Livingston International Income Fund reports record second quarter results



    TORONTO, Aug. 7 /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 record results for the second quarter ended June 30, 2008.
    "Livingston performed strongly in the second quarter of the year,
generating the highest-ever quarterly revenues, net income and EBITDA(1),"
said Peter Luit, president and chief executive officer of Livingston.
"Building on a solid first quarter, Livingston focused on delivering superior
customer service, streamlining our operations and seeking areas with growth
potential. Although the North American economy remains weakened, we have
proven our ability to successfully navigate these challenges to generate good
financial results within our operating entities and value for the unitholders
of the Livingston International Income Fund."

    Second quarter results

    During the second quarter of 2008, Livingston recorded revenues and
interest income of $88.1 million, up 7.1% compared with $82.2 million a year
earlier. The cost of services was $47.7 million compared with $46.8 million in
the 2007 second quarter. Selling, general and administrative expenses
increased to $19.1 million from $17.8 million for the same period last year.
As a result, net income increased to $12.1 million from $3.4 million in the
same period last year.
    EBITDA(1), or earnings before interest, taxes, other income or expense,
depreciation and amortization, was $21.3 million for the quarter compared with
$17.2 million for the second quarter of 2007. As a percentage of revenue,
EBITDA(1) was 24.2% for the second quarter of 2008, up from 20.9% in the same
quarter a year earlier.

    Year-to-date results

    For the six-month period, Livingston posted revenues and interest income
of $168.4 million, an increase of 5.7% compared with revenues and interest
income of $159.3 million for the first six months of 2007. The cost of
services for the period was $94.7 million, up slightly from $93.1 million for
the first half of 2007. Selling, general and administrative expenses were
$36.3 million compared with $35.2 million a year earlier. Net income for the
first half of the year was $20.4 million, up from $5.7 million for the same
period in 2007.
    EBITDA(1) was $37.5 million for the six-month period, up $7.6 million
compared with $29.9 million for the first half of 2007. As a percentage of
revenue, EBITDA(1) was 22.3% for the first half of 2008 compared with 18.7%
for the first six months of 2007.

    Distributions

    During the second quarter, Livingston declared distributions of
$11.6 million, equivalent to $0.426 per unit. This is unchanged from the same
period in 2007. Net income was $12.1 million, or $0.45 per unit, compared with
$3.4 million, or $0.12 per unit, in the second quarter of 2007.
    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 ended        Six months ended
    (in millions of dollars              June 30                 June 30
     except per unit amounts,
     unaudited)                     2008        2007        2008        2007
    -------------------------------------------------------------------------
    Net revenues                   $88.1       $82.2       168.4       159.3
    -------------------------------------------------------------------------
    Net income                      12.1         3.4        20.4         5.7
    -------------------------------------------------------------------------
    Cash flow from operations      (24.5)       16.7        (8.9)        2.4
    -------------------------------------------------------------------------
    EBITDA(1)                       21.3        17.2        37.5        29.9
    -------------------------------------------------------------------------
    Distributions to
     unitholders                    11.6        11.6        23.2        23.2
    -------------------------------------------------------------------------
    Distributions per unit to
     unitholders(*)                0.426       0.426       0.852       0.852
    -------------------------------------------------------------------------
    (*) The per-unit calculation is based on the weighted average number
        of units outstanding.
    

    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 8, 2008 at
10:00 a.m. EDT. The number to call is 1-888-789-9572 or, in the Toronto area,
416 695-7806, citing confirmation number 3267602.
    A playback will also be available following the scheduled call, until
September 8, 2008, by dialling 416 695-5800 in the Toronto area or
1-800-408-3053 and asking for the Livingston International 2nd Quarter 2008
Financial Results conference call. The pass code for the playback is 3267602
(followed by the number sign). An audio recording will also be archived on
Livingston's web site for one month following the call.

    About Livingston

    Livingston International Income Fund owns, among other companies,
Livingston International Inc., which is a leading North American provider of
customs, transportation and integrated logistics services. Headquartered in
Toronto, Ontario, Livingston International operates in four business segments:
Canadian customs brokerage services; U.S. customs brokerage services;
transportation and logistics services; and border services, comprising managed
services, which includes imported vehicle registration, and technology
services. The Fund and its subsidiaries employ approximately 3,000 staff
located at over 125 key border points, seaports and airports as well as other
strategic locations across Canada and the United States.



    Management's Discussion and Analysis
    Livingston International Income Fund
    For the period ended June 30, 2008

    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 results of the Fund for the periods
ended June 30, 2008 and June 30, 2007.
    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 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, 2008 and
June 30, 2007.
    These interim unaudited consolidated financial statements are intended to
be read in conjunction with the annual audited consolidated financial
statements and notes to the consolidated financial statements for the year
ended December 31, 2007, included in the Fund's Annual Report 2007. This
information is available from the Investor Relations page of Livingston's web
site at www.livingstonintl.com and also at www.sedar.com.
    The accounting policies as disclosed in these interim unaudited
consolidated financial statements are consistent with those followed in the
2007 audited consolidated financial statements, included in the Fund's Annual
Report 2007, except that the Fund has adopted the following accounting
policies effective January 1, 2008: Canadian Institute of Chartered
Accountants ("CICA") Handbook Section 1535, Capital Disclosures; Section 3862,
Financial Instruments - Disclosure and Section 3863, Financial Instruments -
Presentation. As required, these standards have been adopted on a prospective
basis. Prior year comparative statements have not been restated, in accordance
with the CICA Handbook guidance.
    All financial information is presented in Canadian dollars, unless
specified otherwise.

    Forward-Looking Statements

    The Fund's interim unaudited consolidated financial statements, including
this Management's Discussion and Analysis, contain "forward-looking
statements," which reflect management's current beliefs and expectations
regarding the Fund and Livingston International's future growth, results of
operations, performance, business prospects and opportunities.
    Such forward-looking statements, which may be identified by words such as
"anticipate", "should", "would", "could", "believe", "continue", "expect",
"intend", "may", "will", "project" and "estimate", are based on information
currently available to management. Forward-looking statements involve
significant risks and uncertainties. Many factors 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, taxation of income trusts, limited partnerships or
corporations and other tax matters, disruptions in border crossings, increases
or decreases in foreign trade, competition, effects of hedging, integration of
acquisitions, regulatory change, foreign-exchange rates, interest rates,
continued availability of credit facilities, availability of bonds, credit and
collection experience, reliance on key personnel, potential for uninsured or
underinsured losses, continued availability of transportation equipment,
contract changes, loss or non-renewal of contracts (including, without
limitation, the contract with Transport Canada), 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 assumed that business and economic conditions affecting it will continue
substantially in the ordinary course, including without limitation with
respect to trading patterns, general levels of economic activity, regulations,
foreign-exchange rates and interest rates, and that there will be no material
changes in its credit arrangements, bonding requirements or credit and
collections experience.
    Although the forward-looking statements are based upon what management
believes to be reasonable assumptions, the Fund and Livingston cannot assure
investors that actual results will be consistent with these forward-looking
statements. When relying on forward-looking statements to make decisions,
investors should ensure that the preceding information is carefully
considered.
    Such forward-looking statements are made as of August 7, 2008. 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 7, 2008. Undue
reliance should not be placed on forward-looking statements.

    Non-GAAP Measures

    The Fund provides some non-GAAP (generally accepted accounting
principles) measures as supplementary information that management believes
would be useful to investors to explain the Fund's financial results. These
non-GAAP measures include earnings before interest, taxes, other (income)
expense, depreciation, amortization and impairment of goodwill, intangibles
and fixed assets (EBITDA)(1) 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 interim unaudited 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 operating 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)
    Effective in the fourth quarter of 2007, the Fund adopted the Canadian
Securities Administrators ("CSA") guidelines in National Policy 41-201 Income
Trusts and Other Indirect Offerings regarding operating cash flows. The Fund
is cognizant that the tax changes coming in 2011 have resulted in income
trusts becoming valued more along the lines of regular public corporations
than on a distributable cash and payout ratio basis, as was formerly the case.
Accordingly, these terms have become less relevant. Management believes that
the supplementary information provided in Tables 3 and 4 should prove helpful
to investors at this time, for transitional reasons. The Fund intends,
however, to de-emphasize these concepts in future disclosures in favour of
GAAP measures and EBITDA(1).
    The information provided in Table 3, Summary of Cash Flows, is derived
from, and should be read in conjunction with, the interim unaudited
consolidated statements of cash flows. Management believes that this
supplementary disclosure provides useful additional information regarding the
cash flows of the Fund, the repayment of debt and other investing activities.
Certain subtotals, such as adjusted operating cash flows after maintenance
capital expenditures and integration costs(2), that are presented in Table 3
are not defined terms under GAAP. Management uses these subtotals as measures
of internal performance and as a supplement to the consolidated statements of
cash flows. 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.

    Business Lines

    Livingston has modified its reporting segments in accordance with GAAP.
Starting in the fourth quarter of 2007, the operations in the former other
services segment were segregated into either border services or into the
relevant Canadian or U.S. brokerage reporting segment, as indicated below.
Starting in the first quarter of 2008, the U.S. air/sea customs clearance
operation was moved into the U.S. customs brokerage segment from the
transportation and logistics segment where it had previously been reported.
The U.S. air/sea forwarding operation remains in the transportation and
logistics segment.
    Canadian customs brokerage comprises all of Livingston's Canadian customs
brokerage operations, event logistics (specialized services for trade shows
and special events) and customs consulting (Canadian international trade and
customs compliance) services.
    U.S. customs brokerage includes all of Livingston's U.S. customs
brokerage and U.S. air/sea customs clearance operations as well as U.S.
international trade and customs compliance consulting services.
    Transportation and logistics include Livingston's various freight
(international freight forwarding, including air/sea forwarding,
transportation management and vehicle transportation services) and integrated
logistics (integrated supply-chain management operations, warehousing
arrangements and distribution) operations.
    Border services comprise Livingston's managed services (imported vehicle
registration, carrier services, program management, information management and
contact centre services) and technology services.
    Prior period comparatives have been reclassified to conform to current
period reporting. All revenues are expressed net of certain charges paid to
external parties.

    Results of Operations

    Three months ended June 30, 2008
    The Fund recorded consolidated revenues and interest income of
$88.1 million for the quarter ended June 30, 2008, up 7.1% from $82.2 million
in the same period in 2007, primarily due to strong results in the border
services segment.
    The cost of services increased to $47.7 million in the quarter ended
June 30, 2008 compared with $46.8 million for the same period in 2007,
primarily due to higher costs in border services, partially offset by lower
costs in the other reporting segments. The contribution margin increased to
$40.4 million, or 45.9% of revenue, in the quarter ended June 30, 2008, up
from $35.4 million, or 43.1% of revenue, for the same period in 2007. Further
comments on each reporting segment are included in the discussion on
individual reporting segments below.
    Selling, general and administrative expenses were $19.1 million, or 21.7%
of revenue, for the quarter ended June 30, 2008 compared with $17.8 million,
or 21.6% of revenue, for the same period in 2007, primarily owing to higher
payroll costs.
    In 2007 the Fund incurred certain integration costs that did not qualify
to be recorded as a liability in the purchase price allocation for the 2006
acquisition of PBB Global Logistics Income Fund ("PBB"). Such costs include
various severances and other lease or contract termination costs for
Livingston personnel and offices as well as consulting services directly
related to the integration of PBB. These fees and expenses were non-recurring
in nature as they were directly related to the integration. For the quarter
ended June 30, 2008, the Fund did not incur any integration costs as the
integration has been substantially completed, but did, however, record
$0.5 million for integration costs in the second quarter ended June 30, 2007.
    Net income for the quarter ended June 30, 2008 was $12.1 million compared
with $3.4 million for 2007. For the quarter ended June 30, 2008, EBITDA(1) was
$21.3 million, or 24.2% of revenue, compared with $17.2 million, or 20.9% of
revenue, in the quarter ended June 30, 2007.
    Depreciation expense for the quarter ended June 30, 2008 was $2.3 million
compared with $2.9 million for the same period in 2007. This expense related
to the depreciation of property, plant and equipment, comprised mainly of
facilities, computers and office equipment used in operations. The lower
amount in the current quarter was a result of certain fixed assets in the
transportation and logistics segment being written down in the year ended
December 31, 2007.
    Intangible assets are amortized over the expected periods of benefit,
generally from two to 10 years, resulting in a charge of $3.7 million in the
quarter ended June 30, 2008 compared with $5.6 million for the same period in
2007. The lower amount in the current quarter was a result of certain
intangible assets in the transportation and logistics segment being written
down and non-Livingston brand names being fully amortized in the year ended
December 31, 2007.
    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 were foreign-exchange losses of
$0.3 million for the quarter ended June 30, 2008 compared with
foreign-exchange losses of $2.8 million in the same quarter last year. The
decrease in losses was primarily due to the stabilization of the Canadian
dollar in 2008 compared to the second quarter in 2007, when the Canadian
dollar strengthened significantly relative to the U.S. currency, as well as
the Fund's subsidiaries' hedging policy. As required by the hedging policy to
reduce the volatility of the impact of foreign-exchange risk, the Fund's
subsidiaries continued to enter into a number of short-term forward-exchange
contracts to sell U.S. currency. In the quarter ended June 30, 2008, there was
an unrealized gain on the forward-exchange contracts of $131 thousand, which
is included in the total foreign-exchange loss of $0.3 million, compared with
an unrealized gain of $2 thousand in the same period in 2007. For accounting
purposes, the Fund records these forward-exchange contracts at market value at
the period end date.
    Interest expense on long-term debt, principally relating to the bank term
loan, was $1.9 million for the quarter ended June 30, 2008, down from
$2.0 million in the same period a year earlier.
    Other interest expense, primarily related to the revolving line of credit
for government remittances, was $0.7 million for the quarter ended June 30,
2008 compared with $1.0 million a year earlier. This decrease was due to the
drop in interest rates during the quarter compared to the same period in 2007.
    Interest income of $0.3 million was included in revenue for the quarter
ended June 30, 2008 compared with the $0.6 million recorded in the quarter
ended June 30, 2007. The decrease was due to lower interest rates and fewer
funds available for investment purposes.
    While the Fund reported pre-tax income of $12.3 million for the quarter
ended June 30, 2008, it recognized a provision for income taxes of
$0.2 million, comprised of a future income tax recovery of $1.0 million and a
current tax expense of $1.2 million. On pre-tax income of $12.3 million, the
overall expected income tax expense was $4.0 million compared with a tax
provision reported of $0.2 million for the quarter ended June 30, 2008. Income
allocated to the Fund and its subsidiary limited partnerships reduced income
tax expense by $4.1 million, while non-deductible items, differences in income
tax rates and an additional valuation allowance increased the tax expense in
its corporate subsidiaries by $0.3 million. The future income tax recovery of
$1.0 million is related to a reduction in future tax liabilities, primarily as
a result of the amortization of intangible assets, offset by the recognition
of a valuation allowance against certain future tax assets. The valuation
allowance was recorded in the current quarter due to losses in certain
entities and the uncertainty of realizing the benefit of these future tax
assets. At June 30, 2008, the Fund and its subsidiaries had approximately
$29.6 million of losses, which can be used to offset future taxable income. Of
these losses, $9.9 million will expire in 2025, $16.2 million will expire in
2026, $3.2 million will expire in 2027 and the balance of $0.3 million will
expire in 2028.
    Net income for the quarter was $12.1 million, or $0.45 per Fund unit,
after the income tax provision of $0.2 million. In the same period in 2007,
net income was $3.4 million, or $0.12 per Fund unit, after the recovery of
income taxes of $0.4 million. The increase in net income in the current
quarter was primarily due to higher EBITDA(1) generated by operations, lower
depreciation and amortization, lower interest expense and lower other expense
in the quarter ended June 30, 2008 compared with 2007. For a further breakdown
of the results of operations by quarter for the 2008 and 2007 fiscal years,
refer to Tables 1 and 2.

    Six months ended June 30, 2008
    The Fund recorded consolidated revenues and interest income of
$168.4 million for the six months ended June 30, 2008, higher than the
$159.3 million for the same period in 2007. The increase was a result of
increased revenues in border services, offset by lower revenues in the
Canadian and U.S. customs brokerage as well as transportation and logistics
reporting segments.
    The cost of services increased by 1.6% to $94.7 million in the six months
ended June 30, 2008 compared with the same period in 2007, due to higher costs
in border services, offset by lower costs in the Canadian and U.S. customs
brokerage as well as transportation and logistics reporting segments. The
contribution margin increased to $73.7 million, or 43.8% of revenue, in the
six months ended June 30, 2008, from $66.1 million, or 41.5% of revenue, in
the same period in 2007. Further comments on each reporting segment are
included in the discussion on reporting segments.
    Selling, general and administrative expenses for the six-month period
ended June 30, 2008 were $36.3 million, or 21.5% of revenue, compared with
$35.2 million, or 22.1% of revenue, for the same period in 2007. The increase
in expenses resulted primarily from higher payroll costs.
    For the six-month period ended June 30, 2008, the Fund did not incur any
integration costs related to the 2006 acquisition of PBB as the integration
has been substantially completed, but did, however, record $1.1 million for
integration costs in the six months ended June 30, 2007.
    Net income for the first half of 2008 was $20.4 million compared with
$5.7 million for the comparable period of 2007. For the six months ended
June 30, 2008, EBITDA(1) was $37.5 million, or 22.3% of revenue, compared with
$29.9 million, or 18.7% of revenue, in the same period in 2007.
    Depreciation expense for the six months ended June 30, 2008 was
$4.5 million compared with $5.8 million for the same period in 2007. This
expense related to the depreciation of property, plant and equipment,
comprised chiefly of facilities, computers and office equipment used in
operations. The lower amount in the six-month period was a result of certain
fixed assets in the transportation and logistics segment being written down in
the year ended December 31, 2007.
    Intangible assets are amortized over the expected periods of benefit,
generally from two to 10 years, which resulted in a charge of $7.6 million in
the first six months of 2008, and $11.9 million in the six-month period ended
June 30, 2007. The lower amount in the six-month period was a result of
certain intangible assets in the transportation and logistics segment being
written down and non-Livingston brand names being fully amortized in the year
ended December 31, 2007.
    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 were foreign-exchange gains of
$0.6 million for the six months ended June 30, 2008 compared with a
foreign-exchange loss of $2.5 million in the same period in 2007. This was
primarily due to both the stabilization of the Canadian dollar in 2008
compared with the second quarter in 2007, when the Canadian dollar
strengthened significantly relative to the U.S. currency, as well as the
Fund's subsidiaries' hedging policy. For the six months ended June 30, 2008,
the Fund's subsidiaries continued to enter into a number of short-term
forward-exchange contracts to sell U.S. currency. There was an unrealized loss
on the foreign-exchange contracts of $6 thousand, which is included in the
total foreign-exchange gain of $0.6 million, compared with an unrealized gain
of $2 thousand in the same period in 2007. For accounting purposes, the Fund
records these forward-exchange contracts at market value.
    Interest expense on long-term debt, mostly relating to the bank term
debt, was $4.0 million for the first six months, in line with the same period
in 2007.
    Other interest expense, primarily related to the revolving line of credit
for government remittances, was $1.7 million for the six months ended June 30,
2008 compared with $1.8 million for the same period in 2007.
    Interest income in the first six months of 2008 was $0.8 million,
compared with the $1.2 million earned in the first six months of 2007. The
decrease was due to lower interest rates and fewer funds available for
investment purposes.
    While the Fund reported pre-tax income of $20.2 million for the six
months ended June 30, 2008, it recognized a recovery of income taxes of
$0.2 million, comprised of a future income tax recovery of $1.9 million and a
current tax expense of $1.7 million. On pre-tax income of $20.2 million, the
overall expected income tax expense was $6.6 million, compared with a tax
recovery reported of $0.2 million. Income allocated to the Fund and its
subsidiary limited partnerships reduced income tax expense by $7.6 million,
while non-deductible items, differences in income tax rates, additional
valuation allowance and the future income tax impact on flow-through entities
increased the tax expense by $0.8 million. The future income tax recovery of
$1.9 million is related to a reduction in future tax liabilities, primarily as
a result of the amortization of intangible assets offset by the recognition of
a valuation allowance against certain future tax assets and the recognition of
future income taxes of the subsidiary partnerships. The valuation allowance
was recorded due to losses in certain corporate entities and the uncertainty
of realizing the benefit of these future tax assets.
    Net income for the six months ended June 30, 2008 was $20.4 million, or
$0.75 per Fund unit, after the recovery of income taxes of $0.2 million. In
the same period in 2007, net income was $5.7 million, or $0.21 per Fund unit,
after the recovery of income taxes of $1.8 million. The increase in net income
was primarily due to higher EBITDA(1) generated by operations, lower
depreciation and amortization, and higher other income due to foreign-exchange
gains in the six months ended June 30, 2008 compared with the first six months
of 2007. For a further breakdown of the results of operations by quarter for
the 2008 and 2007 fiscal years, refer to Tables 1 and 2.

    Canadian Customs Brokerage

    Revenues and interest income for the quarter ended June 30, 2008
decreased by $0.3 million to $38.9 million, approximately 0.7% lower than the
same period in 2007. There was a decrease in volumes of approximately 0.5%
from existing clients and lower interest income. However, this was offset by a
higher average price per import transaction in the quarter.
    The cost of services decreased by $1.6 million, or 8.4%, to $17.1 million
in the quarter ended June 30, 2008 compared with the same period in 2007. The
reduction in costs was primarily due to some one-time costs incurred in 2007
not repeated in 2008, as well as longer-term efficiencies being realized in
2008 as a result of earlier integration efforts.
    The contribution margin for the second quarter of 2008 was $21.8 million
and higher than the $20.5 million for the year-earlier quarter. The
contribution margin percentage increased to 56.0% of revenue in the quarter
ended June 30, 2008 from 52.3% of revenue in the same period in 2007.
    Revenues and interest income for the six months ended June 30, 2008
decreased by $2.1 million to $76.3 million, approximately 2.6% lower than the
same period in 2007. There was an increase in volumes of approximately 1.0%
from new and existing clients. However, this was offset by a lower average
price per import transaction in the six-month period and lower interest
income.
    The cost of services decreased by $1.9 million, or 5.2%, to $35.0 million
in the six months ended June 30, 2008 compared with the same period in 2007.
The reduction in costs was primarily due to the one-time costs incurred in
2007 not repeated in 2008, as well as longer-term efficiencies being realized
in 2008 as a result of earlier integration efforts.
    The contribution margin for the first six months of 2008 was
$41.3 million and slightly lower than the $41.4 million for the year-earlier
six month period. The contribution margin percentage increased to 54.1% of
revenue in the first six months of 2008 from 52.9% of revenue in the same
period in 2007.

    U.S. Customs Brokerage

    In Canadian dollars, overall revenues for the quarter ended June 30, 2008
decreased in the U.S. customs brokerage segment by 16.4% to $13.3 million from
$16.0 million a year earlier. The provision of additional value-added services
to clients contributed higher revenues of $0.2 million. This was offset by
lower trade volumes into the United States of approximately 10.3%, which
decreased revenue by $1.7 million, and the foreign-exchange translation of
U.S.-dollar revenues into Canadian dollars, which reduced revenue by
$1.2 million, compared with the same quarter in 2007.
    The average Canada-United States currency-exchange rate for the quarter
ended June 30, 2008 was Cdn$1.01 to US$1.00 compared with Cdn$1.10 to US$1.00
for the same period in 2007. In U.S. dollars, overall 2008 revenues for the
U.S. customs brokerage operation were down $1.4 million or 9.3% to $13.2
million for the quarter ended June 30, 2008 compared with the same quarter in
2007, due to slightly increased pricing offset by lower volumes.
    In Canadian dollars, the overall cost of services for the U.S. customs
brokerage segment decreased by $0.1 million, or 1.2%, to $8.1 million in the
quarter ended June 30, 2008 compared with the second quarter of 2007. In U.S.
dollars, the overall cost of services for U.S. customs brokerage increased by
$0.6 million to $8.0 million for the quarter compared with the same quarter in
2007. The decrease in cost of services was primarily due to the
foreign-exchange translation of U.S.-dollar costs into Canadian dollars, which
reduced the cost of services by $0.7 million compared with the same quarter in
2007.
    Due to the variances in revenue and cost of services mentioned above, the
contribution margin for the U.S. customs brokerage operation in Canadian
dollars decreased to $5.2 million, or 39.2% of revenue, in the quarter ended
June 30, 2008 from $7.7 million, or 48.6% of revenue, in the same period in
2007.
    In Canadian dollars, overall revenues for the six months ended June 30,
2008 decreased in the U.S. customs brokerage segment by 13.6% to $26.8 million
from $31.1 million a year earlier. The provision of additional value-added
services to clients contributed higher revenues of $1.9 million. This was
offset by lower trade volumes into the United States of approximately 9.2%,
which decreased revenue by $2.9 million, and the foreign-exchange translation
of U.S.-dollar revenues into Canadian dollars, which reduced revenue by
$3.3 million, compared with the six months ended June 30, 2007.
    The average Canada-United States currency-exchange rate for the six
months ended June 30, 2008 was Cdn$1.01 to US$1.00 compared with Cdn$1.13 to
US$1.00 for the same period in 2007. In U.S. dollars, overall 2008 revenues
for the U.S. customs brokerage operation were down $0.8 million or 2.9% to
$26.7 million for the six months ended June 30, 2008 compared with the same
period in 2007, due to increased pricing offset by lower volumes.
    In Canadian dollars, the overall cost of services for the U.S. customs
brokerage segment decreased by $1.2 million, or 6.9%, to $16.4 million in the
six months ended June 30, 2008 compared with 2007. In U.S. dollars, the
overall cost of services for U.S. customs brokerage increased by $0.8 million
to $16.2 million for the six-month period compared with 2007. The decrease in
cost of services was primarily due to the foreign-exchange translation of
U.S.-dollar costs into Canadian dollars, which reduced the cost of services by
$2.1 million compared with the same period in 2007.
    Due to the variances in revenue and cost of services mentioned above, the
contribution margin for the U.S. customs brokerage operation in Canadian
dollars decreased to $10.5 million, or 39.0% of revenue, in the six months
ended June 30, 2008 from $13.5 million, or 43.4% of revenue, in the same
period in 2007.

    Transportation and Logistics

    Revenues decreased by $1.0 million to $17.1 million in the quarter ended
June 30, 2008 from $18.1 million in the same period in 2007. This decrease was
mainly due to the decline in business from integrated logistics,
transportation management and the vehicle transportation services operation,
offset by increased revenues in international freight forwarding.
    The cost of services decreased by $1.3 million to $13.4 million for the
quarter ended June 30, 2008 from $14.7 million in the same period in 2007. The
decrease in cost of services was primarily due to decreased costs in the
integrated logistics operation and in transportation management, offset by a
slight increase in costs in the international freight forwarding business.
    This resulted in an increase in the contribution margin from
$3.4 million, or 18.7% of revenue, in the quarter ended June 30, 2007 to
$3.7 million, or 21.3% of revenue, in the quarter ended June 30, 2008.
    For the six months ended June 30, 2008, net revenues decreased by
$2.1 million to $32.3 million from $34.4 million in the same period in 2007.
This decrease was mainly due to the decline in business from transportation
management and the vehicle transportation services operation, offset by
increased revenues in international freight forwarding.
    The cost of services decreased by $2.3 million to $26.9 million for the
six months ended June 30, 2008 from $29.2 million in the same period in 2007.
The decrease in the cost of services was primarily due to decreased costs in
the integrated logistics operation and in transportation management, offset by
a slight increase in costs in the vehicle transportation services operation.
    This resulted in an increase in the contribution margin from
$5.2 million, or 15.2% of revenue, in the six months ended June 30, 2007 to
$5.4 million, or 16.6% of revenue, in the six months ended June 30, 2008.

    Border Services

    Revenues increased by $9.8 million, or 108.9%, to $18.8 million for the
quarter ended June 30, 2008 from $9.0 million for the same period in 2007.
This was mainly due to higher volumes in the managed services operation, as a
result of a significant increase in the volume of vehicles imported from the
United States into Canada.
    The cost of services increased by $3.8 million to $9.0 million in the
quarter ended June 30, 2008 from $5.2 million in the year-earlier period. This
was primarily due to higher costs in the managed services business to support
the growth in revenues.
    The contribution margin for border services improved to $9.7 million, or
51.9% of revenue, in the quarter ended June 30, 2008 up from $3.8 million, or
42.3% of revenue, in the same period a year earlier.
    For the six months ended June 30, 2008, revenues increased by
$17.5 million, or 112.9%, to $33.0 million from $15.5 million for the same
period in 2007. This was mainly due to higher volumes in the managed services
operation, as a result of a significant increase in the volume of vehicles
imported from the United States into Canada.
    The cost of services increased by $6.9 million to $16.3 million in the
six-month period ended June 30, 2008 from $9.4 million in the comparable
period of 2007. This was primarily due to higher costs in the managed services
business to support the growth in revenues.
    The contribution margin for border services improved to $16.7 million, or
50.5% of revenue, in the six months ended June 30, 2008 up from $6.1 million,
or 39.1% of revenue, in the same period a year earlier.
    Table 1 provides quarterly financial information for the quarters ended
September 30, 2007 to June 30, 2008.

    
    Table 1
    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, unaudited)
    -------------------------------------------------------------------------
    Quarter ended            June 30,    March 31,     Dec. 31,    Sept. 30,
                                 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       46,833       46,413
    -------------------------------------------------------------------------
    Contribution margin        40,414       33,318       37,283       34,038
    Selling, general and
     administrative
     expenses                  19,113       17,137       15,823       17,136
    Costs related to the
     integration of PBB             -            -          328          219
    -------------------------------------------------------------------------
    EBITDA(1)                  21,301       16,181       21,132       16,683
    Depreciation                2,324        2,187        2,355        2,735
    Amortization                3,720        3,921        5,536        5,538
    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                   0.45         0.30        (0.91)        0.14
    -------------------------------------------------------------------------
    Net income (loss) per
     Fund unit, diluted          0.45         0.30        (0.91)        0.14
    -------------------------------------------------------------------------
    Weighted average Fund
     units outstanding     27,247,667   27,247,667   27,247,667   27,247,637
    -------------------------------------------------------------------------
    Weighted average Fund
     units outstanding,
     diluted               27,247,667   27,247,667   27,247,667   27,247,637
    -------------------------------------------------------------------------


    Table 2 provides quarterly financial information for the quarters ended
September 30, 2006 to June 30, 2007.


    Table 2
    Quarterly Consolidated Statements of Income
    For the quarters ended September 30, 2006 to June 30, 2007
    (in thousands of dollars, except per Fund unit amounts, unaudited)
    -------------------------------------------------------------------------
    Quarter ended            June 30,    March 31,     Dec. 31,    Sept. 30,
                                 2007         2007         2006         2006
    -------------------------------------------------------------------------
    Net revenues               81,626       76,407       80,444       80,918
    Interest income               597          641          768          758
    -------------------------------------------------------------------------
                               82,223       77,048       81,212       81,676
    Cost of services           46,788       46,348       45,852       45,908
    -------------------------------------------------------------------------
    Contribution margin        35,435       30,700       35,360       35,768
    Selling, general and
     administrative
     expenses                  17,774       17,409       17,028       16,580
    Costs related to the
     integration of PBB           480          616          947          813
    -------------------------------------------------------------------------
    EBITDA(1)                  17,181       12,675       17,385       18,375
    Depreciation                2,913        2,923        3,091        2,804
    Amortization                5,580        6,309        9,111        6,042
    Impairment of goodwill          -            -       11,000            -
    -------------------------------------------------------------------------
    Income (loss) before
     the undernoted             8,688        3,443       (5,817)       9,529
    -------------------------------------------------------------------------
    Other expense (income)      2,752         (255)      (1,870)         175
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt            2,018        2,012        1,934        1,923
      Other                       962          791          820          570
    -------------------------------------------------------------------------
                                2,980        2,803        2,754        2,493
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes               2,956          895       (6,701)       6,861
    Provision for (recovery
     of) income taxes
      Current                     677          645         (812)         627
      Future                   (1,117)      (2,048)      (2,592)      (1,205)
    -------------------------------------------------------------------------
                                 (440)      (1,403)      (3,404)        (578)
    -------------------------------------------------------------------------
    Net income (loss) for
     the period                 3,396        2,298       (3,297)       7,439
    -------------------------------------------------------------------------
    Net income (loss) per
     Fund unit                   0.12         0.08        (0.12)        0.27
    -------------------------------------------------------------------------
    Net income (loss) per
     Fund unit, diluted          0.12         0.08        (0.12)        0.27
    -------------------------------------------------------------------------
    Weighted average Fund
     units outstanding     27,247,607   27,247,607   27,242,675   27,212,274
    -------------------------------------------------------------------------
    Weighted average Fund
     units outstanding,
     diluted               27,248,610   27,249,138   27,244,177   27,228,155
    -------------------------------------------------------------------------
    

    Adjusted Operating Cash Flows(2)

    The Fund generated $16.7 million, or $0.612 per Fund unit, of adjusted
operating cash flows after maintenance capital expenditures and integration
costs(2) for the quarter ended June 30, 2008. This represents an increase
compared with the same quarter in 2007, when the adjusted operating cash flows
after maintenance capital expenditures and integration costs(2) totalled
$11.5 million, or $0.422 per Fund unit. The Fund had negative cash flows of
$24.5 million from operating activities in the quarter. After adding $41.9
million for the net change in current assets and liabilities and deducting
$0.7 million for maintenance capital expenditures, the adjusted operating cash
flows after maintenance capital expenditures and integration costs(2) totalled
$16.7 million, or $0.612 per Fund unit, for the second quarter of 2008. This
compares with cash flows generated by operating activities of $16.7 million in
the same period in 2007. After subtracting the net change in assets and
liabilities of $4.7 million and deducting other items of $0.5 million, the
adjusted operating cash flows after maintenance capital expenditures and
integration costs(2) totalled $11.5 million, or $0.422 per Fund unit, in the
second quarter of 2007. The payout ratio for adjusted operating cash flows
after maintenance capital expenditures and integration costs(2) for the second
quarter of 2008 was 69.6% compared with 100.8% in 2007.
    Cash payments to the Fund were sufficient to declare distributions of
$11.6 million, or $0.426 per Fund unit, for the quarter ended June 30, 2008,
in line with distributions declared in the same quarter in 2007.
    For the six months ended June 30, 2008, the Fund generated $28.4 million,
or $1.042 per Fund unit, of adjusted operating cash flows after maintenance
capital expenditures and integration costs(2). This represents an increase
compared with the same period in 2007, when the adjusted operating cash flows
after maintenance capital expenditures and integration costs(2) totalled
$20.6 million, or $0.757 per Fund unit. The Fund had negative cash flows of
$8.9 million from operating activities in the period. After adding $38.9
million for the net change in current assets and liabilities and deducting
$1.6 million for maintenance capital expenditures, the adjusted operating cash
flows after maintenance capital expenditures and integration costs(2) totalled
$28.4 million, or $1.042 per Fund unit, for the first six months of 2008. This
compares with cash flows used in operating activities of $2.4 million in the
same period in 2007. After adding the net change in assets and liabilities of
$18.7 million and deducting other items of $0.5 million, the adjusted
operating cash flows after maintenance capital expenditures and integration
costs(2) totalled $20.6 million, or $0.757 per Fund unit, in the first six
months of 2007. The payout ratio for adjusted operating cash flows after
maintenance capital expenditures and integration costs(2) for the first half
of 2008 was 81.7% compared with 112.5% in 2007.
    Cash payments to the Fund were sufficient to declare distributions of
$23.2 million, or $0.852 per Fund unit, for the six-month period ended
June 30, 2008, in line with distributions declared in the same period in 2007.

    
    Table 3
    Summary of Cash Flows
    For the periods ended June 30, 2008 and 2007 and the year ended
    December 31, 2007
    (in thousands of dollars, except per Fund unit amounts, unaudited)
    -------------------------------------------------------------------------
                          Quarter   Quarter Six months Six months       Year
                           ended      ended      ended      ended      ended
                        June 30,   June 30,   June 30,   June 30,   Dec. 31,
                            2008       2007       2008       2007       2007
    -------------------------------------------------------------------------
    Cash flows
     (used in)
     provided by
     operating
     activities          (24,518)    16,674     (8,946)     2,426     40,547

    Add (deduct):
    Net change in
     current assets
     and
     liabilities(*)       41,898     (4,714)    38,952     18,698      7,435
    -------------------------------------------------------------------------
                          17,380     11,960     30,006     21,124     47,982

    Maintenance
     capital expend-
     itures(*)(*)           (708)      (929)    (1,602)    (1,584)    (2,402)
    Costs related
     to the integ-
     ration of PBB,
     net of tax                -        480          -      1,096      1,643
    -------------------------------------------------------------------------
    Adjusted operating
     cash flows
     after maintenance
     capital
     expenditures and
     integration
     costs(2)             16,672     11,511     28,404     20,636     47,223
    -------------------------------------------------------------------------
    Distributions
     to unitholders+      11,607     11,607     23,214     23,214     46,429
    -------------------------------------------------------------------------
    Payout ratio based
     on adjusted
     operating cash
     flows after
     maintenance
     capital
     expenditures and
     integration
     costs(2)++             69.6%     100.8%      81.7%     112.5%      98.3%
    -------------------------------------------------------------------------
    Per Fund unit in dollars
    Adjusted operating
     cash flows after
     maintenance capital
     expenditures and
     integration
     costs(2)              0.612      0.422      1.042      0.757      1.733
    -------------------------------------------------------------------------
    Distributions to
     unitholders+          0.426      0.426      0.852      0.852      1.704
    -------------------------------------------------------------------------
    Weighted average
     Fund units
     outstanding      27,247,667 27,247,607 27,247,667 27,247,607 27,247,630
    -------------------------------------------------------------------------


    (*)    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 paid in the period, not what was
           actually declared.
    ++     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
    Cash Flows from Operating Activities, Net Income and Cash Distributions
    Analysis
    For the periods ended June 30, 2008 and 2007 and the year ended
    December 31, 2007

    -------------------------------------------------------------------------
                                                   Six         Six
    (in thousands of    Quarter    Quarter     months      months       Year
     dollars,             ended      ended      ended       ended      ended
     unaudited)        June 30,   June 30,   June 30,    June 30,   Dec. 31,
                           2008       2007       2008        2007       2007
    -------------------------------------------------------------------------
    Cash flows from
     operating
     activities         (24,518)    16,674     (8,946)      2,426     40,547
    -------------------------------------------------------------------------
    Net income (loss)    12,131      3,396     20,417       5,694    (15,336)
    -------------------------------------------------------------------------
    Distributions paid
     to unitholders      11,607     11,607     23,214      23,214     46,429
    -------------------------------------------------------------------------
    (Shortfall) excess
     of cash flows
     from operating
     activities over
     cash distributions
     paid               (36,125)     5,067    (32,160)    (20,788)    (5,882)
    -------------------------------------------------------------------------
    Excess (shortfall)
     of net income (loss)
     over cash
     distributions
     paid                   524     (8,211)    (2,797)    (17,520)   (61,765)
    -------------------------------------------------------------------------
    

    For the quarter ended June 30, 2008, there was a shortfall of
$36.1 million of cash flows from operating activities relative to cash
distributions paid and an excess of $0.5 million of net income over cash
distributions paid. The shortfall of cash flows from operating activities
relative to cash distributions paid was primarily funded through operating
cash flows prior to the net change in current assets and liabilities in the
quarter.
    For the quarter ended June 30, 2007, there was an excess of $5.1 million
of cash flows from operating activities over cash distributions paid and a
shortfall of $8.2 million of net income relative to cash distributions paid.
Net income includes non-cash charges for depreciation and the amortization of
intangibles. The shortfall of net income relative to cash distributions paid
was primarily due to the nature of these charges.
    For the six months ended June 30, 2008, there was a shortfall of
$32.2 million of cash flows from operating activities relative to cash
distributions paid and a shortfall of $2.8 million of net income relative to
cash distributions paid. The shortfall of net income relative to cash
distributions paid was primarily due to non-cash charges, such as depreciation
and amortization, included in net income. The shortfall of cash flows from
operating activities relative to cash distributions paid was primarily funded
through operating cash flows prior to the net change in current assets and
liabilities in the first half of 2008. To the extent that there is a shortfall
of operating cash flows relative to distributions, distributions are funded
through the excess of cash flows from operating activities over distributions
in prior periods.
    Similar to the first half of 2008, there was a shortfall of $20.8 million
of cash flows from operating activities relative to cash distributions paid
and a shortfall of $17.5 million of net income relative to cash distributions
paid, for the six months ended June 30, 2007.

    
    Table 5
    Reconciliation of Net Income to EBITDA(1)
    For the periods ended June 30, 2008 and 2007 and the year ended
    December 31, 2007
    -------------------------------------------------------------------------
                                                    Six        Six
                            Quarter   Quarter    months     months      Year
                              ended     ended     ended      ended     ended
    (in thousands of       June 30,  June 30,  June 30,   June 30,  Dec. 31,
     dollars, unaudited)       2008      2007      2008       2007      2007
    -------------------------------------------------------------------------
    Net income (loss)        12,131     3,396    20,417      5,694   (15,336)
    Add (deduct):
    Provision for (recovery
     of) income taxes           174      (440)     (190)    (1,843)   (5,267)
    Interest expense          2,657     2,980     5,689      5,783    12,159
    Other expense
     (income)                   295     2,752      (586)     2,497     4,423
    Depreciation              2,324     2,913     4,511      5,836    10,926
    Amortization              3,720     5,580     7,641     11,889    22,963
    Impairment of goodwill
     and other assets             -         -         -          -    37,803
    -------------------------------------------------------------------------
    EBITDA(1)                21,301    17,181    37,482     29,856    67,671
    -------------------------------------------------------------------------
    

    Liquidity and Capital Resources

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows and the notes to the
consolidated financial statements.
    In January 2006, as a result of the acquisition of PBB, Livingston
entered into a new credit facility in the amount of $250 million for a term of
five years. This credit facility consists of a $130 million revolving line of
credit for operations, capital expenditures and acquisitions and a
$120 million five-year term loan. This credit facility bears interest at prime
plus varying premiums between 0% and 1.25%, dependent upon certain financial
performance ratios, and is collateralized by a general security agreement of
all of the Fund's subsidiaries. A portion of the $130 million revolving term
facility is required typically at the beginning of each month to facilitate
the payment of government remittances on behalf of Livingston's clients. This
is reduced throughout each month as payments are received from clients. Of the
$130 million operating credit facility, $117.5 million was drawn as at June
30, 2008.

    Cash Flows from Operating Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows and the notes to the
consolidated financial statements.
    For the quarter ended June 30, 2008, the Fund used $24.5 million in cash
flows from operating activities, compared with cash flows from operating
activities generated of $16.7 million for the same period in 2007. These
amounts are inclusive of the net change in current assets and liabilities,
which decreased cash flows by $41.9 million in the quarter ended June 30, 2008
compared with an increase of $4.7 million in the same period last year. For
the quarter ended June 30, 2008, the net change in current assets and
liabilities was mainly due to lower government remittances payable, accounts
payable and accrued liabilities of $42.8 million.
    For the six months ended June 30, 2008, the Fund used $8.9 million in
cash flows from operating activities, compared with cash flows from operating
activities generated of $2.4 million for the same period in 2007. These
amounts are inclusive of the net change in current assets and liabilities,
which decreased cash flows by $38.9 million in the six-month period ended
June 30, 2008 compared with a decrease of $18.7 million in the same period
last year. For the six months ended June 30, 2008, the net change in current
assets and liabilities was mainly due to higher accounts receivable by
$32.9 million as well as lower government remittances payable, accounts
payable and accrued liabilities of $7.6 million.
    As cash flows 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 and
integration costs(2) provides useful supplemental information for investors,
as illustrated in Table 3.

    Capital Expenditures and Other Investing Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows and the notes to the
consolidated financial statements.
    Livingston incurred capital expenditures of $1.8 million, net of
disposals, for the quarter ended June 30, 2008 compared with $2.2 million for
the same period in 2007. In the quarter ended June 30, 2008, maintenance
capital expenditures relating to the improvement of office facilities and the
replacement of workstations were $0.7 million compared with $1.0 million in
the same period in 2007. In management's judgment, non-maintenance or growth
capital expenditures refer to capital expenditures that increase revenues,
margins or EBITDA(1). These expenditures amounted to approximately $1.1
million for the quarter ended June 30, 2008, up from the $0.1 million in the
same quarter in 2007. Capital expenditures related to the integration in the
amount of $1.1 million were incurred in the quarter ended June 30, 2007, with
no integration-related capital expenditures incurred for the current quarter.
    For the six months ended June 30, 2008, Livingston incurred capital
expenditures of $2.9 million, net of disposals, compared with $3.7 million for
the same period in 2007. In this most recent six-month period, $1.6 million
was included for maintenance capital expenditures relating to the improvement
of office facilities and the replacement of workstations, similar to the $1.6
million for the same period in 2007. Non-maintenance or growth capital
expenditures amounted to approximately $1.3 million for the six months ended
June 30, 2008, up from the $0.2 million in the same period last year. Capital
expenditures related to the integration in the amount of $1.9 million were
incurred in the six months ended June 30, 2007, with no integration-related
capital expenditures incurred for the current period.

    
    Table 6
    Net Operating Facility
    As at June 30, 2008, December 31, 2007 and June 30, 2007
    (in thousands of dollars, unaudited)
    ------------------------------------------------------------------------
                                        June 30,   December 31,     June 30,
                                           2008           2007         2007
    ------------------------------------------------------------------------
    Operating facility for government
     remittances                        117,455         90,271       97,511
    Cash and cash equivalents            19,273         27,286       23,093
    ------------------------------------------------------------------------
    Net operating facility               98,182         62,985       74,418
    ------------------------------------------------------------------------
    

    Financing Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows 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 governments near the end of each month and the
timing of cash receipts from clients.
    There was an increase in borrowings under the operating facility of
$14.1  million for the quarter ended June 30, 2008 compared with a decrease of
$8.8 million as of June 30, 2007. For the six months ended June 30, 2008 there
was an increase in the operating facility of $27.3 million compared with an
increase of $16.3 million for the same period in 2007. This resulted from the
difference in timing between payments received from clients and remittances
made to governments on their behalf.
    Concurrent with the PBB acquisition in January 2006, Livingston also
replaced the former credit facility with a new credit facility in the amount
of $250 million for a term of five years, consisting of a $130 million
revolving line of credit for operations, capital expenditures and acquisitions
and a $120 million five-year term loan. This new credit facility bears
interest at prime plus varying premiums between 0% and 1.25%, dependent upon
certain financial performance ratios, and is collateralized by a general
security agreement on all of the assets of the Fund's subsidiaries. Of the
$130 million operating line of credit, $117.5 million was drawn as at
June 30, 2008. Of the $120 million bank term credit facility, the total amount
drawn as at June 30, 2008 was $108.4 million.
    Cash distributions made to Fund unitholders in the quarter ended
June 30, 2008 totalled $11.6 million, unchanged from the same quarter in 2007.
For the six months ended June 30, 2008, cash distributions were $23.2 million,
in line with the distributions for the same period in 2007.
    Table 6 shows the net balance when cash and cash equivalents are netted
against the operating facility for government remittances. The net operating
facility was higher by approximately $23.8 million at June 30, 2008 than at
June 30, 2007, reflecting higher funds drawn under the revolving line of
credit and lower cash balances. These changes are a reflection of the timing
of receipt of funds from clients and payments made to governments.
    Together with the cash flows generated from operating activities, capital
expenditures and other investing activities, total cash and cash equivalents
were approximately $19.3 million at June 30, 2008 compared with $23.1 million
at June 30, 2007 and $27.3 million at December 31, 2007.

    Changes in Accounting Policies

    The following are the new accounting policies that the Fund has
implemented in the six-month period ended June 30, 2008.

    Section 1535, Capital Disclosures

    Section 1535 of the CICA Handbook establishes standards for disclosing
information about an entity's objectives, policies and processes for managing
capital. The impact of this change is outlined in note 11 in the notes to the
consolidated financial statements.

    Section 3862, Financial Instruments - Disclosure and
    Section 3863, Financial Instruments - Presentation

    Section 3862 of the CICA Handbook modifies the disclosure requirements
for financial instruments that were included in Section 3861,
Financial Instruments - Disclosure and Presentation. The new standard places
greater emphasis on disclosures about risks related to recognized and
unrecognized financial instruments and how those risks are managed.
Section 3863 carries forward the same presentation standards as Section 3861.
The impact of these changes is outlined in note 10 in the notes to the
consolidated financial statements.

    Section 3064, Goodwill and Intangible Assets

    Section 3064 of the CICA Handbook replaces Handbook Section 3062,
Goodwill and Intangible Assets and Handbook Section 3450, Research and
Development Costs and establishes standards for the recognition, measurement
and disclosure of goodwill and intangible assets. The provisions relating to
the definition and initial recognition of intangible assets, including
internally generated intangible assets, are equivalent to the corresponding
provisions of international financial reporting standards (IFRS) IAS 38,
Intangible Assets. This standard will become effective for the Fund for
interim and annual financial statements beginning on January 1, 2009.
Management is currently evaluating the impact of the adoption of this change
on disclosure in the financial statements.

    International Financial Reporting Standards

    In January 2006, the Canadian Accounting Standards Board ("AcSB")
announced its decision to replace Canadian GAAP with 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.
    Management is currently evaluating the impact of the adoption of IFRS on
the Fund's financial statements and is working with external resources to
develop a plan for the transition to the new standards, in accordance with the
guidelines of IFRS 1 First-time Adoption of International Financial Reporting
Standards.
    This plan is expected to be completed by December 31, 2008 and to cover
the following:

    
    -  accounting policies (initial selection among policies permitted under
       IFRS);
    -  information and data systems required for implementation of IFRS;
    -  internal control over financial reporting;
    -  financial reporting expertise and training required;
    -  business activities that may influence the change to IFRS.
    

    Financial Instruments

    The Fund's financial instruments consist of cash and cash equivalents,
accounts receivable, interest-rate swaps, foreign-exchange contracts, other
long-term assets, the operating facility for government remittances,
government remittances payable, unitholder distributions payable, accounts
payable and accrued liabilities, client deposits and advances, long-term debt,
interest-rate swaps and foreign-exchange contracts, as indicated in the Fund's
balance sheet as at June 30, 2008.
    The Fund's financial assets and financial liabilities are initially
recognized at fair value, and their subsequent measurement is dependent upon
the classification of the financial instrument as designated by the Fund
according to CICA Handbook Section 3855, Financial Instruments - Recognition
and Measurement.
    The Fund has classified its cash and cash equivalents as held-for-trading
financial assets; accounts receivable as loans and receivables; the operating
facility for government remittances, government remittances payable,
unitholder distributions payable, accounts payable and accrued liabilities,
client deposits and advances and long-term debt as other financial
liabilities; and foreign-exchange contracts and interest-rate swaps as
derivatives. Cash and cash equivalents have been classified as
held-for-trading due to their short-term nature and the fact that they are
readily available to finance the Fund's operations.
    The Fund's long-term debt is carried at amortized cost. The deferred
finance fees are transaction costs associated with the long-term debt and,
therefore, have been netted with the long-term debt. The amortized deferred
finance fees are recognized in income, using the effective interest-rate
method.
    The Fund's foreign-exchange contracts are derivative financial
instruments and, accordingly, are recorded in the consolidated balance sheet
at fair value. All forward exchange contracts are marked-to-market at the end
of each reporting period, and changes in fair value (gains and losses) on the
forward exchange contracts are recorded in other (income) expense. This policy
is consistent with the 2007 audited annual consolidated financial statements.
    The Fund's interest-rate swaps are also derivative financial instruments
and, accordingly, are recorded at fair value. The interest-rate swaps are
included in other assets or other liabilities as appropriate. The
interest-rate swaps are designated as cash-flow hedges and, therefore, are
accounted for in accordance with Section 3865, Hedges. Under hedge accounting,
interest expense is recognized as if the cash-flow hedge and the hedged item
were a single instrument. Realized and unrealized gains or losses associated
with derivative instruments, which have been terminated or cease to be
effective prior to maturity, are deferred in other comprehensive income and
recognized in income in the period in which the underlying hedge transaction
is recognized.
    Changes in the fair value of the interest-rate swaps are recognized in
accumulated other comprehensive income to the extent that the hedge is
effective. The ineffective portion, if any, is expensed in the consolidated
statement of income. The fair value of these swaps, included in other
liabilities as at June 30, 2008, is a net liability of approximately
$0.3 million compared with a net asset of $0.7 million as at December 31,
2007.
    The carrying values of cash and cash equivalents, accounts receivable,
the operating facility for government remittances, government remittances
payable, accounts payable and accrued liabilities, and unitholder
distributions payable approximate their fair values due to the immediate or
short-term maturity of these financial instruments. The fair value of the
Fund's term bank loan approximates its carrying value as it bears interest at
a floating rate. The fair value of other long-term debt with fixed interest
rates does not differ materially from its carrying value. The Fund mitigates
its interest-rate risk using interest-rate swaps for its floating rate
long-term debt.
    Cash and cash equivalents are subject to potential credit risk.
Livingston has substantially minimized this credit risk by placing these
financial assets with governments, well capitalized financial institutions and
other creditworthy counter-parties and by performing on-going reviews to
evaluate changes in the status of such counter-parties. There are currently no
cash or cash equivalents that are invested in asset-backed commercial paper.
    To minimize exposure to fluctuating interest rates, Livingston converted
$23 million of its term bank loan on June 15, 2005 (due January 11, 2011) to
fixed-rate debt by means of an interest-rate swap at the rate of 5.98%,
maturing on December 16, 2009.
    On September 11, 2006, Livingston entered into three new interest-rate
swaps for a total of $34 million and US$5 million with a fixed rate of 6.29%
and 7.13%, respectively. The new swaps mature on January 11, 2011. The new
swaps are accounted for as a hedge of $34 million and US$5 million of
long-term debt. In connection with the new swap agreements, Livingston has
released its lenders from the obligation to compensate the Fund for PBB's
former swap arrangements. The purpose of the interest-rate swaps is to act as
a cash flow hedge to manage the floating rate payable under the new credit
facility. The Fund documented its hedging relationships and determined that
its interest-rate swap agreements qualify for hedge accounting.
    Having met the conditions for applying hedge accounting, the
interest-rate swaps are accounted for using "synthetic instrument" accounting.
Under this method, interest expense is recognized as if the cash flow hedge
and the hedged item were a single instrument, i.e. fixed-rate debt.
    Livingston is exposed to credit risk with respect to its accounts
receivable. This is, however, minimized by Livingston's large client base,
which covers a diverse range of business sectors in Canada and the United
States, and by control and follow-up of clients' accounts. Creditworthiness of
clients is monitored continuously. Livingston also maintains a provision for
potential credit losses, which to date has been within management's
expectations.
    Livingston is exposed to foreign-exchange risk, as approximately 18% of
revenue in 2008 was earned in U.S. dollars, and has assets and liabilities
that will be settled in U.S. currency. A 1% change in the value of the
Canadian dollar resulting from a weaker U.S. dollar against the Canadian
currency would reduce the contribution margin by approximately $107 thousand
when U.S. dollar revenues and U.S. dollar costs of services are translated
into Canadian dollars for the six months ended June 30, 2008. This does not
include any resulting impact on trade volumes or the translation of the Fund's
U.S.-dollar-denominated assets and liabilities into Canadian dollars.
    To reduce the volatility of foreign-exchange fluctuations, Livingston had
10 short-term forward-exchange contracts (to be settled within three months in
Canadian dollars) to sell approximately $5.0 million in U.S. currency at an
average rate of 1.017 and recorded an unrealized foreign-exchange loss of
$6 thousand as at June 30, 2008. This compares with a realized
foreign-exchange gain of $13 thousand when the foreign-exchange contracts were
actually settled, as a result of the slight weakening of the Canadian dollar.
As of August 6, 2008, Livingston had 10 short-term forward-exchange contracts
(to be settled within one month) to sell approximately $5.0 million in U.S.
currency at an average rate of 1.016.
    The Fund experiences potential exposure to U.S.- Canadian currency
fluctuations when U.S. dollars are converted into Canadian dollars, primarily
in the following three areas:

    
    -  Canadian brokerage billings for duty and goods and services tax
       ("GST") paid in Canadian dollars to the Canada Border Services Agency
       ("CBSA") but where invoices are collected in U.S. dollars;
    -  excess U.S.-dollar net profit generated primarily from the U.S.
       customs brokerage segment; and
    -  excess U.S.-dollar net monetary assets, which generate unrealized
       gains or losses when the Fund's balance sheet is translated into
       Canadian dollars.
    

    Although a partial natural hedge exists in that there are U.S.-dollar
expenditures and U.S.-dollar liabilities, in order to reduce the volatility of
foreign-exchange fluctuations, Livingston has maintained its hedging policy
and entered into a number of short-term forward-exchange contracts to sell
U.S. currency. The amount and period of current foreign-exchange contracts are
determined based on management's projections of U.S.-dollar collections in
excess of anticipated expenditures. Also, Livingston has a portion of its
long-term debt denominated in U.S. dollars to reduce its exposure in the event
that the Canadian dollar strengthens in relation to the U.S. dollar.
    Although there is a risk in the event that the financial institution
involved in a forward-exchange transaction is unable to fulfill its
contractual obligation, this risk is mitigated by purchasing contracts only
from reputable and regulated financial institutions. All forward-exchange
contracts are marked-to-market at the end of each reporting period, and gains
and losses on forward-exchange contracts are recorded in other (income)
expense.
    There have been no significant changes to the nature of these financial
instruments since December 31, 2007, except as noted above under the section
entitled "Changes in Accounting Policies."

    Off Balance Sheet Arrangements

    The Fund or its subsidiaries have various off balance sheet arrangements,
including a defined benefit pension plan, 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 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, 2007, except for certain amounts outstanding
as of June 30, 2008, as indicated below. For more information on off balance
sheet arrangements, refer to the consolidated financial statements for the
year ended December 31, 2007 and the notes to the consolidated financial
statements included in the Fund's Annual Report 2007.
    As at June 30, 2008, the Fund had an accrued benefit surplus for the
Livingston defined benefit pension plan of $25 thousand and an accrued pension
asset of $6.9 million. There were unamortized actuarial losses and unamortized
past service costs associated with the defined benefit pension plan of
$5.9 million and $1.0 million respectively. Actuarial gains and losses in
excess of 10% of the greater of the accrued benefit obligation and the market
value of assets are amortized over the expected average remaining service life
of active defined benefit pension plan members. Unamortized past service costs
are amortized on a linear basis at a rate of $139 thousand per year.
    The Fund had an accrued benefit obligation of $11.1 million for other
benefit plans, which includes post-retirement benefits, and an accrued
liability for other benefit plans of $9.4 million. There were total
unamortized actuarial losses of $1.6 million and unamortized past service
costs of $43 thousand. Actuarial gains and losses in excess of 10% of the
greater of the accrued benefit obligation and the market value of assets are
amortized over the expected average remaining service life of other benefit
plan members. Unamortized past service costs are amortized on a linear basis
at a rate of $7 thousand per year.
    The actuarial losses associated with the defined benefit pension plan and
other post-retirement benefits are the cumulative result of actual experience
differing from the assumptions used to value obligations, reductions in the
discount rate used to estimate these obligations and investment returns below
the assumed rate of return. The majority of active employees and all new
employees of Livingston (and its acquired companies) participate in a defined
contribution retirement plan.
    As at June 30, 2008, $62 million, or approximately 57%, of Livingston's
long-term debt of $109 million is subject to fixed rate interest-rate swap
contracts. The remaining portion of Livingston's long-term debt bears interest
at the current floating rate in accordance with Livingston's credit agreement.
    Livingston has a number of clients who make GST 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.
    As required by the CBSA and CBP, Livingston has provided approximately
$44.9 million in bonds in favour of the Canadian and U.S. governments as at
June 30, 2008, down from $47.0 million as at June 30, 2007. The bonds are
required in order to operate as a customs broker and facilitate the release of
clients' goods from Customs prior to the payment of duties and taxes.
    Livingston also is responsible for letters of credit under the new credit
agreement in the total amount of $0.6 million, as at June 30, 2008, in support
of various contracts.

    Transactions with Related Parties

    There are regular intercompany activities among the Fund's subsidiaries
during the normal course of business. These transactions and balances are
eliminated in the consolidated financial statements of the Fund. 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 and 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, 2008.

    Disclosure Controls and Procedures

    Disclosure controls and procedures are designed to ensure that
information is recorded and reported to securities regulatory authorities, tax
authorities, other regulatory bodies, unitholders and other stakeholders on a
timely basis, in accordance with applicable laws. The Fund is committed to
providing disclosure of material information in accordance with applicable
laws. As at December 31, 2007, management evaluated the effectiveness of the
Fund's disclosure controls and procedures and concluded that they are
effective, subject to the qualifications relating to internal control over
financial reporting in the Fund's Annual Report 2007.
    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.
    There have been no material changes in the Fund's disclosure controls and
procedures during the period ended June 30, 2008.

    Internal Control over Financial Reporting

    In accordance with Multilateral Instrument 52-109 - Certification of
Disclosure in Issuers' Annual and Interim Filings, management is responsible
for the design of internal control over financial reporting of the Fund in
order to provide reasonable assurance over the reliability of financial
reporting and the preparation of financial statements of the Fund in
accordance with Canadian GAAP.
    Due to the inherent limitations in any control system, internal control
over financial reporting may not prevent or detect all material misstatements.
Also, any conclusions on the effectiveness of a system of internal control in
the future are subject to risk as they may become inadequate due to changes in
business conditions, the degree of compliance or the impact of other risks and
uncertainties on internal controls.
    There have been no changes in the Fund's internal control over financial
reporting during the period ended June 30, 2008 that have materially affected
or are reasonably expected to materially affect the Fund's 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 2007. 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 the Fund. There have been no significant
changes in critical accounting estimates of the Fund relative to those
established as at December 31, 2007.
    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, 2007 and the notes to the
consolidated financial statements included in the Fund's Annual Report 2007.

    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 2007 and its 2007 Annual Information Form. To
management's knowledge, no significant changes to these risks and
uncertainties have occurred in the first six months of 2008.

    Outlook

    The near-term prospects for Livingston were helped by a positive
development in the second quarter: continued stability in the exchange rate of
the Canadian and U.S. currencies. Volatility surrounding the Canadian dollar
abated in the first quarter, and this trend carried over into the following
three-month period. For more than half a year now, the currency has traded in
a relatively narrow range, close to par with its U.S. counterpart.
    This stability is welcome since currency fluctuations amplify the
challenge Livingston's clients face on both sides of the border in adapting to
a strong Canadian dollar. For clients, particularly manufacturers, an
unpredictable and rising Canadian currency has meant challenges in maintaining
North American market share in the face of a decreasing cost advantage as well
as uncertainty in revenue projections and future plans. The recent relative
calm in currency markets has given businesses some breathing room and allowed
for better longer-term planning.
    Management is cautiously optimistic that this calm will continue and
allow Livingston to continue to adapt to the other prominent challenge facing
businesses: the weakening U.S. economy. On-going credit crises are causing
continued uncertainty and suggest that the American economy has not reached
the bottom of its current trough.
    Livingston's strong results in the second quarter are evidence of its
strength and flexibility. It is reaping the cost-synergy benefits of the
recently completed integration. Revenue growth occurred in different operating
sectors, and Livingston is benefiting from being able to offer clients a wider
array of services than ever.
    Key to Livingston's continued success is its ability to leverage the
strength of its core operations through careful diversification. To that end,
Livingston is investing in areas where there are clear opportunities for
growth. Work is under way to enhance the U.S. imaging technology capabilities,
to extend the ensuing customer service benefits already enjoyed in the
Canadian brokerage operation. Livingston will also continue to invest in its
air/sea capabilities, particularly in Chicago, Los Angeles and New York. This
area of expertise, combined with services in transportation and logistics,
provides cross-selling opportunities for clients than can enhance the revenue
base.
    As always, management is intent on remaining true to the Livingston
mission: to be the leader in customs and compliance. This focus has served the
company well in the past and should continue to do so in the future. Despite
continuing sluggishness in the U.S. economy, perhaps through to the end of the
year, cross-border trade between the United States and Canada will continue to
be important, and trade with the rest of the world can be expected to grow
steadily over the longer term, translating into continued dependency on, and
growing demand for, Livingston's services.

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

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



    Livingston International Income Fund
    Consolidated Balance Sheet
    June 30, 2008

    (in thousands of dollars, unaudited)                 As at         As at
                                                       June 30,  December 31,
                                                          2008          2007
    -------------------------------------------------------------------------
    Assets
    Current assets
    Cash and cash equivalents                           19,273        27,286
    Accounts receivable                                296,234       262,375
    Prepaid expenses                                     2,935         4,347
    Future income taxes                                  1,877         2,708
    -------------------------------------------------------------------------
                                                       320,319       296,716
    Property, plant and equipment                       19,837        21,474
    Goodwill                                           306,901       306,901
    Intangible assets                                   83,386        91,027
    Future income taxes                                 12,624         3,678
    Employee future benefits                             6,942         6,250
    Other long-term assets                                   -           650
    -------------------------------------------------------------------------
                                                       750,009       726,696
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current liabilities
    Operating facility for government
     remittances                                       117,455        90,271
    Government remittances payable                     130,203       117,784
    Unitholder distributions payable                     3,869         3,869
    Accounts payable and accrued liabilities            63,663        83,260
    Income taxes payable                                 3,306         2,826
    Client deposits and advances                         5,126         5,435
    Current portion of long-term debt                      118           460
    -------------------------------------------------------------------------
                                                       323,740       303,905
    Long-term debt                                     107,442       106,859
    Other liabilities                                    2,245         2,015
    Future income taxes                                 23,686        17,651
    Employee future benefits                             9,379         9,112
    -------------------------------------------------------------------------
                                                       466,492       439,542
    -------------------------------------------------------------------------
    Unitholders' Equity
    -------------------------------------------------------------------------
    Units                                              408,350       408,350
    -------------------------------------------------------------------------
    Accumulated earnings                                69,145        48,728
    Distributions to unitholders                      (193,304)     (170,090)
    -------------------------------------------------------------------------
    Deficit                                           (124,159)     (121,362)
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     (loss) income                                        (674)          166
    -------------------------------------------------------------------------
                                                       283,517       287,154
    -------------------------------------------------------------------------
                                                       750,009       726,696
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Livingston International Income Fund
    Consolidated Statements of Income and Deficit
    For the period ended June 30, 2008

    (in thousands of dollars, except
     per unit amounts, unaudited)

                                         Three     Three       Six       Six
                                        months    months    months    months
                                         ended     ended     ended     ended
                                       June 30,  June 30,  June 30,  June 30,
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------

    Net revenues                        87,811    81,626   167,590   158,033
    Interest income                        290       597       807     1,238
    -------------------------------------------------------------------------
                                        88,101    82,223   168,397   159,271

    Cost of services                    47,687    46,788    94,665    93,136
    Selling, general and
     administrative expenses            19,113    17,774    36,250    35,183
    Costs related to the
     integration of PBB                      -       480         -     1,096
    Depreciation                         2,324     2,913     4,511     5,836
    Amortization                         3,720     5,580     7,641    11,889

    -------------------------------------------------------------------------
    Income before the undernoted        15,257     8,688    25,330    12,131
    -------------------------------------------------------------------------

    Other expense (income)                 295     2,752      (586)    2,497
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt                     1,918     2,018     3,961     4,030
      Other                                739       962     1,728     1,753
    -------------------------------------------------------------------------
                                         2,657     2,980     5,689     5,783

    Income before income taxes          12,305     2,956    20,227     3,851
    -------------------------------------------------------------------------

    Provision for (recovery of)
     income taxes
      Current                            1,167       677     1,658     1,322
      Future                              (993)   (1,117)   (1,848)   (3,165)
    -------------------------------------------------------------------------
                                           174      (440)     (190)   (1,843)
    -------------------------------------------------------------------------

    Net income for the period           12,131     3,396    20,417     5,694

    Deficit - beginning of period     (124,683)  (68,906) (121,362)  (59,597)

    Distributions to unitholders       (11,607)  (11,607)  (23,214)  (23,214)

    -------------------------------------------------------------------------
    Deficit - end of period           (124,159)  (77,117) (124,159)  (77,117)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per unit                   0.45      0.12      0.75      0.21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted net income per
     unit                                 0.45      0.12      0.75      0.21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------




    Livingston International Income Fund
    Consolidated Statement of Comprehensive Income
    For the period ended June 30, 2008

    (in thousands of dollars, unaudited)

                                         Three     Three       Six       Six
                                        months    months    months    months
                                         ended     ended     ended     ended
                                       June 30,  June 30,  June 30,  June 30,
                                          2008      2007      2008      2007
    -------------------------------------------  --------  --------  --------
    Net income for the period           12,131     3,396    20,417     5,694

    Other comprehensive income,
     net of tax:
      Change in fair value of
       interest-rate swaps (net of
       tax of nil (2007: tax of nil)       588     1,089      (904)    1,125
      Amortization of deferred loss
       on settlement of interest-rate
       swaps (net of tax for the
       three-month period - $20
       (2007: tax of $22); for the
       six-month period - $59 (2007:
       tax of $47)                          42        39        64        76
                                       --------  --------  --------  --------
                                           630     1,128      (840)    1,201

                                       --------  --------  --------  --------
    Comprehensive income for
     the period                         12,761     4,524    19,577     6,895
                                       --------  --------  --------  --------



    Livingston International Income Fund
    Consolidated Statements of Cash Flows
    For the period ended June 30, 2008
    (in thousands of dollars, unaudited)

                                         Three     Three       Six       Six
                                        months    months    months    months
                                         ended     ended     ended     ended
                                       June 30,  June 30,  June 30,  June 30,
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------

    Cash provided by (used in)
    Operating activities
      Net income for the quarter        12,131     3,396    20,417     5,694
      Adjustment for non-cash items
        Depreciation and amortization    6,044     8,493    12,152    17,725
        Future income taxes               (993)   (1,117)   (1,848)   (3,165)
        Other liabilities                  (93)      (29)     (104)      (57)
        Non-cash interest and other
         expense                           243       233       485       483
        Employee future benefits          (212)     (613)     (425)   (1,226)
        Foreign-exchange loss (gain)       260     1,597      (671)    1,670
                                       --------  --------  --------  --------
                                        17,380    11,960    30,006    21,124
      Net change in current assets
       and liabilities                 (41,898)    4,714   (38,952)  (18,698)
                                       --------  --------  --------  --------
                                       (24,518)   16,674    (8,946)    2,426
                                       --------  --------  --------  --------
    Investing activities
      Acquisition of businesses,
       net of cash and cash
       equivalents acquired               (137)   (3,117)     (137)   (3,117)
      Property, plant and
       equipment, net of disposals      (1,786)   (2,169)   (2,874)   (3,654)

                                       --------  --------  --------  --------
                                        (1,923)   (5,286)   (3,011)   (6,771)
                                       --------  --------  --------  --------

    Financing activities
      Distributions to unitholders     (11,607)  (11,607)  (23,214)  (23,214)
      Repayment of long-term debt         (101)     (296)     (402)     (595)
      Increase (decrease) in
       operating facility               14,122    (8,839)   27,289    16,301
                                       --------  --------  --------  --------
                                         2,414   (20,742)    3,673    (7,508)
                                       --------  --------  --------  --------

    Foreign-exchange (loss) gain
     on cash held in foreign currency     (119)   (1,103)      271    (1,097)

                                       --------  --------  --------  --------
    Decrease in cash and
     cash equivalents                  (24,146)  (10,457)   (8,013)  (12,950)

    Cash and cash equivalents
     - beginning of period              43,419    33,550    27,286    36,043

                                       --------  --------  --------  --------
    Cash and cash equivalents
     - end of period                    19,273    23,093    19,273    23,093
                                       --------  --------  --------  --------
                                       --------  --------  --------  --------

    Cash disbursements made for:
      Income taxes                       1,135     1,362     2,740     2,473
      Interest                           2,434     2,748     5,224     5,301
    







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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