Contrans Income Fund announces second quarter results



    (TSX. Symbol CSS.UN)

    WOODSTOCK, ON, Aug. 5 /CNW/ -

    
    FINANCIAL HIGHLIGHTS

    (unaudited)
    (in millions except per unit amounts)
                     --------------------------------------------------------
    For the periods           Three Months                Six Months
      ended June 30        2009         2008          2009          2008
    -------------------------------------------------------------------------
    Revenue -
     as stated        $87.4        $129.7        $175.4        $250.3
      - fuel
        surcharges(1)  (6.0)        (23.9)        (13.1)        (42.2)
    -------------------------------------------------------------------------
    Revenue -
     transportation
     services(1)       81.4 100.0%  105.8 100.0%  162.3 100.0%  208.1 100.0%
    -------------------------------------------------------------------------
    Operating
     expenses - net of
     fuel surcharges   63.7   78.3   78.4   74.1  127.6   78.6  160.0   76.9
    Selling, general
     and administration
     expenses           7.5    9.2   11.1   10.5   16.7   10.3   22.0   10.6
    Foreign exchange
     gain              (1.8)  (2.2)     -      -   (0.6)  (0.4)  (0.5)  (0.2)
    -------------------------------------------------------------------------
    Earnings before
     amortization,
     interest and
     income taxes      12.0   14.7   16.3   15.4   18.6   11.5   26.6   12.7
    Amortization of
     property and
     equipment          3.1    3.8    3.0    2.8    6.1    3.8    6.1    2.9
    Amortization of
     intangible assets  1.0    1.2    1.0    1.0    1.9    1.2    1.9    0.9
    Net interest
     expense            1.4    1.7    1.5    1.4    2.8    1.7    2.8    1.3
    -------------------------------------------------------------------------
    Earnings before
     income taxes       6.5    8.0   10.8   10.2    7.8    4.8   15.8    7.6
    -------------------------------------------------------------------------
    Income tax
     provision
     (recovery):
      Current           2.1    2.6      -      -    1.9    1.2    0.3    0.2
      Future           (1.8)  (2.2)   0.6    0.6   (1.8)  (1.1)   0.3    0.1
    -------------------------------------------------------------------------
                        0.3    0.4    0.6    0.6    0.1    0.1    0.6    0.3
    -------------------------------------------------------------------------
    Net earnings     $  6.2   7.6% $ 10.2   9.6% $  7.7   4.7% $ 15.2   7.3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per unit
     - basic and
     diluted         $ 0.20        $ 0.35        $ 0.26        $ 0.52
    -------------------------------------------------------------------------
    (1) See "Use of non-GAAP Financial Measures" below.
    

    "The current recession is continuing to have a profound impact on the
global economy. In fact, many economists have stated that it is the worst
recession since World War II," stated Contrans' Chairman and Chief Executive
Officer, Stan Dunford. "Its effects on the North American transportation
industry have been reflected in greatly diminished shipping volumes. While our
2009 operating results have declined compared to 2008, the current year's
results have been buoyed by the diversity of Contrans' operations and customer
base. We are also encouraged by the discipline and determination with which
management has responded to deteriorating business conditions. These efforts
have produced new sources of revenue and have significantly reduced costs."
    "In spite of recent reports that the recession may have ended, management
has not seen sufficient evidence of an economic recovery and remains skeptical
as to the prospects for significant improvement in the near term," continued
Mr. Dunford. "As a result, when Contrans' Board of Trustees met on July 15,
2009, it decided to extend the suspension of distribution payments. The Board
also believes that the advantages originally offered by the income trust model
to Contrans and to its unitholders have been greatly diminished by the poor
business environment. Income trusts will be subject to taxation beginning in
2011 and, as that date draws nearer, the advantages of continuing as an income
trust are disappearing. In addition, there is a limited timeframe to convert
from an income trust to a corporation through a tax-free rollover. In
consideration of these factors, Contrans' Board of Trustees passed a
resolution today that it intends to proceed with and to recommend to
unitholders to approve converting the Fund back to a corporate entity. The
Board anticipates that the effective date of the conversion will be on or
about December 1, 2009."
    "Contrans remains fundamentally sound and profitable. It possesses a
solid balance sheet, the strength of which management is fiercely committed to
preserving. Management continues to scrutinize capital spending without losing
sight of the importance of safety and the fact that operating the finest fleet
of rolling stock has always been one of Contrans' competitive advantages.
Contrans' long-term debt facility, which does not require any principal
repayments until December 2013, has provided assurance against any serious
refinancing risk posed by lingering uncertainty in the credit market. In
addition, the Fund had approximately $30 million in cash as at the end of the
second quarter. Accordingly, the Fund is well-positioned to persevere through
troubled times and to take advantage of new opportunities to create greater
long-term value for unitholders."


    
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
    

    The attached consolidated financial statements, 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 periods ended June 30, 2009 and
2008. 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 management's discussion and analysis of
operations and financial condition.

    RESULTS FROM OPERATIONS

    The current recession has significantly affected the North American
trucking industry. The Fund's revenue from transportation services ("revenue")
was $24.4 million lower in the second quarter of 2009 compared to the second
quarter of 2008. Year-to-date revenue has been similarly affected. In
addition, lower fuel prices have reduced fuel surcharge revenue in 2009
compared to 2008.
    Typically the second quarter is the Fund's busiest period resulting in
increased equipment utilization. This helps to reduce operating expenses
measured as a percentage of revenue. In 2009, however, second quarter business
activity was essentially flat compared to the first quarter. Overcapacity in
the industry has also continued to apply downward pressure to freight rates
squeezing margins as a result. Accident claim costs fell $0.2 million in the
second quarter of 2009 compared to the second quarter of 2008. For the
year-to-date, accident claims were $1.1 million lower in 2009 compared to
2008. This has partially offset the increase in operating expenses in 2009
measured as a percentage of revenue.
    Selling, general and administration expenses were lower in the second
quarter of 2009 compared to 2008 primarily due to initiatives taken by
management to reduce costs. Reductions to staff levels and the management
incentive program have lowered compensation expenses by $2.4 million in the
second quarter of 2009 compared to the second quarter of 2008 ($2.9 million
lower year-to-date). Discretionary spending has been minimized as management
is continuing to rationalize costs wherever practical. A further provision of
$0.3 million was taken against a long-term note receivable. The additional
provision reflects the increased credit risk associated with this receivable
in the current economic climate.
    Improved accounts receivable aging has reduced the Fund's exposure to
credit risk and has contributed to reduced provisions for doubtful accounts in
2009. In the second quarter of 2009, the Fund recognized a charge to income of
$0.4 million (2008 - $Nil). There has been no change in the provision for
doubtful accounts for the year-to-date in 2009 (2008 - $0.3 million
provision). In light of deteriorating economic conditions, management has been
increasingly diligent in its collection efforts. In spite of these efforts,
one of the Fund's major customers, Abitibi-Bowater, filed for creditor
protection in April, 2009 resulting in a total charge to income of $0.4
million. Of this amount, $0.1 million was recognized in the first quarter and
$0.3 million was recognized in the second quarter. The Fund is continuing to
provide transportation services to this customer but under stricter credit
terms.
    The foreign exchange gains in 2009 have resulted primarily from
mark-to-market adjustments to the Fund's outstanding foreign exchange
contracts (See "Financial Instruments" below).
    Net debt levels fell in 2009 compared to 2008 and as a result interest
expense has decreased by $0.1 million. Typically the Fund utilizes its
operating line to fund operating cash flows during the second quarter.
However, due to the decision taken by management to conserve cash in 2008, the
Fund has not had to use its operating line during 2009, other than for letters
of credit. Interest earned on cash balances has fallen due to lower average
interest rates.

    
    SUMMARY OF QUARTERLY RESULTS

    (unaudited)      --------------------------------------------------------
    (in millions          First         Second        Third        Fourth
     except per unit     Quarter       Quarter       Quarter       Quarter
     amounts)          2009   2008   2009   2008   2008   2007   2008   2007
    -------------------------------------------------------------------------
    Revenue -
     as stated       $ 88.0 $120.5 $ 87.4 $129.7 $128.9 $122.1 $109.6 $118.5
      - fuel
       surcharges(1)   (7.1) (18.2)  (6.0) (23.9) (24.3) (13.9) (12.7) (15.2)
    -------------------------------------------------------------------------
    Revenue -
     transportation
     services(1)     $ 80.9 $102.3 $ 81.4 $105.8 $104.6 $108.2 $ 96.9 $103.3
    -------------------------------------------------------------------------
    Net earnings     $  1.5 $  5.0 $  6.2 $ 10.2 $ 11.4 $  9.1 $  3.0 $  7.5
    -------------------------------------------------------------------------
    Earnings per
     unit - basic
     and diluted     $ 0.05 $ 0.17 $ 0.20 $ 0.35 $ 0.40 $ 0.32 $ 0.10 $ 0.26
    -------------------------------------------------------------------------
    (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 increase as temperatures
warm in the spring, peak in the fall 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.

    CASH FLOW

    The Fund's Board of Trustees suspended distributions in March 2009 in
reaction to the Fund's operating results and the recession. In May 2009, the
Fund's distribution reinvestment plan ("DRIP") was formally terminated. The
DRIP provided $1.5 million year-to-date in 2009 (2008 - $2.9 million) and $1.8
million in the second quarter of 2008.
    The balances of accounts receivable and accounts payable have fallen in
2009 due to the economic downturn, lower fuel prices and reduced fuel
surcharges. In addition, improved aging has also reduced accounts receivable.
Income taxes payable have increased in 2009 primarily due to the suspension of
distributions. Accrued liabilities have been reduced by $2.6 million in 2009
due to the settlement of foreign exchange contracts that were on hand at
December 31, 2008 against which a mark-to-market provision had been made. In
addition, approximately $1.1 million of these mark-to-market losses have been
reversed in 2009 that relate to foreign exchange contracts that remain
outstanding as at June 30, 2009.
    Due to the achievement of certain performance objectives contained in the
purchase agreement with respect to Tripar Transportation Inc., a company
acquired by the Fund in 2006, a final payment of $3 million was paid out of
the Fund's restricted cash and cash equivalents in January, 2009 to its former
owners.
    During the second quarter of 2009 the Fund combined two operating
divisions, allowing the Fund to sell a terminal for proceeds of $0.6 million.

    
    LIQUIDITY AND CAPITAL RE

SOURCES (unaudited) (in millions) As at June 30, December 31, 2009 2008 ------------------------------------------------------------------------- Cash and cash equivalents Unrestricted $ 22.9 $ 18.4 Restricted $ 7.4 $ 10.4 Operating line available $ 24.0 $ 29.1 Current ratio 2.9:1 2.2:1 Total debt (including future tax obligations) to equity ratio 1.0:1 1.1:1 ------------------------------------------------------------------------- The Fund requires working capital, sourced by operating cash flows and an operating line, to fund day-to-day operating activities. Management believes that the Fund's operating line is adequate to meet seasonal fluctuations in working capital requirements. The operating line availability has reduced in line with the reduction in accounts receivable balances. Under the terms of its long-term credit agreement, the Fund's restricted cash and cash equivalents can only be used to finance growth activities or to repay senior secured notes. Principal maturities of the Fund's senior secured debt are as follows: (millions) -------------------------------- December 15, 2013 $ 31.9 October 15, 2016 $ 50.0 -------------------------------- CASH DISTRIBUTIONS -------------------------------------------- Three Six (unaudited) Months Months Twelve months ended June 30 ended December 31 ($ thousands) 2009 2009 2008 2007 ------------------------------------------------------------------------- Cash flow provided by operating activities(1) $ 4,702 $ 16,022 $ 50,474 $ 46,597 Net earnings 6,110 7,657 29,512 26,225 Distributions declared - 6,203 36,457 36,033 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Surplus of cash flow from operating activities over distributions declared $ 4,702 $ 9,819 $ 14,017 $ 10,564 Surplus (deficit) of net earnings over distributions declared $ 6,110 $ 1,454 $ (6,945) $ (9,808) ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net earnings $ 6,110 $ 7,657 $ 29,512 $ 26,225 Change in unrealized loss (gain) on foreign exchange (3,310) (3,825) 5,131 (553) Amortization of intangible assets 941 1,885 3,778 3,881 Income tax provision (recovery) - future (1,768) (1,831) 113 6,897 ------------------------------------------------------------------------- Net earnings before change in unrealized loss (gain) on foreign exchange, amortization of intangible assets and future income tax provision (recovery) $ 1,973 $ 3,886 $ 38,534 $ 36,450 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Surplus (deficit) of net earnings before change in unrealized loss (gain) on foreign exchange, amortization of intangible assets and future income tax provision over distributions declared $ 1,973 $ (2,317) $ 2,077 $ 417 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Includes changes in non-cash working capital balances. DISTRIBUTABLE CASH(1) (unaudited) (in thousands except per unit amounts) ------------------------------------------- For the periods ended June 30 Three Months Six Months 2009 2008 2009 2008 ------------------------------------------------------------------------- Cash flow provided by operating activities $ 4,702 $ 12,136 $ 16,022 $ 11,924 Change in non-cash working capital 605 2,637 (6,050) 11,512 Proceeds on sale of equipment 1,325 538 2,507 1,663 Asset retirement obligations - settlements (2) (19) (58) (23) Capital lease repayments (478) (254) (882) (322) Long-term debt repayments (85) (210) (354) (378) Maintenance capital expenditures(1) (1,279) (369) (2,476) (2,343) ------------------------------------------------------------------------- Distributable cash earned(1) 4,788 14,459 8,709 22,033 Distributions declared - 9,074 6,203 18,082 ------------------------------------------------------------------------- Distributable cash earned vs. distributions declared $ 4,788 $ 5,385 $ 2,506 $ 3,951 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributable cash earned per unit $ 0.16 $ 0.50 $ 0.29 $ 0.76 Distributions declared per unit - 0.31 0.21 0.63 ------------------------------------------------------------------------- Distributable cash earned vs. distributions declared per unit $ 0.16 $ 0.19 $ 0.08 $ 0.13 ------------------------------------------------------------------------- Weighted average number of units outstanding 29,937 28,993 29,857 28,894 ------------------------------------------------------------------------- Purchase of property and equipment Maintenance capital expenditures(1) $ 1,279 $ 369 $ 2,476 $ 2,343 Growth capital expenditures(1) 1,189 644 2,820 2,436 ------------------------------------------------------------------------- Total $ 2,468 $ 1,013 $ 5,296 $ 4,779 ------------------------------------------------------------------------- (1) See "Use of non-GAAP Financial Measures" below. On April 30, 2009 the Fund's unitholders voted to accept the recommendation of the Fund's trustees to amend the Fund's indenture to adjust the frequency of distribution declarations to a quarterly basis in arrears, rather than a monthly basis in advance. On July 15, 2009 the Board of Trustees met and resolved not to declare a distribution for the second quarter of 2009. This decision was made after careful consideration of many factors including the Fund's financial performance to date in 2009, its financial condition and the uncertainty surrounding the prospects for economic recovery. In addition, the Board considered the financial covenants that are contained in the Fund's loan agreements. On August 5, 2009, the Fund's Board of Trustees announced that it will be recommending to unitholders that they approve a conversion of the Fund into a corporate entity. The Board anticipates that the effective date of the conversion will be on or about December 1, 2009. The Board of Trustees believes that these measures were necessary and will be sufficient to preserve the financial strength of the Fund and to maintain its ability to compete and succeed in a challenging operating environment. 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 need to 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 (used in) operating activities in the consolidated statements of cash flow. Maintenance capital expenditures refer to capital expenditures that are necessary to sustain current revenue levels and therefore reduce the amount of cash that is available for distribution. 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. A detailed discussion on the Fund's expected future maintenance capital expenditures together with the factors that affect these expenditures is contained on page 9 of the Fund's 2008 annual report. Neither management's expectations nor the factors that can affect these requirements have changed materially since the date of publication of that annual report. Productive Capacity Management Strategy The Fund generally prefers to utilize owner-operators' tractors over Fund 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 The Fund prefers to lease rather than purchase tractors and certain types of trailers due to 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. The Fund expanded its use of capital leases in 2008 to fund some of its equipment purchases. The Fund will continue to evaluate the financing options available to it as it purchases equipment in 2009. PROPERTY AND EQUIPMENT (unaudited) As at June 30, 2009 Owner- Owned Leased operated Total ------------------------------------------------------------------------- Tractors 172 327 693 1,192 Trailers 1,552 632 95 2,279 Major office and terminal locations 15 4 - 19 ------------------------------------------------------------------------- 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) (in millions) As at June 30, There- 2009 2009 2010 2011 2012 2013 2014 after Total ------------------------------------------------------------------------- Principal and interest payments: Senior secured notes payable $ 2.6 $ 5.1 $ 5.1 $ 5.1 $ 37.0 $ 3.3 $ 57.9 $116.1 Capital leases 1.2 2.0 2.0 1.7 1.3 1.1 0.5 9.8 Operating leases 5.3 7.4 2.3 0.7 0.1 - - 15.8 Derivative financial instruments(1) 27.8 - - - - - - 27.8 Accounts payable and accrued liabilities 24.0 - - - - - - 24.0 ------------------------------------------------------------------------- Total $ 60.9 $ 14.5 $ 9.4 $ 7.5 $ 38.4 $ 4.4 $ 58.4 $193.5 ------------------------------------------------------------------------- (1) SEE "FINANCIAL INSTRUMENTS" BELOW. OUTSTANDING UNITS (unaudited) (in thousands) As at July 31, 2009 ------------------------------------------------------------------------- Subordinate voting trust units 23,799 Class A LP units 4,671 Class B LP units 1,468 ------------------------------------------------------------------------- Total 29,938 ------------------------------------------------------------------------- CRITICAL ACCOUNTING ESTIMATES Management is required to make significant estimates and assumptions in preparing its financial statements. Management's discussion and analysis in the Fund's 2008 annual report contains a discussion of critical accounting estimates on page 11 of that annual report. These estimates have remained substantially unchanged. Furthermore, 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, or results of operations. NEW ACCOUNTING PRONOUNCEMENTS Effective January 1, 2009, the Fund adopted the Canadian Institute of Chartered Accountants ("CICA") revised Handbook Section 3064 - Goodwill and Intangible Assets. This section establishes new standards for the recognition and measurement of intangible assets, but does not affect accounting for goodwill. The adoption of this revised section had no impact on the Fund's financial statements. Effective January 20, 2009 the Fund adopted the Emerging Issues Committee ("EIC") abstract EIC 173 - Credit Risks and the Fair Value of Financial Assets and Liabilities. This provides further guidance on CICA Handbook Section 3855 Financial Instruments - Recognition and Measurement and concludes that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities. Adoption of EIC 173 had no impact on the Fund's financial statements. INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS") In February 2008 the Accounting Standards Board 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 and 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. FINANCIAL INSTRUMENTS The Fund from time to time enters into foreign exchange contracts to manage its exposure to currency fluctuations. As at the date of this report the Fund has contracts to sell US $4.0 million in August 2009 and US $2.0 million per month from September to December 2009. These contracts settle at exchange rates between $1.0200 and $1.1095 (August to October) and between $1.0500 and $1.1529 (November and December). BUSINESS RISKS Management's discussion and analysis in the Fund's 2008 annual report contains a discussion of business risks on page 13. Those risks remain in effect as at June 30, 2009. Since December 31, 2008, the Fund has been affected by worsening economic conditions. TRANSACTIONS WITH RELATED PARTIES In the second quarter of 2009 the Fund paid $1.4 million (year-to-date $2.9 million) to Peterbilt of Ontario Inc., a company controlled by the Chairman of the Fund, for tractor repairs, maintenance and equipment lease costs. The Fund also leased certain premises to Peterbilt of Ontario Inc. for consideration of $45,000 (year-to-date $96,000) in the second quarter of 2009. 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. Distributable cash, distributable cash earned, maintenance capital expenditures, 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 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. ADDITIONAL INFORMATION Additional information, including the Fund's Annual Information Form, is available at www.sedar.com. August 5, 2009 CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (in thousands except for per unit amounts) (unaudited) ------------------------------------------- For the periods ended June 30 Three Months Six Months 2009 2008 2009 2008 ------------------------------------------------------------------------- Revenue $ 87,433 $ 129,743 $ 175,393 $ 250,271 Operating expenses 69,860 102,319 140,786 202,231 Selling, general and administration expenses 7,474 11,145 16,680 21,968 Foreign exchange gain (1,773) (25) (615) (519) Amortization of property and equipment 3,039 3,045 6,077 6,076 Amortization of intangible assets 941 945 1,885 1,889 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 7,892 12,314 10,580 18,626 Net interest expense (income) - long-term 1,451 1,557 2,916 3,086 - short-term (31) (79) (110) (242) ------------------------------------------------------------------------- Earnings before Income Taxes 6,472 10,836 7,774 15,782 ------------------------------------------------------------------------- Income Tax Provision (Recovery) Current 2,130 32 1,948 294 Future (1,768) 620 (1,831) 340 ------------------------------------------------------------------------- 362 652 117 634 ------------------------------------------------------------------------- Net Earnings and Comprehensive Income $ 6,110 $ 10,184 $ 7,657 $ 15,148 ------------------------------------------------------------------------- Earnings per unit - basic and diluted $ 0.20 $ 0.35 $ 0.26 $ 0.52 Weighted average number of units outstanding - basic and diluted 29,937 28,993 29,857 28,894 ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (in thousands) (unaudited) ------------------------------------------- For the periods ended June 30 Three Months Six Months 2009 2008 2009 2008 ------------------------------------------------------------------------- Retained Earnings (Deficit) - Beginning of Period $ (4,221) $ 3,336 $ 435 $ 7,380 Net earnings 6,110 10,184 7,657 15,148 Distributions declared - (9,074) (6,203) (18,082) ------------------------------------------------------------------------- Retained Earnings - End of Period $ 1,889 $ 4,446 $ 1,889 $ 4,446 ------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. CONSOLIDATED BALANCE SHEETS (in thousands) -------------------------- As at June 30 December 31 2009 2008 ------------------------------------------------------------------------- Assets (unaudited) (audited) Current Assets Cash and cash equivalents $ 30,253 $ 28,826 Accounts receivable 42,097 49,089 Income taxes recoverable - 538 Other current assets 6,256 6,167 ------------------------------------------------------------------------- 78,606 84,620 Notes Receivable 624 538 Property and Equipment 103,534 106,551 Intangible Assets 17,020 18,905 Goodwill 63,689 63,978 ------------------------------------------------------------------------- $ 263,473 $ 274,592 ------------------------------------------------------------------------- Liabilities and Unitholders' Equity Current Liabilities Accounts payable and accrued liabilities $ 23,973 $ 33,215 Distributions payable - 3,087 Income taxes payable 1,180 - Current portion of capital lease obligations 1,799 1,823 ------------------------------------------------------------------------- 26,952 38,125 Long-term Debt 83,497 83,686 Capital Lease Obligations 6,605 7,518 Asset Retirement Obligations 995 1,036 Future Income Taxes 13,942 15,773 ------------------------------------------------------------------------- 131,991 146,138 ------------------------------------------------------------------------- Unitholders' Equity (Note 4) Contributed surplus 877 834 Trust units 128,716 127,185 Retained earnings 1,889 435 ------------------------------------------------------------------------- Subsequent events (Note 11) 131,482 128,454 ------------------------------------------------------------------------- $ 263,473 $ 274,592 ------------------------------------------------------------------------- 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) (unaudited) ----------------------------------------- For the periods ended June 30 Three Months Six Months 2009 2008 2009 2008 ------------------------------------------------------------------------- Cash Provided by (Used in): Operating Activities Net earnings $ 6,110 $ 10,184 $ 7,657 $ 15,148 Items not affecting cash: Change in unrealized loss on foreign exchange (3,310) (112) (3,825) (57) Unit-based compensation expense (Note 6) (7) 23 43 45 Long-term debt - accretion 19 37 39 74 Gain on sale of business unit (Note 3) - - (23) - Fair value adjustment of notes receivable (Note 5) 257 - 257 - Asset retirement obligations - accretion 10 13 20 26 Amortization of property and equipment 3,039 3,045 6,077 6,076 Amortization of intangible assets 941 945 1,885 1,889 Future income taxes (1,768) 620 (1,831) 340 Loss (gain) on sale of equipment 16 18 (327) (105) ------------------------------------------------------------------------- 5,307 14,773 9,972 23,436 Change in non-cash working capital (Note 7) (605) (2,637) 6,050 (11,512) ------------------------------------------------------------------------- 4,702 12,136 16,022 11,924 ------------------------------------------------------------------------- Investing Activities Expended on acquisitions (Note 8) - - (3,000) - Asset retirement obligations - settlements (2) (19) (58) (23) Proceeds on disposal of business unit (Note 3) 21 - 121 - Proceeds on sale of equipment 1,325 538 2,507 1,663 Purchase of property and equipment (2,468) (1,013) (5,296) (4,779) ------------------------------------------------------------------------- (1,124) (494) (5,726) (3,139) ------------------------------------------------------------------------- Financing Activities Distributions paid - (9,051) (9,290) (18,045) Proceeds from operating loan - (3,997) - 4,851 Proceeds from long-term debt 32 209 126 253 Repayment of long-term debt (85) (210) (354) (378) Repayment of capital lease obligations (478) (254) (882) (322) Distribution reinvestment plan (Note 4) - 1,788 1,531 2,913 ------------------------------------------------------------------------- (531) (11,515) (8,869) (10,728) ------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 3,047 127 1,427 (1,943) Cash and Cash Equivalents - Beginning of Period 27,206 16,231 28,826 18,301 ------------------------------------------------------------------------- Cash and Cash Equivalents - End of Period $ 30,253 $ 16,358 $ 30,253 $ 16,358 ------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the periods ended June 30, 2009 and 2008 (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, 2008 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, 2008. 2. Adoption of Accounting Standards Effective January 1, 2009, the Fund adopted the Canadian Institute of Chartered Accountants ("CICA") revised Handbook Section 3064 - Goodwill and Intangible Assets. This section establishes new standards for the recognition and measurement of intangible assets, but does not affect accounting for goodwill. Adoption of this revised section had no impact on the Fund's financial statements. Effective January 20, 2009 the Fund adopted the Emerging Issues Committee ("EIC") abstract EIC 173 - Credit Risks and the Fair Value of Financial Assets and Liabilities. This provides further guidance on CICA Handbook Section 3855 Financial Instruments - Recognition and Measurement and concludes that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities. Adoption of EIC 173 had no impact on the Fund's financial statements. 3. Disposal of Business Unit In March 2009, the Fund disposed of its fuel tax reporting and driver log checking operation. This operation was acquired by the Fund in 2005 and generated $0.2 million of revenues for the year ended December 31, 2008. Net book value of assets disposed: ------------------------------------------------------------------------- Property and Equipment $ 53 Goodwill 289 Other current assets 10 Accounts receivable 31 Accounts payable and accrued liabilities (6) ------------------------------------------------------------------------- $ 377 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consideration received: Cash $ 121 Note receivable (fair value): Current 137 Long-term 142 ------------------------------------------------------------------------- $ 400 ------------------------------------------------------------------------- Gain on sale of business unit $ (23) ------------------------------------------------------------------------- ------------------------------------------------------------------------- The note receivable has a face value of $0.3 million. Future principal payments are conditional on revenues generated and are payable monthly. In the three month period to June 30, 2009, $21,000 of the outstanding amount was paid and was deducted from the value of the note receivable. The current portion of the note receivable is included in accounts receivable. 4. Unitholders' Equity Contributed Trust Retained Surplus Units Earnings Total ------------------------------------------------------------------------- Balance at December 31, 2008 $ 834 $ 127,185 $ 435 $ 128,454 Net earnings - - 7,657 7,657 Distributions declared - - (6,203) (6,203) Distribution reinvestment plan - 1,531 - 1,531 Unit-based compensation 43 - - 43 ------------------------------------------------------------------------- Balance at June 30, 2009 $ 877 $ 128,716 $ 1,889 $ 131,482 ------------------------------------------------------------------------- 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 June 30, December 31, 2009 2008 ------------------------------------------------------------------------- Long-term debt $ 83,497 $ 83,686 Capital lease obligations 8,404 9,341 Cash and cash equivalents (30,253) (28,826) ------------------------------------------------------------------------- Net debt 61,648 64,201 Unitholders' equity 131,482 128,454 ------------------------------------------------------------------------- Total capital $ 193,130 $ 192,655 ------------------------------------------------------------------------- The Board of Trustees approves distributions, annual operating plans and business acquisitions. The Fund's debt covenants are based on earnings, leverage and asset cover ratios. If the Fund breaches any of these covenants 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, 2009, the Fund was in compliance with all of its covenants. The Fund's lenders have a security interest in all of the assets of the Fund. The Fund's distribution reinvestment plan ("DRIP") was terminated in May 2009. The DRIP allowed unitholders to automatically reinvest their distributions into new units. New units were issued at 95% of the average market price for the preceding ten trading days. Prior to terminating the DRIP, the Fund had issued 318,152 new units in 2009. At the Fund's special and annual general meeting held on April 30, 2009, the Fund's unitholders voted in favour of amending the Fund's trust indenture. Distribution declarations are now to be made on a quarterly basis in arrears except for the fourth quarter in which case a declaration will be made prior to the end of the quarter. Previously, distribution declarations were made on a monthly basis in advance. On July 15, 2009 the Board of Trustees met and decided not to declare a distribution for the second quarter of 2009. This decision was made after careful consideration of many factors including the Fund's financial performance to date in 2009, its financial condition and the uncertainty surrounding the prospects for economic recovery as well as the financial covenants that are contained in the Fund's loan agreements. 5. Financial Instruments a) Fair values The carrying values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities 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 5 (b). Long-term debt with a carrying value of $83.5 million (December 31, 2008 - $83.7 million) has a fair value of $87.2 million at June 30, 2009 (December 31, 2008 - $88.1 million). At June 30, 2009, the fair value of capital lease obligations was $8.2 million (December 31, 2008 - $9.2 million). The fair values are calculated using discounted cash flows at current market rates. Notes receivable with a face value of $1.8 million (December 31, 2008 $1.5 million) are being carried at a fair value of $0.8 million (December 31, 2008 $0.8 million) based on the expected future payments discounted at current market rates. The current portion of notes receivable of $0.2 million (December 31, 2008 - $0.3 million) is included in accounts receivable on the consolidated balance sheets. b) Derivative financial instruments The Fund, from time to time, enters into foreign exchange contracts to manage its exposure to currency fluctuations. As at June 30, 2009 the Fund had the following contracts in place to sell US dollars in order to hedge foreign exchange risk on US dollar-denominated net assets: ------------------------------------------------------------------------- Maturity dates Monthly amount CAD $ Settlement rates ------------------------------------------------------------------------- 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 June 30, 2009, the fair value of these contracts was recorded as a liability of $1.2 million (December 31, 2008 - liability of $4.9 million) and is included in accounts payable and accrued liabilities on the consolidated balance sheets. The fair value of the contracts was provided by the counterparty on an open market basis. In July, 2009, the Fund disposed of certain portions of its outstanding contracts for a nominal fee. As a result, the Fund has the following contracts in place as at August 5, 2009: ------------------------------------------------------------------------- Maturity dates Monthly amount CAD $ Settlement rates ------------------------------------------------------------------------- Aug 2009 US $4 million $1.0200 - $1.1095 ------------------------------------------------------------------------- Sept and Oct 2009 US $2 million $1.0200 - $1.1095 ------------------------------------------------------------------------- Nov and Dec 2009 US $2 million $1.0500 - $1.1529 ------------------------------------------------------------------------- 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 notes 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 bad debt experience. Specific provisions are made against trade receivables for any customer that is known to be in poor financial condition. The overall provision for doubtful accounts increased in the second quarter of 2009 by $0.4 million (2008 -$0.3 million). The continuity in the provision for doubtful accounts is as follows: -------------------------- For the six months ended June 30 2009 2008 ------------------------------------------------------------------------- Provision as at January 1 $ 2,321 $ 2,081 Accounts written off (305) (47) Increase (decrease) in provision (13) 339 ------------------------------------------------------------------------- Provision as at June 30 $ 2,003 $ 2,373 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The Fund has specifically provided for $1.4 million of accounts receivable that were considered to be impaired as at June 30, 2009 (December 31, 2008 - $1.3 million). 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, 2009, approximately $7.0 million (December 31, 2008 - $14.6 million) of receivables were overdue but were not considered impaired. As at June 30, 2009 the Fund had a provision for doubtful accounts of $2.0 million (December 31, 2008 - $2.3 million) netted against accounts receivable. In addition, a provision of $1.0 million has been netted against notes receivable as at June 30, 2009 (December 31, 2008 - $0.7 million). Bad debt expenses or recoveries and provisions 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 15% - 20% of the Fund's revenue has been billed in US dollars in 2009 (2008 - 20% - 25%). 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 nominal decrease/increase in net earnings as at June 30, 2009, all other things being equal. The Fund operates in both Canada and the United States. 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 notes receivable. As at June 30, 2009, approximately 97% of the Fund's long-term debt, including capital lease obligations, had fixed interest rates. A 1% change in the interest rate on the Fund's floating rate instruments would 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. The availability of this operating line depends on the balance and age of accounts receivable. At June 30, 2009, the Fund had $24.0 million (December 31, 2008 - $30 million) available on its demand operating line of which it had used $0.9 million for outstanding letters of credit (December 31, 2008 - $0.9 million). Under the terms of the long-term debt facility, $7.4 million of the cash and cash equivalents on hand at June 30, 2009 (December 31, 2008 - $10.4 million) is restricted and may only be used to repay senior secured notes and to fund growth opportunities. The Fund has contractual obligations to make cash payments in regard to financial liabilities as follows: There- (in millions) 2009 2010 2011 2012 2013 2014 after Total ------------------------------------------------------------------------- Principal and interest payments: Senior secured notes payable $ 2.6 $ 5.1 $ 5.1 $ 5.1 $ 37.0 $ 3.3 $ 57.9 $116.1 Capital leases 1.2 2.0 2.0 1.7 1.3 1.1 0.5 9.8 Operating leases 5.3 7.4 2.3 0.7 0.1 - - 15.8 Derivative financial instruments 27.8 - - - - - - 27.8 Accounts payable and accrued liabilities 24.0 - - - - - - 24.0 ------------------------------------------------------------------------- Total $ 60.9 $ 14.5 $ 9.4 $ 7.5 $ 38.4 $ 4.4 $ 58.4 $193.5 ------------------------------------------------------------------------- 6. Unit-based Compensation Weighted Average Exercise Units Price ------------------------------------------------------------------------- Unit options outstanding - December 31, 2008 2,019 $ 12.22 Terminated (2,014) - Cancelled (5) - ------------------------------------------------------------------------- Unit options outstanding - June 30, 2009 - - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Unit options exercisable - end of period - - All outstanding unit options were returned by employees during the second quarter of 2009 and cancelled by the Trust. 7. Cash Flow Change in non-cash working capital: --------------------------------------- Three Months Six Months Period ended June 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Decrease (increase) in accounts receivable ($124) ($3,252) $6,898 ($8,299) Decrease (increase) in other current assets 191 322 (99) (1,375) Increase (decrease) in accounts payable and accrued liabilities (2,916) 447 (2,467) (832) Increase (decrease) in income taxes payable 2,244 (154) 1,718 (1,006) ------------------------------------------------------------------------- Net change in non-cash working capital ($605) ($2,637) $6,050 ($11,512) ------------------------------------------------------------------------- Cash paid (received) in respect of: Interest $1,458 $1,562 $2,916 $3,086 Income taxes - net (153) 233 288 1,437 Non-cash transactions Value of equipment financed through capital leases - 6,006 - 6,641 ------------------------------------------------------------------------- 8. Acquisitions Due to the achievement of certain performance objectives, in January, 2009, additional consideration of $3 million was paid out of restricted cash and cash equivalents, to the former owners of Tripar Transportation Inc ("Tripar"), a company acquired by the Fund in 2006. This additional consideration was accrued in the financial statements at December 31, 2008 and was allocated to goodwill. 9. Comparative Figures Certain comparative figures have been restated to conform to the current year's basis of presentation. 10. 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, peak in the fall 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. 11. Subsequent Events a) On August 5, 2009, the Fund's Board of Trustees announced that it will be recommending to unitholders that they approve a conversion of the Fund into a corporate entity. If the Fund's unitholders approve this recommendation, the conversion will be treated as a change in business form and will be accounted for as a continuity of interests in accordance with EIC 170, "Conversion of an Unincorporated Entity to an Incorporated Entity". Transaction costs will be treated as an expense in the period in which they are incurred, comparative information will be that of the pre- conversion entity as previously reported and changes in tax balances will be included as part of the income tax provision. b) In September 1994, former employees filed a lawsuit against a subsidiary of the Fund. These actions involved the valuation of the employees' benefits plans in 1988. In July 2009 the Fund settled this lawsuit, subject to court approval. The settlement amount is for $0.8 million. This settlement will result in a third quarter charge to income of $0.1 million. 12. Future Accounting Changes a) Financial Instruments - Disclosure In June 2009, the CICA amended Section 3862, "Financial Instruments - Disclosures" to include additional disclosure requirements about fair value measurement of financial instruments and liquidity risk disclosures. These amendments require a three- level hierarchy that reflects the significance of the inputs used in making the fair value measurements. Fair value of assets and liabilities included in Level 1 are determined by reference to quoted prices in active markets for identical assets and liabilities. Assets and liabilities in Level 2 include valuations using inputs other than the quoted prices for which all significant inputs are based on observable market data, either directly or indirectly. Level 3 valuations are based on inputs that are not based on observable market data. The amendments to Section 3862 apply for annual financial statements relating to fiscal years ending after September 30, 2009. The Fund is assessing the impact of these amendments on its consolidated financial statements. b) 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. 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 within 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. The adoption of this revised section could have a material impact on the accounting for business acquisitions that occur after January 1, 2011.

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

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Contrans Group Inc.

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