Contrans Income Fund announces second quarter results



    WOODSTOCK, ON, Aug. 6 /CNW/ (TSX. Symbol CSS.UN)

    
    FINANCIAL HIGHLIGHTS

    (unaudited)
    Periods ended
     June 30          -------------------------------------------------------
    (in millions except      Three Months                 Six Months
     per unit amounts)    2008          2007          2008          2007
    -------------------------------------------------------------------------
    Revenue - as
     stated            129.7         125.8         250.3         245.2
    Revenue - fuel
     surcharges        (23.9)        (14.6)        (42.2)        (27.6)
    -------------------------------------------------------------------------
    Revenue -
     transportation
     services         $105.8 100.0% $111.2 100.0% $208.1 100.0% $217.6 100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating expenses
     - net of fuel
     surcharges         78.4   74.1   84.6   76.1  160.0   76.9  167.3   76.9
    Selling, general
     and administration
     expenses           11.1   10.5   10.7    9.6   22.0   10.6   21.3    9.8
    Foreign exchange
     loss (gain)           -      -    1.3    1.2   (0.5)  (0.2)   1.0    0.4
    -------------------------------------------------------------------------
    Earnings before
     amortization,
     interest and
     income taxes       16.3   15.4   14.6   13.1   26.6   12.7   28.0   12.9
    Amortization of
     property and
     equipment           3.0    2.8    3.3    3.0    6.1    2.9    6.6    3.0
    Amortization of
     intangible assets   1.0    1.0    1.0    0.9    1.9    0.9    2.0    1.0
    Net interest
     expense             1.5    1.4    1.3    1.2    2.8    1.3    2.6    1.2
    -------------------------------------------------------------------------
    Earnings before
     income taxes       10.8   10.2    9.0    8.0   15.8    7.6   16.8    7.7
    -------------------------------------------------------------------------
    Income tax
     provision:
      Current              -      -    0.4    0.3    0.3    0.2    0.6    0.3
      Future             0.6    0.6    7.1    6.4    0.3    0.1    6.6    3.0
    -------------------------------------------------------------------------
                         0.6    0.6    7.5    6.7    0.6    0.3    7.2    3.3
    -------------------------------------------------------------------------
    Net earnings      $ 10.2   9.6% $  1.5   1.3% $ 15.2   7.3% $  9.6   4.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per unit
     - basic and
     diluted          $ 0.35        $ 0.05        $ 0.52        $ 0.33
    -------------------------------------------------------------------------
    

    "Contrans' solid second quarter results are largely attributable to
management's ability to react quickly and effectively to changing market
conditions," stated Stan Dunford, Chairman and Chief Executive Officer of
Contrans Income Fund. "New sources of revenue have offset the impact of
customer plant closures and reduced manufacturing output. Contrans' reputation
for delivering high service levels continues to generate internal growth
opportunities."
    "In recent years we have acquired companies that have customer bases that
are less susceptible to economic downturns," continued Mr. Dunford. "This has
added to an already diverse customer base, something that has always made
Contrans unique in the freight transportation industry. Combined with a
disciplined and well-seasoned management team, the non-cyclical elements and
diverse nature of our business have enabled the Fund to continue to achieve
respectable financial results in a challenging business environment. This, in
turn, has sustained distributions at the rate established in 2002 when
Contrans was converted into a trust. We feel that this record is a testament
to Contrans' stability, a valuable quality to our unitholders and
value-seeking investors."
    "The Department of Finance has recently published draft rules concerning
the conversion of income trusts to corporations," added Mr. Dunford.
"Currently, we see no compelling reason for the Fund to convert back to a
corporation before the proposed deadline that would enable trusts to convert
on a tax-deferred basis. Even then, there may be as much reason to maintain
the status quo as there may be to convert. Much will depend on the market's
reaction to those trusts that choose to convert to a corporation as well as
the market's reaction to those that remain as trusts. Management will continue
to carefully monitor developments and their implications for Contrans'
unitholders."

    RESULTS FROM OPERATIONS

    Current adverse economic conditions have had varying effects on the
Fund's operations. Despite these conditions, revenue has actually increased in
some of the Fund's business units primarily as a result of aggressive sales
efforts. The Fund's van operations, however, were adversely affected by the
current economic downturn. Revenue from van operations was $6.3 million lower
in the second quarter of 2008 compared to 2007 and $11.5 million lower in the
first six months compared to 2007. UPM, a major east coast van customer,
closed down its plant in August 2007. Revenue from this customer in the second
quarter of 2007 was $3.9 million and $7.7 million for the first six months of
2007. In addition, the Fund's van operations have been adversely affected by
poor market conditions, particularly for southbound freight, due to the
continued strength of the Canadian dollar and due to weak American consumer
demand. Revenue from fuel surcharges increased in 2008 as a result of higher
fuel prices.
    Operating expenses, expressed as a percentage of revenue, decreased in
the second quarter of 2008 compared to 2007. Internal growth has improved
equipment utilization and overall revenue quality. In addition, the
profitability of certain laneways has improved as a result of the realignment
of our east coast operations. Offsetting these improvements were accident
claim costs which increased $0.1 million in the second quarter of 2008
compared to 2007 ($0.5 million increase year-to-date).
    Selling, general and administration expenses increased in 2008 compared
to 2007 due to $0.6 million of costs resulting from the early termination of
equipment leases related to the Fund's east coast realignment. Approximately
$0.3 million of severance costs were incurred in the first quarter of 2008
that were also related to this realignment.
    Net interest expense increased as a result of the average long-term debt,
net of cash, being higher in 2008 compared to 2007.

    
    DISTRIBUTABLE CASH

    (unaudited)
    Periods ended June 30         -------------------------------------------
    (in thousands except                 Three months           Six months
     per unit amounts)                 2008       2007       2008       2007
    -------------------------------------------------------------------------
    Cash flow provided by
     operating activities         $  12,136  $   7,159  $  11,924  $  14,380
    Net change in non-cash
     working capital                  2,637      5,543     11,512     10,121
    Proceeds on sale of equipment       538      1,121      1,663      2,775
    Asset retirement obligations
     - settlements                      (19)       (28)       (23)       (50)
    Long-term debt repayments
     where no financing available      (464)         -       (700)         -
    Maintenance capital
     expenditures                      (369)      (821)    (2,343)    (2,929)
    -------------------------------------------------------------------------
    Distributable cash earned        14,459     12,974     22,033     24,297
    Regular distributions declared    9,074      9,043     18,082     18,036
    -------------------------------------------------------------------------
    Surplus of distributable cash
     earned vs. regular
     distributions declared       $   5,385  $   3,931  $   3,951  $   6,261
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributable cash earned
     per unit                     $    0.50  $    0.45  $    0.76  $    0.84
    Distributions declared per
     unit - regular                    0.31       0.31       0.63       0.63
    -------------------------------------------------------------------------
    Surplus of distributable cash
     earned vs. regular
     distributions declared per
     unit                         $    0.19  $    0.14  $    0.13  $    0.21
    -------------------------------------------------------------------------
    Weighted average number of
     units outstanding               28,993     28,899     28,894     28,823
    -------------------------------------------------------------------------
    Purchase of property and
     equipment
      Maintenance capital
       expenditures               $     369  $     821  $   2,343  $   2,929
      Growth capital expenditures       644      1,194      2,436      2,753
    -------------------------------------------------------------------------
    Total                         $   1,013  $   2,015  $   4,779  $   5,682
    -------------------------------------------------------------------------
    Repayment of long-term debt
      Long-term debt repayments
       funded out of surplus cash $       -  $     108  $       -  $     299
      Long-term debt repayments
       where no financing
       available                        464          -        700          -
    -------------------------------------------------------------------------
    Total                         $     464  $     108  $     700  $     299
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    DISTRIBUTABLE CASH EARNED - RECONCILIATION

    Cash used to fund working capital, 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 deducted from cash provided by
operating activities in the consolidated statements of cash flow. Maintenance
capital expenditures are necessary to sustain current revenue levels and
therefore reduce the amount of cash that is available for distribution.

    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.

    Distributable cash flow, maintenance capital expenditures, growth capital
    expenditures, long-term debt repayments funded out of surplus cash,
    long-term debt repayments where no financing available:

    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 presentation facilitates a better 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.

    
    CONTRANS INCOME FUND
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (in thousands except for per unit amounts)
    (unaudited)
                                  -------------------------------------------
                                         Three Months           Six Months
    For the periods ended June 30      2008       2007       2008       2007
    -------------------------------------------------------------------------
    Revenue                       $ 129,743  $ 125,850  $ 250,271  $ 245,253
    Operating expenses              102,319     99,288    202,231    194,940
    Selling, general and
     administration expenses         11,145     10,689     21,968     21,270
    Foreign exchange loss (gain)        (25)     1,310       (519)     1,039
    Amortization of property and
     equipment                        3,045      3,299      6,076      6,634
    Amortization of intangible
     assets                             945        954      1,889      1,991
    -------------------------------------------------------------------------
                                     12,314     10,310     18,626     19,379
    Net interest expense (income)
      - long-term                     1,557      1,242      3,086      2,499
      - short-term                      (79)        60       (242)        51
    -------------------------------------------------------------------------
    Earnings before Income Taxes     10,836      9,008     15,782     16,829
    -------------------------------------------------------------------------
    Income tax provision:
      Current                            32        356        294        588
      Future                            620      7,106        340      6,630
    -------------------------------------------------------------------------
                                        652      7,462        634      7,218
    -------------------------------------------------------------------------
    Net Earnings and Comprehensive
     Income                       $  10,184  $   1,546  $  15,148  $   9,611
    -------------------------------------------------------------------------

    Earnings per unit - basic and
     diluted                      $    0.35  $    0.05  $    0.52  $    0.33
    Weighted average number of
     units outstanding - basic
     and diluted                     28,993     28,899     28,894     28,823
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
    (in thousands)
    (unaudited)
                                  -------------------------------------------
                                         Three Months           Six Months
    For the periods ended June 30      2008       2007       2008       2007
    -------------------------------------------------------------------------
    Retained Earnings - Beginning
     of Period                    $   3,336  $  17,999  $   7,380  $  18,975
    Net earnings                     10,184      1,546     15,148      9,611
    Premium paid on units
     repurchased                          -          -          -        (48)
    Distributions declared           (9,074)    (9,043)   (18,082)   (18,036)
    -------------------------------------------------------------------------
    Retained Earnings - End of
     Period                       $   4,446  $  10,502  $   4,446  $  10,502
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of theses statements


    CONTRANS INCOME FUND
    CONSOLIDATED BALANCE SHEETS
    (in thousands)
                                                        ---------------------
                                                          June 30   December
    As at                                                    2008    31 2007
    -------------------------------------------------------------------------
                                                       (unaudited)  (audited)
    Assets
    Current Assets
      Cash and cash equivalents                         $  16,358  $  18,301
      Accounts receivable                                  62,972     54,599
      Income taxes recoverable                                589          -
      Other current assets                                  7,396      6,021
    -------------------------------------------------------------------------
                                                           87,315     78,921
    Property and Equipment                                111,084    107,295
    Intangible Assets                                      21,016     22,905
    Goodwill                                               61,478     61,478
    -------------------------------------------------------------------------
                                                        $ 280,893  $ 270,599
    -------------------------------------------------------------------------
    Liabilities and Unitholders' Equity
    Current Liabilities
      Operating loan                                    $   4,851  $       -
      Accounts payable and accrued liabilities             30,359     31,191
      Distributions payable                                 3,033      2,996
      Income taxes payable                                      -        417
      Current portion of long-term debt                     8,812      7,806
    -------------------------------------------------------------------------
                                                           47,055     42,410
    Long-term Debt                                         87,832     82,553
    Asset Retirement Obligations                            1,198      1,192
    Future Income Taxes                                    16,000     15,660
    -------------------------------------------------------------------------
                                                          152,085    141,815
    -------------------------------------------------------------------------
    Unitholders' Equity (Note 3)
      Contributed surplus                                     789        744
      Trust units                                         123,573    120,660
      Retained earnings                                     4,446      7,380
    -------------------------------------------------------------------------
                                                          128,808    128,784
    -------------------------------------------------------------------------
                                                        $ 280,893  $ 270,599
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these statements


    CONTRANS INCOME FUND
    CONSOLIDATED STATEMENTS OF CASH FLOW
    (in thousands)
    (unaudited)
                                  -------------------------------------------
                                         Three Months          Six Months
    For the periods ended June 30      2008       2007       2008       2007
    -------------------------------------------------------------------------
    Cash Provided by (Used in)
    Operating Activities
    Net earnings                  $  10,184  $   1,546  $  15,148  $   9,611
    Items not affecting cash:
      Unrealized foreign exchange
       gain                            (112)       (99)       (57)       (80)
      Unit-based compensation
       expense (Note 5)                  23         22         45         59
      Long-term debt - accretion         37         29         74         64
      Asset retirement obligations
       - accretion                       13         14         26         27
      Amortization of property
       and equipment                  3,045      3,299      6,076      6,634
      Amortization of intangible
       assets                           945        954      1,889      1,991
      Future income taxes               620      7,106        340      6,630
      Loss (gain) on sale of
       equipment                         18       (169)      (105)      (435)
    -------------------------------------------------------------------------
                                     14,773     12,702     23,436     24,501
    Change in non-cash working
     capital (Note 6)                (2,637)    (5,543)   (11,512)   (10,121)
    -------------------------------------------------------------------------
                                     12,136      7,159     11,924     14,380
    -------------------------------------------------------------------------
    Investing Activities
      Expended on acquisitions            -          -          -     (3,256)
      Asset retirement obligations
       - settlements                    (19)       (28)       (23)       (50)
      Proceeds on sale of
       equipment                        538      1,121      1,663      2,775
      Purchase of property and
       equipment                     (1,013)    (2,015)    (4,779)    (5,682)
    -------------------------------------------------------------------------
                                       (494)      (922)    (3,139)    (6,213)
    -------------------------------------------------------------------------
    Financing Activities
      Distributions paid             (9,051)    (9,026)   (18,045)   (18,118)
      Net change in operating loan   (3,997)         -      4,851          -
      Proceeds from long-term debt      209         65        253         80
      Repayment of long-term debt      (464)      (108)      (700)      (299)
      Repurchase of trust units           -          -          -        (91)
      Issuance of trust units
       (Note 3)                       1,788      1,759      2,913      3,194
    -------------------------------------------------------------------------
                                    (11,515)    (7,310)   (10,728)   (15,234)
    -------------------------------------------------------------------------
    Increase (Decrease) in Cash
     and Cash Equivalents               127     (1,073)    (1,943)    (7,067)
    Cash and Cash Equivalents -
     Beginning of Period             16,231     (3,150)    18,301      2,844
    -------------------------------------------------------------------------
    Cash and Cash Equivalents -
     End of Period                $  16,358  $  (4,223) $  16,358  $  (4,223)
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these statements



    CONTRANS INCOME FUND
    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    For the periods ended June 30, 2008 and 2007
    (Unaudited, tabular amounts in thousands except for per unit amounts)
    -------------------------------------------------------------------------

    1.  Basis of Presentation

    These unaudited consolidated financial statements have been prepared in
    accordance with Canadian generally accepted accounting principles for
    interim financial statements using the same accounting policies as were
    applied in the audited consolidated financial statements for the year
    ended December 31, 2007 except as described in note 2. These interim
    financial statements do not conform in all respects with disclosure
    required for annual financial statements and should be read in
    conjunction with the audited consolidated financial statements of the
    Fund for the year ended December 31, 2007.

    2.  Adoption of Accounting Standards

    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 3.

    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 4. Handbook section 3863
    carries forward the presentation standards which previously existed under
    Handbook section 3861.

    3.  Unitholders' Equity

                                Contributed              Retained
                                  Surplus   Trust Units  Earning      Total
    -------------------------------------------------------------------------
    Balance - December 31, 2007   $     744  $ 120,660  $   7,380  $ 128,784
      Net earnings for the period         -          -     15,148     15,148
      Distributions declared              -          -    (18,082)   (18,082)
      Unit-based compensation            45          -          -         45
      Issuance of units                   -      2,913          -      2,913
    -------------------------------------------------------------------------
    Balance - June 30, 2008       $     789  $ 123,573  $   4,446  $ 128,808
    -------------------------------------------------------------------------

    Capital Management

    The Fund's objectives in managing capital are to ensure sufficient
    liquidity to pursue its strategy of internal and acquisitive growth 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, less cash and cash equivalents.

    Capital under management
                                                          June 30   December
    As at                                                    2008    31 2007
    -------------------------------------------------------------------------
    Long-term debt                                      $  96,644  $  90,359
    Operating loan                                          4,851          -
    Cash and cash equivalents                             (16,358)   (18,301)
    -------------------------------------------------------------------------
    Net debt                                               85,137     72,058

    Unitholders' equity                                   128,808    128,784
    -------------------------------------------------------------------------
    Total capital                                       $ 213,945  $ 200,842
    -------------------------------------------------------------------------

    The Board of Trustees approve 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 June 30, 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.

    4.  Financial Instruments

    Cash and cash equivalents are designated as held for trading and are
    measured at fair value with all gains and losses included in net earnings
    in the period in which they arise. Accounts receivable are classified as
    loans and receivables. Operating loan, accounts payable and accrued
    liabilities, distributions payable and long-term debt are classified as
    other financial liabilities and, along with loans and receivables, are
    measured at amortized cost using the effective interest method.

    a) Fair values

    The carrying value of cash and cash equivalents, accounts receivable,
    operating loan, 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 4 (b).

    Long-term debt with a carrying value of $96.6 million (December 31, 2007
    - $90.4 million) has a fair value of $98.1 million at June 30, 2008
    (December 31, 2007 - $90.1 million). The fair value is calculated using
    discounted cash flows 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 June 30, 2008,
    the Fund had contracts to sell $4.0 million of US funds per month from
    July to September 2008. These contracts settle at exchange rates between
    $1.0000 and $1.0553. As at June 30, 2008, the fair value of these
    contracts was recorded as an asset of $0.1 million and included in
    accounts receivable on the balance sheet. The value of the contracts was
    provided by the counter-party 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 contractual obligations as they fall due and is
    primarily attributable to accounts receivable. The Fund manages its
    credit risk by having a diverse range of customers. The fund has service
    offerings in the van, tank, bulk, flatbed and logistics transportation
    businesses. Credit checks are carried out on new customers and credit
    limits monitored. General provisions for bad debts 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 the second quarter of 2008
    was $nil (2007 - $nil) and an expense of $0.3 million year-to-date in
    2008 (2007 - $0.1 million). The movement in allowance for doubtful
    accounts is as follows:

    Allowance for doubtful accounts
    ---------------------------------------------------
    Allowance at December 31, 2007           $   2,081
    Accounts written off                           (47)
    Increase in allowance                          339
    ---------------------------------------------------
    Allowance at June 30, 2008               $   2,373
    ---------------------------------------------------
    ---------------------------------------------------

    The Fund has made full provision ($ 1.7 million) against accounts
    receivable that were considered to be impaired as at June 30, 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
    June 30, 2008, approximately $12.7 million of receivables are overdue but
    are not considered impaired.

    Movements in allowances for bad debts are included in selling, general
    and administration expenses in the consolidated statements of
    comprehensive income. An allowance of $2.4 million (December 31, 2007 -
    $2.1 million) is netted against accounts receivable on the consolidated
    balance sheets.

       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 25% of the Fund's revenue is billed in US
    dollars and accordingly is subject to foreign exchange risk. Management
    manages this risk through foreign exchange contracts, denominating
    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 June 30, 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. As at June 30, 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 and on the cash and cash
    equivalents would have a nominal impact on net earnings, all other things
    being equal.

       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. At June 30, 2008 the Fund had utilized $5.8 million
    of this facility (December 31, 2007 - $nil), including letters of credit
    amounting to $0.9 million that were issued in the ordinary course of
    business.

    The Fund had $16.4 million of cash and cash equivalents at June 30, 2008
    that may only be used to fund future growth or to repay long-term debt.

    The Fund has contractual maturities of financial liabilities as follows:

                                                               There-
    (in millions)      2008   2009   2010   2011   2012   2013  after  Total
    -------------------------------------------------------------------------
    Long-term debt   $  8.2 $  1.4 $  1.2 $  1.2 $  1.0 $  0.7 $ 82.9 $ 96.6
    Operating leases    9.3   11.0    7.2    2.1    0.4      -      -   30.0
    Operating loan      4.9      -      -      -      -      -      -    4.9
    Accounts payable
     and accrued
     liabilities       30.4      -      -      -      -      -      -   30.4
    Distributions
     payable            3.0      -      -      -      -      -      -    3.0
    Equipment purchase
     commitments        1.3      -      -      -      -      -      -    1.3
    -------------------------------------------------------------------------
    Total            $ 57.1 $ 12.4 $  8.4 $  3.3 $  1.4 $  0.7 $ 82.9 $166.2
    -------------------------------------------------------------------------

    On February 27, 2008, the Fund entered into an agreement, under
    substantially the same terms and conditions, to renew $30.0 million of
    its existing $37.5 million credit facility, due on December 15, 2008, for
    another term of seven years, at a rate to be set at closing, under
    substantially the same terms and conditions.

    5.  Unit-based Compensation

                                                                    Weighted
                                                                     Average
                                                                    Exercise
                                                            Units      Price
    -------------------------------------------------------------------------
    Unit options outstanding, December 31, 2007             2,029  $   12.23
    Granted                                                     -          -
    Exercised                                                   -          -
    -------------------------------------------------------------------------
    Unit options outstanding, June 30, 2008                 2,029  $   12.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Unit options exercisable, end of period                 1,654  $   12.05
    -------------------------------------------------------------------------

    The amount charged to unit-based compensation expense for the three month
    period to June 30, 2008 was $23,000 (2007 - $22,000) and year-to-date was
    $45,000 (2007 - $59,000).

    6.  Cash Flow

    Change in non-cash
     working capital:                    Three Months           Six Months
                                  -------------------------------------------
    For the periods ended June 30      2008       2007       2008       2007
    -------------------------------------------------------------------------
    Increase in accounts
     receivable                   $  (3,252) $    (826) $  (8,299) $  (3,290)
    Decrease (increase) in other
     current assets                     322       (559)    (1,375)    (1,794)
    Increase (decrease) in
     accounts payable and accrued
     liabilities                        447     (4,439)      (832)    (4,836)
    Increase (decrease) in income
     taxes payable (recoverable)       (154)       281     (1,006)      (201)
    -------------------------------------------------------------------------
    Net change in non-cash
     working capital              $  (2,637) $  (5,543) $ (11,512) $ (10,121)
    -------------------------------------------------------------------------

    Cash paid in respect of:
      Interest                    $   1,562  $   1,292  $   3,086  $   2,503
      Income taxes                      233        102      1,437        816

    Non-cash transactions
      Value of equipment financed
       through capital leases         6,006          -      6,641          -
    -------------------------------------------------------------------------

    7.  Related Party Transactions

    The Fund had business transactions with and had balances owing to and
    from a company controlled by the Chairman of the Fund as follows:

                                                          June 30,  December
    As at                                                    2008   31, 2007
    -------------------------------------------------------------------------
    Accounts payable                                          149        231
    Accounts receivable                                        18         11
    -------------------------------------------------------------------------

                                         Three Months           Six Months
                                  -------------------------------------------
    For the periods ended June 30      2008       2007       2008       2007
    -------------------------------------------------------------------------
    Repairs, maintenance and leases   1,632      1,589      3,261      3,126
    Rental income                        46         47         97         98
    -------------------------------------------------------------------------

    These transactions were carried out in the normal course of business and
    recorded at the exchange amount, which approximates arm's length
    arrangements.

    8.  Seasonality

    Generally, the second quarter is the Fund's strongest period. Volumes
    from customers in the construction industry typically increase as
    temperatures warm in the spring, and then decline with the onset of
    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.
    





For further information:

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

Organization Profile

Contrans Group Inc.

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