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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.
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