Exhibit 99.2
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended
December 31, 2021 and 2020
TFI International Inc.
Consolidated Financial Statements
Years ended December 31, 2021 and 2020
CONTENTS
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KPMG LLP | Telephone | (514) 840-2100 | ||||
600 de Maisonneuve Blvd. West | Fax | (514) 840-2187 | ||||
Suite 1500, Tour KPMG | Internet | www.kpmg.ca | ||||
Montréal (Québec) H3A 0A3 | ||||||
Canada |
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.
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
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.
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.
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 atyear-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.
/s/ KPMG LLP
We have served as the Company’s auditor since 2003.
Montréal, Canada
March 14, 2022
KPMG LLP | Telephone | (514) 840-2100 | ||||
600 de Maisonneuve Blvd. West | Fax | (514) 840-2187 | ||||
Suite 1500, Tour KPMG | Internet | www.kpmg.ca | ||||
Montréal (Québec) H3A 0A3 | ||||||
Canada |
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. |
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.
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.
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.
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.
/s/ KPMG LLP
Montréal, Canada
March 14, 2022
TFI International Inc. | CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
DECEMBER 31, 2021 AND 2020 | ||||||||||||
(in thousands of U.S. dollars) | As at | As at | ||||||||||
Note | December 31, 2021 | | December 31, 2020* | | ||||||||
Assets | ||||||||||||
Cash and cash equivalents | 19,292 | 4,297 | ||||||||||
Trade and other receivables | 6 | 1,056,023 | 597,873 | |||||||||
Inventoried supplies | 24,402 | 8,761 | ||||||||||
Current taxes recoverable | 6,080 | 7,606 | ||||||||||
Prepaid expenses | 54,518 | 29,904 | ||||||||||
Assets held for sale | 1,943 | 4,331 | ||||||||||
Current assets | 1,162,258 | 652,772 | ||||||||||
Property and equipment | 8 | 2,331,874 | 1,074,428 | |||||||||
Right-of-use | 9 | 398,533 | 337,285 | |||||||||
Intangible assets | 10 | 1,792,921 | 1,747,663 | |||||||||
Other assets | 11 | 37,842 | 23,899 | |||||||||
Deferred tax assets | 17 | 29,695 | 11,207 | |||||||||
Non-current assets | 4,590,865 | 3,194,482 | ||||||||||
Total assets | 5,753,123 | 3,847,254 | ||||||||||
Liabilities | ||||||||||||
Trade and other payables | 12 | 861,362 | 468,238 | |||||||||
Current taxes payable | 16,250 | 33,220 | ||||||||||
Provisions | 16 | 39,012 | 17,452 | |||||||||
Other financial liabilities | 10,566 | 4,031 | ||||||||||
Long-term debt | 13 | 363,586 | 42,997 | |||||||||
Lease liabilities | 14 | 115,344 | 88,522 | |||||||||
Current liabilities | 1,406,120 | 654,460 | ||||||||||
Long-term debt | 13 | 1,244,508 | 829,547 | |||||||||
Lease liabilities | 14 | 313,862 | 267,464 | |||||||||
Employee benefits | 15 | 68,037 | 15,502 | |||||||||
Provisions | 16 | 83,630 | 36,803 | |||||||||
Other financial liabilities | 8,033 | 22,699 | ||||||||||
Deferred tax liabilities | 17 | 408,622 | 232,167 | |||||||||
Non-current liabilities | 2,126,692 | 1,404,182 | ||||||||||
Total liabilities | 3,532,812 | 2,058,642 | ||||||||||
Equity | ||||||||||||
Share capital | 18 | 1,133,181 | 1,120,049 | |||||||||
Contributed surplus | 18, 20 | 39,150 | 19,783 | |||||||||
Accumulated other comprehensive income | (144,665 | ) | (154,723 | ) | ||||||||
Retained earnings | 1,192,645 | 803,503 | ||||||||||
Equity attributable to owners of the Company | 2,220,311 | 1,788,612 | ||||||||||
Contingencies, letters of credit and other commitments | 26 | |||||||||||
Subsequent events | 28 | |||||||||||
Total liabilities and equity | 5,753,123 | 3,847,254 |
* Recasted for change in accounting policy (see note 10)
The notes on pages 7 to 52 are an integral part of these consolidated financial statements.
On behalf of the Board:
/s/ Alain Bédard | Director | /s/ André Bérard | Director | |||||
Alain Bédard | André Bérard |
1 |
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 | 6,468,785 | 3,484,303 | ||||||||||
Fuel surcharge | 751,644 | 296,831 | ||||||||||
Total revenue | 7,220,429 | 3,781,134 | ||||||||||
Materials and services expenses | 21 | 3,815,453 | 2,051,835 | |||||||||
Personnel expenses | 22 | 1,974,081 | 888,185 | |||||||||
Other operating expenses | 380,342 | 150,572 | ||||||||||
Depreciation of property and equipment | 8 | 225,007 | 170,520 | |||||||||
Depreciation of right-of-use | 9 | 112,782 | 80,496 | |||||||||
Amortization of intangible assets | 10 | 55,243 | 48,213 | |||||||||
Gain on sale of business | 0 | (306 | ) | |||||||||
Bargain purchase gain | 5 | (193,549 | ) | (4,008 | ) | |||||||
Gain on sale of rolling stock and equipment | (24,644 | ) | (7,888 | ) | ||||||||
Gain on derecognition of right-of-use | (1,282 | ) | (1,159 | ) | ||||||||
Loss on sale of land and buildings | 19 | 6 | ||||||||||
Gain on sale of assets held for sale | (12,209 | ) | (11,899 | ) | ||||||||
Loss on disposal of intangible assets | 1 | 0 | ||||||||||
Total operating expenses | 6,331,244 | 3,364,567 | ||||||||||
Operating income | 889,185 | 416,567 | ||||||||||
Finance (income) costs | ||||||||||||
Finance income | 23 | (5,127 | ) | (2,776 | ) | |||||||
Finance costs | 23 | 78,145 | 56,686 | |||||||||
Net finance costs | 73,018 | 53,910 | ||||||||||
Income before income tax | 816,167 | 362,657 | ||||||||||
Income tax expense | 24 | 151,806 | 86,982 | |||||||||
Net income for the year attributable to owners of the Company | 664,361 | 275,675 | ||||||||||
Earnings per share attributable to owners of the Company | ||||||||||||
Basic earnings per share | 19 | 7.14 | 3.09 | |||||||||
Diluted earnings per share | 19 | 6.97 | 3.03 |
The notes on pages 7 to 52 are an integral part of these consolidated financial statements.
2 |
TFI International Inc. | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |
YEARS ENDED DECEMBER 31, 2021 AND 2020 |
(In thousands of U.S. dollars) | 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 | 12,960 | 21,182 | ||||||
Net investment hedge, net of tax | (15,542 | ) | (2,010 | ) | ||||
Changes in fair value of cash flow hedge, net of tax | 0 | (487 | ) | |||||
Employee benefits, net of tax | 87 | (10 | ) | |||||
Items that may never be reclassified to income: | ||||||||
Defined benefit plan remeasurement, net of tax | (4,128 | ) | (1,623 | ) | ||||
Items directly reclassified to retained earnings: | ||||||||
Unrealized gain on investments in equity securities measured at fair value | ||||||||
through OCI, net of tax | 24,147 | 0 | ||||||
Other comprehensive income for the year, net of tax | 17,524 | 17,052 | ||||||
Total comprehensive income for the year attributable to owners of the Company | 681,885 | 292,727 |
The notes on pages 7 to 52 are an integral part of these consolidated financial statements.
3 |
TFI International Inc. | CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||
YEARS ENDED DECEMBER 31, 2021 AND 2020 |
(In thousands of U.S. dollars) | Note | | Share capital | | | Contributed surplus | | | Accumulated unrealized loss on employee benefit plans | | | Accumulated cash flow hedge gain (loss) | | | Accumulated foreign currency translation differences & net investment hedge | | | Accumulated unrealized gain (loss) on investments in equity securities | | | Retained earnings (deficit) | | | Total equity attributable to owners of the Company | | |||||||||||
Balance as at December 31, 2020* | 1,120,049 | 19,783 | (379 | ) | - | (154,344 | ) | - | 803,503 | 1,788,612 | ||||||||||||||||||||||||||
Net income for the year | - | - | - | - | - | - | 664,361 | 664,361 | ||||||||||||||||||||||||||||
Other comprehensive income (loss) for the year, net of tax | - | - | 87 | - | (2,582 | ) | 24,147 | (4,128 | ) | 17,524 | ||||||||||||||||||||||||||
Realized gain (loss) on equity securities | - | - | - | - | - | (11,594 | ) | 11,594 | - | |||||||||||||||||||||||||||
Total comprehensive income (loss) for the year | - | - | 87 | - | (2,582 | ) | 12,553 | 671,827 | 681,885 | |||||||||||||||||||||||||||
Share-based payment transactions, net of tax | 20 | - | 27,577 | - | - | - | - | - | 27,577 | |||||||||||||||||||||||||||
Stock options exercised, net of tax | 18, 20 | 26,324 | (3,266 | ) | - | - | - | - | - | 23,058 | ||||||||||||||||||||||||||
Dividends to owners of the Company | 18 | - | - | - | - | - | - | (89,121 | ) | (89,121 | ) | |||||||||||||||||||||||||
Repurchase of own shares | 18 | (23,449 | ) | - | - | - | - | - | (174,704 | ) | (198,153 | ) | ||||||||||||||||||||||||
Net settlement of restricted share units, net of tax | 18, 20 | 10,257 | (4,944 | ) | - | - | - | - | (18,860 | ) | (13,547 | ) | ||||||||||||||||||||||||
Total transactions with owners, recorded directly in equity | 13,132 | 19,367 | - | - | - | - | (282,685 | ) | (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 | - | - | - | - | - | - | 275,675 | 275,675 | ||||||||||||||||||||||||||||
Other comprehensive income (loss) for the year, net of tax | - | - | (10 | ) | (487 | ) | 19,172 | - | (1,623 | ) | 17,052 | |||||||||||||||||||||||||
Total comprehensive income (loss) for the year | - | - | (10 | ) | (487 | ) | 19,172 | - | 274,052 | 292,727 | ||||||||||||||||||||||||||
Share-based payment transactions | 20 | - | 7,046 | - | - | - | - | - | 7,046 | |||||||||||||||||||||||||||
Stock options exercised | 18, 20 | 25,915 | (4,554 | ) | - | - | - | - | - | 21,361 | ||||||||||||||||||||||||||
Issuance of shares, net of expenses | 18 | 425,350 | - | - | - | - | - | - | 425,350 | |||||||||||||||||||||||||||
Dividends to owners of the Company | 18 | - | - | - | - | - | - | (72,735 | ) | (72,735 | ) | |||||||||||||||||||||||||
Repurchase of own shares | 18 | (12,025 | ) | - | - | - | - | - | (25,996 | ) | (38,021 | ) | ||||||||||||||||||||||||
Net settlement of restricted share units | 18, 20 | 1,894 | (2,258 | ) | - | - | - | - | (4,479 | ) | (4,843 | ) | ||||||||||||||||||||||||
Total transactions with owners, recorded directly in equity | 441,134 | 234 | - | - | - | - | (103,210 | ) | 338,158 | |||||||||||||||||||||||||||
Balance as at December 31, 2020* | 1,120,049 | 19,783 | (379 | ) | - | (154,344 | ) | - | 803,503 | 1,788,612 |
* Recasted for change in accounting policy (see note 10)
The notes on pages 7 to 52 are an integral part of these consolidated financial statements.
4 |
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 | 664,361 | 275,675 | ||||||||||
Adjustments for: | ||||||||||||
Depreciation of property and equipment | 8 | 225,007 | 170,520 | |||||||||
Depreciation of right-of-use | 9 | 112,782 | 80,496 | |||||||||
Amortization of intangible assets | 10 | 55,243 | 48,213 | |||||||||
Share-based payment transactions | 20 | 15,424 | 7,046 | |||||||||
Net finance costs | 23 | 73,018 | 53,910 | |||||||||
Income tax expense | 24 | 151,806 | 86,982 | |||||||||
Gain on sale of business | 0 | (306 | ) | |||||||||
Bargain purchase gain | (193,549 | ) | (4,008 | ) | ||||||||
Gain on sale of property and equipment | (24,625 | ) | (7,882 | ) | ||||||||
Gain on derecognition of right-of-use | (1,282 | ) | (1,159 | ) | ||||||||
Gain on sale of assets held for sale | (12,209 | ) | (11,899 | ) | ||||||||
Loss on disposal of intangible assets | 1 | 0 | ||||||||||
Employee benefits | (20,193 | ) | (1,656 | ) | ||||||||
Provisions net of payments | 21,890 | 7,930 | ||||||||||
1,067,674 | 703,862 | |||||||||||
Net change in non-cash operating working capital | 7 | 41,940 | 33,661 | |||||||||
Cash generated from operating activities before the following | 1,109,614 | 737,523 | ||||||||||
Interest paid | (65,453 | ) | (50,366 | ) | ||||||||
Income tax paid | (188,810 | ) | (73,256 | ) | ||||||||
Settlement of derivative contract | 0 | (3,039 | ) | |||||||||
Net cash from operating activities | 855,351 | 610,862 | ||||||||||
Cash flows used in investing activities | ||||||||||||
Purchases of property and equipment | 8 | (268,656 | ) | (142,710 | ) | |||||||
Proceeds from sale of property and equipment | 92,842 | 52,116 | ||||||||||
Proceeds from sale of assets held for sale | 19,869 | 24,480 | ||||||||||
Purchases of intangible assets | 10 | (7,143 | ) | (1,665 | ) | |||||||
Proceeds from sale of business | 0 | 2,351 | ||||||||||
Business combinations, net of cash acquired | 5 | (1,008,131 | ) | (327,650 | ) | |||||||
Purchases of investments | (35,913 | ) | (7,446 | ) | ||||||||
Proceeds from sale of investments | 40,686 | 0 | ||||||||||
Proceeds from collection of promissory note | 0 | 18,892 | ||||||||||
Others | 3,789 | 3,151 | ||||||||||
Net cash used in investing activities | (1,162,657 | ) | (378,481 | ) | ||||||||
Cash flows from (used in) financing activities | ||||||||||||
Decrease in bank indebtedness | (7,173 | ) | (2,231 | ) | ||||||||
Proceeds from long-term debt | 13 | 661,039 | 33,175 | |||||||||
Repayment of long-term debt | 13 | (43,868 | ) | (191,221 | ) | |||||||
Net increase (decrease) in revolving facilities | 13 | 118,859 | (326,201 | ) | ||||||||
Repayment of lease liabilities | 14 | (115,336 | ) | (82,587 | ) | |||||||
(Decrease) increase in other financial liabilities | (11,216 | ) | 4,738 | |||||||||
Dividends paid | (85,386 | ) | (67,604 | ) | ||||||||
Repurchase of own shares | 18 | (198,153 | ) | (38,021 | ) | |||||||
Proceeds from exercise of stock options | 18 | 20,114 | 21,361 | |||||||||
Repurchase of own shares for restricted share unit settlement | 18 | (16,579 | ) | (4,843 | ) | |||||||
Proceeds from the issuance of common shares, net of expenses | 18 | 0 | 425,350 | |||||||||
Net cash from (used in) financing activities | 322,301 | (228,084 | ) | |||||||||
Net change in cash and cash equivalents | 14,995 | 4,297 | ||||||||||
Cash and cash equivalents, beginning of year | 4,297 | 0 | ||||||||||
Cash and cash equivalents, end of year | 19,292 | 4,297 |
The notes on pages 7 to 52 are an integral part of these consolidated financial statements.
5 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
1. | Reporting entity |
TFI International Inc. (the “Company”) is incorporated under the, 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.
Canada Business Corporations Act
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.
6 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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.
7 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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 othernon-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.
8 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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 anbasis.
investment-by-investment
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
9 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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.
10 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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 | Basis | Useful lives | ||||
Buildings | Straight-line | 15 – 40 years | ||||
Rolling stock | Primarily straight-line | 3 – 20 years | ||||
Equipment | Primarily straight-line | 5 – 12 years |
Depreciation methods, useful lives and residual values are reviewed at each financial
year-end
and adjusted prospectively, if appropriate.Property and equipment are reviewed for impairment in accordance with IAS 36when there are indicators that the carrying value may not be recoverable.
Impairment of Assets
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 | Useful lives | |
Customer relationships | 5 – 20 years | |
Trademarks* | 5 – 20 years | |
Non-compete agreements | 3 – 10 years | |
Information technology | 5 – 7 years |
* 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.11 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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 aasset and a lease liability at the lease commencement date. Theasset 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.
right-of-use
right-of-use
The assets are depreciated to the earlier of the end of the useful life of theasset 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, theasset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
right-of-use
right-of-use
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 theasset, or is recorded in profit or loss if the carrying amount of theasset has been reduced to zero.
right-of-use
right-of-use
The Group has elected not to recogniseassets and lease liabilities for short-term leases that have a lease term of 12 months or leases and leases of
right-of-use
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
assetsThe 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.12 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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 asheld-for-sale
Such assets are generally measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification asorand subsequent gains and losses on remeasurement are recognized in income or loss.
held-for-sale
held-for-distribution
Once classified asintangible assets and property and equipment are no longer amortized or depreciated.
held-for-sale,
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
13 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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(gain) loss on DSUs in personnel expenses.
mark-to-market
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 atyear-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 historical14 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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.
15 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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):
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. |
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
16 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
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, to clarify the classification of liabilities as current or
Presentation of Financial Statements
non-current.
The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. For the purposes ofnon-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. 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:
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
· | 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 issuedThe 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.
Definition of Accounting Estimates (Amendments to IAS 8).
The extent of the impact of adoption of the amendments has not yet been determined
.
17 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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) | 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. | |
Logistics: | 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.
18 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
Package | Less- | |||||||||||||||||||||||||||
and | Than- | |||||||||||||||||||||||||||
Courier | Truckload | Truckload | Logistics | Corporate | Eliminations | Total | ||||||||||||||||||||||
2021 | ||||||||||||||||||||||||||||
External revenue | 558,800 | 2,413,995 | 1,878,025 | 1,617,965 | - | - | 6,468,785 | |||||||||||||||||||||
External fuel surcharge | 81,104 | 371,426 | 258,081 | 41,033 | - | - | 751,644 | |||||||||||||||||||||
Inter-segment revenue and fuel surcharge | 1,545 | 29,969 | 26,646 | 3,074 | - | (61,234 | ) | - | ||||||||||||||||||||
Total revenue | 641,449 | 2,815,390 | 2,162,752 | 1,662,072 | - | (61,234 | ) | 7,220,429 | ||||||||||||||||||||
Operating income (loss) | 108,440 | 482,754 | 230,189 | 142,794 | (74,992 | ) | - | 889,185 | ||||||||||||||||||||
Selected items: | ||||||||||||||||||||||||||||
Depreciation and amortization | 26,404 | 116,060 | 211,561 | 38,208 | 799 | - | 393,032 | |||||||||||||||||||||
Loss on sale of land and buildings | - | (16 | ) | - | (3 | ) | - | - | (19 | ) | ||||||||||||||||||
Gain on sale of assets held for sale | - | 1,640 | 10,569 | - | - | - | 12,209 | |||||||||||||||||||||
Loss on disposal of intangible assets | (1 | ) | - | - | - | - | - | (1 | ) | |||||||||||||||||||
Bargain purchase gain | - | 181,549 | - | 12,000 | - | - | 193,549 | |||||||||||||||||||||
Intangible assets | 193,765 | 188,604 | 955,608 | 454,612 | 332 | - | 1,792,921 | |||||||||||||||||||||
Total assets | 379,881 | 2,220,598 | 2,317,615 | 746,638 | 88,391 | - | 5,753,123 | |||||||||||||||||||||
Total liabilities | 128,599 | 916,652 | 559,438 | 248,122 | 1,680,135 | (134 | ) | 3,532,812 | ||||||||||||||||||||
Additions to property and equipment | 19,347 | 65,543 | 181,313 | 809 | 161 | - | 267,173 | |||||||||||||||||||||
2020* | ||||||||||||||||||||||||||||
External revenue | 478,707 | 516,720 | 1,569,835 | 919,041 | - | - | 3,484,303 | |||||||||||||||||||||
External fuel surcharge | 47,393 | 66,144 | 161,680 | 21,614 | - | - | 296,831 | |||||||||||||||||||||
Inter-segment revenue and fuel surcharge | 3,055 | 6,371 | 16,844 | 4,475 | - | (30,745 | ) | - | ||||||||||||||||||||
Total revenue | 529,155 | 589,235 | 1,748,359 | 945,130 | - | (30,745 | ) | 3,781,134 | ||||||||||||||||||||
Operating income (loss) | 78,753 | 87,950 | 206,346 | 84,459 | (40,941 | ) | - | 416,567 | ||||||||||||||||||||
Selected items: | ||||||||||||||||||||||||||||
Depreciation and amortization | 25,357 | 50,354 | 188,979 | 33,429 | 1,110 | - | 299,229 | |||||||||||||||||||||
Loss on sale of land and buildings | - | (1 | ) | - | (5 | ) | - | - | (6 | ) | ||||||||||||||||||
Gain (loss) on sale of assets held for sale | 91 | (56 | ) | 11,864 | - | - | - | 11,899 | ||||||||||||||||||||
Gain on sale of business | - | - | 306 | - | - | - | 306 | |||||||||||||||||||||
Bargain purchase gain | - | - | - | 4,008 | - | - | 4,008 | |||||||||||||||||||||
Intangible assets | 193,288 | 189,579 | 907,170 | 457,098 | 528 | - | 1,747,663 | |||||||||||||||||||||
Total assets | 387,919 | 593,653 | 2,100,900 | 729,690 | 35,092 | - | 3,847,254 | |||||||||||||||||||||
Total liabilities | 123,970 | 219,234 | 478,630 | 226,218 | 1,010,723 | (133 | ) | 2,058,642 | ||||||||||||||||||||
Additions to property and equipment | 17,304 | 22,829 | 101,477 | 760 | 444 | - | 142,814 |
* Recasted for change in accounting policy (see note 10)
19 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
Geographical information
Revenue is attributed to geographical locations based on the origin of service’s location.
Package | Less- | |||||||||||||||||||||||
and | Than- | |||||||||||||||||||||||
Courier | Truckload | Truckload | Logistics | Eliminations | Total | |||||||||||||||||||
2021 | ||||||||||||||||||||||||
Canada | 641,449 | 576,311 | 912,166 | 269,568 | (31,193 | ) | 2,368,301 | |||||||||||||||||
United States | - | 2,239,079 | 1,250,586 | 1,370,843 | (30,041 | ) | 4,830,467 | |||||||||||||||||
Mexico | - | - | - | 21,661 | - | 21,661 | ||||||||||||||||||
Total | 641,449 | 2,815,390 | 2,162,752 | 1,662,072 | (61,234 | ) | 7,220,429 | |||||||||||||||||
2020 | ||||||||||||||||||||||||
Canada | 529,155 | 517,199 | 725,347 | 239,413 | (26,019 | ) | 1,985,095 | |||||||||||||||||
United States | - | 72,036 | 1,023,012 | 686,811 | (4,726 | ) | 1,777,133 | |||||||||||||||||
Mexico | - | - | - | 18,906 | - | 18,906 | ||||||||||||||||||
Total | 529,155 | 589,235 | 1,748,359 | 945,130 | (30,745 | ) | 3,781,134 |
Segment assets are based on the geographical location of the assets.
As at | As at | |||||||
December 31, 2021 | December 31, 2020 | * | ||||||
Property and equipment, right-of-use | ||||||||
Canada | 1,933,050 | 1,800,307 | ||||||
United States | 2,575,363 | 1,342,720 | ||||||
Mexico | 14,915 | 16,349 | ||||||
4,523,328 | 3,159,376 |
* Recasted for change in accounting policy (see note 10)
5. | Business combinations |
a) | Business combinations |
In line with the Group’s growth strategy, the Group acquired 10 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.
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.
20 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
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.
Identifiable assets acquired and liabilities assumed | Note | UPS Freight | Others* | December 31, 2021 | ||||||||||||
Cash and cash equivalents | 6 | 11,570 | 11,576 | |||||||||||||
Trade and other receivables | 328,468 | 23,806 | 352,274 | |||||||||||||
Inventoried supplies and prepaid expenses | 26,643 | 3,500 | 30,143 | |||||||||||||
Property and equipment | 8 | 1,186,198 | 86,872 | 1,273,070 | ||||||||||||
Right-of-use | 9 | 100,971 | 10,619 | 111,590 | ||||||||||||
Intangible assets | 10 | 18,856 | 25,914 | 44,770 | ||||||||||||
Other assets | 860 | 65 | 925 | |||||||||||||
Trade and other payables | (208,928 | ) | (14,470 | ) | (223,398 | ) | ||||||||||
Income tax payable | 302 | (2,668 | ) | (2,366 | ) | |||||||||||
Employee benefits | 15 | (65,849 | ) | 0 | (65,849 | ) | ||||||||||
Provisions | 16 | (50,352 | ) | (222 | ) | (50,574 | ) | |||||||||
Other non-current liabilities | (56 | ) | (6 | ) | (62 | ) | ||||||||||
Long-term debt | 13 | 0 | (3,484 | ) | (3,484 | ) | ||||||||||
Lease liabilities | 14 | (100,971 | ) | (10,619 | ) | (111,590 | ) | |||||||||
Deferred tax liabilities | (177,992 | ) | (17,785 | ) | (195,777 | ) | ||||||||||
Total identifiable net assets | 1,058,156 | 113,092 | 1,171,248 | |||||||||||||
Total consideration transferred | 864,607 | 162,313 | 1,026,920 | |||||||||||||
Goodwill | 10 | 0 | 49,221 | 49,221 | ||||||||||||
Bargain purchase gain | (193,549 | ) | 0 | (193,549 | ) | |||||||||||
Cash | 864,607 | 155,100 | 1,019,707 | |||||||||||||
Contingent consideration | 0 | 7,213 | 7,213 | |||||||||||||
Total consideration transferred | 864,607 | 162,313 | 1,026,920 | |||||||||||||
* Includes non-material adjustments to prior year’s acquisitions |
The valuation techniques used for measuring the fair value of material land and buildings ($735.9 million) and customer relationships ($12.0 million) assets acquired regarding UPS Freight were as follows:
Assets acquired | Valuation technique | Key inputs | ||
Land and buildings | 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. | - 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.
Of the goodwill and intangible assets acquired through business combinations in 2021, $
5.7 million is deductible for tax purposes (2020 - $21.2 million).21 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
During 2020, the Group acquired
13businesses, 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 | Note | DLS | Others | * | December 31, 2020 | |||||||||
Cash and cash equivalents | 0 | 3,332 | 3,332 | |||||||||||
Trade and other receivables | 93,520 | 29,373 | 122,893 | |||||||||||
Inventoried supplies and prepaid expenses | 824 | 1,509 | 2,333 | |||||||||||
Property and equipment | 8 | 262 | 23,741 | 24,003 | ||||||||||
Right-of-use assets | 9 | 285 | 39,928 | 40,213 | ||||||||||
Intangible assets | 10 | 65,404 | 31,125 | 96,529 | ||||||||||
Other assets | 4,630 | 0 | 4,630 | |||||||||||
Trade and other payables | (54,845 | ) | (9,149 | ) | (63,994 | ) | ||||||||
Income tax payable | 0 | (445 | ) | (445 | ) | |||||||||
Provisions | 16 | 0 | (338 | ) | (338 | ) | ||||||||
Other non-current liabilities | (14,374 | ) | 0 | (14,374 | ) | |||||||||
Long-term debt | 13 | 0 | (5,365 | ) | (5,365 | ) | ||||||||
Lease liabilities | 14 | (285 | ) | (40,192 | ) | (40,477 | ) | |||||||
Deferred tax liabilities | - | (6,653 | ) | (6,653 | ) | |||||||||
Total identifiable net assets | 95,421 | 66,866 | 162,287 | |||||||||||
Total consideration transferred | 225,007 | 106,595 | 331,602 | |||||||||||
Goodwill | 10 | 129,586 | 43,737 | 173,323 | ||||||||||
Bargain purchase gain | 0 | (4,008 | ) | (4,008 | ) | |||||||||
Cash | 225,007 | 105,975 | 330,982 | |||||||||||
Contingent consideration | 0 | 620 | 620 | |||||||||||
Total consideration transferred | 225,007 | 106,595 | 331,602 |
* Includes non-material adjustments to prior year’s acquisitions
22 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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 | Reportable segment | December 31, 2021* | December 31, 2020 | |||||||
Canadian Less-Than-Truckload | Less-Than-Truckload | (225 | ) | 3,872 | ||||||
Canadian Truckload | Truckload | 4,079 | 0 | |||||||
U.S. Truckload | Truckload | 2,846 | 330 | |||||||
Specialized Truckload | Truckload | 42,546 | 33,718 | |||||||
Logistics | Logistics | (25 | ) | 135,403 | ||||||
49,221 | 173,323 |
* Includes
non-material
adjustments to prior year’s acquisitionsc) | 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:
| Provisional fair value included in the interim financial statements | | Measurement period adjustment | | Reassessed fair value | | ||||||
Cash and cash equivalents | 6 | 0 | 6 | |||||||||
Trade and other receivables | 349,742 | (21,274 | ) | 328,468 | ||||||||
Inventoried supplies and prepaid expenses | 30,660 | (4,017 | ) | 26,643 | ||||||||
Property and equipment | 1,052,816 | 133,382 | 1,186,198 | |||||||||
Right-of-use assets | 100,971 | 0 | 100,971 | |||||||||
Intangible assets | 6,856 | 12,000 | 18,856 | |||||||||
Other assets | 860 | 0 | 860 | |||||||||
Trade and other payables | (217,539 | ) | 8,611 | (208,928 | ) | |||||||
Income tax payable | 302 | 0 | 302 | |||||||||
Employee benefits | (67,828 | ) | 1,979 | (65,849 | ) | |||||||
Provisions | (50,352 | ) | 0 | (50,352 | ) | |||||||
Other non-current liabilities | (56 | ) | 0 | (56 | ) | |||||||
Lease liabilities | (100,971 | ) | 0 | (100,971 | ) | |||||||
Deferred tax liabilities | (116,449 | ) | (61,543 | ) | (177,992 | ) | ||||||
Total identifiable net assets | 989,018 | 69,138 | 1,058,156 | |||||||||
Total consideration transferred | 866,092 | (1,485 | ) | 864,607 | ||||||||
Bargain purchase gain | (122,926 | ) | (70,623 | ) | (193,549 | ) | ||||||
Total consideration transferred | 866,092 | (1,485 | ) | 864,607 |
23 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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 |
December 31, 2021 | December 31, 2020 | |||||||
Trade receivables, net of expected credit loss | 986,783 | 570,609 | ||||||
Other receivables | 69,240 | 27,264 | ||||||
1,056,023 | 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 ofin-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 theyear-end.
7. | Additional cash flow information |
Net change in
non-cash
operating working capital2021 | 2020 | |||||||
Trade and other receivables | (101,664 | ) | (16,399 | ) | ||||
Inventoried supplies | (1,233 | ) | 2,200 | |||||
Prepaid expenses | (9,455 | ) | 192 | |||||
Trade and other payables | 154,292 | 47,668 | ||||||
41,940 | 33,661 |
24 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
8. | Property and equipment |
Land and | Rolling | |||||||||||||||||||
Note | buildings | stock | Equipment | Total | ||||||||||||||||
Cost | ||||||||||||||||||||
Balance at December 31, 2019 | 308,677 | 1,267,313 | 125,296 | 1,701,286 | ||||||||||||||||
Additions through business combinations | 5 | 1,771 | 21,634 | 598 | 24,003 | |||||||||||||||
Other additions | 19,331 | 112,645 | 10,838 | 142,814 | ||||||||||||||||
Disposals | (731 | ) | (133,149 | ) | (5,134 | ) | (139,014 | ) | ||||||||||||
Reclassification to assets held for sale | (19,201 | ) | (9,971 | ) | 0 | (29,172 | ) | |||||||||||||
Sale of business | (484 | ) | (3,395 | ) | (283 | ) | (4,162 | ) | ||||||||||||
Effect of movements in exchange rates | 5,441 | 12,540 | 2,919 | 20,900 | ||||||||||||||||
Balance at December 31, 2020 | 314,804 | 1,267,617 | 134,234 | 1,716,655 | ||||||||||||||||
Additions through business combinations | 5 | 766,391 | 445,656 | 61,024 | 1,273,070 | |||||||||||||||
Other additions | 36,902 | 217,080 | 13,191 | 267,173 | ||||||||||||||||
Disposals | (1,473 | ) | (177,992 | ) | (8,773 | ) | (188,238 | ) | ||||||||||||
Transfer from right-of-use | 0 | 21,474 | 0 | 21,474 | ||||||||||||||||
Reclassification (to) from assets held for sale | (8,843 | ) | 1,023 | 0 | (7,820 | ) | ||||||||||||||
Effect of movements in exchange rates | 2,220 | (2,395 | ) | 1,089 | 915 | |||||||||||||||
Balance at December 31, 2021 | 1,110,001 | 1,772,463 | 200,765 | 3,083,229 | ||||||||||||||||
Accumulated Depreciation | ||||||||||||||||||||
Balance at December 31, 2019 | 58,609 | 437,163 | 80,085 | 575,857 | ||||||||||||||||
Depreciation | 8,462 | 151,369 | 10,689 | 170,520 | ||||||||||||||||
Disposals | (657 | ) | (89,676 | ) | (4,447 | ) | (94,780 | ) | ||||||||||||
Reclassification to assets held for sale | (7,326 | ) | (8,488 | ) | 0 | (15,814 | )�� | |||||||||||||
Sale of business | (329 | ) | (2,494 | ) | (253 | ) | (3,076 | ) | ||||||||||||
Effect of movements in exchange rates | 1,058 | 6,448 | 2,014 | 9,520 | ||||||||||||||||
Balance at December 31, 2020 | 59,817 | 494,322 | 88,088 | 642,227 | ||||||||||||||||
Depreciation | 16,301 | 187,895 | 20,811 | 225,007 | ||||||||||||||||
Disposals | (1,332 | ) | (110,341 | ) | (8,347 | ) | (120,020 | ) | ||||||||||||
Transfer from right-of-use | 0 | 5,746 | 0 | 5,746 | ||||||||||||||||
Reclassification (to) from assets held for sale | (2,997 | ) | 424 | 0 | (2,573 | ) | ||||||||||||||
Effect of movements in exchange rates | 223 | (153 | ) | 898 | 968 | |||||||||||||||
Balance at December 31, 2021 | 72,012 | 577,893 | 101,450 | 751,355 | ||||||||||||||||
Net carrying amounts | ||||||||||||||||||||
At December 31, 2020 | 254,987 | 773,295 | 46,146 | 1,074,428 | ||||||||||||||||
At December 31, 2021 | 1,037,989 | 1,194,570 | 99,315 | 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).25 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
9. | Right-of-use |
Land and | Rolling | |||||||||||||||||||
Note | buildings | stock | Equipment | Total | ||||||||||||||||
Cost | ||||||||||||||||||||
Balance at December 31, 2019 | 430,097 | 164,090 | 1,833 | 596,020 | ||||||||||||||||
Other additions | 18,869 | 30,353 | 1,003 | 50,225 | ||||||||||||||||
Additions through business combinations | 5 | 13,716 | 26,497 | 0 | 40,213 | |||||||||||||||
Derecognition* | (18,524 | ) | (32,111 | ) | (589 | ) | (51,224 | ) | ||||||||||||
Effect of movements in exchange rates | 7,948 | 2,335 | 43 | 10,326 | ||||||||||||||||
Balance at December 31, 2020 | 452,106 | 191,164 | 2,290 | 645,560 | ||||||||||||||||
Transfer to property and equipment | 0 | (21,474 | ) | 0 | (21,474 | ) | ||||||||||||||
Other additions | 37,768 | 51,494 | 1,084 | 90,346 | ||||||||||||||||
Additions through business combinations | 5 | 57,916 | 52,465 | 1,209 | 111,590 | |||||||||||||||
Derecognition* | (39,842 | ) | (40,434 | ) | (668 | ) | (80,944 | ) | ||||||||||||
Effect of movements in exchange rates | 2,329 | 495 | (12 | ) | 2,812 | |||||||||||||||
Balance at December 31, 2021 | 510,277 | 233,710 | 3,903 | 747,890 | ||||||||||||||||
Depreciation | ||||||||||||||||||||
Balance at December 31, 2019 | 193,684 | 67,153 | 1,015 | 261,852 | ||||||||||||||||
Depreciation | 48,628 | 31,247 | 621 | 80,496 | ||||||||||||||||
Derecognition* | (14,573 | ) | (25,371 | ) | (428 | ) | (40,372 | ) | ||||||||||||
Effect of movements in exchange rates | 4,802 | 1,474 | 23 | 6,299 | ||||||||||||||||
Balance at December 31, 2020 | 232,541 | 74,503 | 1,231 | 308,275 | ||||||||||||||||
Transfer to property and equipment | 0 | (5,746 | ) | 0 | (5,746 | ) | ||||||||||||||
Depreciation | 59,719 | 51,953 | 1,110 | 112,782 | ||||||||||||||||
Derecognition* | (35,691 | ) | (30,926 | ) | (579 | ) | (67,196 | ) | ||||||||||||
Effect of movements in exchange rates | 938 | 308 | (4 | ) | 1,242 | |||||||||||||||
Balance at December 31, 2021 | 257,507 | 90,092 | 1,758 | 349,357 | ||||||||||||||||
Net carrying amounts | ||||||||||||||||||||
At December 31, 2020 | 219,565 | 116,661 | 1,059 | 337,285 | ||||||||||||||||
At December 31, 2021 | 252,770 | 143,618 | 2,145 | 398,533 |
* Derecognizedassets include negotiated asset purchases and extinguishments resulting from accidents as well as fully amortized or end of termassets.
right-of-use
right-of-use
26 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
10. | Intangible assets |
Other intangible assets | ||||||||||||||||||||||||||||
Non- | ||||||||||||||||||||||||||||
Customer | compete | Information | ||||||||||||||||||||||||||
Note | Goodwill | relationships | Trademarks | agreements | technology | Total | ||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||
Balance at December 31, 2019** | 1,331,130 | 481,428 | 85,755 | 11,933 | 17,620 | 1,927,866 | ||||||||||||||||||||||
Additions through business combinations* | 5 | 173,323 | 88,692 | 627 | 3,984 | 3,226 | 269,852 | |||||||||||||||||||||
Other additions | 0 | 0 | 0 | 0 | 1,665 | 1,665 | ||||||||||||||||||||||
Sale of business | (715 | ) | 0 | 0 | 0 | (30 | ) | (745 | ) | |||||||||||||||||||
Extinguishments | 0 | (1,397 | ) | (1,014 | ) | (1,456 | ) | (440 | ) | (4,307 | ) | |||||||||||||||||
Effect of movements in exchange rates | 19,888 | 6,219 | 1,034 | 227 | 483 | 27,851 | ||||||||||||||||||||||
Balance at December 31, 2020** | 1,523,626 | 574,942 | 86,402 | 14,688 | 22,524 | 2,222,182 | ||||||||||||||||||||||
Additions through business combinations* | 5 | 49,221 | 29,130 | 4,166 | 4,405 | 7,069 | 93,991 | |||||||||||||||||||||
Other additions | 0 | 3,263 | 0 | 0 | 3,880 | 7,143 | ||||||||||||||||||||||
Extinguishments | 0 | (18,357 | ) | (1,178 | ) | (1,027 | ) | (1,510 | ) | (22,072 | ) | |||||||||||||||||
Effect of movements in exchange rates | (556 | ) | (464 | ) | (579 | ) | (118 | ) | 33 | (1,684 | ) | |||||||||||||||||
Balance at December 31, 2021 | 1,572,291 | 588,514 | 88,811 | 17,948 | 31,996 | 2,299,560 | ||||||||||||||||||||||
Amortization and impairment losses | ||||||||||||||||||||||||||||
Balance at December 31, 2019** | 146,890 | 219,764 | 40,181 | 4,470 | 13,511 | 424,816 | ||||||||||||||||||||||
Amortization | 0 | 39,580 | 3,897 | 2,160 | 2,576 | 48,213 | ||||||||||||||||||||||
Sale of business | 0 | 0 | 0 | 0 | (28 | ) | (28 | ) | ||||||||||||||||||||
Extinguishments | 0 | (1,397 | ) | (1,014 | ) | (1,456 | ) | (440 | ) | (4,307 | ) | |||||||||||||||||
Effect of movements in exchange rates | 1,126 | 3,652 | 572 | 130 | 345 | 5,825 | ||||||||||||||||||||||
Balance at December 31, 2020** | 148,016 | 261,599 | 43,636 | 5,304 | 15,964 | 474,519 | ||||||||||||||||||||||
Amortization | 0 | 44,862 | 3,274 | 3,378 | 3,729 | 55,243 | ||||||||||||||||||||||
Extinguishments | 0 | (18,357 | ) | (1,178 | ) | (1,027 | ) | (1,509 | ) | (22,071 | ) | |||||||||||||||||
Effect of movements in exchange rates | (536 | ) | (526 | ) | (57 | ) | 11 | 56 | (1,052 | ) | ||||||||||||||||||
Balance at December 31, 2021 | 147,480 | 287,578 | 45,675 | 7,666 | 18,240 | 506,639 | ||||||||||||||||||||||
Net carrying amounts | ||||||||||||||||||||||||||||
At December 31, 2020** | 1,375,610 | 313,343 | 42,766 | 9,384 | 6,560 | 1,747,663 | ||||||||||||||||||||||
At December 31, 2021 | 1,424,811 | 300,936 | 43,136 | 10,282 | 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. 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.
Configuration or Customization Cost in a Cloud Computing Arrangement (IAS 38 Intangible Assets)
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 0 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 to has been changed from indefinite life 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 0 impairment charge.
27 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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 | December 31, 2021 | | December 31, 2020 | | ||||
Package and Courier | 190,853 | 189,533 | ||||||
Less-Than-Truckload | ||||||||
Canadian Less-Than-Truckload | 137,638 | 136,914 | ||||||
Truckload | ||||||||
Canadian Truckload | 93,152 | 86,416 | ||||||
U.S. Truckload | 245,570 | 244,824 | ||||||
Specialized Truckload | 431,761 | 394,303 | ||||||
Logistics | 325,837 | 323,620 | ||||||
1,424,811 | 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 | 2021 | 2020 | ||||||
Package and Courier | 9.3 | % | 9.1 | % | ||||
Less-Than-Truckload | ||||||||
Canadian Less-Than-Truckload | 9.3 | % | 9.1 | % | ||||
Truckload | ||||||||
Canadian Truckload | 11.7 | % | 11.5 | % | ||||
U.S. Truckload | 10.5 | % | 10.3 | % | ||||
Specialized Truckload | 10.5 | % | 10.3 | % | ||||
Logistics | 8.7 | % | 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 |
As at | As at | |||||||
December 31, 2021 | December 31, 2020 | |||||||
Security deposits | 3,780 | 3,143 | ||||||
Investments in equity securities | 31,391 | 9,727 | ||||||
Other | 2,671 | 6,293 | ||||||
Indemnification asset | 0 | 4,736 | ||||||
37,842 | 23,899 |
Investments in equity securities include $16.4
million (2020 – NaN) 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.
28 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
12. | Trade and other payables |
December 31, 2021 | | December 31, 2020 | | |||||
Trade payables and accrued expenses | 611,546 | 327,619 | ||||||
Personnel accrued expenses | 224,935 | 119,334 | ||||||
Dividend payable | 24,881 | 21,285 | ||||||
861,362 | 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.
As at | As at | |||||||
December 31, 2021 | December 31, 2020 | |||||||
Non-current liabilities | ||||||||
Unsecured revolving facilities | 239,406 | 123,666 | ||||||
Unsecured term loan | 0 | 321,852 | ||||||
Unsecured debenture | 157,743 | 156,479 | ||||||
Unsecured senior notes | 778,613 | 150,000 | ||||||
Conditional sales contracts | 68,746 | 77,550 | ||||||
1,244,508 | 829,547 | |||||||
Current liabilities | ||||||||
Current portion of unsecured revolving facilities | 0 | 7,461 | ||||||
Current portion of unsecured term loan | 324,444 | 0 | ||||||
Current portion of conditional sales contracts | 39,142 | 35,536 | ||||||
363,586 | 42,997 |
Terms and conditions of outstanding long-term debt are as follows:
2021 | 2020 | |||||||||||||||||||||||||||||||
Currency | | Nominal interest rate | | | Year of maturity | | Face value | Carrying amount | | Face value | | | Carrying amount | | ||||||||||||||||||
Unsecured revolving facility | a | CAD | BA + 1.25% | 2025 | 130,000 | 101,061 | 41,700 | 32,279 | ||||||||||||||||||||||||
Unsecured revolving facility | a | CAD | BA + 1.25% | 2025 | 21,279 | 16,646 | - | - | ||||||||||||||||||||||||
Unsecured revolving facility | a | USD | Libor + 1.25% | 2025 | 120,000 | 118,634 | 92,634 | 91,387 | ||||||||||||||||||||||||
Unsecured revolving facility | a | USD | Libor + 1.25% | 2025 | 3,100 | 3,065 | 7,461 | 7,461 | ||||||||||||||||||||||||
Unsecured term loan | a | CAD | BA + 1.45% | 2022 | 410,000 | 324,444 | 410,000 | 321,852 | ||||||||||||||||||||||||
Unsecured debenture | b | CAD | 3.32% - 4.22% | 2024 | 200,000 | 157,743 | 200,000 | 156,479 | ||||||||||||||||||||||||
Unsecured senior notes | c | USD | 2.89% - 3.85% | 2026-2033 | 180,000 | 179,658 | 150,000 | 150,000 | ||||||||||||||||||||||||
Unsecured senior notes | c | USD | 3.15% - 3.50% | 2029-2036 | 500,000 | 499,049 | - | - | ||||||||||||||||||||||||
Unsecured senior notes | c | USD | 2.87% - 3.34% | 2029-2033 | 100,000 | 99,906 | - | - | ||||||||||||||||||||||||
Conditional sales contracts | d | Mainly CAD | 1.45% - 4.72% | 2022-2024 | 136,338 | 107,888 | 143,796 | 113,086 | ||||||||||||||||||||||||
1,608,094 | 872,544 | |||||||||||||||||||||||||||||||
29 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
The table below summarizes changes to the long-term debt:
Note | 2021 | 2020 | ||||||||||
Balance at beginning of year | 872,544 | 1,343,307 | ||||||||||
Proceeds from long-term debt | 661,039 | 33,175 | ||||||||||
Business combinations | 5 | 3,484 | 5,365 | |||||||||
Repayment of long-term debt | (43,868 | ) | (191,221 | ) | ||||||||
Net increase (decrease) in revolving facilities | 118,859 | (326,201 | ) | |||||||||
Accretion of deferred financing fees | 1,296 | 1,214 | ||||||||||
Effect of movements in exchange rates | (23,154 | ) | 4,588 | |||||||||
Effect of movements in exchange rates - OCI hedge | 17,894 | 2,317 | ||||||||||
Balance at end of year | 1,608,094 | 872,544 |
a) | Unsecured revolving credit facility and term loans |
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 atyear-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.30 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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: |
Less than | 1 to 5 | More than | ||||||||||||||
1 year | years | 5 years | Total | |||||||||||||
Unsecured revolving facilities | - | 242,283 | - | 242,283 | ||||||||||||
Unsecured term loan | 324,444 | - | - | 324,444 | ||||||||||||
Unsecured debenture | - | 158,265 | - | 158,265 | ||||||||||||
Unsecured senior notes | - | - | 780,000 | 780,000 | ||||||||||||
Conditional sales contracts | 39,142 | 68,746 | - | 107,888 | ||||||||||||
363,586 | 469,294 | 780,000 | 1,612,880 |
14. | Lease liabilities |
As at | As at | |||||||
December 31, 2021 | December 31, 2020 | |||||||
Current portion of lease liabilities | 115,344 | 88,522 | ||||||
Long-term portion of lease liabilities | 313,862 | 267,464 | ||||||
429,206 | 355,986 |
The table below summarizes changes to the lease liabilities:
Note | 2021 | 2020 | ||||||||||
Balance at beginning of year | 355,986 | 355,591 | ||||||||||
Business combinations | 5 | 111,590 | 40,477 | |||||||||
Additions | 90,346 | 50,225 | ||||||||||
Derecognition* | (15,030 | ) | (12,011 | ) | ||||||||
Repayment | (115,336 | ) | (82,587 | ) | ||||||||
Effect of movements in exchange rates | 1,650 | 4,291 | ||||||||||
Balance at end of year | 429,206 | 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.
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.
31 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
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 - $
352.1million).
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 Groupassets for the year ended December 31, 2021 was $15.4 million (2020 - $13.8 million), presented in “Other operating expenses”.
sub-leases
some of its properties. Income fromsub-leasing
right-of-use
Contractual cash flows
The total contractual cash flow maturities of the Group’s lease liabilities are as follows:
As at | ||||
December 31, 2021 | ||||
Less than 1 year | 126,172 | |||
Between 1 and 5 years | 262,899 | |||
More than 5 years | 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.
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.
32 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
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 | TForce | TFI | TForce | |||||||||||||||||||||
International | Freight | International | Freight | |||||||||||||||||||||
pension | pension | pension | pension | |||||||||||||||||||||
plans | plans | Total | plans | plans | Total | |||||||||||||||||||
Defined benefit obligation | 27,127 | 133,653 | 160,780 | 35,529 | 0 | 35,529 | ||||||||||||||||||
Fair value of plan assets | (13,437 | ) | (80,466 | ) | (93,903 | ) | (21,147 | ) | 0 | (21,147 | ) | |||||||||||||
Net defined benefit liability | 13,690 | 53,187 | 66,877 | 14,382 | 0 | 14,382 |
Plan assets comprise:
December 31, 2021 | December 31, 2020 | |||||||
TFI International pension plans | ||||||||
Equity securities | 6 | % | 6 | % | ||||
Debt securities | 89 | % | 91 | % | ||||
Other | 5 | % | 3 | % | ||||
TForce Freight pension plans | ||||||||
Equity securities | 48 | % | 0 | |||||
Debt securities | 52 | % | 0 |
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:
Note | 2021 | 2020 | ||||||||||
Defined benefit obligation, beginning of year | 35,529 | 31,449 | ||||||||||
Increase through business combinations | 5 | 70,261 | 0 | |||||||||
Current service cost | 55,437 | 528 | ||||||||||
Interest cost | 2,289 | 948 | ||||||||||
Benefits paid | (5,437 | ) | (1,539 | ) | ||||||||
Remeasurement (gain) loss arising from: | ||||||||||||
- Demographic | 252 | 0 | ||||||||||
- Financial assumptions | 5,997 | 3,563 | ||||||||||
- Experience | (426 | ) | (343 | ) | ||||||||
Settlement | (3,420 | ) | 113 | |||||||||
Effect of movements in exchange rates | 298 | 810 | ||||||||||
Defined benefit obligation, end of year | 160,780 | 35,529 |
Movement in the fair value of plan assets for defined benefit plans:
Note | 2021 | 2020 | ||||||||||
Fair value of plan assets, beginning of year | 21,147 | 18,108 | ||||||||||
Increase through business combinations | 5 | 4,412 | 0 | |||||||||
Interest income | 551 | 544 | ||||||||||
Employer contributions | 76,297 | 2,519 | ||||||||||
Benefits paid | (5,437 | ) | (1,539 | ) | ||||||||
Fair value remeasurement | 310 | 1,129 | ||||||||||
Plan administration expenses | (112 | ) | (124 | ) | ||||||||
Settlement | (3,475 | ) | ||||||||||
Effect of movements in exchange rates | 210 | 510 | ||||||||||
Fair value of plan assets, end of year | 93,903 | 21,147 |
33 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
Expense recognized in income or loss:
2021 | 2020 | |||||||
Current service cost | 55,437 | 528 | ||||||
Net interest cost | 1,738 | 404 | ||||||
Plan administration expenses | 112 | 124 | ||||||
Net settlement | 55 | 113 | ||||||
Pension expense | 57,342 | 1,169 | ||||||
Actual return on plan assets | 861 | 1,673 |
Actuarial losses recognized in other comprehensive income:
2021 | 2020 | |||||||
Amount accumulated in retained earnings, beginning of year | 13,304 | 11,100 | ||||||
Recognized during the year | 5,513 | 2,204 | ||||||
Amount accumulated in retained earnings, end of year | 18,817 | 13,304 | ||||||
Recognized during the year, net of tax | 4,128 | 1,623 |
The significant actuarial assumptions used (expressed as weighted average):
December 31, 2021 | | December 31, 2020 | | |||||
Defined benefit obligation: | ||||||||
Discount rate at | 2.9 | % | 2.4 | % | ||||
Future salary increases | 2.0 | % | 1.2 | % | ||||
Employee benefit expense: | ||||||||
Discount rate at | 2.4 | % | 3.3 | % | ||||
Rate of return on plan assets at | 2.4 | % | 3.3 | % | ||||
Future salary increases | 2.0 | % | 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 | 22.7 | 20.1 | 22.1 | - | ||||||||||||
Females | 24.9 | 22.2 | 24.7 | - | ||||||||||||
Longevity at age 65 for current members aged 45 | ||||||||||||||||
Males | 23.6 | 21.7 | 23.5 | - | ||||||||||||
Females | 25.8 | 23.7 | 26.1 | - |
At December 31, 2021 the weighted average duration of the defined benefit obligation
was:
TFI International pension plans | 13.9 | |||
TForce Freight pension plans | 22.1 |
The following table presents the impact of changes of major assumptions on the defined benefit obligation for the years ended:
2021 | 2020 | |||||||||||||||
Increase | Decrease | Increase | Decrease | |||||||||||||
Discount rate (1% movement) | (27,922 | ) | 36,695 | (3,022 | ) | 3,650 | ||||||||||
Life expectancy (1-year movement) | 4,475 | (4,650 | ) | 138 | (246 | ) |
34 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
Historical information:
2021 | 2020 | 2019 | 2018 | 2017 | ||||||||||||||||
Defined benefit obligation | 160,780 | 35,529 | 31,449 | 27,579 | 38,811 | |||||||||||||||
Fair value of plan assets | (93,903 | ) | (21,147 | ) | (18,108 | ) | (16,581 | ) | (25,366 | ) | ||||||||||
Deficit in the plan | 66,877 | 14,382 | 13,341 | 10,998 | 13,445 | |||||||||||||||
Experience adjustments arising on plan obligations | 5,823 | 3,220 | 2,116 | (2,427 | ) | 2,378 | ||||||||||||||
Experience adjustments arising on plan assets | 310 | 1,129 | 467 | (815 | ) | 351 |
The Group expects approximately $100.7 million in contributions to be paid to its defined benefit plans in 2022.
16. | Provisions |
Self insurance | Other | Total | ||||||||||||||
Balance at December 31, 2019 | 39,188 | 1,598 | 40,786 | |||||||||||||
Additions through business combinations | 5 | 0 | 338 | 338 | ||||||||||||
Provisions made during the year | 48,534 | 9,685 | 58,219 | |||||||||||||
Provisions used during the year | (32,439 | ) | (4,060 | ) | (36,499 | ) | ||||||||||
Provisions reversed during the year | (8,795 | ) | (1,177 | ) | (9,972 | ) | ||||||||||
Unwind of discount on long-term provisions | 1,012 | 0 | 1,012 | |||||||||||||
Sale of business | (47 | ) | 0 | (47 | ) | |||||||||||
Effect of movements in exchange rates | 280 | 138 | 418 | |||||||||||||
Balance at December 31, 2020 | 47,733 | 6,522 | 54,255 | |||||||||||||
Additions through business combinations | 5 | 125 | 50,449 | 50,574 | ||||||||||||
Provisions made during the year | 94,885 | 4,352 | 99,237 | |||||||||||||
Provisions used during the year | (62,836 | ) | (7,977 | ) | (70,813 | ) | ||||||||||
Provisions reversed during the year | (9,259 | ) | 0 | (9,259 | ) | |||||||||||
Unwind of discount on long-term provisions | (929 | ) | 0 | (929 | ) | |||||||||||
Effect of movements in exchange rates | (252 | ) | (171 | ) | (423 | ) | ||||||||||
Balance at December 31, 2021 | 69,467 | 53,175 | 122,642 | |||||||||||||
As at December 31, 2021 | ||||||||||||||||
Current provisions | 26,771 | 12,241 | 39,012 | |||||||||||||
Non-current provisions | 42,696 | 40,934 | 83,630 | |||||||||||||
69,467 | 53,175 | 122,642 | ||||||||||||||
As at December 31, 2020 | ||||||||||||||||
Current provisions | 14,040 | 3,412 | 17,452 | |||||||||||||
Non-current provisions | 33,693 | 3,110 | 36,803 | |||||||||||||
47,733 | 6,522 | 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 litigationprovisions 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.
35 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
17. | Deferred tax assets and liabilities |
December 31, 2021 | | December 31, 2020 | * | |||||
Property and equipment | (403,181 | ) | (178,087 | ) | ||||
Intangible assets | (78,888 | ) | (73,496 | ) | ||||
Long-term debt | 8,025 | 4,852 | ||||||
Employee benefits | 43,821 | 10,634 | ||||||
Provisions | 42,900 | 15,151 | ||||||
Tax losses | 11,313 | 94 | ||||||
Other | (2,917 | ) | (108 | ) | ||||
Net deferred tax liabilities | (378,927 | ) | (220,960 | ) | ||||
Presented as: | ||||||||
Deferred tax assets | 29,695 | 11,207 | ||||||
Deferred tax liabilities | (408,622 | ) | (232,167 | ) |
* Recasted for change in accounting policy (see note 10)
Movement in temporary differences during the year:
Balance | Recognized | Recognized | Acquired | Balance | ||||||||||||||||
December 31, | in income | directly | in business | December 31, | ||||||||||||||||
2019 | or loss | in equity | combinations | 2020* | ||||||||||||||||
Property and equipment | (188,604 | ) | 12,981 | (1,052 | ) | (1,412 | ) | (178,087 | ) | |||||||||||
Intangible assets | (78,801 | ) | 11,396 | (880 | ) | (5,211 | ) | (73,496 | ) | |||||||||||
Long-term debt | 5,886 | (1,104 | ) | 70 | - | 4,852 | ||||||||||||||
Employee benefits | 7,449 | 2,387 | 798 | - | 10,634 | |||||||||||||||
Provisions | 9,874 | 5,191 | 86 | - | 15,151 | |||||||||||||||
Tax losses | 14,603 | (14,396 | ) | (113 | ) | - | 94 | |||||||||||||
Other | (1,358 | ) | 735 | 545 | (30 | ) | (108 | ) | ||||||||||||
Net deferred tax liabilities | (230,951 | ) | 17,190 | (546 | ) | (6,653 | ) | (220,960 | ) |
* Recasted for change in accounting policy (see note 10)
Balance | Recognized | Recognized | Acquired | Balance | ||||||||||||||||
December 31, | in income | directly | in business | December 31, | ||||||||||||||||
2020* | or loss | in equity | combinations | 2021 | ||||||||||||||||
Property and equipment | (178,087 | ) | (181 | ) | 1,401 | (226,314 | ) | (403,181 | ) | |||||||||||
Intangible assets | (73,496 | ) | 6,443 | (790 | ) | (11,045 | ) | (78,888 | ) | |||||||||||
Long-term debt | 4,852 | 3,158 | 15 | - | 8,025 | |||||||||||||||
Employee benefits | 10,634 | 3,124 | 13,384 | 16,679 | 43,821 | |||||||||||||||
Provisions | 15,151 | 14,499 | 13 | 13,237 | 42,900 | |||||||||||||||
Tax losses | 94 | (237 | ) | (210 | ) | 11,666 | 11,313 | |||||||||||||
Other | (108 | ) | (893 | ) | (1,916 | ) | 0 | (2,917 | ) | |||||||||||
Net deferred tax liabilities | (220,960 | ) | 25,913 | 11,897 | (195,777 | ) | (378,927 | ) |
* Recasted for change in accounting policy (see note 10)
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 1 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 0
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
36 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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
0 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) | Note | 2021 | 2020 | |||||||||
Balance, beginning of year | 93,397,985 | 81,450,326 | ||||||||||
Repurchase and cancellation of own shares | (2,157,862 | ) | (1,542,155 | ) | ||||||||
Issuance of shares | - | 11,960,000 | ||||||||||
Stock options exercised | 20 | 912,770 | 1,529,814 | |||||||||
Balance, end of year | 92,152,893 | 93,397,985 |
The following table summarizes the share capital issued and fully paid:
2021 | 2020 | |||||||
Balance, beginning of year | 1,120,049 | 678,915 | ||||||
Issuance of shares, net of expenses | 0 | 425,350 | ||||||
Repurchase and cancellation of own shares | (23,449 | ) | (12,025 | ) | ||||
Cash consideration of stock options exercised | 20,114 | 21,361 | ||||||
Ascribed value credited to share capital on stock options exercised | 6,210 | 4,554 | ||||||
Issuance of shares on settlement of RSUs | 10,257 | 1,894 | ||||||
Balance, end of year | 1,133,181 | 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.
37 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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, theBoard 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) | 2021 | 2020 | ||||||
Net income attributable to owners of the Company | 664,361 | 275,675 | ||||||
Issued common shares, beginning of year | 93,397,985 | 81,450,326 | ||||||
Effect of stock options exercised | 593,740 | 858,488 | ||||||
Effect of repurchase of own shares | (937,480 | ) | (1,204,210 | ) | ||||
Effect of share issuance | 0 | 8,008,750 | ||||||
Weighted average number of common shares | 93,054,245 | 89,113,354 | ||||||
Earnings per share – basic (in dollars) | 7.14 | 3.09 |
Diluted earnings per share
The diluted earnings per share and the weighted average number of common shares outstanding after adjustment for the effects of all dilutive common shares have been calculated as follows:
(in thousands of dollars and number of shares) | 2021 | 2020 | ||||||
Net income attributable to owners of the Company | 664,361 | 275,675 | ||||||
Weighted average number of common shares | 93,054,245 | 89,113,354 | ||||||
Dilutive effect: | ||||||||
Stock options and restricted share units | 2,281,778 | 1,821,452 | ||||||
Weighted average number of diluted common shares | 95,336,023 | 90,934,806 | ||||||
Earnings per share - diluted (in dollars) | 6.97 | 3.03 |
As at December 31, 2021, 0 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:
38 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
(in thousands of options and in dollars) | 2021 | 2020 | ||||||||||||||
Weighted | Weighted | |||||||||||||||
Number | average | Number | average | |||||||||||||
of | exercise | of | exercise | |||||||||||||
options | price | options | price | |||||||||||||
Balance, beginning of year | 2,982 | 24.65 | 4,422 | 21.56 | ||||||||||||
Granted | - | - | 99 | 40.41 | ||||||||||||
Exercised | (913 | ) | 22.30 | (1,530 | ) | 16.73 | ||||||||||
Forfeited | (8 | ) | 23.70 | (9 | ) | 27.87 | ||||||||||
Balance, end of year | 2,061 | 25.70 | 2,982 | 24.65 | ||||||||||||
Options exercisable, end of year | 1,705 | 24.27 | 2,111 | 22.34 |
The following table summarizes information about stock options outstanding and exercisable at December 31, 2021:
(in thousands of options and in dollars) | Options outstanding | Options | ||||||||||
exercisable | ||||||||||||
Weighted | ||||||||||||
average | ||||||||||||
Number | remaining | Number | ||||||||||
of | contractual life | of | ||||||||||
Exercise prices | options | (in years | ) | options | ||||||||
19.12 | 212 | 0.6 | 212 | |||||||||
18.83 | 444 | 1.6 | 444 | |||||||||
26.82 | 201 | 2.1 | 201 | |||||||||
23.70 | 392 | 3.1 | 392 | |||||||||
30.71 | 717 | 4.2 | 427 | |||||||||
40.41 | 95 | 5.6 | 29 | |||||||||
2,061 | 2.9 | 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.
NaN 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:
July 27, 2020 | ||||
Exercise price | 40.41 | |||
Average expected option life | 4.5 years | |||
Risk-free interest rate | 0.71 | % | ||
Expected stock price volatility* | 26.29 | % | ||
Average dividend yield | 2.62 | % | ||
Weighted average fair value per option of options granted | 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.
39 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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) | 2021 | 2020 | ||||||
Balance, beginning of year | 373,926 | 348,031 | ||||||
Board members compensation | - | 29,168 | ||||||
Paid | (71,709 | ) | (11,512 | ) | ||||
Dividends paid in units | 4,337 | 8,239 | ||||||
Balance, end of year | 306,554 | 373,926 |
In 2021, the Group recognized, as a result of DSUs, a compensation expense of NaN (2020 - $1.1 million) with a corresponding increase to trade and other payables. In addition, in personnel expenses, the Group recognized aloss on DSUs of $22.9 million (2020 – $6.5 million).
mark-to-market
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
40 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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) | 2021 | 2020 | ||||||||||||||
Weighted | Weighted | |||||||||||||||
Number | average | Number | average | |||||||||||||
of | grant date | of | grant date | |||||||||||||
RSUs | fair value | RSUs | fair value | |||||||||||||
Balance, beginning of year | 299 | 31.54 | 239 | 28.08 | ||||||||||||
Granted | 125 | 80.29 | 145 | 32.41 | ||||||||||||
Reinvested | 4 | 37.90 | 8 | 29.74 | ||||||||||||
Settled | (153 | ) | 30.70 | (92 | ) | 23.75 | ||||||||||
Forfeited | (3 | ) | 53.12 | (1 | ) | 31.06 | ||||||||||
Balance, end of year | 272 | 54.27 | 299 | 31.54 |
The following table summarizes information about RSUs outstanding and exercisable as at December 31, 2021:
(in thousands of RSUs and in dollars) | RSUs outstanding | |||||||
Remaining | ||||||||
Number of | contractual life | |||||||
Grant date fair value | RSUs | (in years) | ||||||
77.32 | 13 | 0.3 | ||||||
103.66 | 34 | 0.3 | ||||||
32.41 | 147 | 1.1 | ||||||
70.59 | 78 | 2.1 | ||||||
272 | 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
41 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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) | 2021 | 2020 | ||||||||||||||
Weighted | Weighted | |||||||||||||||
Number | average | Number | average | |||||||||||||
of | grant date | of | grant date | |||||||||||||
PSUs | fair value | PSUs | fair value | |||||||||||||
Balance, beginning of year | 147 | 32.41 | - | - | ||||||||||||
Granted | 78 | 89.64 | 145 | 32.41 | ||||||||||||
Reinvested | 3 | 45.64 | 2 | 32.41 | ||||||||||||
Forfeited | (2 | ) | 41.65 | - | - | |||||||||||
Balance, end of year | 226 | 52.25 | 147 | 32.41 |
The following table summarizes information about PSUs outstanding and exercisable as at December 31, 2021:
(in thousands of PSUs and in dollars) | PSUs outstanding | |||||||
Remaining | ||||||||
Number of | contractual life | |||||||
Grant date fair value | PSUs | (in years) | ||||||
32.41 | 148 | 1.1 | ||||||
89.64 | 78 | 2.1 | ||||||
226 | 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.
2021 | 2020 | |||||||
Independent contractors | 2,911,393 | 1,535,394 | ||||||
Vehicle operation expenses | 904,060 | 516,441 | ||||||
3,815,453 | 2,051,835 |
22. | Personnel expenses |
Note | 2021 | 2020 | ||||||||||
Short-term employee benefits | 1,863,907 | 857,217 | ||||||||||
Contributions to defined contribution plans | 9,323 | 7,925 | ||||||||||
Current and past service costs related to defined benefit plans | 15 | 55,437 | 528 | |||||||||
Termination benefits | 6,053 | 7,863 | ||||||||||
Equity-settled share-based payment transactions | 20 | 15,424 | 7,046 | |||||||||
Cash-settled share-based payment transactions | 20 | 23,937 | 7,606 | |||||||||
1,974,081 | 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 theCOVID-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.42 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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) | 2021 | 2020 | ||||||||||
Interest expense on long-term debt and amortization of deferred financing fees | 45,953 | 34,967 | ||||||||||
Interest expense on lease liabilities | 13,521 | 12,443 | ||||||||||
Interest income and accretion on promissory note | (2,187 | ) | (1,051 | ) | ||||||||
Net change in fair value and accretion expense of contingent considerations | 1,932 | 224 | ||||||||||
Net foreign exchange gain | (1,471 | ) | (1,237 | ) | ||||||||
Net change in fair value of interest rate derivatives | - | (488 | ) | |||||||||
Net impact of early repayment of contingent consideration | (1,469 | ) | - | |||||||||
Other financial expenses | 16,739 | 9,052 | ||||||||||
Net finance costs | 73,018 | 53,910 | ||||||||||
Presented as: | ||||||||||||
Finance income | (5,127 | ) | (2,776 | ) | ||||||||
Finance costs | 78,145 | 56,686 |
24. | Income tax expense |
Income tax recognized in income or loss:
2021 | 2020 | |||||||||||
Current tax expense | ||||||||||||
Current year | 179,821 | 103,080 | ||||||||||
Adjustment for prior years | (2,102 | ) | 1,092 | |||||||||
177,719 | 104,172 | |||||||||||
Deferred tax expense (recovery) | ||||||||||||
Origination and reversal of temporary differences | (27,427 | ) | (7,536 | ) | ||||||||
Variation in tax rate | 175 | 70 | ||||||||||
Adjustment for prior years | 1,339 | (9,724 | ) | |||||||||
(25,913 | ) | (17,190 | ) | |||||||||
Income tax expense | 151,806 | 86,982 |
43 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
Income tax recognized in other comprehensive income:
2021 | 2020 | |||||||||||||||||||||||
Tax | Tax | |||||||||||||||||||||||
Before | (benefit) | Net of | Before | (benefit) | Net of | |||||||||||||||||||
tax | expense | tax | Tax | expense | tax | |||||||||||||||||||
Foreign currency translation differences | 12,960 | - | 12,960 | 21,182 | - | 21,182 | ||||||||||||||||||
Defined benefit plan remeasurement gains (losses) | (5,513 | ) | (1,385 | ) | (4,128 | ) | (2,204 | ) | (581 | ) | (1,623 | ) | ||||||||||||
Employee benefit | 124 | 37 | 87 | (14 | ) | (4 | ) | (10 | ) | |||||||||||||||
Loss on net investment hedge | (17,894 | ) | (2,352 | ) | (15,542 | ) | (2,317 | (307 | ) | (2,010 | ) | |||||||||||||
Loss on cash flow hedge | - | - | - | (488 | ) | (1 | ) | (487 | ) | |||||||||||||||
Change in fair value of investment in equity securities | 27,803 | 3,656 | 24,147 | - | - | - | ||||||||||||||||||
17,480 | (44 | ) | 17,524 | 16,159 | (893 | ) | 17,052 |
Reconciliation of effective tax rate:
2021 | 2020 | |||||||||||||||
Income before income tax | 816,167 | 362,657 | ||||||||||||||
Income tax using the Company’s statutory tax rate | 26.5 | % | 216,284 | 26.5 | % | 96,104 | ||||||||||
Increase (decrease) resulting from: | ||||||||||||||||
Rate differential between jurisdictions | -0.2 | % | (1,250 | ) | -1.2 | % | (4,452 | ) | ||||||||
Variation in tax rate | 0.0 | % | 175 | 0.0 | % | 70 | ||||||||||
Non deductible expenses | 0.7 | % | 5,662 | 2.4 | % | 8,704 | ||||||||||
Tax deductions and tax exempt income 1 | -8.5 | % | (69,530 | ) | -2.8 | % | (10,176 | ) | ||||||||
Adjustment for prior years | -0.1 | % | (763 | ) | -2.4 | % | (8,632 | ) | ||||||||
Multi-jurisdiction tax | 0.2 | % | 1,228 | 0.3 | % | 913 | ||||||||||
Treasury Regulations interpretive guidance | ||||||||||||||||
clarifying the U.S. Tax Reform Bill | 0.0 | % | - | 1.2 | % | 4,451 | ||||||||||
18.6 | % | 151,806 | 24.0 | % | 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 aHigh-Tax
Exception under the Global IntangibleLow-taxed
Income (GILTI) provisions. A tax benefit relating to 2018 and 2019 was recorded, resulting in aone-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 2020.44 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
25. | Financial instruments and financial risk management |
As at December 31, 2021 and 2020, there are 0 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:
Finance loss | Other comprehensive | |||||||||||||||
income | ||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Derivative financial instruments measured at fair value through other comprehensive income: | ||||||||||||||||
Interest rate derivatives | - | (488 | ) | - | 488 | |||||||||||
- | (488 | ) | - | 488 |
Risks
In the normal course of its operations and through its financial assets and liabilities, the Group is exposed to the following risks:
· | credit risk |
· | liquidity risk |
· | market risk. |
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives and processes for managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
Risk management framework
The Group’s management identifies and analyzes the risks faced by the Group, sets appropriate risk limits and controls, and monitors risks and adherence to limits. Risk management is reviewed regularly to reflect changes in market conditions and the Group’s activities.
The Board of Directors has overall responsibility of the Group’s risk management framework. The Board of Directors monitors the Group’s risks through its audit committee. The audit committee reports regularly to the Board of Directors on its activities.
The Group’s audit committee oversees how management monitors and manages the Group’s risks and is assisted in its oversight role by the Group’s internal audit. Internal audit undertakes both regular and ad hoc reviews of risk, the results of which are reported to the audit committee.
a) | Credit risk |
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligation, and arises principally from the Group’s trade receivables. The Group grants credit to its customers in the ordinary course of business. Management believes that the credit risk of trade receivables is limited due to the following reasons:
· | There is a broad base of customers with dispersion across different market segments; |
· | No single customer accounts for more than 5% of the Group’s revenue; |
· | Approximately 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. |
45 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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:
December 31, 2021 | | December 31, 2020 | | |||||||||
Trade and other receivables | 1,056,023 | 597,873 | ||||||||||
1,056,023 | 597,873 |
Impairment losses
The aging of trade and other receivables at the reporting date was:
Total | Impairment | Total | Impairment | |||||||||||||
2021 | 2021 | 2020 | 2020 | |||||||||||||
Not past due | 772,077 | 462 | 447,517 | 224 | ||||||||||||
Past due 1 – 30 days | 178,641 | 2,732 | 104,491 | 1,211 | ||||||||||||
Past due 31 – 60 days | 63,634 | 8,195 | 26,601 | 3,439 | ||||||||||||
Past due more than 60 days | 68,988 | 15,928 | 30,792 | 6,654 | ||||||||||||
1,083,340 | 27,317 | 609,401 | 11,528 |
The movement in the allowance for expected credit loss in respect of trade and other receivables during the year was as follows:
2021 | 2020 | |||||||||||
Balance, beginning of year | 11,528 | 6,692 | ||||||||||
Business combinations | 9,561 | 4,473 | ||||||||||
Bad debt expenses | 10,854 | 2,749 | ||||||||||
Amount written off and recoveries | (4,372 | ) | (2,795 | ) | ||||||||
Effect of movements in exchange rates | (254 | ) | 409 | |||||||||
Balance, end of year | 27,317 | 11,528 |
b) | Liquidity risk |
Liquidity risk is the risk that the Group will not be able to meet its financial obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to its reputation.
Cash inflows and cash outflows requirements from Group’s entities are monitored closely and separately to ensure the Group optimizes its cash return on investment. Typically, the Group ensures that it has sufficient cash to meet expected operational expenses; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted. The Group monitors its short and medium-term liquidity needs on an ongoing basis using forecasting tools. In addition, the Group maintains revolving facilities, which have $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).46 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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 to 2 | 2 to 5 | More than | |||||||||||||||||
amount | cash flows | 1 year | years | years | 5 years | |||||||||||||||||||
2021 | ||||||||||||||||||||||||
Trade and other payables | 861,362 | 861,362 | 861,362 | - | - | - | ||||||||||||||||||
Long-term debt | 1,608,094 | 1,896,085 | 404,454 | 283,736 | 463,538 | 744,357 | ||||||||||||||||||
Other financial liability | 8,674 | 8,674 | 1,561 | 7,056 | 57 | 0 | ||||||||||||||||||
2,478,130 | 2,766,121 | 1,267,377 | 290,792 | 463,595 | 744,357 | |||||||||||||||||||
2020 | ||||||||||||||||||||||||
Trade and other payables | 468,238 | 468,238 | 468,238 | - | - | - | ||||||||||||||||||
Long-term debt | 872,544 | 953,425 | 65,697 | 539,317 | 192,087 | 156,324 | ||||||||||||||||||
Other financial liability | 19,793 | 11,017 | 4,016 | 2,395 | 1,607 | 2,999 | ||||||||||||||||||
1,360,575 | 1,432,680 | 537,951 | 541,712 | 193,694 | 159,323 |
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:
2021 | 2020 | |||||||
Trade and other receivables | 33,112 | 36,250 | ||||||
Trade and other payables | (2,401 | ) | (2,162 | ) | ||||
Long-term debt | (903,556 | ) | (225,393 | ) | ||||
Balance sheet exposure | (872,845 | ) | (191,305 | ) | ||||
Long-term debt designated as investment hedge | 900,000 | 225,000 | ||||||
Net balance sheet exposure | 27,155 | 33,695 |
The Group estimates its annual net USD denominated cash flow from operating activities at approximately $620 million (2020 - $280 million). This cash flow is earned evenly throughout the
year.
The following exchange rates applied during the year:
December 31, 2021 | | December 31, 2020 | | |||||
Average USD for the year ended | 1.2535 | 1.3415 | ||||||
Closing USD as at | 1.2637 | 1.2725 |
47 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 |
Sensitivity analysis
A
1-cent
increase in the U.S. dollar at the reporting date, assuming all other variables, in particular interest rates, remain constant, would have increased (decreased) equity and income or loss by the amounts shown below. The analysis is performed on the same basis for 2020.2021 | 2020 | |||||||||||||||
1-cent | 1-cent | 1-cent | 1-cent | |||||||||||||
Increase | Decrease | Increase | Decrease | |||||||||||||
Balance sheet exposure | (6,907 | ) | 6,907 | (1,503 | ) | 1,503 | ||||||||||
Long-term debt designated as investment hedge | 7,122 | (7,122 | ) | 1,768 | (1,768 | ) | ||||||||||
Net balance sheet exposure | 215 | (215 | ) | 265 | (265 | ) |
e) | Interest rate risk |
The Group’s intention is to minimize its exposure to changes in interest rates by maintaining a significant portion of fixed-rate interest-bearing long-term debt. This is achieved by periodically entering into interest rate swaps.
The Group periodically
enters into interest rate swaps designated for cash flow hedges. During
2020,
threehedging relationships ended due to the repayment of the hedged items. At December
31,
2021and
2020, the Group has
nointerest rate swaps that hedge variable interest debt set using the
30-day
Libor rate. A
NaNloss
(2020–$
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 0 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:
2021 | 2020 | |||||||||||
Fixed rate instruments | 1,044,244 | 419,565 | ||||||||||
Variable rate instruments | 563,850 | 452,979 | ||||||||||
1,608,094 | 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.
2021 | 2020 | |||||||||||||||
1% increase | 1% decrease | 1% increase | 1% decrease | |||||||||||||
Interest on variable rate instrument | (4,156 | ) | 4,156 | (3,311 | ) | 3,311 |
48 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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’sandratios are as follows:
debt-to-equity
debt-to-capitalization
2021 | 2020 | |||||||||||
Long-term debt | 1,608,094 | 872,544 | ||||||||||
Shareholders’ equity | 2,220,311 | 1,788,612 | ||||||||||
Debt-to-equity | 0.72 | 0.49 | ||||||||||
Debt-to-capitalization 1 | 0.42 | 0.33 |
1
Long-term debt divided by the sum of shareholders’ equity and long-term debt.There were no changes in the Group’s approach to capital management during the year.
The Group’s credit facility agreement requires monitoring two ratios on a quarterly basis. The first is a ratio of total debt plus letters of credit and some other long-term liabilities 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.
49 |
TFI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | 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:
December 31, 2021 | December 31, 2020 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Financial assets | ||||||||||||||||
Assets carried at fair value | ||||||||||||||||
Investment in equity securities | 31,391 | 31,391 | 9,727 | 9,727 | ||||||||||||
Assets carried at amortized cost | ||||||||||||||||
Trade and other receivables | 1,056,023 | 1,056,023 | 597,873 | 597,873 | ||||||||||||
1,087,414 | 1,087,414 | 607,600 | 607,600 | |||||||||||||
Financial liabilities | ||||||||||||||||
Liabilities carried at fair value | ||||||||||||||||
Other financial liability | 18,599 | 18,599 | 26,730 | 26,730 | ||||||||||||
Liabilities carried at amortized cost | ||||||||||||||||
Trade and other payables | 861,362 | 861,362 | 468,238 | 468,238 | ||||||||||||
Long-term debt | 1,608,094 | 1,378,813 | 872,544 | 876,829 | ||||||||||||
2,488,055 | 2,258,774 | 1,367,512 | 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:
2021 | 2020 | |||||||
Long-term debt | 2.1 | % | 2.5 | % |
Fair value hierarchy
Group’s financial assets and liabilities recorded at fair value on a recurring basis are investment in equity securities and the derivative financial instruments discussed above. Investment in equity securities 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 usinglevel-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 – $44.1 million).
50 |
T FI International Inc. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
(Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 202 1 AND 20 20 |
27. | Related parties |
Parent and ultimate controlling party
There is 0 single ultimate controlling party. The shares of the Company are widely held.
Transactions with key management personnel
Board members of the Company, executive officers and top managers of major Group’s entities are deemed to be key management personnel. There were no other transactions with key management personnel other than their respective compensation.
Key management personnel compensation
In addition to their salaries, the Company also provides
non-cash
benefits to board members and executive officers.Executive officers also participate in the Company’s stock option and performance contingent restricted share unit and performance share unit plans and board members are entitled to deferred share units, as described in note 2
0
. Costs incurred for key management personnel in relation to these plans are detailed below.Key management personnel compensation comprised:
2021 | 2020 | |||||||
Short-term benefits | 14,427 | 13,906 | ||||||
Post-employment benefits | 793 | 704 | ||||||
Equity-settled share-based payment transactions | 11,031 | 4,627 | ||||||
Cash-settled share-based payment transactions | 0 | 1,086 | ||||||
26,251 | 20,323 |
28. | Subsequent events |
Between December 31, 2021 and March 14, 2022, the Company repurchased 560,000 common shares at a price ranging from 92.93$ to 105.89$ for a total purchase price of
$56.4 million.51 |