Livingston International Income Fund announces first quarter 2009 results and subsequent actions to maintain financial flexibility



    TORONTO, May 12 /CNW/ - Livingston International Income Fund (TSX:
LIV.UN), Canada's largest customs broker and a leading North American provider
of customs brokerage, transportation and integrated logistics services, today
announced its results for the first quarter ended March 31, 2009.
    The Fund also announced the successful negotiation of an amended credit
facility that allows for greater flexibility in financial covenants.
Additionally, to ensure compliance with the new covenants, the Fund has
determined it should suspend distributions to unitholders and use the
available cash to pay down term debt.

    First quarter results

    "Our results for the first quarter are disappointing," said Peter Luit,
president and chief executive officer of Livingston, "and while we expected a
weak quarter, given the seasonality of our business and the challenging
economic environment, we did not anticipate the extent of the slowdown. Late
last year, we recognized that 2009 would present a very difficult operating
environment for virtually all businesses and that would affect Livingston. The
key factors that drive our business - economic activity and the level of
international trade - have declined as companies react to flagging consumer
demand. To manage through these challenging times, we took steps to reduce our
costs at the end of 2008. We took further measures during the first quarter of
the year that are not fully reflected in our results, since they took effect
very late in the quarter. These measures are expected to reduce overall costs
on an annualized basis by approximately $15 million."

    Credit facility amendment, suspension of distributions

    Luit added, "Late in the quarter, as a result of the economic downturn
and its affect on trade volumes, our primary operating company also initiated
discussions with its lenders to allow for greater flexibility in the leverage
ratio covenant set out in our existing credit facility. This resulted in an
amended facility signed May 11, 2009."

    Debt reduction

    The term of the credit agreement remains unchanged with a maturity of
January 2011, for a revolving line of credit for $130 million and a term loan
of approximately $110 million. In addition to a one-time fee and higher
interest charges, under the amended credit facility, the company will start to
pay down a portion of the term loan. To that end, the Fund is suspending the
payment of distributions following the May distribution, payable at the end of
June, using the available cash flow to reduce debt. The amendment to the
credit facility has been filed on www.sedar.com.
    "Given the current business environment," explained Luit, "we believe it
is in the best long-term interests of the Fund and its unitholders to take
action now to seek to ensure we maintain access to the credit we need to
manage the business through this downturn. The effect of this step on
unitholder distributions now is regrettable but unavoidable. We are taking
every possible action to maintain the long-term value of the assets of the
Fund, so that we can return to a position where distributions can be
reinstated. We intend to weather this difficult economy and to be strongly
positioned for the recovery."

    Quarterly results

    First quarter revenues and EBITDA(1) are typically the lowest of the
year, reflecting the seasonality of the business, which is dependent on trade
patterns. During the first three months of 2009, Livingston generated revenues
and interest income of $59.4 million, a drop of 26.0% compared with the $80.3
million generated in the same period last year.
    Livingston reduced the cost of services for the quarter to $40.0 million,
down 14.9% from $47.0 million in the first quarter of 2008. Selling, general
and administrative expenses were also lower, at $16.2 million compared with
$17.1 million a year earlier. Livingston recorded a net loss of $17.3 million
for the quarter compared with net income of $8.3 million in the first quarter
of 2008. Continued economic challenges in the first quarter prompted further
restructuring costs in the amount of $0.9 million. The net loss arose from the
recognition of impairments of goodwill in the U.S. customs brokerage operation
and in the transportation and logistics segment, in the amount of $10.7
million and $5.6 million, respectively.
    EBITDA(1), or earnings before interest, taxes, other income or expense,
depreciation, amortization and impairment of goodwill, intangibles and fixed
assets, was $2.3 million for the quarter compared with $16.2 million a year
ago. As a percentage of revenue, EBITDA(1) was 3.9% compared with 20.2% for
the same period last year.

    Distributions

    In January 2009, Livingston's board of trustees announced it was reducing
the monthly distribution to unitholders from $0.142 per unit to $0.042 per
unit, starting with the January distribution, payable at the end of February.
This reduction was intended to preserve the Fund's financial strength and
allow it to respond to both the risks and opportunities presented by the
current economic environment.
    Accordingly, Livingston declared distributions of $3.4 million, or $0.126
per unit, during the quarter, as a result of the reduced level of
distributions. This compares with distributions of $11.6 million, or $0.426
per unit during the first quarter of 2008.
    A copy of the full financial report, including notes to the consolidated
financial statements, is available from Livingston's Investor Relations page
at www.livingstonintl.com and has been filed on www.sedar.com.

    
    Highlights

    (in millions of dollars except                    Quarter ended March 31,
     per unit amounts, unaudited)                           2009        2008
    -------------------------------------------------------------------------
    Net revenues                                           $59.4       $80.3
    -------------------------------------------------------------------------
    Net (loss) income                                      (17.3)        8.3
    -------------------------------------------------------------------------
    Cash flow from operations                               36.7        15.6
    -------------------------------------------------------------------------
    EBITDA(1)                                                2.3        16.2
    -------------------------------------------------------------------------
    Distributions to unitholders                             3.4        11.6
    -------------------------------------------------------------------------
    Distributions per unit to unitholders                  0.126       0.426
    -------------------------------------------------------------------------
    

    Conference call

    Livingston International Income Fund invites interested investors,
analysts and financial media to dial in to its conference call to review its
first quarter financial results to be held on Wednesday, May 13, 2009 at 10:00
a.m. EDT. The number to call is 1-888-789-9572 or, in the Toronto area, 416
695-7806, entering pass code 4006193.
    A playback will also be available following the scheduled call, until
June 10, 2009, by dialling 416 695-5800 in the Toronto area or 1-800-408-3053
and asking for the Livingston International 1st Quarter 2009 Financial Results
conference call. The pass code for the playback is 4006193. An audio recording
will also be archived on Livingston's web site for one month following the
call.

    About Livingston

    Livingston International Income Fund is a trust that holds the securities
of Livingston International Inc., a leading North American provider of
customs, transportation and integrated logistics services. Headquartered in
Toronto, Ontario, Livingston has more than 2,500 staff located at
approximately 100 key border points, seaports, airports and other strategic
locations across Canada and the U.S.

    
    Management's Discussion and Analysis
    For the quarter ended March 31, 2009
    

    This Management's Discussion and Analysis, the accompanying unaudited
consolidated financial statements of Livingston International Income Fund (the
"Fund") and the notes thereto present the consolidated results of the Fund for
the quarters ended March 31, 2009 and March 31, 2008.
    These interim unaudited consolidated financial statements include the
results of the Fund's primary operating subsidiary, Livingston International
Inc. ("Livingston" or "Livingston International"), and its affiliates and
partnerships in Canada and the United States, which conduct the Fund's
day-to-day business operations, for the quarters ended March 31, 2009 and
March 31, 2008.
    These interim unaudited consolidated financial statements are intended to
be read in conjunction with the annual audited consolidated financial
statements and accompanying notes to the consolidated financial statements for
the year ended December 31, 2008, included in the Fund's Annual Report 2008.
This information is available from the Investor Relations page of Livingston's
web site at www.livingstonintl.com and also from the System for Electronic
Document Analysis and Retrieval ("SEDAR") at www.sedar.com.
    The accounting policies as disclosed in these interim unaudited
consolidated financial statements are consistent with those followed in the
2008 audited consolidated financial statements, included in the Fund's Annual
Report 2008, except that the Fund has adopted the following accounting policy
effective January 1, 2009: Canadian Institute of Chartered Accountants
("CICA") Handbook Section 3064, Goodwill and Intangible Assets. As required,
this standard has been adopted on a prospective basis. Prior year comparative
statements have not been restated, in accordance with CICA Handbook guidance.
    All financial information is presented in Canadian dollars, unless
specified otherwise.

    Overview of the Business

    The Fund operates a number of businesses, which, for reporting purposes,
it has grouped under four main operating segments.

    Canadian customs brokerage comprises all of the Fund's Canadian customs
brokerage, event logistics and customs consulting operations.

    U.S. customs brokerage includes all of its U.S. customs brokerage
operations, including U.S. air/sea customs clearance operations, and U.S.
customs consulting services.

    Transportation and logistics include its freight (international
forwarding including air/sea forwarding, as well as North American ground
freight and vehicle transportation services) and integrated logistics
(integrated supply-chain management, warehousing arrangements and
distribution) operations.

    Border services are comprised of its managed services (imported vehicle
registration, carrier services, program management, information management and
contact centre services) operations and technology services.

    Forward-Looking Statements

    The Fund's interim unaudited consolidated financial statements, including
this Management's Discussion and Analysis, contain "forward-looking
statements," which reflect management's current beliefs and expectations
regarding the Fund and Livingston International's future growth, results of
operations, performance, business prospects and opportunities.
    Such forward-looking statements, which may be identified by words such as
"anticipate", "should", "would", "could", "believe", "continue", "expect",
"intend", "may", "will", "project" and "estimate", are based on information
currently available to management. Forward-looking statements involve
significant risks and uncertainties. Many factors are beyond the Fund's
control and could cause actual results to differ materially from the results
discussed in the forward-looking statements, including risks related to
dependence on cross-border trade, economic conditions, protectionist measures,
taxation of income trusts, limited partnerships or corporations and other tax
matters, disruption to border crossings, increases or decreases in foreign
trade, competition, effects of hedging, acquisitions and the integration of
acquisitions, regulatory change, foreign-exchange rates, interest rates,
continued availability of credit facilities, continued solvency and liquidity
of Livingston's lenders and other credit counter-parties, availability of
bonds, credit and collection experience, reliance on key personnel, potential
for uninsured or underinsured losses, continued availability of transportation
equipment, contract changes, loss or non-renewal of contracts (including,
without limitation, the contract with Transport Canada for imported vehicle
registration), loss of clients and the impact of pandemics or natural or other
disasters, among others. These factors should not be considered exhaustive.
    In formulating forward-looking statements herein, Livingston management
has considered prevailing economic conditions as well as current financial
market issues. Management has assumed that business and economic conditions
affecting it will continue substantially in the ordinary course, including
without limitation with respect to trading patterns, general levels of
economic activity, regulations, foreign-exchange rates and interest rates, and
that there will be no material changes in its credit and hedging arrangements,
bonding requirements or credit and collection experience.
    Although the forward-looking statements are based upon what management
believes to be reasonable assumptions, the Fund and Livingston cannot assure
investors that actual results will be consistent with these forward-looking
statements. When relying on forward-looking statements to make decisions,
investors should ensure the preceding information is carefully considered.
    Such forward-looking statements are made as of May 11, 2009. Except as
expressly required by law, neither the Fund nor Livingston assumes any
obligation to update or revise such statements or any information contained in
this report, or to publicly release the results of any revisions to
forward-looking statements to reflect new events, assumptions or circumstances
that the Fund or Livingston may become aware of after May 11, 2009. Undue
reliance should not be placed on forward-looking statements.

    Non-GAAP Financial Measures

    The Fund provides some non-GAAP (generally accepted accounting
principles) measures as supplementary information that management believes
would be useful to investors to explain the Fund's financial results. These
non-GAAP measures include EBITDA(1) (earnings before interest, taxes, other
(income) expense, depreciation, amortization and impairment of goodwill,
intangibles and fixed assets) and certain information related to the
calculation of cash flows.
    The Fund has reconciled these non-GAAP measures to the most comparable
Canadian GAAP items included in the consolidated financial statements. See
Tables 3 through 5 for these reconciliations.

    EBITDA(1)

    EBITDA(1) does not have a standardized meaning according to Canadian
GAAP, is not a recognized measure under GAAP and should not be construed as an
alternative to net income or cash flows determined in accordance with GAAP as
an indicator of the Fund's performance or cash flows.
    The Fund's method of calculating EBITDA(1) may differ from that of other
companies or income trusts and may not be comparable to measures used by other
companies or income trusts. For a reconciliation of net income determined in
accordance with GAAP to EBITDA(1), see Table 5.

    Adjusted Operating Cash Flows(2)

    The Fund has adopted Canadian Securities Administrators ("CSA")
guidelines for income trusts regarding operating cash flows. The supplementary
information provided in Tables 3 and 4 regarding the cash flows of the Fund,
the repayment of debt and other investing activities are intended to help
investors reconcile measures, such as distributable cash and payout ratio, to
GAAP measures and EBITDA(1). Certain subtotals, such as adjusted operating
cash flows after maintenance capital expenditures(2), that are presented and
reconciled to GAAP are not defined terms under GAAP. Management uses this
information as a measure of internal performance and a supplement to the
consolidated statements of cash flows as defined in accordance with GAAP.
Investors are cautioned that the Fund may calculate these measures differently
than other companies or income trusts do and that, therefore, they may not be
comparable.
    The information provided in Table 3, Summary of Cash Flows, is derived
from, and should be read in conjunction with, the unaudited interim
consolidated statements of cash flows.

    
    Recent Developments

    Credit Facility Agreement
    

    Late in the first quarter, as a result of the economic downturn, which
has significantly affected trade volumes, Livingston initiated discussions
with its lenders to allow for greater flexibility in the leverage ratio
covenant with respect to its existing credit facility. As a result, in May
2009, the lenders agreed to provide this additional flexibility by increasing
the leverage ratio covenant to 3.75 until September 30, 2009 and then reducing
it progressively by quarter to 2.50 by September 30, 2010 and for the
remainder of the term of the credit agreement. Furthermore, the lenders agreed
to waive the prior leverage ratio covenant requirement as of March 31, 2009.
    In addition to a one-time fee and higher interest charges, under the
amended credit facility, Livingston will start to pay down a portion of its
term loan. The amendment to the credit facility has been filed on SEDAR at
www.sedar.com.

    Distributions

    In conjunction with the most recent amendment to its primary operating
company's credit agreement, the Fund has suspended distributions to
unitholders, commencing following payment of the May distribution at the end
of June 2009. At the Fund's discretion, the payment of distributions may be
reinstated subject to maintaining a leverage ratio at or below 2.50 for two
consecutive quarters.
    This suspension of distributions follows the Fund's January announcement
to reduce monthly distributions by 70%, to $0.042 per Fund unit, or $0.50 per
annum, starting with the January 2009 distribution paid at the end of February
2009, in order to preserve the Fund's financial strength.

    Cost Reductions

    On February 27, 2009, the Fund announced several measures to reduce
personnel costs. It granted all employees one day off every two weeks, to be
accompanied by an attendant reduction in salary, to lower staff costs by 10%
for the period this temporary measure remains in place, starting late in the
first quarter. It also froze compensation at existing levels for 12 months
across the organization and put in place an incentive option designed to
elicit voluntary resignations from longer-term employees. These temporary
measures will be reviewed periodically and revised if necessary in light of
market conditions.
    Furthermore, in the quarter ended March 31, 2009, Livingston accrued $0.9
million in payroll and severance costs. Subsequent to the end of the quarter,
approximately $2.0 million in additional severance costs were incurred as a
result of further staff layoffs. These staff reductions are expected to reduce
payroll costs by approximately $7.0 million on an annualized basis.

    Internal Reorganization

    On February 1, 2009, the Fund transferred to a newly incorporated
company, 2195787 Ontario Inc., $138 million of intercompany notes due from
Livingston, bearing interest at 12.675% per annum and due on February 10,
2012, as well as $36 million of intercompany notes, bearing interest at 12%
per annum and due on July 31, 2014. The intercompany debt was extinguished on
February 1, 2009 when 2195787 Ontario Inc. was amalgamated with Livingston.
This was completed to facilitate the reduction in distributions announced in
January 2009.

    Results of Operations

    Quarterly revenues and EBITDA(1) are typically lowest in the first
quarter compared with other quarters, reflecting the seasonality of the
business. Seasonality is related to trading patterns, with volumes lower
historically in the first quarter compared with other quarters in the year.
    The Fund recorded consolidated revenues and interest income of $59.4
million for the quarter ended March 31, 2009, down 26.0% from $80.3 million in
the same period in 2008. The changes in revenue are more fully described below
in the reporting segment analysis.
    The cost of services decreased by 14.9% to $40.0 million compared with
$47.0 million for the same period in 2008, due to lower costs in all of the
operating segments. As a result, the contribution margin, defined as revenues
less the cost of services, decreased to $19.4 million in the quarter ended
March 31, 2009, down from $33.3 million for the same period in 2008. As a per
cent of revenue, the contribution margin decreased to 32.7% in the quarter
ended March 31, 2009 from 41.5% in the previous year quarter. Further comments
are included in the discussion on individual reporting segments below.
    Selling, general and administrative expenses, including administrative
expenses of the Fund, for the first quarter of 2009 were $16.2 million
compared with $17.1 million for the same quarter in 2008.
    Additional restructuring costs in the amount of $0.9 million were
incurred in the quarter ended March 31, 2009 for employee terminations
prompted by continuing economic challenges.
    The net loss for the first quarter of 2009 was $17.3 million compared
with net income of $8.3 million for same quarter in 2008.
    EBITDA(1) for the quarter ended March 31, 2009 was $2.3 million, or 3.9%
of revenue, a $13.9 million drop from $16.2 million in the same period in
2008. The EBITDA(1) margin as a per cent of revenue was down from 20.2% in the
first quarter of 2008 to 3.9% in the same quarter in 2009.
    Depreciation expense for the first quarter of 2009 was $2.2 million,
consistent with the same period in 2008. This non-cash expense was related to
the depreciation of property, plant and equipment, comprised chiefly of
facilities, computers and office equipment used in operations.
    Acquisitions made by the Fund have been accounted for as business
combinations with the purchase price being allocated to the assets acquired
and the liabilities assumed, based on their estimated fair values at the date
of acquisition. For past acquisitions, a portion of the purchase price was
allocated to intangible assets, which represent the value of client
relationships, contracts and technology acquired. Intangible assets are
amortized over the expected periods of benefit, generally from two to 10
years, resulting in a $3.5 million charge in the quarter ended March 31, 2009
compared with $3.9 million for the same period in 2008. This non-cash expense
mainly relates to the amortization of the value of client relationships
realized through acquisitions.
    As the Fund's unit value declined below its book value in the first
quarter, a triggering event occurred. Consequently, as required by GAAP,
impairment tests were conducted on long-lived assets and goodwill, resulting
in a $16.5 million charge incurred in the quarter ended March 31, 2009.
    Upon completion of the long-lived asset impairment test as at March 31,
2009, a provision for the impairment of fixed assets in the amount of $0.2
million was recorded relating to the transportation and logistics segment.
This impairment charge was primarily due to the integration of operations.
    Upon completion of the goodwill impairment test as at March 31, 2009, a
provision for the impairment of goodwill in the amount of $10.7 million was
recorded relating to the U.S. customs brokerage segment and $5.6 million
relating to the transportation and logistics segment. These impairment charges
were primarily the result of the decline in business in these segments due to
adverse economic conditions.
    Included in other income are unrealized and realized losses or gains from
the translation of U.S.-dollar-denominated monetary assets and liabilities of
the Fund's subsidiaries. There was a foreign-exchange gain of $1.2 million for
the quarter ended March 31, 2009 compared with a foreign-exchange gain of $0.9
million for the same quarter last year. The change was primarily due to the
weakening of the Canadian dollar, partially offset by the Fund's subsidiaries'
economic hedging policy. As is contemplated by the economic hedging policy to
reduce the volatility of the impact of foreign-exchange risk, the Fund's
subsidiaries continued to enter into a number of short-term forward-exchange
contracts to sell U.S. currency. In the quarter ended March 31, 2009, there
was an unrealized gain on hedging of $0.1 million, included in the
foreign-exchange gain of $1.2 million, compared with an unrealized loss of
$0.1 million in the same period in 2008. For accounting purposes, the Fund
records these forward-exchange contracts at market value at the end of the
respective quarter.
    Interest expense on long-term debt, mostly relating to the bank term
debt, was $1.6 million for the quarter ended March 31, 2009, down from $2.0
million in 2008. This decrease was due to lower interest rates in 2009
compared with the same period in 2008.
    In 2005, Livingston entered into an interest-rate swap for $23 million,
which fixed the effective interest rate at 5.73% until December 16, 2009. In
September 2006, Livingston entered into three additional interest-rate swap
agreements. In accordance with the swap agreements, Livingston pays interest
at an effective fixed rate of 5.79% per annum on its
Canadian-dollar-denominated debt of $34 million and 6.63% on its
U.S.-dollar-denominated debt of US$5 million and receives a floating rate. The
effective interest rate fluctuates depending on certain financial performance
ratios. These three swaps have a maturity date of January 11, 2011. Under the
terms of the new credit facility, the effective interest rate for each swap
has increased by approximately 2.5%.
    Other interest expense, related to the revolving line of credit for
government remittances, was $0.4 million for the quarter ended March 31, 2009
compared with $1.0 million a year earlier, as a result of lower interest rates
year over year.
    Interest income of $0.1 million was included in the Canadian brokerage
revenue segment for the first quarter of 2009 compared with $0.5 million for
the same quarter a year earlier. The decrease in interest income was a result
of lower interest rates and fewer funds available for investment purposes.
    While the Fund reported a pre-tax loss of $20.6 million for the quarter
ended March 31, 2009, it recognized a recovery of income taxes of $3.3
million, comprised of a future income tax recovery of $3.4 million and a
current tax expense of $0.1 million. On the pre-tax loss of $20.6 million, the
overall expected income tax recovery was $6.6 million compared with a tax
recovery reported of $3.3 million. Income allocated to the Fund and its
subsidiary partnerships reduced income tax expense by $1.8 million, and
non-deductible items, including goodwill, changes in income tax rates and
other items, increased the tax expense by $5.1 million. At March 31, 2009, the
Fund, through its subsidiaries, had approximately $28.3 million of losses,
which may be able to offset future taxable income. These losses are scheduled
to expire between 2024 and 2029, if not utilized.
    The net loss for the first quarter of 2009 was $17.3 million, or $0.64
per Fund unit, after the recovery of income taxes of $3.3 million. The net
loss was primarily due to the recognition of a $16.5 million impairment of
goodwill and other assets related to the U.S. customs brokerage and
transportation and logistics segments. In the same period in 2008, the net
income was $8.3 million, or $0.30 per Fund unit, after the recovery of income
taxes of $0.4 million. For a further breakdown of the results of operations by
quarter for fiscal 2009 and 2008, refer to Tables 1 and 2, respectively.

    Canadian Customs Brokerage

    Revenues and interest income for the quarter ended March 31, 2009
decreased by $6.6 million to $30.8 million compared with the same period in
2008. This decrease in revenue was mainly due to lower trade volumes from
existing clients, down approximately 21.4% from the previous year as a result
of the economic slowdown, and lower interest income offset by a 6.0% higher
average price per import transaction. Revenues generated by event logistics
and Canadian customs consulting were also slightly lower.
    The cost of services decreased by 9.8% in the first quarter of 2009 over
the same period in 2008 to $16.1 million, primarily due to lower payroll and
occupancy costs as a result of personnel reductions completed in the fourth
quarter of 2008 and continued rigorous cost management. The contribution
margin decreased from approximately $19.5 million, or 52.1% of revenues, in
the quarter ended March 31, 2008 to $14.6 million, or 47.5% of revenues, in
the quarter ended March 31, 2009.

    U.S. Customs Brokerage

    In Canadian dollars, overall revenues for the U.S. customs brokerage
segment decreased in the first quarter of 2009 by 10.9% compared with the same
period in 2008 to $11.6 million. Trade volumes into the United States were
down approximately 25.0% compared with the prior year's quarter, decreasing
revenue by $3.2 million. In addition, decreased pricing of additional
value-added services to clients resulted in a $0.4 million reduction in
revenues compared with the first quarter of 2008. This was offset, however, by
the foreign-exchange translation of U.S.-dollar revenues into Canadian
dollars, contributing $2.2 million in higher revenues.
    The average Canada-United States currency-exchange rate for the quarter
ended March 31, 2009 was Cdn$1.25 to US$1.00 compared with Cdn$1.01 to US$1.00
for the same period in 2008. In U.S. dollars, overall 2009 revenues for the
U.S. customs brokerage operation were down $3.7 million, or 28.2%, over the
same period in 2008, primarily as a result of reduced volumes from existing
clients.
    In Canadian dollars, the overall cost of services for the U.S. customs
brokerage segment was $8.2 million, consistent with the same period last year.
This was due to various cost reductions totalling $1.6 million, including
personnel reductions in the fourth quarter in response to lower revenues
resulting from the slowing economy. This was offset by the unfavourable impact
of the foreign-exchange translation of U.S. dollars into Canadian dollars of
$1.7 million during the quarter.
    In U.S. dollars, the overall cost of services for the U.S. customs
brokerage segment was down by $1.6 million compared with the first quarter in
2008. Due to the variances in revenue and cost of services mentioned above,
the contribution margin for the U.S. customs brokerage operation decreased in
Canadian dollars to $3.4 million from $4.9 million in the same period in 2008.
As a per cent of revenues, the contribution margin decreased to 29.6% in 2009
from 37.5% in 2008.

    Transportation and Logistics

    Revenues in the first quarter of 2009 decreased by $3.8 million to $11.9
million compared with the same period in 2008. This was primarily due to
decreased volumes in the North American transportation, integrated logistics
and vehicle transportation businesses. This decrease was, however, partially
offset by higher revenues from the Canadian international freight forwarding
business.
    The cost of services decreased by $1.4 million to $12.2 million for the
quarter ended March 31, 2009 compared with the same period in 2008. Costs were
lower in the North American transportation and vehicle transportation
businesses due to lower revenues. This resulted in a decrease in the
contribution margin to a loss of $0.3 million for the first quarter of 2009
compared with a positive contribution margin of $2.1 million for the same
period in 2008. The decline in the margin percentage from 13.2% in 2008 to a
loss of 2.7% in 2009 reflects the lower margins in the acquired integrated
logistics business as well as economic challenges experienced in the North
American transportation operation.

    Border Services

    Revenues fell by 63.9% to $5.1 million for the first quarter of 2009
compared with the same period in 2008. This was principally due to a 70.7%
reduction in volumes in managed services. The reduced imported vehicle
registration volumes experienced in the first quarter of 2009 can mainly be
attributed to the weakened Canadian dollar and general economic slowdown
compared with the same period in 2008.
    The cost of services in this segment decreased in the first quarter of
2009 by approximately 52.8% to $3.5 million over the same quarter in 2008,
primarily in managed services due to the drop in volumes.
    As a result of the lower revenues, the contribution margin for border
services decreased to $1.7 million, down from $6.9 million in 2008. As a per
cent of revenues, the contribution margin decreased to 32.8% in 2009 from
48.6% in 2008.
    Table 1 provides quarterly financial information for the quarters ended
June 30, 2008 to March 31, 2009.

    
    -------------------------------------------------------------------------
    Table 1
    Quarterly Consolidated Statements of Income

    For the quarters ended June 30, 2008 to March 31, 2009
    (in thousands of dollars, except per Fund unit amounts and Fund units
     outstanding, unaudited)
    -------------------------------------------------------------------------
                                March 31,    Dec. 31,   Sept. 30,    June 30,
    Quarter ended                   2009        2008        2008        2008
    -------------------------------------------------------------------------
    Net revenues                  59,257      73,559      80,249      87,811
    Interest income                  123         312         350         290
    -------------------------------------------------------------------------
                                  59,380      73,871      80,599      88,101
    Cost of services              39,979      43,298      44,969      47,687
    -------------------------------------------------------------------------
    Contribution margin           19,401      30,573      35,630      40,414
    Selling, general and
     administrative expenses      16,191      14,726      17,390      19,113
    Restructuring costs              867       1,865           -           -
    -------------------------------------------------------------------------
    EBITDA(1)                      2,343      13,982      18,240      21,301
    Depreciation                   2,161       2,371       2,434       2,324
    Amortization                   3,529       3,752       3,719       3,720
    Impairment of goodwill
     and other assets             16,458     143,741           -           -
    -------------------------------------------------------------------------
    (Loss) income before
     the undernoted              (19,805)   (135,882)     12,087      15,257
    -------------------------------------------------------------------------
    Other (income) expense        (1,232)     (5,048)     (1,436)        295
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt               1,611       1,886       1,813       1,918
      Other                          448         686         754         739
    -------------------------------------------------------------------------
                                   2,059       2,572       2,567       2,657
    -------------------------------------------------------------------------
    (Loss) income before
     income taxes                (20,632)   (133,406)     10,956      12,305
    Provision for (recovery of)
     income taxes
      Current                         91         268         952       1,167
      Future                      (3,378)    (13,892)       (413)       (993)
    -------------------------------------------------------------------------
                                  (3,287)    (13,624)        539         174
    -------------------------------------------------------------------------
    Net (loss) income for
     the period                  (17,345)   (119,782)     10,417      12,131
    -------------------------------------------------------------------------
    Net (loss) income per
     Fund unit, undiluted
     and diluted                   (0.64)      (4.39)       0.38        0.45
    -------------------------------------------------------------------------
    Weighted average Fund
     units outstanding,
     undiluted and diluted    27,247,667  27,247,667  27,247,667  27,247,667
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Table 2 provides quarterly financial information for the quarters ended
June 30, 2007 to March 31, 2008.

    -------------------------------------------------------------------------
    Table 2
    Quarterly Consolidated Statements of Income

    For the quarters ended June 30, 2007 to March 31, 2008
    (in thousands of dollars, except per Fund unit amounts and Fund units
     outstanding, unaudited)
    -------------------------------------------------------------------------
                                March 31,    Dec. 31,   Sept. 30,    June 30,
    Quarter ended                   2008        2007        2007        2007
    -------------------------------------------------------------------------
    Net revenues                  79,779      83,512      79,672      81,626
    Interest income                  517         604         779         597
    -------------------------------------------------------------------------
                                  80,296      84,116      80,451      82,223
    Cost of services              46,978      45,878      46,413      46,788
    -------------------------------------------------------------------------
    Contribution margin           33,318      38,238      34,038      35,435
    Selling, general and
     administrative expenses      17,137      16,778      17,136      17,774
    Costs related to the
     integration of PBB                -         328         219         480
    -------------------------------------------------------------------------
    EBITDA(1)                     16,181      21,132      16,683      17,181
    Depreciation                   2,187       2,355       2,735       2,913
    Amortization                   3,921       5,536       5,538       5,580
    Impairment of goodwill
     and other assets                  -      37,803           -           -
    -------------------------------------------------------------------------
    Income (loss) before the
     undernoted                   10,073     (24,562)      8,410       8,688
    -------------------------------------------------------------------------
    Other (income) expense          (881)        420       1,506       2,752
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt               2,043       2,096       2,077       2,018
      Other                          989       1,067       1,136         962
    -------------------------------------------------------------------------
                                   3,032       3,163       3,213       2,980
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes                  7,922     (28,145)      3,691       2,956
    Provision for (recovery of)
     income taxes
      Current                        491       2,526       1,343         677
      Future                        (855)     (5,934)     (1,359)     (1,117)
    -------------------------------------------------------------------------
                                    (364)     (3,408)        (16)       (440)
    -------------------------------------------------------------------------
    Net income (loss) for
     the period                    8,286     (24,737)      3,707       3,396
    -------------------------------------------------------------------------
    Net income (loss) per
     Fund unit                      0.30       (0.91)       0.14        0.12
    -------------------------------------------------------------------------
    Net income (loss) per
     Fund unit, diluted             0.30       (0.91)       0.14        0.12
    -------------------------------------------------------------------------
    Weighted average Fund
     units outstanding(*)     27,247,667  27,247,667  27,247,637  27,247,607
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average Fund
     units outstanding,
     diluted(*)               27,247,667  27,247,667  27,247,637  27,247,610
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (*) During 2007, 60 restricted units were converted to Fund units,
        increasing to 27,247,667 the number of Fund units outstanding at
        March 31, 2008. The weighted average Fund units outstanding, diluted
        is calculated by adding the restricted units outstanding as of the
        end of the period to the weighted average number of Fund units
        outstanding. As at March 31, 2008, there were no restricted units
        outstanding.
    

    Payments to Livingston International Income Fund

    The Fund used $0.6 million, or $0.022 per Fund unit, of adjusted
operating cash flows after maintenance capital expenditures(2) for the quarter
ended March 31, 2009. This represents a decrease compared with the same
quarter in 2008, when the adjusted operating cash flows after maintenance
capital expenditures(2) totalled $11.7 million, or $0.431 per Fund unit. The
Fund generated $36.7 million of cash flows from operating activities
(calculated in accordance with GAAP) in the quarter. After deducting $36.7
million for the net change in current assets and liabilities and $0.6 million
for other items, the adjusted operating cash flows after maintenance capital
expenditures(2) used were $0.6 million, or $0.022 per Fund unit, for the first
quarter of 2009. This compares with cash flows from operating activities
(calculated in accordance with GAAP) of $15.6 million in the same period in
2008. After deducting the net change in assets and liabilities of $2.9 million
and $1.0 million for other items, the adjusted operating cash flows after
maintenance capital expenditures(2) totalled $11.7 million, or $0.431 per Fund
unit, in the first quarter of 2008. The payout ratio for adjusted operating
cash flows after maintenance capital expenditures(2) for the quarter ended
March 31, 2009 was negative 579.7% compared with 98.9% for the same period in
2008.
    The Fund declared distributions of $3.4 million, or $0.126 per Fund unit,
for the quarter ended March 31, 2009, compared with distributions of $11.6
million, or $0.426 per Fund unit, for the same quarter in 2008.

    
    -------------------------------------------------------------------------
    Table 3
    Summary of Cash Flows

    For the quarters ended March 31, 2009 and 2008 and the year ended
     December 31, 2008.
    (in thousands of dollars, except per Fund unit amounts and Fund units
     outstanding, unaudited)
    -------------------------------------------------------------------------
                                             Quarter     Quarter        Year
                                               ended       ended       ended
                                            March 31,   March 31,    Dec. 31,
                                                2009        2008        2008
    -------------------------------------------------------------------------
    Cash flows provided by (used in)
     operating activities                     36,700      15,572      45,472
    (Deduct) add:
    Net change in current assets and
     liabilities(*)                          (36,690)     (2,946)     10,351
    -------------------------------------------------------------------------
                                                  10      12,626      55,823
    Maintenance capital expenditures(xx)        (602)       (894)     (4,415)
    -------------------------------------------------------------------------

    Adjusted operating cash flows after
     maintenance capital expenditures(2)        (592)     11,732      51,408
    -------------------------------------------------------------------------
    Distributions to unitholders(i)            3,432      11,607      46,429
    -------------------------------------------------------------------------
    Payout ratio based on adjusted
     operating cash flows after maintenance
     capital expenditures(2)(ii)             -579.7%       98.9%       90.3%
    -------------------------------------------------------------------------
    Per Fund unit in dollars
    Adjusted operating cash flows after
     maintenance capital expenditures(2)      (0.022)      0.431       1.887
    -------------------------------------------------------------------------
    Distributions to unitholders(i)            0.126       0.426       1.704
    -------------------------------------------------------------------------
    Weighted average Fund units
     outstanding                          27,247,667  27,247,667  27,247,667
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (*)  The net change in current assets and liabilities has been excluded
         as these are non-cash in nature. These items also tend to fluctuate
         from quarter to quarter primarily as a result of the timing of
         billings and the payment of government remittances around the end of
         the period.
    (xx) Maintenance capital expenditures are additions, replacements or
         improvements to property, plant and equipment to maintain
         Livingston's business operations. These expenditures involve the
         replacement of information technology equipment and software as well
         as certain improvements to facilities.
    (i)  Distributions are the amounts declared in the period, not what was
         actually paid.
    (ii) The payout ratio is calculated by dividing the distributions to
         unitholders by the adjusted operating cash flows after maintenance
         capital expenditures(2), consistent with the CSA guidelines for the
         calculation of the payout ratio.


    -------------------------------------------------------------------------
    Table 4
    Cash Flows from Operating Activities, Net Income and Cash Distributions
     Analysis

    For the quarters ended March 31, 2009 and 2008 and the year ended
     December 31, 2008.
    (in thousands of dollars, unaudited)
    -------------------------------------------------------------------------
                                             Quarter     Quarter        Year
                                               ended       ended       ended
                                            March 31,   March 31,    Dec. 31,
                                                2009        2008        2008
    -------------------------------------------------------------------------
    Cash flows from operating activities      36,700      15,572      45,472
    -------------------------------------------------------------------------
    Net (loss) income                        (17,345)      8,286     (88,948)
    -------------------------------------------------------------------------
    Distributions to unitholders               3,432      11,607      46,429
    -------------------------------------------------------------------------
    Excess (shortfall) of cash flows
     from operating activities over
     (to) cash distributions paid             33,268       3,965        (957)
    -------------------------------------------------------------------------
    Shortfall of net income (loss)
     to cash distributions paid              (20,777)     (3,321)   (135,377)
    -------------------------------------------------------------------------
    

    For the quarter ended March 31, 2009, there was an excess of $33.3
million of cash flows from operating activities relative to cash distributions
paid, compared with an excess of $4.0 million for the quarter ended March 31,
2008. To the extent that this excess was generated from the net change in
current assets and liabilities, the cash distributions made in the quarter
were financed from excess cash flows built up from prior periods.
    There was a shortfall of $20.8 million of net income relative to cash
distributions paid for the quarter ended March 31, 2009 compared with a
shortfall of $3.3 million for the quarter ended March 31, 2008. Net income
includes non-cash charges for depreciation and the amortization and
write-downs of intangible assets, fixed assets and goodwill. The shortfall of
net income relative to cash distributions paid was primarily due to the nature
of these charges.

    
    -------------------------------------------------------------------------
    Table 5
    Reconciliation of Net Income to EBITDA(1)

    For the quarters ended March 31, 2009 and 2008 and the year ended
     December 31, 2008.
    (in thousands of dollars, unaudited)
    -------------------------------------------------------------------------
                                             Quarter     Quarter        Year
                                               ended       ended       ended
                                            March 31,   March 31,    Dec. 31,
                                                2009        2008        2008
    -------------------------------------------------------------------------
    Net (loss) income                        (17,345)      8,286     (88,948)
    (Deduct) add:
    Income taxes                              (3,287)       (364)    (13,275)
    Interest expense                           2,059       3,032      10,828
    Other income                              (1,232)       (881)     (7,070)
    Depreciation                               2,161       2,187       9,316
    Amortization                               3,529       3,921      15,112
    Impairment of goodwill and other assets   16,458           -     143,741
    -------------------------------------------------------------------------
    EBITDA(1)                                  2,343      16,181      69,704
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Liquidity and Capital Resources

    This section is intended to be read in conjunction with the interim
unaudited consolidated balance sheet below and the notes to the consolidated
financial statements.
    In January 2006, Livingston entered into a credit facility in the amount
of $250 million for a term of five years. This credit facility consists of a
$130 million revolving line of credit for operations, capital expenditures and
acquisitions and a $120 million five-year term loan, which was reduced to
$110.5 million effective January 11, 2009. This latter amount fluctuates
depending on the exchange rate as approximately $11.1 million is
U.S.-dollar-denominated debt. Of the $130 million revolving line of credit,
$69.7 million was available as at March 31, 2009. The effective term loan
interest rate was 4.90% for the quarter ended March 31, 2009, compared with
6.66% for the same quarter in 2008. As at March 31, 2009, the effective term
loan interest rate was 4.63%, down from 6.61% as at March 31, 2008. The Fund
believes that the $130 million revolving credit facility should be sufficient
to meet its financing requirements. In May 2009, this credit agreement was
amended. See "Financing Activities" below for more detailed information.
    A portion of the $130 million revolving term facility is required
typically at the end of each month to facilitate the payment of government
remittances on behalf of Livingston's clients. This is reduced throughout the
following month as payments are received from clients. Difficulties by the
Fund's clients or vendors to make payments or access credit as a result of a
weakened economy could adversely affect the Fund. The Fund continues to
monitor its clients' payment patterns to seek to mitigate the impact of
potential credit losses.

    Cash Flow from Operating Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows below and the notes to the
consolidated financial statements.
    For the quarter ended March 31, 2009, the Fund generated $36.7 million of
cash flow from operating activities, up from $15.6 million for the same period
in 2008. These amounts are inclusive of the net change in current assets and
liabilities, which increased cash flow by $36.7 million in the quarter ended
March 31, 2009 and increased cash flow by $2.9 million in the same period last
year. In the quarter ended March 31, 2009, the $36.7 million increase was
primarily a result of a $41.3 million decrease in accounts receivable, offset
by a decrease in government remittances and accounts payable of $5.1 million.
These changes are a reflection of the timing of the receipt of funds from
clients and the payment of duties and the goods and services tax ("GST") to
the U.S. and Canadian governments.
    As cash flow from operations has been determined in accordance with
Canadian GAAP, management believes that the reconciliation of this measure to
adjusted operating cash flows after maintenance capital expenditures(2)
provides useful supplemental information for investors, as illustrated in
Table 3.

    Capital Expenditures and Other Investing Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows below.
    Livingston incurred capital expenditures of $0.8 million for the quarter
ended March 31, 2009, compared with $1.1 million for the same period in 2008.
In the quarter ended March 31, 2009, maintenance capital expenditures relating
to the improvement of office facilities and the replacement of workstations
were $0.6 million, down from $0.9 million in the same period in 2008. In
management's judgment, non-maintenance or growth capital expenditures refer to
capital expenditures that increase revenues, margins or EBITDA(1). Those
expenditures amounted to approximately $0.2 million for the quarter ended
March 31, 2009, comparable to the $0.2 million for the same quarter in 2008.

    Financing Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows below and the notes to the
consolidated financial statements.
    Livingston International has an operating facility, composed of a
revolving line of credit and outstanding cheques, used primarily to make
government remittances on behalf of clients. This balance fluctuates depending
on the timing of payments to the Canadian and U.S. governments near the end of
each month and the timing of cash receipts from clients.
    There was a decrease in the operating facility of $35.5 million for the
quarter ended March 31, 2009 compared with an increase of $9.7 million for the
quarter ended March 31, 2008. This was due to the impact of the timing of when
financing is required to support government remittances on behalf of clients.
    Livingston negotiated its credit facility effective January 11, 2006 in
the amount of $250 million for a term of five years, consisting of a $130
million revolving line of credit referred to above and a $120 million
five-year term loan. This credit facility was updated to allow for legal
restructuring and other changes to the agreement, effective September 28,
2007.
    The agreement was further amended in May 2009, following discussions
initiated by Livingston with its lenders, to provide for greater flexibility
in the leverage ratio covenant as a result of the economic downturn, which has
significantly affected trade volumes. As a result, the lenders agreed to
provide this additional flexibility by increasing the leverage ratio to 3.75
until September 30, 2009 and then reducing it progressively by quarter to 2.50
by September 30, 2010 and for the remainder of the term of the credit
agreement. Furthermore, the lenders also agreed to waive the prior leverage
ratio covenant requirement as of March 31, 2009.
    Under the terms of this most recent amendment, the interest rate on the
term bank loan, which is collateralized by a general security agreement on all
of the assets of the Fund's subsidiaries, varies between 5.3% and 9.7%,
dependent upon certain financial performance ratios. Also as part of the
amended agreement, Livingston incurred fees in the amount of $1.3 million that
will be accounted for as deferred financing fees to be amortized over the
remaining term of the credit agreement until January 11, 2011. In addition to
this one-time fee and the higher interest charges, under the amended credit
facility, Livingston will start to pay down a portion of its term loan, by an
amount equal to 75% of its available cash flow (as defined in the agreement)
until its leverage ratio drops to or below 2.50 for two consecutive quarters.
As a result, Livingston expects to reduce its term loan by approximately $20
to $30 million by March 31, 2010.
    In conjunction with the credit agreement amendment described above, the
Fund suspended distributions to unitholders, to commence following payment of
the May distribution at the end of June 2009. At the Fund's discretion, the
payment of distributions may be reinstated subject to the leverage ratio being
maintained at or below 2.50 for two consecutive quarters.
    The suspension of distributions followed the January announcement by the
Fund to reduce monthly distributions by 70%, to $0.042 per Fund unit, or $0.50
per annum, starting with the January 2009 distribution paid at the end of
February 2009. Accordingly, cash distributions declared to Fund unitholders in
the quarter ended March 31, 2009 totalled $3.4 million as a result of the
reduced level of distributions compared with $11.6 million for the same period
in 2008.
    Table 6 below shows the net balance when cash and cash equivalents are
netted against the operating facility for government remittances. The net
operating facility was approximately $22.8 million lower at March 31, 2009
than at March 31, 2008, reflecting fewer funds drawn under the revolving line
of credit for government remittances. These changes are a reflection of the
timing of receipt of funds from clients and the payment of duties and GST to
the U.S. and Canadian governments. This was within the $130 million bank
revolving line of credit.
    Together with the cash flows generated from operating activities, capital
expenditures and other investing activities, the total cash and cash
equivalents totalled approximately $23.1 million at March 31, 2009 compared
with $40.0 million at March 31, 2008 and $28.2 million at December 31, 2008.

    
    -------------------------------------------------------------------------
    Table 6
    Net Operating Facility

    As at March 31, 2009, December 31, 2008 and March 31, 2008
    (in thousands of dollars, unaudited)
    -------------------------------------------------------------------------
                                               March    December       March
                                            31, 2009    31, 2008    31, 2008
    -------------------------------------------------------------------------
    Operating facility for government
     remittances                              60,350      95,957      99,965
    Cash and cash equivalents                 23,142      28,245      39,963
    -------------------------------------------------------------------------
    Net operating facility                    37,208      67,712      60,002
    -------------------------------------------------------------------------
    

    Changes in Accounting Policies

    The following are the new accounting policies that the Fund has
implemented starting in the first quarter of 2009.

    Goodwill and Intangible Assets

    Section 3064, Goodwill and Intangible Assets of the CICA Handbook
replaces Section 3062, Goodwill and Intangible Assets and Section 3450,
Research and Development Costs and establishes standards for the recognition,
measurement and disclosure of goodwill and intangible assets. The adoption of
this new standard did not have a material impact on the interim unaudited
financial statements.

    International Financial Reporting Standards

    In January 2006, the Canadian Accounting Standards Board ("AcSB")
announced its decision to replace Canadian GAAP with international financial
reporting standards ("IFRS") for all Canadian publicly accountable
enterprises. In February 2008, the decision was confirmed by the AcSB. The
effective date of this requirement will be January 1, 2011 for annual periods
beginning on or after January 1, 2011.
    As at December 31, 2008, a preliminary report had been completed by
external consultants into areas of significant impact upon the adoption of
IFRS. Management is currently evaluating the impact of the adoption of IFRS on
the Fund's financial statements and is working with external resources to
develop a plan for the transition to the new standards, in accordance with the
guidelines of IFRS 1 First-time Adoption of International Financial Reporting
Standards.

    
    This plan is expected to cover the following:

    -   accounting policies (initial selection among policies permitted under
        IFRS);
    -   information technology and data systems required for the
        implementation of IFRS;
    -   internal control over financial reporting;
    -   disclosure controls and procedures, including investor relations and
        external communication plans;
    -   financial reporting expertise and training required; and
    -   business activities, such as foreign currency and hedging activities,
        as well as matters that may be influenced by financial or GAAP
        measures, such as debt covenants, capital requirements and
        compensation arrangements.
    

    Off Balance Sheet Arrangements

    The Fund or its subsidiaries have various off balance sheet arrangements,
including a defined benefit pension plan and a post-retirement benefits plan,
the direct GST payment program with clients and bonds that are necessary to
operate as a customs broker with the Canada Border Services Agency ("CBSA")
and the U.S. Customs and Border Protection ("CBP").
    There have been no significant changes to Livingston's off balance sheet
arrangements since December 31, 2008, except for certain amounts outstanding
as of March 31, 2009 as indicated below. For more information on off balance
sheet arrangements, refer to the consolidated financial statements for the
year ended December 31, 2008 and the notes to the consolidated financial
statements included in the Fund's Annual Report 2008.
    As at March 31, 2009, the Fund had an accrued benefit obligation for the
Livingston defined benefit pension plan of $7.6 million and an accrued pension
asset of $7.8 million. This actuarial loss of $0.2 million is being amortized
over the expected average remaining service life of active defined benefit
pension plan members. The increase in the actuarial loss associated with the
defined benefit pension plan is the result of a reduction in the value of the
pension assets offset by an increase in the discount rate used to measure the
defined benefit pension plan obligations.
    The Fund had an accrued benefit obligation of $9.5 million for other
benefit plans, which includes post-retirement benefits, and an accrued
liability of $9.6 million. This actuarial gain of $0.1 million is being
amortized over the expected average remaining service life of active members
of other benefit plans. The decrease in the actuarial loss associated with the
other benefit plans is the result of an increase in the discount rate used to
measure the other benefit plan obligations. The majority of active employees
and all new employees since July 1, 2000 of Livingston and its acquired
companies also participate in the defined contribution retirement plan.
    Livingston has a number of clients who make GST and duty payments
directly to the CBSA. As part of its service to clients, Livingston submits
clients' cheques payable to the CBSA on their behalf, but the receivable and
corresponding duty and GST amounts payable are not, in such cases, recorded in
either accounts receivable or government remittances payable on the Fund's
balance sheet. This is because the Fund does not have title to these cheques
and does not have an obligation to collect these funds on behalf of the CBSA.
    As required by the CBSA and CBP, Livingston has provided approximately
$36.1 million in bonds as at March 31, 2009 in favour of the Canadian and U.S.
governments, down from $44.0 million as at March 31, 2008. The bonds are
required in order to operate as a customs broker and to facilitate the release
of clients' goods from Customs prior to the payment of duties and taxes.
    Livingston also has issued letters of credit under its credit agreement
in the total amount of $0.4 million, as at March 31, 2009 and $0.6 million as
at March 31, 2008, in support of various contracts.

    Transactions with Related Parties

    Related parties are defined as individuals who can influence the
direction or management of the Fund or any of its subsidiaries and are,
therefore, the trustees of the Fund or the directors and officers of the
Fund's primary subsidiaries. Neither the Fund nor any of its subsidiaries
entered into any material transactions with related parties as defined above
since the Fund acquired Livingston on February 11, 2002 through to March 31,
2009.

    Disclosure Controls and Procedures

    Disclosure controls and procedures are designed to ensure that
information is recorded and reported to securities regulatory authorities, tax
authorities and other regulatory bodies, unitholders and other stakeholders on
a timely basis in accordance with applicable laws. The Fund is committed to
providing timely and accurate disclosure of material information in accordance
with applicable laws. As at March 31, 2009, management evaluated the
effectiveness of the Fund's disclosure controls and procedures and concluded
that they are effective.
    However, due to the inherent limitations in control systems and
procedures, their evaluation can provide only reasonable, not absolute,
assurance that such disclosure controls and procedures are operating
effectively.

    Changes in Internal Control over Financial Reporting

    In 2008, it was determined that the Fund had a material weakness and
needed to improve its processes related to tests of goodwill and intangible
assets.
    In the first quarter of 2009, the controls surrounding the tests of
goodwill and intangible assets were assessed and found to be operating
effectively. Accordingly, management has concluded that the material weakness
has been remediated through a review of its accounting processes as well as
additional training of finance personnel, complemented by third-party
expertise. There have been no other changes in the Fund's internal control
over financial reporting during this period in 2009.

    Critical Accounting Estimates

    A summary of significant accounting policies is included in note 2 of the
notes to the consolidated financial statements for the year ended December 31,
2008. Critical accounting estimates require management to make certain
judgments and estimates, some of which may be uncertain. Changes in these
accounting estimates may have an impact on the financial results of Livingston
and the Fund. There have been no significant changes in critical accounting
estimates of the Fund in relation to those established as at December 31,
2008.
    For more information on critical accounting estimates, see Management's
Discussion and Analysis as well as the audited consolidated financial
statements for the year ended December 31, 2008 and the notes to the
consolidated financial statements included in the Fund's Annual Report 2008.

    Risks and Uncertainties

    Information relating to the risks and uncertainties of the Fund and its
subsidiaries is summarized in Management's Discussion and Analysis in the
Fund's Annual Report 2008 and its 2008 Annual Information Form. To
management's knowledge, no significant changes to these risks and
uncertainties have occurred in the first three months of 2009.

    Outlook

    The North American economy continues to struggle, searching for
equilibrium amid declining consumer demand and troubled markets. Canada, which
was once considered somewhat insulated from the effects of the U.S. financial
crisis, is expected to continue to feel the impact of the recession at least
through to the end of this year.
    In an April statement, the Bank of Canada revised its economic
projection, stating that the Canadian recession would be deeper than expected,
with return-to-growth delayed until the end of 2009 and a more gradual than
previously anticipated recovery.
    Livingston's businesses are dependent on the overall economy, as well as
the volume of cross-border and international trade. Its core customs brokerage
businesses are seasonal, however, with the first quarter typically the weakest
of the year. Management believes it is reasonable to expect on-going weak
trade volumes for the balance of the year. As these weak trade volumes
persist, Livingston is adjusting and rationalizing costs where appropriate,
while endeavouring to maintain its key asset - people.
    The cost-reduction measures introduced late in the first quarter are
expected to improve margins in the second and subsequent quarters. Following
the end of the first quarter, Livingston further reduced staffing levels in
businesses where there was overcapacity. The amended credit facility and
retention of available cash flow as a result of the suspension of
distributions are intended to provide the Fund with greater flexibility, allow
it to pay down debt and maintain the financial strength of the company. Also
on the positive side, exchange rates have been relatively stable since
November.
    Livingston is in a strong position to withstand the current economic
situation. Core operations are solid, the company is diversified by industry
and by geography, and Livingston is the leader in its field. Despite the
difficult economy, Livingston is also winning new accounts and new business
from existing clients.
    The economy will recover and, when it does, Livingston's operations
should be stronger, with a lower cost base. Business fundamentals remain
sound, and Livingston people are committed to serving their clients, acting in
the best long-term interests of investors.

    
    ---------------------------
    (1) EBITDA (earnings before interest, taxes, other (income) expense,
        depreciation, amortization and impairment of goodwill, intangibles
        and fixed assets) is a non-GAAP financial measure. Refer to "EBITDA"
        under Non-GAAP Financial Measures above and Table 5 for a
        reconciliation of net income to EBITDA.

    (2) Adjusted operating cash flows after maintenance capital expenditures
        is a non-GAAP financial measure. Refer to "Adjusted Operating Cash
        Flows" under Non-GAAP Financial Measures above and to Table 3 for
        further information.



    CONSOLIDATED BALANCE SHEET
    MARCH 31, 2009

                                                         As at         As at
                                                      March 31,  December 31,
    (in thousands of dollars, unaudited)                  2009          2008
    -------------------------------------------------------------------------
    Assets
    Current assets
    Cash and cash equivalents                           23,142        28,245
    Accounts receivable                                191,255       231,236
    Prepaid expenses                                     2,771         3,487
    Future income taxes                                  1,970         2,103
    -------------------------------------------------------------------------
                                                       219,138       265,071
    Property, plant and equipment                       17,177        18,789
    Goodwill                                           146,986       163,235
    Intangible assets                                   72,386        75,915
    Future income taxes                                 30,841        30,869
    Employee future benefits - pension                   7,783         7,634
    -------------------------------------------------------------------------
                                                       494,311       561,513
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current liabilities
    Operating facility for government remittances       60,350        95,957
    Government remittances payable                      92,007        83,866
    Unitholder distributions payable                     1,144         3,869
    Accounts payable and accrued liabilities            58,189        70,912
    Income taxes payable                                 2,479         2,698
    Client deposits and advances                         5,071         5,097
    Future income taxes                                    232         3,255
    Current portion of long-term debt                      125           121
    -------------------------------------------------------------------------
                                                       219,597       265,775
    Long-term debt                                     110,666       110,031
    Other liabilities                                    4,937         4,956
    Future income taxes                                 20,942        21,988
    Employee future benefits                             9,583         9,504
    -------------------------------------------------------------------------
                                                       365,725       412,254
    -------------------------------------------------------------------------
    Unitholders' Equity
    -------------------------------------------------------------------------
    Units                                              408,350       408,350
    -------------------------------------------------------------------------
    Accumulated earnings                               (57,565)      (40,220)
    Distributions to unitholders                      (219,951)     (216,519)
    -------------------------------------------------------------------------
    Deficit                                           (277,516)     (256,739)
    -------------------------------------------------------------------------
    Accumulated other comprehensive loss                (2,248)       (2,352)
    -------------------------------------------------------------------------
                                                       128,586       149,259
    -------------------------------------------------------------------------
                                                       494,311       561,513
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND DEFICIT
    FOR THE QUARTER ENDED MARCH 31, 2009

                                                         Three         Three
                                                        months        months
                                                         ended         ended
    (in thousands of dollars, except                  March 31,     March 31,
     per unit amounts, unaudited)                         2009          2008
    -------------------------------------------------------------------------

    Net revenues                                        59,257        79,779
    Interest income                                        123           517
    -------------------------------------------------------------------------
                                                        59,380        80,296
    Cost of services                                    39,979        46,978
    Selling, general and administrative expenses        16,191        17,137
    Restructuring costs                                    867             -
    Depreciation                                         2,161         2,187
    Amortization                                         3,529         3,921
    Impairment of goodwill and other assets             16,458             -
    -------------------------------------------------------------------------
    (Loss) income before the undernoted                (19,805)       10,073
    -------------------------------------------------------------------------
    Other income                                        (1,232)         (881)
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt                                     1,611         2,043
      Other                                                448           989
    -------------------------------------------------------------------------
                                                         2,059         3,032
    -------------------------------------------------------------------------
    (Loss) income before income taxes                  (20,632)        7,922
    -------------------------------------------------------------------------
    Provision for (recovery of) income taxes
      Current                                               91           491
      Future                                            (3,378)         (855)
    -------------------------------------------------------------------------
                                                        (3,287)         (364)
    -------------------------------------------------------------------------
    Net (loss) income for the quarter                  (17,345)        8,286
    Deficit - beginning of quarter                    (256,739)     (121,362)
    Distributions to unitholders                        (3,432)      (11,607)
    -------------------------------------------------------------------------
    Deficit - end of quarter                          (277,516)     (124,683)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted net (loss) income per unit         (0.64)         0.30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
    FOR THE QUARTER ENDED MARCH 31, 2009

                                                         Three         Three
                                                        months        months
                                                         ended         ended
                                                      March 31,     March 31,
    (in thousands of dollars, unaudited)                  2009          2008
    -------------------------------------------------------------------------
    Net (loss) income for the quarter                  (17,345)        8,286
    Other comprehensive income (loss), net of tax:
      Change in fair value of interest-rate swaps
       (net of tax of $153) (2008: nil)                     65        (1,492)
      Amortization of deferred loss on settlement
       of interest-rate swaps (net of tax of: $23)
       (2008: $39)                                          39            23
    -------------------------------------------------------------------------
                                                           104        (1,469)
    -------------------------------------------------------------------------
    Comprehensive (loss) income for the quarter        (17,241)        6,817
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    FOR THE QUARTER ENDED MARCH 31, 2009

                                                         Three         Three
                                                        months        months
                                                         ended         ended
                                                      March 31,     March 31,
    (in thousands of dollars, unaudited)                  2009          2008
    -------------------------------------------------------------------------

    Cash provided by (used in)
    Operating activities
      Net (loss) income for the quarter                (17,345)        8,286
      Adjustment for non-cash items
        Depreciation and amortization                    5,690         6,108
        Future income taxes                             (3,378)         (855)
        Other liabilities                                 (129)          (11)
        Non-cash interest and other expense                232           242
        Employee future benefits                           (70)         (213)
        Impairment of goodwill and other assets         16,458             -
        Foreign-exchange gain                           (1,448)         (931)
    -------------------------------------------------------------------------
                                                            10        12,626
      Net change in current assets and liabilities      36,690         2,946
    -------------------------------------------------------------------------
                                                        36,700        15,572
    -------------------------------------------------------------------------
    Investing activities
      Property, plant and equipment, net of disposals     (759)       (1,088)
    -------------------------------------------------------------------------
                                                          (759)       (1,088)
    -------------------------------------------------------------------------
    Financing activities
      Distributions to unitholders                      (6,157)      (11,607)
      Repayment of long-term debt                          (27)         (301)
      (Decrease) increase in operating facility        (35,522)        9,711
    -------------------------------------------------------------------------
                                                       (41,706)       (2,197)
    -------------------------------------------------------------------------
    Foreign-exchange gain on cash held in
     foreign currency                                      662           390
    -------------------------------------------------------------------------
    (Decrease) increase in cash and cash equivalents    (5,103)       12,677
    Cash and cash equivalents - beginning of quarter    28,245        27,286
    -------------------------------------------------------------------------
    Cash and cash equivalents - end of quarter          23,142        39,963
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash disbursements made for:
      Income taxes                                         532         1,605
      Interest                                           1,826         2,790
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    %SEDAR: 00017249E




For further information:

For further information: Dawneen MacKenzie, Vice-president, public
affairs, 1-800-387-7582 ext. 3109

Organization Profile

LIVINGSTON INTERNATIONAL INCOME FUND

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Livingston International Inc.

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