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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
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2018 ANNUAL REPORT