (12,163) 49,108 55,894 6,786 50,548 5,346 55,894 72,080 121,188 88,066 108,499 164,393 130,958 36,419 43,205 42,892 108,499 159,047 119,294 — 5,346 11,664 108,499 164,393 130,958 (*) Includes non material adjustments to prior year acquisitions. The trade receivables comprise of gross amounts due of $34.0 million, of which $0.1 million was expected to be uncollectible at the acquisition date. Of the goodwill and intangible assets acquired through business combinations in 2018, $7.2 million is deductible for tax purposes (2017 – $28.6 million). During 2017, the Group acquired seven businesses, 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. TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 67 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 Specialized Truckload Logistics and Last Mile Reportable segment Package and Courier Less-Than-Truckload Truckload Logistics and Last Mile 2018* 2017** — 6,786 (4,461) 8,927 37,410 19,352 (991) 19,074 43,205 42,892 (*) Includes non material adjustments to prior year acquisitions. (**) Includes non material adjustments to prior year acquisitions, recasted for changes in composition of reportable segments. c) Contingent consideration The contingent consideration relates to the Normandin business combination and is recorded in the original purchase price allocation. The fair value was determined using expected cash flows 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 three years is $2.0 million for a total consideration of $6.0 million. At December 31, 2018, the fair value of the contingent arrangement was estimated at $5.6 million and is currently presented in other financial liabilities on the consolidated statements of financial position. Contingent consideration related to prior year business combination was revalued with fair value adjustment recorded in finance income of the consolidated statements of income (see note 9). d) Adjustment to the provisional amounts of prior year business combinations The 2017 annual consolidated financial statements included details of the Group’s business combination and set out provisional fair values relating to the consideration paid and net assets acquired. These acquisitions were 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. No significant adjustments were required to the provisions for prior year business combinations. 6. Trade and other receivables Trade receivables Other receivables 2018 2017 605,320 546,160 26,407 20,946 631,727 567,106 The Group’s exposure to credit and currency risks related to trade and other receivables is disclosed in note 24 a) and d). Trade receivables at December 31, 2018 include $10.8 million of in-transit revenue balances (2017 – $10.1 million). 2018 Annual Report 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 7. Additional cash flow information Net change in non-cash operating working capital Trade and other receivables Inventoried supplies Prepaid expenses Trade and other payables 8. Property and equipment Cost 2018 (2,624) 434 (980) 15,817 12,647 2017 14,548 (238) 9,060 (35,019) (11,649) Land and buildings Rolling stock Equipment Total Balance at December 31, 2016 466,076 1,289,973 153,142 1,909,191 Additions through business combinations Other additions Disposals 4,788 8,126 20,755 238,812 1,670 12,728 27,213 259,666 (7,167) (219,024) (14,001) (240,192) Reclassification to assets held for sale (133,003) — — (133,003) Effect of movements in exchange rates (5,355) (36,113) (1,069) (42,537) Balance at December 31, 2017 333,465 1,294,403 152,470 1,780,338 Additions through business combinations Other additions Disposals Reclassification to assets held for sale Reclassification from assets held for sale Effect of movements in exchange rates 25,415 15,412 (3,235) (24,330) 23,834 6,154 72,427 284,459 2,216 14,202 100,058 314,073 (172,941) (12,501) (188,677) (3,420) — 52,321 — — 459 (27,750) 23,834 58,934 Balance at December 31, 2018 376,715 1,527,249 156,846 2,060,810 Depreciation Balance at December 31, 2016 Depreciation for the year Disposals Reclassification to assets held for sale Effect of movements in exchange rates Balance at December 31, 2017 Depreciation for the year Disposals Reclassification to assets held for sale Reclassification from assets held for sale Effect of movements in exchange rates 76,957 11,719 (3,933) (14,111) (956) 69,676 10,928 (1,858) (5,157) 1,974 958 365,335 182,627 99,738 15,211 542,030 209,557 (137,243) (13,241) (154,417) — 1,066 411,785 174,407 — (444) 101,264 13,157 (14,111) (334) 582,725 198,492 (104,867) (12,328) (119,053) (2,964) — 7,811 — — (365) (8,121) 1,974 8,404 Balance at December 31, 2018 76,521 486,172 101,728 664,421 Net carrying amounts At December 31, 2017 At December 31, 2018 TFI International 263,789 882,618 51,206 1,197,613 300,194 1,041,077 55,118 1,396,389 YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 69 8. Property and equipment (continued) As at December 31, 2018, nil is included in trade and other payables for the purchases of property and equipment (2017 – $0.5 million). 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 12). At December 31, 2018, the net carrying amount of leased assets was $25.7 million (2017 – $32.3 million). During the year ended December 31, 2018, the Group acquired leased assets in the amount of $0.3 million (2017 – $0.4million) under finance lease agreements and all other new leased assets come from business acquisitions. Security At December 31, 2018 certain rolling stock are pledged as security for conditional sales contracts, with a carrying amount of $179.0 million (2017 – $120.4 million) (see note 12). 9. Intangible assets Other intangible assets Non- Customer compete Information Goodwill relationships Trademarks agreements technology Total Cost Balance at December 31, 2016 1,576,356 491,914 109,616 Additions through business combinations 42,892 64,040 Other additions Extinguishments — — — (2,100) Effect of movements in exchange rates (42,587) (15,715) 365 — (2,877) (4,478) Balance at December 31, 2017 1,576,661 538,139 102,626 Additions through business combinations 43,205 Other additions Disposals Extinguishments — — — 31,982 1,863 (2,137) (7,612) 2,640 — — — 2,726 6,440 — — 30,059 2,210,671 28 113,765 2,083 2,083 (7,231) (12,208 ) (202) (978) (63,960 ) 8,964 2,250 — — 23,961 2,250,351 739 80,816 2,558 — 4,421 (2,137 ) (28) (2,796) (10,436 ) Effect of movements in exchange rates 54,923 20,697 5,647 439 263 81,969 Balance at December 31, 2018 1,674,789 582,932 110,913 11,625 24,725 2,404,984 Amortization and impairment losses Balance at December 31, 2016 60,000 134,038 20,159 Amortization for the year — 47,271 8,270 Impairment loss Extinguishments 129,770 — Effect of movements in exchange rates (4,320) — 13,211 (2,100) (4,991) (2,877) (1,185) Balance at December 31, 2017 185,450 174,218 37,578 Amortization for the year Impairment loss Disposals Extinguishments — — — — Effect of movements in exchange rates 10,970 50,542 12,559 (411) (7,612) 8,386 7,100 — — — 1,924 Balance at December 31, 2018 196,420 237,682 46,602 674 1,081 — — 22,650 237,521 4,578 61,200 — 142,981 (7,231) (12,208 ) (41) (880) (11,417 ) 1,714 1,826 — — 19,117 418,077 2,633 — — 62,101 12,559 (411 ) (28) (2,796) (10,436 ) 102 3,614 217 21,599 19,171 503,489 Net carrying amounts At December 31, 2017 At December 31, 2018 1,391,211 363,921 65,048 1,478,369 345,250 64,311 7,250 8,011 4,844 1,832,274 5,554 1,901,495 2018 Annual Report 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 9. Intangible assets (continued) In Q2 2018, the Group reassessed the useful lives of some operational trade names from finite to indefinite. Brand recognition, dominance in geographical area, resilience to economic and social changes as well as management intent to keep the brands indefinitely were decisive factors leading to this conclusion. At the time of change in estimate, which was applied prospectively, the Group tested these trade names for impairment. The Group estimated the value in use to be $38.6 million compared to its carrying value of $32.7 million, resulting in no impairment charge. Management used the relief-from-royalty method and discount rates between 9.5% and 10.5% in its analysis. At December 31, 2018, the Group performed its annual impairment testing for indefinite life trade names. The Group estimated the value in use to be $38.9 million compared to its carrying value of $34.4 million, resulting in no impairment charge. Management used the relief-from-royalty method and discount rates between 9.7% and 10.7% in its analysis. In 2018, difficulties in retaining and recruiting qualified subcontractors and the inability to successfully increase revenue impacted the current and expected future cash flows of one of the 2017 business acquisitions. This was identified as an indicator of impairment for its customer relationships. The Group estimated the value in use of the customer relationships to be $15.0 million using the discounted cash flow approach, adopting the excess cash flow methodology compared to its carrying value of $27.6 million, resulting in an impairment charge of $12.6 million. Management assumed that the customer relationships have a value for 10 years and used a discount rate of 12.9% in its analysis. The Group also revalued the contingent consideration related to the above mentioned business combination. This consideration was contingent on achieving specified earning levels in future periods. The fair value was determined using expected cash flows based on probability weighted scenario. A reversal of $13.2 million was recorded in finance income of the consolidated statements of income. 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. At December 31, 2018, 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 and Last Mile 2018 241,181 169,349 109,964 330,458 394,122 233,295 2017* 241,181 162,564 110,298 303,885 350,780 222,503 1,478,369 1,391,211 (*) Recasted for changes in composition of reportable segments. The results as at December 31, 2018 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. TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 71 9. Intangible assets (continued) 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 and Last Mile (*) Recasted for changes in composition of reportable segments. 2018 10.0% 9.5% 12.0% 11.0% 11.5% 10.0% 2017* 10.1% 10.1% 11.9% 11.3% 11.9% 10.1% 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 50.0% (2017 – 40.0%) at a market interest rate of 7.8% (2017 – 7.0%). 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% (2017 – 2.0%) in revenues and margins were adjusted where deemed appropriate. The terminal value growth rate was 2.0% (2017 – 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). In Q2 2017, management determined that an impairment 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. 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. 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% 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% at a market interest rate of 6.8%. First year cash flows were projected based on previous operating results and reflected current economic conditions. For a further 4-year period, cash flows were extrapolated using an average growth rate of 2.0% in revenues and margins were adjusted where deemed appropriate. The terminal value growth rate was 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 as compared to a carrying amount of $999.5 million on June 30, 2017. 2018 Annual Report 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 10. Other assets Promissory note Restricted cash Security deposits Investments in equity securities Other 2018 22,686 4,267 3,445 1,498 1,780 2017 20,739 4,294 3,748 6,310 783 33,676 35,874 Restricted cash consists of cash held as potential claims collateral pursuant to re-insurance agreements under the Group’s insurance program. On February 1, 2016, the Company sold the Waste Management segment (“Waste”) to GFL Environmental Inc. (“GFL”) for total consideration of $800 million, which included an unsecured promissory note of $25 million yielding 3% interest with a term of 4 years. 11. Trade and other payables Trade payables and accrued expenses Personnel accrued expenses Dividend payable 2018 337,470 117,380 20,735 2017 305,781 101,317 18,717 475,585 425,815 The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 24. 12. Long-term debt This note provides information about the contractual terms of the Group’s interest-bearing long-term debt, which are measured at amortized cost. For more information about the Group’s exposure to interest rate, foreign exchange currency and liquidity, see note 24. Non-current liabilities Unsecured revolving facility Unsecured term loans Unsecured debentures Conditional sales contracts Finance lease liabilities Current liabilities Current portion of conditional sales contracts Current portion of finance lease liabilities Current portion of other long-term debt Current portion of unsecured term loans TFI International 2018 2017 740,556 498,805 124,825 94,222 3,675 690,893 572,788 124,738 52,553 4,997 1,462,083 1,445,969 41,919 5,489 — 74,932 122,340 33,502 9,959 8,966 — 52,427 YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 73 12. Long-term debt (continued) Terms and conditions of outstanding long-term debt are as follows: Nominal interest Year of Carrying Carrying Currency rate maturity Face value amount Face value amount 2018 2017 Unsecured revolving facility Unsecured revolving facility Unsecured term loan Unsecured debentures Unsecured term loan a a a b c C$ US$ C$ C$ C$ BA + 1.70% 2022 274,832 273,208 250,400 248,720 Libor + 1.70% 2022 344,617 467,348 354,851 442,173 BA + 1.70% 2020-2021 500,000 498,805 500,000 497,957 3.00%–3.45% 2020 125,000 124,825 125,000 124,738 3.95% 2019 75,000 74,932 75,000 74,831 Conditional sales contracts d Mainly C$ 1.99%–5.23% 2019-2025 136,141 136,141 86,055 86,055 Finance lease liabilities e Mainly C$ 2.35%–5.50% 2019-2023 9,164 9,164 14,956 14,956 Other long-term debt — — — — — 8,966 8,966 1,584,423 1,498,396 The table below summarizes changes to the long-term debt: Balance at December 31, 2017 Proceeds Business combinations Repayment including deferred financing fees Amortization of deferred financing fees Effect of movements in exchange rates Effect of movements in exchange rates – OCI Other Balance at December 31, 2018 a) Unsecured revolving credit facility Note 2018 2017 1,498,396 1,584,815 88,907 23,395 5 48,316 9,030 (67,180) (122,964) 2,335 7,489 2,489 1,824 30,796 (25,114) 285 — 1,584,423 1,498,396 On May 9, 2018, the Group extended its existing revolving credit facility, by one year, to June 2022. 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, 2018, the credit facility’s interest rate on CAD denominated debt was 4.0% (2017 – 3.5%) and on US$ denominated debt was 4.2% (2017 – 3.7%). 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 24 (f)). Deferred financing fees of $0.9 million were recognized on the extension. On May 9, 2018, the Group extended the maturity of the $500 million term loan by one year for each tranche. This term loan is within the confines of the credit facility for the specific purpose of acquiring CFI. It remains at a total of $500 million, with $200 million now due in June 2020 and $300 million due in June 2021. 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 $0.3 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. 2018 Annual Report 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 12. Long-term debt (continued) c) Unsecured term loan This loan takes the form of an unsecured term loan carrying an interest rate of 3.95% and with an August 2019 maturity date. It may be repaid prior to the maturity without penalty subject to the approval of the Group’s syndicate of bank lenders (see note 27). d) Conditional sales contracts Conditional sales contracts are secured by rolling stock having a carrying value of $179.0 million (2017 – $120.4 million) (see note 8). e) Finance lease liabilities Finance lease liabilities are secured by rolling stock having a carrying value of $25.7 million (2017 – $32.3 million) (see note 8). Finance lease liabilities are payable as follows: Future minimum lease payments Interest Present value of minimum lease payments Less than 1 year 5,750 (261) 5,489 1 to 5 years 3,893 (218 ) 3,675 More than 5 years — — — Total 9,643 (479) 9,164 f) Principal installments of other long-term debt payable during the subsequent years are as follows: Unsecured revolving facility Unsecured term loans Unsecured debentures Conditional sales contracts Less than 1 year — 75,000 — 41,919 743,698 500,000 125,000 93,338 1 to 5 years More than 5 years Total 743,698 575,000 125,000 136,141 1,579,839 — — — 884 884 13. Employee benefits The Group sponsors defined benefit pension plans for 239 of its employees (2017 – 259). 116,919 1,462,036 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 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, 2017 and the next required valuation will be as of December 31, 2018. In addition to the above-mentioned defined benefit plans, the Group sponsors an employee severance plan in Mexico. At December 31, 2018, total obligation under this arrangement amounted to $1.1 million ($0.7 million in 2017). 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 TFI International 2018 37,623 2017 48,689 (22,620) (31,822) 15,003 16,867 YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 75 13. Employee benefits (continued) Plan assets comprise: Equity securities Debt securities Other 2018 31% 57% 12% 2017 33% 59% 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 (gain) loss arising from: - Demographic assumptions - Financial assumptions - Experience Accrued benefit obligation, end of year 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 (loss) 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 2018 48,689 695 1,526 2017 45,942 591 1,729 (10,860 ) (2,661) 234 (2,129 ) (532 ) — 1,839 1,249 37,623 48,689 2018 31,822 950 1,685 2017 31,660 1,193 1,314 (10,860) (2,661) (815) (162) 456 (140) 22,620 31,822 2018 695 576 162 1,433 135 2017 591 536 140 1,267 1,649 2018 Annual Report 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 13. Employee benefits (continued) 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 2018 13,324 (1,612) 11,712 (1,181) 2017 10,692 2,632 13,324 1,930 2018 2017 4.0% 1.5% 3.5% 3.5% 1.2% 3.5% 1.2% 3.9% 3.9% 1.1% 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 2018 2017 21.9 24.6 23.4 26.0 21.7 24.1 22.8 25.1 At December 31, 2018 the weighted-average duration of the defined benefit obligation was 11.3 years. The following table presents the impact of changes of major assumptions on the defined benefit obligation for the years ended: Discount rate (1% movement) Life expectancy (1-year movement) Historical information: 2018 2017 Increase Decrease Increase Decrease (5,112) 1,130 6,244 (1,088) (5,050) 1,145 6,173 (1,046) Present value of the accrued benefit obligation Fair value of plan assets Deficit in the plan 2018 37,623 2017 48,689 2016 45,942 2015 2014 46,908 46,620 (22,620) (31,822) (31,660) (33,147) (32,973) 15,003 16,867 14,282 13,761 13,647 Experience adjustments arising on plan obligations Experience adjustments arising on plan assets (2,427) (815) 3,088 456 521 1,077 738 278 5,201 2,492 The Group expects approximately $1.2 million in contributions to be paid to its defined benefit plans in 2019. TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 77 14. Provisions Balance at January 1, 2018 Provisions made during the year Provisions used during the year Provisions reversed during the year Revaluation of provisions Balance at December 31, 2018 2018 Current provisions Non-current provisions 2017 Current provisions Non-current provisions Self insurance 55,215 66,441 (64,198) (7,721) 406 Other 16,509 10,058 Total 71,724 76,499 (9,524) (73,722) 678 — (7,043) 406 50,143 17,721 67,864 21,761 28,382 3,302 14,419 25,063 42,801 26,992 28,223 5,352 11,157 32,344 39,380 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 2.6%. 15. 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 2018 2017 (213,238) (181,628) (104,610) (103,987) (1,259) (1,890) 2,297 7,449 17,162 9,950 (1,282) 3,877 9,730 13,025 6,583 (764) (283,531) (255,054) 6,409 5,138 (289,940) (260,192) 2018 Annual Report 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 15. Deferred tax assets and liabilities (continued) Movement in temporary differences during the year: Property and equipment Intangible assets Long-term debt Employee benefits Provisions Tax losses Other Balance Acquired Balance December 31, Recognized in Recognized in business December 31, 2016 income or loss directly in equity combinations 2017 (270,191) (136,028) 5,903 7,102 21,334 550 806 78,470 37,880 (2,026) 1,862 (7,274) 6,730 (2,052) 11,683 4,834 — 766 (1,135) (697) (1,408) (1,590) (10,673) — — 100 — — (181,628) (103,987) 3,877 9,730 13,025 6,583 (2,654) Net deferred tax liabilities (370,524) 113,590 14,043 (12,163) (255,054) Balance Acquired Balance December 31, Recognized in Recognized in business December 31, 2017 income or loss directly in equity combinations Property and equipment Intangible assets Long-term debt Employee benefits Provisions Tax losses Other (181,628) (103,987) 3,877 9,730 13,025 6,583 (2,654) Net deferred tax liabilities (255,054) (7,475) 11,977 (2,803) (1,918) 2,303 2,548 (1,644) 2,988 (10,599) (3,357) 7 (363) 1,011 819 1,757 (13,536) (9,243) 1,216 — 823 — — 2018 (213,238) (104,610) 2,297 7,449 17,162 9,950 (2,541) (10,725) (20,740) (283,531) Certain tax losses expire in 2037 with the remainder of tax losses not expiring. The related deferred tax assets have been recognized because it is probable that future taxable income will be available to benefit from these losses. 16. 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. TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 16. Share capital and other components of equity (continued) The following table summarizes the number of common shares issued: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 79 (in number of shares) Balance, beginning of year Repurchase and cancellation of own shares Stock options exercised Balance, end of year Note 2018 2017 89,123,588 91,575,319 (3,755,002) (2,810,126 ) 18 1,029,002 358,395 86,397,588 89,123,588 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 2018 711,036 (30,122) 16,831 4,009 2,756 2017 723,390 (22,231 ) 6,234 1,514 2,129 704,510 711,036 Pursuant to the normal course issuer bid (“NCIB”) which began on October 2, 2018 and expiring on October 1, 2019, 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, 2018, and since the inception of this NCIB, the Company has repurchased and cancelled 1,574,654 common shares. During 2018, the Company repurchased 3,755,002 common shares at a price ranging from $32.18 to $44.00 per share for a total purchase price of $139.6 million relating to the 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 a previous NCIB. The excess of the purchase price paid over the carrying value of the shares repurchased in the amount of $109.5 million (2017 – $59.3 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 18). Accumulated other comprehensive income (“AOCI”) At December 31, 2018 and 2017, 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 2018, the Company declared dividends amounting to 87.0 cents per common share (2017 – 78.0 cents) for a total of $76.1 million (2017 – $70.3 million). On February 27, 2019, the Board of Directors declared a quarterly dividend of $0.24 per outstanding common share of the Company’s capital for an expected aggregate payment of $20.4 million which will be paid on April 15, 2019 to shareholders of record at the close of business on March 29, 2019. 2018 Annual Report 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 17. 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 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 2018 2017 291,994 157,988 89,123,588 91,575,319 512,020 109,479 (1,669,980) (1,191,059) 87,965,628 90,493,739 3.32 1.75 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 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 2018 291,994 2017 157,988 87,965,628 90,493,739 2,838,361 2,284,144 90,803,989 92,777,883 3.22 1.70 As at December 31, 2018, no stock options were excluded from the calculation of diluted earnings per share (2017 – 394,056 as these options were deemed to be anti-dilutive). 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. 18. Share-based payment arrangements Stock option plan (equity-settled) 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 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 and recorded over the respective vesting periods. 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 2018 Weighted average exercise price 19.22 29.92 16.36 29.65 21.01 2017 Weighted average exercise price 18.02 35.02 17.39 28.21 19.22 Number of options 5,496 395 (358) (40) 5,493 Number of options 5,493 618 (1,029) (51) 5,031 Options exercisable, end of year 3,864 18.44 4,170 16.52 TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 81 18. Share-based payment arrangements (continued) Stock option plan (equity-settled) (continued) The following table summarizes information about stock options outstanding and exercisable at December 31, 2018: (in thousands of options and in dollars) Exercise prices 6.32 9.46 16.46 20.18 24.64 24.93 25.14 29.92 35.02 Options outstanding Options exercisable Weighted average remaining contractual life (in years) Number of options Number of options 509 586 561 579 859 677 312 603 345 5,031 0.6 1.6 0.6 1.6 4.6 3.6 2.6 6.1 5.1 3.0 509 586 561 579 535 677 312 — 105 3,864 Of the options outstanding at December 31, 2018, a total of 3,836,102 (2017 – 4,456,400) are held by key management personnel. The weighted average share price at the date of exercise for stock options exercised in 2018 was $42.77 (2017 – $31.79). In 2018, the Group recognized a compensation expense of $3.0 million (2017 – $3.4 million) with a corresponding increase to contributed surplus. On February 20, 2018, the Board of Directors approved the grant of 617,735 stock options under the Company’s stock option plan of which 437,361 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: Exercise price Average expected option life Risk-free interest rate Expected stock price volatility Average dividend yield February 20, 2018 February 16, 2017 $ 29.92 $ 35.02 4.5 years 1.83% 21.92% 2.56% 4.5 years 1.04% 22.46% 2.17% Weighted average fair value per option of options granted $ 4.55 $ 5.34 2018 Annual Report 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 18. Share-based payment arrangements (continued) Deferred share unit plan for board members (cash-settled) The Company offers a deferred share unit (“DSU”) plan for its board members. Under this plan, board members may elect to receive cash, DSUs or a combination of both for their compensation. The following table provides the number of DSUs 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 2018 2017 281,323 260,567 27,666 27,633 (9,418) (13,428) 6,471 6,551 306,042 281,323 In 2018, the Group recognized, as a result of DSUs, a compensation expense of $1.1 million (2017 – $0.9 million) with a corresponding increase to trade and other payables. In addition, in other finance costs, the Group recognized a mark-to-market loss on DSUs of $0.9 million for the year ended December 31, 2018 (2017 – gain of $0.3 million). As at December 31, 2018, the total carrying amount of liabilities for cash-settled arrangements recorded in trade and other payables amounted to $10.8 million (2017 – $9.3 million). Performance contingent restricted share unit plan (equity-settled) The Company offers an equity incentive plan for the benefit 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 20, 2018, the Company granted a total of 95,243 RSUs under the Company’s equity incentive plan of which 66,506 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 RSUs granted during the year was $29.92 per unit. 2018 Weighted average exercise price 27.74 29.92 28.30 24.78 29.83 31.84 2017 Weighted average exercise price 24.78 35.02 26.14 24.93 29.14 27.74 Number of RSUs 281 61 8 (143) (1) 206 Number of RSUs 206 95 7 (144) (17) 147 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 TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 18. Share-based payment arrangements (continued) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 83 Performance contingent restricted share unit plan (equity-settled) (continued) The following table summarizes information about RSUs outstanding and exercisable as at December 31, 2018: (in thousands of RSUs and in dollars) Exercise prices 29.92 35.02 RSUs outstanding Number of RSUs 90 57 147 Remaining contractual life (in years) 2.0 1.0 1.6 The weighted average share price at the date of settlement of RSUs vested in 2018 was $43.49 (2017 – $32.87). The excess of the purchase price paid over the carrying value of shares repurchased for settlement of the award, in the amount of $5.4 million (2017 – $3.3 million), was charged to retained earnings as share repurchase premium. In 2018, the Group recognized, as a result of RSUs, a compensation expense of $3.0 million (2017 – $3.4 million) with a corresponding increase to contributed surplus. Of the RSUs outstanding at December 31, 2018, a total of 87,486 (2017 – 129,246) are held by key management personnel. 19. Materials and services expenses The Group’s materials and services expenses are primarily costs related to independent contractors and vehicle operation; vehicle operation expenses, primarily fuel, repairs and maintenance, vehicle leasing costs, insurance, permits and operating supplies. Independent contractors Vehicle operation expenses 2018 2017* 2,054,767 1,995,599 859,229 840,630 2,913,996 2,836,229 (*) Recasted for changes in presentation due to adoption of IFRS 15 (see note 3). 20. Sale of assets held for sale During the year ended December 31, 2018, the Group disposed of properties classified as assets held for sale for total consideration of $29.2 million (2017 – $174.8 million). The Group has not concluded any sale and leaseback transactions in 2018. In 2017, the all-cash sale and leaseback transactions totalling $166.4 million resulted in a pre-tax gain of $78.0 million. As a result of these transactions, operating lease commitments increased by $112.1 million at December 31, 2017. 21. 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 Note 2018 2017 1,225,901 1,187,950 11,355 11,499 13 18 18 695 8,972 5,926 1,126 591 13,091 6,817 923 1,253,975 1,220,871 2018 Annual Report 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 22. 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 Note 2018 54,609 (2,807) Net change in fair value of contingent considerations and accretion expense 9 (12,189) 2017 56,758 (2,638) (523) 2,491 (1,247) (365) 6,599 61,075 630 (311) (46) 8,420 48,306 (15,353) 63,659 (4,773) 65,848 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 Net finance costs Presented as: Finance income Finance costs 23. Income tax expense 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 at December 31, 2017 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. At December 31, 2018, $2.3 million of long-term income tax payable related to repatriation tax is included in other long-term liabilities (2017 – nil). 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) TFI International 2018 2017 96,480 (3,268) 93,212 74,148 (1,200) 72,948 (5,408) (34,455) (221) (76,244) 2,641 (2,891) (2,988) (113,590) 90,224 (40,642) YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 85 23. Income tax expense (continued) Income tax recognized in other comprehensive income: 2018 Tax (benefit) expense Before tax Net of tax Before Tax 2017 Tax (benefit) expense Net of tax Change in fair value of investment in equity securities (5,416) (723) (4,693) (133) (17) (116) Foreign currency translation differences 101,972 — 101,972 (80,212) — (80,212) Defined benefit plan remeasurement gains (losses) Employee benefit Reclassification to retained earnings of accumulated unrealized loss on investment in equity securities Gain (loss) on net investment hedge Gain (loss) on cash flow hedge Reconciliation of effective tax rate: Income before income tax 1,612 (227) 431 (68) 1,181 (2,632) (159) (212) (702) (64) (1,930) (148) — (30,796) (3,876) 63,269 — (4,119) (1,034) (5,513) — (1,485) (198) (1,287) (26,677) 25,114 3,353 21,761 (2,842) 5,352 1,425 3,927 68,782 (54,208) 3,797 (58,005) 2018 2017 382,218 117,346 Income tax using the Company’s statutory tax rate 26.7 % 102,052 26.8% 31,449 Increase (decrease) resulting from: Rate differential between jurisdictions Variation in tax rate Non deductible expenses Tax exempt income Adjustment for prior years Others (3.4 %) (13,106) (31.0%) (36,405) (0.1 %) (221) (65.0%) (76,244) 0.7 % 2,593 44.7% 52,460 (0.8 %) (3,038) (9.0%) (10,513) (0.2 %) (627) (3.5%) (4,091) 0.7 % 2,571 2.3% 2,702 23.6 % 90,224 (34.7%) (40,642) 2018 Annual Report 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 24. 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 Interest rate derivatives Measured at fair value through income or loss 2017 2018 Note a a a a — — — — — — — — 311 — 311 — Designated as effective cash flow hedge instruments 2017 2018 5,430 4,521 2,946 4,317 — — — — — 248 248 373 As at December 31, 2018 and 2017, the impact to income or loss and other comprehensive income is as follows: Derivative financial instruments measured at fair value through income or loss: Interest rate derivatives Embedded foreign exchange derivatives in finance leases Derivative financial instruments measured at fair value through other comprehensive income: Interest rate derivatives Finance loss (income) 2017 2018 Other comprehensive (loss) income 2017 2018 (46) (311) (365) (1,247) — — — — — (357) — (1,612) 3,876 3,876 (5,352) (5,352) 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, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 87 24. 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 94.6% (2017 – 94.5%) 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% (2017 – 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: 2018 2017 631,727 567,106 22,686 8,376 20,739 8,838 662,789 596,683 Not past due Past due 1 – 30 days Past due 31 – 60 days Past due more than 60 days Total 2018 Impairment 2018 Total 2017 Impairment 2017 474,320 123,991 22,007 18,360 638,678 — 695 2,085 4,171 6,951 424,745 112,135 23,120 14,037 574,037 — 693 2,079 4,159 6,931 2018 Annual Report 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 24. Financial instruments and financial risk management (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 2018 6,931 104 1,944 (2,028) 6,951 2017 6,425 651 2,147 (2,292) 6,931 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 $455.3 million availability at December 31, 2018 (2017 – $501.3 million) and has an additional $250 million credit available (C$245 million and US$5 million) under certain conditions under its syndicated bank agreement (2017 – $250 million, C$245 million and US$5 million). The following are the contractual maturities of the financial liabilities, including estimated interest payment: Carrying amount Contractual cash flows Less than 1 year 1 to 2 years 2 to 5 years More than 5 years December 31, 2018 Bank indebtedness Trade and other payables 12,334 475,585 12,334 12,334 475,585 475,585 — — — — Long-term debt 1,584,423 1,754,909 181,932 411,567 1,160,505 Other financial liability 5,594 6,000 2,000 2,000 2,000 2,077,936 2,248,828 671,851 413,567 1,162,505 December 31, 2017 Bank indebtedness 9,392 9,392 9,392 Trade and other payables 425,815 425,815 425,815 — — — — Long-term debt 1,498,396 1,657,039 105,490 352,127 1,199,422 Derivatives financial liabilities Other financial liability 932 14,581 932 17,000 559 1,300 249 6,555 124 9,145 1,949,116 2,110,178 542,556 358,931 1,208,691 It is not expected that the contractual cash flows could occur significantly earlier, or at significantly different amounts. — — 905 — 905 — — — — — — TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 89 24. 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 foreign exchange contracts and US$ debt. 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 2018 38,030 (3,108) 2017 35,437 (6,208) (330,447) (328,167) (295,525) (298,938) 325,000 325,000 29,475 26,062 The Group estimates its annual net US$ denominated cash flow from operating activities at approximately $310 million (2017 – $280 million). This cash flow is earned evenly throughout the year. The following exchange rates applied during the year: Average US$ for the year ended December 31 Closing US$ as at December 31 2018 1.2957 1.3642 2017 1.2982 1.2545 Sensitivity analysis 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 2017. Balance sheet exposure Long-term debt designated as investment hedge Net balance sheet exposure 2018 2017 1-cent increase (2,166) 2,382 216 1-cent decrease 1-cent increase 1-cent decrease 2,166 (2,382) (216) (2,383) 2,591 208 2,383 (2,591) (208) Net impact on change in fair value of foreign exchange derivatives is not significant. 2018 Annual Report 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 24. 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 $3.9 million loss, $2.8 million net of tax, (2017 – $5.4 million gain, $3.9 million net of tax) was recorded on the marking-to-market of the interest rate derivative to other comprehensive income for these cash flow hedges. Ineffectiveness in hedging stems from differences between the hedged item and hedging instruments with respect to interest rate characteristics, currency, notional values and term. For the year ended December 31, 2018, the derivatives designated as cash flow hedges were considered to be fully effective and no ineffectiveness has been recognized in net earnings. At December 31, 2018 and 2017, the interest rate profile of the Group’s carrying amount interest-bearing financial instruments excluding the effects of interest rate derivatives was: Fixed rate instruments Variable rate instruments The Group’s interest rate derivatives are as follows: 2018 2017 345,062 307,503 1,239,361 1,190,893 1,584,423 1,498,396 2018 2017 Notional Notional Notional Notional Average Contract Average Contract Fair Average Contract Average Contract Fair B.A. rate Amount CDN$ Libor rate Amount value US$ CDN$ B.A. rate Amount CDN$ Libor rate Amount value US$ CDN$ Coverage period: Less than 1 year 0.99% 225,000 1.92% 325,000 5,430 0.98% 500,000 1.92% 325,000 4,273 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Asset Presented as: Current assets Non-current assets Current liabilities Non-current liabilities — — — — — 1.89% 237,500 1,812 0.99% 300,000 1.92% 325,000 3,129 — 1.92% 100,000 648 — 1.92% 75,000 486 — — — — — — — — — — 1.89% 237,500 433 1.92% 100,000 218 1.92% 75,000 164 8,376 5,430 2,946 — — 8,217 4,521 4,317 (248 ) (373 ) 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, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 91 24. 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 2017. Interest on variable rate instrument (3,633) 3,633 (2,070) 2,070 1% increase 1% decrease 1% increase 1% decrease 2018 2017 Impact on instruments used in cash flow hedge: Interest on variable rate instrument Interest on interest rate swaps 1% increase 1% decrease 1% increase 1% decrease 2018 2017 (4,896) 4,896 — 4,896 (4,896) — (6,635) 6,635 — 6,635 (6,635) — 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 ratio1 2018 2017 1,584,423 1,498,396 1,576,854 1,415,124 1.00 0.50 1.06 0.51 1 Long-term debt divided by the sum of shareholders' equity and long-term debt. 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, 2018 and December 31, 2017, the Group was in compliance with its financial covenants. 2018 Annual Report 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 24. Financial instruments and financial risk management (continued) f) Capital management (continued) 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 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 Carrying amount 8,376 1,498 631,727 22,686 664,287 2018 Fair value Carrying amount 2017 Fair value 8,376 1,498 8,838 6,310 631,727 22,686 664,287 567,106 20,739 602,993 8,838 6,310 567,106 20,739 602,993 — 5,594 — 5,594 932 14,581 932 14,581 12,334 475,585 1,584,423 2,077,936 12,334 475,585 9,392 9,392 425,815 425,815 1,647,146 1,498,396 1,563,730 2,140,659 1,949,116 2,014,450 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 2018 3.9% 2017 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 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. TFI International YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 93 25. Operating leases, contingencies, letters of credit and other commitments a) Operating leases The Group has 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 2018 2017 127,535 128,345 253,466 259,236 125,110 146,581 506,111 534,162 In 2018, expense of $152 million, was recognized in the consolidated statement of income for the operating leases (2017 – $149.5 million). b) Contingencies There are pending operational and personnel related claims against the Group. The Group has accrued $10.3 million for claim settlements which are presented in long term provisions on the consolidated statements of financial position (2017 – $6.9 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, 2018, the Group had $39.4 million of outstanding letters of credit (2017 – $40.1 million). d) Other commitments As at December 31, 2018, the Group had $51 million of purchase and lease commitments materializing within a year (2017 – $75 million). 26. 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 $0.1 million (2017 – $0.4 million) was paid to a board member for consulting services provided during 2018. 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 18. 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 2018 14,756 959 4,193 1,126 2017 10,574 1,035 4,515 923 21,034 17,047 2018 Annual Report 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) 27. Subsequent events Long-term debt On February 1, 2019, the unsecured term loan was amended to increase the balance from $500 million to $575 million. On February 11, 2019, the funds were used to reimburse the unsecured term loan of $75 million that was expected to mature in August 2019. NCIB Between December 31, 2018 and February 27, 2019, the Company repurchased 1,500,000 common shares at a price ranging from $33.89 to $39.57 for a total purchase price of $56.7 million. Business combinations On February 19, 2019, the Group completed the acquisition of Toronto Tank Lines (“TTL”). Based in Hamilton, Ontario, TTL specializes in the transportation and storage of food grade liquids, industrial chemicals, specialty oils and waxes throughout Canada, the United States and Mexico. On February 25, 2019, the Group acquired Schilli Corporation (“Schilli”). Based in St. Louis, Missouri, Schilli specializes in the transportation of dry and liquid bulk and offers dedicated fleet solutions and other value-add services throughout Midwest, Southeast and Gulf Coast regions of the United States. The Group paid $98.9 million for the two business acquisitions, subject to customary closing adjustments. 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 Tuesday, April 23, 2019 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 T F I I N T E R N A T I O N A L A N N U A L R E P O R T 2 0 1 8 www.tfiintl.com 2018 ANNUAL REPORT 

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