Contrans Income Fund Announces Fourth Quarter Results



    TSX: Symbol CSS.UN

    WOODSTOCK, ON, Feb. 25 /CNW/ -

    
    FINANCIAL HIGHLIGHTS
                                          -----------------------------------
                                                      Three Months
    For the periods ended December 31                  (unaudited)
    (in millions except per unit amounts)        2008              2007
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    Revenue - as stated                     109.6             118.5
    Revenue - fuel surcharges(1)            (12.7)            (15.2)
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    Revenue - transportation services(1)  $  96.9   100.0%  $ 103.3   100.0%
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    Operating expenses - net of fuel
     surcharges                              73.5     75.9     80.3     77.7
    Selling, general and
     administration expenses                 10.4     10.7     10.4     10.1
    Foreign exchange loss                     4.5      4.6      0.2      0.2
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    Earnings before amortization,
     interest and income taxes (EBITDA(1))    8.5      8.8     12.4     12.0
    Amortization of property and equipment    3.0      3.1      3.1      3.0
    Amortization of intangible assets         1.0      1.0      1.0      1.0
    Net interest expense                      1.4      1.4      1.2      1.2
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    Earnings before income taxes              3.1      3.3      7.1      6.8
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    Income tax provision:
      Current                                 0.2      0.2     (0.1)    (0.1)
      Future                                 (0.1)    (0.1)    (0.3)    (0.3)
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                                              0.1      0.1     (0.4)    (0.4)
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    Net earnings and comprehensive income $   3.0     3.2%  $   7.5     7.2%
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    Earnings per unit - basic and diluted $  0.10           $  0.26
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                                          -----------------------------------
    For the periods ended December 31                 Twelve Months
    (in millions except per unit amounts)        2008              2007
    -------------------------------------------------------------------------
    Revenue - as stated                     488.8             485.9
    Revenue - fuel surcharges(1)            (79.2)            (56.7)
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    Revenue - transportation services(1)  $ 409.6   100.0%  $ 429.2   100.0%
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    Operating expenses - net of fuel
     surcharges                             310.5     75.8    330.0     76.9
    Selling, general and
     administration expenses                 43.0     10.5     42.8     10.0
    Foreign exchange loss                     4.0      1.0      0.4      0.1
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    Earnings before amortization,
     interest and income taxes (EBITDA(1))   52.1     12.7     56.0     13.0
    Amortization of property and equipment   12.3      3.0     12.9      3.0
    Amortization of intangible assets         3.8      0.9      3.9      0.8
    Net interest expense                      5.7      1.4      5.0      1.2
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    Earnings before income taxes             30.3      7.4     34.2      8.0
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    Income tax provision:
      Current                                 0.7      0.2      1.1      0.3
      Future                                  0.1        -      6.9(2)   1.6
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                                              0.8      0.2      8.0      1.9
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    Net earnings and comprehensive income $  29.5     7.2%  $  26.2     6.1%
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    Earnings per unit - basic and diluted $  1.01           $  0.91
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    (1) See "Use of non-GAAP Financial Measures" below.
    (2) Reflects a $7.6 million non-cash charge in 2007 resulting from the
        enactment of new taxes on income trusts commencing in 2011. This
        $7.6 million future income tax provision reduced the Fund's earnings
        per unit (basic and diluted) from $1.17 to $0.91 in 2007.
    

    "Contrans may have produced its best financial performance ever given the
bleak and deteriorating business environment in which it operated throughout
the year," stated Contrans' Chairman and Chief Executive Officer, Stan
Dunford. "Management met many operating challenges with quick, decisive
actions. Management's skill and experience will serve Contrans' unitholders
well in the challenging times that lie ahead."
    "Few businesses can operate without the need for debt in their capital
structure," continued Mr. Dunford. "Contrans is in the enviable position of
not needing to refinance at a time when financing sources are scarce and debt
service costs have become more expensive. Late in the year, management renewed
one of its long-term, interest-only credit facilities on favourable terms to
Contrans. With this facility now in place, Contrans has no obligation to repay
principal on its long-term debt until 2013. Furthermore, Contrans had $28
million of cash on the balance sheet at the end of the year."
    "The current recession is global in scale and is affecting every aspect
of the North American economy," added Mr. Dunford. "In spite of Contrans'
diverse customer base, service offerings and geographic spheres of operations,
it is not immune to the effects of this recession. Management's top priority
will be a continued focus on maintaining the financial strength of Contrans
particularly if the current recession becomes even more severe or prolonged.
Management will remain aggressive in the marketplace, will remain focused on
operating efficiencies and will continue to scrutinize all discretionary
disbursements."

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The consolidated financial statements contained in this press release,
which have been prepared in accordance with Canadian generally accepted
accounting principles ("GAAP") and reported in Canadian funds, detail the
performance and financial position of Contrans Income Fund (the "Fund") for
the years ended December 31, 2008 and 2007. The financial statements should be
read in conjunction with the analysis that follows. A cautionary note
regarding non-GAAP measures and forward-looking statements follows this
Management's Discussion and Analysis of Operations and Financial Condition.

    
    RESULTS FROM OPERATIONS

    Revenue - transportation services
    

    Freight shipments have been affected by adverse economic conditions, most
notably in the Fund's van operation. Revenue from this operation in 2008 was
$21.6 million lower than it was in 2007 (Q4 2008 - $5.0 million lower than it
was in Q4 2007). UPM, a major east coast van customer, closed its plant in
August 2007. Revenue from this customer was $11.2 million in 2007. In
addition, the Fund's van operations have rationalized unprofitable traffic
lanes in conjunction with a realignment of its operations that occurred in the
first quarter of 2008. The Fund also continues to be adversely affected by
reduced volumes of Canadian exports to the U.S. caused by the weakening of the
U.S. economy. These factors that have decreased the Fund's revenue have been
mitigated by internal growth in certain of the Fund's other businesses.
Revenue from fuel surcharges increased in 2008 as a result of higher fuel
prices particularly in the third quarter of 2008. Fuel surcharges dropped off
in the fourth quarter commensurate with the decrease in diesel prices.

    Operating expenses

    Expressed as a percentage of revenue - transportation services, operating
expenses decreased in 2008 compared to 2007. The Fund continues to benefit
from the rationalization of unprofitable traffic lanes noted above. Internal
growth improved equipment utilization and overall revenue quality. In the
second half of 2008, the Fund benefitted from the lag between falling fuel
prices and fuel surcharge adjustments. The opposite effect occurred in the
first half of 2008 when fuel prices increased. Accident claim costs were $1.2
million higher in 2008 compared to 2007 but were $0.1 million lower in the
fourth quarter of 2008 compared to the fourth quarter of 2007.

    Selling, general and administration expenses

    Approximately $1.0 million of costs were incurred in 2008 as a result of
the Fund's realignment of its east coast operations. These charges included
penalties for the early return of leased equipment and severance costs. These
costs were offset by reduced salary and equipment lease expenses.

    Foreign exchange loss

    Some of the Fund's revenues are billed in US dollars. The Fund has some
natural hedges in the form of US dollar expenses, however, the majority of the
Fund's expenses are incurred in Canadian funds. Management mitigates its
currency risk by entering into foreign exchange forward contracts. In 2008,
the Fund recorded a mark to market fair value adjustment that resulted in an
unrealized, non-cash loss on foreign exchange forward contracts of $4.9
million (2007 - $0.6 million unrealized, non-cash gain). The mark to market
fair value adjustment on foreign exchange forward contracts in the fourth
quarter of 2008 resulted in a $4.6 million unrealized, non-cash loss in that
quarter (Q4 2007 - $1.0 million unrealized, non-cash loss).

    Net interest expense

    Net interest expense increased as average debt levels in 2008 were higher
than in 2007. In addition, interest received on cash balances accrues on a
floating rate basis. Interest income was negatively impacted by falling rates
in 2008 compared to 2007.

    
    SUMMARY OF QUARTERLY RESULTS

                                          -----------------------------------
    (unaudited)                             First Quarter    Second Quarter
    ($ millions except per unit amounts)    2008     2007     2008     2007
    -------------------------------------------------------------------------
    Revenue - as stated                   $ 120.5  $ 119.4  $ 129.7  $ 125.8
    Revenue - fuel surcharges(1)            (18.2)   (13.0)   (23.9)   (14.6)
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    Revenue - transportation services(1)  $ 102.3  $ 106.4  $ 105.8  $ 111.2
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    Net earnings                          $   5.0  $   8.1  $  10.2  $   1.5
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    Earnings per unit - basic and diluted $  0.17  $  0.28  $  0.35  $  0.05
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                                          -----------------------------------
    (unaudited)                             Third Quarter    Fourth Quarter
    ($ millions except per unit amounts)    2008     2007     2008     2007
    -------------------------------------------------------------------------
    Revenue - as stated                   $ 128.9  $ 122.1  $ 109.6  $ 118.5
    Revenue - fuel surcharges(1)            (24.3)   (13.9)   (12.7)   (15.2)
    -------------------------------------------------------------------------
    Revenue - transportation services(1)  $ 104.6  $ 108.2  $  96.9  $ 103.3
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    Net earnings                          $  11.4  $   9.1  $   3.0  $   7.5
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    Earnings per unit - basic and diluted $  0.40  $  0.32  $  0.10  $  0.26
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    (1) See "Use of non-GAAP Financial Measures" below.
    

    SEASONALITY

    Generally, the second quarter is the Fund's strongest period. Volumes
from customers in the construction industry typically build as temperatures
warm in the spring, peak in the autumn and then drop off with winter weather.
Some manufacturing customers close their plants during the summer and many
customers either shut down their production facilities or otherwise reduce
shipments during the Christmas holiday season. Harsh winter weather conditions
hinder traffic and increase operating costs.

    CASH FLOW

    Cash flow from continuing operating activities before changes in non-cash
working capital balances amounted to $51.3 million in 2008 compared to $49.0
million in 2007. This was primarily due to increased profits before
considering the impact of the mark to market fair value adjustment on the
Fund's foreign exchange forward contracts.
    Non-cash working capital items have decreased in 2008 compared to 2007
due principally to reduced fourth quarter business activity. Accounts
receivable, accounts payable and accrued liability balances were lower as a
result. The mark to market fair value adjustment on the Fund's unrealized
foreign exchange losses of $4.9 million were recorded as accounts payable and
accrued liabilities.
    The Fund recognized the disposal of its plant services operation on
September 30, 2008. Cash proceeds from the sale were $2.1 million. This
operation had not produced satisfactory returns and management did not believe
that the prospects for improvement were good.
    Proceeds from the sale of property and equipment in 2008 were $3.3
million (2007 - $7.4 million). During 2007, proceeds of $2.3 million were
generated from the sale of real estate resulting from terminal closures and
from the sale of the assets of a small bulk operation.
    The Fund's dividend reinvestment plan ("DRIP") was reinstated in January
2008. The Fund received $6.5 million in 2008 from participation in its DRIP
(2007 - $4.9 million). Of this amount, $1.6 million was received in the fourth
quarter of 2008 (2007 - $nil).

    
    CASH DISTRIBUTIONS

                                      ---------------------------------------
    (unaudited)                          Three
    Periods ended December 31           Months            Twelve Months
    ($ thousands)                         2008      2008      2007      2006
    -------------------------------------------------------------------------
    Cash flow provided by
     operating activities(1)          $ 19,641  $ 50,474  $ 46,597  $ 42,392
    Net earnings                         2,942    29,512    26,225    35,789
    Distributions declared              (9,229)  (36,457)  (36,033)  (35,670)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Surplus of cash flow from
     operating activities over
     distributions declared           $ 10,412  $ 14,017  $ 10,564  $  6,722
    Surplus (deficit) of net
     earnings over distributions
     declared                         $ (6,287) $ (6,945) $ (9,808) $    119
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings                      $  2,942  $ 29,512  $ 26,225  $ 35,789
    Unrealized loss (gain) on
     foreign exchange contracts          4,593     4,925      (553)       64
    Amortization of intangible assets      945     3,778     3,881     2,238
    Income tax provision (recovery)
     - future                              (87)      113     6,897       755
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    Net earnings before amortization
     of intangible assets and future
     income tax provision (recovery)  $  8,393  $ 38,328  $ 36,450  $ 38,846
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Surplus (deficit) of net earnings
     before amortization of
     intangible assets and future
     income tax provision over
     distributions declared           $   (836) $  1,871  $    417  $  3,176
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes changes in non-cash working capital balances


    Management does not believe that the fact that net earnings were exceeded
by distributions declared in 2008 reflects an economic return of capital for
the following reasons:

    1.  The computation of net earnings includes two material, non-cash
        expenses - amortization of intangibles of $3.8 million and a mark to
        market fair value adjustment on the Fund's foreign exchange forward
        contracts that resulted in an unrealized, non-cash loss of
        $4.9 million.

    2.  Amortization of intangibles, unlike amortization of property and
        equipment, does not represent a charge to earnings for future capital
        outlays required to maintain current productive capacity.

    3.  Under Canadian GAAP, the Fund is required to apply fair value
        accounting to its foreign exchange forward contracts since the Fund
        has not met stringent requirements that would permit hedge accounting
        and a deferral of gains or losses on these financial instruments.
        However, management believes that as the Fund will continue to
        receive $US revenues in 2009, all other things being equal, this
        revenue stream will carry with it a foreign exchange premium that
        will offset, at least in part, the losses on the foreign exchange
        forward contracts as they settle in 2009.


    Distributable Cash(1)

    (unaudited)
    Periods ended
     December 31            -------------------------------------------------
    ($ thousands except          Three months             Twelve months
     per unit amounts)          2008      2007      2008      2007      2006
    -------------------------------------------------------------------------
    Cash flow provided by
     operating activities   $ 19,641  $ 11,800  $ 50,474  $ 46,597  $ 42,392
    Change in non-cash
     working capital          (7,663)      527       836     2,354     7,174
    Proceeds on sale of
     equipment
     (excluding land)            836     2,324     3,332     7,363     4,888
    Asset retirement
     obligations - settlements   (68)       (3)     (212)      (55)     (250)
    Capital lease repayments
     where no financing
     available(1)               (534)        -    (1,794)        -         -
    Long-term debt
     repayments where no
     financing available(1)      (63)        -      (441)        -         -
    Maintenance capital
     expenditures(1)          (1,559)   (2,893)   (4,785)   (6,707)  (10,056)
    -------------------------------------------------------------------------
    Distributable cash
     earned before proceeds
     from sale of plant
     services operation(1)    10,590    11,755    47,410    49,552    44,148
    Proceeds from sale
     of land                       -         -         -         -     3,717
    Proceeds from sale
     of plant services
     operation                     -         -     2,107         -         -
    -------------------------------------------------------------------------
    Distributable cash
     earned(1)                10,590    11,755    49,517    49,552    47,865
    Distributions declared     9,229     8,986    36,457    36,033    35,670
    -------------------------------------------------------------------------
    Surplus of distributable
     cash earned vs.
     distributions declared $  1,361  $  2,769  $ 13,060  $ 13,519  $ 12,195
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Per unit calculations:
      Distributable cash
       earned before
       proceeds from sale
       of plant services
       operation            $   0.36  $   0.41  $   1.63  $   1.72  $   1.55
      Proceeds from sale
       of land                     -         -         -         -      0.13
      Proceeds from sale
       of plant services
       operation                   -         -      0.07         -         -
    -------------------------------------------------------------------------
                                0.36      0.41      1.70      1.72      1.68
    Distributions
     declared per unit          0.31      0.31      1.25      1.25      1.25
    -------------------------------------------------------------------------
    Surplus of distributable
     cash earned vs.
     distributions declared
     per unit               $   0.05  $   0.10  $   0.45  $   0.47  $   0.43
    -------------------------------------------------------------------------
    Weighted average number
     of units outstanding     29,478    28,749    29,122    28,826    28,513
    -------------------------------------------------------------------------
    Purchase of property
     and equipment
      Maintenance capital
       expenditures(1)      $  1,559  $  2,893  $  4,785  $  6,707  $ 10,056
      Growth capital
       expenditures(1)           288     1,620     2,835     5,711    15,707
    -------------------------------------------------------------------------
    Total                   $  1,847  $  4,513  $  7,620  $ 12,418  $ 25,763
    -------------------------------------------------------------------------

    Capital lease
     repayments where no
     financing available(1) $    534  $      -  $  1,794  $      -  $      -
    Capital lease
     repayments funded out
     of surplus cash(1)            -       154         -       374       212
    -------------------------------------------------------------------------
    Repayment of capital
     lease obligations      $    534  $    154  $  1,794  $    374  $    212
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Long-term debt
     repayments where no
     financing available(1) $     63  $      -  $    441  $      -  $      -
    Proceeds from long-term
     debt received
     December 15, 2008        31,875         -    31,875         -         -
    Long-term debt
     repayments funded out
     of surplus or
     restricted cash(1)        5,625        70     5,625       248       577
    -------------------------------------------------------------------------
    Repayment of
     long-term debt         $ 37,563  $     70  $ 37,941  $    248  $    577
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) See "Use of non-GAAP Financial Measures" below.
    

    The amount of distributable cash earned has exceeded distributions to
unitholders in the current year. However, management believes that current
unitholders appreciate a stable rate of distributions. Based on the Fund's
scope of operations as at December 31, 2008, management expects that the
Fund's average net maintenance capital expenditure will approximate $10
million per year over the next ten years. The actual amount that will be
expended in a year may vary depending on factors that include, but are not
necessarily limited to, the age and condition of the fleet, the growth of the
Fund's business, changes in government regulations regarding the weights and
dimensions of highway equipment and the funding method used by the Fund. See
also "Forward-Looking Statements".

    DISTRIBUTABLE CASH EARNED - RECONCILIATION

    Cash used to fund working capital, growth capital expenditures or debt
repayments does not affect amounts that can be distributed to unitholders when
financing is available. Similarly, cash generated by changes in non-cash
working capital is not considered distributable to unitholders. Proceeds from
the sale of retired highway equipment effectively reduce the cost of
maintenance capital expenditures and therefore these proceeds should be
considered when determining what amounts can be distributed to unitholders.
Settlements of asset retirement obligations reflect amounts paid by the Fund,
at the termination of equipment leases, to bring such equipment to the
condition that was stipulated and agreed to in each lease contract.
Accordingly, these settlements need to be considered when determining
distributable cash earned since they are not included in cash provided by
operating activities in the statements of cash flow. Maintenance capital
expenditures refer to capital expenditures that are necessary to sustain
current revenue levels.

    
    LIQUIDITY AND CAPITAL RE

SOURCES (unaudited) As at December 31, 2008 ($ millions) ------------------------------------------------------------------------- Cash and cash equivalents Unrestricted $ 18.4 Restricted $ 10.4 Operating line cash available $ 29.1 Current ratio 2.2:1 Total debt (including future tax obligations) to equity ratio 1.1:1 ------------------------------------------------------------------------- The Fund requires working capital, sourced by operating cash flows and an operating line, to fund day-to-day operating activities and to pay distributions. Management believes that the Fund's operating line is adequate to meet seasonal fluctuations in working capital requirements. The Fund's operating cash flows in 2008 grew appreciably over the prior year in spite of operating in a poor economic environment. In addition, a significant portion of the Fund's long-term debt facility was renewed and cash balances increased during the year. The Fund is, however, affected by economic cycles and there is uncertainty as to the ultimate severity and duration of the current recession. Accordingly, when assessing the level of distributions to unitholders each month, the Fund's trustees consider many factors including the Fund's current financial condition, its expected future financial performance, the anticipated capital requirements to maintain its fleet over the longer term as well as repayment obligations and restrictive covenants that are contained in the Fund's loan agreements. Bearing these factors in mind, and given the uncertainty surrounding the current economic conditions, the trustees of the Fund will consider, on a month to month basis, the sustainability of the level of distributions that is currently being paid to unitholders. The Fund retired a $37.5 million loan on December 15, 2008 by entering into a new $31.9 million loan and by drawing $5.6 million from restricted funds. The new loan has a term of five years, requires monthly, interest-only payments and bears interest at 5.9%. Other terms and conditions remained substantially unchanged. Principal maturities of the Fund's senior secured debt are as follows: ($ millions) ------------------------------------ December 15, 2013 $ 31.9 October 15, 2016 $ 50.0 ------------------------------------ Under the terms of its long-term credit agreement, the Fund's restricted cash and cash equivalents balance of $10.4 million as at December 31, 2008 ($16 million as at December 31, 2007) can only be used to finance growth activities or to repay senior secured notes payable. Due to the achievement of certain performance objectives, additional consideration of $3 million was paid out of the restricted cash and cash equivalents balance in January, 2009 to the former owners of Tripar Transportation Inc., a company acquired by the Fund in 2006. PRODUCTIVE CAPACITY Definition The Fund's productive capacity is a function of the following service modes: - Tractors and trailers owned or leased by the Fund - Tractors and trailers of owner-operators under contract with the Fund - Partner carriers under contract with the Fund The Fund's capital requirements are affected by each of the foregoing service modes. In addition, capital requirements vary by the type of trailer used within each of Contrans' operating divisions. For example, a dry van trailer can cost between $25,000 and $40,000 whereas a pneumatic tank trailer can cost more than $150,000. Management Strategy The Fund generally prefers to utilize owner-operators' tractors over company tractors. Owner-operators own their own tractors providing the Fund with equipment that it would otherwise have to lease or purchase. Some owner-operators also own their own trailers. Accordingly, these individuals are effectively a source of capital as well as providers of freight-hauling capacity. In addition, owner-operators' goals are generally well-aligned with those of the Fund. As a result, the Fund is very focused on recruiting and retaining qualified owner-operators. The Fund is also focused on maintaining good working relationships with partner carriers that are safe, provide reliable service and have adequate insurance coverage. The Fund is often an important source of revenue for these carriers who, in turn, provide service to the Fund's customers when the Fund cannot provide its own equipment or when it is more efficient to make use of partner carrier capacity. Financing Strategy In 2008, the Fund began financing some of its equipment purchases through capital leases to preserve cash in response to growing economic uncertainty. The Fund added approximately $10 million worth of new equipment in 2008 that was financed with capital leases. Of this amount, $6.0 million was incurred to maintain productive capacity and $4.0 million was for growth purposes. Repayment terms of capital lease obligations are typically four years for tractors and range from five to seven years for trailers. Historically, the Fund has used operating leases to finance the acquisition of tractors and certain types of trailers to reduce the risk associated with fluctuations in the market for used equipment. Terms of tractor leases usually coincide with engine warranty periods to protect the Fund from costly repairs. PROPERTY AND EQUIPMENT (unaudited) As at December 31, 2008 Owned Leased Owner-operated Total ------------------------------------------------------------------------- Tractors 177 378 724 1,279 Trailers 1,561 635 96 2,292 Major office and terminal locations 16 5 - 21 ------------------------------------------------------------------------- TAX ATTRIBUTES OF DISTRIBUTIONS The tax attributes of the distributions made to holders of the Fund's subordinate voting trust units can be found on the Fund's website at www.contrans.ca under Investor Relations. CONTRACTUAL OBLIGATIONS (unaudited) As at December 31, 2008 There- ($ millions) 2009 2010 2011 2012 2013 after Total ------------------------------------------------------------------------- Senior secured notes payable $ 5.1 $ 5.1 $ 5.1 $ 5.1 $ 36.9 $ 59.1 $116.4 Obligations under capital leases 2.3 2.1 2.0 1.7 1.3 1.6 11.0 Obligations under operating leases 10.8 7.0 1.8 0.4 - - 20.0 Derivative financial instruments 58.6 - - - - - 58.6 Accounts payable and accrued liabilities 33.2 - - - - - 33.2 Distributions payable 3.1 - - - - - 3.1 Equipment purchase commitments 0.4 - - - - - 0.4 ------------------------------------------------------------------------- Total $113.5 $ 14.2 $ 8.9 $ 7.2 $ 38.2 $ 60.7 $242.7 ------------------------------------------------------------------------- ------------------------------------------------------------------------- OUTSTANDING UNITS (unaudited) As at January 31, 2009 (in thousands) ------------------------------------------------- Subordinate Voting Trust units 23,425 Class A LP units 4,810 Class B LP units 1,468 ------------------------------------------------- Total 29,703 ------------------------------------------------- FINANCIAL INSTRUMENTS The Fund from time to time enters into foreign exchange contracts to manage its net exposure to currency fluctuations. As at December 31, 2008, the Fund had contracts to sell $4.0 million of US funds per month from January to December 2009. These contracts settle at exchange rates between $1.0000 and $1.0935 (January to July), between $1.0200 and $1.1095 (August to October) and between $1.0500 and $1.1529 (November and December). As at December 31, 2008, the fair value of these contracts was recorded as a liability of $4.9 million. CRITICAL ACCOUNTING ESTIMATES Management is required to make significant estimates and assumptions in preparing its financial statements, the most significant of which are as follows: ------------------------------------------------------------------------- Financial Statement Item Methodology, Assumptions ------------------------------------------------------------------------- Accounts receivable - provisions Specific account analysis for doubtful accounts performed and provisions created. Also a general provision is established based on past performance. ------------------------------------------------------------------------- Note receivable - fair value Based on expected future payments. ------------------------------------------------------------------------- Asset retirement obligations Based on past experience. ------------------------------------------------------------------------- Goodwill and long-lived assets Based on expected future cash - impairment testing flows. Consideration is given to past performance and future conditions that are known, or expected to change, that will affect future cash flows. ------------------------------------------------------------------------- Property, equipment and intangible Based on past experience. assets - useful lives ------------------------------------------------------------------------- Accrued liabilities - matters Accruals for settlement involving litigation established based on information provided by legal counsel or insurance claims professionals. ------------------------------------------------------------------------- Management does not believe that there are changes that are reasonably likely to occur in the assumptions that have been used that will have a material impact on the Fund's financial position, changes in financial condition or results of operations. NEW ACCOUNTING PRONOUNCEMENTS Effective January 1, 2008, the Fund adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1535, Capital Disclosures; CICA Handbook Section 3862, Financial Instruments - Disclosures; and CICA Handbook Section 3863, Financial Instruments - Presentation. The adoption of these standards did not have an impact on the Fund's financial results or financial position. Handbook Section 1535 requires the Fund to disclose information that enables users of its financial statements to evaluate the Fund's objectives, policies and processes for managing capital. This includes disclosures of any externally imposed covenants and the consequences for non-compliance. These new disclosures are included in note 11 of the consolidated financial statements as at December 31, 2008. Handbook Section 3862 requires the Fund to revise and enhance disclosure requirements to provide additional information on the nature and extent of risks arising from financial instruments to which the entity is exposed and how it manages those risks. The new disclosures, pursuant to this new Handbook section, are included in note 14 of the consolidated financial statements as at December 31, 2008. Handbook Section 3863 carries forward the presentation standards which previously existed under Handbook Section 3861. The Accounting Standards Board ("AcSB") has issued a revised Section 3064 - Goodwill and Intangible Assets. This revised Section is applicable to accounting periods beginning on or after October 1, 2008. This Section establishes new standards for the recognition and measurement of intangible assets, but does not affect accounting for goodwill. Management does not expect that the adoption of this revised section will have a material impact on the Fund's financial statements. The AcSB has issued a revised Section 1601 - Consolidated Financial Statements. This revised Section is applicable to accounting periods beginning on or after January 1, 2011. This Section establishes standards for the preparation of consolidated financial statements and is to be applied prospectively. Management does not expect that the adoption of this revised section will have a material impact on the Fund's financial statements. The AcSB has issued a revised Section 1602 - Non-controlling Interests. This revised Section is applicable to accounting periods beginning on or after January 1, 2011. This Section establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. Currently there are no non-controlling interests in the Fund's subsidiaries and therefore management does not expect that the adoption of this revised section will have a material impact on the Fund's financial statements. The AcSB has issued a revised Section 1582 - Business Combinations. This revised Section is applicable to accounting periods beginning on or after January 1, 2011. The objective of this Section is to improve the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. Management does not expect that the adoption of this revised section will have a material impact on the Fund's financial statements. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) In February 2008 the AcSB announced that publicly-listed companies would, for fiscal years beginning on or after January 1, 2011, be required to report their results under IFRS. Management is in the process of assessing the impact of the implementation of IFRS on its accounting policies and financial statements. IFRS allows for different accounting treatments on first implementing IFRS and management is evaluating its alternatives. Management will also be assessing possible changes that may need to be implemented to ensure that adequate internal controls over financial reporting, disclosure controls and procedures will remain in place once IFRS is implemented. In addition, the impact on information systems will be addressed as will the training needs for the Fund's finance and accounting personnel. BUSINESS RISKS The Fund is affected by economic cycles. The Fund provides transportation services to approximately 6,000 customers in various industries and geographic regions. The Fund's operations haul freight on van, flatbed, dump, dry bulk and liquid tank trailers. Some of the Fund's customers are in industries where demand for their goods is relatively inelastic. The diversity of the customer base also limits concentration of credit risk. No single customer accounts for more than 10% of the Fund's revenue. Cross-border travel is required to service many customers. Approximately 35% of the total distance travelled by the Fund's trucks is travelled in the U.S. Accordingly, border crossings and customs clearances affect these shipments. Today's political uncertainties and border security concerns affect cross-border traffic. The Fund participates in professional and industry associations designed to protect the transportation industry's interests. In addition, management informs customers about border delays and seeks fair compensation for lost productivity. The Fund is subject to certain foreign exchange risks as it has positive US dollar cash flow. Management manages this risk through foreign exchange contracts, denominating equipment leases in US dollars and through customer negotiations. Changes in the relative value of the Canadian dollar against the US dollar also affect the flow of goods between the two countries as well as competition for freight. Management competes for trans-border freight by providing high levels of service to service-sensitive customers. The Fund's operating entities are subject to lawsuits arising from accidents and other insurable risks. Management maintains prudent levels of insurance coverage and high safety standards to minimize this exposure. Furthermore, management contracts only with insurers licensed to underwrite in Canada. The Canadian insurance industry is highly regulated with stringent capital and liquidity requirements. The Fund relies primarily on the services of owner-operators and professional drivers. Besides offering competitive rates of pay, management is conscious of the quality of the working environment. In addition, when the Fund lacks its own hauling resources, partner carriers can provide additional capacity. Management has no control over fuel prices. Although the Fund has fuel surcharge programs with most of its customers that offset higher fuel prices, the effectiveness of these programs during times of sudden, significant increases in fuel prices is diminished. Rapid fluctuations in fuel prices, moreover, absorb more management time. Changes in interest rates affect both interest paid on floating rate debt and interest received on surplus cash. As at December 31, 2008, approximately 97% of the Fund's long-term debt had fixed interest rates. CONTROLS AND PROCEDURES Management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The system of internal controls has been documented at all material operating divisions of the Fund. The Fund's management, including the Chief Executive Officer and the Chief Financial Officer, assessed the design of the Fund's internal controls and tested their operation over financial reporting as at December 31, 2008 and determined that there were no material weaknesses in the Fund's internal controls over financial reporting and concluded that the Fund's disclosure controls and procedures were effective. No changes were made in the Fund's internal control over financial reporting during the year ended December 31, 2008, that have materially affected, or are reasonably likely to materially affect, the Fund's internal control over financial reporting. A control system, no matter how well conceived and operated, can provide only reasonable, and not absolute, assurance that the objectives of the control system are met. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, including instances of fraud, if any, have been detected. The design of any system of controls is also based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under future conditions. TRANSACTIONS WITH RELATED PARTIES In 2008, the Fund paid $6.1 million to Peterbilt of Ontario Inc., a company controlled by the Chairman of the Fund, for tractor repairs, vehicle maintenance and lease costs. In addition, the Fund also leased certain premises to Peterbilt of Ontario Inc. in 2008 for consideration of $0.2 million. These transactions were carried out in the normal course of business and recorded at the exchange amount, which management believes approximates an arm's length arrangement. USE OF NON-GAAP FINANCIAL MEASURES Management has included certain non-GAAP measures to supplement its consolidated financial statements which are presented in accordance with Canadian GAAP. Non-GAAP measures do not have any standardized meaning prescribed under Canadian GAAP and therefore they are unlikely to be comparable to similar measures employed by other issuers. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP. Management has included these non-GAAP measures for the reasons set forth below. EBITDA, distributable cash, maintenance capital expenditures and growth capital expenditures: Management believes that these measures are useful supplements to the information contained in the Fund's statements of cash flow as they facilitate a greater depth of analysis. Accordingly, these measures can enhance the evaluation of the Fund's historical and prospective operating performances as well as the sustainability of the Fund's distributions. Revenue - transportation services, revenue - fuel surcharges: Management believes that it is important to isolate the effects of fuel surcharges, a volatile source of revenue, when analyzing operating results. Management regards revenue from transportation services as the relevant indicator of business level activity. Accordingly, the percentages in the Financial Highlights table were calculated using revenue from transportation services as a base. In addition, operating expenses are stated after netting fuel surcharges against fuel expenses in the Financial Highlights table. Management believes that this facilitates a comparison of operating costs between periods. FORWARD-LOOKING STATEMENTS Management's discussion and analysis contains certain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements relate to future events or future performance and include, but are not limited to, changes in government regulations regarding weights and dimensions of highway equipment, the age and condition of the transportation fleet and the growth of the Fund's business. Often, but not always, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. Such statements reflect the current views and estimates of management of the Fund with respect to future events, as of the date such statements are made, and they involve known and unknown risks and uncertainties which may cause actual events or results to differ materially from those expressed or implied by forward-looking statements. In evaluating these statements, readers should specifically consider factors such as the risks outlined under "Risk Factors" in the Fund's Annual Information Form, which is available at www.sedar.com. Although the Fund has attempted to identify important factors that could cause actual events, actions or results to differ materially from those described in the forward-looking statements, there may be other factors that cause such events, actions or results to differ. The Fund undertakes no obligation to update forward-looking statements if circumstances or management's views or estimates change. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. ADDITIONAL INFORMATION Additional information, including the Fund's Annual Information Form, is available at www.sedar.com. CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (in thousands except for per unit amounts) ------------------------- Years ended December 31 2008 2007 ------------------------------------------------------------------------- Revenue $ 488,832 $ 485,865 Operating expenses 389,737 386,686 Selling, general and administration expenses 42,973 42,798 Foreign exchange loss 3,950 374 Amortization of property and equipment 12,342 12,854 Amortization of intangible assets 3,778 3,881 ------------------------------------------------------------------------- 36,052 39,272 Net interest expense (income) - long-term 6,281 5,113 - short-term (531) (92) ------------------------------------------------------------------------- Earnings before Income Taxes 30,302 34,251 ------------------------------------------------------------------------- Income Tax Provision (Note 10): Current 677 1,129 Future 113 6,897 ------------------------------------------------------------------------- 790 8,026 ------------------------------------------------------------------------- Net Earnings and Comprehensive Income $ 29,512 $ 26,225 ------------------------------------------------------------------------- Earnings per unit - basic and diluted $ 1.01 $ 0.91 Weighted average number of units outstanding - basic and diluted 29,122 28,826 ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (in thousands) ------------------------- Years ended December 31 2008 2007 ------------------------------------------------------------------------- Retained Earnings - Beginning of Year $ 7,380 $ 18,975 Net earnings 29,512 26,225 Premium paid on units repurchased - (1,787) Distributions declared (36,457) (36,033) ------------------------------------------------------------------------- Retained Earnings - End of Year $ 435 $ 7,380 ------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. CONSOLIDATED BALANCE SHEETS (in thousands) ------------------------- As at December 31 2008 2007 ------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents (Note 9) $ 28,826 $ 18,301 Accounts receivable 49,089 54,599 Income taxes recoverable 538 - Other current assets 6,167 6,021 ------------------------------------------------------------------------- 84,620 78,921 Note Receivable (Note 5) 538 - Property and Equipment (Note 6) 106,551 107,295 Intangible Assets (Note 7) 18,905 22,905 Goodwill 63,978 61,478 ------------------------------------------------------------------------- $ 274,592 $ 270,599 ------------------------------------------------------------------------- Liabilities and Unitholders' Equity Current Liabilities Accounts payable and accrued liabilities $ 33,215 $ 31,191 Distributions payable 3,087 2,996 Income taxes payable - 417 Current portion of capital lease obligations (Note 8) 1,823 398 Current portion of long-term debt (Note 9) - 7,408 ------------------------------------------------------------------------- 38,125 42,410 Long-Term Debt (Note 9) 83,686 82,071 Capital Lease Obligations (Note 8) 7,518 482 Asset Retirement Obligations 1,036 1,192 Future Income Taxes (Note 10) 15,773 15,660 ------------------------------------------------------------------------- 146,138 141,815 ------------------------------------------------------------------------- Unitholders' Equity (Note 11) Contributed surplus 834 744 Trust units 127,185 120,660 Retained earnings 435 7,380 ------------------------------------------------------------------------- 128,454 128,784 ------------------------------------------------------------------------- $ 274,592 $ 270,599 ------------------------------------------------------------------------- Commitments and contingencies (Notes 12 and 13) The accompanying notes are an integral part of these statements. Signed on behalf of the Board of Trustees Stan G. Dunford, Trustee Archie M. Leach, C.A., Trustee CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands) ------------------------- Years ended December 31 2008 2007 ------------------------------------------------------------------------- Cash Provided by (Used in): Operating Activities Net earnings $ 29,512 $ 26,225 Items not affecting cash: Unrealized foreign exchange loss (gain) (Note 14 b) 5,131 (553) Unit-based compensation expense (Note 11) 90 94 Long-term debt - accretion 128 136 Loss on sale of plant services operation - net (Note 5) 79 - Fair value adjustment to note receivable (Note 5) 226 - Asset retirement obligations - accretion 50 54 Amortization of property and equipment 12,342 12,854 Amortization of intangible assets 3,778 3,881 Future income taxes 113 6,897 Gain on sale of equipment (139) (637) ------------------------------------------------------------------------- 51,310 48,951 Change in non-cash working capital (Note 16) (836) (2,354) ------------------------------------------------------------------------- 50,474 46,597 ------------------------------------------------------------------------- Investing Activities Expended on acquisitions (Note 4) - (6,423) Asset retirement obligations - settlements (212) (55) Proceeds on disposal of plant services operation (Note 5) 2,107 - Proceeds on sale of equipment 3,332 7,363 Purchase of property and equipment (7,620) (12,418) ------------------------------------------------------------------------- (2,393) (11,533) ------------------------------------------------------------------------- Financing Activities Distributions paid (36,366) (36,139) Proceeds from long-term debt 32,020 16,099 Repayment of long-term debt (37,941) (248) Repayment of capital lease obligations (1,794) (374) Repurchase of trust units - (3,850) Issuance of trust units (Note 11) 6,525 4,905 ------------------------------------------------------------------------- (37,556) (19,607) ------------------------------------------------------------------------- Increase in Cash and Cash Equivalents 10,525 15,457 Cash and Cash Equivalents - Beginning of Year 18,301 2,844 ------------------------------------------------------------------------- Cash and Cash Equivalents - End of Year $ 28,826 $ 18,301 ------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------------------------------------- For the years ended December 31, 2008 and 2007 (tabular amounts in thousands except for per unit amounts) ------------------------------------------------------------------------- 1. ORGANIZATION Contrans Income Fund (the "Fund") is an unincorporated, open-ended limited purpose trust established under the laws of the province of Ontario. The Fund was created for the purpose of acquiring and holding investments. The Fund is based in Canada and operates in a single industry segment, freight transportation. 2. CHANGES IN ACCOUNTING POLICIES Effective January 1, 2008, the Fund adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1535, Capital Disclosures; CICA Handbook Section 3862, Financial Instruments - Disclosures; and CICA Handbook Section 3863, Financial Instruments - Presentation. The adoption of these standards did not have an impact on the Fund's financial results or financial position. Handbook Section 1535 requires the Fund to disclose information that enables users of its financial statements to evaluate the Fund's objectives, policies and processes for managing capital. This includes disclosures of any externally imposed covenants and the consequences for non-compliance. These new disclosures are included in note 11. Handbook Section 3862 requires the Fund to revise and enhance disclosure requirements to provide additional information on the nature and extent of risks arising from financial instruments to which the entity is exposed and how it manages those risks. The new disclosures, pursuant to this new Handbook Section, are included in note 14. Handbook Section 3863 carries forward the presentation standards which previously existed under Handbook Section 3861. 3. SIGNIFICANT ACCOUNTING POLICIES These financial statements are prepared in accordance with accounting principles generally accepted in Canada. Significant accounting policies adopted by the Fund are as follows: PRINCIPLES OF CONSOLIDATION The purchase method of accounting for business combinations has been used and the accounts of all subsidiaries have been consolidated with those of the Fund. Intercompany balances and transactions have been eliminated upon consolidation. FINANCIAL ASSETS AND FINANCIAL LIABILITIES CICA Handbook Section 3855 establishes standards for recognizing and measuring financial assets and financial liabilities. It requires that financial assets and liabilities be recognized on the balance sheet when the Fund becomes a party to the contractual provisions of a financial instrument. Under this standard, all financial instruments are required to be measured at fair value on initial recognition except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as held for trading, loans and receivables, held to maturity, available for sale or financial liabilities. Management determines the classification of financial assets and liabilities at initial recognition. The Fund designated its cash and cash equivalents and derivative financial instruments, which have not been designated in a hedging relationship, as held for trading, with gains and losses arising from changes in fair value of these instruments recorded in the consolidated statement of earnings and comprehensive income. Accounts receivable and note receivable are classified as loans and receivables which are measured at amortized cost using the effective interest method. Accounts payable and accrued liabilities, distribution payable and long term debt are classified as other liabilities which are also measured at amortized cost using the effective interest method. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on deposit and short-term interest-bearing securities with maturities at purchase date of three months or less. PROPERTY AND EQUIPMENT Property and equipment are valued at acquisition cost less accumulated amortization. Amortization is provided over the estimated service lives of the assets as follows: Buildings - Straight-line over 15 to 40 years Rolling Stock - Tractors - 25% declining balance - Trailers - Straight-line over 10 to 15 years Service Vehicles and Other Equipment - 20% to 30% declining balance Management periodically reviews the estimated service lives of these assets and adjusts amortization accordingly. GOODWILL AND INTANGIBLE ASSETS Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the assets acquired, less liabilities assumed, based on their fair values. Goodwill is tested for impairment on an annual basis or more frequently, if events or changes in circumstances indicate that the asset might be impaired. Management periodically reviews the estimated lives of intangible assets and adjusts amortization accordingly. Intangible assets, with finite lives, are amortized on a straight-line basis over a period of up to 10 years. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets, including property and equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer amortized. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. ASSET RETIREMENT OBLIGATIONS The Fund recognizes the fair value of a future asset retirement obligation as a liability in the period in which it enters into operating leases. The fair value of the asset retirement obligation is determined using the discounted expected cash flow approach and accordingly the change in the obligation due to the passage of time is recognised in income as an operating expense. Any change in the obligation due to changes in estimated cash flow is recognized as an adjustment to the carrying amount of the obligation. The Fund concurrently recognizes a corresponding change in the carrying amount of the related long-lived asset. This asset is amortized over the term of the operating lease agreement. REVENUE RECOGNITION Revenue is recognized upon delivery of goods to customers. INCOME TAXES The liability method is used to account for future income taxes. Under this method, future income tax assets and liabilities are recognized for the estimated income tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective income tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effects of changes in income tax rates are reflected in future income tax assets and liabilities in the period that the rate changes are substantively enacted. Under the SIFT rules (see note 10) the Fund is also required to recognize future income tax assets and liabilities with respect to the temporary differences between the carrying amount and the tax bases of its assets and liabilities and those of its flow-through entities that are expected to reverse in or after 2011. FOREIGN CURRENCY Assets and liabilities denominated in foreign currencies are translated to Canadian dollars at exchange rates in effect at the balance sheet dates and non-monetary items are translated at rates of exchange in effect when the assets were acquired or obligations incurred. Revenues and expenses denominated in foreign currencies are translated at monthly average rates of exchange during the year. Foreign exchange gains and losses are included in earnings and comprehensive income. DERIVATIVE FINANCIAL INSTRUMENTS The Fund enters into foreign exchange contracts periodically to hedge against its US dollar-denominated revenues. These contracts are marked to market with the related gains or losses included in earnings and comprehensive income for each reported period. UNIT-BASED COMPENSATION The Fund applies the fair value-based method to account for awards made under its long-term incentive plan described in note 11. The fair value of the options at the date of granting is recognized as unit-based compensation expense over the vesting period and is credited to contributed surplus. Consideration received upon exercise of the options, together with the amount previously credited to contributed surplus, is recorded as trust units. EARNINGS PER UNIT Basic earnings per unit is computed by dividing net earnings by the weighted average trust units outstanding during the year. Diluted earnings per unit is similarly computed except that the weighted average units outstanding are increased to include additional trust units from an assumed exercise of unit options, if dilutive. The number of additional units is calculated by assuming that outstanding unit options were exercised and that the proceeds from such exercises were used to acquire trust units at average market prices. MEASUREMENT UNCERTAINTY The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts at the date of, and for the period of, the financial statements. Actual results could differ from those estimates. Estimates are reviewed on a regular basis and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. The assets and liabilities which require management to make significant estimates and assumptions in determining carrying values include accounts receivable, note receivable, property and equipment, goodwill, intangible assets, accounts payable and accrued liabilities, future income taxes and asset retirement obligations. 4. ACQUISITIONS 2008 Tripar ----------------------------------------------- Goodwill $ 3,000 ----------------------------------------------- Fair value of assets acquired $ 3,000 ----------------------------------------------- Acquisitions have been accounted for using the purchase method. The results of operations from the acquisition date have been included in these consolidated financial statements. Due to the achievement of certain performance objectives, additional consideration of $3 million was paid in January, 2009 to the former owners of Tripar Transportation Inc. ("Tripar"), a company acquired by the Fund in 2006. This additional consideration was allocated to goodwill. 2007 Marco ECL Cornerstone Firm Other Total ------------------------------------------------------------------------- Accounts receivable $ 706 $ - $ - $ - $ - $ 706 Other current assets 8 - - - - 8 Property and equipment 1,147 - - - 199 1,346 Intangible assets Customer relationships 200 - - - 80 280 Non-competition agreements 282 - - - 40 322 Goodwill - 1,694 2,200 667 - 4,561 ------------------------------------------------------------------------- Fair value of assets acquired 2,343 1,694 2,200 667 319 7,223 ------------------------------------------------------------------------- Accounts payable & accrued liabilities 781 - - - 19 800 ------------------------------------------------------------------------- Fair value of liabilities assumed 781 - - - 19 800 ------------------------------------------------------------------------- $ 1,562 $ 1,694 $ 2,200 $ 667 $ 300 $ 6,423 ------------------------------------------------------------------------- Consideration Cash $ 1,562 $ 1,694 $ 2,200 $ 667 $ 300 $ 6,423 ------------------------------------------------------------------------- ----------------------------------------------------------------------- % Shares Service Entity acquired Date Acquired Base Area ----------------------------------------------------------------------- Marco Transport Inc. ("Marco") 1-Mar-07 100% Quebec Dump ----------------------------------------------------------------------- Assets Narum Transport Ltd. ("Other") 24-Sept-07 acquired Alberta Tank ----------------------------------------------------------------------- 5. DISPOSAL OF PLANT SERVICES OPERATION In September 2008, the Fund recognized the disposal of its plant services operation, located in Hamilton, Ontario. As at September 30 Net book value of assets disposed: 2008 ------------------------------------------------------------------------- Property and Equipment $ 2,885 Intangible Assets 222 Goodwill 500 Deferred Income (427) ------------------------------------------------------------------------- $ 3,180 ------------------------------------------------------------------------- Consideration received: Cash $ 2,107 Note receivable (fair value): 994 ------------------------------------------------------------------------- $ 3,101 ------------------------------------------------------------------------- Loss on disposal $ 79 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Note receivable (fair value) Current Long-term Total ------------------------------------------------------------------------- As at September 30, 2008 $ 307 $ 687 $ 994 Fair value adjustment (77) (149) (226) ------------------------------------------------------------------------- As at December 31, 2008 $ 230 $ 538 $ 768 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The note receivable has a face value of $1.5 million, bears interest at 5% above the Bank of Canada prime rate and is payable quarterly. Future principal repayments will be conditional upon covenant compliance and future free cash flows of the purchaser. The current portion of the note receivable is included in accounts receivable. The fair value adjustment to the note receivable was made to reflect increased credit risk. 6. PROPERTY AND EQUIPMENT Accumulated amort- 2008 Cost ization Net ------------------------------------------------------------------------- Land $ 8,474 $ - $ 8,474 Buildings 26,125 8,866 17,259 Rolling stock and other - owned 123,393 52,883 70,510 Rolling stock - capital leases 11,128 820 10,308 ------------------------------------------------------------------------- $ 169,120 $ 62,569 $ 106,551 ------------------------------------------------------------------------- Accumulated amort- 2007 Cost ization Net ------------------------------------------------------------------------- Land $ 8,243 $ - $ 8,243 Buildings 24,525 7,790 16,735 Rolling stock and other - owned 130,807 49,450 81,357 Rolling stock - capital leases 1,078 118 960 ------------------------------------------------------------------------- $ 164,653 $ 57,358 $ 107,295 ------------------------------------------------------------------------- 7. INTANGIBLE ASSETS Accumulated amort- 2008 Cost ization Net ------------------------------------------------------------------------- Customer relationships $ 22,565 $ 8,159 $ 14,406 Non-competition agreements 8,994 4,495 4,499 ------------------------------------------------------------------------- $ 31,559 $ 12,654 $ 18,905 ------------------------------------------------------------------------- Accumulated amort- 2007 Cost ization Net ------------------------------------------------------------------------- Customer relationships $ 22,775 $ 5,970 $ 16,805 Non-competition agreements 8,994 2,894 6,100 ------------------------------------------------------------------------- $ 31,769 $ 8,864 $ 22,905 ------------------------------------------------------------------------- 8. CAPITAL LEASE OBLIGATIONS ------------------------------------------------------------------------- As at December 31 2008 2007 ------------------------------------------------------------------------- 2009 and prior $ 2,341 $ 857 2010 2,061 94 2011 1,968 - 2012 1,707 - 2013 1,294 - Thereafter 1,630 - ------------------------------------------------------------------------- Minimum lease payments 11,001 951 Less: amount representing interest at rates ranging from 4.8% to 8.9% (2007 - 8.0% to 9.2%) 1,660 71 ------------------------------------------------------------------------- Present value of net minimum capital lease payments 9,341 880 Less current portion 1,823 398 ------------------------------------------------------------------------- $ 7,518 $ 482 ------------------------------------------------------------------------- Interest of $0.4 million (2007 - $0.1 million) relating to capital lease obligations has been included in interest expense - long-term. The Fund has an unrealized loss on its US dollar denominated capital lease obligations of $0.2 million as at December 31, 2008. 9. LONG-TERM DEBT 2008 2007 ------------------------------------------------------------------------- Senior secured notes payable with fixed interest rates between 5.9% and 6.5% (2007 - 6.5% and 6.6%) $ 81,374 $ 87,048 Other unsecured loans with varying interest rates and due dates 2,312 2,431 ------------------------------------------------------------------------- 83,686 89,479 Less: current portion - 7,408 ------------------------------------------------------------------------- Long-term debt $ 83,686 $ 82,071 ------------------------------------------------------------------------- The senior secured notes payable are stated net of unamortized financing transaction costs of $0.5 million and provide for monthly payments of interest only. On December 15, 2008 the Fund renewed $31.9 million of its previous $37.5 million credit facility for a term of five years. Other terms and covenants of the existing facility remained unchanged. The principal repayments are due on December 15, 2013 ($31.9 million) and October 15, 2016 ($50 million). Liens on rolling stock with a net book value of approximately $68 million have been provided as security for the senior secured notes. The lender also holds a second floating charge over receivables and a general security interest in the remaining assets of the Fund. As at December 31, 2008 and 2007, there were no restrictions preventing the Fund from making distributions to unitholders. Aggregate minimum principal payments required on long-term debt in each of the next five years are as follows: 2009 to 2012 $ - 2013 31,875 Thereafter 52,312 ------------------------------------------------------ Minimum principal payments 84,187 Unamortized financing transaction costs (501) ------------------------------------------------------ Long-term debt $ 83,686 ------------------------------------------------------ ------------------------------------------------------ CASH AND CASH EQUIVALENTS Under the terms of the long-term debt facility, $10.4 million (2007 - $16 million) of the cash and cash equivalents on hand at December 31, 2008 is restricted and may only be used to repay senior secured notes and to fund growth opportunities. On December 15, 2008, $5.6 million of these restricted funds was used to retire an equal amount of senior secured notes that matured on that date. 10. INCOME TAXES The following table reconciles the provision for income taxes recorded in the statement of earnings and comprehensive income with a statutory income tax rate of 33.0% (2007 - 35.0%): 2008 2007 ------------------------------------------------------------------------- Earnings before income taxes $ 30,302 $ 34,251 ------------------------------------------------------------------------- Computed income tax expense at Canadian statutory rate 10,000 11,988 Reduction of taxes due to taxable income allocated to unitholders (10,097) (11,691) U.S. state taxes 606 664 Change to future Canadian statutory tax rate - (265) Impact of SIFT rules 175 7,600 Other 106 (270) ------------------------------------------------------------------------- Income tax provision $ 790 $ 8,026 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The tax effects of temporary differences that give rise to future tax assets and liabilities are presented below: 2008 2007 ------------------------------------------------------------------------- Future tax assets Deductible reserves $ (488) $ (794) Issue costs and financing fees (7) (72) Other (575) (581) Future tax liabilities Property, equipment and intangible assets 13,984 13,854 Impact of off-calendar year end of corporate subsidiary 2,859 3,253 ------------------------------------------------------------------------- Net future income tax liability $ 15,773 $ 15,660 ------------------------------------------------------------------------- The Fund is a mutual fund trust as defined under the Income Tax Act (Canada). Accordingly, distributions paid to unitholders are currently deductible when calculating income that is subject to income tax. However, on June 22, 2007, legislation (the "SIFT rules") was passed that will subject the Fund to federal income taxation at approximately the same rate that is applicable to Canadian corporations. Distributions will no longer be deductible in the computation of the Fund's taxable income. The SIFT rules take effect starting with taxation years ending in 2011. In 2008 the Fund recorded a future income tax expense of $0.2 million (2007 - $7.6 million) as a result of the SIFT rules. The Fund is required to recognize temporary differences between the accounting and tax bases of its assets and liabilities that are expected to reverse in or after 2011. Certain of the Fund's subsidiaries are currently subject to income taxation and provide for income tax obligations based upon statutory corporate tax rates. 11. UNITHOLDERS' EQUITY TRUST UNITS AUTHORIZED Unlimited numbers of Subordinate Voting Trust units ("trust units") and Class A Limited Partnership ("LP") units and 1,467,724 Class B LP units are authorized. ISSUED AND FULLY PAID Trust Units Class A LP Units ------------------------------------------------------------------------- Units Value Units Value ------------------------------------------------------------------------- Balance at December 31, 2006 22,410 $ 109,917 4,810 $ 6,590 Distribution reinvestment plan 471 4,905 - - Units repurchased (410) (2,050) - - ------------------------------------------------------------------------- Balance at December 31, 2007 22,471 $ 112,772 4,810 $ 6,590 Distribution reinvestment plan 870 6,525 - - ------------------------------------------------------------------------- Balance at December 31, 2008 23,341 $ 119,297 4,810 $ 6,590 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Class B LP Units Total ------------------------------------------------------------------------- Units Value Units Value ------------------------------------------------------------------------- Balance at December 31, 2006 1,468 $ 1,298 28,688 $ 117,805 Distribution reinvestment plan - - 471 4,905 Units repurchased - - (410) (2,050) ------------------------------------------------------------------------- Balance at December 31, 2007 1,468 $ 1,298 28,749 $ 120,660 Distribution reinvestment plan - - 870 6,525 ------------------------------------------------------------------------- Balance at December 31, 2008 1,468 $ 1,298 29,619 $ 127,185 ------------------------------------------------------------------------- ------------------------------------------------------------------------- VOTING, DISTRIBUTION AND EXCHANGE RIGHTS The trust units and the Class A LP units are entitled to one vote each. The Class B LP units are entitled to ten votes each. The Fund's trust indenture requires distribution of the Fund's cash flow to unitholders after giving consideration to such items as expected capital requirements, unit redemptions or any amounts which the Fund's Trustees may reasonably consider necessary to provide for as administrators of the Fund. Distributions are made equally on a pro rata basis. Each Class A LP unit and Class B LP unit is exchangeable for a trust unit effectively giving the Class A and Class B LP units the same rights and entitlements as the Trust units. REDEMPTION RIGHTS Trust units are redeemable by the Fund at any time at a price equal to the lesser of 90% of their market price during the five trading day period commencing immediately after the date of surrender and 100% of the closing market price on the redemption date. UNIT-BASED COMPENSATION PLAN The Fund maintains a unit option plan to encourage ownership of the Fund by directors, officers and key employees. Under the terms of the plan, a total of 2,762,165 trust units have been reserved for issuance. The maximum number of options that can be issued to an individual is 5% of the trust units outstanding at the time of the grant. Upon issuance, 20% of the options vest immediately and the remainder vest at a rate of 20% annually over the next four anniversary dates. The exercise prices are established based on the closing trading price of the Fund on the day prior to the date of the grant. Any option granted which is cancelled or terminated for any reason prior to exercise will be returned to the pool and will be available for future unit option grants. Below are facts and assumptions used in the Black-Scholes option pricing model to calculate the fair value of the options on the grant dates and to determine the unit based compensation expense: ------------------------------------------------------------------------- Options grant dates March 25, 2004 March 1, 2005 March 9, 2006 Expiration dates March 25, 2014 March 1, 2015 March 9, 2016 Risk-free interest rates 4.62% 4.60% 4.21% Expected life 9 years 9 years 7 years Expected volatility 20% 20% 20% Expected dividend yield 10.87% 8.33% 9.61% Estimated grant-date fair value per unit $0.47 $0.89 $0.43 Exercise price $11.50 $14.90 $13.01 ------------------------------------------------------------------------- Years ended December 31 2008 2007 ------------------------------------------------------------------------- Weighted Weighted Average Average Exercise Exercise Units Price Units Price ------------------------------------------------------------------------- Unit options outstanding - beginning of year 2,029 $ 12.23 2,179 $ 12.21 Cancelled (10) 14.90 (150) 12.00 ------------------------------------------------------------------------- Unit options outstanding - end of year 2,019 $ 12.22 2,029 $ 12.23 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Unit options exercisable - end of year 1,646 $ 12.03 1,201 $ 12.01 Amount charged to compensation expense $ 90 $ 94 UNITHOLDERS EQUITY Contributed Trust Retained Surplus Units Earnings Total ------------------------------------------------------------------------- Balance at December 31, 2006 $ 663 $ 117,805 $ 18,975 $ 137,443 Net earnings - - 26,225 26,225 Distributions declared - - (36,033) (36,033) Distribution reinvestment plan - 4,905 - 4,905 Unit-based compensation 94 - - 94 Units repurchased (13) (2,050) (1,787) (3,850) ------------------------------------------------------------------------- Balance at December 31, 2007 $ 744 $ 120,660 $ 7,380 $ 128,784 Net earnings - - 29,512 29,512 Distributions declared - - (36,457) (36,457) Distribution reinvestment plan - 6,525 - 6,525 Unit-based compensation 90 - - 90 ------------------------------------------------------------------------- Balance at December 31, 2008 $ 834 $ 127,185 $ 435 $ 128,454 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Capital Management The Fund's objectives in managing capital are to ensure sufficient liquidity exists to pursue its strategy of growth, both internally and through accretive acquisitions and to provide returns to its unitholders. Management defines capital as unitholders' equity and net debt. Net debt is defined as all interest-bearing debt, including obligations under capital leases, less cash and cash equivalents. Capital under management As at December 31 2008 2007 ------------------------------------------------------------------------- Long-term debt $ 83,686 $ 89,479 Capital lease obligations 9,341 880 Cash and cash equivalents (28,826) (18,301) ------------------------------------------------------------------------- Net debt 64,201 72,058 Unitholders' equity 128,454 128,784 ------------------------------------------------------------------------- Total capital $ 192,655 $ 200,842 ------------------------------------------------------------------------- The Board of Trustees approves monthly distributions, annual operating plans and business acquisitions. The Fund's debt covenants are based on cash flow, leverage and asset cover ratios. If the Fund exceeds these covenant limits the lenders can restrict the Fund from paying distributions. The Fund monitors its compliance with all covenants and the factors affecting their calculation. At December 31, 2008, the Fund was in compliance with all its covenants. The Fund's lenders have a security interest in all of the assets of the Fund. The Fund's dividend reinvestment plan ("DRIP") provides capital for future business development. This plan allows existing unitholders to automatically reinvest their monthly dividend into new units. The new units are issued at 95% of the average market price for the preceding ten trading days. 12. COMMITMENTS - OPERATING LEASES Future minimum payments under operating leases for rolling stock and property are as follows: --------------------------------------------- 2009 $ 10,840 2010 7,046 2011 1,785 2012 395 Thereafter - --------------------------------------------- 13. CONTINGENCIES In September 1994, two actions were filed by separate groups of former employees against Laidlaw Carriers Inc. ("Laidlaw") and an Ontario loan and trust company. These actions involved the valuation of the employees' benefit plans in 1988. In 2001, after application for leave to appeal an earlier court decision was denied, these actions became a single class proceeding. Management is unable to determine the outcome of this lawsuit at this time. Laidlaw had been a wholly-owned subsidiary of Contrans Corp. and, upon amalgamations that took place on July 23, 2002, the potential liability surrounding these actions was combined with Contrans Corp., a corporation controlled by the Fund. In the ordinary course of business, the Fund had issued letters of credit amounting to $0.9 million at December 31, 2008. These letters of credit expire at various dates from January 2009 to November 2009. 14. FINANCIAL INSTRUMENTS a) Fair values The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and distributions payable approximate their fair values due to the relatively short period to maturity of these instruments. The fair value of foreign exchange contracts is disclosed in note 14 (b). Long-term debt with a carrying value of $83.7 million (December 31, 2007 - $89.5 million) has a fair value of $88.1 million at December 31, 2008 (December 31, 2007 - $89.6 million). At December 31, 2008, the fair value of capital lease obligations was $9.2 million. The fair values are calculated using discounted cash flows at current market rates. The fair value of the note receivable is $0.8 million based on the expected future payments discounted at current market rates. b) Derivative financial instruments The Fund from time to time enters into foreign exchange contracts to manage its net exposure to currency fluctuations. As at December 31, 2008 the Fund had the following contracts in place to sell US dollars in order to hedge foreign exchange risk on US dollar denominated net receivables: ------------------------------------------------------------------------- Maturity dates Monthly amount CAD $ Settlement rates ------------------------------------------------------------------------- Jan to July 2009 US $4 million $1.0000 - $1.0935 ------------------------------------------------------------------------- Aug to Oct 2009 US $4 million $1.0200 - $1.1095 ------------------------------------------------------------------------- Nov and Dec 2009 US $4 million $1.0500 - $1.1529 ------------------------------------------------------------------------- As at December 31, 2008, the fair value of these contracts was recorded as a liability of $4.9 million (2007 - asset of $0.6 million) and included in accounts payable and accrued liabilities on the consolidated balance sheets. The value of the contracts was provided by the counterparty on an open market basis. c) Risk management The Fund has exposure to the following risks from its use of financial instruments: i) Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to meet their payment obligations and is primarily attributable to accounts receivable and note receivable. The Fund manages its credit risk by having a diverse range of customers, monitoring the aging of its accounts receivable and through credit checks that are carried out on new customers. General provisions for doubtful accounts are made based on past experience. Specific provisions are made against trade receivables for any customer that is known to be in poor financial condition. The bad debt expense, both specific and general, for 2008 was $0.3 million (2007 - $0.7 million). The movement in the provision for doubtful accounts is as follows: ------------------------------------------------------ Provision as at December 31, 2007 $ 2,081 Accounts written off (85) Bad debt expense 325 ------------------------------------------------------ Provision as at December 31, 2008 $ 2,321 ------------------------------------------------------ ------------------------------------------------------ The Fund has specifically provided for $1.3 million of accounts receivable that were considered to be impaired as at December 31, 2008. Management considers the financial health of the customer as well as the aging of the account when considering whether an account is impaired. At December 31, 2008, approximately $14.6 million of receivables are overdue but are not considered impaired. A provision for doubtful accounts of $2.3 million (December 31, 2007 - $2.1 million) is netted against accounts receivable on the consolidated balance sheets. In addition, the deferred income on disposal of the plant services operation was reclassified as an allowance for note receivable impairment and the total allowance of $0.7 million was applied to reduce the face value of the note receivable to its estimated fair value of $0.8 million as at December 31, 2008. Bad debt expenses and provision for note receivable impairment are included in selling, general and administration expenses in the consolidated statements of earnings and comprehensive income. ii) Foreign exchange risk Foreign exchange risk is the risk that the fair value or future cash flow of a financial instrument will fluctuate because of changes in foreign exchange rates. Approximately 20% - 25% of the Fund's revenue is billed in US dollars and, accordingly, the Fund is subject to foreign exchange risk. Management manages this risk through foreign exchange contracts, denominating certain of its equipment leases in US dollars and through customer negotiations. The impact of a 1% strengthening/weakening of the Canadian dollar against the US dollar would result in a decrease/ increase in net earnings of $0.1 million as at December 31, 2008, all other things being equal. The Fund operates in both Canada and the United States. However, due to the nature of the operations and inherent system limitations, it is impracticable to split the results from operations between the two countries. iii) Interest rate risk Interest rate risk is the risk that the value of a financial instrument will change with market interest rates. Changes in interest rates affect both interest paid on floating rate debt and interest received on surplus cash and cash equivalents and note receivable. As at December 31, 2008, approximately 97% of the Fund's long-term debt had fixed interest rates. A 1% change in the interest rate on the floating rate debt, cash and cash equivalents and note receivable would only have a nominal impact on net earnings. iv) Liquidity risk Liquidity risk is the risk that the Fund will not be able to meet its obligations as they fall due. The Fund ensures that it has sufficient cash or credit lines to meet these obligations. The Fund has a demand operating line of $30 million to meet seasonal fluctuations in working capital requirements, for letters of credit and to fund growth opportunities. At December 31, 2008, the Fund had $0.9 million of letters of credit outstanding (December 31, 2007 - $0.9 million). The Fund has contractual maturities of financial liabilities as follows: There- (in $ millions) 2009 2010 2011 2012 2013 after Total ------------------------------------------------------------------------- Senior secured notes payable $ 5.1 $ 5.1 $ 5.1 $ 5.1 $ 36.9 $ 59.1 $116.4 Obligations under capital leases 2.3 2.1 2.0 1.7 1.3 1.6 11.0 Obligations under operating leases 10.8 7.0 1.8 0.4 - - 20.0 Derivative financial instruments 58.6 - - - - - 58.6 Accounts payable and accrued liabilities 33.2 - - - - - 33.2 Distributions payable 3.1 - - - - - 3.1 Equipment purchase commitments 0.4 - - - - - 0.4 ------------------------------------------------------------------------- Total $113.5 $ 14.2 $ 8.9 $ 7.2 $ 38.2 $ 60.7 $242.7 ------------------------------------------------------------------------- 15. RELATED PARTY TRANSACTIONS The Fund had business transactions with and had balances owing to and from companies controlled by the Chairman of the Fund as follows: As at December 31 2008 2007 ------------------------------------------------------------------------- Accounts payable $ 115 $ 231 Accounts receivable 38 11 ------------------------------------------------------------------------- ------------------------------------------------------------------------- For the years ended December 31 2008 2007 ------------------------------------------------------------------------- Repairs, maintenance and leases $ 6,129 $ 6,136 Rental income 192 192 ------------------------------------------------------------------------- These transactions were carried out in the normal course of business and recorded at exchange amounts, which approximates an arm's length arrangement. 16. CASH FLOW Change in non-cash working capital: 2008 2007 ------------------------------------------------------------------------- Decrease in accounts receivable $ 6,167 $ 2,275 Increase in other current assets (146) (212) Decrease in accounts payable and accrued liabilities (5,902) (4,747) Increase (decrease) in income taxes payable (955) 330 ------------------------------------------------------------------------- Net change in non-cash working capital $ (836) $ (2,354) ------------------------------------------------------------------------- Cash paid in respect of: Interest $ 6,309 $ 4,847 Income taxes 1,729 790 Non-cash transactions Value of equipment financed through capital leases 10,050 - ------------------------------------------------------------------------- 17. COMPARATIVE FIGURES Certain comparative figures have been restated to conform to the current year's basis of presentation. 18. FUTURE ACCOUNTING CHANGES a) International Financial Reporting Standards (IFRS) In February 2008 the Accounting Standards Board ("AcSB") announced that publicly-listed companies would, for fiscal years beginning on or after January 1, 2011, be required to report their results under IFRS. The Fund is in the process of assessing the impact of the implementation of IFRS on its financial statements, accounting policies and information systems. IFRS allows for different accounting treatments on first implementing IFRS and the Fund is evaluating these options at present. b) Goodwill and Intangible Assets The AcSB has issued a revised Section 3064 - Goodwill and Intangible Assets. This revised Section is applicable to accounting periods beginning on or after October 1, 2008. This Section establishes new standards for the recognition and measurement of intangible assets, but does not affect accounting for goodwill. Management does not expect that the adoption of this revised section will have a material impact on the Fund's financial statements. c) Consolidated Financial Statements The AcSB issued a revised Section 1601 - Consolidated Financial Statements. This revised Section is applicable to accounting periods beginning on or after January 1, 2011. This Section establishes standards for the preparation of consolidated financial statements. Management does not expect that the adoption of this revised section will have a material impact on the Fund's financial statements. d) Non-controlling Interests The AcSB issued a revised Section 1602 - Non-controlling Interests. This revised Section is applicable to accounting periods beginning on or after January 1, 2011. This Section establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. There are currently no non-controlling interests, nor are there any expected, in the Fund's subsidiaries. Accordingly, management does not expect that the adoption of this revised section will have a material impact on the Fund's financial statements. e) Business Combinations The AcSB issued a revised Section 1582 - Business Combinations. This revised Section is applicable to accounting periods beginning on or after January 1, 2011. The objective of this Section is to improve the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. Management does not expect that the adoption of this revised section will have a material impact on the Fund's financial statements.

For further information:

For further information: Stan Dunford, Chairman and Chief Executive
Officer, Greg Rumble, President and Chief Operating Officer, Phone: (519)
421-4600, E-mail: info@contrans.ca, Web site: www.contrans.ca

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Contrans Group Inc.

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