Livingston International Income Fund announces results for the second quarter 2009



    TORONTO, Aug. 6 /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 second quarter ended June 30, 2009.
    "We continue to operate in a very challenging environment," said Peter
Luit, president and chief executive officer of the Fund. "Livingston's
business depends largely on international trade, and trade volumes remain
depressed. Our results for the second quarter, which improved significantly
over those of the first quarter, reflect the contribution of a number of
cost-cutting measures taken late in the first quarter and early in the second.
We remain committed to extracting cost savings while maintaining a high level
of client service."

    Second quarter results

    During the second quarter of 2009, Livingston generated revenues and
interest income of $61.8 million, down 29.9% from $88.1 million in the second
quarter of 2008. Livingston reduced the cost of services for the period by
24.8% to $35.9 million, compared with $47.7 million a year earlier.
    Selling, general and administrative expenses were $13.7 million, down
from $19.1 million in the second quarter last year. Including restructuring
costs of $2.2 million for employee terminations, the company incurred a net
loss of $0.9 million for the quarter, compared with net income of $12.1
million for the same period last year.
    EBITDA(1), or earnings before interest, taxes, other income or expense,
depreciation, amortization and impairment of goodwill, intangibles and fixed
assets, was $10.0 million, compared with $21.3 million in the same period last
year. As a percentage of revenue, EBITDA(1) was 16.3%, and 19.7% prior to
restructuring costs, down from 24.2% in the year-earlier quarter.

    Year-to-date results

    For the first six months of the year, Livingston recorded revenues and
interest income of $121.2 million, a decrease of 28.0% from $168.4 million for
the first six months of 2008. The cost of services was down 19.9%, dropping
from $94.7 million in the first six months of 2008 to $75.9 million for the
2009 period. Selling, general and administrative expenses were $29.9 million,
compared with $36.3 million for the first six months of 2008. The net loss for
the year to date was $18.2 million, compared with net income of $20.4 million
for the same period a year ago.
    EBITDA(1) was $12.4 million for the first half of 2009, down from $37.5
million for the same period last year. As a percentage of revenue, EBITDA(1)
was 10.2%, compared with 22.3% for the first six months of 2008.

    Distributions

    In May of this year, the Fund announced the suspension of its
distributions, with the intention of using the available cash flow to reduce
its term debt. This measure was taken as part of an amendment to Livingston's
credit agreement. Accordingly, the Fund reduced its term debt by $1.6 million
at the end of June 2009.
    Livingston declared two months of distributions during the quarter,
totalling $2.3 million, or $0.084 per unit, down from $11.6 million, or $0.426
per unit, for the same period in 2008. This reflects both the reduction in the
level of distributions announced in January 2009 as well as the suspension of
distributions announced in May, effective immediately following payment of the
May distribution at the end of June.
    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

                                            Three months          Six months
    (in millions of dollars except         ended June 30,      ended June 30,
     per unit amounts, unaudited)         2009      2008      2009      2008
    -------------------------------------------------------------------------
    Net revenues                         $61.8     $88.1     121.2     168.4
    -------------------------------------------------------------------------
    Net (loss) income                     (0.9)     12.1     (18.2)     20.4
    -------------------------------------------------------------------------
    Cash flow from operations             (2.4)    (24.5)     34.3      (8.9)
    -------------------------------------------------------------------------
    EBITDA(1)                             10.0      21.3      12.4      37.5
    -------------------------------------------------------------------------
    Distributions to unitholders           2.3      11.6       5.7      23.2
    -------------------------------------------------------------------------
    Distributions per unit to
     unitholders(*)                      0.084     0.426     0.210     0.852
    -------------------------------------------------------------------------
    

    Conference call

    Livingston International Income Fund invites interested investors,
analysts and financial media to dial in to its conference call to review its
second quarter financial results to be held on Friday, August 7, 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 1065814.
    A playback will also be available following the scheduled call, until
September 4, 2009, by dialling 416 695-5800 in the Toronto area or
1-800-408-3053 and asking for the Livingston International 2nd Quarter 2009
Financial Results conference call. The pass code for the playback is 1040164.
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 approximately 2,500 staff located at some 100
key border points, seaports, airports and other strategic locations across
Canada and the U.S.

    Management's Discussion and Analysis

    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 three- and six-month periods ended June 30, 2009 and June 30, 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 three- and six-month periods ended
June 30, 2009 and 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 international freight forwarding
(including air/sea forwarding), vehicle transportation, North American ground
freight and integrated logistics (including warehousing and distribution)
operations.
    Border services are comprised of its managed services operation (imported
vehicle registration, carrier services, program management, information
management and contact centre services) and technology services.

    Forward-Looking Statements

    This Management's Discussion and Analysis contains "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, mutual fund trust status, disruptions in border crossings, increases
or decreases in foreign trade, competition, effects of hedging, acquisitions
and the integration of acquisitions, dispositions, regulatory change,
foreign-exchange rates, interest rates, the ability to meet credit facility
covenants and borrowing limits, continued availability of credit facilities,
continued solvency and liquidity of Livingston's lenders and other credit
counter-parties, continued availability of bonds, credit and collection
experience, reliance on key personnel, potential for uninsured or underinsured
losses, continued availability of transportation equipment, contract changes,
gains and losses 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,
that there will be no material changes in its credit and hedging arrangements,
bonding arrangements or credit and collection experience and that its credit
facilities will be sufficient for its needs.
    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 that the preceding information is carefully
considered.
    Such forward-looking statements are made as of August 5, 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 August 5, 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 may
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 the 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 is intended to help
investors reconcile former 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 and should
not be construed as an alternative to cash flows determined in accordance with
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

    Equity Financing
    In June 2009, the Fund issued an additional 6.9 million Fund units from
treasury as part of an equity financing transaction, at the price of $4.30 per
Fund unit, to raise gross proceeds of $29.7 million. After deducting
underwriter, legal and other fees in the amount of $1.6 million (net of
recoverable tax of $0.3 million), the resulting net proceeds from the equity
financing totalled $28.1 million. These net proceeds were available to be used
to reduce borrowing under the revolving line of credit for June and a portion
of the term loan, as well as for other general corporate purposes. See
"Liquidity and Capital Resources" below for further information.

    Credit Facility Agreement
    Early in the second quarter, Livingston concluded discussions with its
lenders to allow for greater flexibility in the leverage ratio covenant with
respect to its existing credit facility. Livingston had initiated these
discussions late in the first quarter in response to the economic downturn,
which had significantly affected trade volumes. As a result, in May 2009, the
lenders agreed to provide this additional flexibility by waiving the leverage
ratio covenant as at March 31, 2009 and 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.
    In addition to a one-time fee of $1.3 million and higher interest
charges, under the amended credit facility, Livingston is paying down a
portion of its term loan as required by the revised terms in the amended
credit facility agreement. The amendment to the credit facility has been filed
on SEDAR at www.sedar.com.
    The credit agreement was further amended on July 31, 2009, to allow
Livingston to draw on this revolving credit facility in amounts up to $25
million in excess of its borrowing base for each month for the quarter ending
September 30, 2009 and in excess of up to $20 million for each month for the
quarter ending December 31, 2009. The July amendment also includes a provision
to use $25 million of the net proceeds from the recent equity financing to
reduce the bank term debt, as initially contemplated by the equity financing
transaction. The repayment of $25 million of the bank term debt was effected
July 31, 2009.

    Distributions
    In conjunction with the May amendment to its primary operating company's
credit agreement, the Fund suspended distributions to unitholders following
the 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 followed the Fund's January announcement
to reduce monthly distributions by 70%, to $0.042 per Fund unit, or $0.504 per
annum, starting with the January 2009 distribution paid at the end of February
2009, in order to seek to preserve the Fund's financial strength.

    Restructuring Costs
    Further cost reductions relating to personnel costs occurred in the
quarter ended June 30, 2009. Livingston incurred $2.2 million in payroll and
severance costs in the second quarter and $3.0 million for the six-month
period ended June 30, 2009. These staff reductions are expected to reduce
payroll costs by approximately $7.0 million on an annualized basis.

    Results of Operations

    Three months ended June 30, 2009
    The Fund recorded consolidated revenues and interest income of $61.8
million for the quarter ended June 30, 2009, down 29.9% from $88.1 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 24.8% to $35.9 million compared with
$47.7 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 $25.9 million in the quarter ended
June 30, 2009, down from $40.4 million for the same period in 2008. As a per
cent of revenue, the contribution margin decreased to 41.9% in the quarter
ended June 30, 2009 from 45.9% in the quarter ended June 30, 2008. 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 quarter ended June 30, 2009 were $13.7 million
compared with $19.1 million for the same period in 2008. This was primarily
due to lower payroll costs.
    Additional restructuring costs in the amount of $2.2 million were
incurred in the quarter ended June 30, 2009 for employee terminations prompted
by continuing economic challenges.
    The net loss for the quarter ended June 30, 2009 was $0.9 million
compared with net income of $12.1 million for the same quarter in 2008.
    EBITDA(1) for the quarter ended June 30, 2009 was $10.0 million, or 16.3%
of revenue, an $11.3 million decrease from $21.3 million in the same period in
2008. The EBITDA(1) margin as a per cent of revenue was down from 24.2% in the
second quarter of 2008 to 16.3% in the same quarter of 2009.
    Depreciation expense for the quarter ended June 30, 2009 was $1.3 million
compared with $1.9 million, a $0.6 million decrease compared with the same
period in 2008. This decrease reflects lower capital expenditures. 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 charge of $3.9 million in the quarter ended June 30,
2009 compared with $4.2 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 and of application software. See
"Changes in Accounting Policies" below for details.
    Included in other expense (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 loss of
$3.2 million for the quarter ended June 30, 2009 compared with a
foreign-exchange loss of $0.3 million for the same quarter last year. The
change was primarily due to the strengthening of the Canadian dollar during
the quarter. As is contemplated by the Fund's economic hedging policy, to
reduce the volatility of the impact of foreign-exchange risk, Livingston's
subsidiaries continued to enter into a number of short-term forward-exchange
contracts to sell U.S. currency. In the quarter ended June 30, 2009, there was
an unrealized loss on hedging of $0.3 million and a realized gain of $0.7
million included in the foreign-exchange loss of $3.2 million, compared with
an unrealized gain on hedging of $131 thousand and a realized loss of $70
thousand 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, relating primarily to the bank term
debt, was $1.9 million for the quarter ended June 30, 2009, consistent with
the same period in 2008.
    In 2005, Livingston entered into an interest-rate swap for $23 million,
which fixed the interest rate at 3.73% 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 a fixed
rate of 3.79% per annum on its Canadian-dollar-denominated debt of $34 million
and 4.63% 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 May 11, 2009 amendment to its credit
facility and current financial performance ratios, the effective interest rate
for each swap has increased by approximately 4.5%.
    Other interest expense, related to the revolving line of credit for
government remittances, was $0.6 million for the quarter ended June 30, 2009
compared with $0.7 million a year earlier, as a result of lower interest rates
year over year.
    Interest income of $12 thousand was included in revenue for the Canadian
brokerage segment for the quarter ended June 30, 2009, compared with $290
thousand for the quarter ended June 30, 2008. 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 $0.9 million for the quarter
ended June 30, 2009, it recognized a tax provision of $22 thousand, comprised
of a future income tax expense of $0.1 million and a current tax recovery of
$0.1 million. On the pre-tax loss of $0.9 million, the overall expected income
tax recovery was $0.3 million compared with a tax provision reported of $22
thousand. Income allocated to the Fund and its subsidiary partnerships reduced
income tax expense by $0.6 million, and non-deductible items, including
goodwill, changes in income tax rates and other items, increased the tax
expense by $0.9 million. At June 30, 2009, the Fund, through its subsidiaries,
had approximately $25.7 million of losses, which may potentially offset future
taxable income. These losses are scheduled to expire between 2024 and 2029, if
not utilized.
    The net loss was $0.9 million, or $0.03 per Fund unit, after the income
tax provision of $22 thousand for the quarter ended June 30, 2009. In the same
period in 2008, the net income was $12.1 million, or $0.45 per Fund unit,
after the income tax provision of $174 thousand. For a further breakdown of
the results of operations by quarter for the 2009 and 2008 fiscal years, refer
to Tables 1 and 2 below.

    Six months ended June 30, 2009
    The Fund recorded consolidated revenues and interest income of $121.2
million for the six months ended June 30, 2009, 28.0% lower than the $168.4
million for the same period in 2008. The decrease was the result of decreased
revenues in all of the operating segments as a result of the downturn in the
economy. Revenue changes are more fully described below in the analysis for
each reporting segment.
    The cost of services decreased by 19.9% to $75.9 million in the six-month
period ended June 30, 2009 compared with the same period in 2008, due to lower
costs in all operating segments. The contribution margin decreased to $45.3
million, or 37.4% of revenue, in the six months ended June 30, 2009, from
$73.7 million, or 43.8% of revenue, in the same period in 2008. See the
analysis for each reporting segment for further comments.
    Selling, general and administrative expenses, including the
administrative expenses of the Fund, for the six months ended June 30, 2009
were $29.9 million, or 24.7% of revenue, compared with $36.3 million, or 21.5%
of revenue, for the same period in 2008. The decrease in expenses resulted
primarily from lower payroll costs.
    Restructuring costs for employee terminations prompted by continuing
economic challenges were incurred in the amount of $3.0 million in the six
months ended June 30, 2009.
    For the first half of 2009, the net loss was $18.2 million compared with
net income of $20.4 million for the same period in 2008. For the six-month
period ended June 30, 2009, EBITDA(1) was $12.4 million, or 10.2% of revenue,
compared with $37.5 million, or 22.3% of revenue, in the first half of 2008.
    Depreciation expense for the six months ended June 30, 2009 was $3.0
million compared with $3.7 million for the same period in 2008. This was a
result of lower capital expenditures. 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.
    Intangible assets are amortized over the expected periods of benefit,
generally from two to 10 years, resulting in a $7.9 million charge in the six
months ended June 30, 2009 compared with $8.6 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 and of application
software. See "Changes in Accounting Policies" below for details.
    During the first quarter of 2009 as a result of the aggregate unit value
declining below the book value of the Fund, management concluded a triggering
event had occurred, necessitating an impairment assessment on the Fund's
goodwill and long-lived assets. 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 expense (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 loss of
$2.0 million for the six months ended June 30, 2009 compared with a
foreign-exchange gain of $0.6 million for the same period last year. The
change was primarily due to the strengthening of the Canadian dollar. As is
contemplated by the Fund's economic hedging policy, to reduce the volatility
of the impact of foreign-exchange risk, Livingston's subsidiaries continued to
enter into a number of short-term forward-exchange contracts to sell U.S.
currency. In the six months ended June 30, 2009, the Fund recognized in the
statement of income an unrealized loss on hedging in the amount of $180
thousand and a realized gain of $700 thousand, included in the
foreign-exchange loss of $2.0 million, compared with an unrealized loss on
hedging in the amount of $7 thousand and a realized loss of $60 thousand in
the same period in 2008.
    Interest expense on long-term debt, relating chiefly to the bank term
debt, was $3.5 million for the first six months of 2009, down from $4.0
million in 2008. This decrease was due to lower interest rates in 2009
compared with the same period in 2008. Higher interest rates under the amended
credit facility in the latter part of the second quarter of 2009 were offset
by lower interest rates in the first four months of 2009.
    Other interest expense, related to the revolving line of credit for
government remittances, was $1.1 million for the six months ended June 30,
2009 compared with $1.7 million for the same period in 2008, as a result of
lower interest rates year over year.
    Interest income, included in the revenue of the Canadian customs
brokerage segment, was $0.1 million for the first six months of 2009 compared
with $0.8 million earned in the first six months of 2008. 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 $21.5 million for the six
months ended June 30, 2009, it recognized a recovery of income taxes of $3.3
million, comprised of a future income tax recovery of $3.3 million and a
current tax recovery of $3 thousand. On the pre-tax loss of $21.5 million, the
overall expected income tax recovery was $6.9 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 $2.4 million, and
non-deductible items, including goodwill, changes in income tax rates and
other items, increased the tax expense by $6.0 million.
    The net loss was $18.2 million, or $0.66 per Fund Unit, after the
recovery of income taxes of $3.3 million for the six months ended June 30,
2009. The net loss was primarily due to the recognition of a $16.3 million
impairment of goodwill related to the U.S. customs brokerage and the
transportation and logistics segments in the first quarter. In the same period
in 2008, the net income was $20.4 million, or $0.75 per Fund unit, after the
recovery of income taxes of $0.2 million. For a further breakdown of the
results of operations by quarter for fiscal 2009 and 2008, refer to Tables 1
and 2 below.

    Canadian Customs Brokerage
    Revenues and interest income for the quarter ended June 30, 2009
decreased by $7.7 million to $31.2 million compared with the same period in
2008. This decrease in revenue was mainly due to decreased trade volumes from
clients, down approximately 16.8% from the previous year as a result of the
economic slowdown, a 2.6% lower average price per import transaction and lower
interest income. Revenues generated by event logistics and Canadian customs
consulting were also slightly lower relative to 2008.
    The cost of services decreased by 15.6% to $14.4 million in the quarter
ended June 30, 2009 over the same period in 2008, primarily due to lower
payroll and other 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 $21.8 million, or
56.0% of revenues, in the quarter ended June 30, 2008, to $16.8 million, or
53.8% of revenues, in the quarter ended June 30, 2009.
    Revenues and interest income for the six months ended June 30, 2009
decreased by $14.3 million to $62.0 million, compared with the same period in
2008. This decrease in revenue was mainly due to lower trade volumes from
clients of approximately 19.1%, as a result of the economic slowdown, and
lower interest income offset by a 1.5% higher average price per import
transaction. Revenues generated by event logistics and Canadian customs
consulting were also lower slightly compared with 2008.
    The cost of services decreased by 12.6% to $30.6 million in the six
months ended June 30, 2009 compared with the same period in 2008, primarily
due to lower payroll and other costs. The contribution margin decreased from
approximately $41.3 million, or 54.1% of revenues, in the first six months of
2008 to $31.4 million, or 50.7% of revenues, in the first six months of 2009.

    U.S. Customs Brokerage
    In Canadian dollars, overall revenues for the U.S. customs brokerage
segment decreased in the second quarter of 2009 by 15.4% to $11.3 million
compared with the same period in 2008. Trade volumes into the United States
were lower by approximately 27.9% compared with the prior year's quarter,
decreasing revenue by $3.7 million. This was offset by the foreign-exchange
translation of U.S.-dollar revenues into Canadian dollars, contributing $0.7
million in higher revenues. In addition, increased pricing for additional
value-added services to clients resulted in a $0.9 million increase in
revenues compared with the second quarter of 2008.
    The average Canada-United States currency-exchange rate for the quarter
ended June 30, 2009 was Cdn$1.17 to US$1.00 compared with Cdn$1.09 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 $2.5 million, or 20.8%, over the
same period in 2008, primarily as a result of lower volumes from clients.
    In Canadian dollars, the overall cost of services for the U.S. customs
brokerage segment was $6.3 million, $1.8 million less than the same period
last year. This was due to various cost reductions totalling $2.7 million,
including personnel reductions in response to lower revenues resulting from
the sluggish economy. This was offset by the unfavourable impact of the
foreign-exchange translation of U.S. dollars into Canadian dollars in the
amount of $0.9 million during the quarter.
    In U.S. dollars, the overall cost of services for the U.S. customs
brokerage operation was down by $2.7 million. 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 $5.0 million from
$5.2 million in the same period in 2008. As a per cent of revenues, the
contribution margin increased to 43.9% in 2009 from 39.2% in 2008. This was
primarily the result of a significant decrease in costs from reduced headcount
as well as efficiencies achieved with the implementation of the document
imaging system in 2009.
    In Canadian dollars, overall revenues for the six months ended June 30,
2009 decreased in the U.S. customs brokerage segment by 14.9% to $22.9 million
compared with the same period a year earlier. Approximately 26.5% lower trade
volumes into the United States decreased revenue by $7.1 million. This was
offset by the foreign-exchange translation of U.S.-dollar revenues into
Canadian dollars, resulting in a $1.7 million increase in revenues compared
with the same period in 2008, and the increased pricing of additional
value-added services to clients, contributing higher revenues of $1.4 million.
    The average Canada-United States currency-exchange rate for the six
months ended June 30, 2009 was Cdn$1.21 to US$1.00 compared with Cdn$1.12 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 $5.1 million, or 21.1%, for
the six months ended June 30, 2009 compared with the same period in 2008,
owing primarily to reduced volumes.
    In Canadian dollars, the overall cost of services for the U.S. customs
brokerage segment decreased by $1.9 million or 11.6% to $14.5 million in the
six-month period compared with 2008. This was the result of efficiencies
achieved through the implementation of the document imaging system as well as
various cost reductions.
    Due to the revenue and cost of services variances discussed above, the
contribution margin in Canadian dollars for the U.S. customs brokerage
operation decreased to $8.4 million in the six months ended June 30, 2009 from
$10.5 million in the same period in 2008. As a per cent of revenues, the
contribution margin decreased to 36.6% in the six months ended June 30, 2009
from 39.0% for the same period in 2008.

    Transportation and Logistics
    Revenues in the quarter ended June 30, 2009 decreased by $5.5 million to
$11.6 million compared with the same period in 2008. This was primarily due to
lower volumes in the North American transportation, international freight
forwarding, integrated logistics and vehicle transportation businesses.
    The cost of services decreased by $2.5 million to $11.0 million for the
quarter ended June 30, 2009 compared with the same period in 2008. Costs were
lower in the North American transportation, international freight forwarding,
integrated logistics and vehicle transportation businesses, primarily as a
result of staff reductions prompted by declining business volumes. This
resulted in a contribution margin of $0.6 million for the quarter ended June
30, 2009 compared with $3.6 million for the same period in 2008. The decline
in the margin percentage from 21.3% in 2008 to 5.4% in 2009 reflects lower
margins due to the general economic decline affecting all of the businesses in
this segment.
    For the six months ended June 30, 2009, revenues decreased by $8.8
million to $23.5 million compared with the same period in 2008. This decrease
was primarily due to decreased volumes in the North American transportation,
international freight forwarding, integrated logistics and vehicle
transportation businesses.
    The cost of services decreased by $3.7 million to $23.2 million for the
six months ended June 30, 2009 compared with the same period in 2008. Costs
were lower in the North American transportation, integrated logistics and
vehicle transportation businesses, primarily as a result of staff reductions
driven by declining business volumes. This resulted in a contribution margin
of $0.3 million for the six months ended June 30, 2009 compared with $5.4
million for the same period in 2008. The decline in the margin percentage from
16.6% in 2008 to 1.3% in 2009 reflects lower margins due to challenges
experienced by all of the businesses in this segment.

    Border Services
    Revenues decreased by 59.2% to $7.7 million for the quarter ended June
30, 2009 compared with the same period in 2008. This was largely due to a
63.8% drop in volumes in managed services. The reduced imported vehicle
registration volumes experienced in the second quarter of 2009 can be
primarily 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 second quarter of
2009 by 54.3% to $4.1 million over the same quarter in 2008, primarily in
managed services due to the drop in imported vehicle registration volumes.
    As a result of decreased revenues, the contribution margin for border
services dropped to $3.5 million, down from $9.7 million in 2008. As a per
cent of revenues, the contribution margin decreased to 46.1% of revenues in
2009 from 51.9% in 2008.
    Revenues fell by 61.2% to $12.8 million for the six months ended June 30,
2009 compared with the same period in 2008. This was chiefly due to the
reduction in volumes in managed services.
    The cost of services decreased by 53.6% to $7.6 million for the six
months ended June 30, 2009 compared with the same period in 2008. This
decrease came primarily from managed services, reflecting fewer imported
vehicle registrations.
    As a result of decreased revenues, the contribution margin for the border
services segment decreased to $5.2 million, down from $16.6 million in the six
months ended June 30, 2008. As a per cent of revenues, the contribution margin
decreased to 40.8% of revenues in 2009 from 50.5% in the same period a year
ago.


    
    Table 1 provides quarterly financial information for the quarters ended
    September 30, 2008 to June 30, 2009.
    -------------------------------------------------------------------------

    Table 1 Quarterly Consolidated Statements of Income

    For the quarters ended September 30, 2008 to June 30, 2009
    (in thousands of dollars, except per Fund unit amounts and Fund units
     outstanding, unaudited)
    -------------------------------------------------------------------------

                                 June 30,   March 31,    Dec. 31,   Sept. 30,
    Quarter ended                   2009        2009        2008        2008
    -------------------------------------------------------------------------
    Net revenues                  61,778      59,257      73,559      80,249
    Interest income                   12         123         312         350
    -------------------------------------------------------------------------
                                  61,790      59,380      73,871      80,599
    Cost of services              35,884      39,979      43,298      44,969
    -------------------------------------------------------------------------
    Contribution margin           25,906      19,401      30,573      35,630
    Selling, general and
     administrative expenses      13,708      16,191      14,726      17,390
    Restructuring costs            2,154         867       1,865           -
    -------------------------------------------------------------------------
    EBITDA(1)                     10,044       2,343      13,982      18,240
    Depreciation                   1,302       1,660       1,913       1,976
    Amortization                   3,862       4,030       4,210       4,177
    Impairment of goodwill
     and other assets                  -      16,458     143,741           -
    -------------------------------------------------------------------------
    Income (loss) before the
     undernoted                    4,880     (19,805)   (135,882)     12,087
    -------------------------------------------------------------------------
    Other expense (income)         3,210      (1,232)     (5,048)     (1,436)
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt               1,941       1,611       1,886       1,813
      Other                          597         448         686         754
    -------------------------------------------------------------------------
                                   2,538       2,059       2,572       2,567
    -------------------------------------------------------------------------
    (Loss) income before income
     taxes                          (868)    (20,632)   (133,406)     10,956
    Provision for (recovery of)
     income taxes
      Current                        (96)         91         268         952
      Future                         118      (3,378)    (13,892)       (413)
    -------------------------------------------------------------------------
                                      22      (3,287)    (13,624)        539
    -------------------------------------------------------------------------
    Net (loss) income for the
     period                         (890)    (17,345)   (119,782)     10,417
    -------------------------------------------------------------------------
    Net (loss) income per Fund
     unit, undiluted and
     diluted                       (0.03)      (0.64)      (4.39)       0.38
    -------------------------------------------------------------------------

    Weighted average Fund
     units outstanding,
     undiluted and diluted    28,157,557  27,247,667  27,247,667  27,247,667
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    Table 2 Quarterly Consolidated Statements of Income
    For the quarters ended September 30, 2007 to June 30, 2008
    (in thousands of dollars, except per Fund unit amounts and Fund units
     outstanding, unaudited)
    -------------------------------------------------------------------------
                                 June 30,   March 31,    Dec. 31,   Sept. 30,
    Quarter ended                   2008        2008        2007        2007
    -------------------------------------------------------------------------
    Net revenues                  87,811      79,779      83,512      79,672
    Interest income                  290         517         604         779
    -------------------------------------------------------------------------
                                  88,101      80,296      84,116      80,451
    Cost of services              47,687      46,978      45,878      46,413
    -------------------------------------------------------------------------
    Contribution margin           40,414      33,318      38,238      34,038
    Selling, general and
     administrative expenses      19,113      17,137      16,778      17,136
    Costs related to the
     integration of PBB                -           -         328         219
    -------------------------------------------------------------------------
    EBITDA(1)                     21,301      16,181      21,132      16,683
    Depreciation                   1,866       1,729       1,862       2,162
    Amortization                   4,178       4,379       6,029       6,111
    Impairment of goodwill
     and other assets                  -           -      37,803           -
    -------------------------------------------------------------------------
    Income (loss) before the
     undernoted                   15,257      10,073     (24,562)      8,410
    -------------------------------------------------------------------------
    Other expense (income)           295        (881)        420       1,506
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt               1,918       2,043       2,096       2,077
      Other                          739         989       1,067       1,136
    -------------------------------------------------------------------------
                                   2,657       3,032       3,163       3,213
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes                 12,305       7,922     (28,145)      3,691
    Provision for (recovery of)
     income taxes
      Current                      1,167         491       2,526       1,343
      Future                        (993)       (855)     (5,934)     (1,359)
    -------------------------------------------------------------------------
                                     174        (364)     (3,408)        (16)
    -------------------------------------------------------------------------
    Net income (loss) for the
     period                       12,131       8,286     (24,737)      3,707
    -------------------------------------------------------------------------
    Net income (loss) per Fund
     unit, undiluted and
     diluted                        0.45        0.30       (0.91)       0.14
    -------------------------------------------------------------------------
    Weighted average Fund units
     outstanding, undiluted
     and diluted(*)           27,247,667  27,247,667  27,247,667  27,247,637
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) During 2007, 60 restricted units were converted to Fund units,
        increasing to 27,247,667 the number of Fund units outstanding at
        June 30, 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 June 30, 2008, there were no restricted units
        outstanding.
    

    Payments to Livingston International Income Fund

    The Fund recorded adjusted operating cash flows after maintenance capital
expenditures(2) of $6.6 million, or $0.233 per Fund unit, for the quarter
ended June 30, 2009. This represents a decrease compared with the same quarter
in 2008, when the adjusted operating cash flows after maintenance capital
expenditures(2) totalled $16.7 million, or $0.612 per Fund unit. The Fund used
$2.4 million of cash flows from operating activities (calculated in accordance
with GAAP) in the quarter. After adding $9.5 million for the net change in
current assets and liabilities and deducting $0.5 million for maintenance
capital expenditures, the adjusted operating cash flows after maintenance
capital expenditures(2) were $6.6 million, or $0.233 per Fund unit, for the
second quarter of 2009. This compares to cash flows used in operating
activities (calculated in accordance with GAAP) of $24.5 million in the same
period in 2008. After adding the net change in assets and liabilities of $41.9
million and deducting maintenance capital expenditures of $0.7 million, the
adjusted operating cash flows after maintenance capital expenditures(2)
totalled $16.7 million, or $0.612 per Fund unit, in the second quarter of
2008.
    The Fund declared distributions of $2.3 million, or $0.084 per Fund unit,
for the quarter ended June 30, 2009, compared with distributions of $11.6
million, or $0.426 per Fund unit, for the same quarter in 2008. Distributions
were lower in the quarter ended June 30, 2009 as a result of the reduction in,
then subsequent suspension of, distributions.
    The payout ratio for adjusted operating cash flows after maintenance
capital expenditures(2) for the quarter ended June 30, 2009 was 35.0% compared
with 69.6% for the same period in 2008.
    For the six months ended June 30, 2009, the Fund generated $6.0 million,
or $0.215 per Fund unit, of adjusted operating cash flows after maintenance
capital expenditures(2). This represents a decrease compared with the same
period in 2008, when the adjusted operating cash flows after maintenance
capital expenditures(2) totalled $28.4 million, or $1.042 per Fund unit. The
Fund generated $34.3 million of cash flows from operating activities
(calculated in accordance with GAAP) in the first six months of the year.
After deducting $27.2 million for the net change in current assets and
liabilities and $1.1 million for maintenance capital expenditures, the
adjusted operating cash flows after maintenance capital expenditures(2) were
$6.0 million, or $0.215 per Fund unit, for the six months ended June 30, 2009.
This compares with cash flows used in operating activities (calculated in
accordance with GAAP) of $8.9 million in the same period in 2008. After adding
the net change in assets and liabilities of $38.9 million and deducting
maintenance capital expenditures of $1.6 million, the adjusted operating cash
flows after maintenance capital expenditures(2) totalled $28.4 million, or
$1.042 per Fund unit, in the same period in 2008.
    The Fund declared distributions of $5.7 million, or $0.210 per Fund unit,
for the six-month period ended June 30, 2009 compared with distributions of
$23.2 million, or $0.852 per Fund unit, for the same period in 2008.
Distributions to unitholders were lower in the six months ended June 30, 2009
owing to the reduction in, then subsequent suspension of, distributions.
    The payout ratio for adjusted operating cash flows after maintenance
capital expenditures(2) for the six months ended June 30, 2009 was 96.0%
compared with 81.7% for the same period in 2008.

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

    For the periods ended June 30, 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 Six months Six months       Year
                           ended      ended      ended      ended      ended
                         June 30,   June 30,   June 30,   June 30,   Dec. 31,
                            2009       2008       2009       2008       2008
    -------------------------------------------------------------------------
    Cash flows
     (used in)
     provided by
     operating
     activities           (2,432)   (24,518)    34,268     (8,946)    45,472
    Add (deduct):
    Net change in
     current assets
     and
     liabilities(*)        9,461     41,898    (27,233)    38,952     10,351
    -------------------------------------------------------------------------
                           7,029     17,380      7,035     30,006     55,823
    Maintenance
     capital
     expend-
     itures(*)(*)           (475)      (708)    (1,077)    (1,602)    (4,415)
    -------------------------------------------------------------------------
    Adjusted operating
     cash flows after
     maintenance
     capital
     expenditures(2)       6,554     16,672      5,958     28,404     51,408
    -------------------------------------------------------------------------
    Distributions to
     unitholders+          2,292     11,607      5,722     23,214     46,429
    -------------------------------------------------------------------------
    Payout ratio based
     on adjusted
     operating cash
     flows after
     maintenance
     capital
     expenditures(2)++     35.0%      69.6%      96.0%      81.7%      90.3%
    -------------------------------------------------------------------------

    Per Fund unit in
     dollars

    Adjusted operating
     cash flows after
     maintenance
     capital
     expenditures(2)       0.233      0.612      0.215      1.042      1.887
    -------------------------------------------------------------------------
    Distributions to
     unitholders+          0.084      0.426      0.210      0.852      1.704
    -------------------------------------------------------------------------
    Weighted average
     Fund units
     outstanding      28,157,557 27,247,667 27,705,126 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.

    (*)(*) 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.

    +      Distributions are the amounts declared in the period, not what was
           actually paid.

    ++     The payout ratio is calculated by dividing the distributions to
           unitholders by the adjusted operating cash flows after maintenance
           capital expenditures and integration costs(2), consistent with the
           CSA guidelines for the calculation of the payout ratio.



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

    For the periods ended June 30, 2009 and 2008 and the year ended
    December 31, 2008
    (in thousands of dollars, unaudited)
    -------------------------------------------------------------------------
                          Quarter   Quarter Six months Six months       Year
                           ended      ended      ended      ended      ended
                         June 30,   June 30,   June 30,   June 30,   Dec. 31,
                            2009       2008       2009       2008       2008
    -------------------------------------------------------------------------
    Cash flows (used
     in) provided by
     operating
     activities           (2,432)   (24,518)    34,268     (8,946)    45,472
    -------------------------------------------------------------------------
    Net (loss) income       (890)    12,131    (18,237)    20,417    (88,948)
    -------------------------------------------------------------------------
    Distributions to
     unitholders           3,435     11,607      9,591     23,214     46,429
    -------------------------------------------------------------------------
    (Shortfall) excess
     of cash flows
     from operating
     activities (to)
     over cash
     distributions
     paid                 (5,867)   (36,125)    24,677    (32,160)      (957)
    -------------------------------------------------------------------------
    (Shortfall) excess
     of net income
     (loss) to cash
     distributions
     paid                 (4,325)       524    (27,828)    (2,797)  (135,377)
    -------------------------------------------------------------------------
    

    For the quarter ended June 30, 2009, there was a shortfall of $5.9
million of cash flows from operating activities relative to cash distributions
paid, compared with a shortfall of $36.1 million for the quarter ended June
30, 2008. To the extent that a shortfall 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 or from
available cash on hand.
    There was a shortfall of $4.3 million of net income relative to cash
distributions paid for the quarter ended June 30, 2009, compared with an
excess of $0.5 million for the quarter ended June 30, 2008. Net income
includes non-cash charges for depreciation and the amortization of intangible
assets. The shortfall of net income relative to cash distributions paid was
primarily due to the nature of these non-cash charges.
    For the six months ended June 30, 2009, there was an excess of $24.7
million of cash flows from operating activities relative to cash distributions
paid, compared with a shortfall of $32.2 million for the six months ended June
30, 2008. To the extent that this excess was generated from the net change in
current assets and liabilities, the cash distributions made in the first half
of 2009 were financed from excess cash flows built up from prior periods or
from available cash on hand.
    There was a shortfall of $27.8 million of net income relative to cash
distributions paid for the six months ended June 30, 2009, compared with a
shortfall of $2.8 million for the six months ended June 30, 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 non-cash charges.

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

    For the periods ended June 30, 2009 and 2008 and the year ended
    December 31, 2008
    (in thousands of dollars, unaudited)
    -------------------------------------------------------------------------
                          Quarter   Quarter Six months Six months       Year
                           ended      ended      ended      ended      ended
                         June 30,   June 30,   June 30,   June 30,   Dec. 31,
                            2009       2008       2009       2008       2008
    -------------------------------------------------------------------------
    Net (loss) income       (890)    12,131    (18,237)    20,417    (88,948)
    Add (deduct):
    Income taxes              22        174     (3,265)      (190)   (13,275)
    Interest expense       2,538      2,657      4,597      5,689     10,828
    Other expense
     (income)              3,210        295      1,978       (586)    (7,070)
    Depreciation           1,302      1,866      2,963      3,595      9,316
    Amortization           3,862      4,178      7,892      8,557     15,112
    Impairment of
     goodwill and
     other assets              -          -     16,458          -    143,741
    -------------------------------------------------------------------------
    EBITDA(1)             10,044     21,301     12,386     37,482     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. In May 2009, this credit agreement
was amended. See "Financing Activities" below for further details. The 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. The term loan
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, $101.1 million was available as at June 30, 2009. The effective term
loan interest rate was 5.48% for the six months ended June 30, 2009, compared
with 6.43% for the same period in 2008. As at June 30, 2009, the effective
term loan interest rate was 6.87%, up from 6.18% as at June 30, 2008. The Fund
believes that the $130 million revolving credit facility should be sufficient
to meet its financing requirements.
    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 owing to the
weakened economy could adversely affect the Fund. The Fund continues to
monitor clients' payment patterns to seek to mitigate the impact of potential
credit losses.
    In June 2009, the Fund issued an additional 6.9 million units from
treasury as part of an equity financing transaction, at the price of $4.30 per
unit, to raise gross proceeds of $29.7 million. After deducting underwriter,
legal and other fees in the amount of $1.6 million (net of recoverable tax of
$0.3 million), the resulting net proceeds from the equity financing totalled
$28.1 million. These net proceeds were available to be used to reduce
Livingston's borrowing under the revolving line of credit for June and a
portion of the term loan referred to above, as well as for other general
corporate purposes. The term debt was reduced by $25 million effective July
31, 2009.

    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 June 30, 2009, the Fund used $2.4 million of cash
flow from operating activities, down from $24.5 million of cash flows from
operating activities used in the same period in 2008. These amounts are
inclusive of the net change in current assets and liabilities, which decreased
cash flow by $9.5 million in the quarter ended June 30, 2009 and decreased
cash flow by $41.9 million in the same period last year. In the quarter ended
June 30, 2009, the $9.5 million decrease was primarily the result of a $27.0
million decrease in accounts receivable, offset by a $36.4 million decrease in
government remittances and accounts payable. These changes reflect the
fluctuation in timing between the receipt of funds from clients and the
payment of duties and the goods and services tax ("GST") to the Canadian and
U.S. governments.
    For the six months ended June 30, 2009, the Fund generated $34.3 million
of cash flow from operating activities, up from $8.9 million of cash flows
from operating activities used in the same period in 2008. These amounts are
inclusive of the net change in current assets and liabilities, which increased
cash flow by $27.2 million in the six months ended June 30, 2009 and decreased
cash flow by $39.0 million in the same period last year. In the six months
ended June 30, 2009, the $27.2 million increase was primarily a result of a
$68.3 million decrease in accounts receivable, partially offset by a $41.5
million decrease in government remittances and accounts payable. The
explanation for the change in current assets and liabilities is the same as
that given above for the quarterly analysis.
    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 set out in Table 3
above.

    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, net of disposals, of $0.5
million for the quarter ended June 30, 2009 compared with $1.8 million for the
same period in 2008. In the quarter ended June 30, 2009, maintenance capital
expenditures related to the improvement of office facilities and the
replacement of workstations were $0.5 million, down from $0.7 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 $0.1
million in the quarter ended June 30, 2009, down from $1.1 million in the same
quarter in 2008. During the quarter, there were $0.1 million of disposals
recorded.
    Livingston incurred capital expenditures, net of disposals, of $1.3
million for the six months ended June 30, 2009 compared with $2.9 million for
the same period in 2008. In the six months ended June 30, 2009, maintenance
capital expenditures related to the improvement of office facilities and the
replacement of workstations were $1.1 million, down from $1.6 million in the
same period in 2008. Non-maintenance or growth capital expenditures totalled
approximately $0.4 million for the six months ended June 30, 2009, down from
$1.3 million for the same period in 2008. Disposals during the first half of
2009 totalled $0.2 million.

    Financing Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statement 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 for making
government remittances on behalf of clients. This balance fluctuates depending
on the timing of payments to the U.S. and Canadian governments near the end of
each month and the timing of cash receipts from clients.
    There was a decrease in the operating facility of $31.6 million for the
quarter ended June 30, 2009 compared with an increase of $9.8 million for the
quarter ended June 30, 2008. For the six months ended June 30, 2009 there was
a decrease in the operating facility of $67.1 million compared with an
increase of $23.0 million for the same period in 2008. The decreases for the
three- and six-month periods ended June 30, 2009 were due largely to the $28.1
million net proceeds from the equity raised in the June 2009 equity financing
transaction, which reduced the funding required under the operating facility
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
restructurings and other changes to the agreement, effective September 28,
2007.
    Subsequently in May 2009, the agreement was further amended 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 requirements as of March 31, 2009.
    Under the terms of the May 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 have
been accounted for as deferred financing fees to be amortized over the
remaining term of the credit agreement until January 11, 2011.
    Under the terms of the amended credit facility, Livingston is paying 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. Accordingly, Livingston repaid $1.6 million
of its term loan in the quarter and a further $1.8 million in July. An
additional amount of approximately $16 million is expected to be repaid on the
term loan in the 12-month period ending June 30, 2010 as a result of this
provision.
    In conjunction with the credit agreement amendment described above, the
Fund suspended distributions to unitholders 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
$0.504 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 June 30, 2009 totalled $2.3 million compared with $11.6
million for the same period in 2008. For the six months ended June 30, 2009,
distributions were $5.7 million compared with $23.2 million for the same
period in 2008, owing to the reduced level of distributions.
    The credit facility also contains a limit on draw-downs based on a
borrowing base. Occasionally, Livingston's month-end draws, for government
remittances made on behalf of clients, have been in excess of this borrowing
base plus overdraft maximum. This has been typically remedied several days
later as client payments are received, as is contemplated in the terms of the
credit facility. The credit agreement was further amended on July 31, 2009, to
allow Livingston to draw on this revolving credit facility in amounts up to
$25 million in excess of its borrowing base for each month for the quarter
ending September 30, 2009 and in excess of up to $20 million for each month
for the quarter ending December 31, 2009. The July amendment also includes a
provision to use $25 million of the net proceeds from the recent equity
financing to reduce the bank term debt, as initially contemplated by that
transaction. This $25 million repayment was effected July 31, 2009.
    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 lower by approximately $78.5 million at June 30, 2009
than at June 30, 2008, reflecting fewer funds drawn under the revolving line
of credit for government remittances. This was primarily as a result of the
$28.1 million of net proceeds from the equity raised through the June equity
financing transaction, which reduced the funding required under the revolving
credit facility.
    Together with cash flows generated from operating activities, capital
expenditures and other investing activities, the total cash and cash
equivalents were approximately $9.2 million at June 30, 2009 compared with
$19.3 million at June 30, 2008 and $28.2 million at December 31, 2008.

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

    As at June 30, 2009, December 31, 2008 and June 30, 2008
    (in thousands of dollars, unaudited)
    -------------------------------------------------------------------------
                                        June 30,   December 31,      June 30,
                                           2009           2008          2008
    -------------------------------------------------------------------------
    Operating facility for government
     remittances                         28,931         95,957       117,455
    Cash and cash equivalents             9,203         28,245        19,273
    -------------------------------------------------------------------------
    Net operating facility               19,728         67,712        98,182
    -------------------------------------------------------------------------
    

    Changes in Accounting Policies

    The following describes the new accounting policy that the Fund has
implemented in the six-month period ended June 30, 2009.

    Section 3064, 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 to the interim unaudited
financial statements.
    This standard requires that certain items of property, plant and
equipment, namely application software, be included in intangible assets. In
order for the Fund to meet this requirement, the application software balances
were transferred from property, plant and equipment to intangible assets.
Accordingly, $2.8 million and $2.3 million were transferred on the balance
sheet as at December 31, 2008 and June 30, 2009, respectively. For the three
and six months ended June 30, 2009 and 2008, $0.5 million, $1.0 million, $0.5
million and $0.9 million, respectively, were transferred from depreciation
expense to amortization expense.

    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, who identified areas of significant impact to Livingston
upon the adoption of IFRS. During the first quarter, management began
evaluating the impact of the adoption of IFRS on the Fund's financial
statements and worked with external resources to develop a plan to transition
to the new standards, in accordance with the guidelines of IFRS 1 First-time
Adoption of International Financial Reporting Standards.

    
    This plan covers 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.

    During the second quarter of 2009, the Fund progressed in many areas of
its transition project, including assessing the impact of adopting significant
accounting policies that may affect the Fund, determining how best to make
2010 comparative IFRS information available for the 2011 reporting periods and
beginning to identify the structure of the financial statements and disclosure
requirements under IFRS.

    Livingston has substantially completed reviews of the following areas that
may have an impact on the Fund:
    -   property, plant and equipment;
    -   revenue recognition;
    -   foreign exchange;
    -   provisions and contingencies;
    -   earnings per unit; and
    -   events subsequent to the reporting period.
    

    Management is in the process of amending accounting policies and internal
controls to address the impact on the areas referred to above.
    For the remainder of 2009, the Fund intends to continue to consider the
options available under IFRS 1, First Time Adoption of International Financial
Reporting Standards, develop its significant accounting policies under IFRS,
develop a training plan and finalize the determination of the impact of
converting to IFRS on systems, processes and internal controls. Upon
completion of the training plan, Livingston expects to implement training in
the latter half of 2009 and into 2010, to position the Fund to build the IFRS
requirements into its systems, processes and internal controls. As a number of
the IFRS standards themselves are changing, the Fund intends to continue to
assess the impact of such changes on its opening balance sheet at the
transition date and on the financial statements and disclosures, as additional
information becomes available.

    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 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 June 30, 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 June 30, 2009, the Fund had an accrued benefit obligation for the
Livingston defined benefit pension plan of $7.8 million and an accrued pension
asset of $7.9 million. This actuarial loss of $0.1 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 $9.6 million for other
benefit plans, which includes post-retirement benefits, and an accrued
liability of $9.7 million. This actuarial loss 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
of Livingston and its acquired companies and all new employees since July 1,
2000 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, as at June 30, 2009, Livingston had
arranged for approximately $33.1 million in bonds in favour of the Canadian
and U.S. governments, down from $44.9 million as at June 30, 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.
    Under its credit agreement, Livingston has also issued letters of credit
in the total amount of $0.4 million as at June 30, 2009 and $0.6 million as at
June 30, 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 June 30,
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.
    On an on-going basis, management evaluates the effectiveness of the
Fund's disclosure controls and procedures and has found them to be 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

    There have been no changes in the Fund's internal control over financial
reporting during the quarter ended June 30, 2009 that have materially
affected, or are reasonably likely to materially affect, its internal control
over financial reporting.

    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 relative 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 six months of 2009.

    
    Certain risks associated with an investment in units of the Fund are set
out below.
    -   The payment of distributions is subject to the terms of the recently
        amended credit facility and to the discretion of the trustees, and
        further depends on numerous factors; see the Fund's Short-Form
        Prospectus dated June 12, 2009 for more complete information on these
        factors.
    -   There can be no assurance that the Fund will reinstate distributions
        nor, were they to be reinstated, any assurance regarding the amount
        or level of such distributions.
    

    Outlook

    Market conditions throughout North America have been depressed for the
first half of 2009, and Livingston expects this to continue for the rest of
the year. Nonetheless, there are some encouraging signs. The financial sector
in the United States appears to be stabilizing, and this should be a positive
signal for the economy in general. While any economic recovery will likely be
slow, it is now moderately reasonable to begin talking about the prospect of
recovery.
    Consequently, Livingston is prepared for on-going weakness. Management
will continue to examine every part of the business to make it more cost
effective, and the steps already taken in 2009 are showing results. Livingston
also intends to maintain its focus on superior client service. Excellence in
service is the lifeblood of Livingston, and management recognizes that it is
especially important to maintain service quality in an economic downturn, when
clients need it most. As a result, it is gratifying that the client
satisfaction survey completed in early 2009 showed improved performance over
the prior evaluation. Livingston intends to build on this outcome to
strengthen and enhance its relationships with clients.
    Management has not been deterred by the economic downturn from pursuing
new business, and during the quarter Livingston won important new contracts.
Livingston intends to continue to invest in its sales force capabilities and
is forging ahead with sales efforts, which should help, in part, to offset the
impact of lower volumes and more competitive rates. While it will take some
time for the economy to return to growth, Livingston believes that it has
taken the measures required to see its operations through this difficult
period; and when growth returns, Livingston expects to be ready.

    
    -------------------
    (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 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 and to Table 3 for further
    information.


    LIVINGSTON INTERNATIONAL INCOME FUND
    SECOND QUARTER 2009

    Consolidated Balance Sheet
    June 30, 2009

                                                         As at         As at
                                                       June 30,  December 31,
    (in thousands of dollars, unaudited)                  2009          2008
    -------------------------------------------------------------------------
    Assets
    Current assets
    Cash and cash equivalents                            9,203        28,245
    Accounts receivable                                161,624       231,236
    Prepaid expenses                                     2,338         3,487
    Future income taxes                                  1,730         2,103
    -------------------------------------------------------------------------
                                                       174,895       265,071
    Property, plant and equipment                       13,645        16,029
    Goodwill                                           146,986       163,235
    Intangible assets                                   71,292        78,675
    Future income taxes                                 30,087        30,869
    Employee future benefits - pension                   7,908         7,634
    -------------------------------------------------------------------------
                                                       444,813       561,513
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current liabilities
    Operating facility for government remittances       28,931        95,957
    Government remittances payable                      69,855        83,866
    Unitholder distributions payable                         -         3,869
    Accounts payable and accrued liabilities            42,883        70,912
    Income taxes payable                                 2,249         2,698
    Client deposits and advances                         4,912         5,097
    Future income taxes                                    681         3,255
    Current portion of long-term debt                   16,009           121
    -------------------------------------------------------------------------
                                                       165,520       265,775
    Long-term debt                                      91,034       110,031
    Other liabilities                                    4,404         4,956
    Future income taxes                                 20,358        21,988
    Employee future benefits                             9,662         9,504
    -------------------------------------------------------------------------
                                                       290,978       412,254
    -------------------------------------------------------------------------
    Unitholders' Equity
    -------------------------------------------------------------------------
    Units                                              436,439       408,350
    -------------------------------------------------------------------------
    Accumulated loss                                   (58,457)      (40,220)
    Distributions to unitholders                      (222,241)     (216,519)
    -------------------------------------------------------------------------
    Deficit                                           (280,698)     (256,739)
    -------------------------------------------------------------------------
    Accumulated other comprehensive loss                (1,906)       (2,352)
    -------------------------------------------------------------------------
                                                       153,835       149,259
    -------------------------------------------------------------------------
                                                       444,813       561,513
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of (Loss) Income and Deficit
    For the period ended June 30, 2009

                                   Three       Three         Six         Six
                                  months      months      months      months
    (in thousands of dollars,      ended       ended       ended       ended
     except per unit amounts,    June 30,    June 30,    June 30,    June 30,
     unaudited)                     2009        2008        2009        2008
    -------------------------------------------------------------------------

    Net revenues                  61,778      87,811     121,035     167,590
    Interest income                   12         290         135         807
    -------------------------------------------------------------------------
                                  61,790      88,101     121,170     168,397
    Cost of services              35,884      47,687      75,862      94,665
    Selling, general and
     administrative expenses      13,708      19,113      29,901      36,250
    Restructuring costs            2,154           -       3,021           -
    Depreciation                   1,302       1,866       2,963       3,595
    Amortization                   3,862       4,178       7,892       8,557
    Impairment of goodwill and
     other assets                      -           -      16,458           -
    -------------------------------------------------------------------------
    Income (loss) before the
     undernoted                    4,880      15,257     (14,927)     25,330
    -------------------------------------------------------------------------
    Other expense (income)         3,210         295       1,978        (586)
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt               1,941       1,918       3,490       3,961
      Other                          597         739       1,107       1,728
    -------------------------------------------------------------------------
                                   2,538       2,657       4,597       5,689
    -------------------------------------------------------------------------
    (Loss) income before
     income taxes                   (868)     12,305     (21,502)     20,227
    -------------------------------------------------------------------------
    Provision for (recovery of)
     income taxes
      Current                        (96)      1,167          (3)      1,658
      Future                         118        (993)     (3,262)     (1,848)
    -------------------------------------------------------------------------
                                      22         174      (3,265)       (190)
    -------------------------------------------------------------------------
    Net (loss) income for
     the period                     (890)     12,131     (18,237)     20,417
    Deficit - beginning
     of period                  (277,516)   (124,683)   (256,739)   (121,362)
    Distributions to
     unitholders                  (2,292)    (11,607)     (5,722)    (23,214)
    -------------------------------------------------------------------------

    Deficit - end of period     (280,698)   (124,159)   (280,698)   (124,159)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted net
     (loss) income per unit        (0.03)       0.45       (0.66)       0.75
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Comprehensive (Loss) Income
    For the period ended June 30, 2009

                                   Three       Three         Six         Six
                                  months      months      months      months
                                   ended       ended       ended       ended
    (in thousands of dollars,    June 30,    June 30,    June 30,    June 30,
     unaudited)                     2009        2008        2009        2008
    -------------------------------------------------------------------------
    Net (loss) income for the
     period                         (890)     12,131     (18,237)     20,417
    Other comprehensive income
     (loss), net of tax:

      Change in fair value of
       interest-rate swaps (net
       of tax for the three-month
       period: $155 (2008: nil);
       for the six-month period:
       $2 (2008: tax of nil)         300         588         365        (904)
      Amortization of deferred
       loss on settlement of
       interest-rate swaps (net
       of tax for the three-month
       period: $20 (2008: tax of
       $20); for the six-month
       period: $23 (2008: tax
       of $59)                        42          42          81          64
    -------------------------------------------------------------------------
                                     342         630         446        (840)
    -------------------------------------------------------------------------
    Comprehensive (loss) income
     for the period                 (548)     12,761     (17,791)     19,577
    -------------------------------------------------------------------------



    Consolidated Statements of Cash Flows
    For the period ended June 30, 2009

                                   Three       Three         Six         Six
                                  months      months      months      months
                                   ended       ended       ended       ended
    (in thousands of dollars,    June 30,    June 30,    June 30,    June 30,
     unaudited)                     2009        2008        2009        2008
    -------------------------------------------------------------------------

    Cash (used in) provided by
    Operating activities
      Net (loss) income for
       the period                   (890)     12,131     (18,237)     20,417
      Adjustment for non-cash
       items
        Depreciation and
         amortization              5,164       6,044      10,855      12,152
        Future income taxes          118        (993)     (3,262)     (1,848)
        Other liabilities           (388)        (93)       (518)       (104)
        Non-cash interest and
         other expense               366         243         598         485
        Employee future benefits     (46)       (212)       (116)       (425)
        Impairment of goodwill
         and other assets              -           -      16,458           -
        Unrealized foreign-
         exchange loss (gain)      2,705         260       1,257        (671)
    -------------------------------------------------------------------------
                                   7,029      17,380       7,035      30,006
      Net change in current
       assets and liabilities     (9,461)    (41,898)     27,233     (38,952)
    -------------------------------------------------------------------------
                                  (2,432)    (24,518)     34,268      (8,946)
    -------------------------------------------------------------------------
    Investing activities
      Payment of contingent
       consideration as part of
       a business acquisition          -        (137)          -        (137)
      Property, plant and
       equipment, net of
       disposals                    (539)     (1,786)     (1,297)     (2,874)
    -------------------------------------------------------------------------
                                    (539)     (1,923)     (1,297)     (3,011)
    -------------------------------------------------------------------------
    Financing activities
      Distributions to
       unitholders                (3,435)    (11,607)     (9,591)    (23,214)
      Repayment of long-term
       debt                       (1,628)       (101)     (1,657)       (402)
      Increase in deferred
       financing fees             (1,274)          -      (1,274)          -
      (Decrease) increase in
       operating facility        (31,600)      9,822     (67,122)     22,989
      Issuance of units, net
       of issuance costs          28,089           -      28,089           -
    -------------------------------------------------------------------------
                                  (9,848)     (1,886)    (51,555)       (627)
    -------------------------------------------------------------------------
    Foreign-exchange (loss) gain
     on cash held in foreign
     currency                     (1,120)       (119)       (458)        271
    -------------------------------------------------------------------------
    Decrease in cash and cash
     equivalents                 (13,939)    (28,446)    (19,042)    (12,313)
    Cash and cash equivalents -
     beginning of period          23,142      43,419      28,245      27,286
    -------------------------------------------------------------------------
    Cash and cash equivalents -
     end of period                 9,203      14,973       9,203      14,973
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash disbursements made for:
      Income taxes                   234       1,135         766       2,740
      Interest                     2,173       2,434       3,999       5,224
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





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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