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9
2019 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2019
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, 2019
with the corresponding three-month period and year ended December 31, 2018 and it reviews the Company’s financial position as
of December 31, 2019. It also includes a discussion of the Company’s affairs up to February 10, 2020, 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, 2019.
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 10, 2020. 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”, “might”, “expect”, “intend”, “estimate”, “anticipate”,
“plan”, “foresee”, “believe”, “to its knowledge”, “could”, “design”, “forecast”, “goal”, “hope”, “intend”, “likely”, “predict”,
“project”, “seek”, “should”, “target”, “will”, “would” or “continue” 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 subsequent obligation 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.
2019 Annual Report
2
MANAGEMENT’S DISCUSSION AND ANALYSIS
SELECTED FINANCIAL DATA AND HIGHLIGHTS
(unaudited)
(in thousands of dollars, except per share data)
Three months ended
December 31
Years ended
December 31
Revenue before fuel surcharge
1,166,476
1,162,279
1,069,679
4,613,629
4,508,197
4,378,985
Fuel surcharge
Total revenue
139,011
159,166
123,199
565,235
615,011
458,429
1,305,487
1,321,445
1,192,878
5,178,864
5,123,208
4,837,414
2019
2018*
2017*
2019
2018*
2017*
Adjusted EBITDA from continuing
operations 1
Operating income from continuing
operations
Net income
Net income from continuing operations
Adjusted net income from continuing
217,512
180,654
131,017
864,500
686,283
514,481
124,290
103,283
66,076
511,620
430,524
178,421
74,828
76,543
76,728
76,728
120,192
310,283
291,994
157,988
120,192
324,476
291,994
157,988
operations1
79,173
86,262
53,945
336,393
321,612
192,188
Net cash from continuing operating
activities
176,177
173,848
116,148
665,292
543,503
372,601
Free cash flow from continuing operations1
103,240
103,917
102,432
462,983
339,707
376,487
Total assets
4,557,255
4,049,960
3,727,628
4,557,255
4,049,960
3,727,628
Total long-term debt and lease liabilities
2,206,529
1,584,423
1,498,396
2,206,529
1,584,423
1,498,396
Per share data
EPS – diluted
EPS from continuing operations – diluted
Adjusted EPS from continuing operations
– diluted1
Dividends
As a percentage of revenue before fuel
surcharge
Adjusted EBITDA margin from
continuing operations 1
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Operating margin from continuing
operations 1
Adjusted operating ratio from
continuing operations1
0.90
0.92
0.95
0.26
0.85
0.85
0.96
0.24
1.31
1.31
0.59
0.21
3.63
3.80
3.94
0.98
3.22
3.22
3.54
0.87
1.70
1.70
2.07
0.78
18.6%
5.1%
2.2%
1.4%
15.5%
4.5%
—
1.3%
12.2%
4.5%
—
1.5%
18.7%
4.9%
2.2%
1.4%
15.2%
4.4%
—
1.4%
11.7%
4.8%
—
1.4%
10.7%
8.9%
6.2%
11.1%
9.5%
4.1%
90.1%
90.3%
93.8%
89.8%
90.6%
94.4%
*
The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
Q4 Highlights
•
Record fourth quarter operating income from continuing operations increased to $124.3 million, up 20% from the same
quarter last year, driven by strong execution across the organization, increased quality of revenue, an asset-light approach, and
cost efficiencies.
•
Operating margin from continuing operations1, a non-IFRS measure, was up to 10.7% from 8.9% in the prior year quarter.
1 Refer to the section “Non-IFRS financial measures”.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS
3
• Net income from continuing operations of $76.5 million compares to $76.7 million in Q4 2018.
• Diluted earnings per share (diluted “EPS”) from continuing operations of $0.92 compares favorably to $0.85 in Q4 2018.
• Adjusted net income from continuing operations1, a non-IFRS measure, of $79.2 million compared to $86.3 million in Q4 2018.
• Adjusted diluted EPS from continuing operations1, a non-IFRS measure, of $0.95 compared to $0.96 in Q4 2018.
• Net cash from continuing operating activities was $176.2 million, as compared to $173.8 million in Q4 2018, benefitting from
stronger operating performance and the impact of the adoption of IFRS 16.
•
Free cash flow from continuing operation1, a non-IFRS measure, of $103.2 million, impacted negatively by a one-time real estate
purchase of $38.0 million, compares to $103.9 million in Q4 2018.
•
The Company’s reportable segments performed as follows:
o
Package and Courier operating income decreased 13% to $29.9 million, as the comparable period benefited from the
Canada Post strike;
o
Less-Than-Truckload operating income increased 9% to $25.5 million;
o
Truckload operating income increased 17% to $61.3 million; and
o
Logistics operating income of $18.8 million compares to $2.9 million the prior year, which was impacted by $12.6 million
of impairment of intangibles.
•
The Company returned $49.8 million to shareholders during the quarter, of which $19.7 million was through dividends and
$30.1 million was through share repurchases.
• On December 17, 2019, the Board of Directors of TFI declared a quarterly dividend of $0.26, an 8% increase over the prior
quarterly dividend, as was announced on October 24, 2019.
•
The Company borrowed $150 million in U.S. dollars under a new seven-year senior notes carrying a fixed interest rate of
3.85%, and used the proceeds to pay down its existing unsecured revolving credit facility. In addition, the Company’s existing
term loan was increased by $75 million, to a new amount of $200 million bearing interest at a rate of 3.77% with an extended
expiration date in 2024. As a result, the Company’s availability on its revolving credit facility has increased to approximately
$585 million.
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 (previously named 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 generally the weakest. Furthermore, during the harsh winter months, fuel consumption and
maintenance costs tend to rise.
1 Refer to the section “Non-IFRS financial measures”.
2019 Annual Report
4
MANAGEMENT’S DISCUSSION AND ANALYSIS
Human resources
As at December 31, 2019 the Company had 17,150 employees in TFI International’s various business segments across North
America. This compares to 17,127 employees as at December 31, 2018. The year-over-year increase of 23 is attributable to business
acquisitions that added 1,033 employees offset by rationalizations affecting 1,010 employees mainly in the Less-Than-Truckload
(“LTL”) and Truckload segments. The Company believes that it has a relatively low turnover rate among its employees in Canada,
and a normal turnover rate in the U.S. comparable to other U.S. carriers, and that its employee relations are very good.
Equipment
The Company believes it has the largest trucking fleet in Canada and a significant presence in the U.S. market. As at December 31,
2019, the Company had 7,772 tractors, 25,505 trailers and 9,826 independent contractors. This compares to 7,465 tractors, 26,487
trailers and 8,527 independent contractors as at December 31, 2018.
Facilities
TFI International’s head office is in Montréal, Québec and its executive office is in Etobicoke, Ontario. As at December 31, 2019, the
Company had 380 facilities, as compared to 369 facilities as at December 31, 2018. Of these, 246 are located in Canada, including
158 and 88 in Eastern and Western Canada, respectively. The Company also had 122 facilities in the United States and 12 facilities in
Mexico. In the last twelve months, 44 facilities were added from business acquisitions, and terminal consolidation decreased the total
number of facilities by 33, mainly in the Logistics segment. In Q4 2019, the Company closed 10 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
offerings and the range of segments in which it operates, a downturn in the activities of individual customers or customers in a
particular industry would not be 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 offerings to customers across North America.
Revenue by Top Customers’ Industry (64% of total revenue)
Retail
Manufactured Goods
Building Materials
Automotive
Metals & Mining
Food & Beverage
Forest Products
Chemicals & Explosives
Energy
Services
Waste Management
Maritime Containers
Others
(For the year ended December 31, 2019)
CONSOLIDATED RESULTS
25%
16%
9%
9%
8%
7%
5%
4%
4%
3%
2%
1%
7%
This section provides general comments on the consolidated results of operations. A more detailed analysis is provided in the
“Segmented results” section.
2019 business acquisitions
In line with its growth strategy, the Company acquired eight businesses during 2019, all prior to the fourth quarter: Toronto Tank
Lines (“TTL”), Schilli Corporation (“Schilli”), Les Services JAG (“JAG”), Aulick Leasing Corp. (“Aulick”), certain assets of BeavEx
Incorporated (“BeavEx”), Piston Tank Corporation (“Piston”), selected assets of AT Group US Logistics, LLC (“US Logistics”), and
Craler Inc. (“Craler”).
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS
5
On February 15, 2019, TFI International completed the acquisition of TTL. Based in 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 22, 2019, TFI International completed the acquisition of Schilli, which was renamed to BTC East in September 2019.
Based in Missouri, Schilli specializes in the transportation of dry and liquid bulk and offers dedicated fleet solutions and other value-
add services throughout the Midwest, Southeast and Gulf Coast regions of the United States.
On March 19, 2019, TFI International completed the acquisition of JAG. Based in Québec, JAG provides transportation services for
explosives, mining and steel products, electronics, and household goods.
On April 1, 2019, TFI International completed the acquisitions of Aulick and its affiliate ShirAul, LLC. Based in Nebraska, Aulick
provides contract hauling services for aggregate materials, wood by-product, agriculture/commodities, beets, dry bulk materials,
railroad traction sand and food grade product materials through the Central and Western U.S. ShirAul designs and manufactures the
exclusive BulletTM trailer.
On April 27, 2019, TFI International completed the acquisition of BeavEx and its affiliates Guardian Medical Logistics (“GML”), JNJW
Enterprises, Inc. and USXP, LLC for a cash consideration of US$7.2 million through the United States Bankruptcy Court for the
District of Delaware. BeavEx primarily serves the growing final-mile delivery requirements of the financial, healthcare, retail,
industrial, and manufacturing sectors, offering same-day, next-day, and on-demand home delivery services. Its logistics capabilities
include final-mile, crossdocking, and distribution services. The BeavEx affiliate GML is an industry leading provider of final-mile,
mission critical logistics and transportation services to the medical laboratory industry.
On June 14, 2019, TFI International completed the acquisition of Piston. Based in Missouri, Piston specializes in the transportation of
viscous materials and offers a patented solution for the storage, handling, and transportation of these materials for the food and
industrial products industries.
On August 7, 2019, TFI international completed the acquisition of selected assets of US Logistics. Based in Georgia, US Logistics
provides medical logistics, final mile and brokerage services in select regions of the United States.
On August 22, 2019, TFI International completed the acquisition of Craler. Based in Québec, Craler provides brokerage, direct
trucking and warehousing services across Canada, the United States and Mexico.
Revenue
For the three months ended December 31, 2019, total revenue was $1,305.5 million, down 1%, or $16.0 million, from Q4 2018.
The contribution from business acquisitions of $115.1 million was offset by decreases in fuel surcharge revenue of $27.0 million and
revenue before fuel surcharge of $103.9 million, both in existing operations. The average exchange rate used to convert TFI
International’s revenue generated in U.S. dollars remained largely unchanged this quarter (C$1.3200) compared to the same quarter
last year (C$1.3204).
For the year ended December 31, 2019, total revenue reached $5.18 billion, up 1%, or $55.7 million, as compared to $5.12 billion
in 2018 mainly due to the contribution from business acquisitions of $424.2 million and positive currency impact of $34.3 million
which were offset by decreases in fuel surcharge revenue of $84.0 million and revenue before fuel surcharge of $318.8 million, both
in existing operations.
Operating expenses from continuing operations
For the three months ended December 31, 2019, the Company’s operating expenses from continuing operations decreased by $37.0
million, to $1,181.2 million from $1,218.2 million in Q4 2018. The increase attributable to business acquisitions of $104.7 million
was offset by a net decrease of $141.7 million, or 12%, in existing operating expenses. 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 2018 level as a percentage of total revenue, as well as $6.9 million of additional
gains on the disposal of assets held for sale as compared to the same period in 2018.
For the three months ended December 31, 2019, material and services expenses, net of fuel surcharge, decreased by 0.4 percentage
points of revenue before fuel surcharge compared to the same period last year due to lower subcontractor, rolling stock lease and
fuel costs as a percentage of revenue before fuel surcharge. Mainly due to the adoption of IFRS 16, equipment lease expense
decreased $11.0 million compared to Q4 2018 as, since January 1, 2019, a significant portion of these operating leases are now
capitalized with depreciation expense recorded and presented under the caption of depreciation of right-of-use assets in the income
statement. Right-of-use assets depreciation on rolling stock amounted to $10.0 million for Q4 2019.
2019 Annual Report
6
MANAGEMENT’S DISCUSSION AND ANALYSIS
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, decreased 1.7 percentage points of
revenue before fuel surcharge compared to the same period last year due to lower terminal rent expenses. Due to IFRS 16 adoption,
real estate lease expense decreased $19.4 million compared to Q4 2018 as, since January 1, 2019, a significant portion of these
leases are now capitalized with depreciation expense recorded and presented under depreciation of right-of-use assets in the income
statement. Right-of-use assets depreciation on real estate leases amounted to $15.6 million for Q4 2019.
For the three months ended December 31, 2019, depreciation of right-of-use assets amounting to $25.8 million is mainly composed
of rolling stock and real estate leases that are now treated as finance leases due to the adoption of IFRS 16 on January 1, 2019. As
permitted with this new standard, comparative information has not been restated.
For the three-month period ended December 31, 2019, the gain on sale of assets held for sale was $8.4 million, compared to $1.5
million in Q4 2018. Five properties were disposed of for a cash consideration of $17.2 million.
For the year ended December 31, 2019, the Company’s operating expenses from continuing operations increased by $24.3 million
from $4.08 billion in 2018 to $4.10 billion in 2019. The increase is mainly attributable to business acquisitions for $343.0 million offset
by a net decrease of $318.7 million primarily attributable to lower material and service expenses in the Company’s existing operations.
Operating income from continuing operations
For the three months ended December 31, 2019, TFI International’s operating income from continuing operations rose by $21.0
million to $124.3 million compared to $103.3 million in the same quarter in 2018. The adoption of IFRS 16 contributed $5.0 million
to the increase (which primarily represents the interest expense on lease liabilities which is included in interest expense in 2019). The
operating margin from continuing operations as a percentage of revenue before fuel surcharge improved, from 8.9% in Q4 2018 to
10.7% in Q4 2019. All reportable segments except Package and Courier reported margin increases. Notably, the Logistics segment
reported a margin increase of 5.9 percentage points primarily as a result of an impairment of intangible assets recognized in 2018.
For the year ended December 31, 2019, operating income from continuing operations increased by $81.1 million, or 19%, to
$511.6 million compared to $430.5 million in 2018, driven by operating improvements, business acquisitions, an increase on the
gain on sale of assets held for sale of $13.0 million, a bargain purchase gain of $10.8 million, and a the $12.6 million impairment of
intangible assets recorded in 2018.
Finance income and costs
(unaudited)
(in thousands of dollars)
Finance costs (income)
Interest expense on long-term debt
Interest expense on lease liabilities
Interest income and accretion on promissory note
Net change in fair value and accretion expense of contingent
considerations
Net foreign exchange (gain) loss
Net change in fair value of foreign exchange derivatives
Net change in fair value of interest rate derivatives
Mark-to-market (gain) loss on DSUs
Others
Net finance costs (income)
Three months ended
December 31
2019
14,976
4,560
(818 )
72
(523 )
—
—
1,814
2,261
22,342
2018*
13,159
—
(747 )
(12,686 )
1,611
(12 )
—
(3,368 )
2,003
Years ended
December 31
2019
58,290
18,551
2018*
54,609
—
(3,001 )
(2,807 )
263
267
—
—
3,241
8,030
(12,189 )
630
(311 )
(46 )
887
7,533
48,306
(40 )
85,641
*
The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
Interest expense on long-term debt
Interest expense on long-term debt for the three-month period ended December 31, 2019 was $1.8 million higher than compared to
the same quarter last year. The increase is mainly attributable to a higher average debt level of $1.78 billion for the three months
ended December 31, 2019 as compared to $1.54 billion to the same period in the prior year. For the year ended December 31,
2019, interest expense increased by $3.7 million due to higher average borrowings in 2019 of $1.74 billion as compared to $1.55
billion in 2018. This increase was offset by a slightly lower average interest rate during 2019 as compared to the prior year.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS
7
Interest expense on lease liabilities
Following adoption of IFRS 16 Leases, the amounts previously recognized as lease expenses were replaced by the depreciation of
right-of-use assets and the financing costs on the lease liabilities. As permitted with this new standard, comparative information has
not been restated.
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
ended December 31, 2019, a gain of $7.6 million of foreign exchange variations (a gain of $6.6 million net of tax) was recorded to
other comprehensive income as net investment hedge. For the three-month period ended December 31, 2018, a loss of $18.4
million of foreign exchange variations (a loss of $16.0 million net of tax) was recorded to other comprehensive income as net
investment hedge. For the year ended December 31, 2019, a gain of $18.6 million of foreign exchange variations (a gain of $16.1
million net of tax) was 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.
The Company designates the interest rate derivatives as a hedge of the variable interest rate instruments. Therefore, the effective
portion of changes in fair value of the derivatives is recognized in other comprehensive income. For the three-month period ended
December 31, 2019, the loss of $0.3 million on change in fair value of interest rate derivatives was entirely designated as cash flow
hedge and recorded to other comprehensive income as a change in the fair value of the cash flow hedge (a loss of $0.2 million net
of tax). For the three-month period ended December 31, 2018, a $7.1 million loss on change in fair value of interest rate derivatives
(a loss of $5.2 million net of tax) was designated as cash flow hedge and recorded to other comprehensive income as a change in
the fair value of the cash flow hedge.
For year ended December 31, 2019, a $13.3 million loss on change in fair value of interest rate derivatives (a loss of $9.8 million net
of tax) was designated as cash flow hedge and recorded to other comprehensive income as a change in the fair value of the cash
flow hedge. For year ended December 31, 2018, a $3.9 million loss on change in fair value of interest rate derivatives (a loss of $2.8
million net of tax) was designated as cash flow hedge and recorded to other comprehensive income as a change in the fair value of
the cash flow hedge.
Income tax expense
For the three months ended December 31, 2019, the Company’s effective tax rate was 24.9%. The income tax expense of $25.4
million reflects a $1.4 million favourable variance versus an anticipated income tax expense effect of $26.8 million based on the
Company’s statutory tax rate of 26.3%. The favourable variance is mainly due to tax exempt income of $4.9 million and positive
differences between the statutory rate and the effective rates in other jurisdictions of $2.3 million net of negative differences of $4.1
million for prior year adjustments and $2.0 million for non-deductible expenses.
For the year ended December 31, 2019, the Company’s effective tax rate was 23.9%. The income tax expense of $101.5 million
reflects an $11.8 million favourable variance versus an anticipated income tax expense of $113.3 million based on the Company’s
statutory tax rate of 26.6%. The favourable variance is due to rate differentials between jurisdictions of $12.9 million and tax exempt
income effect of $9.3 million net of unfavourable variances for prior year’s tax adjustments of $4.8 million, and multi-jurisdictions tax
of $4.2 million.
The U.S. Tax Reform Bill signed on December 22, 2017 introduced important changes to U.S. corporate income tax laws that may
affect the Company’s current and future years including limitations on the deduction for net interest expense incurred by U.S.
corporations. Future regulations and interpretations to be issued by U.S. authorities may also impact the Company’s estimates and
assumptions used in calculating its income tax provisions. The timing and scope of such regulations and interpretative guidance are
uncertain. Management believes that upon issuance of regulations and interpretative guidance that is expected in the first half of
2020, an estimated tax benefit of $9.6 million could be reversed. This reversal would relate to fiscal year 2019 only and should not
apply to future periods.
2019 Annual Report
8
MANAGEMENT’S DISCUSSION AND ANALYSIS
Net loss from discontinued operations
During the year ended December 31, 2019, the Company recognized a net loss on an accident claim of $14.2 million, or $16.6
million net of $2.4 million of tax recovery. This claim originated from an operating entity within the discontinued rig moving
operations, which were closed in 2015.
Net income and adjusted net income from continuing operations
(unaudited)
(in thousands of dollars, except per share data)
Net income
Amortization of intangible assets related to business acquisitions,
Three months ended
December 31
Years ended
December 31
2019
74,828
2018
2019
2018
76,728
310,283
291,994
net of tax
12,019
10,992
47,097
44,033
Net change in fair value and accretion expense of contingent
considerations, 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
Bargain purchase gain
53
—
(383 )
—
—
(9,292 )
(9 )
1,180
9,129
—
Gain on sale of land and buildings and assets held for sale, net of tax
(9,059 )
(1,551 )
Gain on sale of intangible assets, net of tax
Net loss from discontinued operations
Adjusted net income from continuing operations 1
Adjusted EPS from continuing operations – basic1
Adjusted EPS from continuing operations – diluted1
—
1,715
79,173
0.97
0.95
(915 )
—
193
—
196
—
(10,787 )
(24,782 )
—
14,193
(8,928 )
(262 )
461
9,129
—
(13,900 )
(915 )
—
86,262
336,393
321,612
0.99
0.96
4.03
3.94
3.66
3.54
For the three months ended December 31, 2019, TFI International’s net income was $74.8 million compared to $76.7 million in Q4
2018. The Company’s adjusted net income from continuing operations1, a non-IFRS measure, which excludes items listed in the
above table, was $79.2 million this quarter compared to $86.3 million in Q4 2018, down 8% or $7.1 million. The adjusted EPS from
continuing operations, fully diluted, decreased by $0.01 to $0.95 from $0.96 in Q4 2018.
For the year ended December 31, 2019, TFI International’s net income was $310.3 million compared to $292.0 million in 2018. The
increase of $18.3 million is mainly attributable to the $10.8 million bargain purchase gain on the BeavEx acquisition, the increase of
gains on sale of land and buildings and assets held for sale, net of tax, of $10.9 million and the contribution from business
acquisitions of $32.4 million net of the loss from discontinued operations of $14.2 million. The Company’s adjusted net income from
continuing operations was $336.4 million in 2019 compared to $321.6 million in 2018, up 5% or $14.8 million. Adjusted EPS from
continuing operations, fully diluted, increased by 11%, to $3.94.
1 Refer to the section “Non-IFRS financial measures”.
TFI International
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS
9
Truckload
Logistics Corporate
Eliminations
Total
Selected segmented financial information
(unaudited)
(in thousands of dollars)
Three months ended December 31, 2019
Revenue before fuel surcharge 1
% of total revenue 2
Adjusted EBITDA from continuing operations
Adjusted EBITDA margin 3
Operating income (loss)
Operating margin3
Net capital expenditures 4, 5
Three months ended December 31, 2018*
Revenue before fuel surcharge1
% of total revenue2
Adjusted EBITDA from continuing operations
Adjusted EBITDA margin3
Operating income (loss)
Operating margin3
Net capital expenditures4, 6
YTD December 31, 2019
Revenue before fuel surcharge1
% of total revenue2
Adjusted EBITDA from continuing operations
Adjusted EBITDA margin3
Operating income (loss)
Operating margin3
Total assets less intangible assets
Net capital expenditures4, 7
YTD December 31, 2018*
Revenue before fuel surcharge1
% of total revenue2
Adjusted EBITDA from continuing operations
Adjusted EBITDA margin3
Operating income (loss)
Operating margin3
Total assets less intangible assets
Net capital expenditures4, 8
Package
and
Courier
Less-
Than-
Truckload
168,040
15%
38,673
23.0%
29,943
17.8%
4,385
199,718
18%
41,283
20.7%
25,498
12.8%
36,893
177,323
15%
36,521
20.6%
34,409
19.4%
8,342
231,994
20%
32,209
13.9%
23,461
10.1%
5,197
544,833
47%
119,320
21.9%
61,251
11.2%
23,528
528,164
46%
99,376
18.8%
52,282
9.9%
55,469
628,342
14%
141,001
22.4%
109,106
17.4%
234,955
14,508
633,046
14%
125,197
19.8%
113,214
17.9%
151,579
17,770
832,213
18%
168,046
20.2%
109,199
13.1%
529,077
36,448
902,320
21%
117,006
13.0%
85,132
9.4%
380,715
14,593
2,199,543
48%
481,120
21.9%
254,998
11.6%
1,567,027
143,097
2,064,588
46%
380,707
18.4%
207,723
10.1%
1,418,743
169,059
262,608
20%
28,943
11.0%
18,752
7.1%
1,323
235,590
19%
21,555
9.1%
2,851
1.2%
365
988,598
20%
110,154
11.1%
76,370
7.7%
206,707
2,638
953,727
19%
91,348
9.6%
54,492
5.7%
135,374
2,118
—
(8,723 )
—
—
(10,707 )
(11,154 )
6,808
—
(10,792 )
—
—
(9,007 )
(9,720 )
558
—
(35,067 )
—
—
(35,821 )
(38,053 )
64,587
5,618
—
(45,484 )
—
—
(27,975 )
(30,037 )
62,054
256
1,166,476
100%
217,512
18.6%
124,290
10.7%
72,937
1,162,279
100%
180,654
15.5%
103,283
8.9%
69,931
4,613,629
100%
864,500
18.7%
511,620
11.1%
2,602,353
202,309
4,508,197
100%
686,283
15.2%
430,524
9.5%
2,148,465
203,796
* The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
1 Includes intersegment revenue.
2 Segment revenue including fuel and intersegment revenue to consolidated revenue including fuel and intersegment revenue.
3 As a percentage of revenue before fuel surcharge.
4 Additions to property and equipment, net of proceeds from sale of property and equipment and assets held for sale.
5 Q4 2019 net capital expenditures include proceeds from the sale of property for consideration of $8.0 million in the LTL segment and of $9.3 million in the TL
segment.
6 Q4 2018 net capital expenditures include proceeds from the sale of property for consideration of $1.6 million in the LTL segment and of $2.5 million in the TL
segment.
7 Q4 YTD 2019 net capital expenditures include proceeds from the sale of property for consideration of $2.4 million in the P&C segment, of $25.2 million in the LTL
segment, of $21.2 million in the TL segment and of $2.0 million in the corporate segment.
8 Q4 YTD 2018 net capital expenditures include proceeds from the sale of property for consideration of $6.1 million in the LTL segment, of $24.3 million in the TL
segment and of $0.8 million in the corporate segment.
2019 Annual Report
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 recast to conform to the new structure.
Package and Courier
(unaudited) – (in thousands of dollars)
Three months ended December 31
Years ended December 31
Total revenue
Fuel surcharge
Revenue
Materials and services expenses (net of
fuel surcharge)
Personnel expenses
2019
%
2018*
%
2019
%
2018*
%
191,422
(23,382 )
204,428
(27,105 )
715,821
(87,479 )
728,556
(95,510 )
168,040
100.0%
177,323
100.0%
628,342
100.0%
633,046
100.0 %
73,574
43.8%
76,509
43.1%
269,837
42.9%
266,301
42.1 %
46,493
27.7%
50,083
28.2%
183,246
29.2%
186,281
29.4 %
Other operating expenses
9,259
5.5%
14,235
8.0%
34,460
5.5%
55,359
8.7 %
Depreciation of property and
equipment
Depreciation of right-of-use assets
Amortization of intangible assets
(Gain) loss on sale of rolling stock and
3,438
4,901
309
2.0%
2.9%
0.2%
3,055
1.7%
13,322
—
306
—
18,508
0.2%
1,182
2.1%
2.9%
0.2%
11,870
1.9 %
—
—
1,362
0.2 %
equipment
61
0.0%
(25 )
-0.0%
(181 )
-0.0%
(92 )
-0.0 %
Gain on derecognition of right-of-use
assets
(20 )
-0.0%
(Gain) loss on sale of land and buildings
and assets held for sale
Gain on sale of intangible assets
82
—
0.0%
—
—
—
(21 )
-0.0%
—
(1,117 )
-0.2%
—
—
—
—
—
(1,249 )
-0.7%
—
—
(1,249 )
-0.2 %
Operating income
Adjusted EBITDA
29,943
17.8%
34,409
19.4%
109,106
17.4%
113,214
17.9 %
38,673
23.0%
36,521
20.6%
141,001
22.4%
125,197
19.8 %
* The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
Operational data
(unaudited)
Three months ended December 31
Years ended December 31
2019
2018
Variance
%
2019
2018
Variance
%
Revenue per pound (including fuel)
$ 0.47
$ 0.48
Revenue per pound (excluding fuel)
$ 0.41
$ 0.42
$
$
(0.01 )
(0.01 )
-2.1%
$ 0.47
$ 0.47
$ 0.00
0.0%
-2.4%
$ 0.41
$ 0.41
$ 0.00
0.0%
Revenue per shipment (including fuel)
$ 8.61
$ 8.43
$ 0.18
2.1%
$ 8.35
$ 8.19
$ 0.16
2.0%
Tonnage (in thousands of metric tons)
185
192
(7 )
-3.6%
695
709
(14 )
-2.0%
Shipments (in thousands)
22,244
24,238
(1,994 )
-8.2%
85,743
88,998
(3,255 )
-3.7%
Average weight per shipment (in lbs.)
18.33
17.46
0.87
5.0%
17.86
17.56
0.30
1.7%
Vehicle count, average
972
1,016
(44 )
-4.3%
981
973
8
0.8%
Weekly revenue per vehicle (incl. fuel,
in thousands of dollars)
$ 15.15
$ 15.48
$
(0.33 )
-2.1%
$ 14.03
$ 14.40
$
(0.37 )
-2.6%
Revenue
For the three-months ended December 31, 2019, revenue decreased by $9.3 million, from $177.3 million in 2018 to $168.0 million
in 2019. This decrease in revenue is attributable to a 3.6% decrease in tonnage combined with a 2.4% decrease in revenue per
pound (excluding fuel surcharge). The decrease in tonnage was the result of an 8.2% decrease in the number of shipments offset by
a 5.0% increase in average weight per shipment. 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, 2019, revenue decreased by $4.7 million, or 0.7%, from $633.0 million to $628.3 million, due to a
slight decline in volumes attributable to 2018 benefitting from the Canada Post strike.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 11
Operating expenses
For the three months ended December 31, 2019, materials and services expenses, net of fuel surcharge revenue, decreased $2.9
million or 4% due to a $3.7 million decrease in sub-contractor costs. Personnel expenses as a percentage of revenue decreased from
28.2% in 2018 to 27.7% in 2019 and the reduction resulted mostly from lower direct salaries. Other operating expenses decreased
$5.0 million in the fourth quarter of 2019 mainly due to the adoption of IFRS 16. Real estate lease expense decreased $4.8 million
compared to Q4 2018 as, since January 1, 2019, a significant portion of these leases are now capitalized and a depreciation expense
was recorded and presented under depreciation of right-of-use assets. Right-of-use assets depreciation on equipment and real estate
leases amounted to $4.9 million for Q4 2019.
For the year ended December 31, 2019, materials and services expenses, net of fuel surcharge revenue, increased $3.5 million or
1.3% due to an $8.0 million decrease in fuel surcharge revenue partially offset by a $2.6 million reduction in rolling stock lease costs
partly due to the adoption of IFRS 16. Personnel expenses as a percentage of revenue slightly decreased from 29.4% in 2018 to
29.2% in 2019 and that decrease resulted entirely from a reduction in direct salaries. Other operating expenses decreased $20.9
million in 2019 mainly due to real estate lease expense that decreased $20.8 million following the adoption of IFRS 16. Right-of-use
assets depreciation on equipment and real estate leases amounted to $18.5 million in 2019.
Gain on sale of property
For the year ended December 31, 2019, a $1.1 million gain on sale of assets held for sale was recorded in the Package and Courier
segment following the sale of one property for a consideration of $2.4 million.
Operating income
Operating income for the three months ended December 31, 2019 decreased by 13% or $4.5 million compared to the fourth
quarter of 2018 and the operating margin was 17.8% in the fourth quarter of 2019 compared to 19.4% for the same period in
2018. The decrease is attributable to the fourth quarter in 2018 benefitting from the Canada Post strike.
For the year ended December 31, 2019, operating margin was 17.4%, a slight decrease from 17.9% in 2018.
Less-Than-Truckload
(unaudited) – (in thousands of dollars)
Three months ended December 31
Years ended December 31
Total revenue
Fuel surcharge
Revenue
Materials and services expenses (net of
fuel surcharge)
Personnel expenses
2019
%
2018*
%
2019
%
2018*
%
231,421
(31,703 )
272,212
(40,218 )
964,951
(132,738 )
1,057,396
(155,076 )
199,718
100.0%
231,994
100.0%
832,213
100.0%
902,320
100.0%
99,034
49.6%
120,153
51.8%
418,836
50.3%
478,169
53.0%
50,426
25.2%
59,272
25.5%
212,037
25.5%
227,502
25.2%
Other operating expenses
10,276
5.1%
20,770
9.0%
35,430
4.3%
80,505
8.9%
Depreciation of property and
equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Gain on sale of rolling stock and
6,794
8,129
2,809
3.4%
4.1%
1.4%
6,252
2.7%
—
—
2,750
1.2%
26,168
32,937
11,088
3.1%
4.0%
1.3%
23,656
2.6%
—
—
10,792
1.2%
equipment
(195 )
-0.1%
(410 )
-0.2%
(678 )
-0.1%
(862 )
-0.1%
Gain on derecognition of right-of-use
assets
(1,106 )
-0.6%
—
—
(1,458 )
-0.2%
—
—
Gain on sale of land and buildings and
assets held for sale
(1,947 )
-1.0%
(254 )
-0.1%
(11,346 )
-1.4%
(2,574 )
-0.3%
Operating income
Adjusted EBITDA
25,498
12.8%
23,461
10.1%
109,199
13.1%
85,132
9.4%
41,283
20.7%
32,209
13.9%
168,046
20.2%
117,006
13.0%
*
The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
2019 Annual Report
12 MANAGEMENT’S DISCUSSION AND ANALYSIS
Operational data
(unaudited)
Three months ended December 31
Years ended December 31
2019
2018
Variance
%
2019
2018
Variance
%
Adjusted operating ratio
88.2%
90.0%
88.2%
90.9%
Revenue per hundredweight
(excluding fuel)
$ 13.19 $ 13.79
$ (0.60 )
-4.4%
$ 13.29
$ 12.71 $
0.58
Revenue per shipment (including fuel)
$ 334.42 $ 324.84
$ 9.58
2.9%
$ 322.40
$ 305.69 $
16.71
4.6%
5.5%
Tonnage (in thousands of tons)
Shipments (in thousands)
757
692
841
838
(84 )
-10.0%
3,132
3,548
(416 )
-11.7%
(146 )
-17.4%
2,993
3,459
(466 )
-13.5%
Average weight per shipment (in lbs)
2,188
2,007
181
9.0%
2,093
2,051
Average length of haul (in miles)
839
831
Vehicle count, average
1,016
1,020
8
(4 )
1.0%
830
-0.4%
1,024
828
992
42
2
32
2.0%
0.2%
3.2%
Revenue
For the three months ended December 31, 2019, the LTL segment’s revenue was $199.7 million, a $32.3 million, or 14%, decrease
when compared to the same period in 2018. The decrease in revenue was due to a 10% decrease in tonnage combined with a
4.4% decrease in revenue per hundredweight (excluding fuel). The decrease in tonnage was the result of a 17% decrease in
shipments partially offset by a 9% increase in average weight per shipment.
For the year ended December 31, 2019, revenue decreased $70.1 million or 8% to $832.2 million. For the year ended December 31,
2019, the LTL segment improved its yield as reflected by the 4.6% increase in revenue per hundredweight (excluding fuel) that went
from $12.71 in 2018 to $13.29 in 2019.
Operating expenses
For the three months ended December 31, 2019, materials and services expenses, net of fuel surcharge revenue, decreased $21.1
million, or 18%, due to a $21.9 million decrease in sub-contractor cost, mostly attributable to a decrease in tonnage. Following the
same trend, personnel expenses decreased 14.9% year-over-year. Other operating expenses decreased $10.5 million in the fourth
quarter of 2019, mainly due to the adoption of IFRS 16. Real estate lease expense decreased $7.4 million compared to Q4 2018 as,
since January 1, 2019, a significant portion of these leases are now capitalized and a depreciation expense was recorded and
presented under depreciation of right-of-use assets. Right-of-use assets depreciation on equipment and real estate leases amounted
to $8.1 million for Q4 2019.
For the year ended December 31, 2019, materials and services expenses, net of fuel surcharge, decreased $59.3 million, or 12%,
due to a $65.7 million reduction in subcontractor cost. Personnel expenses as a percentage of revenue before fuel surcharge slightly
increased from 25.2% in 2018 to 25.5% in 2019. Other operating expenses decreased $45.1 million when compared to the same
period in 2018, mainly due to a $33.5 million decrease in real estate lease expense related to the adoption of IFRS 16. Right-of-use
assets depreciation on equipment and real estate leases was $32.9 million for 2019.
Gain on sale of property
For the quarter ended December 31, 2019, a $1.9 million gain on sale of assets held for sale was recorded in the LTL segment
following the sale of two properties for a total cash consideration of $8.0 million.
For the year ended December 31, 2019, an $11.3 million gain on sale of assets held for sale was recorded in the LTL segment
following the sale of five properties for a total cash consideration of $25.2 million.
Operating income
Operating income for the three months ended December 31, 2019 increased $2.0 million, or 9%, when compared to the same
period in 2018. As a percentage of revenue, operating income was 12.8% during the fourth quarter of 2019, a significant
improvement versus 10.1% for the same period in 2018. The fourth quarter of 2019 adjusted operating ratio was 88.2%, a 1.8
percentage points improvement compared to 90.0% for the same period in 2018.
For the year ended December 31, 2019, operating income increased $24.1 million to $109.2 million and the adjusted operating ratio
improved 2.7 percentage points, from 90.9% in 2018 to 88.2% in 2019. Although volume decreased 11.7% year over year,
operating income grew through better yield and quality of revenue, continued tight asset management, cost optimisation and
improvements in route density.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 13
Truckload
(unaudited) – (in thousands of dollars)
Three months ended December 31
Years ended December 31
Total revenue
Fuel surcharge
Revenue
Materials and services expenses (net of
fuel surcharge)
Personnel expenses
2019
%
2018*
%
2019
%
2018*
%
620,122
610,161
2,509,752
2,388,865
(75,289 )
(81,997 )
(310,209 )
(324,277 )
544,833
100.0%
528,164
100.0%
2,199,543
100.0%
2,064,588
100.0%
236,260
43.4%
236,226
44.7%
938,084
42.6%
956,913
46.3%
177,624
32.6%
177,024
33.5%
729,358
33.2%
665,143
32.2%
Other operating expenses
16,545
3.0%
19,738
3.7%
70,970
3.2%
71,621
3.5%
Depreciation of property and
equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Gain on sale of rolling stock and
47,805
9,300
7,494
8.8%
1.7%
1.4%
41,926
7.9%
180,590
—
—
6,728
1.3%
32,120
29,734
8.2%
1.5%
1.4%
158,708
7.7%
—
—
27,464
1.3%
equipment
(4,755 )
-0.9%
(4,200 )
-0.8%
(19,502 )
-0.9%
(9,796 )
-0.5%
Gain on derecognition of right-of-use
assets
(161 )
-0.0%
—
—
(487 )
-0.0%
—
—
Gain on sale of land and buildings and
assets held for sale
(6,530 )
-1.2%
(1,560 )
-0.3%
(16,322 )
-0.7%
(13,188 )
-0.6%
Operating income
Adjusted EBITDA
61,251
11.2%
52,282
9.9%
254,998
11.6%
207,723
10.1%
119,320
21.9%
99,376
18.8%
481,120
21.9%
380,707
18.4%
*
The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
2019 Annual Report
14 MANAGEMENT’S DISCUSSION AND ANALYSIS
Operational data
(unaudited)
(all Canadian dollars unless otherwise specified)
U.S. based Conventional TL
Three months ended December 31
Years ended December 31
2019
2018
Variance
%
2019
2018
Variance
%
Revenue (in thousands of U.S. dollars) 155,861
168,451
(12,590 )
-7.5%
646,158
678,983
(32,825 )
-4.8%
Adjusted operating ratio
92.4%
93.3%
91.5%
94.6%
Total mileage (in thousands)
84,291
90,658
(6,367 )
-7.0%
351,490
381,195
(29,705 )
-7.8%
Tractor count, average
Trailer count, average
Tractor age
Trailer age
Number of owner operators, average
Canadian based Conventional TL
2,929
3,053
11,007
11,180
(124 )
(173 )
-4.1%
2,960
3,083
-1.5%
11,008
11,199
1.8
6.5
424
2.0
6.8
408
(0.2 )
-10.0%
(0.3 )
-4.4%
16
3.9%
1.8
6.5
400
2.0
6.8
457
(123 )
(191 )
-4.0%
-1.7%
(0.2 )
-10.0%
(0.3 )
-4.4%
(57 )
-12.5%
Revenue (in thousands of dollars)
74,803
79,017
(4,214 )
-5.3%
300,933
313,305
(12,372 )
-3.9%
Adjusted operating ratio
85.9%
85.9%
85.6%
87.0%
Total mileage (in thousands)
24,237
26,019
(1,782 )
-6.8%
98,943
106,167
(7,224 )
-6.8%
Tractor count, average
Trailer count, average
Tractor age
Trailer age
Number of owner operators, average
Specialized TL
641
708
(67 )
-9.5%
684
712
(28 )
-3.9%
2,826
3,043
(217 )
-7.1%
2,884
3,088
(204 )
-6.6%
2.3
5.4
317
2.7
5.5
363
(0.4 )
-14.8%
(0.1 )
-1.8%
(46 )
-12.7%
2.3
5.4
333
2.7
5.5
367
(0.4 )
-14.8%
(0.1 )
(34 )
-1.8%
-9.3%
Revenue (in thousands of dollars)
264,591
227,438
37,153
16.3%
1,049,546
877,463
172,083
19.6%
Adjusted operating ratio
89.3%
89.2%
88.3%
87.9%
Tractor count, average
Trailer count, average
Tractor age
Trailer age
2,189
6,142
4.0
11.7
1,546
4,693
3.5
9.7
Number of owner operators, average
1,224
1,102
643
41.6%
1,449
30.9%
0.5
2.0
122
14.3%
20.6%
11.1%
2,099
6,121
4.0
11.7
1,450
4,653
3.5
9.7
1,191
1,085
649
44.8%
1,468
31.5%
0.5
2.0
107
14.3%
20.6%
9.8%
Revenue
For the three months ended December 31, 2019, TL revenue increased by $16.7 million or 3%, from $528.2 million in Q4 2018 to
$544.8 million in Q4 2019, mainly due to business acquisitions’ contribution of $60.5 million, offset by mileage and volume
decreases. Average revenue per total mile for conventional TL operations decreased by 0.6% in Canada and by 1.1% in the U.S.
compared to Q4 2018.
As part of its asset-light strategy, the TL segment increased its brokerage revenue by 8%, to $75.2 million compared to the same
quarter last year.
For the year ended December 31, 2019, TL revenue increased by $135.0 million or 7%, from $2,064.6 million in 2018 to $2,199.5
million in 2019. This increase is mainly due to recent business acquisitions’ contribution of $256.0 million and favourable currency
fluctuations of $29.3 million, offset by a decrease in revenue from existing operations of $121.1 million. On the brokerage side,
revenue increased $16.7 million or 6%, while margins were steady.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 15
Operating expenses
For the three months ended December 31, 2019, operating expenses, including business acquisition impact and net of fuel
surcharge, increased by $7.7 million or 2%, from $475.9 million in Q4 2018 to $483.6 million in Q4 2019. Material and services
expenses, net of fuel surcharge, decreased by 1.3 percentage points of revenue compared to the fourth quarter of 2018, mainly due
to the adoption of IFRS 16. Equipment lease expense decreased by $7.4 million compared to Q4 2018, as a significant portion of
these leases have been capitalized since January 1, 2019 and a depreciation expense of $9.3 million, of which $7.1 million is
attributable to operational equipment, was recorded and presented under depreciation of right-of-use assets in Q4 2019. Personnel
expenses remained steady in the fourth quarter year over year and as a percentage of revenue. Other operating expenses decreased
by $3.2 million or 16% compared to Q4 2018, mainly due to the adoption of IFRS 16, where $2.1 million has been presented under
depreciation of right-of-use assets for leased buildings in Q4 2019. The Company continues to improve its cost structure and
increase the efficiency and profitability of its existing fleet and network of independent contractors.
For the year ended December 31, 2019, TL operating expenses, net of fuel surcharge, increased by $87.7 million or 5%, which is
mainly due to business acquisitions. Excluding business acquisitions, operating expenses decreased by $144.0 million or 8%, from
$1,856.9 million in 2018 to $1,712.9 million in 2019.
Gain on sale of property
For the year ended December 31, 2019, a $16.3 million gain on sale of assets held for sale was recorded in the Truckload segment
following the sale of four properties for a total consideration of $21.2 million.
Operating income
The Company’s operating income in the TL segment for the three months ended December 31, 2019 reached $61.3 million, up from
$52.3 million in Q4 2018. This represents an increase of 17% and is mainly due to higher quality of freight, lower costs, and a more
efficient truckload freight network. Initiatives aimed at equipment cost reductions have continued to yield positive results, including
lower repair and maintenance costs due to a newer fleet. Operating margin increased to 11.2% compared to 9.9% in Q4 2018.
For the year ended December 31, 2019, the TL segment increased its operating income by $47.3 million or 23%, from $207.7 million
in 2018 to $255.0 million in 2019 as a result of better performance and a $3.1 million increase in gain on sales of assets held for sale.
Logistics
(unaudited) – (in thousands of dollars)
Three months ended December 31
Years ended December 31
Total revenue
Fuel surcharge
Revenue
Materials and services expenses (net of
fuel surcharge)
Personnel expenses
2019
%
2018*
%
2019
%
2018*
%
272,252
(9,644 )
246,990
(11,400 )
1,027,752
(39,154 )
1,000,186
(46,459 )
262,608
100.0%
235,590
100.0%
988,598
100.0%
953,727
100.0%
184,809
70.4%
165,484
70.2%
695,167
70.3%
661,796
69.4%
33,563
12.8%
31,549
13.4%
128,124
13.0%
134,000
14.1%
Other operating expenses
15,507
5.9%
17,034
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Impairment of intangible assets
Bargain purchase gain
Gain on sale of rolling stock and
847
3,328
6,016
—
—
0.3%
1.3%
2.3%
774
—
5,348
—
12,559
7.2%
0.3%
55,499
2,848
—
18,776
22,947
2.3%
5.3%
5.6%
0.3%
1.9%
2.3%
66,736
2,969
—
21,298
—
—
12,559
—
—
—
(10,787 )
-1.1%
—
equipment
(6 )
-0.0%
(32 )
-0.0%
(55 )
-0.0%
(153 )
-0.0%
Gain on derecognition of right-of-use
assets
(208 )
-0.1%
Loss on sale of land and buildings and
assets held for sale
—
—
—
23
—
(291 )
-0.0%
—
30
18,752
7.1%
2,851
76,370
7.7%
54,492
0.0%
1.2%
—
—
28,943
11.0%
21,555
9.1%
110,154
11.1%
91,348
Operating income
Adjusted EBITDA
*
The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
2019 Annual Report
7.0%
0.3%
—
2.2%
1.3%
—
—
0.0%
5.7%
9.6%
16 MANAGEMENT’S DISCUSSION AND ANALYSIS
Revenue
For the three months ended December 31, 2019, revenue increased by $27.0 million, or 11%, from $235.6 million in 2018 to
$262.6 million. Excluding business acquisitions, revenue decreased by $20.8 million mainly attributable to lower volumes and non-
recurring business in the prior year period.
For the year ended December 31, 2019, revenue increased by $34.9 million, or 4%, from $953.7 million to $988.6 million. Excluding
business acquisitions, revenue decreased by 8% or $76.3 million.
Approximately 72% (2018 – 69%) of the Logistics segment’s revenues in the quarter were generated from operations in the U.S.
and Mexico and approximately 28% (2018 – 31%) were generated from operations in Canada.
Operating expenses
For the three months ended December 31, 2019, total operating expenses, net of fuel surcharge, increased by $11.2 million, or 5%,
from $232.7 million in Q4 2018 to $243.9 million. As a percentage of revenue, materials and services expenses, net of fuel surcharge,
increased by 0.2 percentage points of revenue in the fourth quarter of 2019 while personnel expenses decreased by 0.6 percentage
points of revenue. Other operating expenses as a percentage of revenue decreased from 7.2% in 2018 to 5.9% in 2019 mainly due to
the adoption of IFRS 16. Real estate lease expense decreased $5.3 million compared to Q4 2018 as, since January 1, 2019, a
significant portion of these leases are now capitalized, and a depreciation expense was recorded and presented under depreciation of
right-of-use assets. Right-of-use assets depreciation on equipment and real estate leases amounted to $3.3 million for Q4 2019.
For the year ended December 31, 2019, operating expenses increased $13.0 million compared to 2018, from $899.2 million to
$912.2 million. This increase was mostly attributable to higher volumes offset by a foreign exchange impact.
Operating income
Operating income in the Logistic segment for the three-months ended December 31, 2019 increased by $15.9 million compared to
the fourth quarter of 2018, from $2.9 million to $18.8 million. Excluding the $12.6 million impairment in the last quarter of 2018,
operating income increased 22% or $3.3 million with the operating margin increasing 0.6 percentage points to 7.1%.
For the year ended December 31, 2019, operating income increased 40% or $21.9 million compared to 2018, from $54.5 million to
$76.4 million. Excluding the $12.6 million impairment in the last quarter of 2018, operating income increased 14% or $9.3 million
with the operating margin increasing 0.7 percentage points to 7.7%.
LIQUIDITY AND CAPITAL RESOURCES
Sources and uses of cash
(unaudited)
(in thousands of dollars)
Sources of cash:
Net cash from continuing operating activities
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
Repayment of lease liabilities
Dividends paid
Repurchase of own shares
Net cash used in discontinued operations
Others
Total usage
Three months ended
December 31
Years ended
December 31
2019
2018*
2019
2018*
176,177
27,438
17,230
281
—
6,416
227,542
122,310
(371 )
—
24,075
26,213
19,660
30,133
1,715
3,807
227,542
173,848
25,461
2,782
—
79,514
3,029
284,634
113,004
81,375
258
—
—
18,475
61,891
—
9,631
284,634
665,292
95,180
51,918
—
181,117
24,456
1,017,963
346,313
200,401
8,494
—
99,573
80,703
255,692
16,176
10,611
1,017,963
543,503
81,051
29,226
3,237
21,727
19,874
698,618
314,300
156,487
—
—
—
74,096
139,622
—
14,113
698,618
* The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 17
Cash flow from continuing operating activities
For the year ended December 31, 2019, net cash from continuing operating activities increased by 22% to $665.3 million from
$543.5 million in 2018. This $121.8 million increase is attributable to positive changes in cash generated from operating activities
driven by stronger operating results and the replacement of lease expenses by the repayment of lease liabilities included in financing
activities and interest on lease liabilities as a result of the adoption of IFRS 16 Leases. IFRS 16 positively impacted cash from operating
activities by a net amount of $99.6 million (which represents repayment of lease liabilities which is classified as financing cash flows
in 2019, compared with operating cash flows in 2018). In addition, income taxes paid negatively impacted net cash from continuing
operating activities by $33.7 million, attributable to increased income tax installments required on stronger operating results and the
payment of the prior year tax balances.
Cash flow used in investing activities from continuing operations
Property and equipment
The following table presents the additions of property and equipment by category for the three-month periods and years ended
December 31, 2019 and 2018.
(unaudited)
(in thousands of dollars)
Additions to property and equipment:
Three months ended
December 31
Years ended
December 31
2019
2018
2019
2018
Purchases as stated on cash flow statements
122,310
113,004
346,313
314,300
Non-cash adjustments
Additions by category:
Land and buildings
Rolling stock
Equipment
(4,705 )
(14,830 )
3,094
(227 )
117,605
98,174
349,407
314,073
48,204
65,283
4,118
117,605
3,625
91,520
3,029
98,174
52,566
15,412
280,704
284,459
16,137
14,202
349,407
314,073
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 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, 2019 and 2018.
(unaudited)
(in thousands of dollars)
Proceeds by category:
Land and buildings
Rolling stock
Equipment
Gains (losses) by category:
Land and buildings
Rolling stock
Equipment
Three months ended
December 31
Years ended
December 31
2019
2018
2019
2018
17,171
27,407
90
4,121
24,095
27
50,871
95,039
1,188
31,153
79,049
75
44,668
28,243
147,098
110,277
8,435
4,934
(79 )
1,791
4,707
(40 )
27,878
21,450
(287 )
16,144
11,007
(104 )
13,290
6,458
49,041
27,047
2019 Annual Report
18 MANAGEMENT’S DISCUSSION AND ANALYSIS
Business acquisitions
For the year ended December 31, 2019, cash used in business acquisitions totalled $200.4 million to acquire eight businesses. Refer
to the section of this report entitled “2019 business acquisitions” and further information can be found in note 5 of the December
31, 2019 audited consolidated financial statements.
Cash flow used in discontinued operations
For the year ended December 31, 2019, discontinued operations used cash of $16.2 million.
Free cash flow from continuing operations
(unaudited)
(in thousands of dollars)
Three months ended
December 31
Years ended
December 31
2019
2018*
2019
2018*
Net cash from continuing operating activities
176,177
173,848
665,292
543,503
Additions to property and equipment
(117,605 )
(98,174 )
(349,407 )
(314,073 )
Proceeds from sale of property and equipment
Proceeds from sale of assets held for sale
27,438
17,230
25,461
2,782
95,180
51,918
81,051
29,226
Free cash flow from continuing operations 1
103,240
103,917
462,983
339,707
* The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
The Company’s objectives when managing its cash flow from operations are to ensure proper capital investment in order to provide
stability and competitiveness for 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, 2019, TFI International generated free cash flow from continuing operations of $463.0 million,
compared to $339.7 million in 2018, which represents a year-over-year increase of $123.3 million. This increase is mainly due to
more net cash from continuing operating activities of $121.8 million, largely stemming from the adoption of IFRS 16 which had a
positive impact of $99.6 million.
The free cash flow conversion, which measures the level of capital employed to generate earnings, improved for the three months
ended December 31, 2019 to 80.7% from 61.0%, due a higher volume of net capital expenditures in 2018. For the year ended
December 31, 2019 the free cash flow conversion improved to 76.8% from 68.0%.
Based on the December 31, 2019 closing share price of $43.77, the free cash flow generated by the Company during 2019 ($463.0
million) represented a yield of 13.0%.
Financial position
(unaudited)
(in thousands of dollars)
Total assets
Long-term debt
Lease liabilities
Shareholders’ equity
As at
December 31, 2019
As at
December 31, 2018*
As at
December 31, 2017*
4,557,255
1,744,687
461,842
1,505,689
4,049,960
1,584,423
—
1,576,854
3,727,628
1,498,396
—
1,415,124
* The current period figures include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
Compared to December 31, 2018, the Company’s total assets and long-term debt and lease liabilities increased, mainly as a result of
the implementation of IFRS 16: total assets increased by $439.4 million and lease liabilities increased by $483.5 million. Please refer
to note 3 of the audited consolidated financial statements for more details on IFRS 16.
1 Refer to the section “Non-IFRS financial measures”.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 19
As at December 31, 2019, the Company’s working capital (current assets less current liabilities) was $50.6 million compared to $52.8
million as at December 31, 2018. The decrease is mainly attributable to the increase in the short term portion of the lease liabilities
of $99.1 million, net of a decrease in the current portion of long term debt of $68.7 million and a reclassification of a note receivable
to short term in the amount of $24.8 million.
Contractual obligations, commitments, contingencies and off-balance sheet arrangements
The following table indicates the Company’s contractual obligations with their respective maturity dates at December 31, 2019,
excluding future interest payments.
(unaudited)
(in thousands of dollars)
Unsecured revolving facility – June 2023
Unsecured revolving facility – November 2020
Unsecured term loan – June 2021 & 2022
Unsecured debenture – December 2024
Unsecured senior notes – December 2026
Conditional sales contracts
Lease liabilities
Total
593,495
11,970
610,000
200,000
194,820
139,591
461,842
Less than
1 year
—
11,970
—
—
—
41,677
99,133
Total contractual obligations
2,211,718
152,780
1 to 3
years
—
—
610,000
—
—
67,030
155,552
832,582
3 to 5
years
593,495
—
—
200,000
After 5
years
—
—
—
—
—
194,820
30,661
95,623
919,779
223
111,534
306,577
On February 1, 2019, the $500 million unsecured term loan was amended to increase the indebtedness to $575 million. On February
11, 2019, the related incremental funds were used to reimburse a separate $75 million unsecured term loan that was due to mature
in August 2019.
On February 1, 2019, the Company renegotiated the pricing grid of both its revolving credit facility and $575 million term loan. The
$575 million term loan remains within the confines of the credit facility, but now has a pricing grid different than the revolving credit
facility. Based on the current funded-debt-to-EBITDA ratio defined below, the renegotiation has no impact on the interest charged
on the revolving credit facility, however it reduces the interest rate charged on the term loan by 34 basis points.
On June 27, 2019, the Company extended its existing revolving credit facility by one year, to June 2023.
On June 27, 2019, the Company extended the maturity of the $575 million unsecured term loan by one year for each tranche, with
$200 million now due in June 2021 and $375 million now due in June 2022.
On November 22, 2019, the Company entered into a new revolving credit facility agreement. The credit facility is unsecured and
provides an availability of US$25 million maturing in November 2020. The interest applied to this credit facility is the same as applied
to the existing revolving credit facility.
On December 20, 2019, the Company entered into a new unsecured senior note agreement. This loan takes the form of senior
notes each carrying an interest rate of 3.85% and with a December 2026 maturity date.
On December 20, 2019, the unsecured debenture was amended to increase the indebtedness by $75 million, to $200 million, and to
extend maturity date by four years, to December 2024. Following this amendment, debenture is now carrying an interest rate
between 3.32% and 4.22% (2018 – 3.00% to 3.45%) depending on certain ratios.
On December 27, 2019, the $575 million unsecured term loan was amended to increase the indebtedness to $610 million. This
amendment increased the $375 million tranche due in June 2022 to $410 million.
2019 Annual Report
20 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 and are calculated as prescribed by the credit agreement which, among
other things, requires the exclusion of the impact of the new standard IFRS 16 Leases:
Covenants
Funded debt-to- EBITDA ratio
Requirements
December 31, 2019
As at
[ratio of total debt plus letters of credit and some other long-term liabilities to earnings
before interest, income tax, depreciation and amortization (“EBITDA”), including last
twelve months adjusted EBITDA from business acquisitions]
EBITDAR-to-interest and rent ratio
[ratio of EBITDAR (EBITDA before rent and including last twelve months adjusted
EBITDAR from business acquisitions) to interest and net rent expenses]
< 3.50
> 1.75
2.25
4.54
As at December 31, 2019, the Company had $41.7 million of outstanding letters of credit ($39.4 million on December 31, 2018).
As at December 31, 2019, the Company had $35.2 million of purchase commitments and $12.0 million of purchase orders that the
Company intends to enter into a lease that is expected to materialize within a year (December 31, 2018 – $51.0 million and nil,
respectively).
Dividends and outstanding share data
Dividends
The Company declared $21.2 million in dividends, or $0.26 per common share, in the fourth quarter of 2019. On February 10, 2020,
the Board of Directors approved a quarterly dividend of $0.26 per outstanding common share of the Company’s capital, for an
expected aggregate payment of $21.2 million to be paid on April 15, 2020 to shareholders of record at the close of business on
March 31, 2020.
NCIB on common shares
Pursuant to the renewal of the normal course issuer bid (“NCIB”), which began on October 2, 2019 and expires on October 1, 2020,
the Company is authorized to repurchase for cancellation up to a maximum of 7,000,000 of its common shares under certain
conditions. As at December 31, 2019, and since the inception of this NCIB, the Company has repurchased and cancelled 679,100
common shares.
For the year ended December 31, 2019, the Company repurchased 6,409,446 common shares (as compared to 3,755,002 in 2018)
at a weighted average price of $39.89 per share (as compared to $37.18 in 2018) for a total purchase price of $255.7 million (as
compared to $139.6 million in 2018).
Outstanding shares, stock options and restricted share units
A total of 81,450,326 common shares were outstanding as at December 31, 2019 (December 31, 2018 – 86,397,588). There was
no material change in the Company’s outstanding share capital between December 31, 2019 and February 10, 2020.
As at December 31, 2019, the number of outstanding options to acquire common shares issued under the Company’s stock option
plan was 4,421,866 (December 31, 2018 – 5,031,161) of which 3,039,635, were exercisable (December 31, 2018 – 3,863,610). On
February 27, 2019, the Board of Directors approved the grant of 909,404 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 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, 2019, the number of restricted share units (‘‘RSUs’’) granted under the Company’s equity incentive plan to its
senior employees was 239,337 (December 31, 2018 – 147,081). On February 27, 2019, the Board of Directors approved the grant of
152,965 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 nor
positively affect the Company’s financial condition or performance and, if necessary, has been provided for in the financial statements.
TFI International
MANAGEMENT’S DISCUSSION AND ANALYSIS 21
OUTLOOK
North American economic growth has continued despite headwinds from international trade negotiations and other geopolitical
uncertainties, with unemployment rates near multi-decade lows and favorable readings for both consumer confidence and business
optimism. The operating environment remained challenging for the transportation and logistics industry throughout 2019 largely
due to overcapacity concerns. More recently there have been early indications of improvement, with volumes and spot rates showing
signs of stabilization. In this mixed environment, TFI International believes it is favorably positioned and confident it can continue to
execute its business plan, including internal initiatives designed to enhance profitability via improved efficiencies, acquisition-related
synergies and cost savings.
Looking ahead, one potential risk to the Company’s business is an economic decline after several years of expansion, potentially
caused by international trade negotiations that have already resulted in higher tariffs on shipped goods. Further economic challenges
could in turn reverse recent improvements in industry overcapacity and drive additional pricing pressure. Other risks include the
possibility of more pronounced driver shortages and accompanying upward pressure on wages, and the potential for higher fuel,
insurance, interest rates and other costs.
Cognizant of changing macro conditions, TFI International seeks to generate strong and consistent 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 to avoid internal overcapacity, 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.
TFI International also 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 summary, the Company believes it is well positioned to benefit from the current dynamics in the North American freight
environment, and that through adherence to its operating principles, with the same discipline and rigor that have made TFI
International a North American leader in the transportation and logistics industry, it intends to continue to create long-term
shareholder value.
SUMMARY OF EIGHT MOST RECENT QUARTERLY RESULTS
(unaudited)-(in millions of dollars,
except per share data)
Q4’19
Q3’19
Q2’19
Q1’19 Q4’18* Q3’18* Q2’18* Q1’18*
Total revenue
1,305.5 1,304.8 1,337.8 1,230.8 1,321.4 1,287.6 1,317.7 1,196.5
Adjusted EBITDA from continuing
operations 1
217.5
221.6
236.5
188.9
180.7
190.0
186.7
129.0
Operating income from continuing
operations
Net income
EPS – basic
EPS – diluted
124.3
131.9
149.2
106.3
103.3
128.2
123.6
74.8
82.6
87.7
65.1
76.7
86.7
80.4
0.92
1.00
1.04
0.76
0.88
0.99
0.92
0.90
0.98
1.01
0.74
0.85
0.96
0.89
Net income from continuing operations
76.5
82.6
100.2
65.1
76.7
86.7
80.4
EPS from continuing operations – basic
0.94
1.00
1.19
0.76
0.88
0.99
0.92
EPS from continuing operations – diluted
0.92
0.98
1.16
0.74
0.85
0.96
0.89
75.4
48.2
0.54
0.53
48.2
0.54
0.53
Adjusted net income from continuing
operations1
79.2
88.1
102.0
67.1
86.3
95.0
89.9
50.4
Adjusted EPS from continuing operations-
diluted1
0.95
1.04
1.18
0.77
0.96
1.05
0.99
0.55
* The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
1 Refer to the section “Non-IFRS financial measures”.
2019 Annual Report
22 MANAGEMENT’S DISCUSSION AND ANALYSIS
The differences between the quarters are mainly the result of seasonality (softer in Q1) and business acquisitions. Higher 2019 and
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 2019, higher adjusted EBITDA from continuing operations,
compared to the same periods in the prior year, is partially due to the implementation of IFRS 16 as lease expense was replaced by
depreciation of right-of-use assets and interests on lease liabilities.
NON-IFRS FINANCIAL MEASURES
Financial data have been prepared in conformity with IFRS, including the following measures:
Operating expenses: Operating expenses include: a) materials and services expenses, which are primarily costs related to independent
contractors and vehicle operation; vehicle operation expenses, which primarily include fuel, repairs and maintenance, vehicle leasing
costs, insurance, permits and operating supplies; b) personnel expenses; c) other operating expenses, which are primarily composed
of costs related to offices’ and terminals’ rent, taxes, heating, telecommunications, maintenance and security and other general
administrative expenses; d) depreciation of property and equipment, depreciation of right-of-use assets, amortization of intangible
assets and gain or loss on the sale of rolling stock and equipment, on derecognition of right-of use assets and on sale of land and
buildings and assets held for sale; e) bargain purchase gain; and f) impairment of intangible assets.
Operating income (loss) from continuing operations: Net income or loss from continuing operations 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.
Adjusted net income from continuing operations: Net income or loss excluding amortization of intangible assets related to business
acquisitions, net change in the fair value and accretion expense of contingent considerations, net change in the fair value of
derivatives, net foreign exchange gain or loss, impairment of intangible assets, bargain purchase gain, gain or loss on sale of land
and buildings, assets held for sale and intangible assets, and loss from discontinued operations, net of tax. In presenting an adjusted
net income from continuing operations and adjusted EPS from continuing operations, the Company’s intent is to help provide an
understanding of what would have been the net income from continuing operations and earnings per share from continuing
operations in a context of significant business combinations and excluding specific impacts and to reflect earnings from a strictly
operating perspective. The amortization of intangible assets related to business acquisitions comprises amortization expense of
customer relationships, trademarks and non-compete agreements accounted for in business combinations and the income tax effects
related to this amortization. Management also believes, in excluding amortization of intangible assets related to business
acquisitions, it provides more information on the amortization of intangible asset expense portion, net of tax, that will not have to be
replaced to preserve the Company’s ability to generate similar future cash flows. The Company excludes these items because they
affect the comparability of its financial results and could potentially distort the analysis of trends in its business performance.
Excluding these items does not imply they are necessarily non-recurring. See reconciliation on page 8.
Adjusted earnings per share (adjusted “EPS”) from continuing operations – basic: Adjusted net income from continuing operations
divided by the weighted average number of common shares.
Adjusted EPS from continuing operations – diluted: Adjusted net income from continuing operations divided by the weighted
average number of diluted common shares.
Adjusted EBITDA from continuing operations: Net income or loss from continuing operations before finance income and costs,
income tax expense, depreciation, amortization, impairment of intangible assets, bargain purchase gain, and gain or loss on sale of
land and buildings, assets held for sale and intangible assets. Segmented adjusted EBITDA from continuing operations refers to
operating income (loss) from continuing operations before depreciation, amortization, impairment of intangible assets, bargain
purchase gain, and gain or loss on sale of land and buildings, assets held for sale and intangible assets. Management believes
adjusted EBITDA from continuing operations to be a useful supplemental measure. Adjusted EBITDA from continuing operations is
provided to assist in determining the ability of the Company to assess its performance.
TFI International
Consolidated adjusted EBITDA from continuing operations reconciliation:
(unaudited)
(in thousands of dollars)
Three months ended
December 31
Years ended
December 31
MANAGEMENT’S DISCUSSION AND ANALYSIS 23
Net income from continuing operations
Net finance costs (income)
Income tax expense
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Impairment of intangible assets
Bargain purchase gain
Gain on sale of land and buildings
Gain on sale of assets held for sale
Gain on sale of intangible assets
2019
76,543
22,342
25,405
59,028
25,751
16,838
—
—
(10 )
(8,385 )
—
2018*
76,728
(40 )
26,595
52,392
—
15,460
12,559
—
(312 )
(1,479 )
(1,249 )
2019
2018*
324,476
291,994
85,641
101,503
223,794
102,573
65,925
—
(10,787 )
(12 )
48,306
90,224
198,492
—
62,101
12,559
—
(524 )
(28,613 )
(15,620 )
—
(1,249 )
Adjusted EBITDA from continuing operations
217,512
180,654
864,500
686,283
* The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable. More specifically, in 2019, $44.2 million of
lease expenses have been included in Adjusted EBITDA from continuing operations, whereas in 2018, $152.0 million of operating lease expenses have been included
in Adjusted EBITDA from continuing operations.
2019 Annual Report
24 MANAGEMENT’S DISCUSSION AND ANALYSIS
Segmented adjusted EBITDA from continuing operations reconciliation:
(unaudited)
(in thousands of dollars)
Package and Courier
Operating income
Depreciation and amortization
(Gain) loss on sale of assets held for sale
Gain on sale of intangible assets
Adjusted EBITDA
Less-Than-Truckload
Operating income
Depreciation and amortization
Gain on sale of land and buildings
(Gain) loss on sale of assets held for sale
Adjusted EBITDA
Truckload
Operating income
Depreciation and amortization
(Gain) loss on sale of land and buildings
Gain on sale of assets held for sale
Adjusted EBITDA
Logistics
Operating income
Depreciation and amortization
Impairment of intangible assets
Bargain purchase gain
Loss on sale of land and buildings
Adjusted EBITDA
Corporate
Operating loss
Depreciation and amortization
(Gain) loss on sale of assets held for sale
Adjusted EBITDA
Three months ended
December 31
Years ended
December 31
2019
2018*
2019
2018*
29,943
8,648
82
—
34,409
3,361
—
(1,249 )
109,106
113,214
33,012
(1,117 )
13,232
—
—
(1,249 )
38,673
36,521
141,001
125,197
25,498
17,732
—
(1,947 )
41,283
61,251
64,599
(10 )
23,461
9,002
(336 )
82
109,199
70,193
—
(11,346 )
85,132
34,448
(275 )
(2,299 )
32,209
168,046
117,006
52,282
48,654
1
254,998
242,444
207,723
186,172
(12 )
(279 )
(6,520 )
(1,561 )
(16,310 )
(12,909 )
119,320
99,376
481,120
380,707
18,752
10,191
—
—
—
2,851
6,122
12,559
—
23
76,370
44,571
—
(10,787 )
—
54,492
24,267
12,559
—
30
28,943
21,555
110,154
91,348
(11,154 )
(9,720 )
(38,053 )
(30,037 )
447
—
713
—
2,072
160
2,474
(412 )
(10,707 )
(9,007 )
(35,821 )
(27,975 )
* The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
Adjusted EBITDA margin from continuing operations is calculated as adjusted EBITDA from continuing operations as a percentage of
revenue before fuel surcharge.
TFI International
Free cash flow conversion: Adjusted EBITDA from continuing operations less net capital expenditures (excluding property), divided by
the adjusted EBITDA from continuing operations.
(unaudited)
(in thousands of dollars)
Three months ended
December 31
Years ended
December 31
MANAGEMENT’S DISCUSSION AND ANALYSIS 25
Net income from continuing operations
Net finance costs (income)
Income tax expense
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Impairment of intangible assets
Bargain purchase gain
Gain on sale of land and buildings
Gain on sale of assets held for sale
Gain on sale of intangible assets
2019
76,543
22,342
25,405
59,028
25,751
16,838
—
—
(10 )
(8,385 )
—
2018*
76,728
(40 )
26,595
52,392
—
15,460
12,559
—
(312 )
(1,479 )
(1,249 )
2019
2018*
324,476
291,994
85,641
101,503
223,794
102,573
65,925
—
(10,787 )
(12 )
48,306
90,224
198,492
—
62,101
12,559
—
(524 )
(28,613 )
(15,620 )
—
(1,249 )
Adjusted EBITDA from continuing operations
217,512
180,654
864,500
686,283
Additions to rolling stock and equipment
(69,401 )
(94,549 )
(296,841 )
(298,661 )
Proceeds from sale of rolling stock and equipment
27,497
24,122
96,227
79,124
Adjusted EBITDA from continuing operations net of net capex,
excluding property
Free cash flow conversion
175,608
110,227
663,886
466,746
80.7%
61.0%
76.8%
68.0%
* The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
2019 Annual Report
26 MANAGEMENT’S DISCUSSION AND ANALYSIS
Free cash flow from continuing operations: Net cash from continuing operating activities less additions to property and equipment
plus proceeds from sale of property and equipment and assets held for sale. Management believes that this measure provides a
benchmark to evaluate the performance of the Company in regard to its ability to meet capital requirements. See reconciliation on
page 18.
Operating margin from continuing operations is calculated as operating income (loss) from continuing operations as a percentage of
revenue before fuel surcharge.
Adjusted operating ratio from continuing operations: Operating expenses from continuing operations before impairment of
intangible assets, bargain purchase gain, 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 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 from continuing operations reconciliation:
(unaudited)
(in thousands of dollars)
Operating expenses
Impairment of intangible assets
Bargain purchase gain
Gain on sale of land and building
Gain on sale of assets held for sale
Gain on sale of intangible assets
Adjusted operating expenses
Fuel surcharge revenue
Three months ended
December 31
Years ended
December 31
2019
2018*
2019
2018*
1,181,197
1,218,162
4,667,244
4,692,684
—
—
10
8,385
—
(12,559 )
—
(12,559 )
—
312
1,479
1,249
10,787
12
28,613
—
—
524
15,620
1,249
1,189,592
1,208,643
4,706,656
4,697,518
(139,011 )
(159,166 )
(565,235 )
(615,011 )
Adjusted operating expenses, net of fuel surcharge revenue
1,050,581
1,049,477
4,141,421
4,082,507
Revenue before fuel surcharge
Adjusted operating ratio
1,166,476
1,162,279
4,613,629
4,508,197
90.1%
90.3%
89.8%
90.6%
* The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
TFI International
Less-Than-Truckload and Truckload reportable segments 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
Three months ended
December 31
Years ended
December 31
2019
2018*
2019
2018*
231,421
205,923
25,498
272,212
248,751
23,461
964,951
1,057,396
855,752
109,199
972,264
85,132
205,923
248,751
855,752
972,264
Gain on sale of land and buildings and assets held for sale
1,947
254
11,346
2,574
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
Operating expenses
207,870
249,005
867,098
974,838
(31,703 )
(40,218 )
(132,738 )
(155,076 )
176,167
199,718
88.2%
620,122
558,871
61,251
208,787
231,994
90.0%
734,360
832,213
88.2%
819,762
902,320
90.9%
610,161
2,509,752
2,388,865
557,879
2,254,754
2,181,142
52,282
254,998
207,723
558,871
557,879
2,254,754
2,181,142
Gain on sale of land and buildings and assets held for sale
6,530
1,560
16,322
13,188
Adjusted operating expenses
Fuel surcharge revenue
Adjusted operating expenses, net of fuel surcharge revenue
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
U.S. based Conventional TL
Canadian based Conventional TL
Specialized TL
565,401
559,439
2,271,076
2,194,330
(75,289 )
(81,997 )
(310,209 )
(324,277 )
490,112
544,833
90.0%
477,442
1,960,867
1,870,053
528,164
2,199,543
2,064,588
90.4%
89.1%
90.6%
206,810
223,128
74,803
79,017
858,214
300,933
264,591
227,438
1,049,546
880,631
313,305
877,463
(1,371 )
(1,419 )
(9,150 )
(6,811 )
544,833
528,164
2,199,543
2,064,588
35,270
10,133
29,945
43,034
12,257
26,815
148,859
170,673
41,973
49,693
120,288
104,464
(59 )
(109 )
(911 )
(553 )
75,289
81,997
310,209
324,277
15,751
10,562
34,938
61,251
15,012
11,172
26,098
52,282
73,121
43,264
138,613
254,998
47,820
47,793
112,110
207,723
*
The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
2019 Annual Report
28 MANAGEMENT’S DISCUSSION AND ANALYSIS
(unaudited)
(in thousands of dollars)
U.S. based Conventional TL
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**
Three months ended
December 31
Years ended
December 31
2019
2018*
2019
2018*
226,329
251,150
933,952
1,003,484
(35,270 )
(43,034 )
(148,859 )
(170,673 )
191,059
206,810
92.4%
208,116
223,128
93.3%
785,093
858,214
91.5%
832,811
880,631
94.6%
74,374
80,102
299,642
315,205
Gain on sale of land and buildings and assets held for sale
11
—
11
7,023
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**
74,385
80,102
299,653
322,228
(10,133 )
(12,257 )
(41,973 )
(49,693 )
64,252
74,803
85.9%
67,845
79,017
85.9%
257,680
300,933
85.6%
272,535
313,305
87.0%
259,598
228,155
1,031,221
869,817
Gain on sale of assets held for sale
6,519
1,560
16,311
6,165
Adjusted operating expenses
Fuel surcharge revenue
Adjusted operating expenses, net of fuel surcharge revenue
Revenue before fuel surcharge
Adjusted operating ratio
266,117
229,715
1,047,532
875,982
(29,945 )
(26,815 )
(120,288 )
(104,464 )
236,172
264,591
89.3%
202,900
927,244
227,438
1,049,546
771,518
877,463
89.2%
88.3%
87.9%
*
The current period results include the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited consolidated financial statements. As is
permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
** Operating expenses excluding intra TL eliminations
RISKS AND UNCERTAINTIES
The Company’s future results may be affected by a number
of factors over many 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, prospects, financial
condition, results of operations and cash flows.
statements.
following
The
Competition. 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 “ELDs” 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,
autonomous vehicle technology 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
the Company’s brand names may be subject to adverse
publicity (whether or not justified) and lose significant
value, which could result in reduced demand for the
Company’s services;
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. 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 Canada, the
United States, and Mexico. Any change in or violation of
existing or future regulations could have an adverse impact
MANAGEMENT’S DISCUSSION AND ANALYSIS 29
on the scope of the Company’s activities. Future laws and
regulations may be more stringent, require changes in the
Company’s operating practices, influence the demand for
transportation services or require the Company to incur
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.
including
In addition to the regulatory regime applicable to operations
in Canada, the Company is increasing its operations in the
United States, and is therefore increasingly subject to rules
and regulations related to the U.S. transportation industry,
including regulation from various federal, state and local
agencies,
the Department of Transportation
(“DOT”) (in part through the Federal Motor Carrier Safety
Administration (“FMCSA”)), the Environmental Protection
Agency (“EPA”) and the Department of Homeland Security.
Drivers must, both in Canada and the United States, comply
with safety and fitness regulations, including those relating to
drug and alcohol testing, driver safety performance and hours
of service. Weight and dimensions, exhaust emissions and
fuel efficiency are also subject to government regulation. The
Company may also 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, there are currently two methods of
evaluating the safety and fitness of carriers: the Compliance,
Safety, Accountability (“CSA”) program, which evaluates and
ranks fleets on certain safety-related standards by analyzing
data from recent safety events and investigation results, and
the DOT safety rating, which is based on an on-site
investigation and affects a carrier’s ability to operate in
interstate commerce. Additionally, the FMCSA has proposed
rules in the past that would change the methodologies used
to determine carrier safety and fitness.
Indicator
Under the CSA program, carriers are evaluated and ranked
against their peers based on seven categories of safety-
related data. The seven categories of safety-related data
currently
include Unsafe Driving, Hours-of-Service
Compliance, Driver Fitness, Controlled Substances/Alcohol,
Vehicle Maintenance, Hazardous Materials Compliance and
Crash
(such categories known as “BASICs”).
Carriers are grouped by category with other carriers that have
a similar number of safety events (i.e. crashes, inspections, or
violations) and carriers are ranked and assigned a rating
percentile or score. If the Company were subject to any such
interventions, this could have an adverse effect on the
Company’s business, financial condition and results of
operations. As a result, the Company’s fleet could be ranked
poorly as compared to peer carriers. There is no guarantee
that we will be able to maintain our current safety ratings or
that we will not be subject to interventions in the future. The
2019 Annual Report
30 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 favorable safety backgrounds may increase,
which
in driver-related
compensation costs. Further, the Company may incur greater
than expected expenses
improve
in
unfavorable scores.
could necessitate
its attempts
increases
to
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
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. The FAST Act is set to expire in
September 2020, and the U.S. Congress has noted its intent
to consider a multiyear highway measure that would update
the FAST Act, which could lead to further changes to the CSA
program. Any changes that increase the likelihood of the
Company receiving unfavorable scores could materially
adversely affect the Company’s results of operations and
profitability.
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 final
rule became effective on January 4, 2017, with a compliance
date of January 6, 2020. In December 2019, however, the
FMCSA announced a final rule pursuant to which the
compliance date for state driver’s licensing agencies for
certain Drug and Alcohol Clearinghouse requirements were
TFI International
license rule
extended for three years. The December 2016 commercial
driver’s
initially required states to request
information from the clearinghouse about individuals prior to
issuing, renewing, upgrading or transferring a commercial
driver’s license. This new action will allow states to delay
compliance with the requirement until January 2023.
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
(FMCSA officials recently delayed implementation of the final
rule by two years). 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. In
2019 U.S. Congressional representatives proposed a similar
rule related to speed limiting devices. 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 and increase the
Company’s insurance costs.
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
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
recently
and
results of operations. The FMCSA also
announced plans to conduct a new study on the causation of
certain crashes. Although it remains unclear whether such a
study will ultimately be undertaken and completed, the
results of such a study could spur further proposed and/or
final rules regarding safety and fitness in the United States.
From time to time, the FMCSA proposes and implements
changes to regulations impacting hours-of-service. Such
changes can negatively impact the Company’s productivity
and affect its operations and profitability by reducing the
number of hours per day or week the Company’s U.S. drivers
and independent contractors may operate and/or disrupt the
Company’s network. In August 2019, the FMCSA issued a
proposal to make changes to its hours-of-service rules that
would allow U.S. truck drivers more flexibility with their 30-
minute rest break and with dividing their time in the sleeper
berth. It would also extend by two hours the duty time for
drivers encountering adverse weather, and extend the short
haul exemption by lengthening the drivers’ maximum on-duty
period from 12 hours to 14 hours. It is unclear how long the
process of finalizing a final rule will take, if one does come to
fruition. Any future changes to hours of service regulations
could materially and adversely affect
the Company’s
operations and profitability.
The U.S. National Highway Traffic Safety Administration, the
EPA 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. U.S. federal and
state lawmakers and regulators have also adopted or are
considering a variety of other climate-change
legal
requirements related to carbon emissions and greenhouse
gas emissions. These legal requirements could potentially limit
carbon emissions within certain states and municipalities in
the United States. Certain of these legal requirements restrict
the location and amount of time that diesel-powered tractors
(like the Company’s) may idle, which may force the Company
to purchase on-board power units that do not require the
engine to idle or to alter the Company’s drivers’ behavior,
which might result in a decrease in productivity and/or an
increase in driver turnover. All of these regulations have
increased, and may continue to increase, the cost of new
tractors and trailers and may require the Company to retrofit
certain of
its
maintenance costs, and could impair equipment productivity
and increase the Company’s operating costs, particularly if
such costs are not offset by potential fuel savings. The
occurrence of any of these adverse effects, combined with
the uncertainty as to the reliability of the newly-designed
diesel engines and the residual values of the Company’s
equipment, 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
trailers, may
tractors and
increase
its
MANAGEMENT’S DISCUSSION AND ANALYSIS 31
gases could adversely affect the Company’s operations and
financial results. The Company cannot predict the extent to
which its operations and productivity will be impacted by any
future regulations. The Company will continue monitoring its
compliance with U.S. federal and state environmental
regulations.
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. However, in
December 2018, the FMCSA granted a petition filed by the
American Trucking Associations determining that federal law
pre-empts California’s wage and hour laws, and interstate
truck drivers are not subject to such laws. The FMCSA’s
decision has been appealed by labour groups and multiple
lawsuits have been filed in U.S. federal courts seeking to
overturn the decision, and thus it is uncertain whether it will
stand. 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. Further,
driver piece rate compensation, which is an industry standard,
has been attacked as non-compliant with state minimum
wage laws. 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. In
addition, the uncertainty with respect to the practical
application of wage and hour laws are, in the future may be,
resulting in additional costs for the Company and the industry
as a whole, and a negative outcome with respect to any of
the above-mentioned lawsuits could materially affect the
Company. 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, decreased efficiency and increased risk of non-
compliance. In April 2016, the Food and Drug Administration
(“FDA”) published a final rule establishing requirements for
shippers, loaders, carriers by motor vehicle and rail vehicle,
and receivers engaged in the transportation of food, to use
sanitary transportation practices to ensure the safety of the
food they transport as part of the FSMA. This rule sets forth
requirements related to (i) the design and maintenance of
equipment used to transport food, (ii) the measures taken
during food transportation to ensure food safety, (iii) the
training of carrier personnel in sanitary food transportation
practices, and (iv) maintenance and retention of records of
written procedures, agreements, and training related to the
foregoing items. These requirements took effect for larger
carriers in April 2017 and apply to the Company when it acts
as a carrier or as a broker. If the Company is found to be in
violation of applicable laws or regulations related to the
2019 Annual Report
32 MANAGEMENT’S DISCUSSION AND ANALYSIS
FSMA or if the Company transports food or goods that are
contaminated or are found to cause illness and/or death, the
Company could be subject to substantial fines, lawsuits,
penalties and/or criminal and civil liability, any of which could
have a material adverse effect on the Company’s business,
financial condition, and results of operations.
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
ELDs 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 the
Company’s results of operations.
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.
United States and Mexican operations. A growing portion of
the Company’s revenue is derived from operations in the
United States and transportation to 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, theft or vandalism, and social, political and
economic instability. The Company’s international operations
could be adversely affected by restrictions on travel.
Additional risks associated with the Company’s international
operations 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, including in tax 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.
The United States has imposed tariffs on certain imported
steel and aluminum. The implementation of these tariffs, as
well as the imposition of additional tariffs or quotas or
TFI International
changes to certain trade agreements, including tariffs applied
to goods traded between the United States and China, could,
among other things, increase the costs of the materials used
by the Company’s suppliers to produce 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.
The United States-Mexico-Canada Agreement (“USMCA”)
has been ratified by the United States and Mexico but must
be ratified by the Parliament of Canada before it enters into
effect. The USMCA is designed to modernize food and
agriculture trade, advance rules of origin for automobiles and
trucks, and enhance intellectual property protections, among
other matters, according to the Office of the U.S. Trade
Representative. The USMCA is now in the process of being
ratified by each country. It is difficult to predict at this stage
what could be the impact of the USMCA on the economy,
including the transportation industry. However, given the
amount of North American trade that moves by truck, if the
USMCA enters into effect, it could have a significant impact
on supply and demand in the transportation industry, and
could adversely impact the amount, movement and patterns
of freight transported by the Company.
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. The Treasury has
issued final regulations and interpretive guidance on specific
areas since the 2017 Tax Cuts and Jobs Act was enacted, but
there remain significant regulations that are still awaiting
finalization. The finalization of these proposed regulations
could have a material adverse effect on the Corporation’s
results in future periods. Further, compliance with the new
law and
require
information not previously
preparation and analysis of
required or regularly produced.
In addition, the U.S.
issue
Department of Treasury has broad authority to
regulations and interpretative guidance that may significantly
impact how the Company will apply the law and 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.
for such provisions
the accounting
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 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
tractor and
their
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
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 may also 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
MANAGEMENT’S DISCUSSION AND ANALYSIS 33
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) recruiting and retaining qualified drivers; (iv)
strikes, work stoppages or work slowdowns at
the
Company’s facilities or at customer, port, border crossing or
other shipping-related facilities; (v) compliance with ongoing
regulatory requirements; (vi) increases in interest rates, fuel
taxes, tolls and license and registration fees; and (vii) rising
healthcare costs in the United States.
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
greater potential for loss and the Company may be required
to increase its allowance for doubtful accounts.
(iv) downturns
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
its
periods of high freight demand during which
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
2019 Annual Report
34 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 Canadian, U.S. or Mexican 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
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.
shipping
its
The Company’s operations, with the exception of
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
favorable terms in the future, it may have to limit its fleet size,
enter into less favorable financing arrangements or operate its
revenue equipment for longer periods, any of which could
have a materially adverse effect on its profitability.
TFI International
Interest Rate Fluctuations. 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. 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.
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 and 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
issues. The Company’s future
employment and other
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.
The Company holds a fully-fronted policy of CAD $10 million
limit per occurrence for automobile bodily injury, property
damage and commercial general liability for its Canadian
Insurance Program, subject to certain exceptions. The
Company retains a deductible of US $2.25 million for certain
U.S. subsidiaries on their primary US $5 million limit policies
for automobile bodily injury and property damage, also
subject to certain exceptions, and a 50% quota share
deductible for the US $5 million limit in excess of US $5
million. The Company retains a deductible of US $1 million
on its primary US $5 million limit policy for certain U.S.
subsidiaries for commercial general liability. The Company
retains deductibles of up to US $1 million per occurrence for
workers’ compensation claims. The Company’s
liability
coverage has a total limit of US $100 million per occurrence
for both its Canadian and U.S. divisions.
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 if (i) cost per claim 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; (iv) the Company experiences a significant
increase in premiums; or (v) 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.
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
MANAGEMENT’S DISCUSSION AND ANALYSIS 35
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. Most of the Company’s unionized
employees are Canadian employees with a small number of
unionized employees in the United States. 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 additional employees in the United States will
not attempt 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 Company’s collective agreements
have a variety of expiration dates, to the last of which is in
September 2024. In a small number of cases, the expiration
date of the collective agreement has passed; in such cases,
the Corporation is generally in the process of renegotiating
the agreement. 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.
Increases
in driver compensation or difficulties
Drivers.
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.
Like many
in the transportation sector, the Company
experiences substantial difficulty in attracting and retaining
sufficient numbers of qualified drivers. The trucking industry
periodically experiences a shortage of qualified drivers. The
Company believes the shortage of qualified drivers and
intense competition for drivers from other transportation
companies will create difficulties in maintaining or increasing
the number of drivers and may negatively impact the
Company’s ability to engage a sufficient number of drivers,
and the Company’s inability to do so may negatively impact
its operations. Further, the compensation the Company offers
its drivers and independent contractor expenses are subject to
market conditions, and the Company may find it necessary to
2019 Annual Report
36 MANAGEMENT’S DISCUSSION AND ANALYSIS
increase driver and independent contractor compensation in
future periods.
may incur losses on amounts owed to it with respect to such
tractors.
to operate existing
the Company and many other
In addition,
trucking
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
order
revenue equipment. Driver
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
state or U.S. federal leasing regulations are adopted, 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.
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
is unable to find replacement
TFI International
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 and state legislation has been
introduced in the past that would make it easier for tax and
other authorities to reclassify independent contractors as
employees, including legislation to increase the recordkeeping
requirements for those that engage 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 requirements. Additionally,
U.S. federal legislators have 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
items such as unemployment, workers’
compensation and income taxes, and a reclassification of
independent contractors as employees would help states with
this initiative. Further, courts in certain U.S. states have
recently issued decisions that could result in a greater
likelihood that independent contractors would be judicially
classified as employees in such states.
from
the burden
(as opposed
independent contractors
In September 2019, California enacted a new law, A.B. 5
(“AB5”), that made it more difficult for workers to be
classified as
to
employees). AB5 provides that the three-pronged “ABC Test”
must be used to determine worker classifications in wage
order claims. Under the ABC Test, a worker is presumed to be
an employee and
their
independent contractor status is on the hiring company
through satisfying all three of the following criteria: (a) the
worker is free from control and direction in the performance
of services; (b) the worker is performing work outside the
usual course of the business of the hiring company; and (c)
the worker is customarily engaged in an independently
established trade, occupation, or business. How AB5 will be
enforced is still to be determined. While it was set to enter
into effect in January 2020, a federal judge in California
issued a preliminary injunction barring the enforcement of
to demonstrate
AB5 on the trucking industry while the California Trucking
Association (“CTA”) moves forward with its suit seeking to
invalidate AB5. While this preliminary injunction provides
temporary relief to the enforcement of AB5, it remains
unclear how long such relief will last, whether the CTA will
ultimately be successful in invalidating the law, and whether
other U.S. States will enact laws similar to AB5.
U.S. class action lawsuits 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
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. The
Company has
in
Massachusetts and California in the past with independent
contractors who alleged they were misclassified.
settled certain class action cases
independent contractor status.
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;
unanticipated environmental or other liabilities;
failure to coordinate geographically dispersed organizations;
and
MANAGEMENT’S DISCUSSION AND ANALYSIS 37
•
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. Further, management of acquired operations
through a decentralized approach may create inefficiencies or
inconsistencies.
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
The Company continues to review acquisition and investment
opportunities in order to acquire companies and assets that
meet the Company’s investment criteria, some of which may
be significant. 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 Company’s existing shareholders. If the
Company raises additional funds through the issuance of
2019 Annual Report
38 MANAGEMENT’S DISCUSSION AND ANALYSIS
restrictions and costs on
debt securities, the terms of such debt could impose
additional
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 routinely evaluates its operations
and considers opportunities to divest certain of its assets. 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, or divests certain of
its operations, the
Company’s growth rate could be materially and adversely
affected. Any
the Company does
undertake could involve the dilutive issuance of equity
securities or the incurring of additional indebtedness.
future acquisitions
Growth. There is no assurance that in the future, the
Company’s business will grow substantially or without
volatility, nor is there any assurance that the Company will be
able to effectively adapt its management, administrative and
operational systems to respond to any future growth.
Furthermore, there is no assurance that the Company’s
operating margins will not be adversely affected by future
changes in and expansion of its business or by changes in
economic conditions or that it will be able to sustain or
improve its profitability in the future.
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, as well as on parties who
arranged for the disposal of waste at such properties.
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 of the Company’s
current or former 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 under certain of these
laws and
regulations may be imposed on a joint and several basis and
without regard to whether the Company knew of, or was
responsible for, the presence or disposal of these materials or
whether the activities giving rise to the contamination was
TFI International
legal when it occurred. In addition, the presence of those
substances, or the failure to properly dispose of or remove
those substances, may adversely affect the Company’s ability
to sell or rent that property. If the Company incurs liability
under these 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. There can be no
assurance that the Company will not be required at some
future date to incur significant costs or liabilities pursuant to
environmental laws, or that the Company’s operations,
business or assets will not be materially affected by current or
future environmental laws.
The Company’s transportation operations and its properties
are subject to extensive and frequently-changing federal,
provincial, state, municipal and local environmental laws,
regulations and requirements in Canada, the United States
and Mexico relating to, among other things, air emissions,
the management of contaminants, including hazardous
substances and other materials (including the generation,
handling, storage, transportation and disposal thereof),
discharges and the remediation of environmental impacts
(such as the contamination of soil and water, including
ground water). A risk of environmental liabilities is inherent in
transportation operations, historic activities associated with
such operations and the ownership, management 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 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. 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 current or former
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.
and
Key Personnel. The future success of the Company will be
based in large part on the quality of the Company’s
management
The Company’s
key personnel.
management and key personal possess valuable knowledge
about the transportation and logistics industry and their
knowledge of and relationships with the Company’s key
customers and vendors would be difficult to replace. 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
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
Company’s operating
results could be materially and
adversely affected. The Company’s ability to secure sufficient
equipment or other transportation services is affected by
including
many
equipment
industry,
the
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
Loan Default. The agreements governing the Company’s
indebtedness, including the Credit Facility and the Term Loan,
contain certain restrictions and other covenants relating to,
liens,
among other things, funded debt, distributions,
investments, acquisitions and dispositions outside
the
ordinary course of business and affiliate transactions. If the
its financing
Company fails to comply with any of
arrangement covenants, restrictions 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
financing or
amendments to or waivers under the applicable financing
arrangement, the Company may be unable to pay dividends
to its shareholders, and 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,
institute foreclosure procedures against their collateral, or
replacement
to obtain
failed
MANAGEMENT’S DISCUSSION AND ANALYSIS 39
If debt
impose significant fees and transaction costs.
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
in a
financing arrangements could
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.
result
Credit Facilities. The Company has significant ongoing capital
requirements that could affect the Company’s profitability if
the Company is unable to generate sufficient cash from
operations and/or obtain financing on favourable terms. The
trucking industry and the Company’s trucking operations are
capital intensive, and require significant capital expenditures
annually. The amount and timing of such capital expenditures
depend on various factors, including anticipated freight
demand and the price and availability of assets. If anticipated
demand differs materially from actual usage, the Company’s
trucking operations may have too many or too few assets.
Moreover, resource requirements vary based on customer
demand, which may be subject to seasonal or general
economic conditions. 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 such turn
ins, particularly during times of a softer used equipment
market, either of which could have a materially adverse effect
on the Company’s profitability.
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. The agreements governing the Company’s
indebtedness, including the Credit Facility and the Term Loan,
mature on various dates, ranging from 2020 to 2026. There
can be no assurance that such agreements governing the
Company’s indebtedness 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 the Credit
Facility or the Term Loan or arrange refinancing of any
indebtedness, 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
2019 Annual Report
40 MANAGEMENT’S DISCUSSION AND ANALYSIS
which may have a material adverse effect on the Company’s
operations.
Increased prices for new revenue equipment, design changes
of new engines, decreased availability of new revenue
equipment and future use of autonomous tractors could have
a material adverse effect on the Company’s business,
financial condition, operations, and profitability.
in commodity prices;
to newly-manufactured
the Company’s costs and
The Company is subject to risk with respect to higher prices
for new equipment for its trucking operations. The Company
has experienced an increase in prices for new tractors in
recent years, and the resale value of the tractors has not
increased to the same extent. Prices have increased and may
continue to increase, due to, among other reasons, (i)
(ii) U.S. government
increases
regulations applicable
tractors,
trailers and diesel engines; and (iii) the pricing discretion of
equipment manufacturers. Increased regulation has increased
the cost of the Company’s new tractors and could impair
equipment productivity, in some cases, resulting in lower fuel
mileage, and increasing the Company’s operating expenses.
Further regulations with stricter emissions and efficiency
requirements have been proposed that would further
increase
impair equipment
productivity. These adverse effects, combined with the
uncertainty as to the reliability of the vehicles equipped with
the newly designed diesel engines and the residual values
realized from the disposition of these vehicles could increase
the Company’s costs or otherwise adversely affect the
Company’s business or operations as the regulations become
effective. Over the past several years, some manufacturers
have significantly increased new equipment prices, in part to
meet new engine design and operations requirements.
Furthermore, future use of autonomous tractors could
increase the price of new tractors and decrease the value of
used non-autonomous tractors. The Company’s business
could be harmed if it is unable to continue to obtain an
adequate supply of new tractors and trailers for these or
other reasons. As a result, the Company expects to continue
to pay increased prices for equipment and incur additional
expenses for the foreseeable future.
Tractor and trailer vendors may reduce their manufacturing
output in response to lower demand for their products in
economic downturns or shortages of component parts. A
decrease in vendor output may have a materially adverse
effect on the Company’s ability to purchase a quantity of
new revenue equipment that is sufficient to sustain its desired
growth rate and to maintain a late model fleet. Moreover, an
inability to obtain an adequate supply of new tractors or
trailers could have a material adverse effect on the
Company’s business, financial condition, and results of
operation.
The Company has certain revenue equipment leases and
financing arrangements with balloon payments at the end of
the lease term equal to the residual value the Company is
contracted to receive from certain equipment manufacturers
upon sale or trade back to the manufacturers. If the
TFI International
Company does not purchase new equipment that triggers the
trade-back obligation, or the equipment manufacturers do
not pay the contracted value at the end of the lease term, the
Company could be exposed to losses equal to the excess of
the balloon payment owed to the lease or finance company
over the proceeds from selling the equipment on the open
market.
The Company has trade-in and repurchase commitments that
specify, among other things, what its primary equipment
vendors will pay it for disposal of a certain portion of the
Company’s revenue equipment. The prices the Company
expects to receive under these arrangements may be higher
than the prices it would receive in the open market. The
Company may suffer a financial loss upon disposition of its
equipment if these vendors refuse or are unable to meet their
financial obligations under these agreements, it does not
enter
into definitive agreements that reflect favorable
equipment replacement or trade-in terms, it fails to or is
unable to enter into similar arrangements in the future, or it
does not purchase the number of new replacement units
from the vendors required for such trade-ins.
Used equipment prices are subject to substantial fluctuations
based on freight demand, supply of used trucks, availability
of financing, presence of buyers for export and commodity
prices for scrap metal. These and any impacts of a depressed
market for used equipment could require the Company to
dispose of its revenue equipment below the carrying value.
This leads to losses on disposal or impairments of revenue
equipment, when not otherwise protected by residual value
arrangements. Deteriorations of resale prices or trades at
depressed values could cause
losses on disposal or
impairment charges in future periods.
Difficulty in obtaining goods and services from the Company’s
vendors and suppliers could adversely affect its business.
The Company is dependent upon its vendors and suppliers
for certain products and materials. The Company believes
that it has positive vendor and supplier relationships and it is
generally able to obtain acceptable pricing and other terms
from such parties. If the Company fails to maintain positive
relationships with its vendors and suppliers, or if its vendors
and suppliers are unable to provide the products and
materials
it needs or undergo financial hardship, the
Company could experience difficulty in obtaining needed
goods and services because of production interruptions,
limited material availability or other
reasons. As a
consequence, the Company’s business and operations could
be adversely affected.
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 year ended December 31, 2019. 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 in order 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
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 financial statements and analyzing business information
to help the Company manage its business effectively. The
Company receives and transmits confidential data with and
among its customers, drivers, vendors, employees and service
providers in the normal course of business.
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. The Company’s systems
are also vulnerable to unauthorized access and viewing,
information,
misappropriation, altering or deleting of
including customer, driver, vendor, employee and service
provider information and its proprietary business information.
If any of the Company’s critical information systems fail, are
breached or become otherwise unavailable, the Company’s
MANAGEMENT’S DISCUSSION AND ANALYSIS 41
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. For example, during the year ended
December 31, 2019, the Company recognized a net loss on
an accident claim of CAD $14.2 million (CAD $16.6 million
net of CAD $2.4 million of tax recovery). 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. In addition, the
Company may be subject, and has been subject in the past,
to litigation resulting from trucking accidents. The number
and severity of litigation claims may be worsened by
distracted driving by both truck drivers and other motorists.
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 funded
premiums, the resulting expenses could have a material
adverse effect on the Company’s business, results of
operations, financial condition and cash flows.
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. Any
failure to implement required new or improved controls, or
difficulties encountered in their implementation could cause
the Company to fail to meet its reporting obligations. In
addition and when required, any testing by the Company
conducted in connection with section 404 of the U.S.
Sarbanes-Oxley Act, or the subsequent testing by the
Company’s independent registered public accounting firm,
2019 Annual Report
42 MANAGEMENT’S DISCUSSION AND ANALYSIS
may reveal deficiencies in the Company’s internal controls
over financial reporting that are deemed to be material
weaknesses or that may require prospective or retrospective
changes to the Company’s consolidated financial statements
or identify other areas for further attention or improvement.
Inferior internal controls could also cause investors to lose
confidence in the Company’s reported financial information,
which could have a negative effect on the trading price of the
Common Shares.
Material Transactions. The Company has acquired numerous
companies pursuant to its acquisition strategy and, in
addition, has sold business units, including the sale in
February 2016 of its then-Waste Management segment for
CAD $800 million. The Company buys and sells business units
in the normal course of its business. Accordingly, at any given
time, the Company may consider, or be in the process of
negotiating, a number of potential acquisitions and
dispositions, some of which may be material in size. In
connection with such potential transactions, the Company
regularly enters
into non-disclosure or confidentiality
agreements, indicative term sheets, non-binding letters of
intent and other similar agreements with potential sellers and
buyers, and conducts extensive due diligence as applicable.
These potential transactions may relate to some or all of the
Company’s four reportable segments, that is, TL, Logistics,
LTL, and Package and Courier. The Company’s active
acquisition and disposition strategy requires a significant
amount of management time and resources. Although the
Company complies with its disclosure obligations under
applicable securities laws, the announcement of any material
transaction by the Company (or rumours thereof, even if
unfounded) could result in volatility in the market price and
trading volume of the Common Shares. Further, the
Company cannot predict the reaction of the market, or of the
Company’s stakeholders, customers or competitors, to the
announcement of any such material transaction or to
rumours thereof.
Dividends and Share Repurchases. The payment of future
dividends and the amount thereof is uncertain and is at the
sole discretion of the Board of Directors of the Company and
is considered each quarter. The payment of dividends is
dependent upon, among other things, operating cash flow
generated by the Company, its financial requirements for
operations, the execution of its growth strategy and the
satisfaction of solvency tests imposed by the Canada Business
Corporations Act for the declaration and payment of
dividends. Similarly, any future repurchase of shares by the
Company is at the sole discretion of the Board of Directors
and is dependent on the factors described above. Any future
repurchase of shares by the Company is uncertain.
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, the measurement of
in business
identified assets and
combinations and provisions for claims and litigations. 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
Annual Improvements to IFRS Standards (2015-2017 cycle)
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, 2019 and have been
applied in preparing the audited consolidated financial
statements:
IFRS 16, Leases
IFRIC 23, Uncertainty over Income Tax Treatments
Plan Amendment, Curtailment or Settlement (Amendments
to IAS 19)
TFI International
Prepayment Features with Negative Compensation
(Amendments to IFRS 9)
Except modifications from the adoption of IFRS 16 as
reported in note 3, these new standards did not have a
material impact on the Company’s audited consolidated
financial statements.
To be adopted in future periods
The following new standards and amendments to standards
are not yet effective for the year ended December 31, 2019,
and have not been applied in preparing the audited
consolidated financial statements:
Definition of a business (Amendments to IFRS 3)
CONTROLS AND PROCEDURES
In compliance with the provisions of Canadian Securities
Administrators’ National Instrument 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS 43
Further information can be found in note 3 of the December
31, 2019 audited consolidated financial statements.
As at December 31, 2019, 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, 2019.
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, 2019, 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, 2019, using the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission
Internal Control –
Integrated Framework (2013 framework).
(COSO) on
Changes in internal controls over financial reporting
No changes were made to the Company’s ICFR during the
quarter ended December 31, 2019 that have materially
affected, or are reasonably likely to materially affect, the
Company’s ICFR.
2019 Annual Report
44
MANAGEMENT’S RESPONSIBILITY
The consolidated financial statements of TFI International Inc. and all information in this annual report are the responsibility of
management and have been approved by the Board of Directors.
The financial statements have been prepared by management in conformity with International Financial Reporting Standards. They
include some amounts that are based on management’s best estimates and judgement. Financial information included elsewhere in
the annual report is consistent with that in the financial statements.
The management of TFI International Inc. has developed and maintains an internal accounting system and administrative controls in
order to provide reasonable assurance that the financial transactions are properly recorded and carried out with the necessary
approval, and that the consolidated financial statements are properly prepared and the assets properly safeguarded.
The Board of Directors carries out its responsibility for the financial statements in this annual report principally through its Audit
Committee. The Audit Committee reviews the Company’s annual consolidated financial statements and recommends their approval
by the Board of Directors.
These financial statements have been audited by the independent auditors, KPMG LLP, whose report follows.
Alain Bédard, FCPA, FCA
Chairman of the Board,
President and Chief Executive Officer
February 10, 2020
TFI International
INDEPENDENT AUDITORS’ REPORT
45
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, 2019 and December 31, 2018
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, 2019 and December 31, 2018, 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 is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matter – Change in Accounting Policy
We draw attention to Note 1(s) to the financial statements which indicates that the Entity has changed its accounting policy for
leases as of January 1, 2019, due to the adoption of IFRS 16, Leases, and has applied that change using a modified retrospective
transition approach.
Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in 2019 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 “2019 Annual Report”.
2019 Annual Report
46
INDEPENDENT AUDITORS’ REPORT (continued)
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.
We obtained the information included in 2019 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
“2019 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.
TFI International
INDEPENDENT AUDITORS’ REPORT (continued)
47
• 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.
•
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’ 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 10, 2020
* CPA auditor, CA, public accountancy permit No. A109612
2019 Annual Report
48 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2019 AND 2018
(in thousands of Canadian dollars)
Assets
Trade and other receivables
Inventoried supplies
Current taxes recoverable
Prepaid expenses
Derivative financial instruments
Assets held for sale
Other assets
Current assets
Property and equipment
Right-of-use assets
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
Lease liabilities
Current liabilities
Long-term debt
Lease liabilities
Employee benefits
Provisions
Other financial 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
Contingencies, letters of credit and other commitments
Total liabilities and equity
Note
7
26
12
9
3, 10
11
12
18
26
13
17
26
14
3, 15
14
3, 15
16
17
26
18
19
19, 21
27
As at
December 31,
2019
As at
December 31,
2018
587,370
13,844
17,158
36,077
39
4,625
24,814
683,927
1,461,707
434,017
1,954,902
11,241
11,461
—
3,873,328
4,557,255
3,801
443,468
6,050
23,721
2,654
843
53,647
99,133
633,317
1,691,040
362,709
18,585
29,251
3,649
888
312,127
2,418,249
3,051,566
680,233
21,063
24,473
779,920
1,505,689
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
4,557,255
4,049,960
The notes on pages 53 to 96 are an integral part of these consolidated financial statements.
On behalf of the Board:
Alain Bédard
André Bérard
Director
Director
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(In thousands of Canadian dollars, except per share amounts)
Note
2019
2018
CONSOLIDATED STATEMENTS OF INCOME 49
Revenue
Fuel surcharge
Total revenue
Materials and services expenses
Personnel expenses
Other operating expenses
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Impairment of intangible assets
Bargain purchase gain
Gain on sale of rolling stock and equipment
Gain on derecognition of right-of-use assets
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
Net income from continuing operations
Net loss from discontinued operations
4,613,629
4,508,197
565,235
615,011
5,178,864
5,123,208
2,832,070
2,913,996
1,297,929
1,253,975
207,057
223,794
102,573
65,925
—
(10,787 )
(20,416 )
(2,276 )
(12 )
279,857
198,492
—
62,101
12,559
—
(10,903 )
—
(524 )
(28,613 )
(15,620 )
—
(1,249 )
4,667,244
4,692,684
511,620
430,524
(3,001 )
(15,353 )
88,642
85,641
63,659
48,306
425,979
101,503
382,218
90,224
324,476
291,994
22
23
9
10
11
11
5
24
24
25
6
(14,193 )
—
Net income for the year attributable to owners of the Company
310,283
291,994
Earnings per share attributable to owners of the Company
Basic earnings per share
Diluted earnings per share
Earnings per share from continuing operations attributable to
owners of the Company
Basic earnings per share
Diluted earnings per share
The notes on pages 53 to 96 are an integral part of these consolidated financial statements.
20
20
20
20
3.72
3.63
3.89
3.80
3.32
3.22
3.32
3.22
2019 Annual Report
50 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2019 AND 2018
(In thousands of Canadian dollars)
2019
2018
Net income for the year attributable to owners of the Company
310,283
291,994
Other comprehensive (loss) income
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:
Defined benefit plan remeasurement (losses) gains, net of tax
Items directly reclassified to retained earnings:
Unrealized gain (loss) on investment in equity securities measured at fair value through OCI,
net of tax
Other comprehensive (loss) income for the year, net of tax
(52,502 )
101,972
16,115
(9,835 )
42
(26,677 )
(2,842 )
(159 )
(1,619 )
1,181
1,326
(46,473 )
(4,693 )
68,782
Total comprehensive income for the year attributable to owners of the Company
263,810
360,776
The notes on pages 53 to 96 are an integral part of these consolidated financial statements.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(In thousands of Canadian dollars)
Note
Share
capital
Contributed
surplus
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 51
Accumulated
foreign
currency
translation
differences
and net
investment
Accumulated
cash flow
hedge
gain
hedge
Accumulated
unrealized
loss on
employee
benefit
plans
Accumulated
unrealized
loss on
investment in
equity
securities
Total equity
attributable
to owners
of the
Company
Retained
earnings
Balance as at December 31, 2018
704,510
20,448
(528 )
10,210
60,971
(5,863 )
787,106
1,576,854
Adjustment on initial application of
IFRS 16 (see note 3)
Net income for the year
Other comprehensive (loss) income
for the year, net of tax
Realized loss on equity securities,
net of tax
Total comprehensive (loss) income
for the year
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(25,678 )
(25,678 )
—
310,283
310,283
42
(9,835 )
(36,387 )
1,326
(1,619 )
(46,473 )
—
—
—
4,537
(4,537 )
—
42
(9,835 )
(36,387 )
5,863
304,127
263,810
Share-based payment transactions
21
—
8,269
Stock options exercised
19, 21
27,402
(5,641 )
Dividends to owners of the
Company
Repurchase of own shares
Net settlement of restricted share
19
—
19
(52,633 )
—
—
units
19, 21
954
(2,013 )
Total transactions with owners,
recorded directly in equity
(24,277 )
615
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,269
21,761
(81,145 )
(81,145 )
(203,059 )
(255,692 )
(1,431 )
(2,490 )
—
(285,635 )
(309,297 )
Balance as at December 31, 2019
680,233
21,063
(486 )
375
24,584
—
779,920
1,505,689
Balance as at December 31, 2017
711,036
21,995
(369 )
13,052
(14,324 )
(1,170 )
684,904
1,415,124
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
21
—
Stock options exercised
19, 21
20,840
Dividends to owners of the
Company
Repurchase of own shares
Net settlement of restricted share
19
—
19
(30,122 )
—
—
—
5,926
(4,009 )
—
—
units
19, 21
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 )
Balance as at December 31, 2018
704,510
20,448
(528 )
10,210
60,971
(5,863 )
787,106
1,576,854
The notes on pages 53 to 96 are an integral part of these consolidated financial statements.
2019 Annual Report
52 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(In thousands of Canadian dollars)
Note
2019
2018
Cash flows from operating activities
Net income for the year
Net loss from discontinued operations
Net income from continuing operations
Adjustments for
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Impairment of intangible assets
Share-based payment transactions
Net finance costs
Income tax expense
Bargain purchase gain
Gain on sale of property and equipment
Gain on derecognition of right-of-use assets
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 continuing operating activities
Net cash used in discontinued operating activities
Net cash from operating activities
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 continuing investing activities
Cash flows from financing activities
(Decrease) increase in bank indebtedness
Proceeds from long-term debt
Repayment of long-term debt
Repayment of lease liabilities
Decrease in other financial liabilities
Dividends paid
Repurchase of own shares
Proceeds from exercise of stock options
Repurchase of own shares for restricted share unit settlement
Net cash used in continuing financing activities
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 53 to 96 are an integral part of these consolidated financial statements.
TFI International
9
10
11
11
21
24
25
5
8
9
11
5
14
14
15
19
19
310,283
(14,193 )
324,476
223,794
102,573
65,925
—
8,269
85,641
101,503
(10,787 )
(20,428 )
(2,276 )
(28,613 )
—
(4,919 )
845,158
19,600
864,758
(86,285 )
(113,181 )
665,292
(16,176 )
649,116
(346,313 )
95,180
51,918
(4,826 )
269
(200,401 )
(787 )
2,426
(440 )
(402,974 )
(8,494 )
433,600
(252,483 )
(99,573 )
(2,068 )
(80,703 )
(255,692 )
21,761
(2,490 )
(246,142 )
—
—
—
291,994
—
291,994
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 )
—
—
—
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
53
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, 2019 and 2018 comprise
the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”).
The Group is involved in the provision of transportation and logistics services across the United States, Canada and Mexico.
2. Basis of preparation
a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were authorized for issue by the Board of Directors on February 10, 2020.
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 are 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 is included in the following notes:
Note 5 – Establishing the fair value of assets and liabilities, intangible assets and goodwill related to business combinations;
Note 11 – Determining estimates and assumptions related to impairment tests for long-lived assets and goodwill; and
Note 17 – Determining estimates and assumptions related to the evaluation of provisions for claims and litigations.
2019 Annual Report
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements, unless otherwise indicated. The accounting policies have been applied consistently by Group entities.
a) Basis of consolidation
i)
Business combinations
The Group measures goodwill as the fair value of the consideration transferred including the fair value of liabilities
resulting from contingent consideration arrangements, less the net recognized amount of the identifiable assets
acquired and liabilities assumed, all measured at fair value as of the acquisition date. When the excess is negative, a
bargain purchase gain is recognized immediately in income or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in
connection with a business combination, are expensed as incurred.
ii)
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has the right
to, variable returns from its involvement with the entity and has the ability to affect those through its power over the
entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases.
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 (“OCI”) 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.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
55
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, except for trade receivables which are
initially measured at their transaction price when the trade receivables do not contain a significant financing
component. 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 and depending on the purpose for which the financial assets were acquired.
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 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.
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.
2019 Annual Report
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies (continued)
c)
Financial instruments (continued)
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 weighted
average 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.
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 is designated.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
57
3. Significant accounting policies (continued)
d) Hedge accounting (continued)
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.
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.
2019 Annual Report
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies (continued)
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 11).
Useful lives are reviewed at each financial year-end and adjusted prospectively, if appropriate.
g) Leases
The Group has implemented IFRS 16 using the modified retrospective approach and therefore the comparative information has
not been restated and continues to be reported under IAS 17 and IFRIC 4. The impacts of changes are disclosed in note 3s).
As of January 1, 2019, at inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract
is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the
Group assesses whether:
•
•
•
the contract involves the use of an identified asset – this may be specific explicitly or implicitly, and should be physically
distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive
substitution right, the asset is not identified;
the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the
period of use; and
the Group has the right to direct the use of the asset. The Group has this right when it has the decision-making rights
that are most relevant to changing how and for what purpose the asset is used.
The policy is applied to contracts entered into, or modified on or after January 1, 2019.
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in
the contract to each lease component on the basis of their relative stand-alone prices.
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is
initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at
or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove
the underlying asset or to restore the underlying asset of the site on which it is located, less any lease incentives received.
The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the
straight-line method as this most closely reflects the expected pattern consumption of the future economic benefits. The
lease term includes periods covered by an option to extend if the Group is reasonably certain to exercise that option. In
addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
59
3. Significant accounting policies (continued)
g) Leases (continued)
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that cannot be readily determined, the Group’s
incremental borrowing rate. The incremental borrowing rate is a function of the Group’s incremental borrowing rate, the
nature of the underlying asset, the location of the asset and the length of the lease. Generally, the Group uses its
incremental borrowing rate as the discount rate.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a
change in the future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate
of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether
it will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-
of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term
of 12 months or leases and leases of low-value assets. The Group recognises these lease payments as an expense on a
straight-line basis over the lease term.
Prior to adoption of IFRS 16, the Company applied IAS 17 and IFRIC 4 and leases with terms which indicated that the
Group assumed substantially all the risks and rewards of ownership were classified as finance leases. Upon initial
recognition the leased asset were 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 was accounted for in accordance with the accounting
policy applicable to that asset.
Other leases were operating leases and the leased assets were 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.
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.
2019 Annual Report
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies (continued)
i)
Impairment (continued)
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.
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.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
61
3. Significant accounting policies (continued)
k) Employee benefits (continued)
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.
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 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 over time 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.
Based on the evaluation of the control model, certain businesses, mainly in the Less-Than-Truckload segment, act as the
principal within their revenue arrangements. The affected businesses report transportation revenue gross of associated
purchase transportation costs rather than net of such amounts within the consolidated statements of income.
n) Lease payments
Prior to adoption of IFRS 16, see note 3 g) and s), payments made under operating leases were recognized in income or loss
on a straight-line basis over the term of the lease. Lease incentives received were recognized as an integral part of the total
lease expense, over the term of the lease.
Minimum lease payments made under finance leases were apportioned between the finance costs and the reduction of the
outstanding liability. The finance cost was 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.
2019 Annual Report
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies (continued)
o) Finance income and finance costs
Finance income comprises interest income on funds invested, dividend income and interest and accretion on promissory
note. 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.
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 the 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.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
63
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, 2019. These have been applied in preparing these consolidated financial statements:
IFRS 16, Leases: On January 13, 2016, the IASB issued IFRS 16 Leases. IFRS 16 replaces 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 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.
See note 3 g) for the Group accounting policy under IFRS 16.
Effective January 1, 2019, the Group adopted IFRS 16 using the modified retrospective approach and accordingly the
information presented for 2018 has not been restated. It remains as previously reported under IAS 17 and related
interpretations.
On the initial application, the Group has elected to apply a mixture of the two available transition options; 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; on a lease-by-lease
basis. A right-of-use asset and a lease liability were recorded as of January 1, 2019, for all outstanding lease contracts that
met the definition of a lease, with any difference recorded in retained earnings, being recognized. An additional impact of
$8.3 million on provisions and retained earnings was recognized for previously recorded straight-line rental costs under IAS
17. The Group also recognized a deferred tax liability which was recorded directly to retained earnings, and reclassed any
assets recorded as finance lease from property and equipment to right-of-use assets, and the corresponding finance lease
liability from long-term debt to the new lease liability presentation.
As reported as at
December 31, 2018
Adjustments
Restated balance as at
January 1, 2019
Property and equipment
Right-of-use assets
Provisions (including current portion)
Long-term debt (including current portion)
1,396,389
—
(67,864 )
(1,584,423 )
(25,687 )
465,095
8,310
9,164
Lease liabilities (including current portion)
—
(492,622 )
Deferred tax liabilities
Retained earnings
(289,940 )
(787,106 )
10,062
25,678
1,370,702
465,095
(59,554 )
(1,575,259 )
(492,622 )
(279,878 )
(761,428 )
When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at January 1,
2019. This incremental borrowing rate was adjusted for the type of the underlying asset, the location of the underlying
asset, and the length of the lease contract. At January 1, 2019, the weighted average rate used was 3.92% and the
weighted average lease contract length was 7.42 years.
The Group has elected to apply the following practical expedients:
•
•
•
The Group has elected to account for leases which lease term ends within 12 months of the date of initial application
as short-term leases.
The Group elected 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 apply the exemption for low value items. These low value items continue to be classified as a rent
expense and included as material and service expenses.
2019 Annual Report
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
3. Significant accounting policies (continued)
s) New standards and interpretations adopted during the year (continued)
The following table reconciles the Group’s operating lease obligations at December 31, 2018, as previously disclosed in the
Group’s audited annual consolidated financial statements, to the lease obligation recognized on initial application of
IFRS 16 at January 1, 2019:
Operating lease commitment as at December 31, 2018
Finance lease liability as at December 31, 2018
Discounted using the incremental borrowing rate at January 1, 2019
Recognition exemption for short-term leases
Extension options reasonably certain to be exercised
Lease obligations recognized at January 1, 2019
506,111
9,164
(72,642 )
(15,646 )
65,635
492,622
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 adoption of the amendments to IFRIC 23 did not have a material impact on the Group’s 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 adoption of the amendments to IAS 19 did not have a material impact on the Group’s consolidated financial
statements.
Annual Improvements to IFRS Standards (2015-2017 cycle): On December 12, 2017, the IASB issued narrow-scope
amendments to three standards as part of its annual improvement 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;
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 adoption of Annual Improvements to IFRS Standards (2015-2017 cycle) did not have a material impact on the Group’s
consolidated financial statements.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
65
3. Significant accounting policies (continued)
s) New standards and interpretations adopted during the year (continued)
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 adoption of the amendments 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 ended December 31, 2019, and have not been applied in
preparing these 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.
Amendments to Hedge Accounting Requirements – IBOR Reform and its Effects on Financial Reporting (Phase 1): On
September 26, 2019, the IASB issued amendments for some of its requirements for hedge accounting in IFRS 9 Financial
Instruments and IAS 39 Financial Instruments: Recognition and Measurement, as well as the related Standard on
disclosures, IFRS 7 Financial Instruments: Disclosures in relation to Phase 1 of IBOR Reform and its Effects on Financial
Reporting project. The amendments are effective from January 1, 2020. Earlier application is permitted. The amendments
address issues affecting financial reporting in the period leading up to IBOR reform, are mandatory and apply to all hedging
relationships directly affected by uncertainties related to IBOR reform. The amendments modify some specific hedge
accounting requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform in the
following areas:
•
•
•
•
the ‘highly probable’ requirement,
prospective assessments,
retrospective assessments (for IAS 39), and
eligibility of risk components.
The extent of the impact of adoption of the amendments has not yet been determined.
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:
Less-Than-Truckload:
Pickup, transport and delivery of items across North America.
Pickup, consolidation, transport and delivery of smaller loads.
Truckload(a):
Logistics(b):
Full loads carried directly from the customer to the destination using a closed van or specialized
equipment to meet customers’ specific needs. Includes expedited transportation, flatbed, tank,
container and dedicated services.
Asset-light logistics services, including brokerage, freight forwarding and transportation management,
as well as small package parcel delivery.
(a) The Truckload reporting segment represents the aggregation of the Canadian Conventional Truckload, U.S. Conventional 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.
(b) Effective in the fourth quarter of fiscal 2019, the Group has renamed the segment to Logistics from the previous reporting as Logistics and Last Mile. The
composition of the segment remains unchanged.
2019 Annual Report
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
4. Segment reporting (continued)
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.
Package
and
Courier
Less-
Than-
Truckload
Truckload
Logistics
Corporate Eliminations
Total
2019
External revenue
623,734
822,568 2,182,592
984,735
External fuel surcharge
86,910
132,086
307,171
39,068
—
—
— 4,613,629
—
565,235
Inter-segment revenue and fuel surcharge
5,177
10,297
19,989
3,949
—
(39,412 )
—
Total revenue
715,821
964,951 2,509,752 1,027,752
—
(39,412 ) 5,178,864
Operating income (loss)
109,106
109,199
254,998
76,370
(38,053 )
—
511,620
Selected items:
Depreciation and amortization
33,012
70,193
242,444
44,571
2,072
—
392,292
Gain on sale of land and buildings
—
—
12
Gain (loss) on sale of assets held for sale
1,117
11,346
16,310
—
—
—
—
—
10,787
—
(160 )
—
—
—
—
12
28,613
10,787
Bargain purchase gain
Intangible assets
Total assets
Total liabilities
246,948
244,756 1,117,840
341,183
4,175
— 1,954,902
481,903
773,833 2,684,867
547,890
68,762
— 4,557,255
155,391
299,090
542,307
166,263 1,888,515
— 3,051,566
Additions to property and equipment
17,741
65,651
255,550
2,942
7,523
—
349,407
2018
External revenue
627,819
889,283 2,044,831
946,264
External fuel surcharge
94,798
154,169
320,064
45,980
—
—
— 4,508,197
—
615,011
Inter-segment revenue and fuel surcharge
5,939
13,944
23,970
7,942
—
(51,795 )
—
Total revenue
728,556 1,057,396 2,388,865 1,000,186
—
(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
Impairment of intangible assets
Gain (loss) on sale of land and buildings
Gain on sale of assets held for sale
13,232
34,448
186,172
24,267
2,474
—
260,593
—
—
—
—
275
—
12,559
279
2,299
12,909
(30 )
—
—
—
—
412
—
—
—
—
—
12,559
524
15,620
1,249
Gain on sale of intangible assets
1,249
—
—
Intangible assets
Total assets
Total liabilities
247,280
256,009 1,065,624
329,460
3,122
— 1,901,495
398,859
636,724 2,484,367
464,834
65,176
— 4,049,960
66,057
146,852
432,010
111,097 1,717,090
— 2,473,106
Additions to property and equipment
18,268
29,345
262,719
2,675
1,066
—
314,073
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
67
4. Segment reporting (continued)
Geographical information
Revenue is attributed to geographical locations based on the origin of service’s location.
Total revenue
2019
Canada
United States
Mexico
Total
2018
Canada
United States
Mexico
Total
Package
and
Courier
Less-
Than-
Truckload
Truckload
Logistics
Eliminations
Total
715,821
805,514
1,060,654
—
—
159,437
1,449,098
—
—
286,814
720,126
20,812
(37,622 )
2,831,181
(1,790 )
2,326,871
—
20,812
715,821
964,951
2,509,752
1,027,752
(39,412 )
5,178,864
728,556
882,495
1,006,340
—
—
174,901
1,382,525
—
—
317,561
659,975
22,650
(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
Segment assets are based on the geographical location of the assets.
Property and equipment, right-of-use assets and intangible assets
Canada
United States
Mexico
5. Business combinations
a) Business combinations
2019
2018
2,308,400
1,927,241
1,518,877
1,347,574
23,349
23,069
3,850,626
3,297,884
In line with the Group’s growth strategy, the Group acquired eight businesses during 2019, of which Schilli Corporation
(“Schilli”), which was renamed BTC East in September 2019, was considered material. These transactions were concluded
in order to add density in the Group’s current network and further expand value-added services.
On February 22, 2019, the Group completed the acquisition of Schilli. Based in St. Louis, Schilli specializes in the
transportation of dry and liquid bulk and offers dedicated fleet solutions and other value-add services throughout the
Midwest, Southeast and Gulf Coast regions of the United States. The purchase price for this business acquisition totalled
$76.6 million, which has been paid in cash. During the year ended December 31, 2019, Schilli contributed revenue and net
income of $70.6 million and $3.0 million, respectively since the acquisition.
On April 29, 2019, the Group completed the acquisition of certain assets of BeavEx Incorporated Inc. and its affiliates
Guardian Medical Logistics, JNJW Enterprises Inc. and USXP LLC (collectively “BeavEx”). The purchase price for this business
acquisition totalled $9.7 million, which has been paid in cash. The fair value of the identifiable net assets acquired,
including the fair value of the customer relationships acquired, exceeded the purchase price, resulting in a bargain purchase
gain of $10.8 million in the logistics segment.
If the Group acquired the eight businesses on January 1, 2019, as per management’s best estimates, the revenue and net
income for these entities would have been $396.7 million and $22.7 million, respectively. In determining these estimated
amounts, management assumed that the fair value adjustments that arose on the date of acquisition would have been the
same had the acquisitions occurred on January 1, 2019.
2019 Annual Report
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
5. Business combinations (continued)
a) Business combinations (continued)
During 2019, 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.
As of the reporting date, the Group had not completed the purchase price allocation over the identifiable net assets and
goodwill of the 2019 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
Schilli
Others*
Cash and cash equivalents
Trade and other receivables
Inventoried supplies and prepaid expenses
Property and equipment
Right-of-use assets
Intangible assets
Other assets
Trade and other payables
Income tax payable
Provisions
Other non-current liabilities
Long-term debt
Lease liabilities
Deferred tax liabilities
Total identifiable net assets
Total consideration transferred
Goodwill
Bargain purchase gain
Cash
Contingent consideration
Total consideration transferred
11,622
7,365
2,426
28,484
3,189
12,910
284
(3,617 )
(4,205 )
(1,921 )
—
—
(3,189 )
(9,606 )
9
10
11
17
15
8,716
38,301
5,242
60,050
11,451
49,912
(184 )
2019
20,338
45,666
7,668
2018
2,560
41,771
6,408
88,534
100,058
14,640
62,822
100
—
37,611
428
(29,415 )
(33,032 )
(23,576 )
(1,913 )
34
(481 )
(6,118 )
(1,887 )
(481 )
63
—
—
(11,505 )
(11,505 )
(23,395 )
(11,451 )
(14,640 )
—
(12,353 )
(21,959 )
(20,740 )
43,742
106,403
150,145
121,188
76,613
145,043
221,656
164,393
11
32,871
49,427
82,298
43,205
—
(10,787 )
(10,787 )
—
76,613
144,126
220,739
159,047
—
917
917
5,346
76,613
145,043
221,656
164,393
(*)
Includes non-material adjustments to prior year’s acquisitions
The trade receivables comprise gross amounts due of $40.3 million, of which $1.1 million was expected to be uncollectible
at the acquisition date.
Of the goodwill and intangible assets acquired through business combinations in 2019, $25.0 million is deductible for tax
purposes (2018 – $7.2 million).
During 2018, the Group acquired nine businesses, notably Normandin Transit Inc. (“Normandin”).
On April 3, 2018, the Group completed the acquisition of 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.
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.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
69
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
Specialized Truckload
Logistics
Reportable segment
Truckload
Logistics
(*)
Includes non-material adjustments to prior year’s acquisitions
c) Contingent consideration
2019*
67,108
15,190
82,298
The contingent consideration relates to a non-material business acquisition 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%. This consideration is contingent on achieving specified earning levels in the future periods. The maximum yearly
amount payable for the next two years is $0.5 million for a total consideration of $1.0 million. At December 31, 2019, the
fair value of the contingent arrangement was estimated at $0.9 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.
d) Adjustment to the provisional amounts of prior year’s business combinations
The 2018 annual consolidated financial statements included details of the Group’s business combinations and set out
provisional fair values relating to the consideration paid and net assets acquired of Normandin and various non-material
acquisitions. 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. Consequently, the fair value of certain assets acquired and liabilities assumed of
Normandin and the non-material acquisitions have been adjusted in 2019. No material adjustments were required to the
provisional fair values for these prior period’s business combinations, and have been included with other acquisitions of 2019.
6. Discontinued operations
In Q2 2019, the Group received an unfavorable ruling on an accident claim, resulting in a loss of $12.5 million ($16.6 million,
net of tax of $4.1 million). The incident occurred in an operating division which was part of the discontinued rig moving
segment. The rig moving segment was classified as discontinued on September 30, 2015.
In Q4 2019, the tax implications were re-evaluated, resulting in a decrease of recoverable tax of $1.7 million. The total net loss
for 2019 amounted to $14.2 million ($16.6 million, net of tax of $2.4 million).
The net cash outflows from discontinued operations amounted to $16.2 million ($18.6 million, net of tax of $2.4 million).
The basic and diluted loss per share for the year ended December 31, 2019 from discontinued operations is $0.17 and $0.17, respectively.
7. Trade and other receivables
Trade receivables
Other receivables
2019
2018
574,261
605,320
13,109
26,407
587,370
631,727
The Group’s exposure to credit and currency risks related to trade and other receivables is disclosed in note 26 a) and d).
Trade receivables at December 31, 2019 include $9.9 million of in-transit revenue balances (2018 – $10.8 million). Due to the
short-term nature of the transportation and logistics services provided by the Group, these services are expected to be
completed within the week following the year-end.
2019 Annual Report
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
8. Additional cash flow information
Net change in non-cash operating working capital
Trade and other receivables
Inventoried supplies
Prepaid expenses
Trade and other payables
9. Property and equipment
Cost
Balance at December 31, 2017
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
Balance at December 31, 2018
2019
77,374
3,032
5,018
(65,824 )
19,600
2018
(2,624 )
434
(980 )
15,817
12,647
Land and
buildings
Rolling
stock
Equipment
Total
333,465
1,294,403
152,470
1,780,338
25,415
15,412
72,427
2,216
100,058
284,459
14,202
314,073
(3,235 )
(172,941 )
(12,501 )
(188,677 )
(24,330 )
(3,420 )
23,834
6,154
—
52,321
—
—
459
(27,750 )
23,834
58,934
376,715
1,527,249
156,846
2,060,810
Additions through business combinations
6,378
79,232
2,924
88,534
Other additions
Disposals
Reclassification to assets held for sale
Transfer to right-of-use assets
Effect of movements in exchange rates
Balance at December 31, 2019
Depreciation
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
Balance at December 31, 2018
Depreciation for the year
Disposals
Reclassification to assets held for sale
Transfer to right-of-use assets
Effect of movements in exchange rates
Balance at December 31, 2019
Net carrying amounts
At December 31, 2018
At December 31, 2019
TFI International
52,566
280,704
16,137
349,407
(3,483 )
(167,640 )
(12,984 )
(184,107 )
(28,226 )
(3,535 )
—
(38,920 )
—
—
(31,761 )
(38,920 )
(3,041 )
(31,104 )
(188 )
(34,333 )
400,909
1,645,986
162,735
2,209,630
69,676
10,928
411,785
101,264
582,725
174,407
13,157
198,492
(1,858 )
(104,867 )
(12,328 )
(119,053 )
(5,157 )
(2,964 )
1,974
958
76,521
11,784
—
7,811
—
—
(365 )
(8,121 )
1,974
8,404
486,172
101,728
664,421
198,469
13,541
223,794
(3,216 )
(94,630 )
(11,509 )
(109,355 )
(8,447 )
(2,956 )
—
(13,235 )
(521 )
(6,033 )
—
—
255
(11,403 )
(13,235 )
(6,299 )
76,121
567,787
104,015
747,923
300,194
1,041,077
55,118
1,396,389
324,788
1,078,199
58,720
1,461,707
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
71
9. Property and equipment (continued)
As at December 31, 2019, $3.1 million is included in trade and other payables for the purchases of property and equipment
(2018 – nil).
Security
At December 31, 2019, certain rolling stock are pledged as security for conditional sales contracts, with a carrying amount of
$180 million (2018 – $179 million) (see note 14).
10. Right-of-use assets
Cost
Initial recognition of IFRS 16
Transfer from property and equipment
Other additions
Additions through business combinations
Derecognition
Effect of movements in exchange rates
Balance at December 31, 2019
Depreciation
Initial recognition of IFRS 16
Transfer from property and equipment
Depreciation
Derecognition
Effect of movements in exchange rates
Balance at December 31, 2019
Net carrying amounts
At December 31, 2019
Land and
buildings
Rolling
stock
Equipment
Total
565,960
130,805
1,940
698,705
—
29,547
11,754
38,920
54,337
2,886
(46,737 )
(13,844 )
(1,897 )
16
—
466
—
(14 )
(3 )
38,920
84,350
14,640
(60,595 )
(1,884 )
558,627
213,120
2,389
774,136
207,429
2
67,256
51,148
13,233
34,653
(22,425 )
(11,736 )
(704 )
(124 )
720
259,297
—
13,235
664
102,573
(2 )
5
(34,163 )
(823 )
251,558
87,174
1,387
340,119
307,069
125,946
1,002
434,017
2019 Annual Report
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
11. Intangible assets
Cost
Other intangible assets
Non-
Customer
Goodwill
relationships
Trademarks
compete
agreements
Information
technology
Total
Balance at December 31, 2017
1,576,661
538,139
102,626
8,964
23,961 2,250,351
Additions through business combinations
43,205
31,982
2,640
2,250
739
80,816
Other additions
Disposals
Extinguishments
—
—
—
1,863
(2,137 )
(7,612 )
—
—
—
Effect of movements in exchange rates
54,923
20,697
5,647
—
—
(28 )
439
2,558
4,421
—
(2,137 )
(2,796 )
(10,436 )
263
81,969
Balance at December 31, 2018
1,674,789
582,932
110,913
11,625
24,725 2,404,984
Additions through business combinations
82,298
55,064
3,369
4,339
50
145,120
Other additions
Disposals
Extinguishments
—
—
—
—
(274 )
(1,469 )
—
—
—
Effect of movements in exchange rates
(28,216 )
(10,974 )
(2,903 )
—
—
(220 )
(246 )
4,826
4,826
—
(274 )
(2,379 )
(4,068 )
(150 )
(42,489 )
Balance at December 31, 2019
1,728,871
625,279
111,379
15,498
27,072 2,508,099
Amortization and impairment losses
Balance at December 31, 2017
185,450
174,218
37,578
1,714
19,117
418,077
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
1,826
2,633
62,101
—
—
—
1,924
—
—
(28 )
102
—
—
12,559
(411 )
(2,796 )
(10,436 )
217
21,599
Balance at December 31, 2018
196,420
237,682
46,602
3,614
19,171
503,489
Amortization for the year
Disposals
Extinguishments
—
—
—
Effect of movements in exchange rates
(5,640 )
54,468
6,659
2,484
2,314
65,925
(5 )
(1,469 )
(5,246 )
—
—
(1,075 )
—
(220 )
(72 )
—
(5 )
(2,379 )
(4,068 )
(111 )
(12,144 )
Balance at December 31, 2019
190,780
285,430
52,186
5,806
18,995
553,197
Net carrying amounts
At December 31, 2018
1,478,369
345,250
64,311
8,011
5,554 1,901,495
At December 31, 2019
1,538,091
339,849
59,193
9,692
8,077 1,954,902
At December 31, 2019, the Group performed its annual impairment testing for indefinite life trade names. The Group estimated
the value in use to be $34.7 million compared to its carrying value of $32.8 million, resulting in no impairment charge.
Management used the relief-from-royalty method and discount rates between 8.5% and 9.7% in its analysis.
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.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
73
11. Intangible assets (continued)
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.
At December 31, 2019, 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
2019
241,181
169,349
109,964
316,796
459,147
241,654
2018
241,181
169,349
109,964
330,458
394,122
233,295
1,538,091
1,478,369
The results as at December 31, 2019 determined that the recoverable amounts of the Group’s operating segments exceeded
their respective carrying amounts.
The recoverable amounts of the Group’s operating segments were determined using the value in use approach. The value in use
methodology is based on discounted future cash flows. Management believes that the discounted future cash flows method is
appropriate as it allows more precise valuation of specific future cash flows.
In assessing value in use, the estimated future cash flows are discounted to their present value using pre-tax discount rates as
follows:
Reportable segment / operating segment
Package and Courier
Less-Than-Truckload
Truckload
Canadian Truckload
U.S. Truckload
Specialized Truckload
Logistics
2019
9.7%
9.2%
11.7%
10.7%
11.2%
9.7%
2018
10.0%
9.5%
12.0%
11.0%
11.5%
10.0%
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% (2018 – 50.0%) at a market interest rate of 7.7% (2018 – 7.8%).
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% (2018 – 2.0%) in revenues and margins
were adjusted where deemed appropriate. The terminal value growth rate was 2.0% (2018 – 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).
2019 Annual Report
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
12. Other assets
Promissory note
Restricted cash
Security deposits
Investments in equity securities
Other
Presented as:
Current other assets
Non-current other assets
2019
24,814
4,298
4,109
1,391
1,443
2018
22,686
4,267
3,445
1,498
1,780
36,055
33,676
24,814
11,241
—
33,676
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 a
total consideration of $800 million, which included an unsecured promissory note of $25 million yielding 3% interest with a
term of 4 years. On February 1, 2020, the promissory note was collected in full by the Company.
13. Trade and other payables
Trade payables and accrued expenses
Personnel accrued expenses
Dividend payable
2019
309,641
112,650
21,177
443,468
2018
337,470
117,380
20,735
475,585
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 26.
14. Long-term debt
This note provides information about the contractual terms of the Group’s interest-bearing long-term debt, which are measured
at amortized cost. For more information about the Group’s exposure to interest rate, foreign exchange currency and liquidity,
see note 26.
Non-current liabilities
Unsecured revolving facilities
Unsecured term loans
Unsecured debenture
Unsecured senior notes
Conditional sales contracts
Finance lease liabilities
Current liabilities
Current portion of unsecured revolving facilities
Current portion of conditional sales contracts
Current portion of finance lease liabilities
Current portion of unsecured term loans
TFI International
2019
2018
590,259
609,147
198,900
194,820
97,914
—
740,556
498,805
124,825
—
94,222
3,675
1,691,040
1,462,083
11,970
41,677
—
—
—
41,919
5,489
74,932
53,647
122,340
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
75
14. Long-term debt (continued)
Terms and conditions of outstanding long-term debt are as follows:
Currency Nominal interest rate
Year of
maturity
Face value
Carrying
amount
Face value
Carrying
amount
2019
2018
Unsecured revolving facility
Unsecured revolving facility
Unsecured revolving facility
Unsecured term loan
Unsecured debenture
Unsecured senior notes
Unsecured term loan
a
a
b
a
c
d
a
C$
US$
US$
BA + 1.70%
2023
140,600
137,821
274,832
273,208
Libor + 1.70%
2023
349,906
452,438
344,617
467,348
Libor + 1.70%
2020
9,216
11,970
—
—
C$ BA + 1.20% - 1.45% 2021-2022
610,000
609,147
500,000
498,805
C$
US$
—
3.32% - 4.22%
2024
200,000
198,900
125,000
124,825
3.85%
2026
150,000
194,820
—
—
—
—
—
—
75,000
74,932
Conditional sales contracts
e Mainly C$
2.00% - 4.99% 2020-2025
139,591
139,591
136,141
136,141
Finance lease liabilities
—
—
—
—
—
9,164
9,164
1,744,687
1,584,423
The table below summarizes changes to the long-term debt:
Balance at December 31, 2018
Transfer to lease liabilities
Proceeds
Business combinations
Repayment including deferred financing fees
Accretion of deferred financing fees
Effect of movements in exchange rates
Effect of movements in exchange rates – OCI
Other
Balance at December 31, 2019
Note
2019
2018
1,584,423
1,498,396
5
(9,164 )
433,600
11,505
—
88,907
23,395
(252,483 )
(67,180 )
2,261
(6,857 )
2,335
7,489
(18,598 )
30,796
—
285
1,744,687
1,584,423
a) Unsecured revolving credit facility and term loans
On February 1, 2019, the $500 million unsecured term loan was amended to increase the indebtedness to $575 million. On
February 11, 2019, the related incremental funds were used to reimburse a separate $75 million unsecured term loan that
was due to mature in August 2019. Deferred financing fees of $0.1 million were recognized on the increase.
On February 1, 2019, the Group renegotiated the pricing grid of both its revolving credit facility and $575 million term
loan. The $575 million term loan remains within the confines of the credit facility, but now has a pricing grid different than
the revolving credit facility and each of the two tranches have now their own pricing grid. Deferred financing fees of $0.3
million were recognized on the pricing grid revision.
On June 27, 2019, the Group extended its existing revolving credit facility by one year, to June 2023. Deferred financing
fees of $0.9 million were recognized on the extension.
On June 27, 2019, the Group extended the maturity of the $575 million unsecured term loan by one year for each tranche,
$200 million now due in June 2021 and $375 million now due in June 2022. Deferred financing fees of $0.4 million were
recognized on the extension.
On December 27, 2019, the $575 million unsecured term loan was amended to increase the indebtedness to $610 million.
Deferred financing fees of $0.1 million were recognized on the increase.
2019 Annual Report
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
14. Long-term debt (continued)
a) Unsecured revolving credit facility and term loans (continued)
The revolving credit facility is unsecured and can be extended annually. The total available amount under this 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 120 basis points
and 200 basis points. As of December 31, 2019, the credit facility’s interest rate on CAD denominated debt was 3.8%
(2018 – 4.0%) and on US$ denominated debt was 3.4% (2018 – 4.2%). 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 26 (f)).
The term loan is unsecured and is divided into two tranches, the first tranche of $200 million is now due in June 2021 and
the second tranche of $410 million is now due in June 2022. Early repayment, in part or whole, is permitted, without
penalty, and will permanently reduce the amount borrowed. The terms and conditions of this unsecured term loan are the
same as the unsecured revolving credit facility and are subject to the same covenants. As of December 31, 2019, the term
loan’s interest rate was 3.3% on first tranche and 3.5% on second tranche (2018 – 4.0%).
b) Unsecured revolving facility
On November 22, 2019, the Group entered into a new revolving credit facility agreement. The credit facility is unsecured
and provides an availability of US$25 million maturing in November 2020. Interest rate is following the same pricing grid
applicable for the US$ denominated debt in the $1,200 million revolving credit facility. As of December 31, 2019, the credit
facility’s interest rate was 3.4%. 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 26 (f)).
c) Unsecured debenture
On December 20, 2019, the unsecured debenture was amended to increase the indebtedness by $75 million, to $200
million, and to extend maturity date by four years, to December 2024. Following this amendment, debenture is now
carrying an interest rate between 3.32% and 4.22% (2018 – 3.00% to 3.45%) depending on certain ratios. As of
December 31, 2019, the debenture’s effective rate was 3.77% (2018 – 3.00%). The debenture may be repaid, without
penalty, after December 20, 2022, subject to the approval of the Group’s syndicate of bank lenders. Deferred financing
fees of $1.1 million were recognized on the increase and extension.
d) Unsecured senior notes
On December 20, 2019, the Group entered into a new unsecured senior note agreement. This loan takes the form of
senior notes each carrying an interest rate of 3.85% and with a December 2026 maturity date. These notes may be prepaid
at any time prior to maturity date, in part or in total, at 100% of the principal amount and the make-whole amount
determined at the prepayment date with respect to such principal amount.
e) Conditional sales contracts
Conditional sales contracts are secured by rolling stock having a carrying value of $180 million (2018 – $179 million) (see
note 8).
f)
Principal installments of other long-term debt payable during the subsequent years are as follows:
Unsecured revolving facilities
Unsecured term loan
Unsecured debenture
Unsecured senior notes
Conditional sales contracts
Less than 1
year
11,970
—
—
—
41,677
53,647
1 to 5 years
593,495
610,000
200,000
—
97,691
1,501,186
More than
5 years
—
—
—
194,820
223
195,043
Total
605,465
610,000
200,000
194,820
139,591
1,749,876
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
77
15. Lease liabilities
Current portion of lease liabilities
Long-term portion of lease liabilities
The table below summarizes changes to the lease liabilities:
Initial recognition on transition to IFRS 16 on January 1, 2019
Transfer of finance leases from long-term debt
Business combinations
Additions
Disposals
Repayment
Effect of movements in exchange rates
Balance at December 31, 2019
Extension options
2019
99,133
362,709
461,842
Note
2019
483,458
5
9,164
14,640
84,350
(28,708 )
(99,573 )
(1,489 )
461,842
Some real estate leases contain extension options exercisable by the Group. Where practicable, the Group seeks to include
extension options in new leases to provide operational flexibility. The Group assesses at the lease commencement date whether
it is reasonably certain to exercise the extension options. The Group reassesses whether it is reasonably certain to exercise the
options if there is a significant event or significant changes in circumstances within its control.
The lease liabilities include future lease payments of $50.4 million related to extension options that the Group is reasonably
certain to exercise.
The Group has estimated that the potential future lease payments, should it exercise the remaining extension options, would
result in an increase in lease liabilities of $464.6 million.
The Group does not have a significant exposure to termination options and penalties.
Variable lease payments
Some leases contain variable lease payments which are not included in the measurement of the lease liability. These payments
include, amongst others, common area maintenance fees, municipal taxes and vehicle maintenance fees. The expense related to
variable lease payments for the year ended December 31, 2019 was $24.0 million.
Sub-leases
The Group sub-leases some of its properties. Income from sub-leasing right-of-use assets for the year ended December 31, 2019
was $16.3 million, presented in “Other operating expenses”.
Contractual cash flows
The total contractual cash flow maturities of the Group’s lease liabilities are as follows:
Less than 1 year
Between 1 and 5 years
More than 5 years
2019
114,953
285,356
126,467
526,776
For the year ended December 31, 2019, operating lease expenses of $44.2 million (2018 – $152.0 million) were recognized in
the consolidated statement of income for leases that either did not meet the definition of a lease under IFRS 16, which was
adopted on January 1, 2019, or were excluded based on practical expedients applied at transition.
2019 Annual Report
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
16. Employee benefits
The Group sponsors defined benefit pension plans for 165 of its employees (2018 – 193).
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, 2018 and
the next required valuation will be as of December 31, 2019.
In addition to the above-mentioned defined benefit plans, the Group sponsors an employee severance plan in Mexico. At
December 31, 2019, total obligation under this arrangement amounted to $1.3 million ($1.1 million in 2018).
Information about the Group’s defined benefit pension plans is as follows:
Accrued benefit obligation
Fair value of plan assets
Plan deficit – employee benefit liability
Plan assets comprise:
Equity securities
Debt securities
Other
2019
40,846
2018
37,623
(23,519 )
(22,620 )
17,327
15,003
2019
16%
81%
3%
2018
31%
57%
12%
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:
2019
37,623
658
1,466
2018
48,689
695
1,526
(1,695 )
(10,860 )
—
2,994
(200 )
234
(2,129 )
(532 )
40,846
37,623
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
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
79
16. Employee benefits (continued)
Movement in the fair value of plan assets for defined benefit plans:
Fair value of plan assets, beginning of year
Interest income
Employer contributions
Benefits paid
Remeasurement gain (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
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
2019
22,620
882
1,287
2018
31,822
950
1,685
(1,695 )
(10,860 )
617
(192 )
(815 )
(162 )
23,519
22,620
2019
2018
658
584
192
1,434
1,499
2019
11,712
2,177
13,889
695
576
162
1,433
135
2018
13,324
(1,612 )
11,712
Recognized during the year, net of tax
1,619
(1,181 )
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
2019
2018
3.3%
1.5%
4.0%
4.0%
1.5%
4.0%
1.5%
3.5%
3.5%
1.2%
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
2019
2018
22.0
24.7
23.5
26.0
21.9
24.6
23.4
26.0
2019 Annual Report
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
16. Employee benefits (continued)
At December 31, 2019 the weighted-average duration of the defined benefit obligation was 12.1 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:
Present value of the accrued benefit obligation
Fair value of plan assets
Deficit in the plan
Experience adjustments arising on plan
obligations
Experience adjustments arising on plan assets
2019
2018
Increase
Decrease
Increase
Decrease
(4,137 )
980
5,044
(1,097 )
(5,112 )
1,130
6,244
(1,088 )
2019
40,846
2018
37,623
2017
48,689
2016
45,942
2015
46,908
(23,519 )
(22,620 )
(31,822 )
(31,660 )
(33,147 )
17,327
15,003
16,867
14,282
13,761
2,794
617
(2,427 )
(815 )
3,088
456
521
1,077
738
278
The Group expects approximately $3.1 million in contributions to be paid to its defined benefit plans in 2020.
17. Provisions
Balance at January 1, 2018
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Unwind of discount on long-term provisions
Balance at January 1, 2019
Self insurance
55,215
66,441
(64,198 )
(7,721 )
406
50,143
17,721
Other
16,509
10,058
Total
71,724
76,499
(9,524 )
(73,722 )
678
—
1,216
6,767
(23,050 )
(579 )
—
(7,043 )
406
67,864
1,887
83,399
(88,014 )
(12,597 )
433
2,075
52,972
Additions through business combinations
5
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Unwind of discount on long-term provisions
Balance at December 31, 2019
671
76,632
(64,964 )
(12,018 )
433
50,897
2019
Current provisions
Non-current provisions
2018
Current provisions
Non-current provisions
21,961
28,936
1,760
315
23,721
29,251
21,761
28,382
3,302
14,419
25,063
42,801
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 2.2% (2018 – 2.6%).
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
81
18. 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
Movement in temporary differences during the year:
2019
2018
(244,959 )
(213,238 )
(103,055 )
(104,610 )
575
7,645
9,675
12,824
18,967
(1,259 )
2,297
7,449
17,162
9,950
(2,338 )
(1,282 )
(300,666 )
(283,531 )
11,461
6,409
(312,127 )
(289,940 )
Property and equipment
Intangible assets
Long-term debt
Employee benefits
Provisions
Tax losses
Other
Net deferred tax liabilities
Property and equipment
Intangible assets
Long-term debt
Employee benefits
Provisions
Tax losses
Other
Net deferred tax liabilities
Balance
December 31,
2017
Recognized in
income or loss
Recognized
directly in equity
Acquired
in business
combinations
Balance
December 31,
2018
(181,628 )
(103,987 )
3,877
9,730
13,025
6,583
(2,654 )
(255,054 )
(7,475 )
11,977
(2,803 )
(1,918 )
2,303
2,548
(1,644 )
2,988
(10,599 )
(13,536 )
(213,238 )
(3,357 )
(9,243 )
(104,610 )
7
1,216
(363 )
1,011
819
1,757
—
823
—
—
2,297
7,449
17,162
9,950
(2,541 )
(10,725 )
(20,740 )
(283,531 )
Balance
December 31,
2018
Recognized in
income or loss
Recognized
directly in equity
Acquired
in business
combinations
Balance
December 31,
2019
(213,238 )
(104,610 )
2,297
7,449
17,162
9,950
(2,541 )
(283,531 )
(27,293 )
11,319
(4,543 )
1,687
(3,839 )
9,736
(1,797 )
(14,730 )
6,088
1,678
9,892
539
(499 )
(719 )
2,575
(10,516 )
(11,442 )
(1 )
—
—
—
—
19,554
(21,959 )
(244,959 )
(103,055 )
7,645
9,675
12,824
18,967
(1,763 )
(300,666 )
A tax loss of US$15.7M expires in 2037 (CA$5.2M tax effected) with the remainder of tax losses of US$41.7M (CA$13.7M tax
effected) 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.
2019 Annual Report
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
19. Share capital and other components of equity
The Company is authorized to issue an unlimited number of common shares and preferred shares, issuable in series. Both
common and preferred shares are without par value. All issued shares are fully paid.
The common shares entitle the holders thereof to one vote per share. The holders of the common shares are entitled to receive
dividends as declared from time to time. Subject to the rights, privileges, restrictions and conditions attached to any other class
of shares of the Company, the holders of the common shares are entitled to receive the remaining property of the Company
upon its dissolution, liquidation or winding-up.
The preferred shares may be issued in one or more series, with such rights and conditions as may be determined by resolution of
the Directors who shall determine the designation, rights, privileges, conditions and restrictions to be attached to the preferred
shares of such series. There are no voting rights attached to the preferred shares except as prescribed by law. In the event of the
liquidation, dissolution or winding-up of the Company, or any other distribution of assets of the Company among its
shareholders, the holders of the preferred shares of each series are entitled to receive, with priority over the common shares and
any other shares ranking junior to the preferred shares of the Company, an amount equal to the redemption price for such
shares, plus an amount equal to any dividends declared thereon but unpaid and not more. The preferred shares for each series
are also entitled to such other preferences over the common shares and any other shares ranking junior to the preferred shares
as may be determined as to their respective series authorized to be issued. The preferred shares of each series shall be on a
parity basis with the preferred shares of every other series with respect to payment of dividends and return of capital. There are
no preferred shares currently issued and outstanding.
The following table summarizes the number of common shares issued:
(in number of shares)
Balance, beginning of year
Repurchase and cancellation of own shares
Stock options exercised
Balance, end of year
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
Note
2019
2018
86,397,588
89,123,588
(6,409,446 )
(3,755,002 )
21
1,462,184
1,029,002
81,450,326
86,397,588
2019
704,510
(52,633 )
21,761
5,641
954
2018
711,036
(30,122 )
16,831
4,009
2,756
680,233
704,510
Pursuant to the normal course issuer bid (“NCIB”) which began on October 2, 2019 and expiring on October 1, 2020, the
Company is authorized to repurchase for cancellation up to a maximum of 7,000,000 of its common shares under certain
conditions. As at December 31, 2019, and since the inception of this NCIB, the Company has repurchased and cancelled
679,100 common shares.
During 2019, the Company repurchased 6,409,446 common shares at a price ranging from $33.89 to $44.00 per share for a
total purchase price of $255.7 million relating to the NCIB. 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 a previous NCIB. The
excess of the purchase price paid over the carrying value of the shares repurchased in the amount of $203.1 million (2018 –
$109.5 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 21).
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
19. Share capital and other components of equity (continued)
Accumulated other comprehensive income (“AOCI”)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
83
At December 31, 2019 and 2018, AOCI is comprised of accumulated foreign currency translation differences arising from the
translation of the financial statements of foreign operations, 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 2019, the Company declared quarterly dividends amounting to a total of 98.0 cents per outstanding common share when
the dividend was declared (2018 – 87.0 cents) for a total of $81.1 million (2018 – $76.1 million). On February 10, 2020, the
Board of Directors approved a quarterly dividend of 26.0 cents per outstanding common share of the Company’s capital for an
expected aggregate payment of $21.2 million which will be paid on April 15, 2020 to shareholders of record at the close of
business on March 31, 2020.
20. 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
2019
310,283
2018
291,994
86,397,588
89,123,588
846,690
512,020
(3,854,133 )
(1,669,980 )
83,390,145
87,965,628
Earnings per share – basic (in dollars)
Earnings per share from continuing operations – basic (in dollars)
3.72
3.89
3.32
3.32
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 (in dollars)
Earnings per share from continuing operations – diluted (in dollars)
2019
310,283
2018
291,994
83,390,145
87,965,628
1,974,038
2,838,361
85,364,183
90,803,989
3.63
3.80
3.22
3.22
As at December 31, 2019, 900,545 stock options were excluded from the calculation of diluted earnings per share (2018 – nil)
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.
2019 Annual Report
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
21. 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
2019
Weighted
average
exercise
price
21.01
40.36
14.88
36.68
26.82
Number
of
options
5,031
909
(1,462 )
(56 )
4,422
2018
Weighted
average
exercise
price
19.22
29.92
16.36
29.65
21.01
Number
of
options
5,493
618
(1,029 )
(51 )
5,031
Options exercisable, end of year
3,040
22.21
3,864
18.44
The following table summarizes information about stock options outstanding and exercisable at December 31, 2019:
(in thousands of options and in dollars)
Options outstanding
Options
exercisable
Exercise prices
9.46
20.18
24.93
24.64
25.14
29.92
35.02
40.36
Weighted
average
remaining
contractual life
(in years)
0.6
0.6
2.6
3.6
1.6
5.1
4.1
6.1
3.3
Number
of
options
556
499
600
741
267
573
312
874
4,422
Number
of
options
556
499
600
741
267
184
193
—
3,040
Of the options outstanding at December 31, 2019, a total of 3,463,098 (2018 – 3,836,102) are held by key management
personnel.
The weighted average share price at the date of exercise for stock options exercised in 2019 was $42.26 (2018 – $42.77).
In 2019, the Group recognized a compensation expense of $4.5 million (2018 – $3.0 million) with a corresponding increase to
contributed surplus.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
85
21. Share-based payment arrangements (continued)
Stock option plan (equity-settled) (continued)
On February 27, 2019, the Board of Directors approved the grant of 909,404 stock options under the Company’s stock option
plan of which 562,452 were granted to key management personnel, at that date. 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 27, 2019
February 20, 2018
$
40.36
$
29.92
4.5 years
1.88%
24.3%
2.72%
4.5 years
1.83%
21.92%
2.56%
Weighted average fair value per option of options granted
$
6.74
$
4.55
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
2019
2018
306,042
281,323
34,144
27,666
—
7,845
(9,418 )
6,471
348,031
306,042
In 2019, the Group recognized, as a result of DSUs, a compensation expense of $1.5 million (2018 – $1.1 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 $3.2 million for the year ended 2019 (2018 – 0.9 million).
As at 2019, the total carrying amount of liabilities for cash-settled arrangements recorded in trade and other payables
amounted to $15.5 million (2018 – $10.8 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 27, 2019, the Company granted a total of 152,965 RSUs under the Company’s equity incentive plan of which
93,921 were granted to key management personnel, at that date. 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 was $40.36 per unit.
2019 Annual Report
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
21. Share-based payment arrangements (continued)
Performance contingent restricted share unit plan (equity-settled) (continued)
The table below summarizes changes to the outstanding RSUs:
(in thousands of RSUs and in dollars)
Balance, beginning of year
Granted
Reinvested
Settled
Forfeited
Balance, end of year
2019
Weighted
average
exercise
price
31.84
40.36
35.60
34.89
37.33
36.44
2018
Weighted
average
exercise
price
27.74
29.92
28.30
24.78
29.83
31.84
Number
of RSUs
206
95
7
(144 )
(17 )
147
Number
of RSUs
147
153
7
(59 )
(9 )
239
The following table summarizes information about RSUs outstanding and exercisable as at December 31, 2019:
(in thousands of RSUs and in dollars)
Exercise prices
29.92
40.36
RSUs outstanding
Remaining
contractual
life (in years)
1.0
2.0
1.6
Number
of RSUs
90
149
239
The weighted average share price at the date of settlement of RSUs vested in 2019 was $43.11 (2018 – $43.49). The excess of
the purchase price paid over the carrying value of shares repurchased for settlement of the award, in the amount of $1.4 million
(2018 – $5.4 million), was charged to retained earnings as share repurchase premium.
In 2019, the Group recognized, as a result of RSUs, a compensation expense of $3.8 million (2018 – $3.0 million) with a
corresponding increase to contributed surplus.
Of the RSUs outstanding at December 31, 2019, a total of 155,974 (2018 – 87,486) are held by key management personnel.
In February 2020, upon the recommendation of the Human Resources and Compensation Committee the Board approved the
following changes to the long-term incentive plan (“LTIP”) policy for designated eligible participants in 2020 and future years.
Each participant’s annual LTIP allocation will be split in two equally weighted awards of Performance Share Units (“PSUs”) and
of RSUs. The PSUs will be subject to both performance and time cliff vesting conditions on the third anniversary of the award
whereas the RSUs will only be subject to a time cliff vesting condition on the third anniversary of the award. The performance
conditions attached to the PSUs will be equally weighted between an absolute earnings before interest and income tax objective
and relative total shareholder return (“TSR”). For purposes of the relative TSR portion, there will be two equally weighted
comparisons: the first portion will be compared against the TSR of a group of transportation industry peers and the second
portion will be compared against the S&P/TSX60 index.
22. 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 (in 2018), insurance, permits and operating
supplies.
Independent contractors
Vehicle operation expenses
TFI International
2019
2018
2,018,274
2,054,767
813,796
859,229
2,832,070
2,913,996
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
87
23. 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
24. Finance income and finance costs
Recognized in income or loss:
(Income) costs
Interest expense on long-term debt
Interest expense on lease liabilities
Interest income and accretion on promissory note
Net change in fair value and accretion expense of contingent considerations
Net foreign exchange loss
Net change in fair value of foreign exchange derivatives
Net change in fair value of interest rate derivatives
Mark-to-market loss on DSUs
Other financial expenses
Net finance costs
Presented as:
Finance income
Finance costs
25. Income tax expense
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
Note
2019
2018
1,271,804
1,225,901
16
21
21
8,165
658
7,564
8,269
1,469
11,355
695
8,972
5,926
1,126
1,297,929
1,253,975
2019
58,290
18,551
(3,001 )
263
267
—
—
3,241
8,030
85,641
(3,001 )
88,642
2018
54,609
—
(2,807 )
(12,189 )
630
(311 )
(46 )
887
7,533
48,306
(15,353 )
63,659
2019
2018
88,807
(2,926 )
85,881
11,015
(3,128 )
7,735
15,622
96,480
(3,268 )
93,212
(5,408 )
(221 )
2,641
(2,988 )
Income tax expense
101,503
90,224
2019 Annual Report
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
25. Income tax expense (continued)
Income tax recognized in other comprehensive income:
Change in fair value of investment in equity
securities
Foreign currency translation differences
Before
tax
6,766
(52,502 )
Tax
(benefit)
expense
903
—
2019
Net of
tax
Before
tax
Tax
(benefit)
expense
2018
Net of
tax
5,863
(5,416 )
(723 )
(4,693 )
(52,502 )
101,972
—
101,972
Defined benefit plan remeasurement gains (losses)
(2,177 )
(558 )
(1,619 )
1,612
Employee benefit
61
19
42
(227 )
431
(68 )
1,181
(159 )
Reclassification to retained earnings of
accumulated unrealized loss on investment in
equity securities
(5,234 )
(697 )
(4,537 )
—
—
—
Gain (loss) on net investment hedge
18,597
2,482
16,115
(30,796 )
(4,119 )
(26,677 )
Loss on cash flow hedge
(13,314 )
(3,479 )
(9,835 )
(3,876 )
(1,034 )
(2,842 )
(47,803 )
(1,330 )
(46,473 )
63,269
(5,513 )
68,782
Reconciliation of effective tax rate:
Income before income tax
2019
425,979
2018
382,218
Income tax using the Company’s statutory tax rate
26.6%
113,310
26.7%
102,052
Increase (decrease) resulting from:
Rate differential between jurisdictions
Variation in tax rate
Non-deductible expenses
Tax exempt income
Adjustment for prior years
Others
(3.0% )
(0.7% )
1.1%
(2.2% )
1.1%
1.0%
(12,884 )
(3,128 )
4,549
(9,308 )
4,809
4,155
(3.4% )
(0.1% )
0.7%
(0.8% )
(0.2% )
0.7%
(13,106 )
(221 )
2,593
(3,038 )
(627 )
2,571
23.9%
101,503
23.6%
90,224
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.
The U.S. Tax Reform introduces other important changes to U.S. corporate income tax laws that may significantly affect the
Group in future years including the creation of a new Base Erosion Anti-abuse Tax (BEAT) that subjects certain payments from
U.S. corporations to foreign related parties to additional taxes, and limitations to the deduction for net interest expense incurred
by U.S. corporations. Future regulations and interpretations to be issued by U.S. authorities may also impact the Group’s
estimates and assumptions used in calculating its income tax provisions.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
26. Financial instruments and financial risk management
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
89
Derivative financial instruments designated as effective cash flow hedge instruments’ fair values were as follows:
Current assets
Interest rate derivatives
Non-current assets
Interest rate derivatives
Current liabilities
Interest rate derivatives
Non-current liabilities
Interest rate derivatives
As at
December 31, 2019
As at
December 31, 2018
39
—
843
888
5,430
2,946
—
—
As at December 31, 2019 and 2018, 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)
Other comprehensive
(loss) income
2019
2018
2019
2018
—
—
—
—
(46 )
(311 )
—
—
—
—
—
(357 )
13,314
13,314
3,876
3,876
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.
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.
2019 Annual Report
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
26. Financial instruments and financial risk management (continued)
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 5% of the Group’s revenue;
• Approximately 94.2% (2018 – 94.6%) 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% (2018 – 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:
2019
2018
587,370
631,727
24,814
39
22,686
8,376
612,223
662,789
Not past due
Past due 1 – 30 days
Past due 31 – 60 days
Past due more than 60 days
Total
Impairment
2019
2019
Total
2018
449,324
104,738
22,686
19,314
—
474,320
869
123,991
2,608
5,215
22,007
18,360
596,062
8,692
638,678
Impairment
2018
—
695
2,085
4,171
6,951
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
2019
6,951
525
2,857
(1,641 )
8,692
2018
6,931
104
1,944
(2,028 )
6,951
The impaired trade receivables are mostly due from customers that are experiencing financial difficulties.
The promissory note has been individually evaluated for impairment and has been collected in full on February 1, 2020.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
91
26. Financial instruments and financial risk management (continued)
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 revolving facilities, which have $605.1 million availability at December 31, 2019 (2018 – $455.3 million)
and an additional $250 million credit available (C$245 million and US$5 million). The additional credit is available under
certain conditions under the Group’s syndicated bank agreement (2018 – $250 million, C$245 million and US$5 million).
The following are the contractual maturities of the financial liabilities, including estimated interest payment:
December 31, 2019
Bank indebtedness
Trade and other payables
Long-term debt
Derivatives financial liabilities
Other financial liability
December 31, 2018
Bank indebtedness
Trade and other payables
Long-term debt
Other financial liability
Carrying
amount
Contractual
cash flows
Less than
1 year
1 to 2
years
2 to 5
years
More than
5 years
3,801
443,468
1,744,687
1,731
5,174
2,198,861
12,334
475,585
1,584,423
5,594
2,077,936
3,801
443,468
1,959,582
1,731
5,400
2,413,982
12,334
475,585
1,754,909
6,000
2,248,828
3,801
443,468
110,729
843
2,700
561,541
12,334
475,585
181,932
2,000
671,851
—
—
773,532
444
2,700
776,676
—
—
865,273
444
—
865,717
—
—
210,048
—
—
210,048
—
—
411,567
2,000
—
—
1,160,505
2,000
413,567
1,162,505
—
—
905
—
905
It is not expected that the contractual cash flows could occur significantly earlier, or at significantly different amounts.
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.
2019 Annual Report
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
26. Financial instruments and financial risk management (continued)
d) Currency risk (continued)
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
2019
30,733
(2,573 )
2018
38,030
(3,108 )
(478,566 )
(330,447 )
(450,406 )
(295,525 )
325,000
325,000
(125,406 )
29,475
The Group estimates its annual net US$ denominated cash flow from operating activities at approximately $330 million
(2018 – $310 million). This cash flow is earned evenly throughout the year.
The following exchange rates applied during the year:
Average US$ for the year ended December 31
Closing US$ as at December 31
Sensitivity analysis
2019
1.3269
1.2988
2018
1.2957
1.3642
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 2018.
Balance sheet exposure
Long-term debt designated as investment hedge
Net balance sheet exposure
1-cent
Increase
(3,468 )
2,502
(966 )
2019
1-cent
Decrease
3,468
(2,502 )
966
1-cent
Increase
(2,166 )
2,382
216
2018
1-cent
Decrease
2,166
(2,382 )
(216 )
Net impact on change in fair value of foreign exchange derivatives is not significant.
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.
The Group enters into interest rate swaps designated for cash flow hedges. At December 31, 2019, the Group has no
interest rate swaps that hedge variable interest debt set using the 30-day Banker`s Acceptance rate (2018 – C$300 million).
At December 31, 2019, the Group has US$325 million interest rate swaps that hedge variable interest debt set using the
30-day Libor rate (2018 – US$325 million). A $13.3 million loss, $9.8 million net of tax, (2018 – $3.9 million loss, $2.8
million net of tax) was recorded on the marking-to-market of the interest rate derivative to other comprehensive income for
these cash flow hedges.
Ineffectiveness in hedging stems from differences between the hedged item and hedging instruments with respect to
interest rate characteristics, currency, notional values and term. For the year ended December 31, 2019, the derivatives
designated as cash flow hedges were considered to be fully effective and no ineffectiveness has been recognized in net
income.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
93
26. Financial instruments and financial risk management (continued)
e)
Interest rate risk (continued)
At December 31, 2019 and 2018, the interest rate profile of the Group’s carrying amount interest-bearing financial
instruments excluding the effects of interest rate derivatives was:
Fixed rate instruments
Variable rate instruments
2019
2018
533,311
345,062
1,211,376
1,239,361
1,744,687
1,584,423
The Group’s interest rate derivatives are as follows:
Notional
Average
Contract
Average
Notional
Contract
2019
2018
Notional
Notional
Fair
Average
Contract
Average
Contract
Fair
B.A.
Amount
Libor
Amount
value
B.A.
Amount
Libor
Amount
value
rate
CDN$
rate
US$
CDN$
rate
CDN$
rate
US$
CDN$
Coverage period:
Less than 1 year
0.99%
75,000
1.90%
293,750
(804 )
0.99%
225,000
1.92%
325,000
5,430
1 to 2 years
2 to 3 years
3 to 4 years
Asset (liability)
Presented as:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
—
—
—
—
—
—
1.92%
100,000
1.92%
100,000
—
—
(444 )
(444 )
—
(1,692 )
39
—
(843 )
(888 )
—
—
—
—
—
—
1.89%
237,500
1,812
1.92%
100,000
1.92%
75,000
648
486
8,376
5,430
2,946
—
—
The fair value of the interest rate swaps has been estimated using industry standard valuation models which use rates
published on financial capital markets, adjusted for credit risk.
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 2018.
Interest on variable rate instrument
Impact on instruments used in cash flow hedge:
Interest on variable rate instrument
Interest on interest rate swaps
1% increase
(5,786 )
2019
1% decrease
5,786
1% increase
(3,633 )
2018
1% decrease
3,633
2019
1% increase
(3,251 )
3,251
—
1% decrease
3,251
(3,251 )
—
1% increase
(4,896 )
4,896
—
2018
1% decrease
4,896
(4,896 )
—
Net impact on change in fair value of interest rate swaps is not significant.
2019 Annual Report
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
26. Financial instruments and financial risk management (continued)
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
2019
2018
1,744,687
1,506,835
1,584,423
1,576,854
1.16
0.54
1.00
0.50
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 net income or loss from continuing operations before finance
income and costs, income tax expense (recovery), depreciation, amortization, impairment of intangible assets, bargain
purchase gain, and gain or loss on sale of land and buildings, assets held for sale and intangible assets (“Adjusted
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 are calculated as prescribed by the
credit agreement which, among other things, requires the exclusion of the impact of IFRS 16. These ratios must be kept
below a certain threshold so as not to breach a covenant in the Group’s syndicated bank. At December 31, 2019 and
December 31, 2018, the Group was in compliance with its financial covenants.
Management believes that 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.
TFI International
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
95
26. Financial instruments and financial risk management (continued)
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
2019
Fair
Value
Carrying
Amount
2018
Fair
Value
39
1,391
39
1,391
8,376
1,498
8,376
1,498
587,370
587,370
631,727
631,727
24,814
24,814
22,686
22,686
613,614
613,614
664,287
664,287
1,731
5,174
1,731
5,174
—
5,594
—
5,594
3,801
3,801
12,334
12,334
443,468
443,468
475,585
475,585
1,744,687
1,748,556
1,584,423
1,647,146
2,198,861
2,202,730
2,077,936
2,140,659
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
Fair value hierarchy
2019
3.3%
2018
3.9%
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 is measured using level-1 inputs of the fair
value hierarchy and derivative financial 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 exists. 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.
2019 Annual Report
96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.)
27. Contingencies, letters of credit and other commitments
a) Contingencies
There are pending operational and personnel related claims against the Group. The Group has accrued $2.6 million for
claim settlements that are presented in long-term provisions on the consolidated statements of financial position (2018 –
$10.3 million in long-term provisions). 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.
b) Letters of credit
As at December 31, 2019, the Group had $41.7 million of outstanding letters of credit (2018 – $39.4 million).
c) Other commitments
As at December 31, 2019, the Group had $35.2 million of purchase commitments (2018 – $51.0 million) and $12.0 million of
purchase orders for leases that the Group intends to enter into and that are expected to materialize within a year (2018 – nil).
28. 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. No compensation (2018 – $0.1 million) was paid to a board member for consulting services provided
during 2019. 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 21. 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
2019
14,919
834
4,909
1,469
22,131
2018
14,756
959
4,193
1,126
21,034
TFI International
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Canada and the United States
Telephone: 1 800 564-6253
Fax: 1 888 453-0330
International
Telephone: 514 982-7800
Fax: 416 263-9394
Computershare Trust Company, N.A.
Co-Transfer Agent (U.S.)
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 New York
Stock Exchange and the Toronto Stock Exchange under the
symbol TFII.
FINANCIAL INSTITUTIONS
National Bank of Canada
Royal Bank of Canada
Bank of America, N.A.
Bank of Montreal
The Bank of Nova Scotia
Fédération des Caisses Desjardins du Québec
The Toronto Dominion Bank
JPMorgan Chase Bank N.A.
MUFG Bank Ltd.
Canadian Imperial Bank of Commerce
PNC Bank
Wells Fargo Bank, N.A.
Alberta Treasury Branches
Export Development Canada
Fonds de solidarité FTQ
Prudential Financial, Inc.
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