Exhibit 99.3
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the second quarter ended
June 30, 2020
CONTENTS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | 1 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | 2 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | 3 |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | 4 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | 5 |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | 6 |
TFI International Inc. | CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
(UNAUDITED) |
(in thousands of Canadian dollars) | As at | As at | |||
June 30, | December 31, | ||||
Note | 2020 | 2019 | |||
Assets | |||||
Cash and cash equivalents | 12,125 | - | |||
Trade and other receivables | 590,023 | 587,370 | |||
Inventoried supplies | 11,282 | 13,844 | |||
Current taxes recoverable | - | 17,158 | |||
Prepaid expenses | 40,981 | 36,077 | |||
Derivative financial instruments | 22 | - | 39 | ||
Assets held for sale | 5,789 | 4,625 | |||
Other assets | 11 | - | 24,814 | ||
Current assets | 660,200 | 683,927 | |||
Property and equipment | 8 | 1,422,788 | 1,461,707 | ||
Right-of-use assets | 9 | 450,029 | 434,017 | ||
Intangible assets | 10 | 2,012,753 | 1,954,902 | ||
Other assets | 11 | 8,958 | 11,241 | ||
Deferred tax assets | 10,244 | 11,461 | |||
Non-current assets | 3,904,772 | 3,873,328 | |||
Total assets | 4,564,972 | 4,557,255 | |||
Liabilities | |||||
Bank indebtedness | - | 3,801 | |||
Trade and other payables | 461,161 | 443,468 | |||
Current taxes payable | 48,375 | 6,050 | |||
Provisions | 14 | 18,803 | 23,721 | ||
Other financial liabilities | 2,415 | 2,654 | |||
Derivative financial instruments | 22 | 2,729 | 843 | ||
Long-term debt | 12 | 240,598 | 53,647 | ||
Lease liabilities | 13 | 110,871 | 99,133 | ||
Current liabilities | 884,952 | 633,317 | |||
Long-term debt | 12 | 1,041,186 | 1,691,040 | ||
Lease liabilities | 13 | 366,114 | 362,709 | ||
Employee benefits | 18,499 | 18,585 | |||
Provisions | 14 | 35,023 | 29,251 | ||
Other financial liabilities | 4,371 | 3,649 | |||
Derivative financial instruments | 22 | 2,991 | 888 | ||
Deferred tax liabilities | 315,286 | 312,127 | |||
Non-current liabilities | 1,783,470 | 2,418,249 | |||
Total liabilities | 2,668,422 | 3,051,566 | |||
Equity | |||||
Share capital | 15 | 974,032 | 680,233 | ||
Contributed surplus | 21,404 | 21,063 | |||
Accumulated other comprehensive income | 57,244 | 24,473 | |||
Retained earnings | 843,870 | 779,920 | |||
Equity attributable to owners of the Company | 1,896,550 | 1,505,689 | |||
Contingencies, letters of credit and other commitments | 23 | ||||
Total liabilities and equity | 4,564,972 | 4,557,255 |
The notes on pages 6 to 26 are an integral part of these condensed consolidated interim financial statements.
1 |
TFI International Inc. | CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
(UNAUDITED) |
(In thousands of Canadian dollars, except per share amounts) | Three months | Three months | Six months | Six months | |||||
ended | ended | ended | ended | ||||||
Note | June 30, 2020 | June 30, 2019* | June 30, 2020 | June 30, 2019* | |||||
Revenue | 1,025,284 | 1,183,897 | 2,137,940 | 2,281,333 | |||||
Fuel surcharge | 80,933 | 153,898 | 208,759 | 287,279 | |||||
Total revenue | 1,106,217 | 1,337,795 | 2,346,699 | 2,568,612 | |||||
Materials and services expenses | 18 | 573,092 | 723,400 | 1,250,975 | 1,401,891 | ||||
Personnel expenses | 19 | 261,581 | 334,834 | 578,898 | 654,855 | ||||
Other operating expenses | 43,233 | 48,906 | 92,168 | 98,074 | |||||
Depreciation of property and equipment | 58,069 | 55,757 | 115,159 | 108,190 | |||||
Depreciation of right-of-use assets | 27,275 | 25,946 | 52,928 | 50,460 | |||||
Amortization of intangible assets | 15,417 | 16,499 | 30,976 | 32,288 | |||||
Bargain purchase gain | 5 | - | (10,787 | ) | (5,584 | ) | (10,787 | ) | |
Gain on sale of rolling stock and equipment | (3,297 | ) | (4,988 | ) | (6,665 | ) | (9,400 | ) | |
Gain on derecognition of right-of-use assets | (497 | ) | (686 | ) | (1,304 | ) | (693 | ) | |
Loss on sale of land and buildings | - | - | 2 | - | |||||
Gain on sale of assets held for sale | (125 | ) | (74 | ) | (10,784 | ) | (10,171 | ) | |
Total operating expenses | 974,748 | 1,188,807 | 2,096,769 | 2,314,707 | |||||
Operating income | 131,469 | 148,988 | 249,930 | 253,905 | |||||
Finance (income) costs | |||||||||
Finance income | 20 | (587 | ) | (749 | ) | (2,502 | ) | (1,455 | ) |
Finance costs | 20 | 18,156 | 22,226 | 39,273 | 42,058 | ||||
Net finance costs | 17,569 | 21,477 | 36,771 | 40,603 | |||||
Income before income tax | 113,900 | 127,511 | 213,159 | 213,302 | |||||
Income tax expense | 21 | 44,245 | 27,322 | 67,744 | 48,010 | ||||
Net income from continuing operations | 69,655 | 100,189 | 145,415 | 165,292 | |||||
Net loss from discontinued operations | 6 | - | (12,478 | ) | - | (12,478 | ) | ||
Net income for the period attributable to owners of the Company | 69,655 | 87,711 | 145,415 | 152,814 | |||||
Earnings per share attributable to owners of the Company | |||||||||
Basic earnings per share | 16 | 0.80 | 1.04 | 1.69 | 1.80 | ||||
Diluted earnings per share | 16 | 0.79 | 1.01 | 1.66 | 1.76 | ||||
Earnings per share from continuing operations attributable to owners of the Company | |||||||||
Basic earnings per share | 16 | 0.80 | 1.19 | 1.69 | 1.95 | ||||
Diluted earnings per share | 16 | 0.79 | 1.16 | 1.66 | 1.90 |
(*) Recasted for changes in presentation (see note 20)
The notes on pages 6 to 26 are an integral part of these condensed consolidated interim financial statements.
2 |
TFI International Inc. | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
(UNAUDITED) |
(In thousands of Canadian dollars) | Three months | Three months | Six months | Six months | ||||
ended | ended | ended | ended | |||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||
Net income for the period attributable to owners of the Company | 69,655 | 87,711 | 145,415 | 152,814 | ||||
Other comprehensive (loss) income | ||||||||
Items that may be reclassified to income or loss in future periods: | ||||||||
Foreign currency translation differences | (39,711 | ) | (25,966 | ) | 57,586 | (51,877 | ) | |
Net investment hedge, net of tax | 11,930 | 6,013 | (21,099 | ) | 12,448 | |||
Cash flow hedge, net of tax | 32 | (4,392 | ) | (3,716 | ) | (7,802 | ) | |
Items directly reclassified to retained earnings: | ||||||||
Unrealized gain on investment in equity securities measured at fair value through OCI, net of tax | - | 455 | - | 1,326 | ||||
Other comprehensive (loss) income for the period, net of tax | (27,749 | ) | (23,890 | ) | 32,771 | (45,905 | ) | |
Total comprehensive income for the period attributable to owners of the Company | 41,906 | 63,821 | 178,186 | 106,909 |
The notes on pages 6 to 26 are an integral part of these condensed consolidated interim financial statements.
3 |
TFI International Inc. | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
(In thousands of Canadian dollars) | Accumulated | ||||||||||||||||
Accumulated | foreign | Accumulated | |||||||||||||||
unrealized | currency | unrealized | Total equity | ||||||||||||||
loss on | Accumulated | translation | loss on | attributable | |||||||||||||
employee | cash flow | differences | investment in | to owners | |||||||||||||
Share | Contributed | benefit | hedge | and net invest- | equity | Retained | of the | ||||||||||
Note | capital | surplus | plans | gain | ment hedge | securities | earnings | Company | |||||||||
Balance as at December 31, 2019 | 680,233 | 21,063 | (486 | ) | 375 | 24,584 | - | 779,920 | 1,505,689 | ||||||||
Net income for the period | - | - | - | - | - | - | 145,415 | 145,415 | |||||||||
Other comprehensive (loss) income for the period, net of tax | - | - | - | (3,716 | ) | 36,487 | - | - | 32,771 | ||||||||
Total comprehensive (loss) income for the period | - | - | - | (3,716 | ) | 36,487 | - | 145,415 | 178,186 | ||||||||
Share-based payment transactions | 17 | - | 4,509 | - | - | - | - | - | 4,509 | ||||||||
Stock options exercised | 15, 17 | 22,005 | (4,168 | ) | - | - | - | - | - | 17,837 | |||||||
Issuance of shares | 15 | 288,475 | - | - | - | - | - | - | 288,475 | ||||||||
Dividends to owners of the Company | - | - | - | - | - | - | (45,506 | ) | (45,506 | ) | |||||||
Repurchase of own shares | 15 | (16,681 | ) | - | - | - | - | - | (35,959 | ) | (52,640 | ) | |||||
Total transactions with owners, recorded directly in equity | 293,799 | 341 | - | - | - | - | (81,465 | ) | 212,675 | ||||||||
Balance as at June 30, 2020 | 974,032 | 21,404 | (486 | ) | (3,341 | ) | 61,071 | - | 843,870 | 1,896,550 | |||||||
Balance as at December 31, 2018 | 704,510 | 20,448 | (528 | ) | 10,210 | 60,971 | (5,863 | ) | 787,106 | 1,576,854 | |||||||
Adjustment on initial application of IFRS 16 | - | - | - | - | - | - | (25,678 | ) | (25,678 | ) | |||||||
Net income for the period | - | - | - | - | - | - | 152,814 | 152,814 | |||||||||
Other comprehensive (loss) income for the period, net of tax | - | - | - | (7,802 | ) | (39,429 | ) | 1,326 | - | (45,905 | ) | ||||||
Realized loss on equity securities, net of tax | - | - | - | - | - | 4,537 | (4,537 | ) | - | ||||||||
Total comprehensive (loss) income for the period | - | - | - | (7,802 | ) | (39,429 | ) | 5,863 | 148,277 | 106,909 | |||||||
Share-based payment transactions | 17 | - | 4,270 | - | - | - | - | - | 4,270 | ||||||||
Stock options exercised | 15, 17 | 17,045 | (3,911 | ) | - | - | - | - | - | 13,134 | |||||||
Dividends to owners of the Company | - | - | - | - | - | - | (40,308 | ) | (40,308 | ) | |||||||
Repurchase of own shares | 15 | (33,091 | ) | - | - | - | - | - | (128,320 | ) | (161,411 | ) | |||||
Net settlement of restricted share units | 15, 17 | 15 | (15 | ) | - | - | - | - | (44 | ) | (44 | ) | |||||
Total transactions with owners, recorded directly in equity | (16,031 | ) | 344 | - | - | - | - | (168,672 | ) | (184,359 | ) | ||||||
Balance as at June 30, 2019 | 688,479 | 20,792 | (528 | ) | 2,408 | 21,542 | - | 741,033 | 1,473,726 |
The notes on pages 6 to 26 are an integral part of these condensed consolidated interim financial statements.
4 |
TFI International Inc. | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(UNAUDITED) |
(In thousands of Canadian dollars) | Three months | Three months | Six months | Six months | |||||
ended | ended | ended | ended | ||||||
Note | June 30, 2020 | June 30, 2019* | June 30, 2020 | June 30, 2019* | |||||
Cash flows from operating activities | |||||||||
Net income for the period attributable to owners of the Company | 69,655 | 87,711 | 145,415 | 152,814 | |||||
Net loss from discontinued operations | - | (12,478 | ) | - | (12,478 | ) | |||
Net income from continuing operations | 69,655 | 100,189 | 145,415 | 165,292 | |||||
Adjustments for : | |||||||||
Depreciation of property and equipment | 58,069 | 55,757 | 115,159 | 108,190 | |||||
Depreciation of right-of-use assets | 27,275 | 25,946 | 52,928 | 50,460 | |||||
Amortization of intangible assets | 15,417 | 16,499 | 30,976 | 32,288 | |||||
Share-based payment transactions | 2,301 | 2,196 | 4,509 | 4,270 | |||||
Net finance costs | 17,569 | 21,477 | 36,771 | 40,603 | |||||
Income tax expense | 44,245 | 27,322 | 67,744 | 48,010 | |||||
Bargain purchase gain | - | (10,787 | ) | (5,584 | ) | (10,787 | ) | ||
Gain on sale of property and equipment | (3,297 | ) | (4,988 | ) | (6,663 | ) | (9,400 | ) | |
Gain on disposal of right-of-use assets | (497 | ) | (686 | ) | (1,304 | ) | (693 | ) | |
Gain on derecognition of assets held for sale | (125 | ) | (74 | ) | (10,784 | ) | (10,171 | ) | |
Provisions and employee benefits | (3,393 | ) | (4,693 | ) | (1,682 | ) | (2,109 | ) | |
227,219 | 228,158 | 427,485 | 415,953 | ||||||
Net change in non-cash operating working capital | 7 | 16,095 | (17,756 | ) | 38,279 | 7,870 | |||
Cash generated from operating activities | 243,314 | 210,402 | 465,764 | 423,823 | |||||
Interest paid | (15,795 | ) | (20,050 | ) | (35,427 | ) | (41,987 | ) | |
Income tax paid | 348 | (48,996 | ) | (10,725 | ) | (79,782 | ) | ||
Net cash from continuing operating activities | 227,867 | 141,356 | 419,612 | 302,054 | |||||
Net cash used in discontinued operating activities | - | (14,461 | ) | - | (14,461 | ) | |||
Net cash from operating activities | 227,867 | 126,895 | 419,612 | 287,593 | |||||
Cash flows from investing activities | |||||||||
Purchases of property and equipment | (27,267 | ) | (69,773 | ) | (60,547 | ) | (120,657 | ) | |
Proceeds from sale of property and equipment | 13,811 | 23,515 | 24,617 | 40,307 | |||||
Proceeds from sale of assets held for sale | 1,837 | 1,121 | 16,700 | 18,714 | |||||
Purchases of intangible assets | (756 | ) | (1,230 | ) | (1,490 | ) | (2,252 | ) | |
Proceeds from sale of intangible assets | - | - | - | 269 | |||||
Business combinations, net of cash acquired | (60,024 | ) | (78,186 | ) | (74,670 | ) | (180,637 | ) | |
Proceeds from sale of investments | - | 2,426 | - | 2,426 | |||||
Others | 3,463 | (487 | ) | 28,630 | (241 | ) | |||
Net cash used in continuing investing activities | (68,936 | ) | (122,614 | ) | (66,760 | ) | (242,071 | ) | |
Cash flows from financing activities | |||||||||
(Decrease) increase in bank indebtedness | (958 | ) | 13,520 | (5,249 | ) | 929 | |||
Proceeds from long-term debt | 9,324 | 97,005 | 17,701 | 304,968 | |||||
Net repayment of long-term debt | (245,073 | ) | (13,618 | ) | (510,195 | ) | (112,321 | ) | |
Repayment of lease liability | (26,938 | ) | (23,995 | ) | (53,165 | ) | (47,747 | ) | |
Increase (decrease) in other financial liabilities | 550 | (2,022 | ) | 343 | (2,022 | ) | |||
Dividends paid | (22,657 | ) | (20,273 | ) | (43,834 | ) | (41,008 | ) | |
Repurchase of own shares | (8,883 | ) | (64,811 | ) | (52,640 | ) | (161,411 | ) | |
Proceeds from the issuance of common shares, net of expenses | - | - | 288,475 | - | |||||
Proceeds from exercise of stock options | 16,728 | 8,744 | 17,837 | 13,134 | |||||
Repurchase of own shares for restricted share unit settlement | - | - | - | (44 | ) | ||||
Net cash used in continuing financing activities | (277,907 | ) | (5,450 | ) | (340,727 | ) | (45,522 | ) | |
Net change in cash and cash equivalents | (118,976 | ) | (1,169 | ) | 12,125 | - | |||
Cash and cash equivalents, beginning of period | 131,101 | 1,169 | - | - | |||||
Cash and cash equivalents, end of period | 12,125 | - | 12,125 | - |
(*) Recasted for changes in presentation (see note 20)
The notes on pages 6 to 26 are an integral part of these condensed consolidated interim financial statements.
5 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
1. | Reporting entity |
TFI International Inc. (the “Company”) is incorporated under the Canada Business Corporations Act, and is a company domiciled in Canada. The address of the Company’s registered office is 8801 Trans-Canada Highway, Suite 500, Montreal, Quebec, H4S 1Z6.
The condensed consolidated interim financial statements of the Company as at and for the three and six months ended June 30, 2020 and 2019 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”).
The Group is involved in the provision of transportation and logistics services across the United States, Canada and Mexico.
2. | Basis of preparation |
a) | Statement of compliance |
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting of International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the most recent annual consolidated financial statements of the Group.
These condensed consolidated interim financial statements were authorized for issue by the Board of Directors on July 27, 2020.
b) | Basis of measurement |
These condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items in the statements of financial position:
investment in equity securities, derivative financial instruments and contingent considerations are measured at fair value;
liabilities for cash-settled share-based payment arrangements are measured at fair value in accordance with IFRS 2;
the defined benefit pension plan liability is recognized as the net total of the present value of the defined benefit obligation less the fair value of the plan assets; and
assets and liabilities acquired in business combinations are measured at fair value at acquisition date.
c) | Seasonality of interim operations |
The activities conducted by the Group are subject to general demand for freight transportation. Historically, demand has been relatively stable with the first quarter being generally the weakest in terms of demand. Furthermore, during the harsh winter months, fuel consumption and maintenance costs tend to rise. Consequently, the results of operations for the interim period are not necessarily indicative of the results of operations for the full year.
d) | Functional and presentation currency |
These condensed consolidated interim financial statements are presented in Canadian dollars (“CDN$”), which is the Company’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand.
e) | 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, the self-insurance and other provisions and contingencies. These estimates and assumptions are based on management’s best estimates and judgments.
6 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
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.
In preparing these condensed consolidated interim financial statements, the significant judgments made by management applying the Group’s accounting policies and the key sources of estimation uncertainty are the same as those applied and described in the Group’s 2019 annual consolidated financial statements.
3. | Significant accounting policies |
The accounting policies described in the Group’s 2019 annual consolidated financial statements have been applied consistently to all periods presented in these condensed consolidated interim financial statements, unless otherwise indicated in note 3. The accounting policies have been applied consistently by Group entities.
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.
New standards and interpretations adopted during the period
The following new standards, and amendments to standards and interpretations, are effective for the first time for interim periods beginning on or after January 1, 2020 and have been applied in preparing these condensed consolidated interim financial statements:
Definition of a business (Amendments to IFRS 3): On October 22, 2018, the IASB issued amendments to IFRS 3 Business Combinations that seek to clarify whether a transaction results in an asset or a business acquisition. The amendments apply to businesses acquired in annual reporting periods beginning on or after January 1, 2020. The amendments include an election to use a concentration test. This is a simplified assessment that results in an asset acquisition if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. If a preparer chooses not to apply the concentration test, or the test fails, then the assessment focuses on the existence of a substantive process. The adoption of the amendments did not have a material impact on the Group’s condensed consolidated interim financial statements.
Amendments to Hedge Accounting Requirements - IBOR Reform and its Effects on Financial Reporting (Phase 1): On September 26, 2019, the IASB issued amendments for some of its requirements for hedge accounting in IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement, as well as the related Standard on disclosures, IFRS 7 Financial Instruments: Disclosures in relation to Phase 1 of IBOR Reform and its Effects on Financial Reporting project. The amendments are effective from January 1, 2020. The amendments address issues affecting financial reporting in the period leading up to IBOR reform, are mandatory and apply to all hedging relationships directly affected by uncertainties related to IBOR reform. The amendments modify some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform in the following areas:
the ‘highly probable’ requirement,
prospective assessments,
retrospective assessments (for IAS 39), and
eligibility of risk components.
The adoption of the amendments did not have a material impact on the Group’s condensed consolidated interim financial statements.
7 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
New standards and interpretations not yet adopted
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial Statements, to clarify the classification of liabilities as current or non-current. The amendments are effective for annual periods beginning on or after January 1, 2022. Early adoption is permitted. For the purposes of non-current classification, the amendments removed the requirement for a right to defer settlement or roll over of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period. The extent of the impact of adoption of the amendments has not yet been determined.
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
On May 14, 2020, the IASB issued Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37). The amendments are effective for annual periods beginning on or after January 1, 2022 and apply to contracts existing at the date when the amendments are first applied. Early adoption is permitted. IAS 37 does not specify which costs are included as a cost of fulfilling a contract when determining whether a contract is onerous. The IASB’s amendments address this issue by clarifying that the “costs of fulfilling a contract” comprise both:
the incremental costs - e.g. direct labour and materials; and
an allocation of other direct costs - e.g. an allocation of the depreciation charge for an item of property and equipment used in fulfilling the contract.
The extent of the impact of adoption of the amendments has not yet been determined.
4. | Segment reporting |
The Group operates within the transportation and logistics industry in the United States, Canada and Mexico in different reportable segments, as described below. The reportable segments are managed independently as they require different technology and capital resources. For each of the operating segments, the Group’s CEO reviews internal management reports. The following summary describes the operations in each of the Group’s reportable segments:
Package and Courier: | Pickup, transport and delivery of items across North America. | |
Less-Than-Truckload: | Pickup, consolidation, transport and delivery of smaller loads. | |
Truckload (a): | 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 (b): | Asset-light logistics services, including brokerage, freight forwarding and transportation management, as well as small package parcel delivery. |
(a) The Truckload reporting segment represents the aggregation of the Canadian Conventional Truckload, U.S. Conventional Truckload, and Specialized Truckload operating segments. The aggregation of the segment was analyzed using management’s judgment in accordance with IFRS 8. The operating segments were determined to be similar with respect to the nature of services offered and the methods used to distribute their services, additionally, they have similar economic characteristics with respect to long-term expected gross margin, levels of capital invested and market place trends.
(b) Effective in the fourth quarter of fiscal 2019, the Group renamed the segment to Logistics from the previous reporting as Logistics and Last Mile. The composition of the segment remains unchanged.
Information regarding the results of each reportable segment is included below. Performance is measured based on segment operating income or loss. This measure is included in the internal management reports that are reviewed by the Group’s CEO and refers to “Operating income (loss)” in the consolidated statements of income. Segment’s operating income or loss is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.
8 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
Package | Less- | ||||||||||||||
and | Than- | ||||||||||||||
Courier | Truckload | Truckload | Logistics | Corporate | Eliminations | Total | |||||||||
Three months ended June 30, 2020 | |||||||||||||||
External revenue | 138,549 | 156,344 | 466,677 | 263,714 | - | - | 1,025,284 | ||||||||
External fuel surcharge | 11,809 | 18,182 | 44,177 | 6,765 | - | - | 80,933 | ||||||||
Inter-segment revenue and fuel surcharge | 1,031 | 2,166 | 5,067 | 1,261 | - | (9,525 | ) | - | |||||||
Total revenue | 151,389 | 176,692 | 515,921 | 271,740 | - | (9,525 | ) | 1,106,217 | |||||||
Operating income (loss) | 22,602 | 33,419 | 69,524 | 22,683 | (16,759 | ) | - | 131,469 | |||||||
Selected items: | |||||||||||||||
Depreciation and amortization | 8,553 | 17,680 | 62,546 | 11,726 | 256 | - | 100,761 | ||||||||
Gain (loss) on sale of assets held for sale | - | (45 | ) | 170 | - | - | - | 125 | |||||||
Intangible assets | 246,383 | 239,764 | 1,179,635 | 342,728 | 4,243 | - | 2,012,753 | ||||||||
Total assets | 484,197 | 754,773 | 2,726,529 | 552,717 | 46,756 | - | 4,564,972 | ||||||||
Total liabilities | 143,223 | 280,458 | 581,624 | 159,515 | 1,503,602 | - | 2,668,422 | ||||||||
Additions to property and equipment | 5,089 | 1,938 | 21,416 | 304 | 67 | - | 28,814 | ||||||||
Three months ended June 30, 2019* | |||||||||||||||
External revenue | 157,426 | 216,386 | 566,109 | 243,976 | - | - | 1,183,897 | ||||||||
External fuel surcharge | 22,832 | 35,713 | 84,308 | 11,045 | - | - | 153,898 | ||||||||
Inter-segment revenue and fuel surcharge | 1,243 | 2,890 | 5,131 | 970 | - | (10,234 | ) | - | |||||||
Total revenue | 181,501 | 254,989 | 655,548 | 255,991 | - | (10,234 | ) | 1,337,795 | |||||||
Operating income (loss) | 29,931 | 30,268 | 67,241 | 28,658 | (7,110 | ) | - | 148,988 | |||||||
Selected items: | |||||||||||||||
Depreciation and amortization | 7,873 | 17,746 | 60,784 | 11,602 | 197 | - | 98,202 | ||||||||
Gain (loss) on sale of assets held for sale | - | (2 | ) | 76 | - | - | - | 74 | |||||||
Bargain purchase gain | - | - | - | 10,787 | - | - | 10,787 | ||||||||
Intangible assets | 247,360 | 250,041 | 1,139,444 | 329,190 | 2,861 | - | 1,968,896 | ||||||||
Total assets | 473,517 | 786,442 | 2,724,380 | 533,149 | 60,424 | - | 4,577,912 | ||||||||
Total liabilities | 154,025 | 330,342 | 545,051 | 166,172 | 1,908,596 | - | 3,104,186 | ||||||||
Additions to property and equipment | 2,595 | 8,604 | 66,581 | 797 | 292 | - | 78,869 |
(*) Recasted for changes in presentation (see note 20)
9 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
Less- | |||||||||||||||
Package and | Than- | ||||||||||||||
Courier | Truckload | Truckload | Logistics | Corporate | Eliminations | Total | |||||||||
Six months ended June 30, 2020 | |||||||||||||||
External revenue | 276,904 | 334,567 | 995,389 | 531,080 | - | - | 2,137,940 | ||||||||
External fuel surcharge | 31,529 | 46,251 | 115,677 | 15,302 | - | - | 208,759 | ||||||||
Inter-segment revenue and fuel surcharge | 2,328 | 4,237 | 10,549 | 2,680 | - | (19,794 | ) | - | |||||||
Total revenue | 310,761 | 385,055 | 1,121,615 | 549,062 | - | (19,794 | ) | 2,346,699 | |||||||
Operating income (loss) | 38,106 | 51,100 | 132,528 | 48,640 | (20,444 | ) | - | 249,930 | |||||||
Depreciation and amortization | 16,913 | 34,692 | 124,769 | 22,037 | 652 | - | 199,063 | ||||||||
Loss on sale of land and buildings | (2 | ) | - | - | - | - | - | (2 | ) | ||||||
Gain (loss) on sale of assets held for sale | (2 | ) | (45 | ) | 10,831 | - | - | - | 10,784 | ||||||
Bargain purchase gain | - | - | - | 5,584 | - | - | 5,584 | ||||||||
Intangible assets | 246,383 | 239,764 | 1,179,635 | 342,728 | 4,243 | - | 2,012,753 | ||||||||
Total assets | 484,197 | 754,773 | 2,726,529 | 552,717 | 46,756 | - | 4,564,972 | ||||||||
Total liabilities | 143,223 | 280,458 | 581,624 | 159,515 | 1,503,602 | - | 2,668,422 | ||||||||
Additions to property and equipment | 17,359 | 9,941 | 36,965 | 642 | 173 | - | 65,080 | ||||||||
Six months ended June 30, 2019* | |||||||||||||||
External revenue | 303,219 | 422,212 | 1,088,563 | 467,339 | - | - | 2,281,333 | ||||||||
External fuel surcharge | 42,482 | 68,511 | 156,878 | 19,408 | - | - | 287,279 | ||||||||
Inter-segment revenue and fuel surcharge | 2,528 | 5,163 | 10,642 | 1,897 | - | (20,230 | ) | - | |||||||
Total revenue | 348,229 | 495,886 | 1,256,083 | 488,644 | - | (20,230 | ) | 2,568,612 | |||||||
Operating income (loss) | 50,931 | 57,910 | 117,985 | 43,822 | (16,743 | ) | - | 253,905 | |||||||
Selected items: | |||||||||||||||
Depreciation and amortization | 15,907 | 34,631 | 117,207 | 22,250 | 943 | - | 190,938 | ||||||||
Gain on sale of assets held for sale | - | 9,399 | 772 | - | - | - | 10,171 | ||||||||
Bargain purchase gain | - | - | - | 10,787 | - | - | 10,787 | ||||||||
Intangible assets | 247,360 | 250,041 | 1,139,444 | 329,190 | 2,861 | - | 1,968,896 | ||||||||
Total assets | 473,517 | 786,442 | 2,724,380 | 533,149 | 60,424 | - | 4,577,912 | ||||||||
Total liabilities | 154,025 | 330,342 | 545,051 | 166,172 | 1,908,596 | - | 3,104,186 | ||||||||
Additions to property and equipment | 6,182 | 15,826 | 107,293 | 1,037 | 707 | - | 131,045 |
(*) Recasted for changes in presentation (see note 20)
10 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
Geographical information
Revenue is attributed to geographical locations based on the origin of service’s location.
Total revenue | Package | Less- | |||||||||||
and | Than- | ||||||||||||
Courier | Truckload | Truckload | Logistics | Eliminations | Total | ||||||||
Three months ended June 30, 2020 | |||||||||||||
Canada | 151,389 | 155,745 | 205,431 | 74,817 | (8,187 | ) | 579,195 | ||||||
United States | - | 20,947 | 310,490 | 192,434 | (1,338 | ) | 522,533 | ||||||
Mexico | - | - | - | 4,489 | - | 4,489 | |||||||
Total | 151,389 | 176,692 | 515,921 | 271,740 | (9,525 | ) | 1,106,217 | ||||||
Three months ended June 30, 2019 | |||||||||||||
Canada | 181,501 | 211,932 | 276,284 | 72,029 | (9,913 | ) | 731,833 | ||||||
United States | - | 43,057 | 379,264 | 178,642 | (321 | ) | 600,642 | ||||||
Mexico | - | - | - | 5,320 | - | 5,320 | |||||||
Total | 181,501 | 254,989 | 655,548 | 255,991 | (10,234 | ) | 1,337,795 | ||||||
Six months ended June 30, 2020 | |||||||||||||
Canada | 310,761 | 338,202 | 460,373 | 151,329 | (17,010 | ) | 1,243,655 | ||||||
United States | - | 46,853 | 661,242 | 387,952 | (2,784 | ) | 1,093,263 | ||||||
Mexico | - | - | - | 9,781 | - | 9,781 | |||||||
Total | 310,761 | 385,055 | 1,121,615 | 549,062 | (19,794 | ) | 2,346,699 | ||||||
Six months ended June 30, 2019 | |||||||||||||
Canada | 348,229 | 412,427 | 530,425 | 139,752 | (19,716 | ) | 1,411,117 | ||||||
United States | - | 83,459 | 725,658 | 338,717 | (514 | ) | 1,147,320 | ||||||
Mexico | - | - | - | 10,175 | - | 10,175 | |||||||
Total | 348,229 | 495,886 | 1,256,083 | 488,644 | (20,230 | ) | 2,568,612 |
Segment assets are based on the geographical location of the assets.
As at | As at | ||||
June 30, | December 31, | ||||
2020 | 2019 | ||||
Property and equipment, right-of-use assets and intangible assets | |||||
Canada | 2,274,771 | 2,308,400 | |||
United States | 1,591,152 | 1,518,877 | |||
Mexico | 19,647 | 23,349 | |||
3,885,570 | 3,850,626 |
5. | Business combinations |
a) | Business combinations |
In line with the Group’s growth strategy, the Group acquired four businesses during 2020, which include R.R. Donnelley & Sons Company, which were not considered material. These transactions were concluded in order to add density in the Group’s current network and further expand value-added services.
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 $14.7 million, which has been paid in cash. The estimated fair value of the identifiable net assets acquired, including the fair value of the customer relationships acquired, exceeded the purchase price, resulting in an estimated bargain purchase gain of $5.6 million in the logistics segment.
11 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
If the Group acquired the four businesses on January 1, 2020, as per management’s best estimates, the revenue and net income for these entities would have been $109.9 million and $0.7 million, respectively. In determining these estimated amounts, management assumed that the fair value adjustments that arose on the date of acquisition would have been the same had the acquisitions occurred on January 1, 2020.
During 2020, transaction costs of $0.3 million have been expensed in other operating expenses in the consolidated statements of income in relation to the above-mentioned business acquisitions.
As of the reporting date, the Group had not completed the purchase price allocation over the identifiable net assets and goodwill of the 2020 acquisitions. Information to confirm fair value of certain assets and liabilities is still to be obtained for these acquisitions. As the Group obtains more information, the allocation will be completed. The 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 | 2020 | * | |
Cash and cash equivalents | 1,365 | |||
Trade and other receivables | 30,986 | |||
Inventoried supplies and prepaid expenses | 1,370 | |||
Property and equipment | 8 | 4,220 | ||
Right-of-use assets | 9 | 50,689 | ||
Intangible assets | 10 | 26,145 | ||
Trade and other payables | (7,672 | ) | ||
Other non-current liabilities | (452 | ) | ||
Lease liabilities | 13 | (51,041 | ) | |
Deferred tax liabilities | (4,063 | ) | ||
Total identifiable net assets | 51,547 | |||
Total cash consideration transferred | 76,035 | |||
Goodwill | 10 | 30,072 | ||
Bargain purchase gain | (5,584 | ) |
(*) Includes non-material adjustments to prior year’s acquisitions
The trade receivables comprise gross amounts due of $33.5 million, of which $2.5 million was expected to be uncollectible at the acquisition date.
Of the goodwill and intangible assets acquired through business combinations in 2020, $27.6 million is deductible for tax purposes.
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.
12 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
The goodwill arising in the above business combinations has been allocated to operating segments as indicated in the table below, which represents the lowest level at which goodwill is monitored internally.
Operating segment | Reportable segment | 2020 | * | |
U.S. Truckload | Truckload | 1,968 | ||
Specialized Truckload | Truckload | 27,410 | ||
Logistics | Logistics | 694 | ||
30,072 |
(*) Includes non-material adjustments to prior year’s acquisitions
c) | Adjustment to the provisional amounts of prior year’s business combinations |
The 2019 annual consolidated financial statements included details of the Group’s business combinations and set out provisional fair values relating to the consideration paid and net assets acquired of Schilli and various non-material acquisitions. These acquisitions were accounted for under the provisions of IFRS 3.
As required by IFRS 3, the provisional fair values have been reassessed in light of information obtained during the measurement period following the acquisition. Consequently, the fair value of certain assets acquired and liabilities assumed of Schilli and the non-material acquisitions have been adjusted in 2020. No material adjustments were required to the provisional fair values for these prior period’s business combinations, and have been included with the acquisition of 2020.
6. | Discontinued operations |
In Q2 2019, the Group received an unfavorable ruling on an accident claim, resulting in a loss of $12.5 million ($16.6 million, net of tax of $4.1 million). The incident occurred in an operating division which was part of the discontinued rig moving segment. The rig moving segment was classified as discontinued on September 30, 2015.
The net cash outflows from discontinued operations amounted was $14.5 million ($18.6 million, net of tax of $4.1 million).
The basic loss per share for the three and six-month periods ended June 30, 2019 from discontinued operations were $0.15. The diluted loss per share for the three and six-month periods ended June 30, 2019 from discontinued operations were $0.15 and $0.14.
7. | Additional cash flow information |
Net change in non-cash operating working capital
Three months | Three months | Six months | Six months | ||||||
ended | ended | ended | ended | ||||||
June 30, 2020 | June 30, 2019* | June 30, 2020 | June 30, 2019* | ||||||
Trade and other receivables | 27,595 | 640 | 42,983 | 26,868 | |||||
Inventoried supplies | 1,289 | 993 | 3,135 | 1,199 | |||||
Prepaid expenses | (3,619 | ) | 15 | (3,086 | ) | (3,617 | ) | ||
Trade and other payables | (9,170 | ) | (19,404 | ) | (4,753 | ) | (16,580 | ) | |
16,095 | (17,756 | ) | 38,279 | 7,870 |
(*) Recasted for changes in presentation (see note 20)
13 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
8. | Property and equipment |
Land and | Rolling | ||||||||
buildings | stock | Equipment | Total | ||||||
Cost | |||||||||
Balance at December 31, 2019 | 400,909 | 1,645,986 | 162,735 | 2,209,630 | |||||
Additions through business combinations | - | 4,187 | 33 | 4,220 | |||||
Other additions | 3,374 | 52,683 | 9,023 | 65,080 | |||||
Disposals | (301 | ) | (64,872 | ) | (3,872 | ) | (69,045 | ) | |
Reclassification to assets held for sale | (9,657 | ) | (9,491 | ) | - | (19,148 | ) | ||
Effect of movements in exchange rates | 2,883 | 38,372 | 190 | 41,445 | |||||
Balance at June 30, 2020 | 397,208 | 1,666,865 | 168,109 | 2,232,182 | |||||
Depreciation | |||||||||
Balance at December 31, 2019 | 76,121 | 567,787 | 104,015 | 747,923 | |||||
Depreciation for the period | 5,658 | 102,453 | 7,048 | 115,159 | |||||
Disposals | (227 | ) | (47,139 | ) | (3,725 | ) | (51,091 | ) | |
Reclassification to assets held for sale | (3,277 | ) | (8,800 | ) | - | (12,077 | ) | ||
Effect of movements in exchange rates | 530 | 9,194 | (244 | ) | 9,480 | ||||
Balance at June 30, 2020 | 78,805 | 623,495 | 107,094 | 809,394 | |||||
Net carrying amounts | |||||||||
At December 31, 2019 | 324,788 | 1,078,199 | 58,720 | 1,461,707 | |||||
At June 30, 2020 | 318,403 | 1,043,370 | 61,015 | 1,422,788 |
As at June 30, 2020, $4.5 million is included in trade and other payables for the purchases of property and equipment (December 31, 2019 - $3.1 million).
9. | Right-of-use assets |
Land and | Rolling | ||||||||
buildings | stock | Equipment | Total | ||||||
Cost | |||||||||
Balance at December 31, 2019 | 558,627 | 213,120 | 2,389 | 774,136 | |||||
Other additions | 8,688 | 15,340 | 1,056 | 25,084 | |||||
Additions through business combinations | 14,423 | 36,266 | - | 50,689 | |||||
Derecognition* | (16,642 | ) | (23,291 | ) | (209 | ) | (40,142 | ) | |
Effect of movements in exchange rates | 4,627 | 744 | 15 | 5,386 | |||||
Balance at June 30, 2020 | 569,723 | 242,179 | 3,251 | 815,153 | |||||
Depreciation | |||||||||
Balance at December 31, 2019 | 251,558 | 87,174 | 1,387 | 340,119 | |||||
Depreciation | 32,959 | 19,574 | 395 | 52,928 | |||||
Derecognition* | (12,035 | ) | (17,942 | ) | (14 | ) | (29,991 | ) | |
Effect of movements in exchange rates | 1,716 | 340 | 12 | 2,068 | |||||
Balance at June 30, 2020 | 274,198 | 89,146 | 1,780 | 365,124 | |||||
Net carrying amounts | |||||||||
At December 31, 2019 | 307,069 | 125,946 | 1,002 | 434,017 | |||||
At June 30, 2020 | 295,525 | 153,033 | 1,471 | 450,029 |
(*) Derecognized right-of-use assets include negotiated asset purchases and extinguishments resulting from accidents or fully amortized right-of-use assets.
14 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
10. | Intangible assets |
Other intangible assets | |||||||||||||
Non- | |||||||||||||
Customer | compete | Information | |||||||||||
Goodwill | relationships | Trademarks | agreements | technology | Total | ||||||||
Cost | |||||||||||||
Balance at December 31, 2019 | 1,728,871 | 625,279 | 111,379 | 15,498 | 27,072 | 2,508,099 | |||||||
Additions through business combinations* | 30,072 | 26,195 | (482 | ) | 432 | - | 56,217 | ||||||
Other additions | - | - | - | - | 1,490 | 1,490 | |||||||
Extinguishments | - | - | - | (1,107 | ) | (105 | ) | (1,212 | ) | ||||
Effect of movements in exchange rates | 29,547 | 11,449 | 2,997 | 278 | 231 | 44,502 | |||||||
Balance at June 30, 2020 | 1,788,490 | 662,923 | 113,894 | 15,101 | 28,688 | 2,609,096 | |||||||
Amortization and impairment losses | |||||||||||||
Balance at December 31, 2019 | 190,780 | 285,430 | 52,186 | 5,806 | 18,995 | 553,197 | |||||||
Amortization for the period | - | 25,459 | 2,854 | 1,376 | 1,287 | 30,976 | |||||||
Extinguishments | - | - | - | (1,107 | ) | (105 | ) | (1,212 | ) | ||||
Effect of movements in exchange rates | 5,980 | 5,967 | 1,221 | 87 | 127 | 13,382 | |||||||
Balance at June 30, 2020 | 196,760 | 316,856 | 56,261 | 6,162 | 20,304 | 596,343 | |||||||
Net carrying amounts | |||||||||||||
At December 31, 2019 | 1,538,091 | 339,849 | 59,193 | 9,692 | 8,077 | 1,954,902 | |||||||
At June 30, 2020 | 1,591,730 | 346,067 | 57,633 | 8,939 | 8,384 | 2,012,753 |
(*) Includes non-material adjustments to prior year’s acquisitions
11. | Other assets |
As at | As at | ||||
June 30, | December 31, | ||||
2020 | 2019 | ||||
Restricted cash | - | 4,298 | |||
Security deposits | 4,532 | 4,109 | |||
Investments in equity securities | 2,523 | 1,391 | |||
Other | 1,903 | 1,443 | |||
Promissory note | - | 24,814 | |||
8,958 | 36,055 | ||||
Presented as : | |||||
Current other assets | - | 24,814 | |||
Non-current other assets | 8,958 | 11,241 |
The restrictions on cash are no longer required as at June 30, 2020.
15 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
12. | Long-term debt |
As at | As at | ||||
June 30, | December 31, | ||||
2020 | 2019 | ||||
Non-current liabilities | |||||
Unsecured revolving facilities | 134,072 | 590,259 | |||
Unsecured term loan | 409,403 | 609,147 | |||
Unsecured debenture | 199,010 | 198,900 | |||
Unsecured senior notes | 205,140 | 194,820 | |||
Conditional sales contracts | 93,561 | 97,914 | |||
1,041,186 | 1,691,040 | ||||
Current liabilities | |||||
Current portion of unsecured revolving facilities | - | 11,970 | |||
Current portion of conditional sales contracts | 40,734 | 41,677 | |||
Current portion of unsecured term loan | 199,864 | - | |||
240,598 | 53,647 |
The table below summarizes changes to the long-term debt:
Six months | Six months | |||||
ended | ended | |||||
Note | June 30,2020 | June 30,2019 | ||||
Balance at beginning of period | 1,744,687 | 1,584,423 | ||||
Transfer to lease liabilities | - | (9,164 | ) | |||
Proceeds from long-term debt | 17,701 | 304,968 | ||||
Business combinations | 5 | - | 11,500 | |||
Net repayment of long-term debt | (510,195 | ) | (112,321 | ) | ||
Accretion of deferred financing fees | 768 | 1,097 | ||||
Effect of movements in exchange rates | 4,492 | (4,523 | ) | |||
Effect of movements in exchange rates - OCI | 24,331 | (14,364 | ) | |||
Balance at end of period | 1,281,784 | 1,761,616 |
The Group’s revolving facilities have $1,077 million availability at June 30, 2020 (December 31, 2019 - $605.1 million) and an additional $250 million credit available (C$245 million and US$5 million). The additional credit is available under certain conditions under the Group’s syndicated bank agreement.
16 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
13. | Lease liabilities |
As at | As at | ||||
June 30, | December 31, | ||||
2020 | 2019 | ||||
Current portion of lease liabilities | 110,871 | 99,133 | |||
Long-term portion of lease liabilities | 366,114 | 362,709 | |||
476,985 | 461,842 |
The table below summarizes changes to the lease liabilities:
Six months | Six months | |||||
ended | ended | |||||
Note | June 30, 2020 | June 30, 2019 | ||||
Balance at beginning of period | 461,842 | - | ||||
Initial recognition on transition to IFRS 16 on January 1, 2019 | - | 483,458 | ||||
Transfer of finance leases from long-term debt | - | 9,164 | ||||
Business combinations | 5 | 51,041 | 10,115 | |||
Additions | 25,084 | 23,285 | ||||
Derecognition* | (11,453 | ) | (10,664 | ) | ||
Repayment | (53,165 | ) | (47,747 | ) | ||
Effect of movements in exchange rates | 3,636 | (1,536 | ) | |||
Balance at end of period | 476,985 | 466,075 |
(*) Derecognized lease liabilities include negotiated asset purchases and extinguishments resulting from accidents or fully amortized right-of-use assets.
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 is a significant event or significant changes in circumstances within its control.
The lease liabilities include future lease payments of $47.4 million related to extension options that the Group is reasonably certain to exercise.
The Group has estimated that the potential future lease payments, should it exercise the remaining extension options, would result in an increase in lease liabilities of $489.9 million.
The Group does not have a significant exposure to termination options and penalties.
Contractual cash flows
The total contractual cash flow maturities of the Group’s lease liabilities are as follows:
As at June 30, | |||
2020 | |||
Less than 1 year | 126,194 | ||
Between 1 and 5 years | 301,087 | ||
More than 5 years | 108,934 | ||
536,215 |
17 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
14. | Provisions |
Self insurance | Other | Total | |||||
As at June 30, 2020 | |||||||
Current provisions | 15,446 | 3,357 | 18,803 | ||||
Non-current provisions | 34,538 | 485 | 35,023 | ||||
49,984 | 3,842 | 53,826 | |||||
As at December 31, 2019 | |||||||
Current provisions | 21,961 | 1,760 | 23,721 | ||||
Non-current provisions | 28,936 | 315 | 29,251 | ||||
50,897 | 2,075 | 52,972 |
15. | Share capital |
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.
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 US $33.35 per share, the equivalent of CAD $44.20 per share based on the Bank of Canada exchange rate at the time of the transaction, for gross proceeds to the Company of US $230,115,000 (approximately CAD $305.0 million). The Company incurred share issuance costs of approximately $17.5 million of which $16.7 million were capitalised to share capital and $0.8 million were recognized in the consolidated statement of income.
The following table summarizes the number of common shares issued:
(in number of shares) | Six months | Six months | ||||
ended | ended | |||||
Note | June 30, 2020 | June 30, 2019 | ||||
Balance, beginning of period | 81,450,326 | 86,397,588 | ||||
Repurchase and cancellation of own shares | (1,542,155 | ) | (4,047,100 | ) | ||
Issuance of shares | 6,900,000 | - | ||||
Stock options exercised | 17 | 1,072,446 | 1,068,523 | |||
Balance, end of period | 87,880,617 | 83,419,011 |
The following table summarizes the share capital issued and fully paid:
Six months | Six months | ||||
ended | ended | ||||
June 30, 2020 | June 30, 2019 | ||||
Balance, beginning of period | 680,233 | 704,510 | |||
Issuance of shares, net of expenses | 288,475 | - | |||
Repurchase and cancellation of own shares | (16,681 | ) | (33,091 | ) | |
Cash consideration of stock options exercised | 17,837 | 13,134 | |||
Ascribed value credited to share capital on stock options exercised | 4,168 | 3,911 | |||
Issuance of shares on settlement of RSUs | - | 15 | |||
Balance, end of period | 974,032 | 688,479 |
Pursuant to the normal course issuer bid (“NCIB”) which began on October 2, 2019 and expiring on October 1, 2020, the Company is authorized to repurchase for cancellation up to a maximum of 7,000,000 of its common shares under certain conditions. As at June 30, 2020, and since the inception of this NCIB, the Company has repurchased and cancelled 2,221,255 common shares.
18 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
During the six months ended June 30, 2020, the Company repurchased 1,542,155 common shares at a weighted average price of $34.13 per share for a total purchase price of $52.6 million relating to the NCIB. During the six months ended June 30, 2019, the Company repurchased 4,047,100 common shares at a weighted average price of $39.88 per share for a total purchase price of $161.4 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 $36.0 million (2019 - $128.3 million) was charged to retained earnings as share repurchase premium.
16. | 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) | Three months | Three months | Six months | Six months | |||||
ended | ended | ended | ended | ||||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||
Net income attributable to owners of the Company | 69,655 | 87,711 | 145,415 | 152,814 | |||||
Net income from continuing operations | 69,655 | 100,189 | 145,415 | 165,292 | |||||
Issued common shares, beginning of period | 87,125,884 | 84,369,157 | 81,450,326 | 86,397,588 | |||||
Effect of stock options exercised | 443,231 | 324,675 | 266,219 | 456,075 | |||||
Effect of repurchase of own shares | (158,205 | ) | (510,397 | ) | (866,265 | ) | (2,177,671 | ) | |
Effect of share issuance | - | - | 5,212,500 | - | |||||
Weighted average number of common shares | 87,410,910 | 84,183,435 | 86,062,780 | 84,675,992 | |||||
Earnings per share - basic | 0.80 | 1.04 | 1.69 | 1.80 | |||||
Earnings per share from continuing operations - basic | 0.80 | 1.19 | 1.69 | 1.95 |
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) | Three months | Three months | Six months | Six months | |||||
ended | ended | ended | ended | ||||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||
Net income attributable to owners of the Company | 69,655 | 87,711 | 145,415 | 152,814 | |||||
Net income from continuing operations | 69,655 | 100,189 | 145,415 | 165,292 | |||||
Weighted average number of common shares | 87,410,910 | 84,183,435 | 86,062,780 | 84,675,992 | |||||
Dilutive effect: | |||||||||
Stock options and restricted share units | 1,227,759 | 2,270,073 | 1,428,025 | 2,331,085 | |||||
Weighted average number of diluted common shares | 88,638,669 | 86,453,508 | 87,490,805 | 87,007,077 | |||||
Earnings per share - diluted | 0.79 | 1.01 | 1.66 | 1.76 | |||||
Earnings per share from continuing operations - diluted | 0.79 | 1.16 | 1.66 | 1.90 |
As at June 30, 2020, 869,223 stock options were excluded from the calculation of diluted earnings per share (2019 - nil) as these options were deemed to be anti-dilutive.
The average market value of the Company’s shares for purposes of calculating the dilutive effect of stock options was based on quoted market prices for the period during which the options were outstanding.
19 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
17. | Share-based payment arrangements |
Stock option plan (equity-settled)
The Company offers a stock option plan for the benefit of certain of its employees. The maximum number of shares that can be issued upon the exercise of options granted under the current 2012 stock option plan is 5,979,201. Each stock option entitles its holder to receive one common share upon exercise. The exercise price payable for each option is determined by the Board of Directors at the date of grant, and may not be less than the volume weighted average trading price of the Company’s shares for the last five trading days immediately preceding the grant date. The options vest in equal installments over three years and the expense is recognized following the accelerated method as each installment is fair valued separately and recorded over the respective vesting periods. The table below summarizes the changes in the outstanding stock options:
(in thousands of options and in dollars) | Three months | Three months | Six months | Six months | |||||||||||||
ended | ended | ended | ended | ||||||||||||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||||||||||
Weighted | Weighted | Weighted | Weighted | ||||||||||||||
Number | average | Number | average | Number | average | Number | average | ||||||||||
of | exercise | of | exercise | of | exercise | of | exercise | ||||||||||
options | price | options | price | options | price | options | price | ||||||||||
Balance, beginning of period | 4,346 | 27.00 | 5,458 | 25.22 | 4,422 | 26.82 | 5,031 | 21.01 | |||||||||
Granted | - | - | - | - | - | - | 909 | 40.36 | |||||||||
Exercised | (1,000 | ) | 16.73 | (598 | ) | 14.61 | (1,072 | ) | 16.65 | (1,068 | ) | 12.29 | |||||
Forfeited | - | - | - | - | (4 | ) | 40.36 | (12 | ) | 29.22 | |||||||
Balance, end of period | 3,346 | 30.07 | 4,860 | 26.53 | 3,346 | 30.07 | 4,860 | 26.53 | |||||||||
Options exercisable, end of period | 2,571 | 27.75 | 3,113 | 21.92 |
The following table summarizes information about stock options outstanding and exercisable at June 30, 2020:
(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 | ||||
9.46 | 77 | 0.1 | 77 | ||||
20.18 | 112 | 0.1 | 112 | ||||
24.93 | 533 | 2.1 | 533 | ||||
24.64 | 664 | 3.1 | 664 | ||||
25.14 | 247 | 1.1 | 247 | ||||
29.92 | 561 | 4.6 | 366 | ||||
35.02 | 289 | 3.6 | 289 | ||||
40.36 | 863 | 5.7 | 283 | ||||
3,346 | 3.6 | 2,571 |
Of the options outstanding at June 30, 2020, a total of 2,596,388 (December 31, 2019 - 3,463,098) are held by key management personnel.
The weighted average share price at the date of exercise for stock options exercised in the six months ended June 30, 2020 was $39.69 (2019 - $42.21).
For the three and six months ended June 30, 2020, the Group recognized a compensation expense of $0.4 million and $1.1 million, respectively (2019 - $1.3 million and $2.3 million) with a corresponding increase to contributed surplus.
No stock options were granted in 2020 under the Company’s stock option plan.
20 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
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) | Three months | Three months | Six months | Six months | |||||
ended | ended | ended | ended | ||||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||
Balance, beginning of period | 361,791 | 316,612 | 348,031 | 306,042 | |||||
Board members compensation | 5,851 | 8,597 | 17,572 | 17,187 | |||||
Dividends paid in units | 2,837 | 1,789 | 4,876 | 3,768 | |||||
Balance, end of period | 370,479 | 326,998 | 370,479 | 326,998 |
For the three and six months ended June 30, 2020, the Group recognized, as a result of DSUs, a compensation expense of $0.3 million and $0.7 million respectively (2019 - $0.4 million and $0.8 million) with a corresponding increase to trade and other payables. In addition, in personnel expenses, the Group recognized a mark-to-market loss on DSUs of $6.2 million and $0.9 million for the three and six months ended June 30, 2020 (2019 - loss of $0.2 million and $1.5 million).
As at June 30, 2020, the total carrying amount of liabilities for cash-settled arrangements recorded in trade and other payables amounted to $17.0 million (December 31, 2019 - $15.5 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 objective 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.
Restricted share units
On February 7, 2020, the Company granted a total of 145,218 RSUs under the Company’s equity incentive plan of which 95,358 were granted to key management personnel, at that date. The fair value of the RSUs is determined to be the share price fair value at the date of the grant and is recognized as a share-based compensation expense, through contributed surplus, over the vesting period. The fair value of the RSUs granted was $43.12 per unit.
The table below summarizes changes to the outstanding RSUs:
(in thousands of RSUs and in dollars) | Three months | Three months | Six months | Six months | |||||||||||||
ended | ended | ended | ended | ||||||||||||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||||||||||
Weighted | Weighted | Weighted | Weighted | ||||||||||||||
Number | average | Number | average | Number | average | Number | average | ||||||||||
of | exercise | of | exercise | of | exercise | of | exercise | ||||||||||
RSUs | price | RSUs | price | RSUs | price | RSUs | price | ||||||||||
Balance, beginning of period | 385 | 38.95 | 298 | 36.23 | 239 | 36.44 | 147 | 31.84 | |||||||||
Granted | - | - | - | - | 145 | 43.12 | 153 | 40.36 | |||||||||
Reinvested | 3 | 38.96 | 2 | 36.23 | 4 | 38.33 | 3 | 34.78 | |||||||||
Settled | - | - | - | - | - | - | (1 | ) | 28.10 | ||||||||
Forfeited | - | - | - | - | - | - | (2 | ) | 31.09 | ||||||||
Balance, end of period | 388 | 38.95 | 300 | 36.23 | 388 | 38.95 | 300 | 36.23 |
21 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
The following table summarizes information about RSUs outstanding and exercisable as at June 30, 2020:
(in thousands of RSUs and in dollars) | |||||
RSUs outstanding | |||||
Remaining | |||||
Number of | contractual life | ||||
Exercise prices | RSUs | (in years) | |||
29.92 | 91 | 0.5 | |||
40.36 | 151 | 1.5 | |||
43.12 | 146 | 2.6 | |||
388 | 1.7 |
For the three and six months ended June 30, 2020, the Group recognized, as a result of RSUs, a compensation expense of $1.3 million and $2.3 million, respectively (2019 - $0.9 million and $2.0 million) with a corresponding increase to contributed surplus.
Of the RSUs outstanding at June 30, 2020, a total of 254,223 (December 31, 2019 - 155,974) are held by key management personnel.
Performance share units
On February 7, 2020, the Company granted a total of 145,218 PSUs under the Company’s equity incentive plan of which 95,358 were granted to key management personnel, at that date. The fair value of the PSUs is determined 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 PSUs granted was $43.12 per unit.
The table below summarizes changes to the outstanding RSUs:
(in thousands of PSUs and in dollars) | Three months | Six months | |||||||
ended | ended | ||||||||
June 30, 2020 | June 30, 2020 | ||||||||
Weighted | Weighted | ||||||||
Number | average | Number | average | ||||||
of | exercise | of | exercise | ||||||
PSUs | price | PSUs | price | ||||||
Balance, beginning of period | 145 | 43.12 | - | - | |||||
Granted | - | - | 145 | 43.12 | |||||
Reinvested | 1 | 43.12 | 1 | 43.12 | |||||
Balance, end of period | 146 | 43.12 | 146 | 43.12 |
The following table summarizes information about PSUs outstanding and exercisable as at June 30, 2020:
(in thousands of PSUs and in dollars) | |||||
PSUs outstanding | |||||
Remaining | |||||
Number of | contractual life | ||||
Exercise prices | PSUs | (in years) | |||
43.12 | 146 | 2.6 | |||
146 | 2.6 |
For the three and six months ended June 30, 2020, the Group recognized, as a result of PSUs, a compensation expense of $0.6 million and $1.1 million with a corresponding increase to contributed surplus.
Of the PSUs outstanding at June 30, 2020, a total of 96,106 are held by key management personnel.
22 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
18. | Materials and services expenses |
The Group’s materials and services expenses are primarily costs related to independent contractors and vehicle operation: vehicle operation expenses, primarily fuel, repairs and maintenance, insurance, permits and operating supplies.
Three months | Three months | Six months | Six months | ||||||
ended | ended | ended | ended | ||||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||
Materials and services expenses | |||||||||
Independent contractors | 430,116 | 510,291 | 920,857 | 987,257 | |||||
Vehicle operation expenses | 142,976 | 213,109 | 330,118 | 414,634 | |||||
573,092 | 723,400 | 1,250,975 | 1,401,891 |
19. | Personnel expenses |
The Canada Emergency Wage Subsidy (“CEWS”) was established to enable Canadian employers to re-hire workers previously laid off, help prevent further job losses, and to better position themselves to resume normal operations following the COVID-19 pandemic declaration and crisis. The CEWS provides a subsidy of 75% of employee wages to a maximum of $847 per employee per week for eligible Canadian employers. The program has been separated into six claim periods spanning a 24-week period from March 15, 2020 to August 29, 2020.
To be eligible to receive the wage subsidy, a Canadian employer needs to have sustained a 30% decrease in revenues (15% for the first claim period) as compared to the same period in the previous year or to the average monthly sales recognized in January and February 2020. For the 5th and 6th claim periods commencing on July 5, 2020, the eligibility criteria has not yet been established.
During the three months ended June 30, 2020, certain legal entities within the Company qualified for the CEWS resulting in a $40.4 million subsidy that is recorded and offset against personnel expenses in the consolidated statement of income.
23 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
20. | Finance income and finance costs |
Recognized in income or loss:
Costs (income) | Three months | Three months | Six months | Six months | |||||
ended | ended | ended | ended | ||||||
June 30, 2020 | June 30, 2019* | June 30, 2020 | June 30, 2019* | ||||||
Interest expense on long-term debt | 12,025 | 14,609 | 27,474 | �� | 28,652 | ||||
Interest expense on lease liabilities | 4,229 | 4,673 | 8,496 | 9,401 | |||||
Interest income and accretion on promissory note | (255 | ) | (749 | ) | (857 | ) | (1,455 | ) | |
Net change in fair value and accretion expense of contingent considerations | 41 | 54 | 109 | 137 | |||||
Net foreign exchange (gain) loss | 5 | 973 | (1,645 | ) | 245 | ||||
Net change in fair value of foreign exchange derivatives | - | 18 | - | - | |||||
Net change in fair value of interest rate derivatives | (332 | ) | - | 336 | - | ||||
Other financial expenses | 1,856 | 1,899 | 2,858 | 3,623 | |||||
Net finance costs | 17,569 | 21,477 | 36,771 | 40,603 | |||||
Presented as: | |||||||||
Finance income | (587 | ) | (749 | ) | (2,502 | ) | (1,455 | ) | |
Finance costs | 18,156 | 22,226 | 39,273 | 42,058 |
(*) Effective January 1, 2020, the Group presents mark-to-market (gain) loss on DSUs in personnel expenses. Therefore, $0.2 million and $1.5 million loss on mark-to-market on DSUs for the three and six months ended June 30, 2019 have been recast to adhere to the newly adopted presentation.
21. | Income tax expense |
Income tax recognized in income or loss:
Three months | Three months | Six months | Six months | ||||||
ended | ended | ended | ended | ||||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||
Current tax expense | |||||||||
Current period | 47,995 | 24,360 | 73,025 | 47,585 | |||||
Adjustment for prior years | 2 | - | 385 | - | |||||
47,997 | 24,360 | 73,410 | 47,585 | ||||||
Deferred tax expense (recovery) | |||||||||
Origination and reversal of temporary differences | (4,795 | ) | 4,777 | (5,874 | ) | 2,235 | |||
Variation in tax rate | (27 | ) | (1,249 | ) | (122 | ) | (1,353 | ) | |
Adjustment for prior years | 1,070 | (566 | ) | 330 | (457 | ) | |||
(3,752 | ) | 2,962 | (5,666 | ) | 425 | ||||
Income tax expense | 44,245 | 27,322 | 67,744 | 48,010 |
24 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
Reconciliation of effective tax rate:
Three months | Three months | Six months | Six months | ||||||||||||||
ended | ended | ended | ended | ||||||||||||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||||||||||
Income before income tax | 113,900 | 127,511 | 213,159 | 213,302 | |||||||||||||
Income tax using the Company’s statutory tax rate | 26.5 | % | 30,183 | 26.7 | % | 34,046 | 26.5 | % | 56,487 | 26.7 | % | 56,952 | |||||
Increase (decrease) resulting from: | |||||||||||||||||
Rate differential between jurisdictions | (3.0 | %) | (3,408 | ) | (3.0 | %) | (3,826 | ) | (3.1 | %) | (6,653 | ) | (3.2 | %) | (6,821 | ) | |
Variation in tax rate | 0.0 | % | (27 | ) | (1.0 | %) | (1,249 | ) | (0.1 | %) | (122 | ) | (0.6 | %) | (1,353 | ) | |
Non deductible expenses | 3.4 | % | 3,841 | 0.5 | % | 613 | 4.1 | % | 8,844 | 0.7 | % | 1,566 | |||||
Tax exempt income | (0.1 | %) | (72 | ) | (2.4 | %) | (3,109 | ) | (1.3 | %) | (2,845 | ) | (2.1 | %) | (4,518 | ) | |
Adjustment for prior years | 0.9 | % | 1,072 | (0.4 | %) | (566 | ) | 0.3 | % | 715 | (0.2 | %) | (457 | ) | |||
Multi-jurisdiction tax | 0.7 | % | 785 | 1.1 | % | 1,413 | 0.6 | % | 1,186 | 1.2 | % | 2,641 | |||||
Treasury Regulations, interpretive guidance clarifying the U.S. Tax Reform Bill | 10.4 | % | 11,871 | 0.0 | % | - | 4.8 | % | 10,132 | 0.0 | % | - | |||||
38.8 | % | 44,245 | 21.5 | % | 27,322 | 31.8 | % | 67,744 | 22.5 | % | 48,010 |
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“U.S. Tax Reform”). The U.S. Tax Reform reduces the U.S. federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. The U.S. Tax Reform also allows for immediate capital expensing of new investments in certain qualified depreciable assets made after September 27, 2017, which will be phased down starting in year 2023.
The U.S. Tax Reform introduces other important changes to U.S. corporate income tax laws that may significantly affect the Group in future years including the creation of a new Base Erosion Anti-abuse Tax (BEAT) that subjects certain payments from U.S. corporations to foreign related parties to additional taxes, and limitations to the deduction for net interest expense incurred by U.S. corporations. Future regulations and interpretations to be issued by U.S. authorities may also impact the Group’s estimates and assumptions used in calculating its income tax provisions. 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 tax expense of $10.1 million in 2020.
22. | Financial instruments |
Derivative financial instruments designated as effective cash flow hedge instruments' fair values were as follows:
As at | As at | ||||
June 30, 2020 | December 31, 2019 | ||||
Current assets | |||||
Interest rate derivatives | - | 39 | |||
Current liabilities | |||||
Interest rate derivatives | 2,393 | 843 | |||
Non-current liabilities | |||||
Interest rate derivatives | 2,991 | 888 |
During the first six months of 2020, two hedging relationships ended due to the repayment of the hedged items. As at June 30, 2020, a fair value of $0.3 million of interest rate derivative current liabilities were not designated as cash flow hedge instruments. At June 30, 2020, the Group has US$100 million interest rate swaps that hedge variable interest debt set using the 30-day Libor rate (December 31 2019 - US$325 million).
a) | Interest rate risk |
The Company’s intention is to minimize its exposure to changes in interest rates by maintaining a significant portion of fixed-rate interest-bearing long-term debt. This is achieved by entering into interest rate swaps.
25 |
TFI International Inc. | NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
(Tabular amounts in thousands of Canadian dollars, unless otherwise noted.) | PERIODS ENDED JUNE 30, 2020 AND 2019 - (UNAUDITED) |
The Group’s interest rate derivatives are as follows:
As at June 30, 2020 | As at December 31, 2019 | ||||||||||||||||||||
Notional | Notional | Notional | Notional | ||||||||||||||||||
Average | Contract | Average | Contract | Fair | Average | Contract | Average | Contract | Fair | ||||||||||||
B.A. | Amount | Libor | Amount | value | B.A. | Amount | Libor | Amount | value | ||||||||||||
rate | CDN$ | rate | US$ | CDN$ | rate | CDN$ | rate | US$ | CDN$ | ||||||||||||
Coverage period: | |||||||||||||||||||||
Less than 1 year | - | - | 1.87 | % | 125,000 | (2,729 | ) | 0.99 | % | 75,000 | 1.90 | % | 293,750 | (804 | ) | ||||||
1 to 2 years | - | - | 1.92 | % | 100,000 | (2,393 | ) | - | - | 1.92 | % | 100,000 | (444 | ) | |||||||
2 to 3 years | - | - | 1.92 | % | 25,000 | (598 | ) | - | - | 1.92 | % | 100,000 | (444 | ) | |||||||
Liability | (5,720 | ) | (1,692 | ) | |||||||||||||||||
Presented as: | |||||||||||||||||||||
Current assets | - | 39 | |||||||||||||||||||
Current liabilities | (2,729 | ) | (843 | ) | |||||||||||||||||
Non-current liabilities | (2,991 | ) | (888 | ) |
23. | Contingencies, letters of credit and other commitments |
a) | Contingencies |
There are pending operational and personnel related claims against the Group. The Group has accrued $2.6 million for claim settlements that are presented in long-term provisions on the consolidated statements of financial position (December 31, 2019 -$2.6 million in long-term provisions). In the opinion of management, these claims are adequately provided for and settlement should not have a significant impact on the Group’s financial position or results of operations.
b) | Letters of credit |
As at June 30, 2020, the Group had $34.3 million of outstanding letters of credit (December 31, 2019 - $41.7 million).
c) | Other commitments |
As at June 30, 2020, the Group had $64.0 million of purchase commitments (December 31, 2019 - $35.2 million) and $37.5 million of purchase orders for leases that the Group intends to enter into and that are expected to materialize within a year (December 31, 2019 - $12.0 million).
26 |