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2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2021
MANAGEMENT’S DISCUSSION AND ANALYSIS
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, 2021 with the corresponding three-month period and year ended December 31, 2020 and it reviews the Company’s
financial position as of December 31, 2021. It also includes a discussion of the Company’s affairs up to March 14, 2022, 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, 2021.
In this document, all financial data are prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”) unless otherwise noted. All amounts are in United States dollars (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
March 14, 2022. 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.
2021 Annual Report│2
SELECTED FINANCIAL DATA AND HIGHLIGHTS
MANAGEMENT’S DISCUSSION AND ANALYSIS
(unaudited)
(in thousands of U.S. dollars, except per share data)
Revenue before fuel surcharge
Fuel surcharge
Total revenue
Adjusted EBITDA1
Operating income
Net income
Adjusted net income1
Net cash from operating activities
Free cash flow1
Per share data
EPS – 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 margin1
Adjusted operating ratio1
2020
2020
2021
2021
Three months ended
December 31
2019*
Years ended
December 31
2019*
1,888,423 1,048,147 883,717 6,468,785 3,484,303 3,477,576
73,859 105,315 751,644 296,831 425,969
252,491
2,140,914 1,122,006 989,302 7,220,429 3,781,134 3,903,545
318,466 193,538 163,397 1,076,479 699,589 649,021
92,784 889,185 416,567 382,868
214,979 117,122
57,955 664,361 275,675 244,225
86,328
144,139
60,085 498,348 299,763 253,583
93,357
148,620
190,333 164,928 133,262 855,351 610,862 500,496
78,053 700,889 544,644 347,698
120,749 134,715
1.52
1.57
0.27
16.9 %
3.5 %
1.7 %
0.7 %
11.4 %
89.0 %
0.91
0.98
0.23
18.5 %
4.2 %
2.1 %
1.3 %
11.2 %
89.1 %
0.70
0.72
0.20
18.5 %
5.1 %
2.2 %
1.4 %
10.5 %
90.2 %
6.97
5.23
0.96
16.6 %
3.5 %
1.7 %
0.9 %
13.7 %
89.4 %
3.03
3.30
0.80
20.1 %
4.9 %
2.3 %
1.4 %
12.0 %
88.5 %
2.86
2.97
0.74
18.7 %
4.9 %
2.2 %
1.4 %
11.0 %
89.8 %
* Recasted for change in presentation currency from Canadian dollar to U.S. dollar. In 2019, the Company classified amounts as from discontinued operations, the amounts shown for 2019
throughout this MD&A are from continuing operations.
Q4 Highlights
Fourth quarter operating income of $215.0 million increased 84% from $117.1 million the same quarter last year, benefitting from a continuing rebound in
economic activity and transportation demand following 2020’s pandemic-related weakness, as well as contributions from acquisitions, cost reductions enacted
in response to the pandemic, strong execution across the organization, and an asset-light approach.
Net income of $144.1 million increased 67% compared to $86.3 million in Q4 2020. Diluted earnings per share (diluted “EPS”) of $1.52 also increased 67%,
compared to $0.91 in Q4 2020.
Adjusted net income1, a non-IFRS measure, of $148.6 million increased 59% compared to $93.4 million in Q4 2020.
Adjusted diluted EPS1, a non-IFRS measure, of 1.57 increased 60% compared to $0.98 in Q4 2020.
Net cash from operating activities of $190.3 million increased 15% compared to $164.9 million in Q4 2020.
Free cash flow1, a non-IFRS measure, of $120.7 million decreased 10% compared to $134.7 million in Q4 2020.
The Company’s reportable segments performed as follows:
o
o
o
o
Package and Courier operating income increased 25% to $36.7 million;
Less-Than-Truckload operating income increased 244% to $84.0 million;
Truckload operating income increased 15% to $61.8 million; and
Logistics operating income increased 24% to $32.9 million.
On December 16, 2021, the Board of Directors of TFI declared a quarterly dividend of $0.27 per share, compared to the $0.23 (CAD $0.29) per share dividend
declared in Q4 2020.
During the quarter, TFI International acquired Gunter Transportation, SGT 2000, D&D Sexton, Laser Transport, F.K.D. Contracting and selected assets of Waca
Bulk Systems.
1 This is a non-IFRS measure. For a reconciliation, please refer to the “Non-IFRS financial measures” section below.
2021 Annual Report│3
ABOUT TFI INTERNATIONAL
compares to 7,867 tractors, 25,520 trailers and 9,901 independent contractors
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 (“LTL”);
Truckload (“TL”);
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, 2021, the Company had 29,539 employees in TFI
International’s various business segments across North America. This
compares to 16,753 employees as at December 31, 2020. The year-over-year
increase of 12,884 is attributable to business acquisitions that added 15,545
employees offset by rationalizations affecting 2,661 employees mainly in the
LTL segment. The Company believes that it has a relatively low turnover rate
among its employees in Canada, and a normal turnover rate in the U.S.
comparable to other U.S. carriers, and that its employee relations are very
good.
Equipment
The Company believes it has the largest trucking fleet in Canada and a
significant presence in the U.S. market. As at December 31, 2021, the Company
had 13,384 tractors, 50,091 trailers and 9,428 independent contractors. This
as at December 31, 2020.
Facilities
TFI International’s head office is in Montréal, Québec and its executive office
is in Etobicoke, Ontario. As at December 31, 2021, the Company had 576
facilities, as compared to 366 facilities as at December 31, 2020. Of these, 246
are located in Canada, including 160 and 86 in Eastern and Western Canada,
respectively. The Company also had 318 facilities in the United States and 12
facilities in Mexico. In the last twelve months, 220 facilities were added from
business acquisitions, and terminal consolidation decreased the total number
of facilities by 10, mainly in the TL segment. In Q4 2021, the Company closed
2 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
(49% of total revenue)
Retail
Manufactured Goods
Building Materials
Automotive
Metals & Mining
Services
Food & Beverage
Chemicals & Explosives
Forest Products
Energy
Waste Management
Others
34%
15%
9%
8%
7%
6%
6%
5%
3%
2%
1%
4%
(For the year ended December 31, 2021)
2021 Annual Report│4
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONSOLIDATED RESULTS
This section provides general comments on the consolidated results of operations. A more detailed analysis is provided in the “Segmented Results” section.
2021 business acquisitions
In line with its growth strategy, the Company acquired ten businesses during 2021.
On January 29, 2021, TFI International acquired Fleetway Transport Inc. (“Fleetway”). Based out of Brantford, Ontario, Fleetway is a full service provider of truckload
and heavy-haul transportation solutions and logistics services.
On April 30, 2021, TFI International completed the acquisition of UPS Ground Freight, Inc.’s (“UPS Freight”) the less-than-truckload (LTL) and dedicated truckload (TL)
divisions of United Parcel Service, Inc. (NYSE: UPS). The LTL business, representing approximately 90% of the acquired business now independently operates under
the new name of “TForce Freight”.
On June 1, 2021, TFI International acquired Procam International (“Procam”). Based in Quebec, Procam provides bulk transportation services primarily in the
northeastern region of Canada and the United States.
On July 2, 2021, TFI International acquired Driving Force Decks International Ltd (“Driving Force”). Based in Abbotsford, British Columbia, Driving Force provides flat
deck services through their asset-light, scalable model.
On July 16, 2021, TFI International acquired Tombro Trucking Limited (“Tombro”). Based out of Milton, Ontario, Tombro provides flat deck services primarily hauling
freight such as brick, block, and precast.
On October 1, 2021, TFI International acquired Gunter Transportation Ltd. (“Gunter”). Based out of Woodstock, Ontario, Gunter provides flatbed trucking serving
wood products, pre-cast concrete, metals, equipment and specialty products.
On October 3, 2021, TFI International acquired SGT 2000 Inc. (“SGT”). Based in Quebec, SGT provides truckload, logistics, warehousing and vehicle rental services
throughout North America.
On November 26, 2021, TFI International acquired D&D Sexton (“D&D”). Based in Carthage, Missouri, D&D specializes in refrigerated transportation providing both
long-haul over-the-road services as well as local and shuttle operations.
On November 26, 2021, TFI International acquired Laser Transport Inc. (“Laser”). Based out of Windsor, Ontario, Laser provides truckload, warehousing and distribution
services.
On December 10, 2021, TFI International acquired F.K.D. Contracting (Alta) Ltd. (“FKD”). Based out of western Canada, F.K.D. offers bulk tank transportation.
Revenue
For the three months ended December 31, 2021, total revenue was $2,140.9 million, up 91%, or $1,018.9 million, from Q4 2020. The increase was mainly attributable
to the contribution from business acquisitions of $961.6 million and from an increase of $57.4 million from existing operations, which included an increase in fuel
surcharge revenue of $61.3 million. The average exchange rate used to convert TFI International’s revenue generated in CAD dollars increased this quarter (to
US$0.7935) compared to the same quarter last year (US$0.7667) resulting in a positive currency impact of $16.6 million.
For the year ended December 31, 2021, total revenue was $7.22 billion, up 91%, or $3.44 billion, from 2020. The increase was mainly attributable to the contribution
from business acquisitions of $3.11 billion and from an increase of $334.2 million from existing operations, which included an increase in fuel surcharge revenue of
$144.0 million.
Operating expenses
For the three months ended December 31, 2021, the Company’s operating expenses increased by $921.1 million, to $1,925.9 million, up from $1,004.9 million in Q4
2020. The increase is attributable to $886.6 million from business acquisitions, and the remaining cost increase from existing operations is in line with the increase in
revenue from existing operations.
For the three months ended December 31, 2021, material and services expenses, net of fuel surcharge, decreased by 8.4 percentage points of revenue before fuel
surcharge compared to the same period last year due mainly to the impact from business acquisitions.
2021 Annual Report│5
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three months ended December 31, 2021, personnel expense increased 144% to $598.6 million from $245.4 million in Q4 2020. The increase is attributed
almost entirely to the impact from business acquisitions of $338.0 million.
Other operating expenses, which are primarily comprised of costs related to office and terminal rent, taxes, heating, telecommunications, maintenance and security
and other general administrative expenses, increased by $74.4 million for the three months ended December 31, 2021 as compared to the same period last year,
attributable primarily to the impact from business acquisitions of $67.6 million.
For the year ended December 31, 2021, the Company’s operating expenses increased by $2.97 billion from $3.36 billion in 2020 to $6.33 billion in 2021. The increase
is mainly attributable to $2.69 billion from business acquisitions. The operating expenses from existing operations as a percentage of total revenue decreased from
89.6% to 88.1%. The decrease is due to operating improvements, better fleet utilization and lower material and service expenses in the Company’s existing operations,
and one time reductions to the pension costs of $15.1 million, despite a mark-to-market expense on DSUs of $22.9 million, a reduction in the contribution from the
Canada Emergency Wage Subsidy Program of $40.0 million, and business acquisition transaction costs of $8.7 million.
Operating income
For the three months ended December 31, 2021, TFI International’s operating income rose by $97.9 million to $215.0 million as compared to $117.1 million in the
same quarter in 2020. The increase was driven primarily by $75.0 million related to business acquisitions. The operating margin as a percentage of revenue before
fuel surcharge of 11.4% compared to 11.2% in Q4 2020
For the year ended December 31, 2021, TFI International’s operating income rose by $472.6 million to $889.2 million as compared to $416.6 million in 2020. The
increase is primarily attributable to the impact from business acquisitions $411.7 million, which includes a $193.5 million bargain purchase gain. The operating margin
as a percentage of revenue before fuel surcharge of 13.7% increased compared to 12.0% in the prior year.
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
Net impact of early repayment of contingent consideration
Others
Net finance costs
Interest expense on long-term debt
Three months ended
December 31
2020
7,287
3,072
(277)
141
373
(488)
—
5,274
15,382
2021
12,393
3,403
(1,573)
1,571
(939)
—
—
6,586
21,441
Years ended
December 31
2020
34,967
12,443
(1,051)
224
(1,237)
(488)
—
9,052
53,910
2021
45,953
13,521
(2,187)
1,932
(1,471)
—
(1,469)
16,739
73,018
Interest expense on long-term debt for the three-month period ended December 31, 2021 was $5.1 million higher than the same quarter last year. The increase is
mainly attributable to a higher average debt level, based on the month-end debt levels, of $1.58 billion for Q4 2021 compared to an average debt level of $0.94 billion
in Q4 2020.
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 facilities not designated as a hedge and to the translation of other financial assets and liabilities denominated in
currencies other than the functional currency. For the three-month period ended December 31, 2021, a gain of $1.8 million of foreign exchange variations (a gain of
$1.5 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, 2020, a gain of $7.2 million of foreign exchange variations (a gain of $6.2 million net of tax) was recorded to other comprehensive income
as it relates to the translation of the debt in the net investment hedge.
For the year ended December 31, 2021, a loss of $17.9 million of foreign exchange variations (a loss of $15.5 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 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.
2021 Annual Report│6
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 previously designated 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 was recognized in other comprehensive income. For the three-month period and year ended December 31, 2021, the Company did not
have any cash flow hedge positions. For the three-month period ended December 31, 2020, a $2.6 million loss 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 year ended December 31, 2020, a cumulative loss of $0.5 million 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.
Other Financial Expenses
For the three-month period ended December 31, 2021, other financial expenses increased $1.3 million to $6.6 million as compared to $5.3 million in the prior year
period. For the year ended December 31, 2021, other financial expenses increased $7.7 million to $16.7 million as compared to $9.1 million in the prior year period.
The increase for the year is attributable to recurring bank charges and transaction fees primarily from the business acquisitions of DLS Worldwide (renamed “TFWW”),
in 2020, and TForce Freight in 2021.
Income tax expense
For the three months ended December 31, 2021, the Company’s effective tax rate was 19.0%. The income tax expense of $62.3 million reflects a $24.9 million favorable
variance versus an anticipated income tax expense of $87.2 million based on the Company’s statutory tax rate of 26.5%. The favorable variance is mainly due to
favorable variations from tax deductions and tax exempt income of $28.3 million partially offset by a negative variation of $2.5 million for rate differential between
jurisdictions.
For the year ended December 31, 2021, the Company’s effective tax rate was 18.7%. The income tax expense of $189.9 million reflects a $79.5 million favorable
variance versus an anticipated income tax expense of $269.5 million based on the Company’s statutory tax rate of 26.5%. The favorable variance is mainly due to the
tax exempt bargain purchase gain recorded on the acquisition of UPS Freight which resulted in a favorable variance of $85.8 million. This is partially offset by a negative
variation of $7.1 million for non deductible expenses.
Net income and adjusted net income
(unaudited)
(in thousands of U.S. dollars, except per share data)
Three months ended
December 31
2019*
56,680
12,511
2020
86,328
13,786
2021
664,361
50,498
2020
275,675
47,623
Years ended
December 31
2019*
233,677
48,293
2021
144,139
13,127
Net income
Amortization of intangible assets related to business acquisitions
Net change in fair value and accretion expense of contingent
considerations
199
1,571
—
—
Net change in fair value of derivatives
220
(939)
Net foreign exchange (gain) loss
—
—
Gain on sale of business
(8,014)
—
Bargain purchase gain
(21,580)
(6,645)
Gain on sale of land and buildings and assets held for sale
—
(5)
(Gain) loss on disposal of intangible assets
—
—
U.S. Tax Reform
10,548
—
Net impact from discontinued operations
(9,760)
(2,628)
Tax impact of adjustments
Adjusted net income1
253,583
148,620
Adjusted EPS – basic1
3.04
1.60
Adjusted EPS – diluted1
2.97
1.57
*Recasted for change in presentation currency from Canadian dollar to U.S. dollar. The 2019 Net income presented above includes the impact of discontinued operations. The impact from
the discontinued operations is included as an adjustment.
1,932
—
(1,471)
—
(193,549)
(12,190)
1
—
—
(11,234)
498,348
5.36
5.23
224
(488)
(1,237)
(306)
(4,008)
(11,893)
—
4,451
—
(10,278)
299,763
3.36
3.30
141
(488)
373
(306)
—
(2,206)
—
(1,072)
—
(3,199)
93,357
1.00
0.98
55
—
665
—
—
(6,373)
—
—
1,302
(4,755)
60,085
0.74
0.72
2021 Annual Report│7
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three months ended December 31, 2021, TFI International’s net income was $144.1 million as compared to $86.3 million in Q4 2020. The Company’s adjusted
net income1, a non-IFRS measure, which excludes items listed in the above table, was $148.6 million as compared to $93.4 million in Q4 2020, an increase of 59% or
$55.3 million. Adjusted EPS, fully diluted, increased by $0.59 to $1.57 from $0.98 in Q4 2020.
For the year ended December 31, 2021, TFI International’s net income was $664.4 million as compared to $275.7 million in 2020. The Company’s adjusted net income1,
a non-IFRS measure, which excludes items listed in the above table, was $498.3 million as compared to $299.8 million in 2020, an increase of 141% or $388.7 million.
Adjusted EPS, fully diluted, increased by $1.93 to $5.23 from $3.30 in 2020.
1 This is a non-IFRS. For the reconciliation, refer to the “Non-IFRS financial measures” section below.
2021 Annual Report│8
MANAGEMENT’S DISCUSSION AND ANALYSIS
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)
Three months ended December 31, 2021
Revenue before fuel surcharge1
% of total revenue2
Adjusted EBITDA3
Adjusted EBITDA margin3,4
Operating income (loss)
Operating margin3,4
Total assets less intangible assets3
Net capital expenditures3
Three months ended December 31, 2020
Revenue before fuel surcharge1
% of total revenue2
Adjusted EBITDA3
Adjusted EBITDA margin3,4
Operating income (loss)
Operating margin3,4
Total assets less intangible assets3
Net capital expenditures3
YTD December 31, 2021
Revenue before fuel surcharge1
% of total revenue2
Adjusted EBITDA3
Adjusted EBITDA margin3,4
Operating income (loss)
Operating margin3,4
Total assets less intangible assets3
Net capital expenditures3
YTD December 31, 2020
Revenue before fuel surcharge1
% of total revenue2
Adjusted EBITDA3
Adjusted EBITDA margin3,4
Operating income (loss)
Operating margin3,4
Total assets less intangible assets3
Net capital expenditures3
Package
and
Courier
Less-
Than-
Truckload Truckload
Logistics Corporate Eliminations
Total
150,074
8%
43,496
29.0%
36,713
24.5%
506,432
822,911
27%
44%
111,848
141,189
22.1%
17.2%
61,803
103,449
12.2%
12.6%
186,116 2,031,994 1,362,007
15,113
46,986
5,926
154,094
15%
35,934
23.3%
29,401
19.1%
194,631
2,533
141,081
14%
37,084
26.3%
24,464
17.3%
438,135
42%
101,383
23.1%
53,604
12.2%
404,074 1,193,730
22,955
5,415
427,561
20%
42,465
9.9%
32,869
7.7%
292,026
192
322,319
29%
35,809
11.1%
26,462
8.2%
272,592
83
9%
134,845
24.1%
108,440
19.4%
560,147 2,440,640 1,901,157 1,620,926
23%
169,005
10.4%
142,794
8.8%
292,026
316
30%
39%
431,181
415,641
22.7%
17.0%
230,189
482,754
12.1%
19.8%
186,116 2,031,994 1,362,007
69,177
52,703
14,445
481,490
14%
104,019
21.6%
78,753
16.4%
194,631
16,673
15%
138,361
26.5%
87,950
16.8%
522,851 1,584,837
46%
383,155
24.2%
206,346
13.0%
404,074 1,193,730
41,781
11,673
923,456
25%
113,885
12.3%
84,459
9.1%
272,592
288
—
(20,532)
(19,855)
88,059
20
—
(16,672)
(16,809)
34,564
225
—
(74,193)
(74,992)
88,059
141
—
(39,831)
(40,941)
34,564
349
—
(18,555) 1,888,423
100%
318,466
16.9%
214,979
11.4%
— 3,960,202
68,237
—
—
—
(7,482) 1,048,147
100%
193,538
18.5%
117,122
11.2%
2,099,591
31,211
—
—
(54,085) 6,468,785
100%
— 1,076,479
16.6%
889,185
13.7%
— 3,960,202
136,782
—
—
—
(28,331) 3,484,303
100%
699,589
20.1%
416,567
12.0%
— 2,099,591
70,764
—
—
1 Includes intersegment revenue.
2 Segment revenue including fuel surcharge and intersegment revenue to consolidated revenue including fuel surcharge and intersegment revenue.
3 This is a non-IFRS measures. For a reconciliation, refer to the “Non-IFRS financial measures” section below.
4 As a percentage of revenue before fuel surcharge.
2021 Annual Report│9
MANAGEMENT’S DISCUSSION AND ANALYSIS
Package and Courier
(unaudited)
(in thousands of U.S. dollars)
Three months ended December 31
%
%
Years ended December 31
%
%
2021
177,368
(27,294)
150,074
100.0%
Total revenue
Fuel surcharge
Revenue
Materials and services expenses (net of fuel
surcharge)
Personnel expenses
Other operating expenses
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
(Gain) loss on sale of rolling stock and equipment
Gain on derecognition of right-of-use assets
Gain on sale of land and buildings and assets
held for sale
Loss on disposal of intangible assets
Operating income
Adjusted EBITDA1
Return on invested capital1
1 This is a non-IFRS measure. For a reconciliation, refer to the “Non-IFRS financial measures” section below.
60,636
39,060
6,905
3,297
3,300
186
(23)
-
40.4%
26.0%
4.6%
2.2%
2.2%
0.1%
-0.0%
-
-
-
24.5%
29.0%
25.3%
-
-
36,713
43,496
2020
167,555
(13,461)
154,094
72,115
39,821
6,234
3,168
3,210
248
(10)
0
(93)
—
29,401
35,934
2021
641,449
(81,302)
560,147
243,786
154,820
26,762
12,392
13,109
903
(59)
(7)
—
1
108,440
134,845
100.0%
46.8%
25.8%
4.0%
2.1%
2.1%
0.2%
-0.0%
0.0%
-0.1%
-
19.1%
23.3%
18.2%
2020
529,155
(47,665)
481,490
220,741
133,552
23,145
11,539
12,871
947
43
(10)
(91)
—
78,753
104,019
100.0%
43.5%
27.6%
4.8%
2.2%
2.3%
0.2%
-0.0%
-0.0%
-
0.0%
19.4%
24.1%
100.0%
45.8%
27.7%
4.8%
2.4%
2.7%
0.2%
0.0%
-0.0%
-0.0%
-
16.4%
21.6%
Operational data
(unaudited)
(Revenue in U.S. dollars)
Revenue per pound (including fuel)
Revenue per pound (excluding fuel)
Revenue per shipment (excluding fuel)
Tonnage (in thousands of metric tons)
Shipments (in thousands)
Average weight per shipment (in lbs.)
Vehicle count, average
Weekly revenue per vehicle (incl. fuel, in thousands of U.S.
dollars)
Revenue
Three months ended December 31
%
7.5%
2020 Variance
$0.03
$0.40
2021
$0.43
$0.36
$6.11
187
24,581
16.77
1,139
$0.36
$5.88
192
26,185
16.16
1,008
$
—
$0.23
(5)
(1,604)
0.61
131
—
3.9%
-2.6%
-6.1%
3.8%
13.0%
2021
$0.44
$0.39
$6.21
656
90,257
16.03
1,069
Years ended December 31
%
21.6%
2020 Variance
$0.36
$0.08
$0.33
$5.67
658
84,854
17.09
1,023
$0.06
$0.53
(2)
5,403
(1.06)
46
16.7%
9.4%
-0.3%
6.4%
-6.2%
4.5%
$11.98
$12.79
$(0.81)
-6.2%
$11.54
$9.95
$1.59
16.0%
For the three months ended December 31, 2021, revenue was $150.1 million, down by $4.0 million, or 2.6%, from $154.1 million in Q4 2020. This decrease is
attributable to a 6.1% decrease in shipments offset by a 3.9% increase in revenue per shipment (excluding fuel surcharge) which was driven by a 3.8% increase in
average weight per shipment due to increases in business-to-business volumes. The decrease in shipments is attributable to demarketing of low yield business-to-
consumer deliveries and a general reduction in business-to-consumer volume with a few major e-commerce clients. Market capacities continue to be tight, resulting
in increased pricing and an ongoing shift towards higher-quality freight, leading to strong yield improvement as reflected by the increase in revenue per pound.
For the year ended December 31, 2021, revenue increased by $78.6 million, or 16.3%, from $481.5 million in 2020 to $560.1 million in 2021. This increase is attributable
to a 9.4% increase in revenue per shipment combined with a 6.4% increase in shipments related to higher e-commerce volume that remains strong and increases in
business-to-business volume which has mostly recovered.
Operating expenses
For the three months ended December 31, 2021, materials and services expenses, net of fuel surcharge revenue, decreased $11.5 million, or 15.9%, mostly due to
higher fuel surcharge revenue offset by a $1.1 million increase in subcontractor costs and a $0.7 million increase in fuel cost. This is due to the proactive management
of volume and network capacities to avoid volume related cost overruns and service deviations. Other operating expenses increased $0.7 million or 10.8%, primarily
due to increased facilities and security costs.
For the twelve-months ended December 31, 2021, materials and services expenses, net of fuel surcharge revenue, increased $23.0 million due to a $43.7 million
increase in sub-contractor costs driven by increased volume and fuel cost paid to sub-contractors, partially offset by higher fuel surcharge revenue. Personnel
expenses, as a percentage of revenue slightly decreased from 27.7% in 2020 to 27.6% in 2021, despite a $4.4 million reduction in Canada Emergency Wage Subsidy.
2021 Annual Report│10
MANAGEMENT’S DISCUSSION AND ANALYSIS
Other operating expenses increased $3.6 million in 2021, mainly due to a $1.7 million increase in facility related costs and a $1.2 million increase in IT and security
costs.
Operating income
Operating income for the three months ended December 31, 2021, increased by $7.3 million, or 24.9%, compared to the fourth quarter of 2020. The operating margin
of 24.5% in the fourth quarter of 2021 was an improvement compared to 19.1% for the same period in 2020. This year-over-year increase in operating income was
driven primarily by an increase in fuel surcharge revenue. The impact of business reopenings and shifts in customer composition is being closely monitored to focus
on driving yield and margin.
The return on invested capital increased 710 basis points, from 18.2% in the twelve months ended December 31, 2020, to 25.3% in the twelve months ended December
31, 2021. This is primarily due to the increase in operating income over the same period.
For the twelve-month period ended December 31, 2021, operating income increased by $29.7 million, from $78.8 million in 2020 to $108.4 million in 2021 driven by
organic growth and a consistent focus on improving the quality of freight.
Less-Than-Truckload
(unaudited)
(in thousands of U.S. dollars)
2021
959,546
(136,635)
822,911
Three months ended December 31
%
%
2020
157,628
(16,547)
141,081
2021
2,815,390
(374,750)
100.0% 2,440,640
100.0%
Total revenue
Fuel surcharge
Revenue
Materials and services expenses (net of fuel
surcharge)
Personnel expenses
Other operating expenses
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Bargain Purchase Gain
Gain on sale of rolling stock and equipment
Gain on derecognition of right-of-use assets
(Gain) loss on sale of land and buildings and assets
held for sale
Operating income
Adjusted EBITDA1
1 This is a non-IFRS measure. For a reconciliation, refer to the “Non-IFRS financial measures” section below.
274,166
348,237
60,196
25,846
9,398
2,495
—
(842)
(35)
33.3%
42.3%
7.3%
3.1%
1.1%
0.3%
0.0%
-0.1%
-0.0%
1
103,449
141,189
0.0%
12.6%
17.2%
67,140
33,338
3,587
4,886
5,546
2,179
—
(62)
(6)
9
24,464
37,084
47.6%
848,273
23.6% 1,022,214
155,992
73,242
33,050
9,768
(181,549)
(907)
(573)
2.5%
3.5%
3.9%
1.5%
0.0%
-0.0%
-0.0%
0.0%
17.3%
26.3%
(1,624)
482,754
415,641
Years ended December 31
%
%
2020
589,235
(66,384)
522,851
252,334
116,257
16,593
19,407
22,555
8,392
—
(519)
(175)
57
87,950
138,361
100.0%
34.8%
41.9%
6.4%
3.0%
1.4%
0.4%
-7.4%
-0.0%
-0.0%
-0.1%
19.8%
17.0%
100.0%
48.3%
22.2%
3.2%
3.7%
4.3%
1.6%
0.0%
-0.1%
-0.0%
0.0%
16.8%
26.5%
2021 Annual Report│11
Operational data
(unaudited)
(Revenue in U.S. dollars)
U.S. LTL
Revenue (in thousands of dollars)1
Adjusted Operating Ratio2
Revenue per hundredweight (excluding fuel)1
Revenue per shipment (excluding fuel)1
Tonnage (in thousands of tons)1
Shipments (in thousands)1
Average weight per shipment (in lbs)1
Average length of haul (in miles)1
Vehicle count, average4
Return on invested capital2,3
Canadian LTL
Revenue (in thousands of dollars)
Adjusted Operating Ratio2
Revenue per hundredweight (excluding fuel)
Revenue per shipment (excluding fuel)
Tonnage (in thousands of tons)
Shipments (in thousands)
Average weight per shipment (in lbs)
Average length of haul (in miles)
Vehicle count, average
Return on invested capital2
MANAGEMENT’S DISCUSSION AND ANALYSIS
Three months ended December 31
%
2020 Variance
2021
2021
Years ended December 31
%
2020 Variance
568,761
89.4%
$29.20
$310.97
974
1,829
1,065
1,110
4,583
-
625
87.7%
-
-
-
-
-
-
8
-
568,136
$29.20
$310.97
974
1,829
1,065
1,110
4,575
NM 1,586,228
90.1%
$28.52
$299.91
2,781
5,289
1,052
1,089
4,866
NM
2,692 1,583,537
88.2%
-
-
-
-
-
-
8
$28.52
$299.91
2,781
5,289
1,052
1,089
4,858
NM
NM
144,697
78.3%
$11.13
$223.30
650
648
2,006
791
810
17.8%
141,081
82.7%
$10.15
$215.72
695
654
2,125
811
894
13.6%
3,616
2.6%
$0.98
$7.58
(45)
(6)
(119)
(20)
(84)
9.7%
3.5%
-6.5%
-0.9%
-5.6%
-2.5%
-9.4%
556,891
79.9%
$10.80
$222.40
2,579
2,504
2,060
773
837
522,842
83.2%
$9.77
$213.06
2,675
2,454
2,180
818
910
34,049
6.5%
$1.03
$9.34
(96)
50
(120)
(45)
(73)
10.5%
4.4%
-3.6%
2.0%
-5.5%
-5.5%
-8.0%
1 Operational statistics exclude figures from Ground Freight Pricing (“GFP”).
2 This is a non-IFRS measure. For a reconciliation please refer to the “Non-IFRS Financial Measures” section below.
3 The Return on invested capital for the U.S. LTL is not disclosed as complete annual information is not yet available.
4 The vehicle count, average for the year ended December 31, 2021 was adjusted to calculate the average since the acquisition of UPS Freight on April 30, 2021.
Revenue
For the three months ended December 31, 2021, revenue increased by $681.8 million to $822.9 million. This increase is mainly due to business acquisitions, including
the LTL operations of UPS Freight, that contributed $681.3 million of revenue. In the U.S. LTL, the Company has identified hundreds of low yield accounts and has
implemented actions on selected accounts to increase the quality of the freight, with a focus on freight that fits the network and that the Company can serve efficiently.
In addition, the Company has implemented increases in its accessorial revenue to further improve the yield. All those actions led to a 3.2% increase in U.S. based LTL
revenue per shipment (excluding fuel) when compared to the third quarter of 2021. Revenue for the Canadian LTL segment increased $3.6 million. This increase in
revenue is due to a 3.5% increase in revenue per shipment (excluding fuel) partially offset by a 3.1% decrease in shipments. The year-over-year decrease in shipments
is mostly attributable to the landslides and floods that hit British Columbia in the second part of the quarter. The increase in revenue per shipment is the result of a
9.7% increase in revenue per hundredweight partially offset by a 5.6% decrease in average weight per shipment. Continuous improvement to shipment profile and
focus on improving the quality of freight drove the yield improvement versus 2020.
For the year ended December 31, 2021, LTL revenue excluding fuel surcharge increased $1,917.8 million relative to the same prior year period, to $2,440.6 million.
The increase is mainly attributable to business acquisitions contributions of $1,896.3 million. The revenue from existing operations increased $21.5 million, or 4%,
compared to the prior year.
Operating expenses
For the three months ended December 31, 2021, materials and services expenses, net of fuel surcharge revenue, increased $207.0 million, including $216.7 million of
increase attributable to business acquisitions, offset by $11.5 million higher fuel surcharge revenue in the rest of the LTL segment. Personnel expenses increased
$314.9 million, with $312.1 million coming from business acquisitions and $2.8 million, or 8% from existing operations. Other operating expenses increased by $56.6
million due primarily to business acquisitions.
For the year ended December 31, 2021, materials and services expenses, net of fuel surcharge revenue, increased by $595.9 million, with $615.9 attributable to
business acquisitions offset by a decrease of $19.9 million, or 8%, for the remaining operations mostly due to a $26.3 million increase in fuel surcharge revenue,
partially offset by an increase in fuel cost. Personnel expenses increased $906.0 million of which $884.6 million is from business acquisitions, a $15.2 million reduction
2021 Annual Report│12
MANAGEMENT’S DISCUSSION AND ANALYSIS
in credits received from the Canada Emergency Wage Subsidy and a $5.4 million increase in direct labor cost. Other operating expenses increased $139.4 million
when compared to 2020, all related to business acquisitions.
Operating income
Operating income for the three months ended December 31, 2021, increased by $79.0 million to $103.5 million. This increase includes a $73.5 million contribution
from business acquisitions. Adjusted operating ratio, a non-IFRS Measure, of the Canadian LTL operations improved to 78.3% in the fourth quarter of 2021 as compared
to 82.7% in the same quarter in 2020. With the focus on improving freight profile by identifying shipments that fits the Company’s network, US LTL operations, mostly
represented by the UPS Ground Freight acquisition, achieved an 89.4% adjusted operating ratio, a non-IFRS measure, in the fourth quarter of 2021 because of
immediate actions to improve the quality of freight, yield, and operational efficiency and cost structure.
The return on invested capital, a non-IFRS measure, of our Canadian based LTL segment was 17.8% in the fourth quarter of 2021, a 4.2% increase from 13.6% in the
fourth quarter of 2020. The increase was mostly related to materially higher operating income, partially reduced because of higher invested capital.
For the year ended December 31, 2021, operating income increased $394.8 million due to contributions from business acquisitions of $371.5 million and an increase
of $23.3 million, or 26.5%, from existing operating. Despite a negative impact from a $15.2 million reduction in the Canada Emergency Wage Subsidy, the LTL
operations were able to increase operating income by improving quality of revenue while maintaining the focus on cost control and route optimization.
Truckload
(unaudited)
(in thousands of U.S. dollars)
Total revenue
Fuel surcharge
Revenue
Materials and services expenses (net of fuel
surcharge)
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
Gain on sale of rolling stock and equipment
Gain on derecognition of right-of-use assets
Gain on sale of land and buildings and assets held for
sale
Gain on disposal of intangible assets
Operating income
Adjusted EBITDA1
2021
584,009
(77,577)
506,432
221,538
160,351
19,193
35,652
15,087
5,960
—
(6,338)
(160)
(6,649)
(5)
61,803
111,848
Three months ended December 31
%
%
2020
477,262
(39,127)
438,135
2021
2,162,752
(261,595)
100.0% 1,901,157
100.0%
43.7%
31.7%
3.8%
7.0%
3.0%
1.2%
0.0%
-1.3%
-0.0%
-1.3%
-0.0%
12.2%
22.1%
188,660
135,911
14,323
34,986
10,055
5,171
(306)
(2,129)
(13)
(2,127)
—
53,604
101,383
43.1%
31.0%
3.3%
8.0%
2.3%
1.2%
-0.1%
-0.5%
-0.0%
-0.5%
-
12.2%
23.1%
823,645
604,041
66,468
137,301
52,680
21,580
—
(23,747)
(431)
(10,569)
—
230,189
431,181
Years ended December 31
%
2020
%
1,748,359
(163,522)
100.0% 1,584,837
100.0%
43.3%
31.8%
3.5%
7.2%
2.8%
1.1%
0.0%
-1.2%
-0.0%
-0.6%
0.0%
12.1%
22.7%
654,220
503,242
52,337
136,859
32,229
19,891
(306)
(7,785)
(332)
(11,864)
—
206,346
383,155
41.3%
31.8%
3.3%
8.6%
2.0%
1.3%
-0.0%
-0.5%
-0.0%
-0.7%
-
13.0%
24.2%
2021 Annual Report│13
Operational data
(unaudited)
U.S. based Conventional TL
Revenue (in thousands of U.S. dollars)
Adjusted operating ratio
Total mileage (in thousands)
Tractor count, average
Trailer count, average
Tractor age
Trailer age
Number of owner operators, average
Return on invested capital1
Canadian based Conventional TL
Revenue (in thousands of U.S. dollars)
Adjusted operating ratio
Total mileage (in thousands)
Tractor count, average
Trailer count, average
Tractor age
Trailer age
Number of owner operators, average
Return on invested capital1
Specialized TL
Revenue (in thousands of U.S. dollars)
Adjusted operating ratio
Tractor count, average
Trailer count, average
Tractor age
Trailer age
Number of owner operators, average
Return on invested capital1
MANAGEMENT’S DISCUSSION AND ANALYSIS
Three months ended December 31
%
2020 Variance
2021
186,988
95.5%
83,335
3,447
11,984
3.1
7.9
391
5.3%
73,786
88.4%
26,467
728
3,401
4.1
7.5
324
10.9%
161,476
91.5%
86,427
2,932
11,005
2.2
6.6
560
5.3%
58,497
85.2%
23,095
623
2,809
2.5
5.9
314
11.4%
247,641
84.6%
2,356
7,029
4.0
12.7
1,168
219,093
86.9%
2,314
6,619
4.0
12.9
1,132
11.2%
9.9%
25,512
15.8%
(3,092)
515
979
0.9
1.3
(169)
-3.6%
17.6%
8.9%
42.7%
19.7%
-30.1%
15,288
26.1%
3,372
105
592
1.6
1.6
10
14.6%
16.9%
21.1%
64.5%
27.4%
3.3%
28,549
13.0%
43
410
(0.0)
(0.2)
36
1.8%
6.2%
-0.8%
-1.9%
3.2%
2021
734,027
93.3%
348,870
3,294
11,751
3.1
7.9
468
250,177
87.9%
92,236
640
2,884
4.1
7.5
306
923,683
84.8%
2,329
6,773
4.0
12.7
1,114
Years ended December 31
%
2020 Variance
632,590
92.0%
349,349
2,949
10,938
2.2
6.6
509
206,418
86.3%
89,212
606
2,796
2.5
5.9
302
749,655
84.6%
2,096
6,251
4.0
12.9
1,115
101,437
16.0%
(479)
345
813
0.9
1.3
(42)
-0.1%
11.7%
7.4%
42.7%
19.7%
-8.1%
43,759
21.2%
3,024
34
88
1.6
1.6
4
3.4%
5.5%
3.1%
64.5%
27.4%
1.5%
174,028
23.2%
233
522
(0.0)
(0.2)
(1)
11.1%
8.3%
-0.8%
-1.9%
-0.1%
1 This is a non-IFRS measure. For a reconciliation, please refer to the “Non-IFRS Financial Measures” section below.
During Q4 2021, Gunter, SGT, Laser, D&D and FKD were acquired and incorporated in the Truckload segment.
Revenue
For the three months ended December 31, 2021, revenue increased by $68.3 million, or 16%, from $438.1 million in Q4 2020 to $506.4 million in Q4 2021. This
increase was mainly due to contributions from business acquisitions of $83.7 million, partially offset by a decrease in revenue from existing operations of $15.4 million.
For U.S. based conventional TL, revenue increased by $25.5 million, or 15.8%, compared to prior year period. The increase was due primarily to $48.8 million in
revenue from the business acquisition of TForce Freight’s TL division, offset by a decline in revenue from existing U.S. based conventional TL operations. The strong
pricing and tight capacity in the U.S. market led to a 14.0% improvement year over year in revenue per mile. Miles per tractor declined by 12.3%, which is attributable
to unseated tractors resulting from limited driver availability. For the three months ended December 31, 2021, the average unseated tractors percentage in the U.S.
based conventional TL existing operations increased by 286 bps, from 13.1% in the fourth quarter of 2020 to 15.9% in 2021, despite a 15% reduction in the tractor
fleet. For Canadian based conventional TL operations, revenue increased by $15.3 million, or 26.1%, compared to the same prior year period. The increase was due
to a 7.7% improvement in revenue per tractor, driven by a 5.5% improvement in revenue per mile and a 2.0% improvement in miles per tractor. For Specialized TL,
revenue increased by $28.5 million, or 13.0%, compared to the prior year period, primarily from contributions from business acquisitions of $23.9 million.
For the year ended December 31, 2021, TL revenue increased by $316.3 million, or 20%, from $1,584.8 million in 2020 to $1,901.2 million in 2021. This increase is
mainly due to contributions from business acquisitions of $269.7 million and an increase in revenue from existing operations of $46.7 million.
Operating expenses
For the three months ended December 31, 2021, operating expenses, net of fuel surcharge, increased by $60.1 million or 16%, from $384.5 million in 2020 to $444.6
million in 2021. The business acquisitions contributed $85.2 million to the increase of operating expenses, net of fuel surcharge, which was offset by a decrease in
operating expenses, net of fuel surcharge, from existing operations, due to the Company’s cost control efforts.
For the year ended December 31, 2021, TL operating expenses, net of fuel surcharge, increased by $292.5 million or 21%, from $1,378.5 million in 2020 to $1,671.0
million in 2021. Business acquisitions accounted for $263.5 million of this increase. The Company continues to improve its cost structure and increase the efficiency
2021 Annual Report│14
MANAGEMENT’S DISCUSSION AND ANALYSIS
and profitability of its existing fleet and network of independent contractors. In U.S. based conventional truckload, as a result of the assets acquired in the business
acquisition of TForce Freight’s TL division, the Company is evaluating its level of excess equipment.
Operating income
For the three months ended December 31, 2021, the TL segment’s operating ratio remained at 87.8%, comparable to the fourth quarter of 2020. Operating income
for the TL segment was $61.8 million for the three months ended December 31, 2021, up from $53.6 million in the same prior year period. This includes a $2.1 million
operating loss generated by TForce Freight’s TL division.
For the year ended December 31, 2021, operating income in the TL segment increased by $23.8 million, or 12%, from $206.3 million in 2020 to $230.2 million in 2021.
The increase is primarily due to the contribution from business acquisitions of $6.1 million and increased efficiency in existing operations, despite a $18.5 million
reduction in credits received from the Canada Emergency Wage Subsidy.
The return on invested capital, a non-IFRS measure, for U.S. based and Canadian based Conventional TL was 5.3% and 10.9%, respectively, compared to 5.3% and
11.4%, respectively, for the same prior year period, reflecting relatively steady income generated on the same levels of assets deployed. The return on invested capital,
a non-IFRS measure, for the Specialized TL segment increased to 11.2% as compared to 9.9% in the same prior year period due primarily to an increase in operating
income.
Logistics
(unaudited)
Three months ended December 31
%
%
Years ended December 31
%
%
100.0%
2021
441,086
(13,525)
427,561
(in thousands of U.S. dollars)
Total revenue
Fuel surcharge
Revenue
Materials and services expenses (net of fuel
surcharge)
Personnel expenses
Other operating expenses
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Bargain purchase gain
Loss on sale of rolling stock and equipment
Gain on derecognition of right-of-use assets
Loss on sale of land and building
Operating income
Adjusted EBITDA1
Return on invested capital1
1 This is a non-IFRS measure. For a reconciliation, refer to the “Non-IFRS financial measures” section below.
323,164
29,419
32,443
375
3,442
5,776
—
70
—
3
32,869
42,465
75.6%
6.9%
7.6%
0.1%
0.8%
1.4%
—
0.0%
—
0.0%
7.7%
9.9%
19.9%
2020
327,689
(5,370)
322,319
241,798
24,381
19,983
596
3,138
5,608
—
368
(20)
5
26,462
35,809
2021
1,662,072
(41,146)
100.0% 1,620,926
75.0% 1,223,846
116,523
111,742
1,581
13,943
22,684
(12,000)
70
(260)
3
142,794
169,005
7.6%
6.2%
0.2%
1.0%
1.7%
—
0.1%
-0.0%
0.0%
8.2%
11.1%
15.3%
2020
945,130
(21,674)
923,456
668,225
93,579
48,012
2,336
13,204
17,889
(4,008)
373
(618)
5
84,459
113,885
100.0%
75.5%
7.2%
6.9%
0.1%
0.9%
1.4%
-0.7%
0.0%
-0.0%
0.0%
8.8%
10.4%
100.0%
72.4%
10.1%
5.2%
0.3%
1.4%
1.9%
-0.4%
0.0%
-0.1%
0.0%
9.1%
12.3%
Revenue
For the three months ended December 31, 2021, revenue increased by $105.2 million, or 33%, from $322.3 million in Q4 2020 to $427.6 million in Q4 2021. This
increase was mainly due to business acquisition contributions of $79.2 million, primarily from the acquisition of DLS Worldwide during the fourth quarter of 2020, and
to an increase of $26.1 million, or 8%, compared to the same prior year period, mainly coming from the 3PL volume improvement.
For the year ended December 31, 2021, revenue increased by 697.5 million, or 76%, from $923.5 million in 2020 to $1,620.9 million. The increase is attributable to
the contribution from business acquisitions of $628.3 million and $69.2 million, or 7%, from 3PL existing operations.
Approximately 77% (2020 – 71%) of the Logistics segment’s revenues in the quarter were generated from operations in the U.S. and approximately 23% (2020 – 29%)
were generated from operations in Canada and Mexico.
Operating expenses
For the three months ended December 31, 2021, total operating expenses, net of fuel surcharge increased by $98.8 million, or 33%, relative to the same prior year
period, from $295.9 million to $394.7 million. Business acquisitions accounted for $76.4 million of this increase with the remaining increase of $22.4 million from
existing operations. The operating expenses, net of fuel surcharge, from existing operations increased due to an increase of $17.6 million in materials and services
expenses (net of fuel surcharge) related to revenue growth and to other operating expenses of $4.4 million mostly due to IT costs and agent commission related to
higher 3PL revenue.
2021 Annual Report│15
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2021, total operating expenses, net of fuel surcharge increased by $639.2 million, or 76%, from $839.0 million to $1,478.1 million.
Business acquisitions accounted for $594.2 million and total operating expenses, net of fuel surcharge increased by $45.0 million for existing operations driven
primarily from a materials and services expenses (net of fuel surcharge) increase of $46.0 million related to revenue growth.
Operating income
Operating income for the three months ended December 31, 2021, increased by $6.4 million, or 24%, from $26.5 million to $32.9 million. The increase was from a
contribution from business acquisitions of $2.8 million and from operating margin improvements from existing operations of $3.6 million, mainly as a result of better
quality revenue and margin improvement in our the 3PL US businesses.
For the year ended December 31, 2021, operating income increased by $58.3 million, or 69%. The increase was from a contribution from business acquisitions of
$34.1 million and from operating margin improvements from existing operations accounting for an improvement of $24.2 million.
The return on invested capital1, a non-IFRS measure, increased to 21.5% from 15.3% in the same prior year period. This increase is due primarily to organic growth
and operating margin expansion in existing operations.
LIQUIDITY AND CAPITAL RESOURCES
Sources and uses of cash
(unaudited)
(in thousands of U.S. dollars)
Sources of cash:
Net cash from 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
Others
Total usage
Cash flow from operating activities
Three months ended
December 31
2020
2021
190,333
22,508
10,503
44,164
71,161
—
—
42,969
381,638
101,578
94,845
—
—
32,035
21,406
106,863
24,911
381,638
Years ended
December 31
2020
610,862
52,116
24,480
—
—
425,350
2,351
48,142
1,163,301
142,710
327,650
6,528
484,247
82,587
67,604
38,021
13,954
1,163,301
2021
855,351
92,842
19,869
—
736,030
—
—
64,589
1,768,681
268,656
1,008,131
22,168
—
115,336
85,386
198,153
70,851
1,768,681
164,928
23,949
6,248
273,791
—
—
2,351
3,128
474,395
60,693
244,053
—
116,153
22,408
18,434
—
12,654
474,395
For the year ended December 31, 2021, net cash from operating activities increased by 40% to $855.4 million from $610.9 million in 2020. This $244.5 million increase
is attributable to an increase in net income of $388.7 million, an increase in add backs from depreciation and amortization of $93.8 million, and an increase in provisions
net of payments of $14.0 million, net of an increase in income taxes paid of $50.7 million and the exclusion of the bargain purchase gain of $193.5 million. The increase
in taxes paid is attributable primarily to exceeding estimated performance in 2020, and greater tax installments made in 2021 than 2020 due to higher expected
profits.
1 Refer to the section “Non-IFRS financial measures”.
2021 Annual Report│16
MANAGEMENT’S DISCUSSION AND ANALYSIS
Cash flow used in investing activities
Property and equipment
The following table presents the additions of property and equipment by category for the three-month periods and years ended December 31, 2021 and 2020.
(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
2020
2021
101,578
1,017
102,595
11,939
85,868
4,788
102,595
60,693
(283 )
60,410
5,055
52,744
2,611
60,410
Years ended
December 31
2020
142,710
104
142,814
19,331
112,645
10,838
142,814
2021
268,656
(1,483 )
267,173
36,902
217,080
13,191
267,173
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. The increase in additions in 2021 compared to 2020 is due
to the reduction of capital expenditures during the beginning of the pandemic in 2020.The procurement of equipment remained difficult in 2021 as manufacturing
and supply chain challenges resulted in delays in receiving equipment.
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, 2021 and 2020.
(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
Business acquisitions
Three months ended
December 31
2020
2021
10,592
22,394
25
33,011
6,638
7,309
(169 )
13,778
6,053
24,078
66
30,197
2,132
2,275
(368 )
4,039
Years ended
December 31
2020
23,877
52,468
251
76,596
11,877
8,375
(471 )
19,781
2021
19,222
93,411
78
112,711
11,978
25,176
(320 )
36,834
For the year ended December 31, 2021, cash used in business acquisitions, net of cash acquired, totalled $1,008.1 million to acquire ten businesses. Refer to the
section of this report entitled “2021 business acquisitions” and further information can be found in note 5 of the December 31, 2021 audited consolidated financial
statements.
Cash flow used in financing activities
Debt
On January 13, 2021, the Company received $500 million in proceeds from the issuance and sale of an aggregate amount of $500 million 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 July 2, 2021, the Company received $100 million in proceeds from the issuance of new debt taking the form of unsecured senior notes consisting of two tranches
maturing on July 2, 2029 and July 2, 2033, bearing fixed interest of 2.87% and 3.34%.
On July 14, 2021, the Company received $30 million in proceeds from the issuance of new debt taking the form of unsecured senior notes consisting of two tranches
maturing on July 14, 2029 and July 14, 2033, bearing fixed interest of 2.89% and 3.37%.
2021 Annual Report│17
MANAGEMENT’S DISCUSSION AND ANALYSIS
The three debt instruments described above are subject to certain covenants regarding the maintenance of financial ratios. These are the same covenants as required
by the Company’s syndicated revolving credit agreement as described in note 26(f) of the 2021 audited consolidated financial statements.
On August 16, 2021, the Company extended its credit facility until August 16, 2025. Under the new extension, CAD availability is increased by CAD $10 million and
USD availability increased by USD $50 million. Based on certain ratios, the interest rate will be the sum of the banker’s acceptance rate, or Libor rate on US$
denominated debt, plus an applicable margin, which can vary between 113 basis points and 175 basis points. The applicable margin on the credit facility is currently
1.25%. The Company is subject to certain covenants regarding the maintenance of financial ratios. These are the same covenants as previously required by the
Company’s revolving credit facility agreement and described in note 26(f) of the 2021 audited consolidated financial statements.
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.
NCIB on common shares
Pursuant to the renewal of the normal course issuer bid (“NCIB”), which began on November 2, 2021 and ending on November 1, 2022, 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, 2021, and since the inception of this
NCIB, the Company has repurchased and cancelled 1,000,000 common shares.
For the year ended December 31, 2021, the Company repurchased 2,157,862 common shares (as compared to 1,542,155 during the same period in 2020) at a weighted
average price of $91.83 per share (as compared to $24.64 in the prior year period) for a total purchase price of $198.2 million (as compared to $38.0 million the prior
year period).
Free cash flow1
(unaudited)
(in thousands of U.S. dollars)
Net cash from operating activities
Additions to property and equipment
Proceeds from sale of property and equipment
Proceeds from sale of assets held for sale
Free cash flow1
Three months ended
December 31
2019*
133,262
(89,073 )
20,785
13,079
78,053
2020
164,928
(60,410 )
23,949
6,248
134,715
2021
855,351
(267,173 )
92,842
19,869
700,889
Years ended
December 31
2019*
500,496
(263,698 )
71,754
39,146
347,698
2020
610,862
(142,814 )
52,116
24,480
544,644
2021
190,333
(102,595 )
22,508
10,503
120,749
*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, 2021, TFI International generated free cash flow of $700.9 million, compared to $544.6 million in 2020, which represents a year-
over-year increase of $156.2 million, or 29%. The $244.5 million increase in net cash from operating activities is attributable to an increase in net income of $388.7
million, an increase in add backs from depreciation and amortization of $93.8 million, and an increase in provisions net of payments of $14.0 million, net of an increase
in income taxes paid of $50.7 million and the exclusion of the bargain purchase gain of $193.5 million. The additions to property and equipment increased by $124.4
million as compared to the same prior year period as a result of implementing delayed capital expenditures from 2020. The proceeds from the sale of property and
equipment and assets held for sale increased by $36.1 million as compared to the prior year, due to the replenishment of the fleet.
Free cash flow conversion1, which measures the level of capital employed to generate earnings, for the year ended December 31, 2021, of 87.3% compares to 89.9%
in the same prior year period, as net capital expenditures in 2020 were delayed.
Based on the December 31, 2021, closing share price of $112.11, the free cash flow1 generated by the Company in the preceding twelve months ($700.9 million, or
$7.61 per share outstanding) represented a yield of 6.8%.
1 This is a non-IFRS measure. Refer to the “Non-IFRS financial measures” section below.
2021 Annual Report│18
Financial position
(unaudited)
(in thousands of U.S. dollars)
Intangible assets
Total assets, less intangible assets1
Long-term debt
Lease liabilities
Shareholders' equity
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at
December 31, 2021
1,792,921
3,960,202
1,608,094
429,206
2,220,311
As at
December 31, 2020
1,747,663
2,099,591
872,544
355,986
1,788,612
1 This is a non-IFRS measure. Refer to the reconciliation in “Non-IFRS financial measures” below.
Compared to December 31, 2020, the Company’s total assets, total assets less intangible assets, lease liabilities and long-term debt increased, as a result of the
acquisition of TForce Freight and the new debt of $500 million issued during the first quarter of 2021, and $130 million issued during the third quarter of 2021. The
proceeds of the new debt were partially used to repay existing revolver debt and the remaining amount was being held as cash and used to finance the acquisition of
TForce Freight.
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, 2021, including future interest payments.
(unaudited)
(in thousands of U.S. dollars)
Unsecured revolving facility – August 2025
Unsecured term loan – June 2022
Unsecured debenture – December 2024
Unsecured senior notes – December 2026 to 2036
Conditional sales contracts
Lease liabilities
Interest on debt and lease liabilities
Total contractual obligations
Total
242,283
324,444
158,265
780,000
107,888
429,206
308,844
2,350,930
Less than
1 year
—
324,444
—
—
39,142
115,344
47,999
526,929
1 to 3
years
—
—
158,265
—
52,410
169,258
79,342
459,275
3 to 5
years
242,283
—
—
—
16,062
73,094
59,599
391,038
After
5 years
—
—
—
780,000
274
71,510
121,904
973,688
On January 13, 2021, the Company received $500 million in proceeds from 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 July 2, 2021, the Company received $100 million in proceeds from the issuance of a new debt taking the form of unsecured senior notes consisting of two tranches
maturing on July 2, 2029 and July 2, 2033, bearing fixed interest of 2.87% and 3.34%.
On July 14, 2021, the Company received $30 million in proceeds from the issuance of a new debt taking the form of unsecured senior notes consisting of two tranches
maturing on July 14, 2029 and July 14, 2033, bearing fixed interest of 2.89% and 3.37%.
On April 30, 2021, the Company acquired UPS Freight, recording $100.9 million of lease liabilities.
The unsecured term loan of $324.4 million is recognized as a current liability as it matures less than a year. The Company has adequate available liquidity through its
revolving credit facilities, $797.9 million as at December 31, 2021, to repay the unsecured term loan.
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 [ratio of total debt, net of cash, plus letters of credit and some other long-term
liabilities to earnings before interest, income tax, depreciation and amortization (“EBITDA”), including last
twelve months adjusted EBITDA from business acquisitions]
EBITDAR Coverage Ratio [ratio of EBITDAR (EBITDA before rent and including last twelve months adjusted
EBITDAR from business acquisitions) to interest and net rent expenses]
Requirements
As at
December 31, 2021
< 3.50
> 1.75
1.51
5.59
As at December 31, 2021, the Company had $47.4 million of outstanding letters of credit ($29.5 million on December 31, 2020).
2021 Annual Report│19
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at December 31, 2021, the Company had $87.5 million of purchase commitments and $13.2 million of purchase orders that the Company intends to enter into a
lease that is expected to materialize within a year (December 31, 2020 – $117.1 million and $44.1 million, respectively).
Dividends and outstanding share data
Dividends
The Company declared $24.9 million in dividends, or $0.27 per common share, in the fourth quarter of 2021. The Board of Directors approved a quarterly dividend of
$0.27 per outstanding common share of the Company’s capital, for an expected aggregate payment of $24.7 million to be paid on April 15, 2022, to shareholders of
record at the close of business on March 31, 2022.
Outstanding shares and share-based awards
A total of 92,152,893 common shares were outstanding as at December 31, 2021 (December 31, 2020 – 93,397,985). There was no material change in the Company’s
outstanding share capital between December 31, 2021 and March 14, 2022.
As at December 31, 2021, the number of outstanding options to acquire common shares issued under the Company’s stock option plan was 2,060,960 (December 31,
2020 – 2,982,514) of which 1,705,284 were exercisable (December 31, 2020 – 2,111,364). 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, 2021, the number of restricted share units (‘’RSUs’’) granted under the Company’s equity incentive plan to its senior employees was 271,704
(December 31, 2020 – 299,075). On February 8, 2021, the Board of Directors approved the grant of 78,122 RSUs under the Company’s equity incentive plan. In addition,
on April 27, 2021, the Company granted 12,924 RSUs to the Board of Directors in accordance with the changes made to director compensation. 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, 2021, the number of performance share units (‘’PSUs’’) granted under the Company’s equity incentive plan to its senior employees was 225,765
(December 31, 2020 –147,121). On February 8, 2021, the Board of Directors approved the grant of 78,122 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 continued its gradual recovery during 2021, following the 2020 onset of the COVID-19 pandemic. By the end of the fourth quarter, most
end markets served by TFI International had fully recovered and many surpassed pre-pandemic strength. While most economists continue to forecast positive GDP
growth for 2022, macro uncertainty has recently increased due to the war in Ukraine, and the economy faces the prospect of continued high inflation, high fuel costs,
rising interest rates, global supply chain challenges, persistent labor shortages, and the possibility of additional variants of the virus that causes COVID-19.
TFI International has successfully navigated macro challenges over the past two years and management remains vigilant in its monitoring for new potential risks
including geopolitical risks related to rising tensions in eastern Europe. With specific regard to TFI International, macro risks include rapidly rising fuel costs, additional
variants and the potential economic disruption they could cause, supply chain disruption, driver availability and higher wages. As in the past, factors such as these
may cause additional rounds of declining freight volumes and higher costs, adversely affect TFI’s operating companies and the markets they serve. Additional
uncertainties include but are not limited to policy changes surrounding international trade, environmental mandates and changes to the tax code in any jurisdictions
in which TFI International operates.
Management believes the Company is positioned well for continued solid operational and financial performance in 2022 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,
improving density, strong customer service, optimizing pricing, driver retention, and the rationalization of assets to avoid internal overcapacity. TFI also continues to
2021 Annual Report│20
MANAGEMENT’S DISCUSSION AND ANALYSIS
have material synergy opportunities related to 2021’s acquisition of UPS Freight (now TForce Freight). In addition, the company remains well positioned to benefit
from the expansion of e-commerce, which provides both growth and margin expansion opportunities for its P&C and Logistics business segments, and from potential
future strength in the industrial economy which benefits its Specialized TL and LTL businesses.
Assuming no significant worsening of North American economic conditions, TFI International’s favorable positioning, which was significantly enhanced by last year’s
acquisition of UPS Freight, should enable the Company to produce continued strong results. Longer term, regardless of the operating environment, management’s
goal is to build 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 including a focus on “freight that fits” its valuable network, a keen
focus on free cash flow generation, and maintaining strong liquidity and a conservative balance sheet.
SUMMARY OF EIGHT MOST RECENT QUARTERLY RESULTS
(in millions of U.S. dollars, except per share data)
Total revenue
Adjusted EBITDA1
Operating income
Net income
EPS – basic
EPS – diluted
Adjusted net income1
Adjusted EPS -
diluted1
1 This is a non-IFRS measure. For a reconciliation refer to the “Non-IFRS financial measures” section below.
1.46
1.57
1.44
Q2’21
1,836.7
285.4
310.3
251.1
2.69
2.63
137.2
Q4’21
2,140.9
318.5
215.0
144.1
1.56
1.52
148.6
Q3’21
2,094.0
296.4
192.8
132.8
1.43
1.40
138.9
Q1’21
1,148.8
176.2
101.7
66.9
0.72
0.70
73.6
0.77
Q4’20
1,122.0
193.5
117.1
86.3
0.92
0.91
93.4
Q3’20
936.1
189.4
117.0
83.1
0.91
0.90
87.5
Q2’20
798.5
167.6
95.1
50.5
0.58
0.57
67.2
Q1’20
924.5
149.1
87.3
55.8
0.66
0.65
52.6
0.98
0.94
0.76
0.61
The differences between the quarters are mainly the result of seasonality (softer in Q1) and business acquisitions. 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): Net income or loss before finance income and costs and income tax expense, as stated in the consolidated financial statements.
This MD&A includes references to certain non-IFRS financial measures as described below. These non-IFRS financial measures are not standardized financial measures
under IFRS used to prepare the financial statements of the Company to which the measures relate and might not be comparable to similar financial measures disclosed
by other issuers. 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 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, gain or loss on the disposal of intangible assets 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
2021 Annual Report│21
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 7.
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 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, sale of business, and gain or loss on disposal of 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.
Segmented adjusted EBITDA refers to operating income (loss) before depreciation, amortization, impairment of intangible assets, bargain purchase gain, gain or loss
on sale of business, land and buildings, and assets held for sale and gain or loss on disposal of 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
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 loss on sale of assets held for sale
Loss on sale of intangible assets
Adjusted EBITDA
*Recasted for change in presentation currency from Canadian dollar to U.S. dollar.
Three months ended
December 31
2019*
57,955
15,552
19,277
44,721
19,508
12,757
—
—
(8)
(6,365)
—
163,397
2020
86,328
15,382
15,412
43,753
21,618
13,557
(306)
—
5
(2,211)
—
193,538
2021
664,361
73,018
151,806
225,007
112,782
55,243
—
(193,549)
19
(12,209)
1
1,076,479
Years ended
December 31
2019*
244,225
62,107
76,536
168,720
77,326
49,701
—
(8,014)
(9)
(21,571)
—
649,021
2020
275,675
53,910
86,982
170,520
80,496
48,213
(306)
(4,008)
6
(11,899)
—
699,589
2021
144,139
21,441
49,399
65,294
31,190
13,653
—
—
9
(6,654)
(5)
318,466
2021 Annual Report│22
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 on sale of assets held for sale
Loss on disposal of intangible assets
Adjusted EBITDA
Less-Than-Truckload
Operating income
Depreciation and amortization
Bargain purchase gain
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 assets held for sale
Gain on disposal of intangible assets
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
Adjusted EBITDA
MANAGEMENT’S DISCUSSION AND ANALYSIS
Three months ended
December 31
2020
Years ended
December 31
2020
78,753
25,357
—
(91)
—
104,019
87,950
50,354
—
1
56
138,361
206,346
188,979
(306)
(11,864)
—
383,155
84,459
33,429
(4,008)
5
113,885
(40,941)
1,110
(39,831)
2021
108,440
26,404
—
—
1
134,845
482,754
116,060
(181,549)
16
(1,640)
415,641
230,189
211,561
—
(10,569)
—
431,181
142,794
38,208
(12,000)
3
169,005
(74,992)
799
(74,193)
29,401
6,626
(1)
(92)
—
35,934
24,464
12,611
—
1
8
37,084
53,604
50,212
(306)
(2,127)
—
101,383
26,462
9,342
—
5
35,809
(16,809)
137
(16,672)
2021
36,713
6,783
—
—
—
43,496
103,449
37,739
—
6
(5)
141,189
61,803
56,699
—
(6,649)
(5)
111,848
32,869
9,593
—
3
42,465
(19,855)
(677)
(20,532)
Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of revenue before fuel surcharge.
Free cash flow: Net cash from 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 17.
2021 Annual Report│23
Free cash flow conversion: Adjusted EBITDA less net capital expenditures, divided by the adjusted EBITDA. Management believes that this measure provides a
benchmark to evaluate the performance of the Company in regard to its ability to convert its operating profit into free cash flow.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Free cash flow conversion reconciliation:
(unaudited)
(in thousands of U.S. dollars)
Net income
Net finance costs
Income tax expense
Depreciation of property and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Gain on the sale of business
Bargain purchase gain
Loss on sale of land and buildings
Gain on sale of assets held for sale
(Gain) loss on sale of intangible assets
Adjusted EBITDA
Net capital expenditures
Adjusted EBITDA less net capital expenditures
Free cash flow conversion
Three months ended
December 31
2020
86,328
15,382
15,412
43,753
21,618
13,557
(306)
—
5
(2,211)
—
193,538
(31,211)
162,327
83.9%
2021
144,139
21,441
49,399
65,294
31,190
13,653
—
—
9
(6,654)
(5)
318,466
(68,237)
250,229
78.6%
Years ended
December 31
2020
275,675
53,910
86,982
170,520
80,496
48,213
(306)
(4,008)
6
(11,899)
—
699,589
(70,764)
628,825
89.9%
2021
664,361
73,018
151,806
225,007
112,782
55,243
—
(193,549)
19
(12,209)
1
1,076,479
(136,782)
939,697
87.3%
Total assets less intangible assets: Management believes that this presents a more useful basis to evaluate the return on the productive assets. The excluded
intangibles relate primarily to intangibles assets acquired through business acquisitions.
(unaudited)
(in thousands of U.S. dollars)
As at December 31, 2021
Total assets
Intangible assets
Total assets less intangible assets
As at December 31, 2020
Total assets
Intangible assets
Total assets less intangible assets
Package
and
Courier
Less-
Than-
Truckload
Truckload
Logistics
Corporate Eliminations
Total
379,881 2,220,598 2,317,615
193,765
955,608
188,604
186,116 2,031,994 1,362,007
746,638
454,612
292,026
88,391
332
88,059
- 5,753,123
- 1,792,921
- 3,960,202
387,919
193,288
194,631
593,653 2,100,900
907,170
189,579
404,074 1,193,730
729,690
457,098
272,592
35,092
528
34,564
- 3,847,254
- 1,747,663
- 2,099,591
2021 Annual Report│24
Net capital expenditures: Additions to rolling stock and equipment, net of proceeds from the sale of rolling stock and equipment and assets held for sale excluding
property. Management believes that this measure illustrates the recurring net capital expenditures which is required for the respective period.
MANAGEMENT’S DISCUSSION AND ANALYSIS
(unaudited)
(in thousands of U.S. dollars)
Three months ended December 31, 2021
Additions to rolling stock
Additions to equipment
Proceeds from the sale of rolling stock
Proceeds from the sale of equipment
Net capital expenditures
Three months ended December 31, 2020
Additions to rolling stock
Additions to equipment
Proceeds from the sale of rolling stock
Proceeds from the sale of equipment
Net capital expenditures
YTD ended December 31, 2021
Additions to rolling stock
Additions to equipment
Proceeds from the sale of rolling stock
Proceeds from the sale of equipment
Net capital expenditures
YTD ended December 31, 2020
Additions to rolling stock
Additions to equipment
Proceeds from the sale of rolling stock
Proceeds from the sale of equipment
Net capital expenditures
Package
and
Courier
Less-
Than-
Truckload Truckload
4,794 47,680 33,394
1,801
1,620
1,112
(20,075 )
(2,313 )
20
(7 )
(1 )
-
5,926 46,986 15,113
1,571
1,014
(52 )
-
2,533
6,107 45,008
1,211
(23,256 )
(8 )
5,415 22,955
89
(781 )
-
11,569
3,125
(246 )
55,087
2,655
(5,024 )
150,282
6,897
(87,995 )
(3 )
(7 )
14,445 52,703 69,177
(15 )
11,799 13,680 86,950
3,299
(48,305 )
(163 )
16,673 11,673 41,781
1,558
(3,556 )
(9 )
5,382
(504 )
(4 )
Logistics Corporate Eliminations
Total
-
235
(26 )
(17 )
192
58
72
11
(58 )
83
142
373
(146 )
(53 )
316
216
250
(103 )
(75 )
288
-
20
-
-
20
-
225
-
-
225
-
141
-
-
141
-
349
-
-
349
85,868
4,788
(22,394 )
(25 )
68,237
52,744
2,611
(24,078 )
(66 )
31,211
217,080
13,191
(93,411 )
(78 )
136,782
112,645
10,838
(52,468 )
(251 )
70,764
Operating margin is calculated as operating income (loss) as a percentage of revenue before fuel surcharge.
Adjusted operating ratio: Operating expenses before gain on sale of business, bargain purchase gain, and gain or loss on sale of land and buildings and assets held for
sale, and gain or loss on disposal of 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
Gain (loss) on disposal of intangible assets
Adjusted operating expenses
Fuel surcharge revenue
Adjusted operating expenses, net of fuel surcharge revenue
Revenue before fuel surcharge
Adjusted operating ratio
Three months ended
December 31
2019*
896,248
—
—
8
6,365
—
902,621
(105,315)
797,306
883,717
90.2%
2020
1,004,884
306
—
(5)
2,211
—
1,007,396
(73,859)
933,537
1,048,147
89.1%
Years ended
December 31
2019*
3,520,677
—
8,014
9
21,571
—
3,550,271
(425,969)
3,124,302
3,477,576
89.8%
2020
3,364,567
306
4,008
(6)
11,899
—
3,380,774
(296,831)
3,083,943
3,484,303
88.5%
2021
6,331,244
—
193,549
(19)
12,209
(1)
6,536,982
(751,644)
5,785,338
6,468,785
89.4%
2021
1,925,935
—
—
(9)
6,654
5
1,932,585
(252,491)
1,680,094
1,888,423
89.0%
*Recasted for changes in presentation currency from Canadian dollar to U.S. dollar.
2021 Annual Report│25
Less-Than-Truckload and Truckload reportable segments adjusted operating ratio reconciliation and Truckload operating segments reconciliations:
MANAGEMENT’S DISCUSSION AND ANALYSIS
(unaudited)
(in thousands of U.S. dollars)
Less-Than-Truckload
Total revenue
Total operating expenses
Operating income
Operating expenses
Bargain purchase gain
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
Less-Than-Truckload - Revenue before fuel surcharge
U.S. based LTL
Canadian based LTL
Eliminations
Less-Than-Truckload - Fuel surcharge revenue
U.S. based LTL
Canadian based LTL
Eliminations
Less-Than-Truckload - Operating income (loss)
U.S. based LTL
Canadian based LTL
U.S. based LTL
Operating expenses*
Bargain purchase gain
Loss on sale of land and buildings and assets held for sale
Adjusted operating expenses
Fuel surcharge revenue
Adjusted operating expenses, net of fuel surcharge
Revenue before fuel surcharge
Adjusted operating ratio
Canadian based LTL
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 before fuel surcharge
Adjusted operating ratio
* Operating expenses excluding intra LTL eliminations
Three months ended
December 31
2020
2021
959,546
856,097
103,449
856,097
—
(1)
856,096
(136,635)
719,461
822,911
87.4%
680,212
144,697
(1,998)
822,911
108,275
28,598
(238)
136,635
72,077
31,372
103,449
716,410
-
(7)
716,403
(108,275)
608,128
680,212
89.4%
141,923
6
141,929
(28,598)
113,331
144,697
78.3%
157,628
133,164
24,464
133,164
—
(9)
133,155
(16,547)
116,608
141,081
82.7%
625
141,081
(625)
141,081
-
16,547
-
16,547
77
24,387
24,464
548
-
-
548
-
548
625
87.7%
133,241
(9)
133,232
(16,547)
116,685
141,081
82.7%
Years ended
December 31
2020
589,235
501,285
87,950
501,285
—
(57)
501,228
(66,384)
434,844
522,851
83.2%
2,692
522,842
(2,683)
522,851
-
66,384
-
66,384
317
87,633
87,950
2,375
-
-
2,375
-
2,375
2,692
88.2%
501,593
(57)
501,536
(66,384)
435,152
522,842
83.2%
2021
2,815,390
2,332,636
482,754
2,332,636
181,549
1,624
2,515,809
(374,750)
2,141,059
2,440,640
87.7%
1,889,611
556,891
(5,862)
2,440,640
281,110
94,166
(526)
374,750
369,027
113,727
482,754
1,801,694
181,549
(17)
1,983,226
(281,110)
1,702,116
1,889,611
90.1%
537,330
1,641
538,971
(94,166)
444,805
556,891
79.9%
2021 Annual Report│26
Less-Than-Truckload and Truckload reportable segments adjusted operating ratio reconciliation and Truckload operating segments reconciliations (continued):
MANAGEMENT’S DISCUSSION AND ANALYSIS
(unaudited)
(in thousands of U.S. dollars)
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
U.S. 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
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
Three months ended
December 31
2020
2021
584,009
522,206
61,803
522,206
—
6,649
528,855
(77,577 )
451,278
506,432
89.1 %
186,988
73,786
247,641
(1,983 )
506,432
33,864
9,414
34,485
(186 )
77,577
15,070
8,565
38,168
61,803
205,782
6,643
212,425
(33,864 )
178,561
186,988
95.5 %
74,635
—
74,635
(9,414 )
65,221
73,786
88.4 %
243,958
—
6
243,964
(34,485 )
209,479
247,641
84.6 %
477,262
423,658
53,604
423,658
306
2,127
426,091
(39,127 )
386,964
438,135
88.3 %
161,476
58,497
219,093
(931 )
438,135
19,006
4,798
15,244
79
39,127
13,722
8,673
31,209
53,604
166,760
—
166,760
(19,006 )
147,754
161,476
91.5 %
54,622
—
54,622
(4,798 )
49,824
58,497
85.2 %
203,128
306
2,127
205,561
(15,244 )
190,317
219,093
86.9 %
Years ended
December 31
2020
1,748,359
1,542,013
206,346
1,542,013
306
11,864
1,554,183
(163,522 )
1,390,661
1,584,837
87.7 %
632,590
206,418
749,655
(3,826 )
1,584,837
81,222
19,408
63,018
(126 )
163,522
51,857
28,337
126,152
206,346
661,955
1,103
663,058
(81,222 )
581,836
632,590
92.0 %
197,489
—
197,489
(19,408 )
178,081
206,418
86.3 %
686,521
306
10,761
697,588
(63,018 )
634,570
749,655
84.6 %
2021
2,162,752
1,932,563
230,189
1,932,563
—
10,569
1,943,132
(261,595 )
1,681,537
1,901,157
88.4 %
734,027
250,177
923,683
(6,730 )
1,901,157
122,134
29,043
110,930
(512 )
261,595
55,464
30,367
144,358
230,189
800,697
6,643
807,340
(122,134 )
685,206
734,027
93.3 %
248,853
17
248,870
(29,043 )
219,827
250,177
87.9 %
890,255
—
3,909
894,164
(110,930 )
783,234
923,683
84.8 %
2021 Annual Report│27
MANAGEMENT’S DISCUSSION AND ANALYSIS
Return on invested capital (“ROIC”): Management believes ROIC at the segment level is a useful measure in the efficiency in the use of capital funds. The Company
calculates ROIC as segment operating income net of exclusions, after tax, divided by the segment average invested capital. Operating income net of exclusions, after
tax, is calculated as the trailing twelve months of operating income before bargain purchase gain, gain or loss on the sale of land and buildings and assets held for
sale, and amortization of intangible assets, after tax using the statutory tax rate of the Company. Average invested capital is calculated as total assets excluding
intangibles, net of trade and other payables, current taxes payable and provisions averaged between the beginning and ending balance over a twelve-month period.
2021 Annual Report│28
Return on invested capital segment reconciliation:
(unaudited)
(in thousands of U.S. dollars)
Package and Courier
Operating income
(Gain) loss on sale of land and buildings
Gain on sale of assets held for sale
Amortization of intangible assets
Operating income, net of exclusions
Income tax
Operating income net of exclusions, after tax
Intangible assets
Total assets, excluding intangible assets
less: Trade and other payables, income taxes payable and provisions
Total invested capital, current year
Intangible assets, prior year
Total assets, excluding intangible assets, prior year
less: Trade and other payables, income taxes payable and provisions, prior year
Total invested capital, prior year
Average invested capital
Return on invested capital
Less-Than-Truckload - Canadian based LTL
Operating income
Gain on sale of assets held for sale
Amortization of intangible assets
Operating income, net of exclusions
Income tax
Operating income net of exclusions, after tax
Intangible assets
Total assets, excluding intangible assets
less: Trade and other payables, income taxes payable and provisions
Total invested capital, current year
Intangible assets, prior year
Total assets, excluding intangible assets, prior year
less: Trade and other payables, income taxes payable and provisions, prior year
Total invested capital, prior year
Average invested capital
Return on invested capital
Truckload - U.S. based Conventional TL
Operating income
Gain on sale of assets held for sale
Amortization of intangible assets
Operating income, net of exclusions
Income tax
Operating income net of exclusions, after tax
Intangible assets
Total assets, excluding intangible assets
less: Trade and other payables, income taxes payable and provisions
Total invested capital, current year
Intangible assets, prior year
Total assets, excluding intangible assets, prior year
less: Trade and other payables, income taxes payable and provisions, prior year
Total invested capital, prior year
Average invested capital
Return on invested capital
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at
December 31
2020
2021
108,440
—
—
903
109,343
26.5 %
80,367
193,765
186,116
(65,438 )
314,443
193,288
194,631
(66,793 )
321,126
317,785
25.3 %
113,727
(1,640 )
9,004
121,091
26.5 %
89,002
182,084
373,655
(74,241 )
481,498
189,579
403,549
(76,608 )
516,520
499,009
17.8 %
55,464
(6,643 )
7,206
56,027
26.5 %
41,180
311,195
593,049
(117,621 )
786,623
317,145
540,648
(95,275 )
762,518
774,571
5.3 %
78,753
—
(91 )
947
79,609
26.5 %
58,513
193,288
194,631
(66,793 )
321,126
190,135
180,902
(49,963 )
321,074
321,100
18.2 %
87,633
56
8,392
96,081
26.5 %
70,620
189,579
403,549
(76,608 )
516,520
188,448
406,488
(74,156 )
520,780
518,650
13.6 %
51,857
(1,103 )
7,067
57,821
26.5 %
42,498
317,145
540,648
(95,275 )
762,518
320,425
578,459
(67,963 )
830,921
796,720
5.3 %
2021 Annual Report│29
Return on invested capital segment reconciliation (continued):
(unaudited)
(in thousands of U.S. dollars)
Truckload - Canadian based Conventional TL
Operating income
Gain on sale of land and buildings
Gain on sale of assets held for sale
Amortization of intangible assets
Operating income, net of exclusions
Income tax
Operating income net of exclusions, after tax
Intangible assets
Total assets, excluding intangible assets
less: Trade and other payables, income taxes payable and provisions
Total invested capital, current year
Intangible assets, prior year
Total assets, excluding intangible assets, prior year
less: Trade and other payables, income taxes payable and provisions, prior year
Total invested capital, prior year
Average invested capital
Return on invested capital
Truckload - Specialized TL
Operating income
Gain on sale of land and buildings
Gain on sale of assets held for sale
Amortization of intangible assets
Operating income, net of exclusions
Income tax
Operating income net of exclusions, after tax
Intangible assets
Total assets, excluding intangible assets
less: Trade and other payables, income taxes payable and provisions
Total invested capital, current year
Intangible assets, prior year
Total assets, excluding intangible assets, prior year
less: Trade and other payables, income taxes payable and provisions, prior year
Total invested capital, prior year
Average invested capital
Return on invested capital
Logistics
Operating income
Loss on sale of land and buildings
Amortization of intangible assets
Bargain Purchase gain
Operating income, net of exclusions
Income tax
Operating income net of exclusions, after tax
Intangible assets
Total assets, excluding intangible assets
less: Trade and other payables, income taxes payable and provisions
Total invested capital, current year
Intangible assets, prior year
Total assets, excluding intangible assets, prior year
less: Trade and other payables, income taxes payable and provisions, prior year
Total invested capital, prior year
Average invested capital
Return on invested capital
MANAGEMENT’S DISCUSSION AND ANALYSIS
2021
30,367
—
(17 )
2,124
32,474
26.5 %
23,868
104,947
169,197
(28,473 )
245,671
96,737
121,407
(24,839 )
193,305
219,488
10.9 %
144,358
—
(3,910 )
12,250
152,698
26.5 %
112,233
539,466
599,761
(81,776 )
1,057,451
493,287
531,677
(83,225 )
941,739
999,595
11.2 %
142,794
3
22,683
(12,000 )
153,480
26.5 %
112,808
454,612
292,026
(199,967 )
546,671
457,098
272,592
(144,305 )
585,385
566,028
19.9 %
As at
December 31
2020
28,337
(8 )
—
2,081
30,410
26.5 %
22,351
96,737
121,407
(24,839 )
193,305
96,909
124,428
(21,569 )
199,768
196,537
11.4 %
126,152
—
(13,583 )
10,194
122,763
26.5 %
90,231
493,287
531,677
(83,225 )
941,739
443,245
503,682
(63,649 )
883,278
912,509
9.9 %
84,459
5
17,889
(4,008 )
98,345
26.5 %
72,284
457,098
272,592
(144,305 )
585,385
262,691
159,152
(61,560 )
360,283
472,834
15.3 %
2021 Annual Report│30
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 statements. The following issues,
uncertainties and risks, among others, should be considered in evaluating the
Company’s business, prospects, financial condition, results of operations and
cash flows.
Competition. The Company faces growing competition
from other
transporters in Canada, the United States and Mexico. These factors,
including the following, could impair the Company’s ability to maintain or
improve its profitability and could have a material adverse effect on the
Company’s results of operations:
the Company competes with many other transportation companies of
varying sizes, including Canadian, U.S. and Mexican transportation
MANAGEMENT’S DISCUSSION AND ANALYSIS
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;
some high-volume package shippers, such 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;
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.
companies;
Regulation. In Canada, carriers must obtain licenses issued by provincial
the Company’s competitors may periodically reduce their freight rates
transport boards in order to carry goods inter-provincially or to transport
to gain business, which may limit the Company’s ability to maintain or
goods within any province. Licensing from U.S. and Mexican regulatory
increase freight rates or maintain growth in the Company’s business;
authorities is also required for the transportation of goods in Canada, the
some of the Company’s customers are other transportation companies
United States, and Mexico. Any change in or violation of existing or future
or companies that also operate their own private trucking fleets, and
regulations could have an adverse impact on the scope of the Company’s
they may decide to transport more of their own freight or bundle
activities. Future laws and regulations may be more stringent, require
transportation with other services;
changes in the Company’s operating practices, influence the demand for
some of the Company’s customers may reduce the number of carriers
transportation services or require the Company to incur significant additional
they use by selecting so-called “core carriers” as approved service
costs. Higher costs incurred by the Company, or by the Company’s suppliers
providers or by engaging dedicated providers, and in some instances the
who pass the costs onto the Company through higher supplies and materials
Company may not be selected;
pricing, could adversely affect the Company’s results of operations.
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 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;
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,
including 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
2021 Annual Report│31
MANAGEMENT’S DISCUSSION AND ANALYSIS
carrier’s ability to operate in interstate commerce. Additionally, the FMCSA
finalized by the FMCSA, effective November 2021, states are required to
has proposed rules in the past that would change the methodologies used to
query the clearinghouse when issuing, renewing, transferring, or upgrading a
determine carrier safety and fitness.
commercial drivers license and must revoke a driver’s commercial driving
privileges if such driver is prohibited from driving a motor vehicle for one or
Under the CSA program, carriers are evaluated and ranked against their peers
based on seven categories of safety-related data. The seven categories of
more drug or alcohol violations.
safety-related data currently
include Unsafe Driving, Hours-of-Service
In addition, other rules have been proposed or made final by the FMCSA,
Compliance, Driver Fitness, Controlled Substances/Alcohol, Vehicle
including (i) a rule requiring the use of speed-limiting devices on heavy-duty
Maintenance, Hazardous Materials Compliance and Crash Indicator (such
tractors to restrict maximum speeds, which was proposed in 2016, and (ii) a
categories known as “BASICs”). Carriers are grouped by category with other
rule setting out minimum driver training standards for new drivers applying
carriers that have a similar number of safety events (i.e. crashes, inspections,
for commercial driver’s licenses for the first time and to experienced drivers
or violations) and carriers are ranked and assigned a rating percentile or
upgrading their licenses or seeking a hazardous materials endorsement,
score. If the Company were subject to any such interventions, this could have
which was made final in December 2016 with a compliance date in February
an adverse effect on the Company’s business, financial condition and results
2020 (FMCSA officials delayed implementation of the final rule by two years).
of operations. As a result, the Company’s fleet could be ranked poorly as
In July 2017, the DOT announced that it would no longer pursue a speed
compared to peer carriers. There is no guarantee that the Company will be
limiter rule, but left open the possibility that it could resume such a pursuit in
able to maintain its current safety ratings or that it will not be subject to
the future. In May 2021, however, a bill was reintroduced in the U.S. House
interventions in the future. The Company recruits first-time drivers to be part
of Representatives that would require commercial motor vehicles with gross
of its fleet, and these drivers may have a higher likelihood of creating adverse
weight exceeding 26,000 pounds to eb equipped with a speed limiting device,
safety events under CSA. The occurrence of future deficiencies could affect
prohibiting speeds greater than 65 miles per hour. Whether the bill will
driver recruitment in the United States by causing high-quality drivers to seek
become law is uncertain. The effect of these rules, to the extent they become
employment with other carriers or limit the pool of available drivers or could
effective, could result in a decrease in fleet production and/or driver
cause the Company’s customers to direct their business away from the
availability, either of which could materially adversely affect the Company’s
Company and to carriers with higher fleet safety rankings, either of which
business, financial condition and results of operations.
would materially adversely affect the Company’s business, financial condition
and results of operations. In addition, future deficiencies could increase the
Company’s insurance expenses. Additionally, competition for drivers with
favorable safety backgrounds may
increase, which could necessitate
increases in driver-related compensation costs. Further, the Company may
incur greater than expected expenses in its attempts to improve unfavorable
scores.
The Company’s subsidiaries with U.S. operating authority currently have a
satisfactory DOT rating, which is the highest available rating under the current
safety rating scale. If the Company’s subsidiaries with U.S. operating authority
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
In December 2016, the FMCSA issued a final rule establishing a national
adversely affect or restrict the Company’s operations and increase the
clearinghouse for drug and alcohol testing results and requiring motor
Company’s insurance costs.
carriers and medical review officers to provide records of violations by
commercial drivers of FMCSA drug and alcohol testing requirements. Motor
carriers in the United States will be required to query the clearinghouse to
ensure drivers and driver applicants do not have violations of federal drug and
alcohol testing regulations that prohibit them from operating commercial
motor vehicles. The final rule became effective on January 4, 2017, with a
compliance date of January 6, 2020. In December 2019, however, the FMCSA
announced a final rule extending by three years the date for state driver’s
licensing agencies to comply with certain requirements. The December 2016
commercial driver’s license rule required states to request information from
the clearinghouse about individuals prior to issuing, renewing, upgrading or
transferring a commercial driver’s license. This new action will allow states’
compliance with the requirement, which was set to begin January 2020, to be
delayed until January 2023. The compliance date of January 2020 remained
in place for all other requirements set forth in the clearinghouse final rule,
however. Upon implementation, the rule may reduce the number of available
drivers in an already constrained driver market. Pursuant to a new rule
The FMCSA has proposed regulations that would modify the existing rating
system and the safety labels assigned to motor carriers evaluated by the DOT.
Under regulations that were proposed in 2016, the methodology for
determining a carrier’s DOT safety rating would be expanded to include the
on-road safety performance of the carrier’s drivers and equipment, as well as
results obtained from investigations. Exceeding certain thresholds based on
such performance or results would cause a carrier to receive an unfit safety
rating. The proposed regulations were withdrawn in March 2017, but the
FMCSA noted that a similar process may be initiated in the future. If similar
regulations were enacted and the Company were to receive an unfit or other
negative safety rating, the Company’s business would be materially adversely
affected in the same manner as if it received a conditional or unsatisfactory
safety rating under the current regulations. In addition, poor safety
performance could lead to increased risk of liability, increased insurance,
maintenance and equipment costs and potential loss of customers, which
could materially adversely affect the Company’s business, financial condition
2021 Annual Report│32
MANAGEMENT’S DISCUSSION AND ANALYSIS
and results of operations. The FMCSA has also indicated that it is in the early
Company’s operations and financial results. The Company cannot predict the
phases of a new study on the causation of large truck crashes. Although it
extent to which its operations and productivity will be impacted by any future
remains unclear whether such a study will ultimately be completed, the
regulations. The Company will continue monitoring its compliance with U.S.
results of such study could spur further proposed and/or final rules regarding
federal and state environmental regulations.
safety and fitness in the United States.
In March 2014, the U.S. Ninth Circuit Court of Appeals (the “Ninth Circuit”)
From time to time, the FMCSA proposes and implements changes to
held that the application of California state wage and hour laws to interstate
regulations impacting hours-of-service. Such changes can negatively impact
truck drivers is not pre-empted by U.S. federal law. The case was appealed to
the Company’s productivity and affect its operations and profitability by
the U.S. Supreme Court, which denied certiorari in May 2015, and accordingly,
reducing the number of hours per day or week the Company’s U.S. drivers
the Ninth Circuit decision stood. However, in December 2018, the FMCSA
and independent contractors may operate and/or disrupt the Company’s
granted a petition filed by the American Trucking Associations determining
network. However, in August 2019, the FMCSA issued a proposal to make
that federal law pre-empts California’s wage and hour laws, and interstate
changes to its hours-of-service rules that would allow U.S. truck drivers more
truck drivers are not subject to such laws. The FMCSA’s decision was
flexibility with their 30-minute rest break and with dividing their time in the
appealed by labor groups and multiple lawsuits were filed in U.S. courts
sleeper berth. It also would extend by two hours the duty time for U.S. drivers
seeking to overturn the decision. I January 2021, however, the Ninth Circuit
encountering adverse weather, and extend the shorthaul exemption by
upheld the FMCSA’s determination that U.S. federal law does pre-empt
lengthening the drivers’ maximum on-duty period from 12 hours to 14 hours.
California’s meal and rest break laws, as applied to drivers of property-
In June 2020, the FMCSA adopted a final rule substantially as proposed, which
carrying commercial motor vehicles. Other current and future U.S. state and
became effective in September 2020. Certain industry groups have
local wage and hour laws, including laws related to employee meal breaks and
challenged these rules in U.S. courts, and it remains unclear what, if anything,
rest periods, may vary significantly from U.S. federal law. Further, driver piece
will come from such challenges. Any future changes to U.S. hours-of-service
rate compensation, which is an industry standard, has been attacked as non-
regulations could materially and adversely affect the Company’s operations
compliant with state minimum wage laws. As a result, the Company, along
and profitability.
The U.S. National Highway Traffic Safety Administration, the EPA and certain
U.S. states, including California, have adopted regulations that are aimed at
reducing tractor emissions and/or increasing fuel economy of the equipment
the Company uses. Certain of these regulations are currently effective, with
stricter emission and fuel economy standards becoming effective over the
next several years. Other regulations have been proposed in the United States
that would similarly increase these standards. U.S. federal and state
lawmakers and regulators have also adopted or are considering a variety of
other climate-change legal requirements related to carbon emissions and
greenhouse gas emissions. These legal requirements could potentially limit
carbon emissions within certain states and municipalities in the United States.
Certain of these legal requirements restrict the location and amount of time
that diesel-powered tractors (like the Company’s) may idle, which may force
the Company to purchase on-board power units that do not require the
engine to idle or to alter the Company’s drivers’ behavior, which might result
in a decrease in productivity and/or an increase in driver turnover. All of these
regulations have increased, and may continue to increase, the cost of new
tractors and trailers and may require the Company to retrofit certain of its
tractors and trailers, may increase its maintenance costs, and could impair
equipment productivity and
increase the Company’s operating costs,
particularly if such costs are not offset by potential fuel savings. The
occurrence of any of these adverse effects, combined with the uncertainty as
to the reliability of the newly-designed diesel engines and the residual values
of the Company’s equipment, could materially adversely affect the
Company’s business,
financial condition and results of operations.
Furthermore, any future regulations that impose restrictions, caps, taxes or
other controls on emissions of greenhouse gases could adversely affect the
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, and 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. If U.S.
federal legislation is not passed pre-empting state and local wage and hour
laws, 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 labor 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.
2021 Annual Report│33
MANAGEMENT’S DISCUSSION AND ANALYSIS
Changes in existing regulations and implementation of new regulations, such
equipment suppliers would likely be passed on to the Company, and to the
as those related to trailer size limits, emissions and fuel economy, hours of
extent fuel prices increase, the Company may not be able to fully recover such
service, mandating ELDs and drug and alcohol testing in Canada, the United
increases through rate increases or the Company’s fuel surcharge program,
States and Mexico, could increase capacity in the industry or improve the
either of which could have a material adverse effect on the Company’s
position of certain competitors, either of which could negatively impact
business.
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 United States-Mexico-Canada Agreement (“USMCA”) entered into effect
in July 2020. 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.
The right to continue to hold applicable licenses and permits is generally
Trade Representative. It is difficult to predict at this stage what could be the
subject to maintaining satisfactory compliance with regulatory and safety
impact of the USMCA on the economy, including the transportation industry.
guidelines, policies and laws. Although the Company is committed to
However, given the amount of North American trade that moves by truck it
compliance with laws and safety, there is no assurance that it will be in full
could have a significant impact on supply and demand in the transportation
compliance with them at all times. Consequently, at some future time, the
industry, and could adversely impact the amount, movement and patterns of
Company could be required to incur significant costs to maintain or improve
freight transported by the Company.
its compliance record.
The U.S. Department of Treasury has broad authority to issue regulations and
United States and Mexican operations. A significant portion of the
interpretative guidance that may significantly impact how the Company will
Company’s revenue is derived from operations in the United States and
apply the law and impact the Company’s results of operations in future
transportation to and from Mexico. The Company’s international operations
periods. The timing and scope of such regulations and interpretative guidance
are subject to a variety of risks, including fluctuations in foreign currencies,
are uncertain. In addition, there is a risk that states within the United States
changes in the economic strength or greater volatility in the economies of
or foreign jurisdictions may amend their tax laws in response to these tax
foreign countries in which the Company does business, difficulties in
reforms, which could have a material adverse effect on the Company’s
enforcing contractual rights and intellectual property rights, compliance
results.
burdens associated with export and import laws, theft or vandalism, and
social, political and economic instability. The Company’s international
operations could be adversely affected by restrictions on travel. Additional
risks associated with the Company’s
international operations
include
restrictive trade policies, imposition of duties, changes to trade agreements
and other treaties, taxes or government royalties by foreign governments,
adverse changes in the regulatory environments, including in tax laws and
regulations, of the foreign countries in which the Company does business,
compliance with anti-corruption and anti-bribery laws, restrictions on the
withdrawal of foreign investments, the ability to identify and retain qualified
local managers and the challenge of managing a culturally and geographically
diverse operation. The Company cannot guarantee compliance with all
applicable laws, and violations could result in substantial fines, sanctions, civil
or criminal penalties, competitive or reputational harm, litigation or
regulatory action and other consequences that might adversely affect the
Company’s results of operations.
The current United States Presidential Administration provided informal
guidance that it is in favor of certain changes to U.S. tax law, including
increasing the corporate tax rate from its current rate of 21%. In the event
that the corporate tax rate is increased, the Company’s financial position, and
financial results from its United States operations may be adversely affected.
The implementation of tariffs or quotas or changes to certain trade
agreements could, among other things, increase the costs of the materials
used by the Company’s suppliers to produce new revenue equipment or
increase the price of fuel. Such cost increases for the Company’s revenue
In addition, if the Company is unable to maintain its Free and Secure Trade
(“FAST”) and U.S. Customs Trade Partnership Against Terrorism (“C-TPAT”)
certification statuses, it may have significant border delays, which could cause
its cross-border operations to be less efficient than those of competitor
carriers that obtain or continue to maintain FAST and C-TPAT certifications.
Operating Environment and Seasonality. The Company is exposed to the
following factors, among others, affecting its operating environment:
the Company’s future insurance and claims expense, including the cost
of its liability insurance premiums and the number and dollar amount of
claims, may exceed historical levels, which would require the Company
to incur additional costs and could reduce the Company’s earnings;
a decline in the demand for used revenue equipment could result in
decreased equipment sales, lower resale values and lower gains (or
recording losses) on sales of assets;
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, including the current shortage of
semiconductors and other components and supplies, such as steel,
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 negatively impact the Company’s financial
results if it incurs higher costs to purchase tractors and trailers; and
increased prices for new revenue equipment, design changes of new
engines, reduced equipment efficiency resulting from new engines
2021 Annual Report│34
designed to reduce emissions, or decreased availability of new revenue
Economic conditions that decrease shipping demand and increase the supply
MANAGEMENT’S DISCUSSION AND ANALYSIS
equipment.
The Company’s tractor productivity decreases during the winter season
because inclement weather 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, and fires, which may increase in
frequency and severity due to climate change, as well as other man-made
disasters. These events may disrupt fuel supplies, increase fuel costs, disrupt
freight shipments or routes, affect regional economies, damage or destroy
the Company’s assets or adversely affect the business or financial condition
of the Company’s customers, any of which could materially adversely affect
the Company’s results of operations or make the Company’s results of
operations more volatile.
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) limited supply and increased cost of
new and used equipment; (iv) recruiting and retaining qualified drivers; (v)
strikes, work stoppages or work slowdowns at the Company’s facilities or at
customer, port, border crossing or other shipping-related facilities; (vi)
compliance with ongoing regulatory requirements; (vii) increases in interest
rates, fuel taxes, tolls and license and registration fees; and (vii) rising
healthcare and insurance and claims costs in the United States; and (ix) the
impact of the COVID-19 pandemic.
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 (iv)
downturns 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.
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.
The Company is subject to cost increases that are outside the Company’s
control that could materially reduce 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 shipping 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.
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
2021 Annual Report│35
MANAGEMENT’S DISCUSSION AND ANALYSIS
periods of decreased customer demand, the Company’s asset utilization may
may include the geographic spread and duration of the virus, the distribution
suffer, and it may be forced to sell equipment on the open market or turn in
and availability of vaccines, vaccine hesitancy, the severity of the disease and
equipment under certain equipment leases in order to right size its fleet. This
the actions that may be taken by various governmental authorities and other
could cause the Company to incur losses on such sales or require payments in
third parties in response to the outbreak.
connection with equipment the Company turns in, particularly during times
of a softer used equipment market, either of which could have a material
adverse effect on the Company’s profitability.
Although the Company’s business volume is not highly concentrated, its
customers’ financial failures or loss of customer business may materially
adversely affect the Company. If the Company were unable to generate
sufficient cash from operations, it would need to seek alternative sources of
capital, including financing, to meet its capital requirements. In the event that
the Company were unable to generate sufficient cash from operations or
obtain financing on favorable terms in the future, it may have to limit its fleet
size, enter into less favorable financing arrangements or operate its revenue
equipment for longer periods, any of which could have a materially adverse
effect on its profitability.
Coronavirus and its variants (“COVID-19”) outbreak or other similar
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, including vaccine, testing and masks mandates, all
of which could limit the Company’s ability to meet customer demand, as well
as reduce customer demand. Furthermore, government vaccine, testing, and
mask mandates may increase the Company’s turnover and make recruiting
more difficult, particularly among the Company’s driver personnel.
Certain of the Company’s office personnel have 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 uncertainty. Risks
related to a slowdown or recession are described in the Company’s risk factor
titled “General Economic, Credit and Business Conditions”.
Short-term and long-term developments related to COVID-19 have been
unpredictable and the extent to which further developments could impact
the Company’s operations, financial condition, access to credit, liquidity,
results of operations, and cash flows is highly uncertain. Such developments
In November 2021, the U.S. Department of Labor’s Occupational Safety and
Health Administration (“OSHA”) published an emergency temporary standard
requiring all employers within the U.S. with over 100 employees to ensure
that their employees are fully vaccinated or, in the alternative, to ensure that
all unvaccinated employees return a negative COVID-19 test at least once a
week before coming to work. However, the United States Supreme Court
blocked this emergency temporary standard from coming into effect.
Effective January 2022, the Canadian government is prohibiting unvaccinated
foreigners, including U.S. citizens, from crossing the border. Effective January
2022, the U.S. Government is prohibiting unvaccinated foreigners, including
Canadian citizens, from crossing the U.S.-Canada border and the U.S.-Mexico
border. The effect of these border requirements, in addition to any other
vaccine, testing, or mask mandates that go into effect may, amongst other
things, (i) cause the Company’s employees to go to smaller employers,
especially if any future mandates are only subject to larger employers, or
leave the trucking industry altogether, (ii) result in logistical issues, increased
expenses, and operational issues resulting from ensuring compliance with
such mandates, such as the costs of arranging for COVID-19 tests for the
Company’s unvaccinated employees, especially
for
the Company’s
unvaccinated drivers, (iii) result in increased costs relating to recruiting and
training of drivers, and (iv) result in decreased revenue and other operational
issues if we are unable to recruit and retain drivers. Any such vaccine, testing,
or mask mandate that is interpreted as to apply to commercial drivers would
significantly reduce the pool of drivers available to us and the industry as a
whole, exacerbating the current driver shortage even further. Accordingly,
any vaccine, testing, or mask mandate, to the extent that it goes into effect,
may have a material adverse effect on the Company’s business, the
Company’s operations, and the Company’s financial condition and position.
Interest Rate Fluctuations. Future cash flows related to variable-rate financial
liabilities could be impacted by changes in benchmark rates such as Bankers’
Acceptance or London Interbank Offered Rate (Libor). In addition, the
Company is exposed to gains and losses arising from changes in interest rates
through its derivative financial instruments carried at fair value.
Currency Fluctuations. The Company’s financial results are reported in U.S.
dollars and a large portion of the Company’s revenue and operating costs are
realized in currencies other than the U.S. dollar, primarily the Canadian dollar.
The exchange rates between these currencies and the U.S. 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 U.S. dollar.
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 futures trading,
2021 Annual Report│36
MANAGEMENT’S DISCUSSION AND ANALYSIS
currency fluctuations, natural and man-made disasters, terrorist activities and
million. The Company retains a deductible of US $1 million on its primary US
armed conflicts, any of which may lead to an increase in the cost of fuel. Fuel
$5 million limit policy for certain U.S. subsidiaries for commercial general
prices are also affected by the rising demand for fuel in developing countries
liability. The Company retains deductibles of up to US $1 million per
and could be materially adversely affected by the use of crude oil and oil
occurrence for workers’ compensation claims. The Company’s liability
reserves for purposes other than fuel production and by diminished drilling
coverage has a total limit of US $100 million per occurrence for both its
activity. Such events may lead not only to increases in fuel prices, but also to
Canadian and U.S. divisions.
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.
Although the Company believes its aggregate insurance limits should be
sufficient to cover reasonably expected claims, it is possible that the amount
of one or more claims could exceed the Company’s aggregate coverage limits
or that the Company will chose not to obtain insurance in respect of such
claims. If any claim were to exceed the Company’s coverage, the Company
While the Company has fuel surcharge programs in place with a majority of
would bear the excess, in addition to the Company’s other self-insured
the Company’s customers, which historically have helped the Company offset
amounts. The Company’s results of operations and financial condition could
the majority of the negative impact of rising fuel prices, the Company also
be materially and adversely affected if (i) cost per claim or the number of
incurs fuel costs that cannot be recovered even with respect to customers
claims significantly exceeds the Company’s coverage limits or retention
with which the Company maintains fuel surcharge programs, such as those
amounts; (ii) the Company experiences a claim in excess of its coverage limits;
associated with non-revenue generating miles or time when the Company’s
(iii) the Company’s insurance carriers fail to pay on the Company’s insurance
engines are idling. Moreover, the terms of each customer’s fuel surcharge
claims; (iv) the Company experiences a significant increase in premiums; or
program vary from one division to another, and the recoverability for fuel
(v) the Company experiences a claim for which coverage is not provided,
price increases varies as well. In addition, because the Company’s fuel
either because the Company chose not to obtain insurance as a result of high
surcharge recovery lags behind changes in fuel prices, the Company’s fuel
premiums or because the claim is not covered by insurance which the
surcharge recovery may not capture the increased costs the Company pays
Company has in place.
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.
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
Insurance. The Company’s operations are subject to risks inherent in the
Company’s retained claim liabilities could differ from its estimates due to a
transportation sector, including personal injury, property damage, workers’
number of uncertainties, including evaluation of severity, legal costs and
compensation and employment and other issues. The Company’s future
claims that have been incurred but not reported. Due to the Company’s high
insurance and claims expenses may exceed historical levels, which could
retained amounts, it has significant exposure to fluctuations in the number
reduce the Company’s earnings. The Company subscribes for insurance in
and severity of claims. If the Company were required to accrue or pay
amounts it considers appropriate in the circumstances and having regard to
additional amounts because its estimates are revised or the claims ultimately
industry norms. Like many in the industry, the Company self-insures a
prove to be more severe than originally assessed, its financial condition and
significant portion of the claims exposure related to cargo loss, bodily injury,
results of operations may be materially adversely affected.
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
Employee Relations. With the acquisition of UPS Freight and prior Canadian
acquisitions, the Company has a substantial number of unionized employees
in the U.S. and Canada. 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 will not attempt to unionize.
The unionization of the Company’s employees in additional business units,
adverse changes in terms under collective bargaining agreements, or actual
or threatened strikes, work stoppages or slow downs, could have a material
adverse effect on the Company’s business, customer retention, results of
operations, financial condition and liquidity, and could cause significant
disruption of, or inefficiencies in, its operations, because:
2021 Annual Report│37
MANAGEMENT’S DISCUSSION AND ANALYSIS
restrictive work rules could hamper the Company’s ability to improve or
industries, which may offer better compensation and/or more time at home,
sustain operating efficiency or could impair the Company’s service
are more plentiful and freight demand increases, or during periods of
reputation and limit its ability to provide certain services;
economic downturns, in which unemployment benefits might be extended
a strike or work stoppage could negatively impact the Company’s
and financing is limited for independent contractors who seek to purchase
profitability and could damage customer and employee relationships;
equipment, or the scarcity or growth of loans for students who seek financial
shippers may limit their use of unionized trucking companies because of
aid for driving school. In addition, enrollment at driving schools may be
the threat of strikes and other work stoppages;
further limited by COVID-19 social distancing requirements, vaccine, testing,
the Company could fail to extend or renegotiate
its collective
and mask mandates, and other regulatory requirements that reduces the
agreements or experience material increases in wages or benefits;
number of eligible drivers. The lack of adequate tractor parking along some
disputes with the Company’s unions could arise; and
U.S. highways and congestion caused by inadequate highway funding may
an election and bargaining process could divert management’s time and
make it more difficult for drivers to comply with hours of service regulations
attention from the Company’s overall objectives and impose significant
and cause added stress for drivers, further reducing the pool of eligible
expenses.
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.
The Company has limited experience with unionized employees in the U.S.
There may be additional risks related to the increased number of unionized
U.S. employees from the acquisition of UPS Freight. The impact the
Company’s unionized operations could have on non-unionized operations is
uncertain.
Drivers. Increases in driver compensation or difficulties attracting and
retaining qualified drivers could have a material adverse effect on the
Company’s profitability and the ability to maintain or grow the Company’s
fleet.
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.
In addition, the Company and many other trucking companies suffer from a
high turnover rate of drivers in the U.S. TL market. This high turnover rate
requires the Company to continually recruit a substantial number of new
drivers in order to operate existing revenue equipment. Driver shortages are
exacerbated during periods of economic expansion, in which alternative
employment opportunities, including in the construction and manufacturing
drivers. The Company’s use of team-driven tractors for expedited shipments
requires two drivers per tractor, which further increases the number of
drivers the Company must recruit and retain in comparison to operations that
require one driver per tractor. The Company also employs driver hiring
standards, which could further reduce the pool of available drivers from
which the Company would hire. If the Company is unable to continue to
attract and retain a sufficient number of drivers, the Company could be forced
to, among other things, adjust the Company’s compensation packages,
increase the number of the Company’s tractors without drivers or operate
with fewer trucks and face difficulty meeting shipper demands, any of which
could adversely affect the Company’s growth and profitability.
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.
The Company provides financing to certain qualified Canadian independent
contractors and financial guarantees to a small number of U.S. independent
contractors. If the Company were unable to provide such financing or
guarantees in the future, due to liquidity constraints or other restrictions, it
may experience a decrease in the number of independent contractors it is
able to engage. Further, if independent contractors the Company engages
default under or otherwise terminate the financing arrangements and the
Company is unable to find replacement independent contractors or seat the
tractors with its drivers, the Company may incur losses on amounts owed to
it with respect to such tractors.
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.
U.S. tax and other regulatory authorities, as well as U.S. independent
contractors themselves, have increasingly asserted that U.S. independent
2021 Annual Report│38
MANAGEMENT’S DISCUSSION AND ANALYSIS
contractor drivers in the trucking industry are employees rather than
the decision. In November 2021, the Supreme Court requested that the U.S.
independent contractors, and the Company’s classification of independent
solicitor general weigh in on the case. The injunction will remain in place until
contractors has been the subject of audits by such authorities from time to
the Supreme Court makes a decision on whether to proceed in hearing the
time. U.S. federal and state legislation has been introduced in the past that
case. While the stay of the AB5 mandate provides temporary relief to the
would make it easier for tax and other authorities to reclassify independent
enforcement of AB5, it remains unclear how long such relief will last, and
contractors as employees, including legislation to increase the recordkeeping
whether the CTA will ultimately be successful in invalidating the law. It is also
requirements for those that engage independent contractor drivers and to
possible AB5 will spur similar legislation in states other than California, which
increase the penalties for companies who misclassify their employees and are
could adversely affect the Company’s results of operations and profitability.
found to have violated employees’ overtime and/or wage requirements. The
most recent example being the Protecting the Rights to Organize (“PRO”) Act,
which was passed by the U.S. House of Representatives and received by the
U.S. Senate in March 2021 and remains with the U.S. Senate’s Committee on
Health, Education, Labor, and Pensions. The PRO Act proposes to apply the
“ABC Test” (described below) for classifying workers under Federal Fair Labor
Standards Act claims. It is unknown whether any of the proposed legislation
will become law or whether any industry-based exemptions from any
resulting law will be granted. 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, and
a reclassification of independent contractors as employees would help states
with this initiative. Further, courts in certain U.S. states have issued decisions
that could result in a greater likelihood that independent contractors would
be judicially classified as employees in such states.
In September 2019, California enacted a new law, A.B. 5 (“AB5”), that made
it more difficult for workers to be classified as independent contractors (as
opposed to employees). AB5 provides that the three-pronged “ABC Test”
must be used to determine worker classifications in wage order claims. Under
the ABC Test, a worker is presumed to be an employee and the burden to
demonstrate their independent contractor status is on the hiring company
through satisfying all three of the following criteria: (a) the worker is free from
control and direction in the performance of services; (b) the worker is
performing work outside the usual course of the business of the hiring
company; and (c) the worker is customarily engaged in an independently
established trade, occupation, or business. How AB5 will be enforced is still
to be determined. In January 2021, however, the California Supreme Court
ruled that the ABC Test could apply retroactively to all cases not yet final as
of the date the original decision was rendered, April 2018. While it was set to
enter into effect in January 2020, a U.S. 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 invalidate AB5. The Ninth Circuit rejected the reasoning
behind the injunction in April 2021, ruling that AB5 is not pre-empted by U.S.
federal law, but granted a stay of the AB5 mandate in June 2021 (preventing
its application and temporarily continuing the injunction) while the CTA
petitioned the United States Supreme Court (the “Supreme Court”) to review
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 favor of those seeking to classify independent
contractor truck drivers as employees. U.S. taxing and other regulatory
authorities and courts apply a variety of standards in their determination of
independent contractor status. If the independent contractors with whom
the Company contracts are determined to be employees, the Company would
incur additional exposure under U.S. federal and state tax, workers’
compensation, unemployment benefits, labor, 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
settled certain class action cases in Massachusetts and California in the past
with independent contractors who alleged they were misclassified.
Acquisitions and Integration Risks. Historically, acquisitions have been a part
of the Company’s growth strategy. The Company may not be able to
successfully integrate acquisitions into the Company’s business, or may incur
significant unexpected costs in doing so. Further, the process of integrating
acquired businesses may be disruptive to the Company’s existing business
and may cause an interruption or reduction of the Company’s business as a
result of the following factors, among others:
loss of drivers, key employees, customers or contracts;
possible inconsistencies in or conflicts between standards, controls,
procedures and policies among the combined companies and the need
to
implement company-wide
financial, accounting,
information
technology and other systems;
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;
risks of entering new markets or business offerings in which we have
had no or only limited prior experience;
failure to coordinate geographically dispersed organizations; and
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.
2021 Annual Report│39
MANAGEMENT’S DISCUSSION AND ANALYSIS
Given the nature and size of UPS Freight, as well as the structure of the
especially where there is no right to indemnification, could adversely affect
acquisition as a carveout from UPS, the acquisition of UPS Freight presents
the Company’s results of operations, financial condition and liquidity.
the following risks, in addition to risks noted elsewhere in these risk factors:
The Company continues to review acquisition and investment opportunities
a large portion of the business of UPS Freight prior to the acquisition
in order to acquire companies and assets that meet the Company’s
was with affiliates of UPS. While there are transportation service
investment criteria, some of which may be significant. Depending on the
agreements in effect with such affiliates of UPS, such affiliates may
number of acquisitions and investments and funding requirements, the
decide to reduce or eliminate business with the Company in the future
Company may need to raise substantial additional capital and increase the
and we have limited contractual protections to prevent the loss of such
Company’s indebtedness. Instability or disruptions in the capital markets,
business;
including credit markets, or the deterioration of the Company’s financial
some of the information and operating systems of UPS Freight were
condition due to internal or external factors, could restrict or prohibit access
integrated with UPS prior to the acquisition. The Company is in the
to the capital markets and could also increase the Company’s cost of capital.
process of transitioning such systems and could experience disruptions
To the extent the Company raises additional capital through the sale of equity,
during the transition or difficulty or delay in building its systems and
equity-linked or convertible debt securities, the issuance of such securities
personnel to operate them;
could result in dilution to the Company’s existing shareholders. If the
the Company had limited experience in the U.S. LTL market prior to the
Company raises additional funds through the issuance of debt securities, the
acquisition and we may be unsuccessful in integrating UPS Freight and
terms of such debt could impose additional restrictions and costs on the
operating it profitably;
Company’s operations. Additional capital, if required, may not be available on
given the size and complexity of the acquired U.S. LTL operations of UPS
acceptable terms or at all. If the Company is unable to obtain additional
Freight, management’s attention may be diverted from other areas of
capital at a reasonable cost, the Company may be required to forego potential
the Company; and
acquisitions, which could impair the execution of the Company’s growth
the Company acquired a substantial number of unionized U.S.
strategy.
employees
in the acquisition and unionized employees present
significant risks.
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
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.
turn out to be correct and, as a result, the amount of cost savings, synergies,
There is no assurance that the Company will be successful in identifying,
revenue enhancements and other benefits the Company actually realizes
negotiating, consummating or integrating any future acquisitions. If the
and/or the timing of such realization may differ significantly (and may be
Company does not make any future acquisitions, or divests certain of its
significantly lower) from the ones the Company estimated, and the Company
operations, the Company’s growth rate could be materially and adversely
may incur significant costs in reaching the estimated cost savings, synergies,
affected. Any future acquisitions the Company does undertake could involve
revenue enhancements or other benefits. Further, management of acquired
the dilutive issuance of equity securities or the incurring of additional
operations through a decentralized approach may create inefficiencies or
indebtedness.
inconsistencies.
Growth. There is no assurance that in the future, the Company’s business will
Many of the Company’s recent acquisitions have involved the purchase of
grow substantially or without volatility, nor is there any assurance that the
stock of existing companies. These acquisitions, as well as acquisitions of
Company will be able to effectively adapt its management, administrative and
substantially all of the assets of a company, may expose the Company to
operational systems to respond to any future growth. Furthermore, there is
liability for actions taken by an acquired business and its management before
no assurance that the Company’s operating margins will not be adversely
the Company’s acquisition. The due diligence the Company conducts in
affected by future changes in and expansion of its business or by changes in
connection with an acquisition and any contractual guarantees or indemnities
economic conditions or that it will be able to sustain or improve its
that the Company receives from the sellers of acquired companies may not
profitability in the future.
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,
Environmental Matters. The Company uses storage tanks at certain of its
Canadian and U.S. transportation terminals. Canadian and U.S. laws and
2021 Annual Report│40
MANAGEMENT’S DISCUSSION AND ANALYSIS
regulations generally impose potential liability on the present and former
discharges. If the Company is involved in a spill or other accident involving
owners or occupants or custodians of properties on which contamination has
hazardous substances, if there are releases of hazardous substances the
occurred, as well as on parties who arranged for the disposal of waste at such
Company transports, if soil or groundwater contamination is found at the
properties. Although the Company is not aware of any contamination which,
Company’s current or former facilities or results from the Company’s
if remediation or clean-up were required, would have a material adverse
operations, or if the Company is found to be in violation of applicable laws or
effect on it, certain of the Company’s current or former facilities have been in
regulations, the Company could be subject to cleanup costs and liabilities,
operation for many years and over such time, the Company or the prior
including substantial fines or penalties or civil and criminal liability, any of
owners, operators or custodians of the properties may have generated and
which could have a materially adverse effect on the Company’s business and
disposed of wastes which are or may be considered hazardous. Liability under
operating results.
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 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.
Key Personnel. The future success of the Company will be based in large part
on the quality of the Company’s management and key personnel. The
Company’s 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
Environmental laws may authorize, among other things, federal, provincial,
services is affected by many risks beyond the Company’s control, including
state and local environmental regulatory agencies to issue orders, bring
equipment shortages in the transportation industry, particularly among
administrative or judicial actions for violations of environmental laws and
contracted carriers, interruptions in service due to labor disputes, changes in
regulations or to revoke or deny the renewal of a permit. Potential penalties
regulations impacting transportation and changes in transportation rates.
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.
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, among other things, funded debt,
distributions, liens, investments, acquisitions and dispositions outside the
ordinary course of business and affiliate transactions. If the Company fails to
comply with any of its financing arrangement covenants, restrictions and
requirements, the Company could be in default under the relevant
Environmental Contamination. The Company could be subject to orders and
agreement, which could cause cross-defaults under other financing
other legal actions and procedures brought by governmental or private
arrangements. In the event of any such default, if the Company failed to
parties in connection with environmental contamination, emissions or
obtain replacement financing or amendments to or waivers under the
2021 Annual Report│41
applicable financing arrangement, the Company may be unable to pay
longer periods, any of which may have a material adverse effect on the
dividends to its shareholders, and its lenders could cease making further
Company’s operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS
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
impose significant fees and transaction costs.
If debt
acceleration occurs, economic conditions may make it difficult or expensive
to refinance the accelerated debt or the Company may have to issue equity
securities, which would dilute share ownership. Even if new financing is made
available to the Company, credit may not be available to the Company on
acceptable terms. A default under the Company’s financing arrangements
could result in a materially adverse effect on its liquidity, financial condition
and results of operations. As at the date hereof, the Company is in compliance
with all of its debt covenants and obligations.
Credit Facilities. The Company 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 favorable
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.
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.
The Company is subject to risk with respect to higher prices for new
equipment for its trucking operations. The Company has experienced an
increase in prices for new tractors in recent years, and the resale value of the
tractors has not increased to the same extent. Prices have increased and may
continue to increase, due to, among other reasons, (i) increases in commodity
prices; (ii) U.S. government regulations applicable to newly-manufactured
tractors, trailers and diesel engines; (iii) the pricing discretion of equipment
manufacturers; and (iv) component and supply chain issues that limit
availability of new equipment and increase prices. 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 the Company’s costs and
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
The Company’s indebtedness may increase from time to time in the future for
increased prices for equipment and incur additional expenses for the
various reasons, including fluctuations in results of operations, capital
foreseeable future.
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 2022 to 2036. 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 favorable 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 favorable to the Company than at present. If the
Company is unable to generate sufficient cash flow from operations and
obtain financing on terms favorable to the Company in the future, the
Company may have to limit the Company’s fleet size, enter into less favorable
financing arrangements or operate the Company’s revenue equipment for
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. Currently, tractor and trailer manufacturers
are experiencing significant shortages of semiconductor chips and other
component parts and supplies, including steel, forcing many manufacturers
to curtail or suspend their production, which has led to a lower supply of
tractors and trailers, higher prices, and lengthened trade cycles, which could
have a material adverse effect on the Company’s business, financial
condition, and results of operations, particularly the Company’s maintenance
expense and driver retention.
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
2021 Annual Report│42
MANAGEMENT’S DISCUSSION AND ANALYSIS
the Company does not purchase new equipment that triggers the trade-back
customers may reduce or eliminate their use of the Company’s services, or
obligation, or the equipment manufacturers do not pay the contracted value
may threaten to do so in order to gain pricing and other concessions from the
at the end of the lease term, the Company could be exposed to losses equal
Company.
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.
Economic conditions and capital markets may adversely affect the Company’s
customers and their ability to remain solvent. The customers’ financial
The Company has trade-in and repurchase commitments that specify, among
difficulties can negatively impact the Company’s results of operations and
other things, what its primary equipment vendors will pay it for disposal of a
financial condition, especially if those customers were to delay or default in
certain portion of the Company’s revenue equipment. The prices the
payment to the Company. For certain customers, the Company has entered
Company expects to receive under these arrangements may be higher than
into multi-year contracts, and the rates the Company charges may not remain
the prices it would receive in the open market. The Company may suffer a
advantageous.
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.
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 favorable to it, the Company’s business, financial results and results of
operations could be materially and adversely affected. The Company may
need to incur additional indebtedness, reduce dividends or sell additional
Used equipment prices are subject to substantial fluctuations based on freight
shares in order to accommodate these items. A decline in the credit or equity
demand, supply of used trucks, availability of financing, presence of buyers
markets and any increase in volatility could make it more difficult for the
for export and commodity prices for scrap metal. These and any impacts of a
Company to obtain financing and may lead to an adverse impact on the
depressed market for used equipment could require the Company to dispose
Company’s profitability and operations.
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.
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,
Difficulty in obtaining goods and services from the Company’s vendors and
dispatching equipment and drivers and billing and collecting for the
suppliers could adversely affect its business.
Company’s services. The Company’s financial reporting system is critical to
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
producing accurate and timely financial statements and analyzing business
information to help the Company manage its business effectively. The
Company receives and transmits confidential data with and among its
customers, drivers, vendors, employees and service providers in the normal
course of business.
unable to provide the products and materials it needs or undergo financial
The Company’s operations and those of its technology and communications
hardship, the Company could experience difficulty in obtaining needed goods
service providers are vulnerable to interruption by natural disasters, such as
and services because of production interruptions, limited material availability
fires, storms, and floods, which may increase in frequency and severity due to
or other reasons. As a consequence, the Company’s business and operations
climate change, as well as other events beyond the Company’s control,
could be adversely affected.
Customer and Credit Risks. The Company provides services to clients
primarily in Canada, the United States and Mexico. The concentration of
credit risk to which the Company is exposed is limited due to the significant
number of customers that make up its client base and their distribution across
different geographic areas. Furthermore, no client accounted for more than
5% of the Company’s total accounts receivable for the year ended December
31, 2021. 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
including cybersecurity breaches and threats, such as hackers, malware and
viruses, 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
2021 Annual Report│43
MANAGEMENT’S DISCUSSION AND ANALYSIS
other system disruption could interrupt or delay the Company’s operations,
could result
in a material misstatement of the Company’s financial
damage its reputation, cause the Company to lose customers, cause the
statements, which could cause investors to lose confidence in the Company’s
Company to incur costs to repair its systems, pay fines or in respect of
financial statements and cause the trading price of the Common Shares to
litigation or impact the Company’s ability to manage its operations and report
decline.
its financial performance, any of which could have a material adverse effect
on the Company’s business.
Material Transactions. The Company has acquired numerous companies
pursuant to its acquisition strategy and, in addition, has sold business units,
Litigation. The Company’s business is subject to the risk of litigation by
including the sale in February 2016 of its then-Waste Management segment
employees, customers, vendors, government agencies, shareholders and
for CAD $800 million. The Company buys and sells business units in the
other parties. The outcome of litigation is difficult to assess or quantify, and
normal course of its business. Accordingly, at any given time, the Company
the magnitude of the potential loss relating to such lawsuits may remain
may consider, or be in the process of negotiating, a number of potential
unknown for substantial periods of time. The cost to defend litigation may
acquisitions and dispositions, some of which may be material in size. In
also be significant. Not all claims are covered by the Company’s insurance,
connection with such potential transactions, the Company regularly enters
and there can be no assurance that the Company’s coverage limits will be
into non-disclosure or confidentiality agreements, indicative term sheets,
adequate to cover all amounts in dispute. In the United States, where the
non-binding letters of intent and other similar agreements with potential
Company has growing operations, many trucking companies have been
sellers and buyers, and conducts extensive due diligence as applicable. These
subject to class-action lawsuits alleging violations of various federal and state
potential transactions may relate to some or all of the Company’s four
wage laws regarding, among other things, employee classification, employee
reportable segments, that is, TL, Logistics, LTL, and Package and Courier. The
meal breaks, rest periods, overtime eligibility, and failure to pay for all hours
Company’s active acquisition and disposition strategy requires a significant
worked. A number of these lawsuits have resulted in the payment of
amount of management time and resources. Although the Company complies
substantial settlements or damages by the defendants. The Company may at
with
its disclosure obligations under applicable securities
laws, the
some future date be subject to such a class-action lawsuit. In addition, the
announcement of any material transaction by the Company (or rumours
Company may be subject, and has been subject in the past, to litigation
thereof, even if unfounded) could result in volatility in the market price and
resulting from trucking accidents. The number and severity of litigation claims
trading volume of the Common Shares. Further, the Company cannot predict
may be worsened by distracted driving by both truck drivers and other
the reaction of the market, or of the Company’s stakeholders, customers or
motorists. To the extent the Company experiences claims that are uninsured,
competitors, to the announcement of any such material transaction or to
exceed the Company’s coverage limits, involve significant aggregate use of
rumours thereof.
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.
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
Internal Control. Beginning with the year ended December 31, 2021, the
generated by the Company, its financial requirements for operations, the
Company is required, pursuant to Section 404 of the U.S. Sarbanes-Oxley Act,
execution of its growth strategy and the satisfaction of solvency tests imposed
to furnish a report by management on the effectiveness of its internal control
by the Canada Business Corporations Act for the declaration and payment of
over financial reporting. In addition, the Company’s independent registered
dividends. Similarly, any future repurchase of shares by the Company is at
public accounting firm must report on its evaluation of the Company’s
the sole discretion of the Board of Directors and is dependent on the factors
internal control over financial reporting. The Company has identified material
described above. Any future repurchase of shares by the Company is
weaknesses as at December 31, 2021 in the Company’s internal control over
uncertain.
financial reporting related to Information technology general controls and the
order to cash process. As a result of these material weaknesses, the Company
has concluded that it did not maintain effective disclosure controls and
procedures and internal controls over financial reporting. Further, Company’s
independent registered public accounting firm has issued an adverse opinion
indicating that the Company has not maintained effective internal control
over financial reporting as at December 31, 2021. The Company’s
management team has begun taking action to develop a remediation plan for
these material weaknesses, and while the Company expects to remediate
these in fiscal 2022, the Company cannot be certain when the remediation
will be completed. If the Company fails to fully remediate these material
weaknesses or fails to maintain effective internal controls in the future, it
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the 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 establishing the fair value of intangible assets related to
business combinations, determining estimates and assumptions related to
impairment tests for goodwill, determining estimates and assumptions
related to the accrued benefit obligation, and determining estimates and
assumptions related to the evaluation of provisions for self-insurance and
2021 Annual Report│44
MANAGEMENT’S DISCUSSION AND ANALYSIS
litigations. These estimates and assumptions are based on management’s
To be adopted in future periods
best estimates and judgments. Key drivers in critical estimates are as follows:
Fair value of intangible assets related to business combinations
effective for the year ended December 31, 2021, and have not been applied
The following new standards and amendments to standards are not yet
Projected future cashflows
Acquisition specific discount rate
in preparing the audited consolidated financial statements:
Classification of
Liabilities as Current or Non-current
Attrition rate established from historical trends
(Amendments to IAS 1)
Impairment tests for goodwill
Discount rates
Forecasted revenue growth, operating margin, EBITDA margin as
well as capital expenditures
Comparable public company EBITDA multiples
Accrued benefit obligation
Discount rates
Salary growth
Mortality tables
Self-Insurance and litigations
Onerous Contracts – Cost of fulfilling a Contract (Amendments to
IAS 37)
Definition of Accounting Estimates (Amendments to IAS 8)
Further information can be found in note 3 of the December 31, 2021 audited
consolidated financial statements.
CONTROLS AND PROCEDURES
In compliance with the provisions of Canadian Securities Administrators’
National Instrument 52-109 and the U.S. Securities Exchange Act of 1934, as
amended (the “Exchange Act”), the Company has filed certificates signed by
the President and Chief Executive Officer (“CEO”) and by the Chief Financial
Historical claim experience, severity factors affecting the amounts
Officer (“CFO”) that, among other things, report on:
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, 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.
CHANGES IN ACCOUNTING POLICIES
Adopted during the period
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, 2021 and have been applied in preparing the audited
consolidated financial statements:
Interest Rate Benchmark Reform – Phase 2
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
These new standards did not have a material impact on the Company’s
audited consolidated financial statements.
their responsibility for establishing and maintaining disclosure controls
and procedures and internal control over financial reporting for the
Company; and
the design of disclosure controls and procedures and the design of internal
controls over financial reporting.
2021 Annual Report│45
MANAGEMENT’S DISCUSSION AND ANALYSIS
Disclosure controls and procedures
IT General Controls: The Company had an aggregation of control
The President and Chief Executive Officer (“CEO”) and the Chief Financial
Officer (“CFO”), have designed disclosure controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), 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; and
information required to be disclosed by the Company in its filings, under
applicable securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation.
As at December 31, 2021, an evaluation was carried out under the supervision
of the CEO and CFO, of the design and operating effectiveness of the
Company’s disclosure controls and procedures. Based on this evaluation, the
CEO and CFO concluded that due to the material weaknesses in our internal
control over financial reporting as described below in Management’s Annual
Report on Internal Controls over Financial Reporting, the Company’s
disclosure controls and procedures were not effective as of December 31,
2021.
Management’s Annual Report on Internal Controls over Financial
Reporting
deficiencies within its information technology (IT) general controls across
multiple systems supporting the Company’s business processes, including
deficiencies relating to user access controls, change management, and
high-privileged access. The Company concluded that process-level
automated controls and manual controls that are dependent on
information from affected IT systems, where risks could not be mitigated,
were ineffective because they could have been adversely impacted by the
IT general control deficiencies; and
Order to Cash Process: Due to the material weakness described above,
automated controls and manual controls that are dependent on
information from affected IT systems around the order to cash process,
which encompasses billing and pricing sub processes were found to not
be effective. In addition, there was inadequate review and documentation
of manual process level controls.
Notwithstanding these material weaknesses, management has concluded
that the Company’s Audited consolidated financial statements as at and for
the year ended December 31, 2021 present fairly, in all material respects, the
Company’s financial position, results of operations, changes in equity and
cash flows in accordance with IFRS. These material weaknesses did not have
an impact on the Company’s financial reporting and as a result, there were no
material adjustments to the Company’s audited consolidated financial
statements for the year ended December 31, 2021 and there were no changes
to previously released financial results. However, because the material
The CEO and CFO have also designed internal control over financial reporting
weaknesses create a reasonable possibility that a material misstatement to
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), or have
our financial statements would not be prevented or detected on a timely
caused them to be designed under their supervision, in order to provide
basis, we concluded that as of December 31, 2021 the internal control over
reasonable assurance regarding the reliability of financial reporting and the
financial reporting was not effective.
preparation of financial statements for external purposes in accordance with
IFRS.
The effectiveness of internal controls over financial reporting as of December
31, 2021 has been audited by KPMG LLP, the Company’s registered public
As at December 31, 2021, an evaluation was carried out, under the
accounting firm that audited the consolidated financial statements and is
supervision of the CEO and the CFO, of the effectiveness of the Company’s
included with the Company’s consolidated financial statements. KPMG LLP’s
internal control over financial reporting. Based on this evaluation, the CEO
adverse opinion, as stated in their report, is that the Company has not
and the CFO concluded that material weaknesses exist, as described below,
maintained effective internal control over financial reporting as of December
and due to these material weaknesses, the Company’s internal control over
31, 2021.
financial reporting is not effective as of December 31, 2021. The control
framework used to design the Company’s internal controls over financial
reporting is based on the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) on Internal Control –
Integrated Framework (2013 framework). A material weakness is a deficiency,
or combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the
Company’s annual or interim financial statements will not be prevented or
detected on a timely basis.
In connection with the Company’s evaluation of internal controls over
financial reporting, the following control deficiencies were considered to be
material weaknesses:
Limitation on scope of design
As permitted under the relevant securities rules, the Company has limited the
scope of its evaluation of disclosure controls and procedures and internal
control over financial reporting to exclude controls, policies and procedures
of UPS Freight (now TForce Freight) as it was acquired not more than 365 days
before the end of the financial period to which the CEO and CFO certificates
relate. For the year ended December 31, 2021, TForce Freight constituted
39.1% of current assets, 27.8% of long term assets, 21.1% of current liabilities,
17.6% of long term liabilities, 31.8% of total revenue, and 18.5% of net
income.
2021 Annual Report│46
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Company is required to and will include TForce Freight in its disclosure
controls and procedures and internal controls over financial reporting
beginning in the second quarter of 2022.
Remediation plan
Management has
initiated, and continues to
implement remediation
measures designed to ensure that control deficiencies contributing to the
material weaknesses are remediated, such that these controls are designed,
implemented, and operating effectively. The remediation actions include:
Additional training for control performers and reviewers;
Procuring additional resources to assist with the remediation, including
hiring of subject experts and leveraging consultants where necessary;
Implementing an IT management review and testing plan to monitor IT
general controls with a specific focus on systems supporting our financial
reporting processes; and
Enhanced quarterly reporting on the remediation measures to the Audit
Committee of our Board of Directors.
While remediation of key controls related to the IT general controls and the
order to cash process are expected to be completed in fiscal year 2022, the
Company cannot be certain when the remediation will be completed. The
material weaknesses will not be considered fully remediated until the
applicable controls operate for a sufficient period of time and management
has concluded, through testing, that these controls are operating effectively.
Changes in internal controls over financial reporting
Other than the material weaknesses described above, the remediation
process described above, and the implementation of controls related to
TForce Freight, there were no changes to the Company’s internal controls
over financial reporting during the quarter ended December 31, 2021 that
have materially affected, or are reasonably likely to materially affect, the
Company’s internal controls over financial reporting.
2021 Annual Report│47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders and Board of Directors of TFI International Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of TFI
International Inc. (the "Company") as of December 31, 2021 and 2020, the related consolidated
statements of income, comprehensive income, changes in equity, and cash flows for the years ended
December 31, 2021 and 2020, 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, 2021 and 2020, and the financial
performance and its cash flows for the years ended December 31, 2021 and 2020, in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (the "PCAOB"), the Company’s internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report
dated March 14, 2022 expressed an adverse opinion on the effectiveness of the Company’s internal
control over financial reporting.
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 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.
2021 Annual Report │48
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of
the consolidated financial statements that were communicated or required to be communicated to
the audit committee and that: (1) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Evaluation of the provisional fair value measurement of land and buildings acquired in the
UPS Ground Freight, Inc. acquisition
As discussed in note 5 to the consolidated financial statements, on April 30, 2021, the Company
completed the acquisition of UPS Ground Freight, Inc., the Less-Than-Truckload and dedicated
truckload divisions of United Parcel Service, Inc. As a result of the business combination, the Company
acquired, amongst other assets, land and buildings with a provisional fair value of $735.9 million. As
of December 31, 2021, the fair values measured regarding the UPS Ground Freight, Inc. acquisition
were on a provisional basis, including for land and buildings. The provisional fair value of land and
buildings was determined by management using the market comparison technique and cost
technique. The valuation model considered market prices for comparable sites, when available, and
considers depreciated replacement cost, which reflects adjustments for physical deterioration, when
appropriate. Significant inputs included market prices for comparable sites and average rebuild cost.
A preliminary bargain purchase gain in the amount of $193.5 million was recognized in the statement
of income as at December 2021.
We identified the evaluation of the provisional fair value measurement of land and buildings acquired
in the UPS Ground Freight, Inc. acquisition as a critical audit matter. There was a high degree of
subjectivity that required significant auditor judgement in evaluating the market prices for
comparable land and average rebuild costs for comparable depreciated buildings. Additionally, the
procedures required use of professionals with specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We
evaluated the design and tested the operating effectiveness of certain internal controls related to the
acquisition-date provisional valuation process of the land and buildings, including the controls over
the development of certain assumptions. For a sample of land items, we compared the market prices
used by management to external market data for comparable items. For a selection of building items,
we compared the average rebuild costs used by management to external market data for comparable
items. We involved valuation professionals with specialized skills and knowledge, who assisted in
evaluating the valuation methods and certain assumptions used in the determination of the land and
buildings provisional fair value measurements.
2021 Annual Report │49
Assessment of the self-insurance provisions
As discussed in Note 16 to the consolidated financial statements, the Company has $69.5 million of
self-insurance provisions as of December 31, 2021. As discussed in Note 3l), 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.
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 patterns, 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. We
evaluated the design and tested the operating effectiveness of certain internal controls related to the
reconciliation and monitoring of its self-insurance provision. 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
March 14, 2022
*CPA auditor, CA, public accountancy permit No. A123145
2021 Annual Report │50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders and Board of Directors TFI International Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited TFI International Inc.’s (the "Company") internal control over financial reporting as
of December 31, 2021, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, because of the effect of the material weaknesses, described below, on the achievement of
the objectives of the control criteria, the Company has not maintained effective internal control over
financial reporting as of December 31, 2021, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (the "PCAOB"), the consolidated statements of financial position of the
Company as of December 31, 2021 and 2020, the related consolidated statements of income,
comprehensive income, changes in equity, and cash flows for the years ended December 31, 2021
and 2020, and the related notes (collectively, the "consolidated financial statements"), and our report
dated March 14, 2022 expressed an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the company’s
annual or interim financial statements will not be prevented or detected on a timely basis. The
following material weaknesses have been identified and included in management’s assessment:
IT General Controls: The Company had an aggregation of control deficiencies within its
information technology (IT) general controls across multiple systems supporting the Company’s
business processes, including deficiencies relating to user access controls, change management,
and high-privileged access. Process-level automated controls and manual controls that are
dependent on information from affected IT systems, where risks could not be mitigated, were
ineffective because they could have been adversely impacted by the IT general control
deficiencies; and
Order to Cash Process: Due to the material weakness described above, automated controls and
manual controls that are dependent on information from affected IT systems around the order to
cash process, which encompasses billing and pricing sub-processes were found to not be effective.
In addition, there was inadequate review of manual process level controls and documentation.
2021 Annual Report │51
The material weaknesses were considered in determining the nature, timing, and extent of audit tests
applied in our audit of the 2021 consolidated financial statements, and this report does not affect our
report on those consolidated financial statements.
The Company acquired UPS Ground Freight, Inc. (now TForce Freight, Inc.) during 2021, and
management excluded from its assessment of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2021, TForce Freight, Inc.’s internal control over financial
reporting associated with 39.1% of current assets and 27.8% of long term assets, 21.1% of current
liabilities, 17.6% of long term liabilities, 31.8% of total revenue, and 18.5% of net income included in
the consolidated financial statements of the Company as of and for the year ended December 31,
2021. Our audit of internal control over financial reporting of the Company also excluded an
evaluation of the internal control over financial reporting of TForce Freight, Inc.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the "Management’s Annual Report on Internal Controls over Financial Reporting" section
in the Company’s Management’s Discussion and Analysis. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
2021 Annual Report │52
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Montréal, Canada
March 14, 2022
*CPA auditor, CA, public accountancy permit No. A123145
2021 Annual Report │53
TFI International Inc.
(in thousands of U.S. dollars)
Assets
Cash and cash equivalents
Trade and other receivables
Inventoried supplies
Current taxes recoverable
Prepaid expenses
Assets held for sale
Current assets
Property and equipment
Right-of-use assets
Intangible assets
Other assets
Deferred tax assets
Non-current assets
Total assets
Liabilities
Trade and other payables
Current taxes payable
Provisions
Other financial liabilities
Long-term debt
Lease liabilities
Current liabilities
Long-term debt
Lease liabilities
Employee benefits
Provisions
Other financial liabilities
Deferred tax liabilities
Non-current liabilities
Total liabilities
Equity
Share capital
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Equity attributable to owners of the Company
Contingencies, letters of credit and other commitments
Subsequent events
Total liabilities and equity
* Recasted for change in accounting policy (see note 10)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2021 AND 2020
As at
December 31,
2021
As at
December 31,
2020*
19,292
1,056,023
24,402
6,080
54,518
1,943
1,162,258
2,331,874
398,533
1,792,921
37,842
29,695
4,590,865
5,753,123
861,362
16,250
39,012
10,566
363,586
115,344
1,406,120
1,244,508
313,862
68,037
83,630
8,033
408,622
2,126,692
3,532,812
1,133,181
39,150
(144,665 )
1,192,645
2,220,311
4,297
597,873
8,761
7,606
29,904
4,331
652,772
1,074,428
337,285
1,747,663
23,899
11,207
3,194,482
3,847,254
468,238
33,220
17,452
4,031
42,997
88,522
654,460
829,547
267,464
15,502
36,803
22,699
232,167
1,404,182
2,058,642
1,120,049
19,783
(154,723 )
803,503
1,788,612
5,753,123
3,847,254
Note
6
8
9
10
11
17
12
16
13
14
13
14
15
16
17
18
18, 20
26
28
The notes on pages 59 to 104 are an integral part of these consolidated financial statements.
On behalf of the Board:
Director
Alain Bédard
Director
André Bérard
2021 Annual Report │54
TFI International Inc.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2021 AND 2020
(In thousands of U.S. dollars, except per share amounts)
Note
2021
2020
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 on sale of land and buildings
Gain on sale of assets held for sale
Loss on disposal of intangible assets
Total operating expenses
Operating income
Finance (income) costs
Finance income
Finance costs
Net finance costs
Income before income tax
Income tax expense
Net income 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
6,468,785
751,644
7,220,429
3,815,453
1,974,081
380,342
225,007
112,782
55,243
-
(193,549 )
(24,644 )
(1,282 )
19
(12,209 )
1
6,331,244
3,484,303
296,831
3,781,134
2,051,835
888,185
150,572
170,520
80,496
48,213
(306 )
(4,008 )
(7,888 )
(1,159 )
6
(11,899 )
-
3,364,567
889,185
416,567
(5,127 )
78,145
73,018
816,167
151,806
664,361
7.14
6.97
(2,776 )
56,686
53,910
362,657
86,982
275,675
3.09
3.03
21
22
8
9
10
5
23
23
24
19
19
The notes on pages 59 to 104 are an integral part of these consolidated financial statements.
2021 Annual Report │55
TFI International Inc.
(In thousands of U.S. dollars)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2021 AND 2020
2021
2020
Net income for the year attributable to owners of the Company
664,361
275,675
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, net of tax
Items directly reclassified to retained earnings:
Unrealized gain on investments in equity securities measured at fair value
through OCI, net of tax
Other comprehensive income for the year, net of tax
12,960
(15,542 )
-
87
(4,128 )
24,147
17,524
21,182
(2,010 )
(487 )
(10 )
(1,623 )
-
17,052
Total comprehensive income for the year attributable to owners of the Company
681,885
292,727
The notes on pages 59 to 104 are an integral part of these consolidated financial statements.
2021 Annual Report │56
TFI International Inc.
(In thousands of U.S. dollars)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 2021 AND 2020
Note
Share Contributed
surplus
capital
employee
benefit
plans
Accumulated
unrealized
loss on Accumulated
foreign
currency
translation
cash flow differences
hedge & net invest-
gain (loss) ment hedge
Accumulated Accumulated
unrealized
gain (loss)
on invest-
ments in
equity
securities
Total
equity
attributable
to owners
of the
(deficit) Company
Retained
earnings
Balance as at December 31, 2020*
1,120,049
19,783
(379 )
-
(154,344 )
-
803,503
1,788,612
Net income for the year
Other comprehensive income (loss) for the year, net of tax
Realized gain (loss) on equity securities
Total comprehensive income (loss) for the year
Share-based payment transactions, net of tax
Stock options exercised, net of tax
Dividends to owners of the Company
Repurchase of own shares
Net settlement of restricted share units, net of tax
Total transactions with owners, recorded directly in equity
-
-
-
-
-
-
-
-
-
87
-
87
20
18, 20
18
18
18, 20
-
26,324
-
(23,449 )
10,257
13,132
27,577
(3,266 )
-
-
(4,944 )
19,367
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,582 )
-
(2,582 )
-
24,147
(11,594 )
12,553
664,361
(4,128 )
11,594
671,827
664,361
17,524
-
681,885
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(89,121 )
(174,704 )
(18,860 )
(282,685 )
27,577
23,058
(89,121 )
(198,153 )
(13,547 )
(250,186 )
Balance as at December 31, 2021
1,133,181
39,150
(292 )
-
(156,926 )
12,553 1,192,645 2,220,311
Balance as at December 31, 2019*
678,915
19,549
(369 )
487
(173,516 )
-
632,661 1,157,727
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
Stock options exercised
Issuance of shares, net of expenses
Dividends to owners of the Company
Repurchase of own shares
Net settlement of restricted share units
Total transactions with owners, recorded directly in equity
Balance as at December 31, 2020*
* Recasted for change in accounting policy (see note 10)
-
-
-
20
18, 20
18
18
18
18, 20
-
25,915
425,350
-
(12,025 )
1,894
441,134
-
-
-
7,046
(4,554 )
-
-
-
(2,258 )
234
-
(10 )
(10 )
-
-
-
-
-
-
-
1,120,049
19,783
(379 )
-
(487 )
(487 )
-
19,172
19,172
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(154,344 )
-
-
-
-
-
-
-
-
-
-
-
275,675
(1,623 )
274,052
-
-
-
(72,735 )
(25,996 )
(4,479 )
(103,210 )
275,675
17,052
292,727
7,046
21,361
425,350
(72,735 )
(38,021 )
(4,843 )
338,158
803,503
1,788,612
The notes on pages 59 to 104 are an integral part of these consolidated financial statements.
2021 Annual Report │57
TFI International Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2021 AND 2020
(In thousands of U.S. dollars)
Note
2021
2020
Cash flows from operating activities
Net income for the year
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
Loss on disposal of intangible assets
Employee benefits
Provisions net of payments
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 operating activities
Cash flows used in 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
Purchases of investments
Proceeds from sale of investments
Proceeds from collection of promissory note
Others
Net cash used in investing activities
Cash flows from (used in) financing activities
Decrease in bank indebtedness
Proceeds from long-term debt
Repayment of long-term debt
Net increase (decrease) in revolving facilities
Repayment of lease liabilities
(Decrease) increase in other financial liabilities
Dividends paid
Repurchase of own shares
Proceeds from exercise of stock options
Repurchase of own shares for restricted share unit settlement
Proceeds from the issuance of common shares, net of expenses
Net cash from (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
8
9
10
20
23
24
7
8
10
5
13
13
13
14
18
18
18
18
The notes on pages 59 to 104 are an integral part of these consolidated financial statements.
664,361
275,675
225,007
112,782
55,243
15,424
73,018
151,806
-
(193,549 )
(24,625 )
(1,282 )
(12,209 )
1
(20,193 )
21,890
1,067,674
41,940
1,109,614
(65,453 )
(188,810 )
-
855,351
(268,656 )
92,842
19,869
(7,143 )
-
(1,008,131 )
(35,913 )
40,686
-
3,789
(1,162,657 )
(7,173 )
661,039
(43,868 )
118,859
(115,336 )
(11,216 )
(85,386 )
(198,153 )
20,114
(16,579 )
-
322,301
14,995
4,297
19,292
170,520
80,496
48,213
7,046
53,910
86,982
(306 )
(4,008 )
(7,882 )
(1,159 )
(11,899 )
-
(1,656 )
7,930
703,862
33,661
737,523
(50,366 )
(73,256 )
(3,039 )
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 )
21,361
(4,843 )
425,350
(228,084 )
4,297
-
4,297
2021 Annual Report │58
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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, 2021 and 2020 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 March 14, 2022.
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’s consolidated financial statements are presented in U.S. dollars (“U.S. dollars” or “USD”). All information in these
consolidated financial statements is presented in USD unless otherwise specified.
The Company’s functional currency is the Canadian dollar (“CAD” or “CDN$”). 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
accumulated foreign currency translation differences and net investment hedge.
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, defined benefit obligation 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.
2021 Annual Report │59
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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 and land and buildings related to business combinations;
Note 10 – Determining estimates and assumptions related to the determination of the recoverable amount of goodwill when it is
tested for impairment;
Note 15 – Determining estimates and assumptions related to the evaluation of the defined benefit obligation; and
Note 16 – 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.
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.
2021 Annual Report │60
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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.
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.
2021 Annual Report │61
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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.
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
2021 Annual Report │62
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk
associated with a recognized asset or liability or a highly probable forecasted transaction that could affect income or loss, the effective
portion of changes in the fair value of the derivatives is recognized in other comprehensive income and presented in accumulated
other comprehensive income as part of equity. The amount recognized in other comprehensive income is removed and included in
net earnings under the same line item in the consolidated statement of earnings and comprehensive income as the hedged item, in
the same period that the hedged cash flows affect income or loss. If the hedging instrument no longer meets the criteria for hedge
accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued
prospectively. The cumulative gain or loss previously recognized in other comprehensive income remains in accumulated other
comprehensive income until the forecasted transaction affects income or loss. If the forecasted transaction is no longer expected to
occur, then the balance in accumulated other comprehensive income is recognized immediately in income or loss.
e) Property and equipment
Property and equipment are accounted for at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset 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.
2021 Annual Report │63
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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
Primarily straight-line
Primarily straight-line
Useful lives
15 – 40 years
3 – 20 years
5 – 12 years
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted prospectively, if
appropriate.
Property and equipment are reviewed for impairment in accordance with IAS 36 Impairment of Assets when there are indicators that
the carrying value may not be recoverable.
f)
Intangible assets
i) Goodwill
Goodwill that arises upon business combinations is included in intangible assets.
Goodwill is not amortized and is measured at cost less accumulated impairment losses.
ii) Other intangible assets
Intangible assets consist of customer relationships, trademarks, non-compete agreements and information technology.
The Group determines the fair value of the customer relationship intangible assets using the excess earnings model and
internally developed significant assumptions including:
1. Forecasted revenue attributable to existing customer contracts and relationships;
2. Estimated annual attrition rate;
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
* Includes indefinite useful life assets. They are reviewed at least annually for impairment (see note 10).
Useful lives are reviewed at each financial year-end and adjusted prospectively, if appropriate.
Useful lives
5 – 20 years
5 – 20 years
3 – 10 years
5 – 7 years
2021 Annual Report │64
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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.
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.
h)
Inventoried supplies
Inventoried supplies consist primarily of repair parts and fuel and are measured at the lower of cost and net realizable value.
i)
Impairment
Non-financial assets
The carrying amounts of the Group’s non-financial assets other than inventoried supplies and deferred tax assets are reviewed at
each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated. For goodwill, the recoverable amount is estimated on December 31 of each year.
2021 Annual Report │65
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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.
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 AAA, AA or
A credit-rated fixed income securities that have maturity dates approximating the terms of the Group’s obligations and that are
2021 Annual Report │66
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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.
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
2021 Annual Report │67
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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) Other operating expenses
Other operating expenses consist primarily of third-party commissions, transitional service agreement fees, information technology
support and software expenses, building expenses (including repairs and maintenance, electricity, janitorial & security services and
property taxes).
o) Finance income and finance costs
Finance income comprises interest income on funds invested, dividend income and interest and accretion on promissory note.
Interest income is recognized as it accrues in income or loss, using the effective interest method.
Finance costs comprise interest expense on bank indebtedness and long-term debt, unwinding of the discount on provisions and
impairment losses recognized on financial assets (other than trade receivables).
Fair value gains or losses on derivative financial instruments and on contingent considerations, and foreign currency gains and
losses are reported on a net basis as either finance income or cost.
p)
Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in income or loss except to
the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither
accounting nor taxable income or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the
extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable
temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be
applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the
reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and
assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but
they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
2021 Annual Report │68
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is
probable that future taxable income will be available against which they can be utilized. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
q) Earnings per share
The Group presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by dividing
the income or loss attributable to common shareholders of the Company by the weighted average number of common shares
outstanding during the period, adjusted for own shares held, if any. Diluted EPS is determined by adjusting the income or loss
attributable to common shareholders and the weighted average number of common shares outstanding, adjusted for own shares
held, for the effects of all dilutive potential common shares, which comprise convertible debentures, warrants, and restricted share
units and stock options granted to employees.
r) Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating
segments’ operating results are reviewed regularly by the Group’s chief executive officer (“CEO”) to make decisions about resources
to be allocated to the segment and assess its performance, and for which discrete financial information is available.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated
on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group’s headquarters), head office
expenses, income tax assets, liabilities and expenses, as well as long-term debt and interest expense thereon.
Sales between the Group’s segments are measured at the exchange amount. Transactions, other than sales, are measured at
carrying value. Segment capital expenditure is the total cost incurred during the period to acquire property and equipment, and
intangible assets other than goodwill.
s) 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.
t) New standards and interpretations adopted during the year
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, 2021 and have been applied in preparing these consolidated financial statements.
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.
The amendments complement those issued in 2019 as part of Phase 1 amendments and mainly relate to:
changes to contractual cash flows—a company does 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 does 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 is required to disclose information about new risks arising from the reform and how it manages the
transition to alternative benchmark rates.
2021 Annual Report │69
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
The adoption of the amendments did not have a material impact on the Group’s consolidated financial statements as there were no
debt modifications that have occurred to date due to rate reform. As at December 31, 2021, the only debt balances subject to LIBOR
reform are the USD portion of unsecured revolver with a drawn amount of $123 million at year-end and a total facility balance of
CAD $1,260 million. The LIBOR tenor will cease to exist no later than June 30, 2023. The revolver agreement indicates that SOFR
will be the main replacement for LIBOR in the United States. This benchmark is based on the rates U.S. financial institutions pay
each other for overnight loans. These transactions take the form of Treasury bond repurchase agreements, otherwise known as
repos agreements. As at December 31, 2021, the Group has no interest rate swaps that hedge variable interest debt.
New standards and interpretations not yet adopted
The following new standards are not yet effective for the year ended December 31, 2021, 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 adoption of the amendments is not expected to have a material impact.
Definition of Accounting Estimates (Amendments to IAS 8)
On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8). The amendments are effective
for annual periods beginning on or after January 1, 2023. Early adoption is permitted. The amendments introduce a new definition
for accounting estimates, clarifying that they are monetary amounts in the financial statements that are subject to measurement
uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that
a company develops an accounting estimate to achieve the objective set out by an accounting policy.
The extent of the impact of adoption of the amendments has not yet been determined.
2021 Annual Report │70
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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 (b): 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, amongst others, with respect to the nature of services offered and the methods used to distribute their services,
additionally, they have similar economic characteristics with respect to long-term expected gross margin, levels of capital invested and market place trends.
(b) Beginning in the second quarter of fiscal 2021, due to the acquisition of UPS Ground Freight Inc., the Less-Than-Truckload reporting segment now
represents the aggregation of the Canadian Less-Than-Truckload and U.S. Less-Than-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, amongst others, 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” 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.
2021 Annual Report │71
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
2021
External revenue
External fuel surcharge
Inter-segment revenue and
fuel surcharge
Total revenue
Operating income (loss)
Selected items:
Depreciation and
amortization
Loss on sale of land
and buildings
Gain on sale of
assets held for sale
Loss on disposal of
intangible assets
Bargain purchase gain
Intangible assets
Total assets
Total liabilities
Additions to property
and equipment
2020*
External revenue
External fuel surcharge
Inter-segment revenue and
fuel surcharge
Total revenue
Operating income (loss)
Selected items:
Depreciation and
amortization
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
Additions to property
and equipment
Package
and
Less-
Than-
Courier Truckload Truckload
Logistics Corporate Eliminations
Total
558,800
81,104
2,413,995
371,426
1,878,025
258,081
1,617,965
41,033
-
-
-
-
6,468,785
751,644
1,545
641,449
108,440
29,969
2,815,390
482,754
26,646
2,162,752
230,189
3,074
1,662,072
142,794
-
-
(74,992 )
(61,234 )
(61,234 )
-
-
7,220,429
889,185
26,404
116,060
211,561
38,208
799
-
393,032
-
-
(16 )
-
1,640
10,569
(3 )
-
-
-
-
-
(19 )
12,209
(1 )
-
193,765
379,881
128,599
-
181,549
188,604
2,220,598
916,652
-
-
955,608
2,317,615
559,438
-
12,000
454,612
746,638
248,122
-
-
332
88,391
1,680,135
-
-
-
-
(134 )
(1 )
193,549
1,792,921
5,753,123
3,532,812
19,347
65,543
181,313
809
161
-
267,173
478,707
47,393
516,720
66,144
1,569,835
161,680
919,041
21,614
-
-
-
-
3,484,303
296,831
3,055
529,155
78,753
6,371
589,235
87,950
16,844
1,748,359
206,346
4,475
945,130
84,459
-
-
(40,941 )
(30,745 )
(30,745 )
-
-
3,781,134
416,567
25,357
50,354
188,979
33,429
1,110
-
299,229
-
(1 )
-
(5 )
-
-
(6 )
91
-
-
193,288
387,919
123,970
(56 )
-
-
189,579
593,653
219,234
11,864
306
-
907,170
2,100,900
478,630
-
-
4,008
457,098
729,690
226,218
-
-
-
528
35,092
1,010,723
-
-
-
-
-
(133 )
11,899
306
4,008
1,747,663
3,847,254
2,058,642
17,304
22,829
101,477
760
444
-
142,814
* Recasted for change in accounting policy (see note 10)
2021 Annual Report │72
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
Geographical information
Revenue is attributed to geographical locations based on the origin of service’s location.
2021
Canada
United States
Mexico
Total
2020
Canada
United States
Mexico
Total
Package
and
Courier
Less-
Than-
Truckload
Truckload
Logistics Eliminations
Total
641,449
-
-
641,449
576,311
2,239,079
-
2,815,390
912,166
1,250,586
-
2,162,752
269,568
1,370,843
21,661
1,662,072
529,155
-
-
529,155
517,199
72,036
-
589,235
725,347
1,023,012
-
1,748,359
239,413
686,811
18,906
945,130
(31,193 )
(30,041 )
-
(61,234 )
(26,019 )
(4,726 )
-
(30,745 )
2,368,301
4,830,467
21,661
7,220,429
1,985,095
1,777,133
18,906
3,781,134
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
* Recasted for change in accounting policy (see note 10)
5. Business combinations
a) Business combinations
As at
December 31, 2021 December 31, 2020*
As at
1,933,050
2,575,363
14,915
4,523,328
1,800,307
1,342,720
16,349
3,159,376
In line with the Group’s growth strategy, the Group acquired ten businesses during 2021, of which UPS Ground Freight Inc. (“UPS
Freight”), which was renamed TForce Freight Inc. (“TForce Freight”) in April 2021, was considered material. All other acquisitions
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 April 30, 2021, the Group completed the acquisition of UPS Freight, the Less-Than-Truckload and dedicated truckload divisions
of United Parcel Service, Inc. The purchase price for this business acquisition totalled $864.6 million, which was funded by cash on
hand and the remaining balance was drawn from the currently existing unsecured revolving credit facilities. 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 preliminary bargain purchase gain of $193.5 million in the Less-Than-Truckload and Logistics segments
($181.5 million and $12.0 million respectively). The preliminary bargain purchase gain resulted mainly from the measurement of the
fair value related to the company’s tangible assets, primarily land and buildings, and customer relationships. During the year ended
December 31, 2021, the business contributed revenue and net income of $2,334.4 million and $122.6 million (excluding the bargain
purchase gain of $193.5 million), respectively since the acquisition.
During the year ended December 31, 2021, the non-material businesses, in aggregate, contributed revenue and net income of
$64.9 million and $0.9 million respectively since the acquisitions.
Had the Group acquired the material and non-material businesses on January 1, 2021, as per management’s best estimates, the
revenue and net income for these entities would have been $3,613.3 million and $151.6 million (excluding the bargain purchase
gain of $193.5 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, 2021 and adjusted for
interest, based on the purchase price and average borrowing rate of the Group, and income tax expenses based on the effective
tax rate.
2021 Annual Report │73
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
During 2021, transaction costs of $8.7 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 2021 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 table below presents the purchase price allocation based on the best information available to the Group to date.
8
9
10
Note
Identifiable assets acquired and liabilities
assumed
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
Employee benefits
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
* Includes non-material adjustments to prior year's acquisitions
13
14
15
16
10
UPS Freight
6
328,468
26,643
1,186,198
100,971
18,856
860
(208,928 )
302
(65,849 )
(50,352 )
(56 )
-
(100,971 )
(177,992 )
1,058,156
864,607
-
(193,549 )
864,607
-
864,607
Others*
11,570
23,806
3,500
86,872
10,619
25,914
65
(14,470 )
(2,668 )
-
(222 )
(6 )
(3,484 )
(10,619 )
(17,785 )
113,092
162,313
49,221
-
155,100
7,213
162,313
December 31, 2021
11,576
352,274
30,143
1,273,070
111,590
44,770
925
(223,398 )
(2,366 )
(65,849 )
(50,574 )
(62 )
(3,484 )
(111,590 )
(195,777 )
1,171,248
1,026,920
49,221
(193,549 )
1,019,707
7,213
1,026,920
The valuation techniques used for measuring the fair value of land and buildings ($735.9 million) and customer relationships
($12.0 million) acquired regarding UPS Freight were as follows:
Assets acquired
Land and buildings
Valuation technique
Market comparison technique and cost technique: The
valuation model considers market prices for comparable sites,
when available, and considers depreciated replacement cost,
which reflects adjustments for physical deterioration, when
appropriate.
Key inputs
- Market prices for comparable sites
- Average rebuild cost
Customer relationships Excess earnings method: The valuation model considers the
present value of net cash flows expected to be generated by
the customer relationships, by excluding any cash flows related
to contributory assets.
- Forecasted revenue attributable to
existing customers and relationships
- Annual attrition rate
- Forecasted operating margin
- Discount rate
The fair values measured on the amounts regarding UPS Freight are on a provisional basis, mainly regarding land and buildings,
customer relationships, provisions, and deferred tax liabilities. This is mainly due to pending completion and review of independent
valuations and site visits for the land and buildings and mainly due to the complexity of the information for the provisions. Customer
relationships and income taxes will be reassessed once all the fair values are final. If new information is obtained within one year of
the date of acquisition about facts and circumstances that existed at the date of acquisition that implies adjustments to the amounts,
the accounting for the acquisition will be revised.
The trade receivables comprise gross amounts due of $361.8 million, of which $9.6 million was expected to be uncollectible at the
acquisition date.
2021 Annual Report │74
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
Of the goodwill and intangible assets acquired through business combinations in 2021, $5.7 million is deductible for tax purposes
(2020 - $21.2 million).
During 2020, the Group acquired thirteen businesses, 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.
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 had 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 had 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 a 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.
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 and adjusted for interest, based on the purchase price and average borrowing rate of the
Group, and income tax expenses based on the effective tax rate.
During 2020, transaction costs of $0.8 million had been expensed in other operating expenses in the consolidated statements of
income in relation to the above-mentioned business acquisitions.
The table below presents the purchase price allocation as at December 31, 2020:
Identifiable assets acquired and liabilities
assumed
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
Note
8
9
10
16
13
14
10
* Includes non-material adjustments to prior year's acquisitions
DLS
-
93,520
824
262
285
65,404
4,630
(54,845 )
-
-
(14,374 )
-
(285 )
-
95,421
225,007
129,586
-
225,007
-
225,007
Others* December 31, 2020
3,332
122,893
2,333
24,003
40,213
96,529
4,630
(63,994 )
(445 )
(338 )
(14,374 )
(5,365 )
(40,477 )
(6,653 )
162,287
331,602
173,323
(4,008 )
330,982
620
331,602
3,332
29,373
1,509
23,741
39,928
31,125
-
(9,149 )
(445 )
(338 )
-
(5,365 )
(40,192 )
(6,653 )
66,866
106,595
43,737
(4,008 )
105,975
620
106,595
2021 Annual Report │75
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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
Canadian Less-Than-Truckload
Canadian Truckload
U.S. Truckload
Specialized Truckload
Logistics
Reportable segment
Less-Than-Truckload
Truckload
Truckload
Truckload
Logistics
December 31, 2021*
(225 )
4,079
2,846
42,546
(25 )
49,221
December 31, 2020
3,872
-
330
33,718
135,403
173,323
* Includes non-material adjustments to prior year's acquisitions
c) Adjustment to the provisional amounts for UPS Freight business combination
The interim financial statements of 2021 included details of the Group’s business combinations and set out provisional fair values
relating to the consideration and net assets of UPS Freight. This acquisition was accounted for under the provisions of IFRS 3. As
required by IFRS 3, the provisional fair values have been reassessed in the fourth quarter in light of information obtained during the
measurement period following the acquisition. These amounts remain provisional as at December 31, 2021 for the reasons
mentioned previously. The below adjustments will be reflected in the Q2 2021 comparative financial information when the Q2 2022
interim financial statements are filed. Consequently, the fair value of certain assets acquired, and liabilities assumed of UPS Freight
have been adjusted retrospective to the date of acquisition as follows:
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
Employee benefits
Provisions
Other non-current liabilities
Lease liabilities
Deferred tax liabilities
Total identifiable net assets
Total consideration transferred
Bargain purchase gain
Total consideration transferred
Provisional
fair value included
in the interim
financial statements
6
349,742
30,660
1,052,816
100,971
6,856
860
(217,539 )
302
(67,828 )
(50,352 )
(56 )
(100,971 )
(116,449 )
989,018
866,092
(122,926 )
866,092
Measurement
period adjustment
-
(21,274 )
(4,017 )
133,382
-
12,000
-
8,611
-
1,979
-
-
-
(61,543 )
69,138
(1,485 )
(70,623 )
(1,485 )
Reassessed
fair value
6
328,468
26,643
1,186,198
100,971
18,856
860
(208,928 )
302
(65,849 )
(50,352 )
(56 )
(100,971 )
(177,992 )
1,058,156
864,607
(193,549 )
864,607
2021 Annual Report │76
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
d) Contingent consideration
The contingent consideration relates to non-material business acquisitions and is recorded in the original purchase price allocation.
The fair value was determined using expected cash flows discounted at rates between 3.9% and 6.4%. The considerations are
contingent on achieving specified earning levels in the future periods. The maximum amount payable is $0.4 million in one year and
$7.6 million in two years. At December 31, 2021, the fair value of the contingent arrangement is estimated at approximately
$7.4 million and is currently presented in other financial liabilities on the consolidated statements of financial position.
e) Adjustment to the provisional amounts of prior year’s business combinations
The 2020 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 DLS 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 DLS and the other
non-material acquisitions in fiscal 2020 have been adjusted and finalized in 2021. 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 2021.
6. Trade and other receivables
Trade receivables, net of expected credit loss
Other receivables
December 31, 2021
986,783
69,240
1,056,023
December 31, 2020
570,609
27,264
597,873
The Group’s exposure to credit and currency risks related to trade and other receivables is disclosed in note 25 a) and d).
Trade receivables as at December 31, 2021 include $58.2 million of in-transit revenue balances (December 31, 2020 – $13.5 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.
7. Additional cash flow information
Net change in non-cash operating working capital
Trade and other receivables
Inventoried supplies
Prepaid expenses
Trade and other payables
2021
(101,664 )
(1,233 )
(9,455 )
154,292
41,940
2020
(16,399 )
2,200
192
47,668
33,661
2021 Annual Report │77
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
8. Property and equipment
Note
Land and
buildings
Rolling
stock
Equipment
Total
Cost
Balance at December 31, 2019
Additions through business combinations
Other additions
Disposals
Reclassification to assets held for sale
Sale of business
Effect of movements in exchange rates
Balance at December 31, 2020
Additions through business combinations
Other additions
Disposals
Transfer from right-of-use assets
Reclassification (to) from assets held for sale
Effect of movements in exchange rates
Balance at December 31, 2021
Accumulated Depreciation
Balance at December 31, 2019
Depreciation
Disposals
Reclassification to assets held for sale
Sale of business
Effect of movements in exchange rates
Balance at December 31, 2020
Depreciation
Disposals
Transfer from right-of-use assets
Reclassification (to) from assets held for sale
Effect of movements in exchange rates
Balance at December 31, 2021
Net carrying amounts
At December 31, 2020
At December 31, 2021
5
5
308,677
1,771
19,331
(731 )
(19,201 )
(484 )
5,441
314,804
766,391
36,902
(1,473 )
-
(8,843 )
2,220
1,110,001
58,609
8,462
(657 )
(7,326 )
(329 )
1,058
59,817
16,301
(1,332 )
-
(2,997 )
223
72,012
1,267,313
21,634
112,645
(133,149 )
(9,971 )
(3,395 )
12,540
1,267,617
445,656
217,080
(177,992 )
21,474
1,023
(2,395 )
1,772,463
437,163
151,369
(89,676 )
(8,488 )
(2,494 )
6,448
494,322
187,895
(110,341 )
5,746
424
(153 )
577,893
125,296
598
10,838
(5,134 )
-
(283 )
2,919
134,234
61,024
13,191
(8,773 )
-
-
1,089
200,765
80,085
10,689
(4,447 )
-
(253 )
2,014
88,088
20,811
(8,347 )
-
-
898
101,450
1,701,286
24,003
142,814
(139,014 )
(29,172 )
(4,162 )
20,900
1,716,655
1,273,070
267,173
(188,238 )
21,474
(7,820 )
915
3,083,229
575,857
170,520
(94,780 )
(15,814 )
(3,076 )
9,520
642,227
225,007
(120,020 )
5,746
(2,573 )
968
751,355
254,987
1,037,989
773,295
1,194,570
46,146
99,315
1,074,428
2,331,874
As at December 31, 2021, $1.0 million is included in trade and other payables for the purchases of property and equipment (December 31,
2020 – $2.5 million).
Security
As at December 31 2021, certain rolling stock are pledged as security for conditional sales contracts, with a carrying amount of $144.5
million (December 31, 2020 - $140.7 million) (see note 13).
2021 Annual Report │78
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
9. Right-of-use assets
Note
Land and
buildings
Rolling
stock
Equipment
Total
Cost
Balance at December 31, 2019
Other additions
Additions through business combinations
Derecognition*
Effect of movements in exchange rates
Balance at December 31, 2020
Transfer to property and equipment
Other additions
Additions through business combinations
Derecognition*
Effect of movements in exchange rates
Balance at December 31, 2021
Depreciation
Balance at December 31, 2019
Depreciation
Derecognition*
Effect of movements in exchange rates
Balance at December 31, 2020
Transfer to property and equipment
Depreciation
Derecognition*
Effect of movements in exchange rates
Balance at December 31, 2021
5
5
430,097
18,869
13,716
(18,524 )
7,948
452,106
-
37,768
57,916
(39,842 )
2,329
510,277
193,684
48,628
(14,573 )
4,802
232,541
-
59,719
(35,691 )
938
257,507
164,090
30,353
26,497
(32,111 )
2,335
191,164
(21,474 )
51,494
52,465
(40,434 )
495
233,710
67,153
31,247
(25,371 )
1,474
74,503
(5,746 )
51,953
(30,926 )
308
90,092
1,833
1,003
-
(589 )
43
2,290
-
1,084
1,209
(668 )
(12 )
3,903
1,015
621
(428 )
23
1,231
-
1,110
(579 )
(4 )
1,758
596,020
50,225
40,213
(51,224 )
10,326
645,560
(21,474 )
90,346
111,590
(80,944 )
2,812
747,890
261,852
80,496
(40,372 )
6,299
308,275
(5,746 )
112,782
(67,196 )
1,242
349,357
Net carrying amounts
At December 31, 2020
337,285
At December 31, 2021
398,533
* 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.
116,661
143,618
219,565
252,770
1,059
2,145
2021 Annual Report │79
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
10.
Intangible assets
Note Goodwill relationships Trademarks agreements technology
Total
Customer
compete Information
Other intangible assets
Non-
Cost
Balance at December 31, 2019**
1,331,130
Additions through business combinations* 5 173,323
-
Other additions
(715 )
Sale of business
-
Extinguishments
Effect of movements in exchange rates
19,888
1,523,626
Balance at December 31, 2020**
49,221
Additions through business combinations* 5
-
Other additions
-
Extinguishments
(556 )
Effect of movements in exchange rates
1,572,291
Balance at December 31, 2021
Amortization and impairment losses
Balance at December 31, 2019**
Amortization
Sale of business
Extinguishments
Effect of movements in exchange rates
Balance at December 31, 2020**
Amortization
Extinguishments
Effect of movements in exchange rates
Balance at December 31, 2021
Net carrying amounts
At December 31, 2020**
At December 31, 2021
146,890
-
-
-
1,126
148,016
-
-
(536 )
147,480
481,428
88,692
-
-
(1,397 )
6,219
574,942
29,130
3,263
(18,357 )
(464 )
588,514
219,764
39,580
-
(1,397 )
3,652
261,599
44,862
(18,357 )
(526 )
287,578
85,755
627
-
-
(1,014 )
1,034
86,402
4,166
-
(1,178 )
(579 )
88,811
40,181
3,897
-
(1,014 )
572
43,636
3,274
(1,178 )
(57 )
45,675
11,933
3,984
-
-
(1,456 )
227
14,688
4,405
-
(1,027 )
(118 )
17,948
4,470
2,160
-
(1,456 )
130
5,304
3,378
(1,027 )
11
7,666
17,620 1,927,866
3,226 269,852
1,665
1,665
(745 )
(30 )
(4,307 )
(440 )
27,851
483
22,524 2,222,182
93,991
7,143
(22,072 )
(1,684 )
31,996 2,299,560
7,069
3,880
(1,510 )
33
2,576
(28 )
(440 )
345
13,511 424,816
48,213
(28 )
(4,307 )
5,825
15,964 474,519
55,243
(22,071 )
(1,052 )
18,240 506,639
3,729
(1,509 )
56
1,375,610
1,424,811
313,343
300,936
42,766
43,136
9,384
10,282
6,560 1,747,663
13,756 1,792,921
* Includes non-material adjustments to prior year's acquisitions
** Recasted for change in accounting policy following the 2021 IFRS Interpretation Committee’s agenda decision on Configuration or Customization Cost in
a Cloud Computing Arrangement (IAS 38 Intangible Assets). Implementation costs on cloud computing arrangements, previously capitalized, are expensed
as incurred. The result was a decrease in intangible assets of $2.1 million, a decrease in deferred tax liabilities of $0.5 million, and a decrease in retained
earnings of $1.6 million reflected in the closing balances of December 31, 2019.
At December 31, 2021, the Group performed its annual impairment testing for indefinite life trademarks. The Group estimated the value
in use to be $36.6 million (2020 - $42.6 million) compared to its carrying value of $27.5 million (2020 - $31.6 million), resulting in no
impairment charge. Management used the relief-from-royalty method and discount rates between 6.7% and 9.9% (2020 – between 6.6%
and 9.7%) in its analysis.
In 2021, the Group rebranded a subsidiary by initiating a change of name. The Group estimates that previous tradename will retain value
for a 2-year period during the transition. Accordingly, the amortization period has been changed from indefinite life to 2 years for the
remaining net book value of this subsidiary of $3.5 million.
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 was applied prospectively, the Group tested these trademarks for impairment, which
resulted in no impairment charge.
2021 Annual Report │80
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
At December 31, 2021, the Group performed its annual goodwill impairment tests for operating segments which represent the lowest
level within the Group at which the goodwill is monitored for internal management purposes. The aggregate carrying amounts of goodwill
allocated to each unit are as follows:
Reportable segment / operating segment
Package and Courier
Less-Than-Truckload
Canadian Less-Than-Truckload
Truckload
Canadian Truckload
U.S. Truckload
Specialized Truckload
Logistics
December 31,
2021
190,853
December 31,
2020
189,533
137,638
136,914
93,152
245,570
431,761
325,837
1,424,811
86,416
244,824
394,303
323,620
1,375,610
The results as at December 31, 2021 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
Canadian Less-Than-Truckload
Truckload
Canadian Truckload
U.S. Truckload
Specialized Truckload
Logistics
2021
9.3 %
9.3 %
11.7 %
10.5 %
10.5 %
8.7 %
2020
9.1 %
9.1 %
11.5 %
10.3 %
10.3 %
8.5 %
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% (2020 – 40.0%) at a market interest rate of 5.7% (2020 – 5.9%).
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% (2020 –
2.0%) in revenues and margins were adjusted where deemed appropriate. The terminal value growth rate was 2.0% (2020 – 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).
11. Other assets
Security deposits
Investments in equity securities
Other
Indemnification asset
As at
December 31, 2021
As at
December 31, 2020
3,143
9,727
6,293
4,736
23,899
3,780
31,391
2,671
-
37,842
Investments in equity securities include $16.4 million (2020 – nil) of Level 1 investments that were marked to market with the publicly
traded information and $15.0 million (2020 - $7.7 million) of Level 3 investments that were marked to fair value based increase in company
performance as at December 31, 2021. The Group elected to designate these investments as at fair value through OCI.
2021 Annual Report │81
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
12. Trade and other payables
Trade payables and accrued expenses
Personnel accrued expenses
Dividend payable
December 31,
2021
611,546
224,935
24,881
861,362
December 31,
2020
327,619
119,334
21,285
468,238
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 25.
13. 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 25.
Non-current liabilities
Unsecured revolving facilities
Unsecured term loan
Unsecured debenture
Unsecured senior notes
Conditional sales contracts
Current liabilities
Current portion of unsecured revolving facilities
Current portion of unsecured term loan
Current portion of conditional sales contracts
As at
December 31, 2021
As at
December 31, 2020
239,406
-
157,743
778,613
68,746
1,244,508
-
324,444
39,142
363,586
123,666
321,852
156,479
150,000
77,550
829,547
7,461
-
35,536
42,997
Terms and conditions of outstanding long-term debt are as follows:
Currency
Nominal
interest
rate
Year of
maturity
Face
value
Carrying
amount
Face
value
Carrying
amount
2021
2020
Unsecured revolving facility
Unsecured revolving facility
Unsecured revolving facility
Unsecured revolving facility
Unsecured term loan
Unsecured debenture
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Conditional sales contracts
CAD
a
CAD
a
USD
a
USD
a
CAD
a
CAD
b
USD
c
USD
c
c
USD
d Mainly CAD
BA + 1.25%
BA + 1.25%
Libor + 1.25%
Libor + 1.25%
BA + 1.45%
3.32% - 4.22%
2.89% - 3.85%
3.15% - 3.50%
2.87% - 3.34%
1.45% - 4.72%
-
2025 130,000 101,061 41,700 32,279
2025 21,279
-
16,646
2025 120,000 118,634 92,634 91,387
2025 3,100
3,065 7,461 7,461
2022 410,000 324,444 410,000 321,852
2024 200,000 157,743 200,000 156,479
2026-2033 180,000 179,658 150,000 150,000
-
2029-2036 500,000 499,049
2029-2033 100,000
-
99,906
2022-2024 136,338 107,888 143,796 113,086
872,544
1,608,094
-
-
2021 Annual Report │82
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
The table below summarizes changes to the long-term debt:
Balance at beginning of year
Proceeds from long-term debt
Business combinations
Repayment of long-term debt
Net increase (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
a) Unsecured revolving credit facility and term loans
Note
2021
5
872,544
661,039
3,484
(43,868 )
118,859
1,296
(23,154 )
17,894
1,608,094
2020
1,343,307
33,175
5,365
(191,221 )
(326,201 )
1,214
4,588
2,317
872,544
On August 16, 2021, the Group extended its revolving credit facility until August 16, 2025. Under the new extension, CAD availability is
increased by CAD $10 million and USD availability increased by USD $50 million. Based on certain ratios, the interest rate will be the
sum of the banker’s acceptance rate, or Libor rate on US$ denominated debt, plus an applicable margin, which can vary between 113
basis points and 175 basis points. The applicable margin on the credit facility is currently 1.25%. 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 25(f)). Deferred financing
fees of $1.7 million were recognized on the increase.
The revolving credit facility is unsecured and can be extended annually. The total available amount under this revolving facility is
CAD $1,260 million. The agreement provides an additional $198.9 million of credit availability (CAD $245 million and USD $5 million).
The additional credit is available under certain conditions under the Group’s syndicated revolving credit agreement. 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, 2021, the credit facility’s interest rate on CAD denominated
debt was 1.70% (2020 – 2.90%) and on USD denominated debt was 1.35% (2020 – 1.60%). 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 25(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, 2021, the term loan’s
interest rate was 1.90% (2020 – 1.90% on the second tranche).
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.
b) Unsecured debenture
The unsecured debenture is maturing in December 2024 and is carrying an interest rate between 3.32% and 4.22% (2020 – 3.32% to
4.22%) depending on certain ratios. As of December 31, 2021, the debenture’s effective rate was 3.57% (2020 – 3.57%). The debenture
may be repaid, without penalty, after December 20, 2022, subject to the approval of the Group’s syndicate of bank lenders.
c) 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.
On January 13, 2021, the Group 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 fixed interest between 3.15% and
3.50%. These notes may be prepaid at any time prior to maturity dates, 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. 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 25(f)). Deferred financing
fees of $1.4 million were recognized on the increase.
2021 Annual Report │83
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
On July 2, 2021, the Group received $100 million in proceeds from the issuance of a new debt taking the form of unsecured senior notes
consisting of two tranches maturing on July 2, 2029, and July 2, 2033, bearing fixed interest of 2.87% and 3.34%. These notes may be
prepaid at any time prior to maturity dates, 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. 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 25(f)).
On July 14, 2021, the Group received $30 million in proceeds from the issuance of a new debt taking the form of unsecured senior notes
consisting of two tranches maturing on July 14, 2029, and July 14, 2033, bearing fixed interest of 2.89% and 3.37%. These notes may be
prepaid at any time prior to maturity dates, 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. 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 25(f)).
d) Conditional sales contracts
Conditional sales contracts are secured by rolling stock having a carrying value of $144.5 million (December 31, 2020 - $140.7 million,)
(see note 8).
e) 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
14. Lease liabilities
Current portion of lease liabilities
Long-term portion of lease liabilities
Less than
1 year
-
324,444
-
-
39,142
363,586
1 to 5 More than
years
5 years
242,283
-
158,265
-
68,746
469,294
-
-
-
780,000
-
780,000
Total
242,283
324,444
158,265
780,000
107,888
1,612,880
As at
December 31, 2021
As at
December 31, 2020
88,522
267,464
355,986
115,344
313,862
429,206
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
Balance at end of year
Note
5
2021
355,986
111,590
90,346
(15,030 )
(115,336 )
1,650
429,206
2020
355,591
40,477
50,225
(12,011 )
(82,587 )
4,291
355,986
* Derecognized lease liabilities include negotiated asset purchases and extinguishments resulting from accidents.
The incremental borrowing rate used on average for 2021 is 2.59% (2020 – 3.56%).
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.
2021 Annual Report │84
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
The lease liabilities include future lease payments of $12.7 million (2020 – $21.1 million) related to extension options that the Group is
reasonably certain to exercise.
The Group has estimated that the potential future lease payments, should it exercise the remaining extension options, would result in an
increase in lease liabilities of $362.4 million (2020 - $352.1 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, 2021 was $18.9 million (2020 - $17.4 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, 2021 was
$15.4 million (2020 - $13.8 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
As at
December 31, 2021
126,172
262,899
79,323
468,394
For the year ended December 31, 2021, operating lease expenses of $42.4 million (2020 – $26.1 million) were recognized in the
consolidated statement of income for leases that either did not meet the definition of a lease under IFRS 16, or were excluded based on
practical expedients applied.
15. Employee benefits
TFI International pension plans
The Group sponsors defined benefit pension plans for 105 of its employees (2020 – 161).
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 plans 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, 2020 and the next required
valuation will be as of December 31, 2021.
TForce Freight pension plans
Pursuant to the terms of the purchase agreement with UPS Freight, the Group has recognized defined benefit pension plans for certain
participants of the UPS Pension plans. The pension plans have ongoing benefit accruals and new employees that are eligible to participate
in the plans once they satisfy the participation requirements. The pension plans include 9,399 active participants.
2021 Annual Report │85
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
The plans do not have recurring contributions for employees. These plans are still required to fund past service costs and are fully funded
by the Group. The Group obtained an actuarial valuation as at the date of acquisition to establish the benefit obligation at that date. The
plans’ service costs are also established by the actuarial valuation.
The Group also 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, 2021.
Other post-retirement plans
In addition to the above-mentioned defined benefit plans, the Group sponsors an employee severance plan in Mexico. At December 31,
2021, total obligation under this arrangement amounted to $1.2 million ($1.1 million in 2020).
Information in the tables that follow pertains to all of the Group’s defined benefit pension plans.
December 31, 2021
December 31, 2020
TFI
International
pension
plans
27,127
(13,437 )
13,690
TForce
Freight
pension
plans
133,653
(80,466 )
53,187
TFI
International
pension
plans
35,529
(21,147 )
14,382
Total
160,780
(93,903 )
66,877
TForce
Freight
pension
plans
-
-
-
Total
35,529
(21,147 )
14,382
December 31, 2021
December 31, 2020
6 %
89 %
5 %
48 %
52 %
6 %
91 %
3 %
-
-
Defined benefit obligation
Fair value of plan assets
Net defined benefit liability
Plan assets comprise:
TFI International pension plans
Equity securities
Debt securities
Other
TForce Freight pension plans
Equity securities
Debt securities
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, AA or A, 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:
Defined benefit obligation, beginning of year
Increase through business combinations
Current service cost
Interest cost
Benefits paid
Remeasurement (gain) loss arising from:
- Demographic
- Financial assumptions
- Experience
Settlement
Effect of movements in exchange rates
Defined benefit obligation, end of year
Note
5
2021
35,529
70,261
55,437
2,289
(5,437 )
252
5,997
(426 )
(3,420 )
298
160,780
2020
31,449
-
528
948
(1,539 )
-
3,563
(343 )
113
810
35,529
2021 Annual Report │86
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
Movement in the fair value of plan assets for defined benefit plans:
Fair value of plan assets, beginning of year
Increase through business combinations
Interest income
Employer contributions
Benefits paid
Fair value remeasurement
Plan administration expenses
Settlement
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
Net settlement
Pension expense
Actual return on plan assets
Actuarial losses recognized in other comprehensive income:
Amount accumulated in retained earnings, beginning of year
Recognized during the year
Amount accumulated in retained earnings, end of year
Recognized during the year, net of tax
The significant actuarial assumptions used (expressed as weighted average):
Defined benefit obligation:
Discount rate at
Future salary increases
Employee benefit expense:
Discount rate at
Rate of return on plan assets at
Future salary increases
Note
5
2021
21,147
4,412
551
76,297
(5,437 )
310
(112 )
(3,475 )
210
93,903
2021
55,437
1,738
112
55
57,342
861
2021
13,304
5,513
18,817
4,128
2020
18,108
-
544
2,519
(1,539 )
1,129
(124 )
510
21,147
2020
528
404
124
113
1,169
1,673
2020
11,100
2,204
13,304
1,623
December 31,
2021
December 31,
2020
2.9 %
2.0 %
2.4 %
2.4 %
2.0 %
2.4 %
1.2 %
3.3 %
3.3 %
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:
December 31, 2021
December 31, 2020
TFI
International
pension
plans
TForce
Freight
pension
plans
TFI
International
pension
plans
TForce
Freight
pension
plans
Longevity at age 65 for current pensioners
Males
Females
Longevity at age 65 for current members aged 45
Males
Females
22.7
24.9
23.6
25.8
20.1
22.2
21.7
23.7
22.1
24.7
23.5
26.1
At December 31, 2021 the weighted average duration of the defined benefit obligation was:
TFI International pension plans
TForce Freight pension plans
-
-
-
-
13.9
22.1
2021 Annual Report │87
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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:
Defined benefit obligation
Fair value of plan assets
Deficit in the plan
2021
2020
Increase
Decrease
Increase
(27,922 )
4,475
36,696
(4,650 )
(3,022 )
138
Decrease
3,650
(246 )
2021
160,780
(93,903 )
66,877
2020
35,529
(21,147 )
14,382
2019
31,449
(18,108 )
13,341
2018
27,579
(16,581 )
10,998
2017
38,811
(25,366 )
13,445
Experience adjustments arising on plan obligations
Experience adjustments arising on plan assets
5,823
310
3,220
1,129
2,116
467
(2,427 )
(815 )
2,378
351
The Group expects approximately $100.7 million in contributions to be paid to its defined benefit plans in 2022.
16. Provisions
Balance at December 31, 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
Sale of business
Effect of movements in exchange rates
Balance at December 31, 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
Effect of movements in exchange rates
Balance at December 31, 2021
As at December 31, 2021
Current provisions
Non-current provisions
As at December 31, 2020
Current provisions
Non-current provisions
Self insurance
5
5
39,188
-
48,534
(32,439 )
(8,795 )
1,012
(47 )
280
47,733
125
94,885
(62,836 )
(9,259 )
(929 )
(252 )
69,467
Other
1,598
338
9,685
(4,060 )
(1,177 )
-
-
138
6,522
50,449
4,352
(7,977 )
-
-
(171 )
53,175
Total
40,786
338
58,219
(36,499 )
(9,972 )
1,012
(47 )
418
54,255
50,574
99,237
(70,813 )
(9,259 )
(929 )
(423 )
122,642
26,771
42,696
69,467
12,241
40,934
53,175
39,012
83,630
122,642
14,040
33,693
47,733
3,412
3,110
6,522
17,452
36,803
54,255
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 1.3% (2020 – 0.7%). Other provisions include mainly litigation provisions of $35.8 million (2020 - $3.2 million). Litigation provisions
contain various pending claims for which management used judgement and assumptions about future events. The outcomes will depend
on future claim developments.
2021 Annual Report │88
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
17. Deferred tax assets and liabilities
Property and equipment
Intangible assets
Long-term debt
Employee benefits
Provisions
Tax losses
Other
Net deferred tax liabilities
Presented as:
Deferred tax assets
Deferred tax liabilities
* Recasted for change in accounting policy (see note 10)
Movement in temporary differences during the year:
December 31,
2021
(403,181 )
(78,888 )
8,025
43,821
42,900
11,313
(2,917 )
(378,927 )
December 31,
2020*
(178,087 )
(73,496 )
4,852
10,634
15,151
94
(108 )
(220,960 )
29,695
(408,622 )
11,207
(232,167 )
Property and equipment
Intangible assets
Long-term debt
Employee benefits
Provisions
Tax losses
Other
Net deferred tax liabilities
* Recasted for change in accounting policy (see note 10)
Acquired
Balance Recognized Recognized
directly
in income
or loss
in equity combinations
12,981
11,396
(1,104 )
2,387
5,191
(14,396 )
735
17,190
Balance
in business December 31,
2020*
(178,087 )
(73,496 )
4,852
10,634
15,151
94
(108 )
(220,960 )
December 31,
2019
(188,604 )
(78,801 )
5,886
7,449
9,874
14,603
(1,358 )
(230,951 )
(1,052 )
(880 )
70
798
86
(113 )
545
(546 )
(1,412 )
(5,211 )
-
-
-
-
(30 )
(6,653 )
Property and equipment
Intangible assets
Long-term debt
Employee benefits
Provisions
Tax losses
Other
Net deferred tax liabilities
* Recasted for change in accounting policy (see note 10)
December 31,
2020*
(178,087 )
(73,496 )
4,852
10,634
15,151
94
(108 )
(220,960 )
Balance Recognized Recognized
directly
in income
in equity combinations
or loss
(181 )
6,443
3,158
3,124
14,499
(237 )
(893 )
25,913
1,401
(790 )
15
13,384
13
(210 )
(1,916 )
11,897
Acquired
Balance
in business December 31,
2021
(403,181 )
(78,888 )
8,025
43,821
42,900
11,313
(2,917 )
(378,927 )
(226,314 )
(11,045 )
-
16,679
13,237
11,666
0
(195,777 )
18. 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
2021 Annual Report │89
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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.
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
Note
20
2021
93,397,985
(2,157,862 )
-
912,770
92,152,893
2020
81,450,326
(1,542,155 )
11,960,000
1,529,814
93,397,985
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
2021
1,120,049
-
(23,449 )
20,114
6,210
10,257
1,133,181
2020
678,915
425,350
(12,025 )
21,361
4,554
1,894
1,120,049
Pursuant to the normal course issuer bid (“NCIB”) which began on November 2, 2021 and ending on November 1, 2022, 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, 2021, and since the inception of this NCIB, the Company has repurchased and cancelled 1,000,000 shares.
During 2021, the Company repurchased 2,157,862 common shares at a weighted average price of $91.83 per share for a total purchase
price of $198.2 million relating to the NCIB. During 2020, the Company repurchased 1,542,155 common shares at a weighted average
price of $24.64 per share for a total purchase price of $38.0 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 $174.7 million (2020 – $26.0 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
20).
Accumulated other comprehensive income (“AOCI”)
At December 31, 2021 and 2020, 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.
2021 Annual Report │90
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
Dividends
In 2021, the Company declared quarterly dividends amounting to a total of $0.96 per outstanding common share when the dividend was
declared (2020 – $0.80) for a total of $89.1 million (2020 - $72.7 million). On March 14 2022, the Board of Directors approved a quarterly
dividend of $0.27 per outstanding common share of the Company’s capital, for an expected aggregate payment of $24.7 million to be
paid on April 15, 2022 to shareholders of record at the close of business on March 31, 2022.
19. Earnings per share
Basic earnings per share
The basic earnings per share and the weighted average number of common shares outstanding have been calculated as follows:
(in thousands of dollars and number of shares)
Net income attributable to owners of the Company
Issued common shares, beginning of year
Effect of stock options exercised
Effect of repurchase of own shares
Effect of share issuance
Weighted average number of common shares
Earnings per share – basic (in dollars)
Diluted earnings per share
2021
664,361
93,397,985
593,740
(937,480 )
-
93,054,245
7.14
2020
275,675
81,450,326
858,488
(1,204,210 )
8,008,750
89,113,354
3.09
The diluted earnings per share and the weighted average number of common shares outstanding after adjustment for the effects of all
dilutive common shares have been calculated as follows:
(in thousands of dollars and number of shares)
Net income attributable to owners of the Company
Weighted average number of common shares
Dilutive effect:
Stock options and restricted share units
Weighted average number of diluted common shares
Earnings per share - diluted (in dollars)
2021
664,361
93,054,245
2,281,778
95,336,023
6.97
2020
275,675
89,113,354
1,821,452
90,934,806
3.03
As at December 31, 2021, no stock options were excluded from the calculation of diluted earnings per share (2020 – 99,485) 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.
20. 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:
2021 Annual Report │91
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
(in thousands of options and in dollars)
Balance, beginning of year
Granted
Exercised
Forfeited
Balance, end of year
Options exercisable, end of year
2021
Weighted
Number
of
options
2,982
-
(913 )
(8 )
2,061
1,705
average
exercise
price
24.65
-
22.30
23.70
25.70
24.27
Number
of
options
4,422
99
(1,530 )
(9 )
2,982
2,111
The following table summarizes information about stock options outstanding and exercisable at December 31, 2021:
(in thousands of options and in dollars)
Options outstanding
Weighted
average
Exercise prices
19.12
18.83
26.82
23.70
30.71
40.41
Number
remaining
of contractual life
(in years)
options
212
444
201
392
717
95
2,061
0.6
1.6
2.1
3.1
4.2
5.6
2.9
2020
Weighted
average
exercise
price
21.56
40.41
16.73
27.87
24.65
22.34
Options
exercisable
Number
of
options
212
444
201
392
427
29
1,705
Of the options outstanding at December 31, 2021, a total of 1,669,767 (2020 – 2,502,339) are held by key management personnel.
The weighted average share price at the date of exercise for stock options exercised in 2021 was $87.65 (2020 – $33.78).
In 2021, the Group recognized a compensation expense of $1.0 million (2020 - $1.7 million) with a corresponding increase to contributed
surplus.
No stock options were granted during 2021 under the Company’s stock option plan.
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
40.41
4.5 years
0.71 %
26.29 %
2.62 %
6.73
* 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.
2021 Annual Report │92
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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
2021
373,926
-
(71,709 )
4,337
306,554
2020
348,031
29,168
(11,512 )
8,239
373,926
In 2021, the Group recognized, as a result of DSUs, a compensation expense of nil (2020 - $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 $22.9 million
(2020 – $6.5 million).
Effective January 1, 2021, a new director compensation program was put in place. Quarterly cash amounts will be paid to the board
members on the 2nd Thursday following each quarter. In addition, an equity portion of compensation will be awarded, comprised of
restricted share units granted annually effective on the date of each Annual Meeting, with a vesting period of one year. In 2021, the Group
recognized, as a result of the director compensation plan, a compensation expense of $1.1 million.
As at December 31, 2021, the total carrying amount of liabilities for cash-settled arrangements recorded in trade and other payables
amounted to $34.4 million (2020 - $19.2 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 8, 2021, the Company granted a total of 78,122 RSUs under the Company’s equity incentive plan of which 51,328 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 $70.59 per unit.
On April 27, 2021, the Company granted a total of 12,924 RSUs under the Company’s equity incentive plan of which 7,847 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 RSUs vest
on April 30, 2022. The fair value of the RSUs granted was $77.32 per unit.
On December 20, 2021, the Company granted a total of 34,221 RSUs under the Company’s equity incentive plan of which 34,221 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
2021 Annual Report │93
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
of the grant and is recognized as a share-based compensation expense, through contributed surplus, over the vesting period. The RSUs
vest on April 30, 2022. The fair value of the RSUs granted was $103.66 per unit.
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:
(in thousands of RSUs and in dollars)
Balance, beginning of year
Granted
Reinvested
Settled
Forfeited
Balance, end of year
Number
of
RSUs
299
125
4
(153 )
(3 )
272
2021
Weighted
average
grant date
fair value
31.54
80.29
37.90
30.70
53.12
54.27
Number
of
RSUs
239
145
8
(92 )
(1 )
299
2020
Weighted
average
grant date
fair value
28.08
32.41
29.74
23.75
31.06
31.54
The following table summarizes information about RSUs outstanding and exercisable as at December 31, 2021:
(in thousands of RSUs and in dollars)
Grant date fair value
77.32
103.66
32.41
70.59
Number of
RSUs
13
34
147
78
272
RSUs outstanding
Remaining
contractual life
(in years)
0.3
0.3
1.1
2.1
1.2
The weighted average share price at the date of settlement of RSUs vested in 2021 was $107.76 (2020 – $53.10). The excess of the
purchase price paid over the carrying value of shares repurchased for settlement of the award, in the amount of $18.9 million (2020 –
$4.5 million), was charged to retained earnings as share repurchase premium.
In 2021, the Group recognized, as a result of RSUs, a compensation expense of $8.2 million (2020 - $3.7 million) with a corresponding
increase to contributed surplus.
Of the RSUs outstanding at December 31, 2021, a total of 171,222 (2020 – 196,343) are held by key management personnel.
Performance share units
On February 8, 2021, the Company granted a total of 78,122 PSUs under the Company’s equity incentive plan of which 51,328 were
granted to key management personnel, at that date. The fair value of the PSUs is determined using a Monte Carlo simulation model for
the TSR portion and using management’s estimates for the absolute earnings before interest and income tax portion. The estimates
related to the absolute earnings before interest and income tax portion are revised during the vesting period and the cumulative amount
recognized at each reporting date is based on the number of equity instruments for which service and non-market conditions are expected
to be satisfied. The share-based compensation expense is recognized, through contributed surplus, over the vesting period. The fair
value of the PSUs granted was $89.64 per unit as at grant date and $105.53 per unit as at December 31, 2021.
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 for the TSR portion and using management’s estimates for the
absolute earnings before interest and income tax portion. The estimates related to the absolute earnings before interest and income tax
portion are revised during the vesting period and the cumulative amount recognized at each reporting date is based on the number of
equity instruments for which service and non-market conditions are expected to be satisfied. The share-based compensation expense is
2021 Annual Report │94
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
recognized, through contributed surplus, over the vesting period. The fair value of the PSUs granted was $32.41 per unit as at grant date
and $50.35 per unit as at December 31, 2021.
The table below summarizes changes to the outstanding PSUs:
(in thousands of PSUs and in dollars)
Balance, beginning of year
Granted
Reinvested
Forfeited
Balance, end of year
Number
of
PSUs
147
78
3
(2 )
226
2021
Weighted
average
grant date
fair value
32.41
89.64
45.64
41.65
52.25
Number
of
PSUs
-
145
2
-
147
2020
Weighted
average
grant date
fair value
-
32.41
32.41
-
32.41
The following table summarizes information about PSUs outstanding and exercisable as at December 31, 2021:
(in thousands of PSUs and in dollars)
Grant date fair value
32.41
89.64
Number of
PSUs
148
78
226
PSUs outstanding
Remaining
contractual life
(in years)
1.1
2.1
1.4
In 2021, the Group recognized, as a result of PSUs, a compensation expense of $6.2 million (2020 - $1.6 million) with a corresponding
increase to contributed surplus.
Of the PSUs outstanding at December 31, 2021, a total of 138,141 (2020 – 96,984) are held by key management personnel.
21. 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
22. 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
2021
2,911,393
904,060
3,815,453
Note
15
20
20
2021
1,863,907
9,323
55,437
6,053
15,424
23,937
1,974,081
2020
1,535,394
516,441
2,051,835
2020
857,217
7,925
528
7,863
7,046
7,606
888,185
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 October 23, 2021. The CEWS for periods
prior to July 5, 2020 provided 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.
2021 Annual Report │95
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
To be eligible to receive the wage subsidy, a Canadian employer needed 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, until July 4, 2021, 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. For periods after July 4, 2021, a revenue drop of over 10% is required to receive the CEWS.
During 2021, certain legal entities within the Company qualified for the CEWS resulting in a $12.3 million (2020 - $52.3 million) subsidy
that is recorded and offset against personnel expenses, presented in short-term employee benefits, in the consolidated statement of
income.
23. Finance income and finance costs
Recognized in income or loss:
Costs (income)
Interest expense on long-term debt and amortization 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
Net change in fair value of interest rate derivatives
Net impact of early repayment of contingent consideration
Other financial expenses
Net finance costs
Presented as:
Finance income
Finance costs
24.
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
2021
45,953
13,521
(2,187 )
1,932
(1,471 )
-
(1,469 )
16,739
73,018
(5,127 )
78,145
2021
179,821
(2,102 )
177,719
(27,427 )
175
1,339
(25,913 )
151,806
2020
34,967
12,443
(1,051 )
224
(1,237 )
(488 )
-
9,052
53,910
(2,776 )
56,686
2020
103,080
1,092
104,172
(7,536 )
70
(9,724 )
(17,190 )
86,982
2021 Annual Report │96
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
Income tax recognized in other comprehensive income:
2021
Tax
2020
Tax
Before
(benefit)
tax expense
Net of
tax
Before
(benefit)
Tax expense
12,960
Foreign currency translation differences
(5,513 )
Defined benefit plan remeasurement gains (losses)
124
Employee benefit
(17,894 )
Loss on net investment hedge
Loss on cash flow hedge
-
Change in fair value of investment in equity securities 27,803
17,480
-
(1,385 )
37
(2,352 )
-
3,656
(44 )
12,960 21,182
(2,204 )
(4,128 )
(14 )
87
(2,317 )
(15,542 )
(488 )
-
24,147
-
17,524 16,159
-
(581 )
(4 )
(307 )
(1 )
-
(893 )
Net of
tax
21,182
(1,623 )
(10 )
(2,010 )
(487 )
-
17,052
Reconciliation of effective tax rate:
Income before income tax
Income tax using the Company’s statutory tax rate
Increase (decrease) resulting from:
Rate differential between jurisdictions
Variation in tax rate
Non deductible expenses
Tax deductions and tax exempt income1
Adjustment for prior years
Multi-jurisdiction tax
Treasury Regulations interpretive guidance
clarifying the U.S. Tax Reform Bill
26.5 %
-0.2 %
0.0 %
0.7 %
-8.5 %
-0.1 %
0.2 %
0.0 %
18.6 %
2021
816,167
216,284 26.5 %
2020
362,657
96,104
(1,250 ) -1.2 %
175 0.0 %
5,662 2.4 %
(69,530 ) -2.8 %
(763 ) -2.4 %
1,228 0.3 %
- 1.2 %
151,806 24.0 %
(4,452 )
70
8,704
(10,176 )
(8,632 )
913
4,451
86,982
1 Tax deductions and tax exempt income for 2021 is mainly due to the tax exempt bargain purchase gain recorded on the acquisition of UPS
Freight.
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.
2021 Annual Report │97
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
25. Financial instruments and financial risk management
As at December 31, 2021 and 2020, there are no derivative financial instruments designated as effective cash flow hedge instruments.
As at December 31, 2021 and 2020, 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
Risks
Finance loss
2021
2020
Other comprehensive
income
2020
2021
-
-
(488 )
(488 )
-
-
488
488
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 89.7% (2020 – 94.9%) 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.
2021 Annual Report │98
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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
Impairment losses
December 31,
2021
1,056,023
1,056,023
December 31,
2020
597,873
597,873
The aging of trade and other receivables at the reporting date was:
Not past due
Past due 1 – 30 days
Past due 31 – 60 days
Past due more than 60 days
Total
2021
772,077
178,641
63,634
68,988
1,083,340
Impairment
2021
462
2,732
8,195
15,928
27,317
Total
2020
447,517
104,491
26,601
30,792
609,401
Impairment
2020
224
1,211
3,439
6,654
11,528
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
2021
11,528
9,561
10,854
(4,372 )
(254 )
27,317
2020
6,692
4,473
2,749
(2,795 )
409
11,528
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 $944.7 million
availability as at December 31, 2021 (2020 - $825.0 million) and an additional $198.9 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 (2020 -
$196.5 million, CAD $245 million and USD $5 million).
2021 Annual Report │99
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
The following are the contractual maturities of the financial liabilities, including estimated interest payment:
Carrying Contractual Less than
1 year
amount cash flows
1 to 2
years
2 to 5 More than
5 years
years
2021
Trade and other payables
Long-term debt
Other financial liability
2020
Trade and other payables
Long-term debt
Other financial liability
861,362 861,362 861,362
-
1,608,094 1,896,085 404,454 283,736 463,538 744,357
-
1,561
2,478,130 2,766,121 1,267,377 290,792 463,595 744,357
8,674
7,056
8,674
57
-
-
468,238 468,238 468,238
872,544 953,425
11,017
-
65,697 539,317 192,087 156,324
2,999
4,016
1,360,575 1,432,680 537,951 541,712 193,694 159,323
19,793
2,395
1,607
-
-
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 sell derivatives, periodically, 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
2021
33,112
(2,401 )
(903,556 )
(872,845 )
900,000
27,155
2020
36,250
(2,162 )
(225,393 )
(191,305 )
225,000
33,695
The Group estimates its annual net USD denominated cash flow from operating activities at approximately $620 million (2020 -
$280 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
December 31,
2021
1.2535
1.2637
December 31,
2020
1.3415
1.2725
2021 Annual Report │100
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
Sensitivity analysis
A 1-cent increase in the U.S. dollar at the reporting date, assuming all other variables, in particular interest rates, remain constant, would
have increased (decreased) equity and income or loss by the amounts shown below. The analysis is performed on the same basis for
2020.
Balance sheet exposure
Long-term debt designated as investment hedge
Net balance sheet exposure
e)
Interest rate risk
1-cent
Increase
(6,907 )
7,122
215
2021
1-cent
Decrease
6,907
(7,122 )
(215 )
1-cent
Increase
(1,503 )
1,768
265
2020
1-cent
Decrease
1,503
(1,768 )
(265 )
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 periodically entering into interest rate swaps.
The Group periodically 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, 2021 and 2020, the Group has no interest rate swaps that hedge variable
interest debt set using the 30-day Libor rate. A nil loss (2020 – $0.5 million loss, $0.5 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 was recognized in net income.
At December 31, 2021 and 2020, 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
2021
1,044,244
563,850
1,608,094
2020
419,565
452,979
872,544
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 2020.
Interest on variable rate instrument
2021
1% increase 1% decrease
(4,156 )
4,156
2020
1% increase 1% decrease
3,311
(3,311 )
2021 Annual Report │101
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
f) Capital management
For the purposes of capital management, capital consists of share capital and retained earnings of the Group. The Group's objectives
when managing capital are:
To ensure proper capital investment in order to provide stability and competitiveness to its operations;
To ensure sufficient liquidity to pursue its growth strategy and undertake selective acquisitions;
To maintain an appropriate debt level so that there are no financial constraints on the use of capital; and
To maintain investors, creditors and market confidence.
The Group seeks to maintain a balance between the highest returns that might be possible with higher level of borrowings and the
advantages and security by a sound capital position.
The Group monitors its long-term debt using the ratios below to maintain an appropriate debt level. The Group’s debt-to-equity and debt-
to-capitalization ratios are as follows:
Long-term debt
Shareholders' equity
Debt-to-equity ratio
Debt-to-capitalization ratio1
1 Long-term debt divided by the sum of shareholders' equity and long-term debt.
2021
1,608,094
2,220,311
0.72
0.42
2020
872,544
1,788,612
0.49
0.33
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 less cash (unrestricted cash for the credit facility and cash up to $100 million for the unsecured
senior notes) 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 leases. 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, 2021 and 2020, 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.
2021 Annual Report │102
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
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
Investment in equity securities
Assets carried at amortized cost
Trade and other receivables
Financial liabilities
Liabilities carried at fair value
Other financial liability
Liabilities carried at amortized cost
Trade and other payables
Long-term debt
December 31, 2021
Carrying
Amount
Fair
Value
December 31, 2020
Fair
Value
Carrying
Amount
31,391
31,391
9,727
9,727
1,056,023
1,087,414
1,056,023
1,087,414
597,873
607,600
597,873
607,600
18,599
18,599
26,730
26,730
861,362
1,608,094
2,488,055
861,362
1,378,813
2,258,774
468,238
872,544
1,367,512
468,238
876,829
1,371,797
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
2021
2.1 %
2020
2.5 %
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 include Level 1 investments that are marked to market with the
publicly traded information as at December 31, 2021. The remaining 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.
26. 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, 2021, the Group had $47.4 million of outstanding letters of credit (2020 - $29.5 million).
c) Other commitments
As at December 31, 2021, the Group had $75.1 million of purchase commitments (2020 – $117.1 million) and $13.2 million of
purchase orders for leases that the Group intends to enter into and that are expected to materialize within a year (2020 –
$44.1 million).
2021 Annual Report │103
TFI International Inc.
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
27. Related parties
Parent and ultimate controlling party
There is no single ultimate controlling party. The shares of the Company are widely held.
Transactions with key management personnel
Board members of the Company, executive officers and top managers of major Group’s entities are deemed to be key management
personnel. There were no other transactions with key management personnel other than their respective compensation.
Key management personnel compensation
In addition to their salaries, the Company also provides non-cash benefits to board members and executive officers.
Executive officers also participate in the Company’s stock option and performance contingent restricted share unit and performance share
unit plans and board members are entitled to deferred share units, as described in note 20. Costs incurred for key management personnel
in relation to these plans are detailed below.
Key management personnel compensation comprised:
Short-term benefits
Post-employment benefits
Equity-settled share-based payment transactions
Cash-settled share-based payment transactions
2021
14,427
793
11,031
-
26,251
2020
13,906
704
4,627
1,086
20,323
28. Subsequent events
Between December 31, 2021 and March 14, 2022, the Company repurchased 560,000 common shares at a price ranging from 92.93$
to 105.89$ for a total purchase price of $56.4 million.
2021 Annual Report │104
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.)
ANNUAL MEETING OF SHAREHOLDERS
Thursday, April 28, 2022 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.
JPMorgan Chase Bank, N.A.
The Toronto Dominion Bank
PNC Bank
Wells Fargo Bank, N.A.
Bank of Montreal
MUFG Bank Ltd.
U.S. Bank, N.A.
Export Development Canada
Fonds de solidarité FTQ
Prudential Financial, Inc.
Guggenheim Investments
MetLife Investment Management, LLC
Barings, LLC
Voya Investment Management, LLC
New York Life Private Capital, LLC
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