TFI International
Annual Report 2020

Plain-text annual report

T F I I N T E R N A T I O N A L A N N U A L R E P O R T 2 0 2 0 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS CONSOLIDATED FINANCIAL STATEMENTS FOR THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2020 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, 2020 with the corresponding three-month period and year ended December 31, 2019 and it reviews the Company’s financial position as of December 31, 2020. It also includes a discussion of the Company’s affairs up to February 18, 2021, 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, 2020. 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. The presentation currency of the Company was changed from Canadian dollars to United States dollars (U.S. dollars) effective December 31, 2020, as such all amounts are in U.S. dollars, and the term “dollar”, as well as the symbol “$”, designate U.S. 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 18, 2021. 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, or through the EDGAR system at www.sec.gov/edgar.shtml. 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, credit market liquidity, and the Company’s ability to identify, negotiate, consummate and successfully integrate business acquisitions. 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. 2020 Annual Report 2 MANAGEMENT’S DISCUSSION AND ANALYSIS SELECTED FINANCIAL DATA AND HIGHLIGHTS (unaudited) (in thousands of U.S. dollars, except per share data) Three months ended December 31 Years ended December 31 Revenue before fuel surcharge 1,048,147 883,717 880,947 3,484,303 3,477,576 3,480,214 2020 2019* 2018* 2020 2019* 2018* Fuel surcharge Total revenue Adjusted EBITDA1 Operating income from continuing operations Net income Net income from continuing operations Adjusted net income1 Net cash from continuing operating 73,859 105,315 120,711 296,831 425,969 474,543 1,122,006 989,032 1,001,658 3,781,134 3,903,545 3,954,757 193,538 163,397 137,279 699,589 649,021 529,163 117,122 86,328 86,328 93,357 92,784 56,680 57,955 60,085 78,824 416,567 382,868 332,020 58,450 275,675 233,677 224,820 58,450 275,675 244,225 224,820 65,656 299,763 253,583 247,548 activities 164,928 133,262 131,743 610,862 500,496 414,993 Free cash flow from continuing operations1 134,715 78,053 78,821 544,644 347,698 259,054 Total assets 3,849,364 3,508,820 2,968,744 3,849,364 3,508,820 2,968,744 Total long-term debt and lease liabilities 1,228,530 1,698,898 1,161,430 1,228,530 1,698,898 1,161,430 Per share data EPS – diluted EPS from continuing operations – diluted Adjusted EPS – diluted1 Dividends As a percentage of revenue before fuel surcharge Adjusted EBITDA margin1 Depreciation of property and equipment Depreciation of right-of-use assets Amortization of intangible assets Operating margin from continuing operations 1 Adjusted operating ratio1 0.91 0.91 0.98 0.23 0.68 0.70 0.72 0.20 18.5% 18.5% 4.2% 2.1% 1.3% 11.2% 89.1% 5.1% 2.2% 1.4% 10.5% 90.2% 0.65 0.65 0.73 0.18 15.5% 4.5% — 1.3% 8.9% 90.3% 3.03 3.03 3.30 0.80 2.74 2.86 2.97 0.74 20.1% 18.7% 4.9% 2.3% 1.4% 4.9% 2.2% 1.4% 12.0% 88.5% 11.0% 89.8% 2.48 2.48 2.73 0.67 15.2% 4.4% — 1.4% 9.5% 90.6% * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. Q4 Highlights • Change of presentation currency to U.S. dollars effective on December 31, 2020. • Fourth quarter operating income from continuing operations of $117.1 million increased 26% from the same quarter last year on continued strengthening transportation demand following the COVID-19 trough, cost reductions enacted in response to the pandemic, strong execution across the organization, an asset-light approach, and cost efficiencies. • Operating margin from continuing operations1, a non-IFRS measure, increased to 11.2%, up 70 basis points relative to Q4 2019. • Net income from continuing operations of $86.3 million increased 49% compared to $58.0 million in Q4 2019. • Diluted earnings per share (diluted “EPS”) from continuing operations of $0.91 increased from $0.70 in Q4 2019. 1 Refer to the section “Non-IFRS financial measures”. TFI International • Adjusted net income1, a non-IFRS measure, of $93.4 million increased from $60.1 million in Q4 2019. • Adjusted diluted EPS1, a non-IFRS measure, of $0.98 increased from $0.72 in Q4 2019. • Net cash from continuing operating activities of $164.9 million increased from $133.3 million in Q4 2019. MANAGEMENT’S DISCUSSION AND ANALYSIS 3 • • Free cash flow from continuing operations1, a non-IFRS measure, of $134.7 million increased from $78.1 million in Q4 2019. The Company’s reportable segments performed as follows: o Package and Courier operating income increased 30% to $29.4 million; o Less-Than-Truckload operating income increased 27% to $24.5 million; o Truckload operating income increased 15% to $53.6 million; and o Logistics operating income increased 86% to $26.5 million. • On December 15, 2020, the Board of Directors of TFI declared a quarterly dividend of $0.23 (CAD $0.29), a 14% increase over the $0.20 (CAD $0.26) dividend in Q4 2019. • During the quarter, TFI International acquired the dry bulk business of Grammer Logistics, selected assets of Desrosiers Transport, FreightLine Carrier Systems, Excel Transportation, and DLS Worldwide (renamed “TForce Worldwide”). Subsequent to quarter end, TFI agreed to acquire UPS Freight from United Parcel Service, Inc. (NYSE: UPS) with the transaction expected to close during Q2 2021, and acquired Fleetway Transport Inc. • Subsequent to the quarter, TFI International completed its previously announced issuance and sale of an aggregate principal amount of $500 million of senior notes. ABOUT TFI INTERNATIONAL Services TFI International is a North American leader in the transportation and logistics industry, operating across the United States, Canada and Mexico through its subsidiaries. TFI International creates value for shareholders by identifying strategic acquisitions and managing a growing network of wholly-owned operating subsidiaries. Under the TFI International umbrella, companies benefit from financial and operational resources to build their businesses and increase their efficiency. TFI International companies service the following reportable segments: • • • • Package and Courier; Less-Than-Truckload; Truckload; Logistics. Seasonality of operations The activities conducted by the Company are subject to general demand for freight transportation. Historically, demand has been relatively stable with the first quarter generally the weakest. Furthermore, during the harsh winter months, fuel consumption and maintenance costs tend to rise. Human resources As at December 31, 2020 the Company had 16,753 employees in TFI International’s various business segments across North America. This compares to 17,150 employees as at December 31, 2019. The year-over-year decrease of 397 is attributable to business acquisitions that added 1,329 employees offset by rationalizations affecting 1,726 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. 1 Refer to the section “Non-IFRS financial measures”. 2020 Annual Report 4 MANAGEMENT’S DISCUSSION AND ANALYSIS 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, 2020, the Company had 7,867 tractors, 25,520 trailers and 9,901 independent contractors. This compares to 7,772 tractors, 25,505 trailers and 9,826 independent contractors as at December 31, 2019. Facilities TFI International’s head office is in Montréal, Québec and its executive office is in Etobicoke, Ontario. As at December 31, 2020, the Company had 366 facilities, as compared to 380 facilities as at December 31, 2019. Of these, 235 are located in Canada, including 151 and 84 in Eastern and Western Canada, respectively. The Company also had 119 facilities in the United States and 12 facilities in Mexico. In the last twelve months, 45 facilities were added from business acquisitions, and terminal consolidation decreased the total number of facilities by 59, mainly in the Logistics segment. In Q4 2020, the Company closed 11 sites. Customers The Company has a diverse customer base across a broad cross-section of industries with no single client accounting for more than 5% of consolidated revenue. Because of its customer diversity, as well as the wide geographic scope of the Company’s service offerings and the range of segments in which it operates, a downturn in the activities of an individual customer 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 (59% of total revenue) Retail Manufactured Goods Building Materials Metals & Mining Services Automotive Food & Beverage Forest Products Chemicals & Explosives Energy Waste Management Maritime Containers Others (For the year ended December 31, 2020) CONSOLIDATED RESULTS 25% 16% 8% 8% 8% 7% 7% 5% 5% 3% 2% 1% 5% This section provides general comments on the consolidated results of operations. A more detailed analysis is provided in the “Segmented results” section. 2020 business acquisitions In line with its growth strategy, the Company has acquired thirteen businesses during 2020: the Courier Service business from R.R. Donnelley & Sons Company (“CSB”), Gusgo Transport (“Gusgo”), select assets of CT Transportation, LLC (“CT”), select assets of MCT Transportation, LLC (“MCT”), DSN Chemical Transportation (“DSN”), Keith Hall & Sons (“KHS”), substantially all the assets of CCC Transportation (“CCC”), selected assets of TBM Logistics Ltd. (“TBM”), selected assets of Desrosiers Transport (“Desrosiers”), the dry bulk business of Grammer Logistics (“Grammer”), FreightLine Carrier Systems (“FreightLine”), DLS Worldwide (“DLS”) renamed “TForce Worldwide”, and Excel Transportation (“Excel”). On March 2, 2020, TFI International completed the acquisition of CSB. CSB operates primarily in the Midwest and Southeast U.S. serving the pharmaceutical, healthcare, retail, financial and transportation industries. On June 18, 2020, TFI International completed the acquisition of Gusgo. Based in Ontario, Gusgo operates as a customs-bonded carrier of dry and temperature-controlled commodities in an approximately 500-mile radius around the Greater Toronto Area. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 5 On June 26, 2020, TFI International completed the acquisition of CT. Based in Georgia, CT specializes in flatbed transportation for major building product manufacturers and home improvement distributors throughout the Southeast and Mid-Atlantic regions of the United States. On June 26, 2020, TFI International completed the acquisition of MCT. Based in South Dakota, MCT provides transportation for major companies in the packaged food, agriculture, medical and automotive industries, primarily throughout the Southeast and Mid- West regions of the United States. On July 16, 2020, TFI International completed the acquisition of DSN. Based in Ontario, DSN provides 3PL transborder services for chemical transportation and warehousing for major companies. On July 31, 2020, TFI International completed the acquisition of KHS. Based in Ontario, KHS provides food grade transporting services, hauling liquid, dry foods, and general freight across North America. On September 9, 2020, TFI International completed the acquisition of CCC. Based in Florida, CCC operates as a truckload carrier offering cement hauling services primarily in the Southeast region of the United States. On September 18, 2020, TFI International completed the acquisition of TBM. Based in Alberta, TBM provides bulk transportation in Western Canada and the Pacific Northwest region of the United States. On October 1, 2020, TFI International completed the acquisition Desrosiers. Based in Ontario, Desrosiers provides bulk transportation across lower Ontario. On October 5, 2020, TFI International completed the acquisition of Grammer. Based in North Carolina, Grammer focuses on the transportation of commodities including cement and cementitious materials, sand, fly ash, salt, and lime throughout the southeast United States. On October 31, 2020, TFI International completed the acquisition of FreightLine. Based in Ontario, FreightLine provides cross border logistics services. On November 2, 2020, TFI International completed the acquisition of DLS. Based in Illinois, DLS provides logistics services through a third-party logistics (“3PL”) network of internal sales personnel, commissioned sales agents, and agent-stations. On November 29, 2020, TFI International completed the acquisition of Excel. Based in Ontario, Excel provides Less-Than-Truckload services across Canada. Revenue For the three months ended December 31, 2020, total revenue was $1,122.0 million, up 13%, or $133.0 million, from Q4 2019. The contribution from business acquisitions of $147.8 million and from an increase in revenue before fuel surcharge of $19.4 million in existing operations was offset by a decrease in fuel surcharge revenue of $34.3 million. The average exchange rate used to convert TFI International’s revenue generated in CAD dollars increased this quarter (US$0.7667) compared to the same quarter last year (US$0.7576) resulting in a negative currency impact of $7.0 million. For the year ended December 31, 2020, total revenue was $3.8 billion, down 3%, or $122.4 million, as compared to $3.9 billion in 2019 mainly due to the decreases in fuel surcharge revenue of $138.6 million and revenue before fuel surcharge of $283.3 million, both in existing operations, offset by a contribution from business acquisitions of $299.5 million and positive currency impact of $25.1 million. Operating expenses from continuing operations For the three months ended December 31, 2020, the Company’s operating expenses from continuing operations increased by $108.7 million, to $1,004.9 million from $896.2 million in Q4 2019. The increase attributable to business acquisitions of $141.2 million was partially offset by a net decrease of $32.6 million, or 4%, in existing operating expenses. Operating improvements, better fleet utilization, lower material and services expenses and lower personnel expenses contributed to maintaining the operating expenses in the Company’s existing operations below the Q4 2019 level as a percentage of total revenue. For the three months ended December 31, 2020, material and services expenses, net of fuel surcharge, increased by 4.0 percentage points of revenue before fuel surcharge compared to the same period last year due mainly due to business acquisitions which accounted for 2.9 percentage points of the increase. 2020 Annual Report 6 MANAGEMENT’S DISCUSSION AND ANALYSIS For the three months ended December 31, 2020, personnel expense increased 1% to $245.4 million from $244.2 million in Q4 2019. The increase includes a mark-to-market loss on DSUs of $3.2 million net of Canadian Emergency Wage Subsidy of $6.3 million. 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 0.2 percentage points of revenue before fuel surcharge compared to the same period last year. For the three-month period ended December 31, 2020, the gain on sale of assets held for sale was $2.2 million, compared to $6.4 million in Q4 2019. Seven properties were disposed of for a cash consideration of $6.1 million. For the year ended December 31, 2020, the Company’s operating expenses from continuing operations decreased by $156.1 million from $3.5 billion in 2019 to $3.4 billion in 2020. The decrease is mainly attributable to a decrease of $291.9 million of materials and service expense and $134.1 million of personnel expenses, both from existing operations, mainly driven by the reduced volumes in Q2 and Q3 attributable to COVID-19. Further contributing to the decrease in operating expenses is the Canadian Emergency Wage Subsidy of $52.3 million. This is offset by an increase from business acquisitions of $279.5 million. Operating income from continuing operations For the three months ended December 31, 2020, TFI International’s operating income from continuing operations rose by $24.3 million to $117.1 million compared to $92.8 million in the same quarter in 2019. The operating margin from continuing operations as a percentage of revenue before fuel surcharge improved, from 10.5% in Q4 2019 to 11.2% in Q4 2020. All reportable segments reported margin increases. Notably, the Less-Than-Truckload segment reported a margin increase of 4.6 percentage points. For the year ended December 31, 2020, operating income from continuing operations increased by $33.7 million, or 9%, to $416.6 million compared to $382.9 million in 2019, driven by operating improvements, business acquisitions and the wage subsidy of $52.3 million offset by reduced contributions from the gain on sale of assets held for sale of $9.7 million, a bargain purchase gain of $4.0 million, and gain on sale of rolling stock and equipment of $7.5 million. Finance income and costs (unaudited) (in thousands of U.S. 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 interest rate derivatives Others Net finance costs Three months ended December 31 Years ended December 31 2020 7,287 3,072 (277 ) 141 373 (488 ) 5,274 15,382 2019* 11,344 3,455 2020 34,967 12,443 2019* 43,949 13,983 (620 ) (1,051 ) (2,285 ) 55 (396 ) — 1,714 15,552 224 (1,237 ) (488 ) 9,052 53,910 199 220 — 6,041 62,107 * Recasted for changes in presentation currency from Canadian dollar to U.S. dollar and mark-to-market gain (loss) on deferred share units presentation in personnel expenses from finance (income) costs. Interest expense on long-term debt Interest expense on long-term debt for the three-month period ended December 31, 2020 was $4.1 million less compared to the same quarter last year. The decrease is mainly attributable to a lower average debt level of $0.94 billion for the three months ended December 31, 2020 as compared to $1.35 billion the same period in the prior year, and a decrease in the average interest rate in 2020 as compared to the prior year. For the year ended December 31, 2020, interest expense decreased by $9.0 million due to lower average borrowings of $1.05 billion as compared to $1.31 billion in 2019. 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 translation of the U.S. dollar portion of the Company’s credit facility not designated as a hedge and to the translation of other financial assets and liabilities denominated in TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 7 currencies other than the functional currency. For the three-month period ended December 31, 2020, a gain of $8.6 million of foreign exchange variations (a gain of $7.5 million net of tax) was recorded to other comprehensive income as it relates to the translation of the debt in the net investment hedge. For the three-month period ended December 31, 2019, a gain of $5.8 million of foreign exchange variations (a gain of $5.0 million net of tax) was recorded to other comprehensive income as it relates to the translation of the debt in the net investment hedge. For the year ended December 31, 2020, a loss of $2.3 million of foreign exchange variations (a loss of $2.0 million net of tax) was recorded to other comprehensive income as it relates to the translation of the debt in the net investment hedge. For the year ended December 31, 2019, a gain of $14.0 million of foreign exchange variations (a gain of $12.2 million net of tax) was recorded to other comprehensive income as it relates to the translation of the debt in the 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, 2020, the loss of $2.6 million on change in fair value of interest rate derivatives (a loss of $1.9 million net of tax) 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. For the three-month period ended December 31, 2019, a $0.2 million loss on change in fair value of interest rate derivatives (a loss of $0.2 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, 2020, a $0.5 million loss on change in fair value of interest rate derivatives (a loss of $0.5 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 $10.0 million loss on change in fair value of interest rate derivatives (a loss of $7.4 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. As at December 31, 2020, the Company no longer had any cash flow hedge positions. Income tax expense For the three months ended December 31, 2020, the Company’s effective tax rate was 15.1%. The income tax expense of $15.4 million reflects a $11.6 million favourable variance versus an anticipated income tax expense of $27.0 million based on the Company’s statutory tax rate of 26.5%. The favourable variance is mainly due to favourable variations from an adjustment for prior years of $8.3 million, tax deductions and tax exempt income of 4.6 million and a favourable impact from Treasury Regulations, interpretive guidance clarifying the U.S. Tax Reform Bill of $1.0 million. The positive adjustment for the prior years was mainly due to adjustment to future tax rates used in deferred income taxes. For the year ended December 31, 2020, the Company’s effective tax rate was 24.0%. The income tax expense of $87.0 million reflects a $9.1 million favourable variance versus an anticipated income tax expense of $96.1 million based on the Company’s statutory tax rate of 26.5%. The favourable variance is mainly due to positive variations for the tax deductions and tax exempt income of $10.2 million, adjustment from prior years of $8.6 million and from lower effective rates in other jurisdictions of $4.5 million offset by negative variances from non-deductible expenses of $8.7 million and interpretive guidance clarifying the U.S. Tax Reform Bill of $4.5 million. The U.S. Tax Reform introduces 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. On April 7, 2020, the U.S. Treasury Department issued Treasury Regulations, interpretive guidance clarifying the U.S. Tax Reform Bill. As anticipated, a tax benefit relating to 2019 and Q1 2020 was disallowed, resulting in a one-time tax expense of $7.3 million in Q2 2020. On July 23, 2020, the U.S. Treasury Department issued final regulations on changes made to the U.S. Tax Reform Bill. It introduces a High-Tax Exception under the Global Intangible Low-taxed Income (GILTI) provisions. A tax benefit relating to 2018 and 2019 was recorded, resulting in a one-time tax recovery of $2.0 million in 2020. For the year ended December 31, 2020, the total impact from these new regulations was $4.5 million following positive adjustments recorded in Q4 2020. In addition to the above, significant 2020 lower addition to property and equipment from the company’s US operations ($69.7 million in 2020 compared to $145.9 million in 2019) resulted in a higher 2020 current tax expense as a percentage of income before income tax as the Company is taking full depreciation on these capital expenditures. 2020 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 $10.5 million, or $12.4 million net of $1.9 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 (unaudited) (in thousands of U.S. dollars, except per share data) Net income Amortization of intangible assets related to business acquisitions, Three months ended December 31 Years ended December 31 2020 86,328 2019* 56,680 2020 2019* 275,675 233,677 net of tax 10,221 9,263 35,286 35,756 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 Gain on sale of business, net of tax Bargain purchase gain Gain on sale of land and buildings and assets held for sale, net of tax Net loss from discontinued operations U.S. Tax Reform Adjusted net income1 Adjusted EPS – basic1 Adjusted EPS – diluted1 104 (373 ) 227 (230 ) — (1,848 ) — (1,072 ) 93,357 1.00 0.98 40 — (328 ) — — 165 (373 ) (895 ) (230 ) 146 — 161 — (4,008 ) (8,014 ) (6,872 ) 1,302 — (10,308 ) (18,691 ) — 4,451 10,548 — 60,085 299,763 253,583 0.74 0.72 3.36 3.30 3.04 2.97 * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. For the three months ended December 31, 2020, TFI International’s net income was $86.3 million compared to $56.7 million in Q4 2019. The Company’s adjusted net income1, a non-IFRS measure, which excludes items listed in the above table, was $93.4 million compared to $60.1 million in Q4 2019, up 55% or $33.3 million. Adjusted EPS, fully diluted, increased by $0.26 to $0.98 from $0.72 in Q4 2019. For the year ended December 31, 2020, TFI International’s net income was $275.7 million compared to $233.7 million in 2019. The increase of $42.0 million is mainly attributable to the contribution from business acquisitions of $13.9 million, improved operating results of existing operations, and the loss from discontinued operations of $10.5 million reflected in the 2019 comparative amount. The Company’s adjusted net income was $299.8 million in 2020 compared to $253.6 million in 2019, up 18% or $46.2 million. Adjusted EPS, fully diluted, increased by 11%, to $3.30. 1 Refer to the section “Non-IFRS financial measures”. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 9 SEGMENTED RESULTS To facilitate the comparison of business level activity and operating costs between periods, the Company compares the revenue before fuel surcharge (“revenue”) and reallocates the fuel surcharge revenue to materials and services expenses within operating expenses. Note that “Total revenue” is not affected by this reallocation. Selected segmented financial information (unaudited) (in thousands of U.S. dollars) Package and Less- Than- Three months ended December 31, 2020 Revenue before fuel surcharge1 154,094 141,081 438,135 322,319 — (7,482 ) 1,048,147 Courier Truckload Truckload Logistics Corporate Eliminations Total % of total revenue2 Adjusted EBITDA3 Adjusted EBITDA margin4 Operating income (loss) Operating margin4 Net capital expenditures5 15% 35,934 23.3% 29,401 19.1% 2,550 14% 37,084 26.3% 24,464 17.3% 6,194 42% 101,383 23.1% 53,604 12.2% 21,155 29% 35,809 11.1% 26,462 8.2% 70 (16,672 ) (16,809 ) 244 100% 193,538 18.5% 117,122 11.2% 30,213 — — — Three months ended December 31, 2019* Revenue before fuel surcharge1 127,301 151,303 412,760 198,961 — (6,608 ) 883,717 % of total revenue2 Adjusted EBITDA3 Adjusted EBITDA margin4 Operating income (loss) Operating margin4 Net capital expenditures5 YTD December 31, 2020 15% 29,295 23.0% 22,680 17.8% 3,321 18% 31,269 20.7% 19,311 12.8% 27,945 47% 90,447 21.9% 46,417 11.2% 17,783 20% 21,933 11.0% 14,216 7.1% 1,002 (9,547 ) (9,840 ) 5,158 100% 163,397 18.5% 92,784 10.5% 55,209 — — — Revenue before fuel surcharge1 481,490 522,851 1,584,837 923,456 — (28,331 ) 3,484,303 % of total revenue2 Adjusted EBITDA3 Adjusted EBITDA margin4 Operating income (loss) Operating margin4 14% 15% 46% 25% 104,019 138,361 383,155 113,885 (39,831 ) 21.6% 78,753 16.4% 26.5% 87,950 16.8% 24.2% 206,346 13.0% 12.3% 84,459 9.1% (40,941 ) Total assets less intangible assets 194,631 404,074 1,193,730 272,592 34,564 Net capital expenditures5 YTD December 31, 2019* 16,798 19,230 29,179 567 444 100% 699,589 20.1% 416,567 12.0% 2,099,591 66,218 — — — — Revenue before fuel surcharge1 473,666 627,219 1,657,797 745,322 — (26,428 ) 3,477,576 % of total revenue2 Adjusted EBITDA3 Adjusted EBITDA margin4 Operating income (loss) Operating margin4 14% 18% 106,278 126,641 22.4% 82,228 17.4% 20.2% 82,230 13.1% 48% 362,641 21.9% 192,172 11.6% 20% 83,030 11.1% 57,447 7.7% Total assets less intangible assets 180,811 407,358 1,206,568 159,152 Net capital expenditures5 10,967 27,536 108,039 1,995 (29,569 ) (31,209 ) 49,771 4,261 100% 649,021 18.7% 382,868 11.0% 2,003,660 152,798 — — — — * Recasted for changes in presentation currency from Canadian dollar to U.S. dollar and mark-to-market gain (loss) on deferred share units presentation in personnel expenses from finance (income) costs. 1 2 3 4 5 Includes intersegment revenue. Segment revenue including fuel surcharge and intersegment revenue to consolidated revenue including fuel surcharge and intersegment revenue. Refer to the section “Non-IFRS financial measures” As a percentage of revenue before fuel surcharge. Additions rolling stock and equipment, net of proceeds from the sale of rolling stock and equipment and assets held for sale excluding property. 2020 Annual Report 10 MANAGEMENT’S DISCUSSION AND ANALYSIS Package and Courier (unaudited) – (in thousands of U.S. 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 2020 % 2019* % 2020 % 2019* % 167,555 (13,461 ) 145,018 (17,717 ) 529,155 (47,665 ) 539,610 (65,944 ) 154,094 100.0% 127,301 100.0% 481,490 100.0% 473,666 100.0% 72,115 46.8% 55,737 43.8% 220,741 45.8% 203,441 43.0% 39,821 25.8% 35,222 27.7% 133,552 27.7% 138,125 29.2% Other operating expenses 6,234 4.0% 7,015 5.5% 23,145 4.8% 25,973 5.5% Depreciation of property and equipment Depreciation of right-of-use assets Amortization of intangible assets (Gain) loss on sale of rolling stock and 3,168 3,210 248 2.1% 2.1% 0.2% 2,606 3,713 2.0% 11,539 2.4% 10,046 2.9% 12,871 2.7% 13,956 234 0.2% 947 0.2% 891 2.1% 2.9% 0.2% equipment (10 ) -0.0% 47 0.0% 43 0.0% (135 ) -0.0% Gain on derecognition of right-of-use assets — — (15 ) -0.0% (10 ) -0.0% (16 ) -0.0% (Gain) loss on sale of land and buildings and assets held for sale (93 ) -0.1% 62 0.0% (91 ) -0.0% (843 ) -0.2% Operating income Adjusted EBITDA 29,401 19.1% 22,680 17.8% 78,753 16.4% 82,228 17.4% 35,934 23.3% 29,295 23.0% 104,019 21.6% 106,278 22.4% * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. Operational data (unaudited) – (Revenue in U.S. dollars) Three months ended December 31 Years ended December 31 % 2.9% 6.5% 2020 2019* Variance % 2020 2019* Variance Revenue per pound (including fuel) Revenue per pound (excluding fuel) Revenue per shipment (including fuel) $ $ $ 0.40 $ 0.36 0.36 $ 0.31 6.40 $ 6.52 $ $ $ 0.04 0.05 11.1% 16.1% (0.12 ) -1.8% $ $ $ Tonnage (in thousands of metric tons) 192 185 7 3.8% $ $ $ 0.36 0.33 6.24 658 0.35 $ 0.01 0.31 $ 0.02 6.29 $ (0.05 ) -0.8% 695 (37 ) -5.3% Shipments (in thousands) 26,185 22,244 3,941 17.7% 84,854 85,743 (889 ) -1.0% Average weight per shipment (in lbs.) 16.16 18.33 (2.17 ) -11.8% Vehicle count, average 1,008 972 36 3.7% 17.09 1,023 17.86 (0.77 ) -4.3% 981 42 4.3% Weekly revenue per vehicle (incl. fuel, in thousands of U.S. dollars) $ 12.79 $ 11.48 $ 1.31 11.4% $ 9.95 $ 10.58 $ (0.63 ) -6.0% * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. Revenue For the three months ended December 31, 2020, revenue increased by $26.8 million or 21%, from $127.3 million in 2019 to $154.1 million in 2020. This increase in revenue is attributable to a 16.1% increase in revenue per pound (excluding fuel surcharge) combined with a 3.8% increase in tonnage. Increase in tonnage was the result of a 17.7% increase in shipments offset by a 11.8% decrease in average weight per shipment. This combination is the result from increased B2C deliveries. For the year ended December 31, 2020, revenue increased by $7.8 million or 2%, from $473.7 million in 2019 to $481.5 million in 2020. The increase is related to B2C volumes partially offset by disruptions in the early months of the pandemic. Also, during the year ended December 31, 2020, the Package and Courier segment experienced an IT security breach that had a negative impact on the segment’s revenue estimated at $6 million. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 11 Operating expenses For the three months ended December 31, 2020, materials and services expenses, net of fuel surcharge revenue, increased $16.4 million or 29%, partly due to a $9.4 million increase in subcontractor costs and a $1.5 million increase in external personnel to manage higher volume at sorting facilities. Personnel expenses, as a percentage of revenue, decreased from 27.7% in 2019 to 25.8% in 2020 attributed to reduced weight of administrative salaries in percentage of revenue. For the year ended December 31, 2020, materials and services expenses, net of fuel surcharge revenue, increased $17.3 million or 9%. Personnel expenses, excluding credits received under Canada Emergency Wage Subsidy of $5.7 million, as a percentage of revenue slightly decreased from 29.2% in 2019 to 28.9% in 2020 mainly due to lower administrative salaries partially offset by increase in direct salaries from higher B2C deliveries. Other operating expenses decreased $2.8 million, or 11% in 2020 mainly coming from reduction in IT charges, travel and office expenses, and external personal. Depreciation of property and equipment increased $1.5 million, or 15%, when compared to 2019, mostly due to investment in conveyors put into operation. Operating income Operating income for the three months ended December 31, 2020 increased by 30% or $6.7 million compared to the fourth quarter of 2019 and the operating margin was 19.1% in the fourth quarter of 2020 compared to 17.8% for the same period in 2019. This year-over-year increase in operating income was driven primarily by strong organic revenue growth combined with margin expansion. For the year ended December 31, 2020, operating income decreased by $3.5 million to $78.8 million. This decrease is a combination of lower operating income in the first half of the year because of the COVID-19 pandemic and higher B2C volumes generating slightly lower margins. Less-Than-Truckload (unaudited) – (in thousands of U.S. 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 2020 % 2019* % 2020 % 2019* % 157,628 (16,547 ) 175,319 (24,016 ) 589,235 (66,384 ) 727,249 (100,030 ) 141,081 100.0% 151,303 100.0% 522,851 100.0% 627,219 100.0% 67,140 47.6% 75,026 49.6% 252,334 48.3% 315,648 50.3% 33,338 23.6% 38,202 25.2% 116,257 22.2% 159,820 25.5% Other operating expenses 3,587 2.5% 7,788 5.1% 16,593 3.2% 26,720 4.3% Depreciation of property and equipment Depreciation of right-of-use assets Amortization of intangible assets Gain on sale of rolling stock and 4,886 5,546 2,179 3.5% 3.9% 1.5% 5,148 6,159 2,129 3.4% 19,407 4.1% 22,555 1.4% 8,392 3.7% 4.3% 1.6% 19,736 24,825 8,359 3.1% 4.0% 1.3% equipment (62 ) -0.0% (147 ) -0.1% (519 ) -0.1% (510 ) -0.1% Gain on derecognition of right-of-use assets (6 ) -0.0% (835 ) -0.6% (175 ) -0.0% (1,100 ) -0.2% Loss (gain) on sale of land and buildings and assets held for sale 9 0.0% (1,478 ) -1.0% 57 0.0% (8,509 ) -1.4% Operating income Adjusted EBITDA 24,464 17.3% 19,311 12.8% 87,950 16.8% 82,230 13.1% 37,084 26.3% 31,269 20.7% 138,361 26.5% 126,641 20.2% * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. 2020 Annual Report 12 MANAGEMENT’S DISCUSSION AND ANALYSIS Operational data (unaudited) – (Revenue in U.S. dollars) Three months ended December 31 Years ended December 31 2020 2019* Variance % 2020 2019* Variance % Adjusted operating ratio 82.7% 88.2% 83.2% 88.2% Revenue per hundredweight (excluding fuel) $ 10.15 $ 9.99 Revenue per shipment (including fuel) $ 241.02 $ 253.35 $ $ 0.16 1.6% $ 9.77 $ 10.01 $ (0.24 ) -2.4% (12.33 ) -4.9% $ 240.11 $ 242.98 $ (2.87 ) -1.2% Tonnage (in thousands of tons) Shipments (in thousands) 695 654 757 692 (62 ) -8.2% 2,675 3,132 (457 ) -14.6% (38 ) -5.5% 2,454 2,993 (539 ) -18.0% Average weight per shipment (in lbs) 2,125 2,188 (63 ) -2.9% 2,180 2,093 87 4.2% Average length of haul (in miles) Vehicle count, average 811 902 839 1,016 (28 ) -3.3% 818 830 (12 ) -1.4% (114 ) -11.2% 918 1,024 (106 ) -10.4% * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. During 2020 and in the fourth quarter, one business has been acquired in the Less-Than-Truckload segment. Revenue For the three months ended December 31, 2020, the LTL segment’s revenue was $141.1 million, a $10.2 million, or 7%, decrease when compared to the same period in 2019. The decrease in revenue is due to an 8.2% decrease in tonnage partially offset by a 1.6% increase in revenue per hundredweight (excluding fuel). The decrease in tonnage is the result of a 5.5% decrease in shipments combined with a 2.9% decrease in average weight per shipment. Despite the 7% decline in revenues for the three months ended December 31, 2020, the revenues have improved from the second and third quarters, which were heavily impacted by the COVID-19 pandemic, where revenues decreased respectively 30% and 14% as compared to the same periods in 2019. Excluding business acquisitions, revenue was down $11.0 million, or 7%, when compared to the same period in 2019. For the year ended December 31st, 2020, revenue decreased $104.4 million or 16.6% to $522.9 million. Operating expenses For the three months ended December 31, 2020, materials and services expenses, net of fuel surcharge revenue, decreased $7.9 million, or 10.5%, mostly due to a $10.8 million decrease in sub-contractor cost attributable to decrease in tonnage and partially offset by a reduction in fuel surcharge revenue. Following the same trend, personnel expenses decreased 12.7% year-over-year, attributable to the decrease in tonnage, a reduction in administrative salaries and credits from the Canada Emergency Wage Subsidy of $2.2 million. Other operating expenses decreased $4.2 million in the fourth quarter of 2020, mainly due to a $1.8 million reduction in real estate cost combined with $0.4 million reduction in external personnel and a $0.6 million reduction in travel and bad debt expense. The cost reductions, specifically the reduction of administrative salaries and real estate costs, were driven by efficiencies from the merger of two operating divisions into a single operation. For the year ended December 31, 2020, materials and services expenses, net of fuel surcharge, decreased $63.3 million, or 20.1%, mainly due to a $71.4 million reduction in subcontractor cost. Personnel expenses as a percentage of revenue before fuel surcharge decreased from 25.5% in 2019 to 22.2% in 2020, mostly due to credits of $20.3 million from the Canada Emergency Wage Subsidy partially offset by a $2.4 million increase in severance cost. Other operating expenses decreased $10.1 million when compared to the same period in 2019, mainly due to a $4.1 million decrease in real estate cost combined with $1.5 million reduction in external personnel and a $2.2 million reduction in travel, bad debt and IT cost. Operating income Operating income for the three months ended December 31, 2020 increased $5.2 million, or 27%, when compared to the same period in 2019. As a percentage of revenue, operating income was 17.3% during the fourth quarter of 2020, versus 12.8% for the same period in 2019. For the year ended December 31, 2020, operating income increased $5.7 million to $88.0 million. This increase was impacted by gains on sale of assets held for sale of $7.0 million in the first quarter of 2019 and $1.5 million in the fourth quarter of 2019. Excluding this $8.5 million gain on assets held for sale, operating income of the LTL segment for the twelve-month ended December 31, 2020, increased $14.3 million, or 19%, when compared to the same period in 2019. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 13 Truckload (unaudited) (in thousands of U.S. dollars) Three months ended December 31 Years ended December 31 Total revenue Fuel surcharge Revenue Materials and services expenses 2020 % 2019* % 2020 % 2019* % 477,262 (39,127 ) 469,798 (57,038 ) 1,748,359 1,891,554 (163,522 ) (233,757 ) 438,135 100.0% 412,760 100.0% 1,584,837 100.0% 1,657,797 100.0% (net of fuel surcharge) 188,660 43.1% 178,936 43.4% 654,220 41.3% 707,028 42.6% Personnel expenses 135,911 31.0% 134,572 32.6% 503,242 31.8% 549,723 33.2% Other operating expenses 14,323 3.3% 12,534 3.0% 52,337 3.3% 53,472 3.2% Depreciation of property and equipment 34,986 8.0% 36,218 Depreciation of right-of-use assets 10,055 Amortization of intangible assets 5,171 2.3% 1.2% Gain on sale of business (306 ) -0.1% 7,091 5,678 — 8.8% 1.7% 1.4% — 136,859 32,229 19,891 8.6% 2.0% 1.3% (306 ) -0.0% 136,139 24,263 22,415 — 8.2% 1.5% 1.4% — Gain on sale of rolling stock and equipment (2,129 ) -0.5% (3,603 ) -0.9% (7,785 ) -0.5% (14,698 ) -0.9% Gain on derecognition of right-of- use assets (13 ) -0.0% (126 ) -0.0% (332 ) -0.0% (369 ) -0.0% Gain on sale of land and buildings and assets held for sale (2,127 ) -0.5% (4,957 ) -1.2% (11,864 ) -0.7% (12,348 ) -0.7% Operating income Adjusted EBITDA 53,604 12.2% 46,417 11.2% 206,346 13.0% 192,172 11.6% 101,383 23.1% 90,447 21.9% 383,155 24.2% 362,641 21.9% * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. 2020 Annual Report 14 MANAGEMENT’S DISCUSSION AND ANALYSIS Operational data (unaudited) U.S. based Conventional TL Three months ended December 31 Years ended December 31 2020 2019* Variance % 2020 2019* Variance % Revenue (in thousands of U.S. dollars) 161,476 156,678 4,798 3.1% 632,590 646,782 (14,192 ) -2.2% Adjusted operating ratio Total mileage (in thousands) Tractor count, average Trailer count, average Tractor age Trailer age Number of owner operators, average Canadian based Conventional TL 91.5% 92.4% 92.0% 91.5% 86,427 84,291 2,136 2.5% 349,349 351,490 (2,141 ) -0.6% 2,932 2,929 11,005 11,007 2.2 6.6 560 1.8 6.5 424 3 (2 ) 0.4 0.1 22.2% 1.5% 136 32.1% 0.1% 2,949 2,960 -0.0% 10,938 11,008 2.2 6.6 509 1.8 6.5 400 (11 ) (70 ) 0.4 0.1 -0.4% -0.6% 22.2% 1.5% 109 27.3% Revenue (in thousands of U.S. dollars) 58,497 56,668 1,829 3.2% 206,418 226,816 (20,398 ) -9.0% Adjusted operating ratio Total mileage (in thousands) Tractor count, average Trailer count, average Tractor age Trailer age Number of owner operators, average Specialized TL 85.2% 85.9% 86.3% 85.6% 23,095 24,236 (1,141 ) -4.7% 89,212 98,943 (9,731 ) -9.8% 623 641 2,809 2,826 2.5 5.9 314 2.3 5.4 317 (18 ) (17 ) 0.2 0.5 -2.8% -0.6% 8.7% 9.3% (3 ) -0.9% 606 684 2,796 2,884 2.5 5.9 302 2.3 5.4 333 (78 ) (88 ) 0.2 0.5 -11.4% -3.1% 8.7% 9.3% (31 ) -9.3% Revenue (in thousands of U.S. dollars) 219,093 200,452 18,641 9.3% 749,655 791,087 (41,432 ) -5.2% Adjusted operating ratio Tractor count, average Trailer count, average Tractor age Trailer age 86.9% 89.3% 84.6% 88.3% 2,314 6,619 4.0 12.9 2,189 6,142 4.0 11.7 125 477 0.0 1.2 5.7% 7.8% 0.0% 10.3% 2,096 6,251 4.0 12.9 2,099 6,121 4.0 11.7 (3 ) -0.1% 130 0.0 1.2 2.1% 0.0% 10.3% Number of owner operators, average 1,132 1,224 (92 ) -7.5% 1,115 1,191 (76 ) -6.4% * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. During 2020, eight businesses have been acquired in the Truckload segment, including two business acquisitions in the fourth quarter. Revenue For the three months ended December 31, 2020, TL revenue excluding fuel surcharge increased by $25.4 million or 6%, from $412.8 million in 2019 to $438.1 million in 2020. This increase is mainly due to business acquisitions’ contribution of $34.5 million, offset by a decline in revenue from existing operations of $9.1 million. For conventional TL operations in the U.S., revenue increased by $4.8 million, or 3.1% compared to prior year period. Revenue per mile improved by 2.2%, following the strong spot pricing in the US market, and miles per tractor declined by 1.5%, attributable to unseated tractors resulting from the limited driver availability. For conventional TL operations in Canada, revenues increased by $1.8 million, or 3.2% compared to the prior year period. The increase was due to a 2.5% improvement in revenue per tractor, where revenue per mile improved by 5.2%, offset by a 2.6% decline in miles per tractor. For Specialized TL, revenue increased by $18.6 million, or 9.3%, compared to the prior year period. The TL segment brokerage revenue for the three months ended December 31, 2020 decreased by $5.8 million or 10%, to $51.2 million. Brokerage gross margins decreased to 18.7% for the three months ended December 31, 2020, from 19.5% in the comparable prior year period. For the year ended December 31, 2020, TL revenue decreased by $73.0 million or 4%, from $1,657.8 million in 2019 to $1,584.8 million in 2020. This decrease is mainly due to a decline in revenue from existing operations of $161.0 million, offset by recent business acquisitions’ contribution of $88.0 million. For the brokerage business, revenue decreased by $50.3 million or 22%, while margins increased from 19.0% in 2019 to 19.3% in 2020. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 15 Operating expenses For the three months ended December 31, 2020, operating expenses, including business acquisition impact and net of fuel surcharge, increased by $18.5 million or 5%, from $366.3 million in 2019 to $384.8 million in 2020. Material and services expenses, net of fuel surcharge, increased by 5% compared to the fourth quarter of 2019. Personnel expenses and other operating expenses increased by 1% and 14% respectively in the fourth quarter year over year. Included in the personnel expense was $4.1 million from the Canadian Emergency Wage Subsidy, of which $2.6 million is accounted for in Specialized TL. For the year ended December 31, 2020, TL operating expenses, net of fuel surcharge, decreased by $86.8 million or 6%, from $1,465.6 million in 2019 to $1,378.8 million in 2020. The Company continues to improve its cost structure and increase the efficiency and profitability of its existing fleet and network of independent contractors. The decrease in the personnel expense of $46.5 million, or 8%, from $549.7 million in 2019 is primarily due to $24.0 million from the Canadian Emergency Wage Subsidy. Gain on sale of property For the three months ended December 31, 2020, a $2.0 million gain on sale of assets held for sale was recorded in the Truckload segment following the sale of five properties for total considerations of $6.0 million (a gain of $5.0 million and proceeds of $7.0 million in 2019). These disposals are a result of management’s continued efforts to improve efficiencies and benefit from economies of scale through the consolidation of operating locations. For the year ended December 31, 2020, a $11.8 million gain on sale of assets held for sale was recorded in the Truckload segment following the sale of properties for total considerations of $23.7 million (a gain of $12.3 million and proceeds of $16.0 million in 2019). Operating income The TL segment’s operating ratio was 87.8% for the three months ended December 31, 2020 as compared to 88.8% in 2019, a $6.9 million, or 15%, increase in operating income. Operating income in the TL segment was $53.6 million for the three months ended December 31, 2020, up from $46.4 million in the same prior year period. The operating income in the fourth quarter of 2019 includes cumulative gains from the sale of assets held for sale and gains on the sale of rolling stock and equipment of $8.6 million, as compared to a cumulative amount of $4.3 million in 2020 for a net impact on the operating income of $4.3 million. The decrease in the proceeds on the sale of the rolling stock and equipment is due to a softer resale market and a reduction in the fleet replacement. For the year ended December 31, 2020, the TL segment increased its operating income by $14.2 million or 7%, from $192.2 million in 2019 to $206.3 million in 2020. 2020 Annual Report 16 MANAGEMENT’S DISCUSSION AND ANALYSIS Logistics (unaudited) – (in thousands of U.S. 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 2020 % 2019* % 2020 % 2019* % 327,689 (5,370 ) 206,268 (7,307 ) 945,130 (21,674 ) 774,833 (29,511 ) 322,319 100.0% 198,961 100.0% 923,456 100.0% 745,322 100.0% 241,798 75.0% 140,019 70.4% 668,225 72.4% 524,098 70.3% 24,381 7.6% 25,427 12.8% 93,579 10.1% 96,593 13.0% Other operating expenses 19,983 6.2% 11,745 5.9% 48,012 5.2% 41,865 Depreciation of property and equipment Depreciation of right-of-use assets Amortization of intangible assets Bargain purchase gain (Gain) loss on sale of rolling stock and 596 3,138 5,608 — 0.2% 1.0% 1.7% — 2,520 4,557 — 640 0.3% 2,336 0.3% 2,147 1.3% 13,204 1.4% 14,148 2.3% 17,889 1.9% 17,302 — (4,008 ) -0.4% (8,014 ) -1.1% 5.6% 0.3% 1.9% 2.3% equipment 368 0.1% (5 ) -0.0% 373 0.0% (43 ) -0.0% Gain on derecognition of right-of-use assets (20 ) -0.0% (158 ) -0.1% (618 ) -0.1% (221 ) -0.0% Loss on sale of land and buildings and assets held for sale 5 0.0% — — 5 0.0% — — Operating income Adjusted EBITDA 26,462 8.2% 14,216 7.1% 84,459 9.1% 57,447 7.7% 35,809 11.1% 21,933 11.0% 113,885 12.3% 83,030 11.1% * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. During 2020, four businesses have been acquired in the Logistics segment, including two business acquisitions in the fourth quarter. Revenue For the three months ended December 31, 2020, revenue increased by $123.4 million, or 62%, from $199.0 million in 2019 to $322.3 million. Excluding business acquisitions, revenue increased by $14.0 million, or 7%, mainly attributable to strong eCommerce activities in Canada. For the year ended December 31, 2020, revenue increased by $178.1 million, or 24%, from $745.3 million to $923.5 million. Excluding business acquisitions, revenue decreased by 3.1% or $23.1 million. Approximately 71% (2019 – 72%) of the Logistics segment’s revenues in the quarter were generated from operations in the U.S. and Mexico and approximately 29% (2018 – 28%) were generated from operations in Canada. Operating expenses For the three months ended December 31, 2020, total operating expenses, net of fuel surcharge, increased by $110.9 million, or 60%, from $184.7 million to $295.6 million. Excluding business acquisitions, total operating expenses, net of fuel surcharge, increased by $4.7 million or 2.5%, explained by $11.9 million increase in materials and services expenses (net of fuel surcharge) due to the revenue increase, but partially offset by a $4.3 million decrease in personnel expenses and $3.0 million decrease in other operating expense, mostly coming from the optimization of our last mile operations in the U.S. For the year ended December 31, 2020, operating expenses, net of fuel surcharge, increased by $150.8 million, or 22%, compared to 2019, from $687.9 million to $838.7 million. Excluding business acquisitions, operating expenses decreased by $39.1 million, or 5.7%. Operating income Operating income for the three months ended December 31, 2020 increased by $12.2 million, or 86%, from $14.2 million to $26.5 million, driven primarily by strong organic revenue growth combined with margin expansion. Excluding business acquisitions, operating margin increased by 380 basis points from 7.1% in 2019 to 10.9% in 2020, mainly as a result of higher quality revenue and cost efficiency measures from our last mile operations. TFI International For the year ended December 31, 2020, operating margin increased by 1.5 percentage points to 9.1%. Excluding the bargain purchase gains and the business acquisitions of 2020, operating income increased by 48% or $23.7 million compared to 2019, while the operating margin increased from 6.6% to 10.2%. LIQUIDITY AND CAPITAL RESOURCES MANAGEMENT’S DISCUSSION AND ANALYSIS 17 Sources and uses of cash (unaudited) (in thousands of U.S. 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 Proceeds from the issuance of common shares Proceeds from the sale of business 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 2020 2019* 2020 2019* 164,928 133,262 610,862 500,496 23,949 6,248 273,791 — — 2,351 3,128 20,785 13,079 270 — — — 4,861 52,116 24,480 — — 425,350 2,351 48,142 71,754 39,146 — 136,569 — — 18,362 474,395 172,257 1,163,301 766,327 60,693 244,053 — 116,153 22,408 18,434 — — 12,654 92,551 142,710 (284 ) 327,650 — 18,303 19,859 14,840 22,823 1,275 2,890 6,528 484,247 82,587 67,604 38,021 — 13,954 261,295 150,912 6,083 — 75,072 60,478 192,455 12,022 8,010 474,395 172,257 1,163,301 766,327 * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. Cash flow from continuing operating activities For the year ended December 31, 2020, net cash from continuing operating activities increased by 22% to $610.9 million from $500.5 million in 2019. This $110.4 million increase is attributable to an increase in net income of $42.0 million, $17.3 million from improvements in net change in working capital, a decrease in interest paid of $14.7 million, and a reduction in income taxes paid of $12.0 million. 2020 Annual Report 18 MANAGEMENT’S DISCUSSION AND ANALYSIS 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, 2020 and 2019. (unaudited) (in thousands of U.S. dollars) Additions to property and equipment: Purchases as stated on cash flow statements Non-cash adjustments Additions by category: Land and buildings Rolling stock Equipment Three months ended December 31 Years ended December 31 2020 2019* 2020 2019* 60,693 92,551 142,710 261,295 (283 ) (3,478 ) 104 2,403 60,410 89,073 142,814 263,698 5,055 52,744 2,611 60,410 36,450 49,524 3,099 89,073 19,331 39,733 112,645 211,796 10,838 12,169 142,814 263,698 * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. 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, 2020 and 2019. (unaudited) (in thousands of U.S. 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 2020 2019* 2020 2019* 6,053 24,078 66 13,210 20,654 — 23,877 52,468 251 39,535 70,600 765 30,197 33,864 76,596 110,900 2,132 2,275 (368 ) 4,039 6,374 3,781 (74 ) 11,877 8,375 21,581 15,616 (471 ) (231 ) 10,081 19,781 36,966 * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. Business acquisitions For the year ended December 31, 2020, cash used in business acquisitions totalled $327.7 million to acquire thirteen businesses. Refer to the section of this report entitled “2020 business acquisitions” and further information can be found in note 5 of the December 31, 2020 audited consolidated financial statements. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 19 Cash flow used in financing activities Common shares On February 13, 2020, the Company issued 6,900,000 common shares in the United States and Canada as part of its initial public offering in the United States raising net proceeds of $217.6 million. On August 11, 2020, the Company issued 5,060,000 common shares in the United States and Canada, raising net proceeds of $207.8 million. Cash flow used in discontinued operations For the year ended December 31, 2019, discontinued operations used cash of $12.0 million. Free cash flow from continuing operations (unaudited) (in thousands of U.S. dollars) Three months ended December 31 Years ended December 31 2020 2019* 2020 2019* Net cash from continuing operating activities 164,928 133,262 610,862 500,496 Additions to property and equipment (60,410 ) (89,073 ) (142,814 ) (263,698 ) Proceeds from sale of property and equipment Proceeds from sale of assets held for sale Free cash flow from continuing operations 23,949 6,248 134,715 20,785 13,079 78,053 52,116 24,480 71,754 39,146 544,644 347,698 * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. 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, 2020, TFI International generated free cash flow from continuing operations of $544.6 million, compared to $347.7 million in 2019, which represents a year-over-year increase of $196.9 million. This increase is mainly due to more net cash from continuing operating activities of $110.4 million, largely stemming from an increase in net income of $42.0 million, $17.3 million from improvements in working capital, a decrease in interest paid of $14.7 million, and a reduction in income taxes paid of $12.0 million, and to a reduction in net capital expenditures of $86.6 million due to the Company’s cash management measure put in place as a response to COVID-19 in Q2. The capital expenditures of rolling stock in Q4 have been re-established to prior year levels, $52.7 million in 2020 as compared to $49.5 million in 2019. The free cash flow conversion, which measures the level of capital employed to generate earnings, improved for the three months ended December 31, 2020 to 83.9% from 80.4%, due to improved operating results than compared to 2019. For the year ended December 31, 2020 the free cash flow conversion improved to 89.9% from 76.5% due to the impact of reduced capital expenditures. Based on the December 31, 2020 closing share price of $51.58, the free cash flow generated by the Company during 2020 ($544.6 million) represented a yield of 11.3%. Financial position (unaudited) (in thousands of U.S. dollars) Total assets Long-term debt Lease liabilities Shareholders' equity As at December 31, 2020 As at December 31, 2019* As at December 31, 2018** 3,849,364 872,544 355,986 1,790,177 3,508,820 1,343,307 355,591 1,159,292 2,968,744 1,161,430 — 1,155,882 * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. ** Excludes the impacts from the adoption of IFRS 16 Leases as discussed in note 3 of the audited 2019 consolidated financial statements. As is permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable. Recasted for change in presentation currency from Canadian dollar to U.S. dollar. 2020 Annual Report 20 MANAGEMENT’S DISCUSSION AND ANALYSIS Compared to December 31, 2019, the Company’s long-term debt decreased by $470.8 million, or 35% during 2020. The repayment of debt was funded by the cash generated from operating activities and from the issuances of common shares, which injected $563.1 million of cash. The share issuances explain most of the increase in shareholders’ equity as well. As at December 31, 2020, the Company’s working capital (accounts receivable, inventory and prepaids less accounts payable) was $168.3 million compared to $149.2 million as at December 31, 2019. The increase is mainly attributable to business acquisitions and timing differences of receipts and payments. 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, 2020, excluding future interest payments. (unaudited) (in thousands of U.S. dollars) Unsecured revolving facility – June 2023 Unsecured revolving facility – November 2021 Unsecured term loan – June 2022 Unsecured debenture – December 2024 Unsecured senior notes – December 2026 Conditional sales contracts Lease liabilities Total 125,428 7,461 322,200 157,171 150,000 113,086 355,986 Less than 1 year 1 to 3 years 3 to 5 years After 5 years — 125,428 7,461 — — — 35,536 88,522 — 322,200 — — 59,662 132,525 639,815 — — — 157,171 — — — — — 150,000 17,352 68,038 536 66,901 242,561 217,437 Total contractual obligations 1,231,332 131,519 On November 21, 2020, the Company renewed its credit facility for one year. The credit facility is unsecured and provides an availability of $25 million maturing in November 2021. The interest rate follows the same pricing grid applicable for the debt in the CAD $1,200 million revolving credit facility. On December 18, 2020, the Company repaid, without penalty, the first tranche of CAD $200 million of its term loan which was to mature in June 2021. Subsequent to year end, on January 13, 2021, the Company received $500 million proceed from a new debt taking the form of unsecured senior notes consisting of four tranches maturing between January 2029 and January 2036 and bearing interest between 3.15% and 3.50%. 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, 2020 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] < 3.50 1.33 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] > 1.75 4.78 As at December 31, 2020, the Company had $29.5 million of outstanding letters of credit ($32.1 million on December 31, 2019). As at December 31, 2020, the Company had $117.1 million of purchase commitments and $44.1 million of purchase orders that the Company intends to enter into a lease that is expected to materialize within a year (December 31, 2019 – $27.1 million and $9.0 million, respectively). TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 21 Dividends and outstanding share data Dividends The Company declared $21.3 million in dividends, or $0.23 (CAD $0.29) per common share, in the fourth quarter of 2020. The Board of Directors approved a quarterly dividend of $0.23 per outstanding common share of the Company’s capital, for an expected aggregate payment of $21.5 million to be paid on April 15, 2021 to shareholders of record at the close of business on March 31, 2021. NCIB on common shares Pursuant to the renewal of the normal course issuer bid (“NCIB”), which began on October 14, 2020 and expires on October 13, 2021, 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, 2020, and since the inception of this NCIB, the Company has not repurchased and cancelled any common shares. For the year ended December 31, 2020, the Company repurchased 1,542,155 common shares (as compared to 6,409,446 in 2019) at a weighted average price of $24.64 per share (as compared to $30.03 in 2019) for a total purchase price of $38.0 million (as compared to $192.5 million in 2019). Outstanding shares, stock options and restricted share units A total of 93,397,985 common shares were outstanding as at December 31, 2020 (December 31, 2019 – 81,450,326). There was no material change in the Company’s outstanding share capital between December 31, 2020 and February 18, 2021. As at December 31, 2020, the number of outstanding options to acquire common shares issued under the Company’s stock option plan was 2,982,514 (December 31, 2018 – 4,421,866) of which 2,111,364, were exercisable (December 31, 2019 – 3,039,635). On July 27, 2020, the Board of Directors approved the grant of 99,485 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, 2020, the number of restricted share units (‘’RSUs’’) granted under the Company’s equity incentive plan to its senior employees was 299,075 (December 31, 2019 – 239,337). On February 7, 2020, the Board of Directors approved the grant of 145,218 RSUs under the Company’s equity incentive plan. The RSUs will vest in February of the third year following the grant date. Upon satisfaction of the required service period, the plan provides for settlement of the award through shares. As at December 31, 2020, the number of performance share units (‘’PSUs’’) granted under the Company’s equity incentive plan to its senior employees was 147,121 (December 31, 2019 – nil). On February 7, 2020, the Board of Directors approved the grant of 145,218 PSUs under the Company’s equity incentive plan. The PSUs will vest in February of the third 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. OUTLOOK The North American economy was impacted significantly in 2020 by the Coronavirus (COVID-19) pandemic before a general recovery began midyear. While many of the end markets served by TFI International remained relatively strong throughout, such as the transport of essential household goods, medical products and eCommerce, others such as business-to-business and transportation for the apparel and automotive industries have only recently begun to recover. In early February 2021, nearly one year since the onset of the pandemic, a broad economic recovery continues but significant uncertainty remains due to unknowns around more contagious COVID-19 strains, the distribution of vaccines and their overall effectiveness. TFI International has remained fully operational during the ongoing pandemic with uninterrupted service, by leveraging its integrated and far-reaching network. Nonetheless, economic visibility is currently lower than normal, and a second wave of Coronavirus-related economic disruption could again result in social distancing mandates and lockdowns, adversely impacting end markets served by TFI’s operating companies and resulting in another round of declines in freight volumes and pricing. Additional uncertainties include stock market volatility and an ongoing heightened level of civil unrest, along with potential policy changes to be enacted by the new US presidential administration surrounding international trade, environmental mandates, tax and other matters. 2020 Annual Report 22 MANAGEMENT’S DISCUSSION AND ANALYSIS Management believes the Company is well prepared to navigate any further disruption in the economic landscape due to its focus on efficiency and its lean cost structure, partially reflecting cost reduction measures enacted in 2020 in response to the pandemic, as well as a longstanding focus on profitability, efficiency, and the rationalization of assets to avoid internal overcapacity. TFI is particularly well positioned to benefit from the expansion of eCommerce and from potential growth and cost synergies related to its recently announced acquisition of UPS Freight, expected to close during the second quarter of 2021. In addition, the Company continues to have strong liquidity and a conservative balance sheet. Longer term, management believes its decisions over the past year have already facilitated the return to year-over-year growth, and that TFI’s current positioning, to be further enhanced by the pending acquisition of UPS Freight, should enable the Company to emerge even stronger when conditions normalize. Regardless of operating conditions, management’s goal is to build long-term shareholder value through consistent adherence to its operating principles, including the intense customer focus exhibited by its many dedicated professionals, its asset-light approach to the business, continual efforts to enhance efficiencies, and an effective strategy around industry consolidation. SUMMARY OF EIGHT MOST RECENT QUARTERLY RESULTS (unaudited) – (in millions of U.S. dollars, except per share data) Q4’20 Q3’20* Q2’20* Q1’20* Q4’19* Q3’19* Q2’19* Q1’19* Total revenue Adjusted EBITDA1 1,122.0 193.5 936.1 189.4 798.5 167.6 924.5 989.0 988.4 1,000.3 149.1 163.4 167.9 176.7 925.9 141.1 Operating income from continuing operations Net income EPS – basic EPS – diluted Net income from continuing operations EPS from continuing operations – basic EPS from continuing operations – diluted Adjusted net income1 Adjusted EPS – diluted1 117.1 117.0 86.3 0.92 0.91 86.3 0.92 0.91 93.4 0.98 83.1 0.91 0.90 83.1 0.91 0.90 87.5 0.94 95.1 50.5 0.58 0.57 50.5 0.58 0.57 67.2 0.76 87.3 55.8 0.66 0.65 55.8 0.66 0.65 52.6 0.61 94.1 56.7 0.70 0.68 58.0 0.71 0.70 60.1 0.72 99.9 62.5 0.75 0.74 62.5 0.76 0.74 66.8 0.79 120.6 65.6 0.78 0.76 74.8 0.89 0.87 76.3 0.88 78.9 48.9 0.57 0.56 48.9 0.57 0.56 50.4 0.58 * Recasted for change in presentation currency form Canadian dollar to U.S. dollar. The differences between the quarters are mainly the result of seasonality (softer in Q1) and business acquisitions. Higher 2020 and 2019 operating income was also driven by strong execution across the organization, increased quality of revenue, and cost efficiencies. The decline in Q2 2020 is due to COVID-19 related business interruptions. 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, on sale of business 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 consolidated financial statements. 1 Refer to the section “Non-IFRS financial measures”. TFI International MANAGEMENT’S DISCUSSION AND ANALYSIS 23 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: 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 sale of business, and loss from discontinued operations, net of tax and U.S. Tax Reform. In presenting an adjusted net income and adjusted EPS, the Company’s intent is to help provide an understanding of what would have been the net income and earnings per share in a context of significant business combinations and excluding specific impacts and to reflect earnings from a strictly operating perspective. The amortization of intangible assets related to business acquisitions comprises amortization expense of customer relationships, trademarks and non-compete agreements accounted for in business combinations and the income tax effects related to this amortization. Management also believes, in excluding amortization of intangible assets related to business acquisitions, it provides more information on the amortization of intangible asset expense portion, net of tax, that will not have to be replaced to preserve the Company’s ability to generate similar future cash flows. The Company excludes these items because they affect the comparability of its financial results and could potentially distort the analysis of trends in its business performance. Excluding these items does not imply they are necessarily non-recurring. See reconciliation on page 8. Adjusted earnings per share (adjusted “EPS”) - basic: Adjusted net income divided by the weighted average number of common shares. Adjusted EPS - diluted: Adjusted net income divided by the weighted average number of diluted common shares. Adjusted EBITDA: Net income or loss 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 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 to be a useful supplemental measure. Adjusted EBITDA is provided to assist in determining the ability of the Company to assess its performance. Consolidated adjusted EBITDA reconciliation: (unaudited) (in thousands of U.S. dollars) Net income from continuing operations Net finance costs Income tax expense Depreciation of property and equipment Depreciation of right-of-use assets Amortization of intangible assets Gain on sale of business Bargain purchase gain (Gain) loss on sale of land and buildings Gain on sale of assets held for sale Adjusted EBITDA * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. Three months ended December 31 Years ended December 31 2020 86,328 15,382 15,412 43,753 21,618 13,557 (306 ) — 5 2019* 57,955 15,552 19,277 44,721 19,508 12,757 — — (8 ) 2020 2019* 275,675 244,225 53,910 86,982 62,107 76,536 170,520 168,720 80,496 48,213 (306 ) (4,008 ) 6 77,326 49,701 — (8,014 ) (9 ) (2,211 ) (6,365 ) (11,899 ) (21,571 ) 193,538 163,397 699,589 649,021 2020 Annual Report 24 MANAGEMENT’S DISCUSSION AND ANALYSIS Segmented adjusted EBITDA reconciliation: (unaudited) (in thousands of U.S. dollars) Package and Courier Operating income Depreciation and amortization Gain on sale of land and buildings (Gain) loss on sale of assets held for sale Adjusted EBITDA Less-Than-Truckload Operating income Depreciation and amortization Loss on sale of land and buildings (Gain) loss on sale of assets held for sale Adjusted EBITDA Truckload Operating income Depreciation and amortization Gain on sale of business Gain on sale of land and buildings Gain on sale of assets held for sale Adjusted EBITDA Logistics Operating income Depreciation and amortization Bargain purchase gain Loss on sale of land and buildings Adjusted EBITDA Corporate Operating loss Depreciation and amortization Loss on sale of assets held for sale Adjusted EBITDA Three months ended December 31 Years ended December 31 2020 2019* 2020 2019* 29,401 6,626 (1 ) (92 ) 22,680 6,553 — 62 78,753 25,357 — (91 ) 82,228 24,893 — (843 ) 35,934 29,295 104,019 106,278 24,464 12,611 1 8 19,311 13,436 — (1,478 ) 87,950 50,354 1 56 82,230 52,920 — (8,509 ) 37,084 31,269 138,361 126,641 53,604 50,212 (306 ) — 46,417 48,987 206,346 188,979 192,172 182,817 — (8 ) (306 ) — — (9 ) (2,127 ) (4,949 ) (11,864 ) (12,339 ) 101,383 90,447 383,155 362,641 26,462 9,342 — 5 14,216 7,717 — — 84,459 33,429 57,447 33,597 (4,008 ) (8,014 ) 5 — 35,809 21,933 113,885 83,030 (16,809 ) (9,840 ) (40,941 ) (31,209 ) 137 — 293 — 1,110 — 1,520 120 (16,672 ) (9,547 ) (39,831 ) (29,569 ) * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of revenue before fuel surcharge. Free cash flow: 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 19. Free cash flow conversion: Adjusted EBITDA less net capital expenditures (excluding property), divided by the adjusted EBITDA. TFI International Free cash flow conversion reconciliation: (unaudited) (in thousands of U.S. dollars) Net income from continuing operations Net finance costs Income tax expense Depreciation of property and equipment Depreciation of right-of-use assets Amortization of intangible assets Gain on sale of business Bargain purchase gain (Gain) loss on sale of land and buildings Gain on sale of assets held for sale Adjusted EBITDA MANAGEMENT’S DISCUSSION AND ANALYSIS 25 Three months ended December 31 Years ended December 31 2020 86,328 15,382 15,412 43,753 21,618 13,557 (306 ) — 5 2019* 57,955 15,552 19,277 44,721 19,508 12,757 — — (8 ) 2020 2019* 275,675 244,225 53,910 86,982 62,107 76,536 170,520 168,720 80,496 48,213 (306 ) (4,008 ) 6 77,326 49,701 — (8,014 ) (9 ) (2,211 ) (6,365 ) (11,899 ) (21,571 ) 193,538 163,397 699,589 649,021 Additions to rolling stock and equipment (55,355 ) (52,623 ) (123,483 ) (223,965 ) Proceeds from sale of rolling stock and equipment 24,144 20,654 52,719 71,365 Adjusted EBITDA net of net rolling stock and equipment 162,327 131,428 628,825 496,421 Free cash flow conversion 83.9% 80.4% 89.9% 76.5% * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. 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: Operating expenses from continuing operations before impairment of intangible assets, gain on sale of business, 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 reconciliation: (unaudited) (in thousands of U.S. dollars) Operating expenses Gain on sale of business Bargain purchase gain Gain (loss) on sale of land and building Gain on sale of assets held for sale Adjusted operating expenses Fuel surcharge revenue Three months ended December 31 Years ended December 31 2020 2019* 2020 2019* 1,004,884 896,248 3,364,567 3,520,677 306 — (5 ) — — 8 306 4,008 (6 ) — 8,014 9 2,211 6,365 11,899 21,571 1,007,396 902,621 3,380,774 3,550,271 (73,859 ) (105,315 ) (296,831 ) (425,969 ) Adjusted operating expenses, net of fuel surcharge revenue 933,537 797,306 3,083,943 3,124,302 Revenue before fuel surcharge Adjusted operating ratio 1,048,147 883,717 3,484,303 3,477,576 89.1% 90.2% 88.5% 89.8% * Recasted for change in presentation currency from Canadian dollar to U.S. dollar. 2020 Annual Report 26 MANAGEMENT’S DISCUSSION AND ANALYSIS Less-Than-Truckload and Truckload reportable segments adjusted operating ratio reconciliation and Truckload operating segments reconciliations: (unaudited) (in thousands of U.S. dollars) Less-Than-Truckload Total revenue Total operating expenses Operating income Operating expenses Gain (loss) on sale of land and buildings and assets held for sale Adjusted operating expenses Fuel surcharge revenue Adjusted operating expenses, net of fuel surcharge revenue Revenue before fuel surcharge Adjusted operating ratio Truckload Total revenue Total operating expenses Operating income Operating expenses Gain on sale of business Gain on sale of land and buildings and assets held for sale Adjusted operating expenses Fuel surcharge revenue Adjusted operating expenses, net of fuel surcharge revenue Revenue before fuel surcharge Adjusted operating ratio 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 TFI International Three months ended December 31 Years ended December 31 2020 2019* 2020 2019* 157,628 133,164 24,464 175,319 156,008 19,311 589,235 501,285 87,950 727,249 645,019 82,230 133,164 156,008 501,285 645,019 (9 ) 1,478 (57 ) 8,509 133,155 157,486 501,228 653,528 (16,547 ) (24,016 ) (66,384 ) (100,030 ) 116,608 141,081 82.7% 477,262 423,658 133,470 151,303 88.2% 434,844 522,851 83.2% 553,498 627,219 88.2% 469,798 1,748,359 1,891,554 423,381 1,542,013 1,699,382 53,604 46,417 206,346 192,172 423,658 423,381 1,542,013 1,699,382 306 2,127 — 4,957 306 — 11,864 12,348 426,091 428,338 1,554,183 1,711,730 (39,127 ) (57,038 ) (163,522 ) (233,757 ) 386,964 438,135 88.3% 371,300 1,390,661 1,477,973 412,760 1,584,837 1,657,797 90.0% 87.7% 89.2% 161,476 156,678 58,497 56,668 219,093 200,452 632,590 206,418 749,655 646,782 226,816 791,087 (931 ) (1,038 ) (3,826 ) (6,888 ) 438,135 412,760 1,584,837 1,657,797 19,006 4,798 15,244 79 26,720 7,677 22,686 81,222 19,408 63,018 112,165 31,628 90,650 (45 ) (126 ) (686 ) 39,127 57,038 163,522 233,757 13,722 8,673 31,209 53,604 11,931 8,001 26,485 46,417 51,857 28,337 126,152 206,346 55,055 32,610 104,507 192,172 (unaudited) (in thousands of U.S. dollars) U.S. based Conventional TL Operating expenses** MANAGEMENT’S DISCUSSION AND ANALYSIS 27 Three months ended December 31 Years ended December 31 2020 2019* 2020 2019* 166,760 171,467 661,955 703,892 Gain on sale of land and buildings and assets held for sale — — 1,103 — Adjusted operating expenses Fuel surcharge revenue Adjusted operating expenses, net of fuel surcharge revenue Revenue before fuel surcharge Adjusted operating ratio Canadian based Conventional TL Operating expenses** Gain on sale of land and buildings and assets held for sale Adjusted operating expenses Fuel surcharge revenue Adjusted operating expenses, net of fuel surcharge revenue Revenue before fuel surcharge Adjusted operating ratio Specialized TL Operating expenses** Gain on sale of business Gain on sale of assets held for sale Adjusted operating expenses Fuel surcharge revenue Adjusted operating expenses, net of fuel surcharge revenue Revenue before fuel surcharge Adjusted operating ratio Recasted for change in presentation currency from Canadian dollar to U.S. dollar. * ** 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: 166,760 171,467 663,058 703,892 (19,006 ) (26,720 ) (81,222 ) (112,165 ) 147,754 161,476 91.5% 144,747 156,678 92.4% 581,836 632,590 92.0% 591,727 646,782 91.5% 54,622 56,344 197,489 225,834 — 54,622 (4,798 ) 49,824 58,497 85.2% 8 — 8 56,352 197,489 225,842 (7,677 ) (19,408 ) (31,628 ) 48,675 56,668 85.9% 178,081 206,418 86.3% 194,214 226,816 85.6% 203,128 196,653 686,521 777,230 306 2,127 — 4,949 306 — 10,761 12,340 205,561 201,602 697,588 789,570 (15,244 ) (22,686 ) (63,018 ) (90,650 ) 190,317 219,093 86.9% 178,916 200,452 89.3% 634,570 749,655 84.6% 698,920 791,087 88.3% • • • the Company competes with many other transportation companies of varying sizes, including Canadian, U.S. and Mexican transportation companies; the Company’s competitors may periodically reduce their freight rates to gain business, which may limit the Company’s ability to maintain or increase freight rates or maintain growth in the Company’s business; the Company’s some of customers are other transportation companies or companies that also operate their own private trucking fleets, and they may decide to freight or bundle their own transport more of transportation with other services; 2020 Annual Report 28 MANAGEMENT’S DISCUSSION AND ANALYSIS • 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. TFI International 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 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. 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 Indicator 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 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, in driver-related which 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 MANAGEMENT’S DISCUSSION AND ANALYSIS 29 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 extended for three years. The December 2016 commercial initially required states to request driver’s 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. license rule 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 2020 Annual Report 30 MANAGEMENT’S DISCUSSION AND ANALYSIS affected in the same manner as if it received a conditional or unsatisfactory safety rating under the current regulations. In addition, poor safety performance could lead to increased risk of liability, increased insurance, maintenance and equipment costs and potential loss of customers, which could materially adversely affect the Company’s business, financial condition and recently 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. results of operations. The FMCSA also 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 the Company’s could materially and adversely affect 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 legal considering a variety of other climate-change 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 trailers, may tractors and increase its TFI International 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 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 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 MANAGEMENT’S DISCUSSION AND ANALYSIS 31 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 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 In addition, the U.S. required or regularly produced. 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 2020 Annual Report 32 MANAGEMENT’S DISCUSSION AND ANALYSIS 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- less efficient than those of border operations to be 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 reduce resulting 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 results of materially adversely affect operations or make the Company’s results of operations more volatile. the Company’s TFI International General Economic, Credit, and Business Conditions. The Company’s business is subject to general economic, credit, business and regulatory factors that are largely beyond the Company’s control, and which could have a material adverse effect on the Company’s operating results. The Company’s industry is subject to cyclical pressures, and the Company’s business is dependent on a number of factors that may have a material adverse effect on its results of operations, many of which are beyond the Company’s control. The Company believes that some of the most significant of these factors include (i) excess tractor and trailer capacity in the transportation industry in comparison with shipping demand; (ii) declines in the resale value of used equipment; (iii) 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 periods of high freight demand during which its competitors also increase their capacity, and the Company may experience losses in greater amounts than such competitors during subsequent cycles of softened freight demand if the Company is required to dispose of assets at a loss to match reduced freight demand; customers may solicit bids for freight from multiple trucking companies or select competitors that offer lower rates in an attempt to lower their costs, and the Company may be forced to lower its rates or lose freight; and lack of access to current sources of credit or lack of lender access to capital, leading to an inability to secure credit financing on satisfactory terms, or at all. reduce that could materially The Company is subject to cost increases that are outside the Company’s control the Company’s profitability if it is unable to increase its rates sufficiently. Such cost increases include, but are not limited to, increases in fuel and energy prices, driver and office employee wages, purchased transportation costs, taxes, interest rates, tolls, license and registration fees, insurance premiums and claims, revenue equipment and related maintenance, and tires and other components. Strikes or other work stoppages at the Company’s service centres or at customer, port, border or other locations, deterioration of 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 The Company’s operations, with the exception of its brokerage operations, are capital intensive and asset heavy. If anticipated demand differs materially from actual usage, the Company may have too many or too few assets. During periods of decreased customer demand, the Company’s asset utilization may suffer, and it may be forced to sell equipment on the open market or turn in equipment under certain equipment leases in order to right size its fleet. This could cause the Company to incur losses on such sales or require payments in connection with equipment the Company turns in, particularly during times of a softer used equipment market, either of which could have a material adverse effect on the Company’s profitability. Although the Company’s business volume is not highly concentrated, its customers’ financial failures or loss of MANAGEMENT’S DISCUSSION AND ANALYSIS 33 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. (“COVID-19”) outbreak or other similar Coronavirus outbreaks. The recent outbreak of COVID-19, and any other outbreaks of contagious diseases or other adverse public health developments, could have a materially adverse effect on the Company’s financial condition, liquidity, results of operations, and cash flows. The outbreak of COVID-19 has resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, increased border and port controls and closures, and shutdowns. There is considerable uncertainty regarding such measures and potential future measures, all of which could limit our ability to meet customer demand, as well as reduce customer demand. Certain of the Company’s office personnel, has been working remotely, which could disrupt to a certain extent the Company’s management, business, finance, and financial reporting teams. The Company may experience an increase in absences or terminations among its driver and non-driver personnel due to the outbreak of COVID-19, which could have a materially adverse effect on the Company’s operating results. Further, the Company’s operations, particularly in areas of increased COVID-19 infections, could be disrupted resulting in a negative impact on the Company’s operations and results. The outbreak of COVID-19 has significantly increased economic and demand uncertainty. It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, and it is possible that it could cause a global recession. Risks related to a slowdown or recession are described in our risk factor titled “General Economic, Credit and Business Conditions”. The extent to which COVID-19 could impact the Company’s operations, financial condition, liquidity, results of operations, and cash flows is highly uncertain and will depend on future the developments. Such developments may geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak. include 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 2020 Annual Report 34 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 employment and other issues. The Company’s future insurance and claims expenses may exceed historical levels, which could reduce the Company’s earnings. The Company subscribes for insurance in amounts it considers appropriate TFI International 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 limits or that the the Company’s aggregate coverage 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 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 Drivers. in driver compensation or difficulties attracting and retaining qualified drivers could have a material adverse effect on the Company’s profitability and the ability to maintain or grow the Company’s fleet. 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 increase driver and independent contractor compensation in future periods. MANAGEMENT’S DISCUSSION AND ANALYSIS 35 to operate existing the Company and many other trucking In addition, companies suffer from a high turnover rate of drivers in the U.S. TL market. This high turnover rate requires the Company to continually recruit a substantial number of new drivers in revenue equipment. Driver order shortages are exacerbated during periods of economic expansion, in which alternative employment opportunities, including in the construction and manufacturing industries, which may offer better compensation and/or more time at home, are more plentiful and freight demand increases, or during periods of economic downturns, in which unemployment benefits might be extended and financing is limited for independent contractors who seek to purchase equipment, or the scarcity or growth of loans for students who seek financial aid for driving school. The lack of adequate tractor parking along some U.S. highways and congestion caused by inadequate highway funding may make it more difficult for drivers to comply with hours of service regulations and cause added stress for drivers, further reducing the pool of eligible drivers. The Company’s use of team-driven tractors for expedited shipments requires two drivers per tractor, which further increases the number of drivers the Company must recruit and retain in comparison to operations that require one driver per tractor. The Company also employs driver hiring standards, which could further reduce the pool of available drivers from which the Company would hire. If the Company is unable to continue to attract and retain a sufficient number of drivers, the Company could be forced to, among other things, adjust the Company’s the compensation packages, 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 independent Company contractors or seat the tractors with its drivers, the Company may incur losses on amounts owed to it with respect to such tractors. is unable to find replacement 2020 Annual Report 36 MANAGEMENT’S DISCUSSION AND ANALYSIS 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. for including legislation requirements to those 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 increase employees, the recordkeeping 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 from items such as unemployment, workers’ compensation and income taxes, independent contractors as and a 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. reclassification of 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: the burden (as opposed to demonstrate independent contractors In September 2019, California enacted a new law, A.B. 5 (“AB5”), that made it more difficult for workers to be to classified as 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 their an employee and 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 AB5 on the trucking industry while the California Trucking Association (“CTA”) moves forward with its suit seeking to • • • • • • TFI International loss of drivers, key employees, customers or contracts; in or inconsistencies conflicts between possible standards, controls, procedures and policies among the implement combined companies and the need to company-wide information financial, technology and other systems; accounting, failure to maintain or improve the safety or quality of services that have historically been provided; inability to retain, integrate, hire or recruit qualified employees; unanticipated environmental or other liabilities; failure organizations; and to coordinate geographically dispersed • the diversion of management’s attention from the Company’s day-to-day business as a result of the need to manage any disruptions and difficulties and the need to add management resources to do so. Anticipated cost savings, synergies, revenue enhancements or other benefits from any acquisitions that the Company undertakes may not materialize in the expected timeframe or at all. The Company’s estimated cost savings, synergies, revenue enhancements 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 MANAGEMENT’S DISCUSSION AND ANALYSIS 37 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 2020 Annual Report 38 MANAGEMENT’S DISCUSSION AND ANALYSIS 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. TFI International 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 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 2021 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 MANAGEMENT’S DISCUSSION AND ANALYSIS 39 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 increase, due to, among other reasons, continue to (ii) U.S. government (i) 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 2020 Annual Report 40 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 the in obtaining goods and services Company’s vendors and suppliers could adversely affect its business. from 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 it needs or undergo financial hardship, the materials 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 TFI International receivable for the year ended December 31, 2020. 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 incur adversely affected. The Company may need to 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 analyzing business timely 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. statements financial and vulnerable The Company’s operations and those of its technology and to service providers are communications 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, misappropriation, altering or deleting of information, 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 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 MANAGEMENT’S DISCUSSION AND ANALYSIS 41 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, 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. 2020 Annual Report 42 MANAGEMENT’S DISCUSSION AND ANALYSIS CRITICAL ACCOUNTING POLICIES AND ESTIMATES IFRS to make requires management The preparation of the financial statements in conformity judgments, with estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities, the disclosures about contingent assets and liabilities, and the reported amounts of revenues and expenses. Such estimates include establishing the fair value of intangible assets related to business combinations, determining estimates and assumptions related to impairment tests for goodwill, and determining estimates and assumptions related to the evaluation of provisions for self-insurance and assumptions are based on management’s best estimates and judgments. Key drivers in critical estimates are as follows: litigations. estimates These and Fair value of combinations intangible assets related to business • Projected future cashflows • Acquisition specific discount rate • Attrition rate established from historical trends CHANGES IN ACCOUNTING POLICIES Impairment tests for goodwill • Discount rates • Forecasted revenue growth, operating margin, EBITDA margin as well as capital expenditures • Comparable public company EBITDA multiples Self-Insurance and litigations • Historical claim experience, severity factors affecting the amounts ultimately paid, and current and expected levels of cost per claims • Third party evaluations 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 Adopted during the period To be adopted in future periods The following new standards, and amendments to standards and interpretations, are effective for the first time for interim periods beginning on or after January 1, 2020 and have been applied in preparing the audited consolidated financial statements: Definition of a business (Amendments to IFRS 3) The following new standards and amendments to standards are not yet effective for the year ended December 31, 2020, and have not been applied in preparing the audited consolidated financial statements: Classification of Liabilities as Current or Non-current (Amendments to IAS 1) Amendments to Hedge Accounting Requirements – IBOR Reform and its Effects on Financial Reporting (Phase 1) Onerous Contracts – Cost of fulfilling a Contract (Amendments to IAS 37) These new standards did not have a material impact on the Company’s audited consolidated financial statements. Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) Further information can be found in note 3 of the December 31, 2020 audited consolidated financial statements. CONTROLS AND PROCEDURES In compliance with the provisions of Canadian Securities Administrators’ National Instrument 52-109 and as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) Act, 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. TFI International Disclosure controls and procedures (“DC&P”) Internal controls over financial reporting (“ICFR”) MANAGEMENT’S DISCUSSION AND ANALYSIS 43 The President and Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), have designed DC&P, or have caused them to be designed under their supervision, in order to provide reasonable assurance that: • material information relating to the Company is made known to the CEO and CFO by others, particularly during the period in which the interim and annual filings are being prepared; and • information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. As at December 31, 2020, 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, 2020. 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, 2020, 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, 2020, 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, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR. 2020 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 18, 2021 TFI International INDEPENDENT AUDITORS’ REPORT 45 To the Shareholders and Board of Directors of TFI International Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statement of financial position of TFI International Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the years ended December 31, 2020 and 2019 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the financial performance and its cash flows for the years ended December 31, 2020 and 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Change in Presentation Currency As discussed in Note 2(c) to the consolidated financial statements, the Company has elected to change its presentation currency from Canadian dollars to United States dollars effective December 31, 2020 and it has been applied retrospectively. The Company has included the presentation of the statement of financial position as of January 1, 2019. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Assessment of the self-insurance provisions As discussed in Note 17 to the consolidated financial statements, the Company has $47.7 million of self-insurance provisions as of December 31, 2020. As discussed in Note 3(l), self-insurance provisions represent the uninsured portion of outstanding claims at year-end, related to cargo loss, bodily injury, worker’s compensation and property damages. The Company records an estimate of the provisions for estimated future disbursements associated with the self-insured portion for claims filed at year-end and incurred but not reported. 2020 Annual Report 46 INDEPENDENT AUDITORS’ REPORT (continued) We identified the assessment of the self-insurance provisions as a critical audit matter. Significant auditor judgment was required to evaluate the amounts that will ultimately be paid to settle these claims. Significant assumptions that affected the estimated provisions included the consideration of historical claim experience, severity factors affecting the amounts ultimately paid which are used to determine the loss development pattern, and current and expected levels of cost per claims which are used to determine expected loss ratios. Additionally, the provisions included estimates for claims that have been incurred but have not been reported, and specialized skills and knowledge were needed to evaluate the actuarial methods and assumptions used to assess these estimates. The following are the primary procedures we performed to address this critical audit matter. For claims for which the estimate is determined using actuarial methods, which included all claims incurred but not reported, we involved actuarial professionals with specialized skills and knowledge, who assisted in: • • • comparing the Company’s actuarial reserving methods with generally accepted actuarial standards evaluating assumptions used in determining the provisions, including the loss development pattern and the expected loss ratios developing an expected range of the provisions, including for claims incurred but not reported, by applying actuarial methods and assumptions to the Company’s data and comparing to the Company’s estimated provisions. For claims for which the estimate is not determined using actuarial methods, for a selection of claims, we confirmed with the Company’s external counsel regarding the Company’s evaluation of claims and any excluded claims. We have served as the Company’s auditor since 2003. Montréal, Canada February 18, 2021 * CPA auditor, CA, public accountancy permit No. A123145 TFI International DECEMBER 31, 2020 AND 2019 AND JANUARY 1, 2019 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 47 As at December 31, 2020 As at December 31, 2019* Note (in thousands of U.S. dollars) Assets Cash and cash equivalents 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 7 26 12 9 10 11 12 18 26 13 17 26 14 15 14 15 16 17 26 18 4,297 597,873 8,761 7,606 29,904 — 4,331 — 652,772 1,074,428 337,285 1,749,773 23,899 11,207 — 3,196,592 3,849,364 — 468,238 33,220 17,452 4,031 — 42,997 88,522 654,460 829,547 267,464 15,502 36,803 22,699 — 232,712 1,404,727 2,059,187 1,120,049 19,783 (154,723 ) 805,068 1,790,177 — 452,241 10,659 13,211 27,777 30 3,561 19,105 526,584 1,125,429 334,168 1,505,160 8,655 8,824 — 2,982,236 3,508,820 2,927 341,443 4,658 18,264 2,043 649 41,305 76,326 487,615 1,302,002 279,265 14,310 22,522 2,810 684 240,320 1,861,913 2,349,528 678,915 19,549 (173,398 ) 634,226 1,159,292 As at January 1, 2019** — 463,075 9,350 9,541 28,256 3,980 5,551 — 519,753 1,023,595 — 1,393,854 24,685 4,698 2,159 2,448,991 2,968,744 9,041 348,618 13,892 18,372 1,446 — 89,679 — 481,048 1,071,751 — 11,824 31,375 4,329 — 212,535 1,331,814 1,812,862 697,232 19,082 (200,029 ) 639,597 1,155,882 Share capital Contributed surplus Accumulated other comprehensive income Retained earnings Equity attributable to owners of the Company Contingencies, letters of credit and other commitments Subsequent events Total liabilities and equity 19 19, 21 27 29 Recasted for change in presentation currency (see note 2c)) * ** Recasted for change in presentation currency (see note 2c)) prior to the adoption of IFRS 16 3,849,364 3,508,820 2,968,744 The notes on pages 52 to 98 are an integral part of these consolidated financial statements. On behalf of the Board: Alain Bédard André Bérard Director Director 2020 Annual Report 48 CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2020 AND 2019 (In thousands of U.S. dollars, except per share amounts) Note 2020 2019* 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 Gain on sale of business Bargain purchase gain Gain on sale of rolling stock and equipment Gain on derecognition of right-of-use assets Loss (gain) on sale of land and buildings Gain on sale of assets held for sale 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 Net income for the year attributable to owners of the Company Earnings per share attributable to owners of the Company Basic earnings per share Diluted earnings per share Earnings per share from continuing operations attributable to owners of the Company Basic earnings per share Diluted earnings per share 3,484,303 3,477,576 296,831 425,969 3,781,134 3,903,545 2,051,835 2,134,720 888,185 150,572 170,520 80,496 48,213 (306 ) (4,008 ) (7,888 ) (1,159 ) 6 980,785 156,121 168,720 77,326 49,701 — (8,014 ) (15,386 ) (1,716 ) (9 ) (11,899 ) (21,571 ) 3,364,567 3,520,677 416,567 382,868 (2,776 ) 56,686 53,910 362,657 86,982 275,675 (2,285 ) 64,392 62,107 320,761 76,536 244,225 — (10,548 ) 275,675 233,677 3.09 3.03 3.09 3.03 2.80 2.74 2.93 2.86 22 23 9 10 11 5 24 24 25 20 20 20 20 * Recasted for changes in presentation currency (see note 2c)) and mark-to-market gain (loss) on deferred share units presentation (see note 24) The notes on pages 52 to 98 are an integral part of these consolidated financial statements. TFI International CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 49 YEARS ENDED DECEMBER 31, 2020 AND 2019 (In thousands of U.S. dollars) 2020 2019* Net income for the year attributable to owners of the Company 275,675 233,677 Other comprehensive income (loss) Items that may be reclassified to income or loss in future years: Foreign currency translation differences Net investment hedge, net of tax Changes in fair value of cash flow hedge, net of tax Employee benefits, net of tax Items that may never be reclassified to income Defined benefit plan remeasurement Items directly reclassified to retained earnings: Unrealized gain on investment in equity securities measured at fair value through OCI, net of tax Other comprehensive income for the year, net of tax 21,182 (2,010 ) (487 ) (10 ) 17,476 12,158 (7,394 ) 32 (1,623 ) (1,228 ) — 970 17,052 22,014 Total comprehensive income for the year attributable to owners of the Company 292,727 255,691 * Recasted for change in presentation currency (see note 2c)) The notes on pages 52 to 98 are an integral part of these consolidated financial statements. 2020 Annual Report 50 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY YEARS ENDED DECEMBER 31, 2020 AND 2019 (In thousands of U.S. dollars) Note Share capital Contributed surplus Accumulated unrealized loss on employee benefit plans Accumulated cash flow hedge gain (loss) Accumulated foreign currency translation differences & net investment hedge Accumulated unrealized loss on investment in equity securities Total equity attributable to owners of the Company Retained earnings Balance as at December 31, 2019* 678,915 19,549 (369 ) 487 (173,516 ) — 634,226 1,159,292 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 25,915 Issuance of shares, net of expenses 19 425,350 Dividends to owners of the Company Repurchase of own shares Net settlement of restricted share 19 19 — (12,025 ) — — — — — 275,675 275,675 — (10 ) (487 ) 19,172 — (1,623 ) 17,052 — (10 ) (487 ) 19,172 — 274,052 292,727 7,046 (4,554 ) — — — — — — — — — — — — — — — — — — — — — — — — — — — — (72,735 ) — (25,996 ) 7,046 21,361 425,350 (72,735 ) (38,021 ) — (4,479 ) (4,843 ) — (103,210 ) 338,158 units 19, 21 1,894 (2,258 ) — Total transactions with owners, recorded directly in equity 441,134 234 — — Balance as at December 31, 2020 1,120,049 19,783 (379 ) — (154,344 ) — 805,068 1,790,177 Balance as at January 1, 2019* 697,232 19,082 (401 ) 7,881 (203,150 ) (4,359 ) 639,597 1,155,882 Adjustment on initial application of IFRS 16 Net income for the year Other comprehensive income (loss) for the year, net of tax Realized loss on equity securities, net of tax Total comprehensive income (loss) for the year Share-based payment transactions 21 — — — — — — Stock options exercised 19, 21 20,580 Dividends to owners of the Company Repurchase of own shares Net settlement of restricted share 19 19 — (39,621 ) — — — — — — — — — (18,880 ) (18,880 ) — 233,677 233,677 — 32 (7,394 ) 29,634 970 (1,228 ) 22,014 — — — — 3,389 (3,389 ) — — 32 (7,394 ) 29,634 4,359 229,060 255,691 6,227 (4,233 ) — — — — — — — — — — — — — — — — — — — — — — 6,227 16,347 — (61,631 ) (61,631 ) — (152,835 ) (192,456 ) — (1,085 ) (1,888 ) — (215,551 ) (233,401 ) units 19, 21 724 (1,527 ) — Total transactions with owners, recorded directly in equity (18,317 ) 467 — Balance as at December 31, 2019* 678,915 19,549 (369 ) 487 (173,516 ) — 634,226 1,159,292 * Recasted for change in presentation currency (see note 2c)) The notes on pages 52 to 98 are an integral part of these consolidated financial statements. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (In thousands of U.S. dollars) 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 Share-based payment transactions Net finance costs Income tax expense Gain on sale of business 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 Provisions and employee benefits Net change in non-cash operating working capital Cash generated from operating activities before the following Interest paid Income tax paid Settlement of derivative contract 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 business Business combinations, net of cash acquired Proceeds from sale of intangible assets Purchases of investments Proceeds from sale of investments Proceeds from collection of promissory notes Others Net cash used in continuing investing activities Cash flows from financing activities Decrease in bank indebtedness Proceeds from long-term debt Repayment of long-term debt Net decrease in revolving facilities Repayment of lease liabilities Increase (decrease) in other financial liabilities Dividends paid Repurchase of own shares Proceeds from the issuance of common shares, net of expenses 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 CONSOLIDATED STATEMENTS OF CASH FLOWS 51 Note 2020 2019* 9 10 11 21 24 25 5 8 9 11 5 12 14 14 14 15 19 19 19 19 275,675 — 275,675 170,520 80,496 48,213 7,046 53,910 86,982 (306 ) (4,008 ) (7,882 ) (1,159 ) (11,899 ) 6,274 703,862 33,661 737,523 (50,366 ) (73,256 ) (3,039 ) 610,862 — 610,862 (142,710 ) 52,116 24,480 (1,665 ) 2,351 (327,650 ) — (7,446 ) — 18,892 3,151 (378,481 ) (2,231 ) 33,175 (191,221 ) (326,201 ) (82,587 ) 4,738 (67,604 ) (38,021 ) 425,350 21,361 (4,843 ) (228,084 ) 4,297 — 4,297 233,677 (10,548 ) 244,225 168,720 77,326 49,701 6,227 62,107 76,536 — (8,014 ) (15,395 ) (1,716 ) (21,571 ) (3,696 ) 634,450 16,337 650,787 (65,075 ) (85,216 ) — 500,496 (12,022 ) 488,474 (261,295 ) 71,754 39,146 (3,636 ) — (150,912 ) 201 (600 ) 1,814 — (329 ) (303,857 ) (6,083 ) 328,045 (103,247 ) (88,229 ) (75,072 ) (1,556 ) (60,478 ) (192,455 ) — 16,347 (1,889 ) (184,617 ) — — — * Recasted for changes in presentation currency (see notes 2c) and mark-to-market gain (loss) on deferred share units presentation (see note 24) The notes on pages 52 to 98 are an integral part of these consolidated financial statements. 2020 Annual Report 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 1. Reporting entity TFI International Inc. (the “Company”) is incorporated under the Canada Business Corporations Act, and is a company domiciled in Canada. The address of the Company’s registered office is 8801 Trans-Canada Highway, Suite 500, Montreal, Quebec, H4S 1Z6. The consolidated financial statements of the Company as at and for the years ended December 31, 2020 and 2019 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 18, 2021. 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. These consolidated financial statements are expressed in U.S. dollars, except where otherwise indicated. c) Functional and presentation currency The Company has elected to change its presentation currency from Canadian dollars (“CAD” or “CDN$”) to United States dollars (“U.S. dollars” or “USD”) effective December 31, 2020. Management is of the view that financial reporting in USD provides a more relevant presentation of the group’s financial position in comparison to its peers. The change in presentation currency is a voluntary change which is accounted for retrospectively. For comparative purposes, the historical consolidated financial statements have been recast to U.S. dollars using the procedures outlined below: • Consolidated Statements of Income, Comprehensive Income, and Cash Flows have been translated into U.S. dollars using average foreign currency rates prevailing for the relevant periods. • Assets and liabilities in the Consolidated Statement of Financial Position have been translated into U.S. dollars at the closing foreign currency rates on the relevant balance sheet dates. • Equity in the Consolidated Statement of Financial Position and Consolidated Statement of Changes in Equity, including foreign currency translation reserve and net investment hedge, retained earnings, share capital, contributed surplus and other reserves, have been translated into U.S. dollars using historical rates. • Consolidated Earnings per share and dividend disclosures have also been translated to U.S. dollars to reflect the change in presentation currency. The Company has also presented an opening consolidated statement of financial position as at January 1, 2019 in USD which does not reflect adjustments related to the adoption of IFRS 16, which has been derived from the consolidated financial statements as at and for the year ended December 31, 2018. The Company’s consolidated financial statements are now presented in U.S. dollars. All information in these consolidated financial statements is presented in USD unless otherwise specified. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 53 2. Basis of preparation (continued) c) Functional and presentation currency (continued) The Company’s functional currency remains Canadian dollar. Translation gains and losses from the application of the U.S. dollar as the presentation currency while the Canadian dollar is the functional currency are included as part of the cumulative foreign currency translation adjustment. All financial information presented in U.S. 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 intangible assets related to business combinations; Note 11 – Determining estimates and assumptions related to the determination of the recoverable amount of goodwill when it is tested for impairment; and Note 17 – Determining estimates and assumptions related to the evaluation of provisions for self-insurance and litigations. 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. 2020 Annual Report 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 3. Significant accounting policies (continued) b) Foreign currency translation i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Group’s entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate in effect at the reporting date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated at the rate in effect on the transaction date. Income and expense items denominated in foreign currency are translated at the date of the transactions. Gains and losses are included in income or loss. ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on business combinations, are translated to Canadian dollars at exchange rates in effect at the reporting date. The income and expenses of foreign operations are translated to Canadian dollars at the average exchange rate in effect during the reporting period. Foreign currency differences are recognized in other comprehensive income (“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. Translation gains and losses from the application of U.S dollars as the presentation currency while the Canadian dollar is the functional currency are included as part of the cumulative foreign currency translation adjustment. 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. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 55 3. Significant accounting policies (continued) c) Financial instruments (continued) i) Non-derivative financial assets (continued) 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. 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. 2020 Annual Report 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 3. Significant accounting policies (continued) c) Financial instruments (continued) ii) Non-derivative financial liabilities (continued) 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 to share capital, 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 retained earnings. 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. Net investment hedge The Group designates a portion of its U.S. dollar 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 (CAD), 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. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 3. Significant accounting policies (continued) d) Hedge accounting (continued) Cash flow hedges NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 57 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 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. The depreciation method and useful lives are as follows: Categories Buildings Rolling stock Equipment Basis Straight-line Useful lives 15 – 40 years Primarily straight-line 3 – 20 years Primarily straight-line 5 – 12 years Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted prospectively, if appropriate. Property and equipment are reviewed for impairment in accordance with IAS 36 Impairment of Assets when there are indicators that the carrying value may not be recoverable. f) Intangible assets i) Goodwill Goodwill that arises upon business combinations is included in intangible assets. Goodwill is not amortized and is measured at cost less accumulated impairment losses. ii) Other intangible assets Intangible assets consist of customer relationships, trademarks, non-compete agreements and information technology. The Group determines the fair value of the customer relationship intangible assets using the discounted cash flow model and internally developed assumptions including: 1. Forecasted revenue attributable to existing customer contracts and relationships; 2. Estimated annual attrition rate; 2020 Annual Report 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 3. Significant accounting policies (continued) f) Intangible assets (continued) ii) Other intangible assets (continued) 3. Forecasted operating margins; and 4. Discount rates The internally developed assumptions are based on limited observable market information which cause measurement uncertainty, and the fair value of the customer related intangible assets are sensitive to changes to these assumptions. 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 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. 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, 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. 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. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 59 3. Significant accounting policies (continued) g) Leases (continued) 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 was 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. On the initial application, 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 $6.1 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. Property and equipment Right-of-use assets Provisions (including current portion) Long-term debt (including current portion) Lease liabilities (including current portion) Deferred tax liabilities Retained earnings As reported as at December 31, 2018 Adjustments Restated balance as at January 1, 2019 1,023,595 — (49,747 ) (1,161,430 ) (19,406 ) 341,505 6,092 6,718 — (361,107 ) (212,535 ) (639,597 ) 7,376 18,880 1,004,189 341,505 (43,655 ) (1,154,712 ) (361,107 ) (205,159 ) (620,717 ) 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 liabilities recognized at January 1, 2019 370,995 6,717 (53,249 ) (11,469 ) 48,113 361,107 h) Inventoried supplies Inventoried supplies consist primarily of repair parts and fuel and are measured at the lower of cost and net realizable value. 2020 Annual Report 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 3. Significant accounting policies (continued) i) Impairment Non-financial assets The carrying amounts of the Group’s non-financial assets other than inventoried supplies and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, the recoverable amount is estimated on December 31 of each year. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”, or “CGU”). For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the group of CGUs (usually a Group’s operating segment), that is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes. The Company performs goodwill impairment testing annually, or more frequently if events or circumstances indicate the carrying value of a CGU, which is a Group’s operating segment, may exceed the recoverable amount of the CGU. 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 fair value less cost to sell is based on market comparable multiples applied to forecasted earnings before financial expenses, income taxes, depreciation and amortization (“adjusted EBITDA”) for the next year, which takes into account financial forecasts approved by senior management. The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, if any, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a prorata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Impairment losses and impairment reversals are recognized in income or loss. j) Assets held for sale Non-current assets are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets are generally measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held-for-sale or held-for-distribution and subsequent gains and losses on remeasurement are recognized in income or loss. Once classified as held-for-sale, intangible assets and property and equipment are no longer amortized or depreciated. k) Employee benefits i) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in income or loss in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 61 3. Significant accounting policies (continued) k) Employee benefits (continued) ii) Defined benefit plans The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their services in the current and prior periods discounting that amount and deducting the fair value of any plan assets. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs. iii) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or income-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. iv) Share-based payment transactions The grant date fair value of equity share-based payment awards granted to employees is recognized as a personnel expense, with a corresponding increase in contributed surplus, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service condition at the vesting date. The fair value of the amount payable to board members in respect of deferred share unit (“DSU”), which are to be settled in cash, is recognized as an expense with a corresponding increase in liabilities. The liability is remeasured at each reporting date until settlement. The Group presents mark-to-market (gain) loss on DSUs in personnel expenses. 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. 2020 Annual Report 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 3. Significant accounting policies (continued) l) Provisions (continued) Self-Insurance Self-insurance provisions represent the uninsured portion of outstanding claims at year-end. The 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 the consideration of historical claim experience, severity factors affecting the amounts ultimately paid, and current and expected levels of cost per 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) 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. o) 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. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 63 3. Significant accounting policies (continued) p) 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. q) 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. r) Government grants The Group recognizes a government grant when there is reasonable assurance it will comply with the conditions required to qualify for the grant, and that the grant will be received. The Group recognizes government grants as a reduction to the expense that the grant is intended to offset. s) New standards and interpretations adopted during the year 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. 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 fails, then the assessment focuses on the existence of a substantive process. The adoption of the amendments did not have a material impact on the Group’s consolidated financial statements at the date of adoption. 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. 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 adoption of the amendments on January 1, 2020 did not have a material impact on the Group’s consolidated financial statements. As at December 31, 2020, the Group has no interest rate swaps that hedge variable interest debt. 2020 Annual Report 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 3. Significant accounting policies (continued) s) New standards and interpretations adopted during the year (continued) New standards and interpretations not yet adopted The following new standards are not yet effective for the year ended December 31, 2020, and have not been applied in preparing these consolidated financial statements: Classification of Liabilities as Current or Non-current (Amendments to IAS 1) On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial Statements, to clarify the classification of liabilities as current or non-current. The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. For the purposes of non-current classification, the amendments removed the requirement for a right to defer settlement or roll over of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period. The extent of the impact of adoption of the amendments has not yet been determined. Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) On May 14, 2020, the IASB issued Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37). The amendments are effective for annual periods beginning on or after January 1, 2022 and apply to contracts existing at the date when the amendments are first applied. Early adoption is permitted. IAS 37 does not specify which costs are included as a cost of fulfilling a contract when determining whether a contract is onerous. The IASB’s amendments address this issue by clarifying that the “costs of fulfilling a contract” comprise both: • • the incremental costs – e.g. direct labour and materials; and an allocation of other direct costs – e.g. an allocation of the depreciation charge for an item of property and equipment used in fulfilling the contract. The extent of the impact of adoption of the amendments has not yet been determined. Interest Rate Benchmark Reform—Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) On August 27, 2020, the IASB finalized its response to the ongoing reform of inter-bank offered rates and other interest rate benchmarks by issuing a package of amendments to IFRS Standards. The amendments are effective for annual periods beginning on or after January 1, 2021. Earlier application is permitted. The amendments complement those issued in 2019 as part of Phase 1 amendments and mainly relate to: • • • changes to contractual cash flows—a company will not have to derecognise the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate; hedge accounting—a company will not have to discontinue its hedge accounting solely because it makes changes required by the reform, if the hedge meets other hedge accounting criteria; and disclosures—a company will be required to disclose information about new risks arising from the reform and how it manages the transition to alternative benchmark rates. The extent of the impact of the adoption of the amendments depends upon debt and hedge transactions impacted by reference rate reform in future periods. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 65 4. Segment reporting The Group operates within the transportation and logistics industry in the United States, Canada and Mexico in different reportable segments, as described below. The reportable segments are managed independently as they require different technology and capital resources. For each of the operating segments, the Group’s CEO reviews internal management reports. The following summary describes the operations in each of the Group’s reportable segments: Package and Courier: Pickup, transport and delivery of items across North America. Less-Than-Truckload: Pickup, consolidation, transport and delivery of smaller loads. Truckload(a): Logistics: 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. 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 2020 External revenue External fuel surcharge 478,707 516,720 1,569,835 919,041 47,393 66,144 161,680 21,614 Inter-segment revenue and fuel surcharge 3,055 6,371 16,844 4,475 529,155 589,235 1,748,359 945,130 — — — — — 3,484,303 — 296,831 (30,745 ) — (30,745 ) 3,781,134 78,753 87,950 206,346 84,459 (40,941 ) — 416,567 Total revenue Operating income (loss) Selected items: Depreciation and amortization 25,357 50,354 188,979 33,429 1,110 Loss on sale of land and buildings Gain (loss) on sale of assets held for sale Gain on sale of business Bargain purchase gain Intangible assets Total assets Total liabilities — 91 — — (1 ) (56 ) — — — 11,864 306 (5 ) — — — 4,008 — — — — 193,288 189,579 907,170 457,098 2,638 387,919 593,653 2,100,900 729,690 37,202 — — — — — 299,229 (6 ) 11,899 306 4,008 — 1,749,773 — 3,849,364 Additions to property and equipment 17,304 22,829 101,477 760 444 — 142,814 123,970 219,234 478,630 226,218 1,011,268 (133 ) 2,059,187 2019 External revenue External fuel surcharge 470,192 619,949 1,645,025 742,410 65,515 99,538 231,470 29,446 Inter-segment revenue and fuel surcharge 3,903 7,761 15,060 2,977 539,610 727,248 1,891,555 774,833 — — — — — 3,477,576 — 425,969 (29,701 ) — (29,701 ) 3,903,545 82,228 82,230 192,172 57,447 (31,209 ) — 382,868 Total revenue Operating income (loss) Selected items: Depreciation and amortization 24,893 52,920 182,817 33,597 1,520 Gain on sale of land and buildings Gain (loss) on sale of assets held for sale — 843 — 8,509 9 12,339 — — Intangible assets Total assets Total liabilities 190,135 188,448 860,671 262,691 371,037 595,806 2,067,191 421,843 52,943 119,642 230,282 417,545 128,013 1,454,047 — (120 ) 3,215 Additions to property and equipment 13,404 49,553 192,820 2,224 5,697 — — — 295,747 9 21,571 — 1,505,160 — 3,508,820 — 2,349,528 — 263,698 2020 Annual Report 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 4. Segment reporting (continued) Geographical information Revenue is attributed to geographical locations based on the origin of service’s location. Total revenue 2020 Canada United States Mexico Total 2019 Canada United States Mexico Total Package and Courier Less- Than- Truckload Truckload Logistics Eliminations Total 529,155 517,199 725,347 — — 72,036 1,023,012 — — 239,413 686,811 18,906 (26,019 ) 1,985,095 (4,726 ) 1,777,133 — 18,906 529,155 589,235 1,748,359 945,130 (30,745 ) 3,781,134 539,610 607,086 799,396 — — 120,162 1,092,159 — — 216,232 542,911 15,690 (28,352 ) 2,133,972 (1,349 ) 1,753,883 — 15,690 539,610 727,248 1,891,555 774,833 (29,701 ) 3,903,545 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 December 31, December 31, January 1, 2020 2019 2019 1,802,417 1,342,720 16,349 1,777,333 1,412,726 1,169,446 17,978 987,813 16,910 3,161,486 2,964,757 2,417,449 In line with the Group’s growth strategy, the Group acquired thirteen businesses during 2020, of which DLS Worldwide (“DLS”), which was renamed “TForce Worldwide” in November 2020, was considered material. All other acquisitions, including R.R. Donnelley & Sons Company, were not considered to be material. These transactions were concluded in order to add density in the Group’s current network and further expand value-added services. On November 2, 2020, the Group completed the acquisition of DLS, a business unit of R.R. Donnelley & Sons Company. DLS provides logistics services through a third-party logistics network of internal sales personnel, commissioned sales agents, and approximately 140 agent-stations. The purchase price for this business acquisition totalled $225.0 million, which has been paid in cash. During the year ended December 31, 2020, DLS contributed revenue and net income of $98.3 million and $1.5 million, respectively since the acquisition. On March 2, 2020, the Group completed the acquisition of the courier service business of R.R. Donnelley & Sons Company. The purchase price for this business acquisition totalled $10.6 million, which has been paid in cash. The estimated fair value of the identifiable net assets acquired, including the fair value of the customer relationships acquired, exceeded the purchase price, resulting in an estimated bargain purchase gain of $4.0 million in the logistics segment. During the year ended December 31, 2020, the thirteen businesses, in aggregate, contributed revenue and net income of $213.2 million and $4.6 million respectively since the acquisitions. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 67 5. Business combinations (continued) a) Business combinations (continued) Had the Group acquired these thirteen businesses on January 1, 2020, as per management’s best estimates, the revenue and net income for these entities would have been $807.2 million and $31.9 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, 2020. During 2020, transaction costs of $0.8 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 2020 acquisitions. Information to confirm fair value of certain assets and liabilities is still to be obtained for these acquisitions. As the Group obtains more information, the allocation will be completed. The information that was available to the Group regarding DLS was affected by the proximity of the acquisition to its year-end. The table below presents the purchase price allocation based on the best information available to the Group to date. December 31, December 31, Identifiable assets acquired and liabilities assumed Note DLS 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 (54,845 ) (9,149 ) (63,994 ) (24,778 ) 9 10 11 17 14 15 2020 3,332 — 3,332 93,520 29,373 122,893 824 1,509 262 23,741 285 39,928 65,404 31,125 4,630 — 2,333 24,003 40,213 96,529 4,630 — — (445 ) (338 ) (14,374 ) — — (5,365 ) (445 ) (338 ) (14,374 ) (5,365 ) (285 ) (40,192 ) (40,477 ) — (6,653 ) (6,653 ) 95,421 66,866 225,007 106,595 11 129,586 43,737 162,287 331,602 173,323 — (4,008 ) (4,008 ) 2019 15,339 34,260 5,774 66,703 11,039 47,088 79 (4,636 ) (1,424 ) (370 ) (8,655 ) (11,039 ) (16,541 ) 112,839 166,941 62,116 (8,014 ) 225,007 105,975 330,982 166,251 — 620 620 690 225,007 106,595 331,602 166,941 * Includes non-material adjustments to prior year's acquisitions The trade receivables comprise gross amounts due of $127.4 million, of which $4.5 million was expected to be uncollectible at the acquisition date. Of the goodwill and intangible assets acquired through business combinations in 2020, $21.2 million is deductible for tax purposes (2019 - $19.2 million). During 2019, the Group acquired eight businesses, of which Schilli Corporation (“Schilli”), which was renamed BTC East in September 2019, was considered material. 2020 Annual Report 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 5. Business combinations (continued) a) Business combinations (continued) 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 $58.2 million, which had been paid in cash. During the year ended December 31, 2019, Schilli contributed revenue and net income of $53.2 million and $2.3 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 $7.2 million, which had 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 $8.0 million in the logistics segment. During 2019, transaction costs of $0.1 million have been expensed in other operating expenses in the consolidated statements of income in relation to the above-mentioned business acquisitions. 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 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 Less-Than-Truckload U.S. Truckload Specialized Truckload Logistics Reportable segment December 31, 2020* December 31, 2019 Less-Than-Truckload Truckload Truckload Logistics 3,872 330 33,718 135,403 173,323 — — 50,692 11,424 62,116 * Includes non-material adjustments to prior year's acquisitions c) Adjustment to the provisional amounts of prior year’s business combinations The 2019 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 Schilli and various other 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 Schilli and the other non-material acquisitions in fiscal 2019 have been adjusted and finalized in 2020. No material adjustments were required to the provisional fair values for these prior period’s business combinations, and have been included with the acquisitions of 2020. 6. Discontinued operations In 2019, the Group received an unfavorable ruling on an accident claim, resulting in a loss of $10.6 million ($12.4 million, net of tax of $1.8 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. The net cash outflows from discontinued operations was $12.0 million during the second quarter of 2019 ($13.8 million, net of tax of $1.8 million). The basic and diluted loss per share for the year ended December 31, 2019 from discontinued operations is $0.13 and $0.12, respectively. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 69 7. Trade and other receivables Trade receivables Other receivables December 31, December 31, January 1, 2020 570,609 27,264 597,873 2019 2019 442,148 443,718 10,093 19,357 452,241 463,075 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, 2020 include $13.5 million of in-transit revenue balances (December 31, 2019 – $7.6 million; January 1, 2019 - $7.9 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. 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 * Recasted for changes in presentation (see note 24) 2020 (16,399 ) 2,200 192 47,668 33,661 2019* 58,763 2,292 3,839 (48,557 ) 16,337 2020 Annual Report 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 9. Property and equipment Cost Note Land and buildings Rolling stock Equipment Total Balance at January 1, 2019 276,144 1,119,520 114,972 1,510,636 Additions through business combinations 5 Other additions Disposals Reclassification to assets held for sale Transfer to right-of-use assets Effect of movements in exchange rates 4,816 39,733 59,684 211,796 2,203 12,169 66,703 263,698 (2,617 ) (126,388 ) (9,747 ) (138,752 ) (21,226 ) — 11,827 (2,684 ) (29,316 ) 34,701 — — 5,699 (23,910 ) (29,316 ) 52,227 Balance at December 31, 2019 308,677 1,267,313 125,296 1,701,286 Additions through business combinations 5 Other additions Disposals Reclassification to assets held for sale Sale of business Effect of movements in exchange rates 1,771 19,331 21,634 112,645 598 10,838 24,003 142,814 (731 ) (133,149 ) (5,134 ) (139,014 ) (19,201 ) (484 ) 5,441 (9,971 ) (3,395 ) 12,540 — (283 ) 2,919 (29,172 ) (4,162 ) 20,900 Balance at December 31, 2020 314,804 1,267,617 134,234 1,716,655 Depreciation Balance at January 1, 2019 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 Depreciation for the year Disposals Reclassification to assets held for sale Sale of business Effect of movements in exchange rates 56,093 8,886 (2,419 ) (6,321 ) — 2,370 58,609 8,462 (657 ) (7,326 ) (329 ) 1,058 356,377 149,622 (71,325 ) (2,244 ) (9,910 ) 14,643 437,163 151,369 (89,676 ) (8,488 ) (2,494 ) 6,448 74,571 10,212 487,041 168,720 (8,649 ) (82,393 ) — — 3,951 80,085 10,689 (4,447 ) — (253 ) 2,014 (8,565 ) (9,910 ) 20,964 575,857 170,520 (94,780 ) (15,814 ) (3,076 ) 9,520 Balance at December 31, 2020 59,817 494,322 88,088 642,227 Net carrying amounts At January 1, 2019 At December 31, 2019 At December 31, 2020 220,051 763,143 40,401 1,023,595 250,068 830,150 45,211 1,125,429 254,987 773,295 46,146 1,074,428 As at December 31, 2020, $2.5 million is included in trade and other payables for the purchases of property and equipment (December 31, 2019 – 2.4, January 1, 2019 - nil). Security At December 31 2020, certain rolling stock are pledged as security for conditional sales contracts, with a carrying amount of $140.7 million (December 31, 2019 - $138.6 million, January 1, 2019 - $131.2 million) (see note 14). TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 71 10. Right-of-use assets Note Land and buildings 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 Other additions Additions through business combinations Derecognition* Effect of movements in exchange rates 5 5 Rolling stock 95,884 29,316 41,041 2,123 414,866 — 22,287 8,916 (35,299 ) (10,388 ) 19,327 6,114 430,097 164,090 18,869 13,716 30,353 26,497 (18,524 ) (32,111 ) 7,948 2,335 Equipment Total 1,422 512,172 — 351 — (10 ) 70 1,833 1,003 — (589 ) 43 29,316 63,679 11,039 (45,697 ) 25,511 596,020 50,225 40,213 (51,224 ) 10,326 Balance at December 31, 2020 452,106 191,164 2,290 645,560 Depreciation Initial recognition of IFRS 16 Transfer from property and equipment Depreciation Derecognition* Effect of movements in exchange rates Balance at December 31, 2019 Depreciation Derecognition* Effect of movements in exchange rates Balance at December 31, 2020 Net carrying amounts At December 31, 2019 At December 31, 2020 152,052 — 50,697 (16,953 ) 7,888 193,684 48,628 37,493 9,910 26,128 (8,817 ) 2,439 67,153 31,247 (14,573 ) (25,371 ) 4,802 232,541 1,474 74,503 528 — 501 (1 ) (13 ) 1,015 621 (428 ) 23 190,073 9,910 77,326 (25,771 ) 10,314 261,852 80,496 (40,372 ) 6,299 1,231 308,275 236,413 96,937 219,565 116,661 818 1,059 334,168 337,285 * Derecognized right-of-use assets include negotiated asset purchases and extinguishments resulting from accidents as well as fully amortized or end of term right-of-use assets. 2020 Annual Report 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 11. Intangible assets Cost Other intangible assets Non- Note Goodwill relationships Trademarks agreements technology Total Customer compete Information Balance at January 1, 2019 1,227,671 427,307 81,303 8,521 18,124 1,762,926 Additions through business combinations* Other additions Disposals Extinguishments 5 62,116 41,237 2,541 3,272 38 109,204 — — — — (205 ) (1,110 ) — — — — — 3,636 3,636 — (205 ) (167 ) (1,768 ) (3,045 ) Effect of movements in exchange rates 41,343 14,199 1,911 307 814 58,574 Balance at December 31, 2019 1,331,130 481,428 85,755 11,933 20,844 1,931,090 Additions through business combinations* Other additions Sale of business Extinguishments 5 173,323 88,692 — (715 ) — — 627 — — 3,984 3,226 269,852 — — 1,665 1,665 (30 ) (745 ) — (1,397 ) (1,014 ) (1,456 ) (440 ) (4,307 ) Effect of movements in exchange rates 19,888 6,219 1,034 227 483 27,851 Balance at December 31, 2020 1,523,626 574,942 86,402 14,688 25,748 2,225,406 2,649 1,875 — 14,053 369,072 1,746 49,701 — (4 ) (167 ) (1,768 ) (3,045 ) 113 4,470 2,160 — 594 10,206 14,625 425,930 2,576 48,213 (28 ) (28 ) Amortization and impairment losses Balance at January 1, 2019 Amortization for the year Disposals Extinguishments 143,982 174,228 34,160 41,058 5,022 — — — (4 ) (1,110 ) — — 999 Effect of movements in exchange rates 2,908 5,592 Balance at December 31, 2019 146,890 219,764 40,181 Amortization for the year Sale of business Extinguishments — — — 39,580 3,897 — — (1,397 ) (1,014 ) (1,456 ) (440 ) (4,307 ) Effect of movements in exchange rates 1,126 3,652 572 130 345 5,825 Balance at December 31, 2020 148,016 261,599 43,636 5,304 17,078 475,633 Net carrying amounts At January 1, 2019 1,083,689 253,079 47,143 At December 31, 2019 1,184,240 261,664 45,574 At December 31, 2020 1,375,610 313,343 42,766 * Includes non-material adjustments to prior year's acquisitions 5,872 7,463 9,384 4,071 1,393,854 6,219 1,505,160 8,670 1,749,773 In 2020, the Group reassessed useful lives of some operational trademarks from finite to indefinite representing a carrying value of $6.3 million. Brand recognition 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 is applied prospectively, the Group tested these trademarks for impairment, resulting in no impairment charge. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 73 11. Intangible assets (continued) At December 31, 2020, the Group performed its annual impairment testing for indefinite life trademarks. The Group estimated the value in use to be $42.6 million (2019 - $26.7 million) compared to its carrying value of $31.6 million (2019 - $25.3 million), resulting in no impairment charge. Management used the relief-from-royalty method and discount rates between 6.6% and 9.7% (2019 – between 8.5% and 9.7%) in its analysis. At December 31, 2020, 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 December 31, December 31, January 1, Package and Courier Less-Than-Truckload Truckload Canadian Truckload U.S. Truckload Specialized Truckload Logistics 2020 189,533 136,914 86,416 244,824 394,303 323,620 2019 185,695 130,389 84,666 243,914 353,516 186,060 2019 176,793 124,138 80,607 242,236 288,903 171,012 1,375,610 1,184,240 1,083,689 The results as at December 31, 2020 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 2020 9.1% 9.1% 11.5% 10.3% 10.3% 8.5% 2019 9.7% 9.2% 11.7% 10.7% 11.2% 9.7% The discount rates were estimated based on past experience, and industry average weighted average cost of capital, which were based on a possible range of debt leveraging of 40.0% (2019 – 50.0%) at a market interest rate of 5.9% (2019 – 7.7%). First year cash flows were projected based on forecasted cash flows which are based on previous operating results adjusted to reflect current economic conditions. For a further 4-year period, cash flows were extrapolated using an average growth rate of 2.0% (2019 – 2.0%) in revenues and margins were adjusted where deemed appropriate. The terminal value growth rate was 2.0% (2019 – 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). 2020 Annual Report 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 12. Other assets Restricted cash Security deposits Investments in equity securities Indemnification asset Other Promissory note Presented as: Current other assets Non-current other assets December 31, December 31, January 1, 2020 — 3,143 9,727 4,736 6,293 — 23,899 — 23,899 2019 3,309 3,164 1,071 — 1,111 19,105 27,760 19,105 8,655 2019 3,128 2,525 1,098 — 1,304 16,630 24,685 — 24,685 Restricted cash consisted of cash held as potential claims collateral pursuant to re-insurance agreements under the Group’s insurance program. The restrictions on cash are no longer required as at December 31, 2020. On February 1, 2016, the Company sold the Waste Management segment (“Waste”) to GFL Environmental Inc. (“GFL”) for a total consideration of $575 million (CAD $800 million), which included an unsecured promissory note of $18 million (CAD $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 December 31, December 31, January 1, 2020 327,619 119,334 21,285 468,238 2019 238,405 86,733 16,305 341,443 2019 247,376 86,043 15,199 348,618 The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 26. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 75 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 loan 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 unsecured term loan Current portion of finance lease liabilities December 31, December 31, January 1, 2020 2019 2019 123,666 321,852 156,479 150,000 77,550 — 454,465 469,008 153,141 150,000 75,388 — 542,849 365,639 91,501 — 69,068 2,694 829,547 1,302,002 1,071,751 7,461 35,536 — — 9,216 32,089 — — 42,997 41,305 — 30,728 54,927 4,024 89,679 Terms and conditions of outstanding long-term debt are as follows: Nominal Year of Face Carrying Face Carrying Currency interest rate maturity value amount value amount 2020 2019 Unsecured revolving facility Unsecured revolving facility a a CAD BA + 1.45% 2023 41,700 32,279 140,600 106,114 USD Libor + 1.45% 2023 92,634 91,387 349,906 348,351 Unsecured revolving facility b USD Libor + 1.45% 2021 7,461 7,461 9,216 9,216 Unsecured term loan Unsecured debenture a c CAD BA + 1.45% 2022 410,000 321,852 610,000 469,008 CAD 3.32% - 4.22% 2024 200,000 156,479 200,000 153,141 Unsecured senior notes d USD 3.85% 2026 150,000 150,000 150,000 150,000 Conditional sales contracts e Mainly CAD 1.49% - 4.72% 2021-2027 143,796 113,086 139,591 107,477 The table below summarizes changes to the long-term debt: Balance at beginning of year Transfer to lease liabilities Proceeds from long-term debt Business combinations Repayment of long-term debt Net decrease in revolving facilities Accretion of deferred financing fees Effect of movements in exchange rates Effect of movements in exchange rates – OCI hedge Balance at end of year 872,544 1,343,307 Note 5 2020 1,343,307 — 33,175 5,365 (191,221 ) (326,201 ) 1,214 4,588 2,317 872,544 2019 1,161,430 (6,718 ) 328,045 8,655 (103,247 ) (88,229 ) 1,705 55,697 (14,031 ) 1,343,307 2020 Annual Report 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 14. Long-term debt (continued) a) Unsecured revolving credit facility and term loans On December 18, 2020, the Group repaid, without penalty, the first tranche of CAD $200 million of its term loan which was due in June 2021. The revolving credit facility is unsecured and can be extended annually. The total available amount under this revolving facility is CAD $1,200 million. The agreement provides, under certain conditions, an additional $196.5 million of credit availability (CAD $245 million and USD $5 million). Based on certain ratios, the interest rate will vary between banker's acceptance rate (or Libor rate on USD denominated debt) plus applicable margin, which can vary between 120 basis points and 200 basis points. As of December 31, 2020, the credit facility’s interest rate on CAD denominated debt was 2.9% (2019 – 3.8%) and on USD denominated debt was 1.6% (2019 – 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)). The remaining second tranche of term loan of CAD $410 million is unsecured and is 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, 2020, the term loan’s interest rate was 1.9% (2019 – 3.3% on the first tranche and 3.5% on the second tranche). On February 1, 2019, the CAD $500 million unsecured term loan was amended to increase the indebtedness to CAD $575 million. On February 11, 2019, the related incremental funds were used to reimburse a separate CAD $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 CAD $575 million term loan. The CAD $575 million term loan remained within the confines of the credit facility, but has a pricing grid different than the revolving credit facility and each of the two tranches have their own pricing grid. Deferred financing fees of $0.2 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 $0.7 million were recognized on the extension. On June 27, 2019, the Group extended the maturity of the CAD $575 million unsecured term loan by one year for each tranche, CAD $200 million due in June 2021 and CAD $375 million due in June 2022. Deferred financing fees of $0.4 million were recognized on the extension. On December 27, 2019, the CAD $575 million unsecured term loan was amended to increase the indebtedness to CAD $610 million. Deferred financing fees of $0.1 million were recognized on the increase. b) Unsecured revolving facility On November 21, 2020, the Group renewed its credit facility for one year. The credit facility is unsecured and provides an availability of $25 million maturing in November 2021. Interest rate is following the same pricing grid applicable for the USD denominated debt in the CAD $1,200 million revolving credit facility. As of December 31, 2020, the credit facility’s interest rate was 1.6% (2019 – 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)). On November 22, 2019, the Group entered into a new revolving credit facility agreement. The credit facility is unsecured and provides an availability of $25 million maturing in November 2020. Interest rate is following the same pricing grid applicable for the USD denominated debt in the CAD $1,200 million revolving credit facility. c) Unsecured debenture The unsecured debenture is maturing in December 2024 and is carrying an interest rate between 3.32% and 4.22% (2019 – 3.32% to 4.22%) depending on certain ratios. As of December 31, 2020, the debenture’s effective rate was 3.57% (2019 – 3.77%). The debenture may be repaid, without penalty, after December 20, 2022, subject to the approval of the Group’s syndicate of bank lenders. On December 20, 2019, the unsecured debenture was amended to increase the indebtedness by CAD $75 million, to CAD $200 million, and to extend maturity date by four years, to December 2024. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 77 14. Long-term debt (continued) d) Unsecured senior notes 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 $140.7 million (December 31, 2019 - $138.6 million, January 1, 2019 - $131.2 million) (see note 9). 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 15. Lease liabilities Current portion of lease liabilities Long-term portion of lease liabilities The table below summarizes changes to the lease liabilities: Balance at beginning of year Business combinations Additions Derecognition* Repayment Effect of movements in exchange rates Initial recognition on transition to IFRS 16 on January 1, 2019 Transfer of finance leases from long-term debt Less than 1 year 7,461 — — — 35,536 42,997 1 to 5 years 125,428 322,200 157,171 More than 5 years — — — — 150,000 77,093 681,892 457 150,457 Total 132,889 322,200 157,171 150,000 113,086 875,346 December 31, 2020 December 31, 2019 88,522 267,464 355,986 Note 5 76,326 279,265 355,591 2019 — 11,039 63,679 (21,642 ) (75,072 ) 16,480 354,389 6,718 2020 355,591 40,477 50,225 (12,011 ) (82,587 ) 4,291 — — Balance at end of year 355,986 355,591 * Derecognized lease liabilities include negotiated asset purchases and extinguishments resulting from accidents. The incremental borrowing rate used on average for 2020 is 3.56% (2019 – 2.66%). Extension options 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 are significant events or significant changes in circumstances within its control. The lease liabilities include future lease payments of $21.1 million (2019 – $38.8 million) related to extension options that the Group is reasonably certain to exercise. 2020 Annual Report 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 15. Lease liabilities (continued) Extension options (continued) 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 $352.1 million (2019 - $357.1 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, 2020 was $17.4 million (2019 - $18.1 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, 2020 was $13.8 million (2019 - $12.3 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 2020 99,570 222,140 75,510 397,220 For the year ended December 31, 2020, operating lease expenses of $26.1 million (2019 – $33.3 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. 16. Employee benefits The Group sponsors defined benefit pension plans for 161 of its employees (2019 – 165). 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, 2019 and the next required valuation will be as of December 31, 2020. In addition to the above-mentioned defined benefit plans, the Group sponsors an employee severance plan in Mexico. At December 31, 2020, total obligation under this arrangement amounted to $1.1 million ($1.0 million in 2019 and $0.8 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 TFI International December 31, December 31, January 1, 2020 35,529 (21,147 ) 14,382 2019 31,449 (18,108 ) 13,341 2019 27,579 (16,581 ) 10,998 YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 79 16. Employee benefits (continued) Plan assets comprise: Equity securities Debt securities Other December 31, December 31, January 1, 2020 6% 91% 3% 2019 16% 81% 3% 2019 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: Accrued benefit obligation, beginning of year Current service cost Interest cost Benefits paid Remeasurement (gain) loss arising from: - Financial assumptions - Experience Settlement Effect of movements in exchange rates Accrued benefit obligation, end of year Movement in the fair value of plan assets for defined benefit plans: Fair value of plan assets, beginning of year Interest income Employer contributions Benefits paid Fair value remeasurement Plan administration expenses Effect of movements in exchange rates Fair value of plan assets, end of year Expense recognized in income or loss: Current service cost Net interest cost Plan administration expenses Settlement Pension expense Actual return on plan assets 2020 31,449 528 948 2019 27,579 496 1,105 (1,539 ) (1,277 ) 3,563 (343 ) 113 810 35,529 2020 18,108 544 2,519 (1,539 ) 1,129 (124 ) 510 2,267 (152 ) — 1,431 31,449 2019 16,581 665 970 (1,277 ) 467 (145 ) 847 21,147 18,108 2020 2019 528 404 124 113 1,169 1,673 496 440 145 — 1,081 1,132 2020 Annual Report 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 16. Employee benefits (continued) Actuarial losses recognized in other comprehensive income: Amount accumulated in retained earnings, beginning of year Recognized during the year Amount accumulated in retained earnings, end of year Recognized during the year, net of tax The significant actuarial assumptions used (expressed as weighted average): 2020 11,100 2,204 13,304 1,623 2019 9,451 1,649 11,100 1,228 Accrued benefit obligation: Discount rate at Future salary increases Employee benefit expense: Discount rate at Rate of return on plan assets at Future salary increases December 31, December 31, January 1, 2020 2019 2019 2.4% 1.2% 3.3% 3.3% 1.2% 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 December 31, December 31, January 1, 2020 2019 2019 22.1 24.7 23.5 26.1 22.0 24.7 23.5 26.0 21.9 24.6 23.4 26.0 At December 31, 2020 the weighted-average duration of the defined benefit obligation was 12.5 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: 2020 2019 Increase Decrease Increase Decrease (3,022 ) 138 3,650 (246 ) (3,186 ) 755 3,884 (845 ) Present value of the accrued benefit obligation 35,529 31,449 27,579 38,811 34,216 Fair value of plan assets Deficit in the plan (21,147 ) (18,108 ) (16,581 ) (25,366 ) (23,579 ) 14,382 13,341 10,998 13,445 10,637 2020 2019 2018 2017 2016 Experience adjustments arising on plan obligations Experience adjustments arising on plan assets 3,220 1,129 2,116 467 (2,427 ) 2,378 (815 ) 351 393 813 The Group expects approximately $0.3 million in contributions to be paid to its defined benefit plans in 2021. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 81 17. Provisions Balance at January 1, 2019 Additions through business combinations Provisions made during the year Provisions used during the year Provisions reversed during the year Unwind of discount on long-term provisions Effect of movements in exchange rates Balance at January 1, 2020 Additions through business combinations Provisions made during the year Provisions used during the year Provisions reversed during the year Unwind of discount on long-term provisions Sale of business Effect of movements in exchange rates Balance at December 31, 2020 December 31, 2020 Current provisions Non-current provisions December 31, 2019 Current provisions Non-current provisions January 1, 2019 Current provisions Non-current provisions 5 5 Self insurance 36,757 508 58,030 (47,977 ) (9,127 ) 326 671 39,188 — 48,534 (32,439 ) (8,795 ) 1,012 (47 ) 280 47,733 14,040 33,693 16,909 22,279 Other 12,990 916 5,200 (17,228 ) (421 ) — 141 1,598 338 9,685 (4,060 ) (1,177 ) — — 138 6,522 3,412 3,110 1,355 243 Total 49,747 1,424 63,230 (65,205 ) (9,548 ) 326 812 40,786 338 58,219 (36,499 ) (9,972 ) 1,012 (47 ) 418 54,255 17,452 36,803 18,264 22,522 15,951 20,805 2,421 10,570 18,372 31,375 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 0.7% (2019 - 2.2%). Other provisions include mainly litigation provisions. 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 December 31, 2020 (178,087 ) (74,041 ) — 4,852 10,634 15,151 94 (108 ) (221,505 ) December 31, 2019 (188,604 ) (79,346 ) 443 5,886 7,449 9,874 14,603 (1,801 ) (231,496 ) January 1, 2019 (156,310 ) (76,682 ) (923 ) 1,684 5,460 12,580 7,294 (940 ) (207,837 ) 11,207 (232,712 ) 8,824 (240,320 ) 4,698 (212,535 ) 2020 Annual Report 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 18. Deferred tax assets and liabilities (continued) Movement in temporary differences during the year: Property and equipment Intangible assets Long-term debt Employee benefits Provisions Tax losses Other Balance January 1 2019 (156,310 ) (76,682 ) 1,684 5,460 12,580 7,294 (1,863 ) Net deferred tax liabilities (207,837 ) (11,171 ) Recognized Acquired Balance Recognized in income or loss directly in equity in business combinations December 31, 2019 (20,699 ) 8,584 (3,445 ) 1,279 (2,912 ) 7,384 (1,362 ) (3,633 ) (2,669 ) 7,647 710 206 (75 ) 1,867 4,053 (7,962 ) (8,579 ) (188,604 ) (79,346 ) — — — — — 5,886 7,449 9,874 14,603 (1,358 ) (16,541 ) (231,496 ) Property and equipment Intangible assets Long-term debt Employee benefits Provisions Tax losses Other Net deferred tax liabilities Balance December 31, 2019 (188,604 ) (79,346 ) 5,886 7,449 9,874 14,603 (1,358 ) (231,496 ) Recognized Acquired Balance Recognized in income or loss directly in equity in business combinations December 31, 2020 12,981 11,396 (1,104 ) 2,387 5,191 (14,396 ) 735 17,190 (1,206 ) (880 ) 70 798 86 (113 ) 545 (701 ) (1,411 ) (5,211 ) (178,087 ) (74,041 ) — — — — (30 ) 4,852 10,634 15,151 94 (108 ) (6,653 ) (221,505 ) 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. During the first quarter of fiscal 2020, the Company completed an initial public offering on the New York Stock Exchange. The Company issued a total of 6,900,000 common shares, that were issued at a price of $33.35 per share for gross proceeds to the Company of $230,115,000. The Company incurred share issuance costs of approximately $13.2 million of which $12.6 million were recorded to share capital and $0.6 million were recognized in the consolidated statement of income. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 83 19. Share capital and other components of equity (continued) During the third quarter of fiscal 2020, the Company completed a common share offering in the United States and Canada. The Company issued a total of 5,060,000 common shares, that were issued at a price of $43.25 per share for gross proceeds to the Company of $218,845,000. The Company incurred share issuance costs of approximately $11.0 million which were fully recorded to share capital. The following table summarizes the number of common shares issued: (in number of shares) Balance, beginning of year Repurchase and cancellation of own shares Issuance of shares Stock options exercised Balance, end of year The following table summarizes the share capital issued and fully paid: Balance, beginning of year Issuance of shares, net of expenses 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 2020 2019 81,450,326 86,397,588 (1,542,155 ) (6,409,446 ) 11,960,000 — 21 1,529,814 1,462,184 93,397,985 81,450,326 2020 678,915 425,350 (12,025 ) 21,361 4,554 1,894 2019 697,232 — (39,621 ) 16,347 4,233 724 1,120,049 678,915 Pursuant to the normal course issuer bid (“NCIB”) which began on October 14, 2020 and ending on October 13, 2021, 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, 2020, and since the inception of this NCIB, the Company has not repurchased and cancelled any shares. During 2020, the Company repurchased 1,542,155 common shares at a weighted average price of $24.64 (CAD $34.13) per share for a total purchase price of $38.0 million relating to the NCIB. During 2019, the Company repurchased 6,409,446 common shares at a weighted average price of 30.03 (CAD $39.89) per share for a total purchase price of $192.5 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 $26.0 million (2019 – $152.8 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). Accumulated other comprehensive income (“AOCI”) At December 31, 2020 and 2019 and January 1, 2019, 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 2020, the Company declared quarterly dividends amounting to a total of $0.80 (CAD $1.07) per outstanding common share when the dividend was declared (2019 – $0.74 (CAD $0.98)) for a total of $72.7 million (2019 - $61.6 million). The Board of Directors approved a quarterly dividend of $0.23 per outstanding common share of the Company’s capital, for an expected aggregate payment of $21.5 million to be paid on April 15, 2021 to shareholders of record at the close of business on March 31, 2021. 2020 Annual Report 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 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 period Effect of stock options exercised Effect of repurchase of own shares Effect of share issuance Weighted average number of common shares 2020 275,675 2019 233,677 81,450,326 86,397,588 858,488 846,690 (1,204,210 ) (3,854,133 ) 8,008,750 — 89,113,354 83,390,145 Earnings per share – basic (in dollars) Earnings per share from continuing operations – basic (in dollars) 3.09 3.09 2.80 2.93 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 2020 2019 275,675 233,677 89,113,354 83,390,145 1,821,452 1,974,038 90,934,806 85,364,183 Earnings per share – diluted (in dollars) Earnings per share from continuing operations – diluted (in dollars) 3.03 3.03 2.74 2.86 As at December 31, 2020, 99,485 stock options were excluded from the calculation of diluted earnings per share (2019 – 900,545) 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. 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: TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 85 21. Share-based payment arrangements (continued) Stock option plan (equity-settled) (continued) (in thousands of options and in dollars) Balance, beginning of year Granted Exercised Forfeited Balance, end of year Options exercisable, end of year 2020 Weighted average exercise price 21.56 40.41 16.73 27.87 24.65 22.34 Number of options 4,422 99 (1,530 ) (9 ) 2,982 2,111 2019 Weighted average exercise price 17.66 30.71 13.58 28.14 21.56 18.45 Number of options 5,031 909 (1,462 ) (56 ) 4,422 3,040 The following table summarizes information about stock options outstanding and exercisable at December 31, 2020: (in thousands of options and in dollars) Exercise prices 23.40 19.12 18.83 26.82 23.70 30.71 40.41 Options outstanding Options exercisable Weighted average remaining contractual life (in years) 0.6 1.6 2.6 3.1 4.1 5.2 6.6 3.4 Number of options 241 517 598 227 470 830 99 2,982 Number of options 241 517 598 227 276 252 — 2,111 Of the options outstanding at December 31, 2020, a total of 2,502,339 (2019 – 3,463,098) are held by key management personnel. The weighted average share price at the date of exercise for stock options exercised in 2020 was $33.78 (2019 – $32.02). In 2020, the Group recognized a compensation expense of $1.7 million (2019 - $3.3 million) with a corresponding increase to contributed surplus. On July 27, 2020, the Board of Directors approved the grant of 99,485 stock options under the Company’s stock option plan of which 99,485 were granted to key management personnel. The options vest in equal installments over three years and have a life of seven years. The fair value of the stock options granted was estimated using the Black-Scholes option pricing model using the following weighted average assumptions: Exercise price Average expected option life Risk-free interest rate Expected stock price volatility* Average dividend yield Weighted average fair value per option of options granted July 27, 2020 February 27, 2019 40.41 4.5 years 0.71% 26.29% 2.62% 6.73 30.71 4.5 years 1.88% 24.30% 2.72% 6.74 * Expected stock price volatility is based on the historical volatility of the Group’s stock over a period commensurate with the expected term of the award. 2020 Annual Report 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 21. Share-based payment arrangements (continued) Deferred share unit plan for board members (cash-settled) The Company offers a deferred share unit (“DSU”) plan for its board members. Under this plan, board members may elect to receive cash, DSUs or a combination of both for their compensation. The following table provides the number of DSUs related to this plan: (in units) Balance, beginning of year Board members compensation Paid Dividends paid in units Balance, end of year 2020 2019 348,031 306,042 29,168 (11,512 ) 8,239 34,144 — 7,845 373,926 348,031 In 2020, the Group recognized, as a result of DSUs, a compensation expense of $1.1 million (2019 - $1.1 million) with a corresponding increase to trade and other payables. In addition, in personnel expenses, the Group recognized a mark-to-market loss on DSUs of $6.5 million (2019 – $2.5 million). As at December 31, 2020, the total carrying amount of liabilities for cash-settled arrangements recorded in trade and other payables amounted to $19.2 million (2019 - $11.9 million, 2018- $7.9 million). Performance contingent restricted share unit and performance share unit plans (equity-settled) The Company offers an equity incentive plan for the benefit of senior employees of the Group. 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 restricted share units (‘’RSUs’’). The PSUs are 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 absolute earnings before interest and income tax and relative total shareholder return (“TSR”). For purposes of the relative TSR portion, there are two equally weighted comparisons: the first portion is compared against the TSR of a group of transportation industry peers and the second portion is compared against the S&P/TSX60 index. RSUs awarded under the equity incentive plan prior to 2020 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. Restricted share units On February 7, 2020, the Company granted a total of 145,218 RSUs under the Company’s equity incentive plan of which 95,358 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 $32.41 per unit. The table below summarizes changes to the outstanding RSUs: 2020 Weighted average grant date fair value 28.08 32.41 29.74 23.75 31.06 31.54 Number of RSUs 239 145 8 (92 ) (1 ) 299 2019 Weighted average grant date fair value 24.87 30.70 27.45 26.73 28.66 28.08 Number of RSUs 147 153 7 (59 ) (9 ) 239 (in thousands of RSUs and in dollars) Balance, beginning of year Granted Reinvested Settled Forfeited Balance, end of year TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 21. Share-based payment arrangements (continued) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 87 Performance contingent restricted share unit and performance share unit plans (equity-settled) (continued) The following table summarizes information about RSUs outstanding and exercisable as at December 31, 2020: (in thousands of RSUs and in dollars) Grant date fair value 30.70 32.41 RSUs outstanding Number of RSUs Remaining contractual life (in years) 152 147 299 1.0 2.1 1.5 The weighted average share price at the date of settlement of RSUs vested in 2020 was $53.10 (2019 – $32.80). The excess of the purchase price paid over the carrying value of shares repurchased for settlement of the award, in the amount of $4.5 million (2019 – $1.1 million), was charged to retained earnings as share repurchase premium. In 2020, the Group recognized, as a result of RSUs, a compensation expense of $3.7 million (2019 - $2.9 million) with a corresponding increase to contributed surplus. Of the RSUs outstanding at December 31, 2020, a total of 196,343 (2019 – 155,974) are held by key management personnel. Performance share units On February 7, 2020, the Company granted a total of 145,218 PSUs under the Company’s equity incentive plan of which 95,358 were granted to key management personnel, at that date. The fair value of the PSUs is determined using the share market price at the date of the grant and reflects the impact of satisfying the market conditions. The share-based compensation expense is recognized, through contributed surplus, over the vesting period. The fair value of the PSUs granted was $32.41 per unit. The table below summarizes changes to the outstanding PSUs: (in thousands of PSUs and in dollars) Balance, beginning of period Granted Reinvested Balance, end of period 2020 Weighted average grant date fair value — 32.41 32.41 32.41 Number of PSUs — 145 2 147 The following table summarizes information about PSUs outstanding and exercisable as at December 31, 2020: (in thousands of PSUs and in dollars) Grant date fair value 32.41 PSUs outstanding Remaining contractual life (in years) 2.1 Number of PSUs 147 In 2020, the Group recognized, as a result of PSUs, a compensation expense of $1.6 million with a corresponding increase to contributed surplus. Of the PSUs outstanding at December 31, 2020, a total of 96,984 are held by key management personnel. 2020 Annual Report 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 22. Materials and services expenses The Group’s materials and services expenses are primarily costs related to independent contractors and vehicle operation expenses. Vehicle operation expenses consists primarily of fuel costs, repairs and maintenance, insurance, permits and operating supplies. Independent contractors Vehicle operation expenses 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 2020 1,535,394 516,441 2,051,835 2019 1,521,388 613,332 2,134,720 Note 2020 2019 857,217 958,619 16 21 21 7,925 528 7,863 7,046 7,606 6,153 496 5,702 6,227 3,588 888,185 980,785 In 2020, the Canada Emergency Wage Subsidy (“CEWS”) was established to enable Canadian employers to re-hire workers previously laid off, help prevent further job losses, and to better position themselves to resume normal operations following the COVID-19 pandemic declaration and crisis. The program has been separated in 4-week claim periods spanning from March 15, 2020 to June 30, 2021. The CEWS for periods prior to July 5, 2020 provides a subsidy of 75% of employee wages to a maximum of CAD $847 (approximately USD $631) per employee per week for eligible Canadian employers. The subsidy available for periods after July 5, 2020 is determined on a sliding scale that is capped at specific rates per period. To be eligible to receive the wage subsidy, a Canadian employer needs to have sustained a 30% decrease in revenues (15% for the first claim period) as compared to the same period in the previous year or to the average monthly sales recognized in January and February 2020 for the periods prior to July 5, 2020. For the following periods, any drop in qualifying revenues makes an employer entitled to the subsidy, in an amount determined on a sliding scale and in proportion to the decrease in the qualifying revenues. During 2020, certain legal entities within the Company qualified for the CEWS resulting in a $52.3 million subsidy that is recorded and offset against personnel expenses, presented in short-term employee benefits, in the consolidated statement of income. TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 89 24. Finance income and finance costs Recognized in income or loss: Costs (income) Interest expense on long-term debt and accretion of deferred financing fees 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 interest rate derivatives Other financial expenses Net finance costs Presented as: Finance income Finance costs 2020 34,967 12,443 2019* 43,949 13,983 (1,051 ) (2,285 ) 224 (1,237 ) (488 ) 9,052 53,910 199 220 — 6,041 62,107 (2,776 ) 56,686 (2,285 ) 64,392 * Effective January 1, 2020, the Group presents mark-to-market (gain) loss on DSUs in personnel expenses. Therefore, $2.5 million loss on mark-to-market on DSUs for the year ended December 31, 2019 have been recast to adhere to the newly adopted presentation. 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 Income tax expense Income tax recognized in other comprehensive income: 2020 2019 103,080 1,092 104,172 (7,536 ) 70 (9,724 ) (17,190 ) 86,982 66,905 (2,204 ) 64,701 8,345 (2,370 ) 5,860 11,835 76,536 2020 Tax 2019 Tax Before tax (benefit) expense Net of tax Before tax (benefit) expense Net of tax Foreign currency translation differences 21,182 — 21,182 17,476 — 17,476 Defined benefit plan remeasurement gains (losses) (2,204 ) (581 ) (1,623 ) (1,649 ) (421 ) (1,228 ) Employee benefit (14 ) (4 ) (10 ) 45 14 32 Gain (loss) on net investment hedge (2,317 ) (307 ) (2,010 ) 14,031 1,873 12,158 Loss on cash flow hedge (488 ) (1 ) (487 ) (10,007 ) (2,613 ) (7,394 ) Change in fair value of investment in equity securities Reclassification to retained earnings of accumulated unrealized loss on investment in equity securities — — — — — 5,039 679 4,360 — (3,936 ) (546 ) (3,390 ) 16,159 (893 ) 17,052 20,999 (1,014 ) 22,014 2020 Annual Report 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 25. Income tax expense (continued) Reconciliation of effective tax rate: Income before income tax 2020 362,657 2019 320,761 Income tax using the Company’s statutory tax rate 26.5% 96,104 26.6% 85,322 Increase (decrease) resulting from: Rate differential between jurisdictions Variation in tax rate Non deductible expenses Tax deductions and tax exempt income Adjustment for prior years Multi-jurisdiction tax Treasury Regulations, interpretive guidance clarifying the U.S. Tax Reform Bill -1.2% 0.0% 2.4% -2.8% -2.4% 0.3% 1.2% 24.0% (4,452 ) 70 8,704 (10,176 ) (8,632 ) 913 4,451 86,982 -3.0% -0.7% 1.1% -2.2% 1.1% 1.0% 0.0% 23.9% (9,623 ) (2,370 ) 3,528 (7,057 ) 3,528 3,208 — 76,536 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 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. On April 7, 2020, the U.S. Treasury Department issued Treasury Regulations, interpretive guidance clarifying the U.S. Tax Reform Bill. As anticipated, a tax benefit relating to 2019 and Q1 2020 was disallowed, resulting in a one-time tax expense of $7.3 million in the second quarter of 2020. On July 23, 2020, the U.S. Treasury Department issued final regulations on changes made to the U.S. Tax Reform Bill. It introduces a High-Tax Exception under the Global Intangible Low-taxed Income (GILTI) provisions. A tax benefit relating to 2018 and 2019 was recorded, resulting in a one-time tax recovery of $2.0 million in 2020. For the year ended December 31, 2020, the total impact from these new regulations was $4.5 million following positive adjustments recorded in the fourth quarter of 2020. 26. Financial instruments and financial risk management Derivative financial instruments designated as effective cash flow hedge instruments' fair values were as follows: December 31, 2020 December 31, 2019 January 1, 2019 — — — — 30 — 649 684 3,980 2,159 — — Current assets Interest rate derivatives Non-current assets Interest rate derivatives Current liabilities Interest rate derivatives Non-current liabilities Interest rate derivatives TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 91 26. Financial instruments and financial risk management (continued) As at December 31, 2020 and 2019, the impact to income or loss and other comprehensive income is as follows: Derivative financial instruments measured at fair value through other comprehensive income: Interest rate derivatives Finance (loss) income Other comprehensive (loss) income 2020 2019 2020 2019 (488 ) (488 ) — — 488 488 10,007 10,007 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. 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 94.9% (2019 – 94.2%) of the Group’s trade receivables are not past due or 30 days or less past due; • Bad debt expense has been less than 0.1% of consolidated revenues for the last 3 years. 2020 Annual Report 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 26. Financial instruments and financial risk management (continued) 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: December 31, December 31, January 1, 2020 597,873 — — 597,873 2019 452,241 19,105 30 471,376 2019 463,075 16,630 6,140 485,844 Not past due Past due 1 – 30 days Past due 31 – 60 days Past due more than 60 days Total 2020 447,517 104,491 26,601 30,792 609,401 Impairment 2020 224 1,211 3,439 6,654 Total 2019 345,953 80,642 17,467 14,871 11,528 458,933 Impairment 2019 — 669 2,008 4,015 6,692 The movement in the allowance for expected credit loss 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 Effect of movements in exchange rates Balance, end of year b) Liquidity risk 2020 6,692 4,473 2,749 2019 5,095 398 2,161 (2,795 ) (1,237 ) 409 11,528 275 6,692 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 $825 million availability at December 31, 2020 (2019 - $466 million) and an additional $196.5 million credit available (CAD $245 million and USD $5 million). The additional credit is available under certain conditions under the Group’s syndicated bank agreement (2019 - $192.5 million, CAD $245 million and USD $5 million). TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 93 26. Financial instruments and financial risk management (continued) b) Liquidity risk (continued) The following are the contractual maturities of the financial liabilities, including estimated interest payment: Carrying Contractual Less than amount cash flows 1 year 1 to 2 years 2 to 5 years More than 5 years 2020 Trade and other payables 468,238 468,238 468,238 — — — Long-term debt 872,544 953,425 65,697 539,317 192,087 156,324 Other financial liability 19,793 11,017 4,016 2,395 1,607 2,999 1,360,575 1,432,680 537,951 541,712 193,694 159,323 2019 Bank indebtedness 2,927 2,927 2,927 Trade and other payables 341,443 341,443 341,443 — — — — — — Long-term debt 1,343,307 1,508,763 85,255 595,574 666,210 161,725 Derivatives financial liabilities Other financial liability 1,333 3,984 1,333 4,158 649 2,079 342 2,079 342 — — — 1,692,994 1,858,624 432,352 597,995 666,551 161,725 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 USD cash flow by creating offsetting positions through the use of foreign exchange contracts periodically and USD debt. To mitigate its financial net liabilities exposure to foreign currency risk related to Canadian entities, the Group designated a portion of its U.S. dollar denominated debt as a hedging item in a net investment hedge. The Group’s financial assets and liabilities exposure to foreign currency risk related to Canadian entities was as follows based on notional amounts: 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 2020 36,250 (2,162 ) 2019 30,733 (2,573 ) (225,393 ) (478,566 ) (191,305 ) (450,406 ) 225,000 325,000 33,695 (125,406 ) 2020 Annual Report 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 26. Financial instruments and financial risk management (continued) d) Currency risk (continued) The Group estimates its annual net USD denominated cash flow from operating activities at approximately $280 million (2019 - $330 million). This cash flow is earned evenly throughout the year. The following exchange rates applied during the year: Average USD for the year ended Closing USD as at Sensitivity analysis December 31, December 31, January 1, 2020 1.3415 1.2725 2019 1.3269 1.2988 2019 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 2019. Balance sheet exposure Long-term debt designated as investment hedge Net balance sheet exposure 1-cent 2020 1-cent 1-cent 2019 1-cent Increase Decrease Increase Decrease (1,503 ) 1,768 265 1,503 (1,768 ) (265 ) (3,468 ) 2,502 (966 ) 3,468 (2,502 ) 966 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. During 2020, three hedging relationships ended due to the repayment of the hedged items. At December 31, 2020, the Group has no interest rate swaps that hedge variable interest debt set using the 30-day Libor rate (2019 – $325 million). A $0.5 million loss, $0.5 million net of tax, (2019 – $10.0 million loss, $7.4 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, 2020, the derivatives that were designated as cash flow hedges were considered to be fully effective and no ineffectiveness has been recognized in net income. At December 31, 2020 and 2019, 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 2020 419,565 452,979 2019 410,618 932,689 872,544 1,343,307 TFI International YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 95 26. Financial instruments and financial risk management (continued) e) Interest rate risk (continued) The Group’s interest rate derivatives are as follows: 2020 2019 Notional Notional Notional Notional Average Contract Average Contract Fair Average Contract Average Contract Fair B.A. Amount Libor Amount value B.A. Amount Libor Amount value rate CAD rate USD USD rate CAD rate USD USD Coverage period: Less than 1 year 1 to 2 years 2 to 3 years Liability Presented as: Current assets Current liabilities Non-current liabilities — — — — — — — — — — — — 0.99% 75,000 1.90% 293,750 — — — — 1.92% 100,000 1.92% 100,000 — — — — — — — (619 ) (342 ) (342 ) (1,303 ) 30 (649 ) (684 ) 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 2019. Interest on variable rate instrument (3,311 ) 3,311 (4,455 ) 4,455 1% increase 1% decrease 1% increase 1% decrease 2020 2019 Impact on instruments used in cash flow hedge: Interest on variable rate instrument Interest on interest rate swaps 1% increase 1% decrease 1% increase 1% decrease 2020 2019 — — — — — — (2,577 ) 2,577 — 2,577 (2,577 ) — Net impact on change in fair value of interest rate swaps is not significant. f) Capital management For the purposes of capital management, capital consists of share capital and retained earnings of the Group. The Group's objectives when managing capital are: • • • • To ensure proper capital investment in order to provide stability and competitiveness to its operations; To ensure sufficient liquidity to pursue its growth strategy and undertake selective acquisitions; To maintain an appropriate debt level so that there are no financial constraints on the use of capital; and To maintain investors, creditors and market confidence. 2020 Annual Report 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) 26. Financial instruments and financial risk management (continued) f) Capital management (continued) 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 2020 2019 872,544 1,343,307 1,790,177 1,159,292 0.49 0.33 1.16 0.54 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, 2020 and 2019, 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, 2020 AND 2019 (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 97 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 December 31, 2020 December 31, 2019 January 1, 2019 Carrying Amount Fair Value Carrying Amount Fair Value Carrying Amount Fair Value — 9,727 — 9,727 30 1,071 30 1,071 6,139 1,098 6,139 1,098 597,873 597,873 452,241 452,241 463,075 463,075 — — 19,105 19,105 16,630 16,630 607,600 607,600 472,447 472,447 486,942 486,942 — — 26,730 26,730 1,333 4,853 1,333 4,853 — 5,775 — 5,775 — — 2,927 2,927 9,041 9,041 468,238 468,238 341,443 341,443 348,618 348,618 872,544 876,829 1,343,307 1,346,286 1,161,430 1,207,408 1,367,512 1,371,797 1,693,863 1,696,842 1,524,864 1,570,842 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 2020 2.5% 2019 3.3% 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-3 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. 2020 Annual Report 98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020 AND 2019 (Tabular amounts in thousands of U.S. 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. In the opinion of management, these claims are adequately provided for in long-term provisions on the consolidated statements of financial position 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, 2020, the Group had $29.5 million of outstanding letters of credit (2019 - $32.1 million). c) Other commitments As at December 31, 2020, the Group had $117.1 million of purchase commitments (2019 – $27.1 million) and $44.1 million of purchase orders for leases that the Group intends to enter into and that are expected to materialize within a year (2019 – $9.0 million). 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. 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 and performance 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 2020 13,906 704 4,627 1,086 2019 11,244 645 3,700 1,107 20,323 16,696 29. Subsequent events The Company has signed a definitive agreement to acquire UPS Freight, the Less-Than-Truckload and dedicated truckload divisions of United Parcel Service, Inc. for $800 million on a cash-free, debt-free basis before working capital and other adjustments, which is expected to close in the second quarter of 2021 subject to customary closing conditions including regulatory approvals. On January 13, 2021, the Company received $500 million in proceeds from the issuance of a new debt taking the form of unsecured senior notes consisting of four tranches maturing between January 2029 and January 2036 and bearing interest between 3.15% and 3.50%. On January 29, 2021, the Company acquired Fleetway Transport Inc. for $21 million. 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.) VIRTUAL ANNUAL MEETING OF SHAREHOLDERS Tuesday, April 27, 2021 at 1:30 p.m. Details to be confirmed at a later date at: www.tfiintl.com/en/news/ 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. T F I I N T E R N A T I O N A L A N N U A L R E P O R T 2 0 2 0 www.tfiintl.com 

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