Livingston International Income Fund reports steady results in the third quarter 2007



    TORONTO, Nov. 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 consistent results for the third quarter ended
September 30, 2007.
    "Livingston's business is directly linked to trade activity and continued
to be affected by the challenging economic conditions primarily brought on by
the strength of the Canadian dollar. Revenues quarter over quarter are down,
primarily because of the high Canadian dollar and the translation of
Livingston's U.S. operations into the Canadian currency," said Peter Luit,
president and chief executive officer of Livingston. "Our efforts remain
focused on the aspects of our business we can control and creating long-term
value for our unitholders."

    Distributions

    The Fund declared distributions of $11.6 million, or $0.426 per Fund
unit, for the quarter ended September 30, 2007, equal to the same period of
the previous year. Cash available for distribution(1) was $12.3 million or
$0.452 per Fund unit, compared with $15.5 million or $0.568 per Fund unit in
the quarter ended September 30, 2006. The payout ratio, or distributions as a
percentage of cash available for distribution(1) for the quarter was 94.2%,
compared with 75.1% in the same period in 2006, bringing the payout ratio
since the inception of the Fund to 81.7%.
    For the nine months ended September 30, 2007, the Fund declared
distributions of $34.8 million, or $1.278 per Fund unit, consistent with
$34.0 million, or $1.252 per Fund unit, for the same period in 2006. The
payout ratio for the nine months ended September 30, 2007 was 99.3%, up from
80.7% for the same period in 2006.

    Third quarter results

    In the third quarter of 2007, Livingston recorded consolidated revenues
and interest income of $80.5 million, compared with $81.7 million in the third
quarter of 2006. Net income for the quarter was $3.7 million, or $0.14 per
Fund unit. In the same period in 2006, net income was $7.4 million, or $0.27
per Fund unit, after the recovery of income taxes of $0.6 million. EBITDA(2),
or earnings before interest, taxes, other expenses, depreciation and
amortization, was $16.7 million in the quarter, or 20.7% of revenue, compared
with $18.4 million, or 22.5% of revenue, in the third quarter of 2006. The
decline in net income in the current quarter was primarily due to lower 
EBITDA(2) generated by operations, higher other expense due to
foreign-exchange losses, higher interest expense and a lower income tax
recovery in the quarter ended September 30, 2007 compared with 2006.

    Year-to-date results

    Livingston International recorded consolidated revenues and interest
income of $239.7 million for the nine months ended September 30, 2007, lower
than the $241.8 million for the same period in 2006.
    Net income for the nine months ended September 30, 2007 was $9.4 million,
or $0.35 per Fund unit, after the recovery of income taxes of $1.9 million. 
In the same period in 2006, net income was $20.8 million, or $0.78 per Fund
unit, after the recovery of income taxes of $4.3 million. The decline in net
income was primarily due to lower EBITDA(2) generated by operations, increases
in interest expense, higher expenses due to foreign-exchange losses and a
lower income tax recovery in the nine months ended September 30, 2007 compared
with 2006. A copy of the full financial report, including notes to the
consolidated financial statements, is available from the Investor Relations
page of Livingston's web site at www.livingstonintl.com and has been filed on
www.sedar.com.

    

    Highlights

                                    Three months ended     Nine months ended
    (in millions of dollars except            Sept. 30              Sept. 30
     per unit amounts, unaudited)      2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue and interest income       $80.5      $81.7     $239.7     $241.8
    -------------------------------------------------------------------------
    Net income                          3.7        7.4        9.4       20.8
    -------------------------------------------------------------------------
    Cash flow from operations         (33.4)      19.3      (31.0)      30.8
    -------------------------------------------------------------------------
    Earnings before interest,
     taxes, other expense,
     depreciation and
     amortization (EBITDA)(2)          16.7       18.4       46.5       50.8
    -------------------------------------------------------------------------
    Cash available for
     distribution(1)                   12.3       15.5       35.1       42.1
    -------------------------------------------------------------------------
    Distributions to unitholders       11.6       11.6       34.8       34.0
    -------------------------------------------------------------------------
    Cash available for
     distribution(1) per unit(*)      0.452      0.568      1.287      1.575
    -------------------------------------------------------------------------
    Cash available for
     distribution(1) per unit
     (diluted)                        0.452      0.568      1.287      1.575
    -------------------------------------------------------------------------
    Distributions per unit to
     unitholders(*)                   0.426      0.426      1.278      1.271
    -------------------------------------------------------------------------
    Payout ratio                      94.2%      75.1%      99.3%      80.7%
    -------------------------------------------------------------------------
    Payout ratio since inception      81.7%      78.9%      81.7%      78.9%
    -------------------------------------------------------------------------
    (*) 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
third quarter financial results to be held on Thursday, November 8, 2007 at
2:00 p.m. EST. The number to call is 1-866-299-6657 or, in the Toronto area,
416 641-6120, citing confirmation number 3240827.
    A playback will also be available following the scheduled call, until
December 8, 2007, by dialling 416 695 5800 in the Toronto area or
1-800-408-3053 and asking for the Livingston International 3rd  Quarter 2007
Financial Results conference call. The pass code for the playback is 3240827
followed by the number sign. An audio webcast 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 other services, which include
imported vehicle registration, international trade consulting, managed
services, event logistics, corporate travel services and technology services. 
The Fund and its subsidiaries employ a staff of more than 3,250 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
    For the period ended September 30, 2007

    This Management's Discussion and Analysis, the accompanying interim
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 September 30, 2007 and September 30, 2006. The accompanying
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 nine-month periods ended September 30, 2007, as well as the
businesses formerly owned by PBB Global Logistics Income Fund ("PBB" or "PBB
Global Logistics"), beginning from January 11, 2006.
    These interim unaudited consolidated financial statements are intended to
be read in conjunction with the annual audited consolidated financial
statements and accompanying notes to the consolidated financial statements for
the year ended December 31, 2006, included in the Fund's Annual Report 2006.
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
2006 audited consolidated financial statements, included in the Fund's Annual
Report 2006, except that the Fund has adopted the following accounting
policies effective January 1, 2007: Canadian Institute of Chartered
Accountants ("CICA") Handbook Section 1530, Comprehensive Income; Section
3251, Equity; Section 3855, Financial Instruments - Recognition and
Measurement; Section 3861, Financial Instruments - Disclosure and
Presentation; and Section 3865, Hedges. As required, these standards have been
adopted on a prospective basis, with certain adjustments being recorded to
opening accumulated other comprehensive income. Prior year comparative
statements have not been restated, in accordance with the CICA Handbook
guidance.
    As it relates to the Fund, comprehensive income includes net income plus
the change in the fair value of financial instruments, such as the
interest-rate swaps, net of tax.
    The proposed legislation rendering publicly traded income trusts taxable
became substantively enacted on June 12, 2007. Accordingly, the Fund has
recorded future income tax liabilities for its partnership subsidiaries.
    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 derivative and other
financial instruments, 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 or 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, management has assumed
that business and economic conditions affecting Livingston will continue
substantially in the ordinary course, including without limitation with
respect to trading patterns, general levels of economic activity, regulations,
taxes, foreign-exchange rates and interest rates, that there will be no
material changes in its credit arrangements, bonding requirements or credit
and collections experience and that the integration of PBB will continue to
proceed relatively smoothly.
    Although the forward-looking statements are based upon what management
believes to be reasonable assumptions, the Fund and Livingston cannot assure
investors that actual results will be consistent with these forward-looking
statements. When relying on forward-looking statements to make decisions,
investors should ensure the preceding information is carefully considered.
    Such forward-looking statements are made as of November 8, 2007. 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 November 8, 2007. 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 cash available for distribution(1) and EBITDA(2).
Investors are cautioned that the Fund may calculate these measures differently
than other companies or income trusts do and that, therefore, they may not be
comparable.
    The Fund has reconciled these non-GAAP measures to the most comparable
Canadian GAAP items included in the consolidated financial statements. See
Tables 3 and 4 for these reconciliations.
    The Fund recognizes that there has been a recent pronouncement by the
Canadian Securities Administrators, with guidance on the calculation of cash
available for distribution(1), and is currently reviewing the recommendations.

    Cash Available for Distribution(1)

    The term cash available for distribution(1), or distributable cash, does
not have a generally recognized meaning under Canadian GAAP, should not be
construed as an alternative to GAAP measures and may not be representative of
cash flow or results of operations determined in accordance with GAAP. It may
not be comparable to measures used by other companies or income trusts.
    Livingston's calculation of cash available for distribution(1)
specifically excludes other (income) expense, which includes realized and
unrealized foreign-currency losses or gains and is, therefore, different from
actual cash flow. Similarly, there are some accrued expenses, such as employee
benefits, that reduce the cash available for distribution(1) but that are not
actually paid during the period, thereby creating a difference between cash
available for distribution(1) and actual cash flow in accordance with GAAP.
    For a reconciliation of cash flows from operating activities (determined
in accordance with GAAP) to cash available for distribution(1), see Table 3.
For a reconciliation of net income to EBITDA(2) and cash available for
distribution(1), see Table 4.

    EBITDA(2)

    The term EBITDA(2) (earnings before interest, taxes, other (income)
expense, depreciation and amortization) 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 determined in accordance with
GAAP as an indicator of the Fund's performance or cash flows.
    The Fund's method of calculating EBITDA(2) 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(2), see Table 4.

    
    Business Lines

    Livingston and its affiliates operate four business lines. These are:

    -   Canadian customs brokerage services;

    -   U.S. customs brokerage services;

    -   transportation and logistics services, which include integrated
        logistics services (integrated supply-chain management operations,
        warehousing and distribution services), freight services
        (international freight forwarding, air/sea brokerage operations,
        transportation management and vehicle transportation services); and

    -   other services, which include imported vehicle registration, managed
        services (program management, information management and contact
        centre services), event logistics (specialized services for trade
        shows and special events, and corporate travel services), consulting
        (international trade and customs compliance services) and technology
        services.
    

    The operating results of the Fund's limited partnership subsidiaries are
included in the four business lines. Specifically, Livingston LP is part of
Canadian customs brokerage services, Livingston II LP (formerly PBB Global
Logistics LP) is part of transportation and logistics services and Adminserv
Canada LP is part of other services.
    Prior year comparatives for revenue, cost of services and selling,
general and administrative expenses, where appropriate, have been reclassified
to conform to current-year reporting. Revenues are expressed net of certain
charges paid to external parties.

    Results of Operations
    Three months ended September 30, 2007

    Livingston International recorded consolidated revenues and interest
income of $80.5 million for the quarter ended September 30, 2007, slightly
down by 1.5% from $81.7 million in the same period in 2006.
    Cost of services increased to $46.4 million in the quarter ended
September 30, 2007 compared with $46.0 million in the same period in 2006,
primarily due to higher costs in other services. The contribution margin
decreased to $34.0 million, or 42.3% of revenue, in the quarter ended
September 30, 2007, down from $35.7 million, or 43.8% of revenue, for the same
period in 2006. Further comments on each reporting segment are included in the
discussion on reporting segments.
    Selling, general and administrative expenses, including administrative
expenses of the Fund, for the quarter ended September 30, 2007 were
$17.1 million, or 21.3% of revenue, compared with $16.6 million, or 20.3% of
revenue, for the same period in 2006. This included the impact of
approximately $0.9 million of non-recurring costs related to general and legal
entity restructuring in the quarter.
    The Fund also 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. 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 are non-recurring in nature as they are directly related to the
integration and are expected to continue until the integration is complete.
For the quarter ended September 30, 2007, the Fund incurred $0.2 million in
integration costs compared with $0.8 million recorded in the quarter ended
September 30, 2006.
    An accrual in the amount of $6.2 million was provided at January 11, 2006
in the allocation of the purchase price for severance and other
employee-related expenses as well as the cost of terminating certain leases or
other contracts that have been or are expected to be incurred with respect to
the integration of PBB. Of this amount, approximately $3.0 million was paid
during 2006, and $1.2 million was paid during the nine months ended September
30, 2007.
    Net income for the quarter ended September 30, 2007 was $3.7 million,
compared with $7.4 million for 2006. For the quarter ended September 30, 2007,
EBITDA(2) was $16.7 million, or 20.7% of revenue, compared with $18.4 million,
or 22.5% of revenue, in the quarter ended September 30, 2006.
    Depreciation expense for the quarter ended September 30, 2007 was
$2.7 million, compared with $2.8 million for the quarter ended September 30,
2006. This expense related to the depreciation of property, plant and
equipment, comprised chiefly of facilities, computers and office equipment
used in operations.
    When the Fund purchased Livingston International, part of the purchase
price was allocated to intangible assets, which represent the value of client
relationships, contracts and technology acquired.
    On January 11, 2006, Livingston acquired the assets of PBB for a total
purchase price of $247.6 million. The purchase price was allocated to the
assets acquired and liabilities assumed, including intangible assets, which
represent the value of brand names, client relationships and a non-compete
agreement.
    Intangible assets are amortized over the expected periods of benefit,
generally from two to 10 years, which resulted in a charge of $5.5 million in
the quarter ended September 30, 2007, compared with $6.0 million for the same
period in 2006. The lower cost in the current quarter was a result of certain
intangible assets being fully amortized in the quarter ended March 31, 2007.
The value attributable to brand names for Livingston's acquisitions is being
amortized over a two-year period, which started in the fourth quarter in 2006,
due to Livingston's decision in 2006 to unite many of its operations over this
period under a single, clear visual Livingston brand and to communicate a
sharp, clear image of the company and its service offerings. The amortization
expense related to the brand names was $0.9 million in the quarter ended
September 30, 2007, and a further $0.9 million will be amortized in the fourth
quarter.
    In accordance with GAAP, goodwill represents the excess of the purchase
price over the fair value of tangible and intangible assets acquired and is
not amortized. It is, however, subject to an annual impairment test, which is
typically completed in the fourth quarter, to determine if the fair value is
below the carrying value.
    Included in other expenses 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
$1.5 million for the quarter ended September 30, 2007, compared with
foreign-exchange losses of $0.2 million in the same quarter last year. This
was primarily due to the significant strengthening of the Canadian dollar
during the quarter. The loss was partially offset by the Fund's subsidiaries'
hedging policy. During the quarter, 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 September 30, 2007, there was an unrealized gain on the
forward-exchange contracts of $77 thousand, which is included in the total
foreign-exchange loss of $1.5 million, compared with a realized gain of $7
thousand in the same period in 2006. For accounting purposes, the Fund records
these forward-exchange contracts at fair value and changes in fair value are
recorded in other income/expense.
    Interest expense on long-term debt, mostly relating to the bank term
debt, was $2.1 million for the quarter ended September 30, 2007, up from
$1.9 million for the same period a year earlier, due to additional borrowing
in 2007. Included in the $2.1 million is non-cash interest expense of
$0.2 million relating to the amortization of deferred finance fees, the
discount on the Searail Cargo Surveys Ltd. ("Searail") earnout (described
below) and the amortization of the deferred loss on interest-rate swaps
settled in fiscal 2006.
    Under the terms of the Searail purchase agreement in 2005, the liability
related to the earnout for the Searail acquisition was approximately
$5.1 million. Since it was determined to be probable and is expected to be
paid over three years, the liability was discounted at the borrowing rate of
4.98%, the current rate at the time of the acquisition. The discount is
amortized over the three years remaining in the earnout period from the date
of acquisition.
    In 2005, Livingston entered into an interest-rate swap for $23 million,
which fixed the effective interest rate at 4.98% until December 16, 2009. In
September 2006, Livingston entered into three additional interest-rate swap
agreements to replace the three interest-rate swaps that PBB had negotiated
prior to the acquisition. In accordance with the new swap agreements,
Livingston pays interest at a fixed rate of 6.29% per annum on its
Canadian-dollar-denominated bank debt of $34 million and 7.13% on its
U.S.-dollar-denominated bank debt of US$5 million. The new swaps have a
maturity date of January 11, 2011. The former PBB interest-rate swaps were
settled in September 2006.
    Other interest expense, primarily related to the revolving line of credit
for government remittances, was $1.1 million for the quarter ended September
30, 2007, compared with $0.6 million a year earlier. This increase was due to
additional borrowings required to support larger remittances for duties and
for goods and service taxes ("GST") on behalf of clients at the end of each
month.
    Interest income of $0.8 million was included in revenue for the quarter
ended September 30, 2007, in line with the $0.8 million recorded in the
quarter ended September 30, 2007. This was primarily due to relatively
consistent interest rates and funds available for investment purposes.
    While the Fund reported pre-tax income of $3.7 million for the quarter
ended September 30, 2007, it recognized a provision of income taxes of
approximately $20 thousand, comprised of a future income tax recovery of
$1.4 million and a current tax expense of $1.3 million. On pre-tax income of
$3.7 million, the overall expected income tax expense was $1.3 million,
compared with a tax recovery reported of $20 thousand. Income allocated to the
Fund and its subsidiary limited partnerships reduced income tax expense by
$4.8 million, while non-deductible items, differences in income tax rates and
an additional valuation allowance increased the tax expense by $3.5 million.
The future income tax recovery of $1.4 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 these entities and the uncertainty of realizing the
benefit of these future tax assets. At September 30, 2007, the Fund had
approximately $27.3 million of losses, which can be used to offset future
taxable income. Of these losses, $11.8 million will expire in 2026 and the
balance of $15.5 million will expire in 2027.
    Net income for the quarter was $3.7 million, or $0.14 per Fund unit,
after the income tax recovery of $20 thousand for the quarter ended September
30, 2007. In the same period in 2006, net income was $7.4 million, or $0.27
per Fund unit, after the recovery of income taxes of $0.6 million. The decline
in net income in the current quarter was primarily due to lower EBITDA(2)
generated by operations, higher other expense due to foreign-exchange losses,
higher interest expense and a lower income tax recovery in the quarter ended
September 30, 2007 compared with 2006. For a further breakdown of the results
of operations by quarter for the 2007 and 2006 fiscal years, refer to Tables 1
and 2.

    Nine months ended September 30, 2007

    Livingston International recorded consolidated revenues and interest
income of $239.7 million for the nine months ended September 30, 2007, lower
than the $241.8 million for the same period in 2006. As the PBB acquisition
was effective January 11, 2006, there were six additional business days in the
nine months ended September 30, 2007 for the acquired businesses, compared
with the same period in 2006.
    Cost of services increased by 3.0% to $139.5 million in the nine months
ended September 30, 2007 compared with the same period in 2006, due to higher
costs in all reporting segments with the exception of U.S. customs brokerage,
which was slightly lower. The contribution margin decreased to $100.2 million,
or 41.8% of revenue, in the nine months ended September 30, 2007, from
$106.3 million, or 44.0% of revenue, in the same period in 2006. Further
comments on each reporting segment are included in the discussion on reporting
segments.
    Selling, general and administrative expenses, including administrative
expenses of the Fund, for the nine-month period ended September 30, 2007 were
$52.3 million, or 21.8% of revenue, compared with $53.0 million, or 21.9% of
revenue, for the same period in 2006. These included the impact of
approximately $1.9 million in non-recurring costs related to the restructuring
of various parts of the business. The decrease in on-going expenses resulted
primarily from the realization of cost synergies associated with the PBB
acquisition, offset by higher costs related to the six additional business
days for the acquired PBB businesses.
    The Fund also 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. For the nine-month period ended September 30, 2007, the
Fund incurred $1.3 million in integration costs, which were recorded as
expenses, compared with $2.5 million recorded in the nine months ended
September 30, 2006.
    Net income for the first three quarters of 2007 was $9.4 million compared
with $20.8 million for 2006. For the nine months ended September 30, 2007,
EBITDA(2) was $46.5 million, or 19.4% of revenue, compared with $50.8 million,
or 21.0% of revenue, in the same period in 2006.
    Depreciation expense for the nine months ended September 30, 2007 was
$8.6 million compared with $7.9 million for the same period in 2006,
reflecting the additional capital expenditures related to the acquired PBB
businesses. This expense related to the depreciation of property, plant and
equipment, comprised mainly of facilities, computers and office equipment used
in operations.
    Intangible assets are amortized over the expected periods of benefit,
generally from two to 10 years, resulting in a charge of $17.4 million in
2007, slightly less than the $17.9 million in the same period in 2006. The
amortization cost for the nine months ended September 30, 2007 was affected by
the full nine-month impact of the PBB acquisition, the amortization of brand
names and certain intangible assets being fully amortized in the first
quarter. The amortization expense related to brand names was $2.8 million in
the nine months ended September 30, 2007.
    Included in other (income) expense 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
$4.0 million for the nine months ended September 30, 2007 compared with a
foreign-exchange loss of $0.4 million in the same period in 2006. This was
primarily due to the pace of strengthening in the Canadian dollar for the
first nine months of this year compared with the same period last year. The
loss was partially mitigated by the Fund's subsidiaries' hedging policy. For
the nine months ended September 30, 2007, 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 gain on the foreign-exchange contracts of
$77 thousand, which is included in the total foreign-exchange loss of
$4.0 million, compared with an unrealized gain of $7 thousand in the same
period in 2006. For accounting purposes, the Fund records these
forward-exchange contracts at fair value and changes in fair value are
recorded in other expense.
    Interest expense on long-term debt, mostly relating to the bank term
debt, was $6.1 million for the first nine months, up from $5.7 million for the
same period in 2006, due to additional borrowing in 2007. Included in this
amount is a non-cash interest expense of $0.7 million relating to the
amortization of deferred finance fees, the discount on the Searail earnout and
the amortization of the deferred loss on interest-rate swaps settled in fiscal
2006.
    Other interest expense, primarily related to the revolving line of credit
for government remittances, was $2.9 million for the nine months ended
September 30, 2007 compared with $2.5 million for the same period in 2006.
    Interest income in the first nine months of 2007 was $2.0 million,
slightly less than the $2.1 million in the same period in 2006.
    While the Fund reported pre-tax income of $7.5 million for the nine
months ended September 30, 2007, it recognized a recovery of income taxes of
$1.9 million, comprised of a future income tax recovery of $4.5 million and a
current tax expense of $2.6 million. On pre-tax income of $7.5 million, the
overall expected income tax expense was $2.6 million compared with a tax
recovery reported of $1.9 million. Income allocated to the Fund and its
subsidiary limited partnerships reduced income tax expense by $13.0 million,
while non-deductible items, differences in income tax rates, additional
valuation allowance and the future income tax impact on flow-through entities
and other items increased the tax expense by $8.5 million. The Fund has also
recorded a future tax expense of $0.5 million for its partnership subsidiaries
in compliance with the federal tax legislation on flow-through entities,
including income trusts, which became substantively enacted on June 12, 2007.
The future income tax recovery of $4.5 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
these entities and the uncertainty of realizing the benefit of these future
tax assets.
    The current income tax provision of $2.7 million was $2.2 million higher
in the nine months ended September 30, 2007 than the $0.5 million provision
for current income taxes in 2006. This was primarily due to losses carried
back in 2006 to offset taxable income of prior years.
    Net income for the nine months ended September 30, 2007 was $9.4 million,
or $0.35 per Fund unit, after the recovery of income taxes of $1.9 million. In
the same period in 2006, net income was $20.8 million, or $0.78 per Fund unit,
after the recovery of income taxes of $4.3 million. The decline in net income
was primarily due to lower EBITDA(2) generated by operations, higher
depreciation, higher interest expense, higher other expense due to
foreign-exchange losses and a lower income tax recovery in the nine months
ended September 30, 2007 compared with 2006. For a further breakdown of the
results of operations by quarter for the 2007 and 2006 fiscal years, refer to
Tables 1 and 2.

    Canadian Customs Brokerage

    Revenues and interest income for the quarter ended September 30, 2007
decreased by $1.0 million to $35.0 million, approximately 2.7% lower than the
same period in 2006. The decrease in revenue was primarily due to
approximately 5% lower volumes from existing clients as a result of the
slowdown in the economy and the impact of the strengthening Canadian dollar.
This was offset by a higher average price-per-import transaction in the
quarter.
    The cost of services increased modestly by $0.1 million, or 0.5%, to
$16.4 million in the quarter ended September 30, 2007 compared with the same
period in 2006.
    The contribution margin for the third quarter of 2007 was $18.6 million,
lower than the $19.7 million in the year-earlier quarter. The contribution
margin percentage decreased to 53.2% of revenue in the quarter ended September
30, 2007 from 54.7% of revenue in the same period in 2006. This was due to
additional costs related to the integration of Canadian brokerage operations
in the quarter.
    Revenues and interest income for the nine months ended September 30, 2007
decreased by $5.0 million to $106.0 million, approximately 4.5% lower than the
same period in 2006. As the PBB acquisition was effective January 11, 2006,
there were six additional business days in the nine months ended September 30,
2007 compared to the same period in 2006, for that portion of the business.
The decrease in revenue was primarily due to approximately 4.5% lower volumes
from existing clients as a result of the slowdown in the economy and the
impact of the strengthening Canadian dollar.
    The cost of services increased modestly by $0.6 million, or 1.1%, to
$48.6 million in the nine months ended September 30, 2007 compared with the
same period in 2006. The six additional business days in 2007 compared with
2006 for the PBB operations increased the cost of services by approximately
$0.7 million. This additional cost in 2007 implies a slight decrease in the
cost of services of $0.1 million in the nine months ended September 30, 2007
compared with the same period in 2006.
    The contribution margin for the first nine months of 2007 was lower at
$57.3 million, or 54.1% of revenue, than the $62.9 million, or 56.7% of
revenue, in the same period in 2006.

    U.S. Customs Brokerage

    In Canadian dollars, overall revenues for the quarter ended September 30,
2007 decreased in the U.S. customs brokerage segment by 4.0% to $12.9 million
from $13.4 million a year earlier. The provision of additional value-added
services to clients contributed higher revenues of $0.9 million. This was
offset by lower trade volumes of approximately 3.5% into the United States,
which decreased revenue by $0.5 million, and the foreign-exchange translation
of U.S.-dollar revenues into Canadian dollars, which reduced revenue by
$0.9 million, compared with the same quarter in 2006.
    The average Canada-United States currency-exchange rate for the quarter
ended September 30, 2007 was Cdn$1.05 to US$1.00 compared with 1.12 for the
same period in 2006. In U.S. dollars, overall 2007 revenues for the U.S.
customs brokerage operation were up $0.4 million over 2006, primarily due to
increased pricing offset by lower volumes.
    In Canadian dollars, the overall cost of services for the U.S. customs
brokerage operation decreased by $0.4 million, or 5.4%, to $6.7 million in the
quarter ended September 30, 2007 compared with 2006. This was almost entirely
due to the impact of the strengthening of the Canadian dollar on the
translation of U.S.-dollar costs. In U.S. dollars, the overall cost of
services for U.S. customs brokerage remained the same compared with 2006.
    Due primarily to the appreciation of the Canadian dollar, the
contribution margin for the U.S. customs brokerage operation decreased to
$6.1 million, or 47.6% of revenue, in the quarter ended September 30, 2007
from $6.3 million, or 46.9% of revenue, in the same period in 2006.
    In Canadian dollars, overall revenues for the nine months ended September
30, 2007 decreased slightly in the U.S. customs brokerage segment by 0.3% to
$40.7 million from $40.8 million a year earlier. The revenue from the six
additional business days for the PBB portion of operations in the nine months
ended September 30, 2007 added approximately $0.4 million to revenue. The
provision of additional value-added services to clients contributed higher
revenues of $2.4 million. This was offset by approximately 4% lower trade
volumes into the United States, which decreased revenue by $1.8 million, and 
the foreign-exchange translation of U.S.-dollar revenues into Canadian
dollars, which reduced revenue by $1.1 million, compared with the nine months
ended September 30, 2006.
    The average Canada-United States currency-exchange rate for the nine
months ended September 30, 2007 was Cdn$1.10 Canadian to US$1.00 compared with
1.13 for the same period in 2006. In U.S. dollars, overall 2007 revenues for
the U.S. customs brokerage operation were up $0.8 million over 2006, primarily
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 $0.2 million, or 0.9%, to $21.4 million in the
nine months ended September 30, 2007 compared with 2006. Of this increase, the
cost of services for the six additional business days in 2007 was
approximately $0.1 million and payroll and other costs decreased $0.3 million.
    In U.S. dollars, the overall cost of services for the U.S. customs
brokerage operation increased by $0.3 million over 2006.
    Due to the variances in revenue and cost of services mentioned above,
offset by the impact of the strength of the Canadian dollar, the contribution
margin for the U.S. customs brokerage operation increased to $19.3 million, or
47.4% of revenue, in the nine months ended September 30, 2007 from
$19.2 million, or 47.1% of revenue, in the same period in 2006.

    Transportation and Logistics

    Net revenues decreased by $2.5 million to $18.9 million in the quarter
ended September 30, 2007 from $21.4 million in the same period in 2006. While
international freight forwarding operations and combined North American
transportation improved over previous quarters, the overall decrease was
largely due to the decline in business from the integrated logistics and
transportation management operations previously acquired by PBB.
    The cost of services decreased by $0.5 million to $14.9 million for the
quarter ended September 30, 2007 from $15.4 million for the same period in
2006. The decrease in cost of services was primarily related to reduced
revenues in the integrated logistics and transportation management operations.
This resulted in a decrease in the contribution margin from $6.0 million, or
27.9% of revenue, in the quarter ended September 30, 2006 to $3.9 million, or
20.6% of revenue, in the quarter ended September 30, 2007.
    For the nine months ended September 30, 2007, revenue decreased by
$2.9 million to $56.0 million from $58.9 million in the same period last year.
This decrease was largely due to a decline in business from the transportation
operations previously acquired by PBB. This was offset by six additional
business days for the PBB portion of operations in the first half of 2007,
which added approximately $1.2 million of revenue, and the continued growth in
the vehicle transportation operation, which increased revenue by $2.8 million.
    The cost of services increased by $0.9 million to $46.7 million for the
nine months ended September 30, 2007 from $45.8 million for the same period in
2006. The increase in the cost of services was primarily due to the six
additional business days for the PBB portion of operations in 2007 and higher
costs from the vehicle transportation operation.
    This resulted in a decline in the contribution margin from $13.1 million,
or 22.2% of revenue, in the nine months ended September 30, 2006 to
$9.3 million, or 16.6% of revenue, in the nine months ended September 30,
2007.

    Other Services

    Revenues increased by $2.8 million, or 26.4%, to $13.7 million for the
quarter ended September 30, 2007, from $10.9 million for the same period in
2006. This was mainly due to higher volumes in the imported vehicle
registration operation that increased revenues by 28.5%. This was offset by
slightly lower revenues in event logistics (specialized services for trade
shows and special events) due to the strength of the Canadian dollar reducing
demand for such services.
    The cost of services increased by $1.3 million to $8.4 million in the
quarter ended September 30, 2007 from $7.1 million in the year-earlier period.
This was primarily due to higher costs in the imported vehicle registration
business to support the growth in revenues.
    The contribution margin for other services improved to $5.4 million, or
39.0% of revenue, in the quarter ended September 30, 2007, up from
$3.8 million, or 34.9% of revenue, in the same period a year earlier.
    For the nine months ended September 30, 2007, revenues increased by
$5.8 million, or 18.7%, to $37.1 million, from $31.2 million in the same
period in 2006. This was due to higher volumes in the imported vehicle
registration operation that increased revenue by 18.7% and higher revenue in
international trade consulting.
    The cost of services increased by $2.8 million to $22.9 million for the
nine-month period ended September 30, 2007 compared with $20.1 million in the
year-earlier period. This was mainly due to higher costs from the imported
vehicle registration operation to support the higher revenues.
    The contribution margin for other services was $14.2 million, or 38.3% of
revenues, in the nine months ended September 30, 2007, up from $11.2 million,
or 35.7% of revenues, in the same period in 2006.

    
    Table 1 provides quarterly financial information for the quarters ended
    December 31, 2006 to September 30, 2007.

    Table 1
    Quarterly Consolidated Statements of Income

    For the quarters ended December 31, 2006 to September 30, 2007
    (in thousands of dollars, except per Fund unit amounts, unaudited)

                                   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
    Quarter ended                      2007       2007       2007       2006
    -------------------------------------------------------------------------
    Net revenues                     79,672     81,626     76,407     80,444
    Interest income                     779        597        641        768
    -------------------------------------------------------------------------
                                     80,451     82,223     77,048     81,212
    Cost of services                 46,413     46,788     46,347     45,852
    -------------------------------------------------------------------------
    Contribution margin              34,038     35,435     30,701     35,360
    Selling, general and
     administrative expenses         17,136     17,774     17,409     17,028
    Costs related to the
     integration of PBB                 219        480        616        947
    -------------------------------------------------------------------------
    EBITDA(2)                        16,683     17,181     12,676     17,385
    Depreciation                      2,735      2,913      2,923      3,091
    Amortization                      5,538      5,580      6,309      9,111
    Impairment of goodwill                -          -          -     11,000
    -------------------------------------------------------------------------
    Income (loss) before the
     undernoted                       8,410      8,688      3,444     (5,817)
    -------------------------------------------------------------------------
    Other expense (income)            1,506      2,752       (255)    (1,870)
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt                  2,077      2,018      2,012      1,934
      Other                           1,136        963        791        820
    -------------------------------------------------------------------------
                                      3,213      2,981      2,803      2,754
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes                     3,691      2,955        896     (6,701)
    Provision for (recovery of)
     income taxes
      Current                         1,344        677        604       (812)
      Future                         (1,360)    (1,117)    (2,007)    (2,592)
    -------------------------------------------------------------------------
                                        (16)      (440)    (1,403)    (3,404)
    -------------------------------------------------------------------------
    Net income (loss) for
     the quarter                      3,707      3,395      2,299     (3,297)
    -------------------------------------------------------------------------
    Net income (loss) per
     Fund unit                         0.14       0.12       0.08      (0.12)
    -------------------------------------------------------------------------
    Net income (loss) per
     Fund unit, diluted                0.14       0.12       0.08      (0.12)
    -------------------------------------------------------------------------
    Weighted average Fund units
     outstanding(*)              27,247,637 27,247,607 27,247,607 27,242,675
    -------------------------------------------------------------------------
    Weighted average Fund
     units outstanding,
     diluted(*)                  27,247,637 27,248,610 27,249,138 27,244,177
    -------------------------------------------------------------------------

    (*)    On January 11, 2006 as part of the PBB acquisition, an additional
           10,699,636 Fund units were issued from treasury, increasing the
           number of Fund units to 27,112,836 from 16,413,200. During the
           year ended December 31, 2006, 134,771 restricted units were
           converted to Fund units increasing to 27,247,607 the number of
           Fund units outstanding as at December 31, 2006. During 2007, 60
           restricted units were converted to Fund units, increasing to
           27,247,667 the number of Fund units outstanding at September 30,
           2007. The weighted average Fund units outstanding, diluted is
           calculated by adding the restricted units outstanding as of the
           end of the period to the weighted average number of Fund units
           outstanding. As at September 30, 2007, there were no restricted
           units outstanding.


    Table 2 provides quarterly financial information for the quarters ended
    December 31, 2005 to September 30, 2006.

    Table 2
    Quarterly Consolidated Statements of Income

    For the quarters ended December 30, 2005 to September 30, 2006
    (in thousands of dollars, except per Fund unit amounts, unaudited)

                                   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
    Quarter ended                      2006       2006       2006       2005
    -------------------------------------------------------------------------
    Net revenues                     80,918     82,244     76,590     44,661
    Interest income                     758        768        551        622
    -------------------------------------------------------------------------
                                     81,676     83,012     77,140     45,283
    Cost of services                 45,927     45,561     44,008     24,800
    -------------------------------------------------------------------------
    Contribution margin              35,749     37,451     33,132     20,483
    Selling, general and
     administrative expenses         16,561     17,879     18,569     10,364
    Costs related to the
     integration of PBB                 813      1,056        649          -
    -------------------------------------------------------------------------
    EBITDA(2)                        18,375     18,516     13,914     10,119
    Depreciation                      2,804      2,989      2,086      1,433
    Amortization                      6,042      6,043      5,812      3,548
    -------------------------------------------------------------------------
    Income before the
     undernoted                       9,529      9,484      6,016      5,138
    -------------------------------------------------------------------------
    Other expense (income)              175        309       (132)       191
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt                  1,923      1,582      2,147        446
      Other                             570        779      1,137        119
    -------------------------------------------------------------------------
                                      2,493      2,361      3,284        565
    -------------------------------------------------------------------------
    Income before income taxes        6,861      6,814      2,864      4,382
    Provision for (recovery of)
     income taxes
      Current                           627        851       (929)       189
      Future                         (1,205)    (2,231)    (1,416)      (613)
    -------------------------------------------------------------------------
                                       (578)    (1,380)    (2,345)      (424)
    -------------------------------------------------------------------------
    Net income for the period         7,439      8,194      5,209      4,806
    -------------------------------------------------------------------------
    Net income per Fund unit           0.27       0.31       0.20       0.29
    -------------------------------------------------------------------------
    Net income per Fund unit,
     diluted                           0.27       0.30       0.20       0.29
    -------------------------------------------------------------------------
    Weighted average Fund units
     outstanding(*)              27,212,274 27,126,764 25,923,988 16,413,200
    -------------------------------------------------------------------------
    Weighted average Fund
     units outstanding,
     diluted(*)                  27,228,155 27,184,930 26,087,284 16,413,200
    -------------------------------------------------------------------------

    (*)      On March 2, 2005 as part of the Great Lakes acquisition, an
           additional 210,600 Fund units were issued from treasury. On
           April 26,2005 in a public offering, the Fund issued 1.1 million
           Fund units from treasury. These two transactions increased the
           number of Fund units outstanding from 15,102,600 to 16,413,200. On
           January 11, 2006, as part of the PBB acquisition, an additional
           10,699,636 Fund units were issued from treasury, increasing the
           number of Fund units outstanding to 27,112,836 from 16,413,200.
    

    Cash Available for Distribution(1)

    The Fund generated $12.3 million, or $0.452 per Fund unit, of cash
available for distribution(1) for the quarter ended September 30, 2007. This
represents a decrease compared with the same quarter in 2006, when the cash
available for distribution(1) totalled $15.5 million, or $0.568 per Fund unit.
    The Fund recorded a decrease in cash flows from operating activities of
$33.4 million in the quarter ended September 30, 2007, primarily as a result
of the net change in current assets and liabilities of $44.2 million. This
impact plus the addition of $1.5 million for other items resulted in cash
available for distribution(1) of $12.3 million, or $0.452 per Fund unit, for
the quarter ended September 30, 2007. This compares to cash flows from
operating activities of $19.3 million in the same period in 2006. After
deducting the net change in assets and liabilities of $4.4 million and adding
$0.6 million for other items, cash available for distribution1 was
$15.5 million, or $0.568 per Fund unit, in the same period in 2006.
    The decrease in cash available for distribution(1) of approximately
$3.2 million in the quarter ended September 30, 2007 compared with the same
period in 2006 was generally a result of lower cash generated from operations,
higher cash interest expense and higher cash income taxes.
    For the nine months ended September 30, 2007, the Fund generated
$35.1 million, or $1.287 per Fund unit, of cash available for distribution(1).
This was lower than a year earlier when the cash available for distribution(1)
was $42.1 million, or $1.575 per Fund unit.
    The Fund recorded a decrease in cash flows from operating activities of
$31.0 million in the nine months ended September 30, 2007, primarily as a
result of the net change in current assets and liabilities of $62.9 million.
This impact plus the addition of $3.2 million for other items resulted in cash
available for distribution(1) of $35.1 million, or $1.287 per Fund unit, for
the nine months ended September 30, 2007. This compares to cash flows from
operating activities of $30.8 million in same period in 2006. After adding the
net change in assets and liabilities of $10.6 million and adding other items
in the amount of $0.7 million, cash available for distribution(1) was
$42.1 million, or $1.575 per Fund unit, for the same period in 2006.
    The decrease in cash available for distribution(1) of approximately
$7.0 million in the nine months ended September 30, 2007 compared with the
same period in 2006 was generally a result of lower cash generated from
operations, higher cash interest expense and higher cash income taxes.

    See Tables 3 and 4 for a reconciliation of cash flows from operating
activities and from net income to cash available for distribution(1) and the
breakdown of these figures for the periods ended September 30, 2007 and
September 30, 2006 as well as for the year ended December 31, 2006.

    
    Table 3
    Reconciliation of Cash Flows from Operating Activities to Cash Available
    for Distribution(1)

    For the periods ended September 30, 2007 and 2006 and the year ended
    December 31, 2006
                                                  Nine       Nine
    (in thousands of     Quarter    Quarter     months     months       Year
     dollars, except       ended      ended      ended      ended      ended
     per Fund unit      Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,   Dec. 31,
     amounts, unaudited)    2007       2006       2007       2006       2006
    -------------------------------------------------------------------------
    Cash flows from
     operating
     activities          (33,402)    19,254    (30,975)    30,807     73,721
    -------------------------------------------------------------------------
    Net change in
     non-cash current
     assets and
     liabilities          44,211     (4,394)    62,911     10,640    (15,309)
    Maintenance capital
     expenditures(*)        (261)      (553)    (1,845)    (2,233)    (2,822)
    Costs related to
     the integration
     of PBB                  219        813      1,315      2,518      3,465
    Tax impact of
     integration
     costs(xx)                 -       (286)         -       (886)         -
    -------------------------------------------------------------------------
                          10,767     14,834     31,406     40,846     59,055
    -------------------------------------------------------------------------
    Other liabilities         81         29        138         86        114
    Employee future
     benefits                613        400      1,839      1,200      1,672
    Restricted units           -         (4)         -       (525)      (535)
    Change in value of
     the interest-rate
     swaps                     -          -          -          -        141
    Unrealized
     foreign-exchange
     (loss) gain            (651)        (2)    (2,322)       175         95
    Other expense
     (income)              1,506        175      4,003        352     (1,518)
    -------------------------------------------------------------------------
    Cash available
     for distribution(1)  12,316     15,452     35,064     42,134     59,024
    -------------------------------------------------------------------------
    Distributions to
     unitholders(xxx)     11,607     11,596     34,822     34,002     45,608
    -------------------------------------------------------------------------
    Excess of cash
     available for
     distribution(1)
     over actual
     distributions           709      3,856        242      8,132     13,416
    -------------------------------------------------------------------------
    Payout ratio+          94.2%      75.1%      99.3%      80.7%      77.3%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Per Fund unit
     in dollars
    -------------------------------------------------------------------------
    Cash available for
     distribution(1)       0.452      0.568      1.287      1.575      2.196
    -------------------------------------------------------------------------
    Cash available for
     distribution(1),
     diluted               0.452      0.568      1.287      1.575      2.196
    -------------------------------------------------------------------------
    Distributions to
     unitholders(xxx)      0.426      0.426      1.278      1.271      1.697
    -------------------------------------------------------------------------
    Excess of cash
     available for
     distribution(1)
     over actual
     distributions         0.026      0.142      0.009      0.304      0.499
    -------------------------------------------------------------------------
    Excess of cash
     available for
     distribution(1)
     over actual
     distributions,
     diluted               0.026      0.142      0.009      0.304      0.499
    -------------------------------------------------------------------------
    Payout ratio since
     Fund's inception+     81.7%      78.9%      81.7%      78.9%      77.8%
    -------------------------------------------------------------------------
    Weighted average
     Fund units
     outstanding++    27,247,637 27,212,274 27,247,617 26,759,061 26,880,958
    -------------------------------------------------------------------------
    Weighted average
     Fund units
     outstanding,
     diluted++        27,247,637 27,228,155 27,247,617 26,774,942 26,882,460
    -------------------------------------------------------------------------

    (*)    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 the improvement of facilities.
    (xx)   In the three months and nine months ended September 30, 2007,
           Livingston recorded an additional valuation allowance against the
           future tax assets of certain entities due to the uncertainty of
           realizing the benefits. Consistent with the 2006 annual financial
           statements, the tax benefit of these deductions for the
           integration costs has not been recognized in these financial
           statements.
    (xxx)  Distributions are the amounts declared in the quarter, not what
           was actually paid.
    +      The payout ratio is calculated by dividing the distributions to
           unitholders by cash available for distribution(1).
    ++     On January 11, 2006 as part of the PBB acquisition, an additional
           10,699,636 Fund units were issued from treasury, increasing the
           number of Fund units outstanding to 27,112,836 from 16,413,200.
           During 2006, an additional 134,771 restricted units were converted
           to Fund units, increasing to 27,247,607 the number of Fund units
           outstanding at December 31, 2006. During 2007, an additional 60
           restricted units were converted to Fund units, increasing to
           27,247,667 the number of Fund units outstanding at September 30,
           2007.


    Table 4
    Reconciliation of Net Income to EBITDA(2) and Cash Available for
    Distribution(1)

    For the periods ended September 30, 2007 and 2006 and the year ended
    December 31, 2006

                                                  Nine       Nine
    (in thousands of     Quarter    Quarter     months     months       Year
     dollars, except       ended      ended      ended      ended      ended
     per Fund unit      Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,   Dec. 31,
     amounts, unaudited)    2007       2006       2007       2006       2006
    -------------------------------------------------------------------------
    Net income             3,707      7,439      9,401     20,842     17,545
    (Deduct) add:
      Income taxes           (16)      (578)    (1,859)    (4,303)    (7,707)
      Interest expense     3,213      2,493      8,997      8,138     10,892
      Other expense        1,506        175      4,003        352     (1,518)
      Depreciation         2,735      2,804      8,571      7,879     10,970
      Amortization         5,538      6,042     17,428     17,897     27,008
      Impairment of
       goodwill                -          -          -          -     11,000
    -------------------------------------------------------------------------
    EBITDA(2)             16,683     18,375     46,541     50,805     68,190
    -------------------------------------------------------------------------
    Add:
      Costs related
       to the
       integration
       of PBB                219        813      1,315      2,518      3,465
    Less:
      Tax impact of
       integration
       costs(*)                -        286          -        886          -
    -------------------------------------------------------------------------
                          16,902     18,902     47,856     52,437     71,655
    -------------------------------------------------------------------------
    Less:
      Cash interest
       expense(xx)         2,981      2,290      8,281      7,521     10,072
      Maintenance
       capital
       expenditures(xxx)     261        533      1,845      2,233      2,822
      Cash income
       taxes
       (recovery)+         1,344        627      2,666        549       (263)
    -------------------------------------------------------------------------
    Cash available
     for distribution(1)  12,316     15,452     35,064     42,134     59,024
    -------------------------------------------------------------------------

    (*)    In the three months and nine months ended September 30, 2007, the
           company recorded an additional valuation allowance against the
           future tax assets of certain entities due to the uncertainty of
           realizing the benefits. Consistent with the 2006 annual financial
           statements, the tax benefit of these deductions for the
           integration costs has not been recognized in these financial
           statements.
    (xx)   Cash interest expense is interest expense calculated in accordance
           with GAAP less the amortization of deferred finance fees and
           imputed interest related to the earnout obligation included in
           other liabilities.
    (xxx)  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 the improvement of facilities.
    +      Cash income taxes are current income taxes calculated in
           accordance with GAAP.
    

    Distributions

    The Fund declared distributions of $11.6 million, or $0.426 per Fund
unit, for the quarter ended September 30, 2007, consistent with $11.6 million,
or $0.426 per Fund unit, for the same period in 2006. Cash available for
distribution(1) exceeded actual distributions declared in the quarter ended
September 30, 2007 by $0.7 million, or $0.026 per Fund unit. This compares
with the quarter ended September 30, 2006 when cash available for
distribution(1) exceeded actual distributions by $3.9 million, or $0.142 per
Fund unit.
    The payout ratio for the quarter ended September 30, 2007 was 94.2%, up
from 75.1% in the same period in 2006, bringing the payout ratio since the
inception of the Fund to 81.7%.
    For the nine months ended September 30, 2007, the Fund declared
distributions of $34.8 million, or $1.278 per Fund unit, compared with
$34.0 million, or $1.252 per Fund unit, for the same period in 2006. Cash
available for distribution(1) exceeded actual distributions declared in the
quarter ended September 30, 2007 by $0.2 million, or $0.009 per Fund unit.
This compares with the quarter ended September 30, 2006 when cash available
for distribution(1) exceeded actual distributions by $8.1 million, or $0.304
per Fund unit.
    The payout ratio for the nine months ended September 30, 2007 was 99.3%,
up from 80.7% for the same period in 2006.

    Liquidity and Capital Resources

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows below.
    In January 2006, in connection with the acquisition of PBB, the Fund
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, of which approximately $110 million was
drawn as at December 31, 2006 and approximately $108 million as at
September 30, 2007. The 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 by all of the
Fund's subsidiaries.
    This credit facility replaced the previous $100 million facility
negotiated on December 16, 2004. 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 clients. This is reduced
throughout the month as payments are received from clients. The facility was
increased to allow for additional capacity to finance acquisitions, including
PBB, and certain capital expenditures. As at September 30, 2007, Livingston
was in compliance with its financial covenants as specified in the new credit
agreement.

    Cash Flows from Operating Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows below.
    For the quarter ended September 30, 2007, the Fund had a decrease of
$33.4 million in cash flows from operating activities, compared with an
increase in cash flows from operating activities of $19.3 million for the same
period in 2006. These amounts are inclusive of the net change in current
assets and liabilities, which decreased cash flows by $44.2 million in the
quarter ended September 30, 2007 compared with an increase of $4.4 million in
the same period last year. For the quarter ended September 30, 2007, the net
change in current assets and liabilities was due to higher accounts receivable
of $30.1 million and lower government remittances payable, accounts payable
and accrued liabilities of $15.4 million, offset by other items of
$1.3 million. The increase in accounts receivable was due to the timing of
wire transfers from clients for their GST payment obligations. These wire
transfers in progress were received on October 1, 2007.
    For the nine months ended September 30, 2007, the Fund had a decrease of
$31.0 million in cash flows from operating activities compared with an
increase in cash flows from operating activities of $30.8 million for the same
period in 2006. These amounts are inclusive of the net change in current
assets and liabilities, which decreased cash flows by $62.9 million and
$10.6 million in the quarters ended September 30, 2007 and 2006, respectively.
For the first nine months of 2007, the net change in current assets and
liabilities was due to a decrease in government remittances payable, accounts
payable and accrued liabilities of $41.8 million, an increase in accounts
receivable of $18.9 million and a decrease in client deposits and advances of
$3.7 million, offset by other items of $1.5 million. The increase in accounts
receivable was due to the timing of wire transfers (received on October 1,
2007) from clients for their GST payment obligations.
    As cash flows from operating activities have been determined in
accordance with Canadian GAAP, management believes that the reconciliation of
this measure to cash available for distribution(1) provides useful
supplemental information for investors, as illustrated in Table 3.

    Capital Expenditures and Other Investing Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows below.
    Livingston incurred capital expenditures of $1.0 million, net of
disposals, for the quarter ended September 30, 2007 compared with $2.9 million
for the same period in 2006. In the quarter ended September 30, 2007,
maintenance capital expenditures relating to the improvement of office
facilities and the replacement of workstations were $0.3 million compared with
$0.5 million in the same period in 2006. In management's judgment,
non-maintenance or growth capital expenditures refer to capital expenditures
that increase revenues, margins or EBITDA(2). These expenditures amounted to
approximately $0.2 million for the quarter ended September 30, 2007, down from
$0.9 million for the same quarter in 2006. Capital expenditures related to the
integration in the amount of $0.5 million were incurred in the quarter ended
September 30, 2007, down from $1.5 million in the same period last year.
    For the nine months ended September 30, 2007, Livingston incurred capital
expenditures in the amount of $4.7 million compared with $6.4 million for the
year-earlier period. In the period, $1.8 million was included for maintenance
capital expenditures related to the improvement of office facilities and the
replacement of workstations, down from $2.2 million for the same period in
2006. Non-maintenance or growth capital expenditures amounted to approximately
$0.5 million for the nine months ended September 30, 2007, down from
$2.2 million for the same period last year. Capital expenditures related to
the integration in the amount of $2.4 million were incurred in the nine months
ended September 30, 2007, higher than the $2.0 million incurred in the same
period last year.

    Financing Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows below.
    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 the operating
facility of $44.7 million for the quarter ended September 30, 2007 compared
with a decrease of $12.7 million for the same period in 2006. This was due to
the impact of the timing when financing is required to support government
remittances on behalf of clients as well as the effect of the PBB acquisition
in 2006.
    For the nine months ended September 30, 2007, there was an increase in
the operating facility of $61.0 million compared with an increase of
$0.7 million for the same period in 2006. This was due to the impact of the
timing when financing is required to support government remittances on behalf
of clients as well as the effect of the PBB acquisition in 2006.
    Of the $130 million revolving line of credit, approximately $12.5 million
was in overdraft as at September 30, 2007, due to the timing of receipts from
clients for their GST payment obligations. The funds were received subsequent
to quarter end. Of the $120 million bank term credit facility, $105 million
was utilized to repay $30 million of Livingston's long-term debt and
$75 million of PBB's former credit facility. In the fourth quarter of 2006, an
additional $5 million was drawn to bring the total as at December 31, 2006 to
approximately $110 million. This was reduced slightly to $108 million as at
September 30, 2007 owing to the impact of the translation into Canadian
dollars of U.S.-dollar-denominated debt.
    Cash distributions paid to Fund unitholders in the quarter ended
September 30, 2007 were $11.6 million, unchanged from the same quarter in
2006. For the nine months ended September 30, 2007, cash distributions were
$34.8 million, compared with $32.3 million for the same period in 2006.
    Table 5 shows the net balance when cash and cash equivalents are netted
against the operating facility for government remittances. The net operating
facility at September 30, 2007 was $121.5 million, approximately $76.7 million
higher than at December 31, 2006 and higher than the $78.1 million at
September 30, 2006, reflecting additional funds drawn under the revolving line
of credit for higher government remittances. This was primarily due to timing
differences related to wire transfers in progress received on October 1, 2007.
    Together with the cash flows generated from operating activities, capital
expenditures and other investing activities, total cash and cash equivalents
were $21.0 million at September 30, 2007 compared with $10.1 million at
September 30, 2006 and $36.0 million at December 31, 2006.

    
    Table 5
    Net Operating Facility

    As at September 30, 2007, December 31, 2006 and September 30, 2006
    (in thousands of dollars)

    -------------------------------------------------------------------------
                                         Sept. 30,  December 31,    Sept. 30,
                                             2007          2006         2006
    -------------------------------------------------------------------------
    Operating facility for
     government remittances               142,526        80,803       88,205
    Cash and cash equivalents              21,025        36,043       10,079
    -------------------------------------------------------------------------
    Net operating facility                121,501        44,760       78,126
    -------------------------------------------------------------------------
    

    Changes in Accounting Policies

    The following are a number of accounting policies that the Fund has
implemented in the nine months ended September 30, 2007.

    Section 1530, Comprehensive Income
    The Fund's comprehensive income consists of the net income for the period
and other comprehensive income. Other comprehensive income includes the change
in the fair value of the interest-rate swaps related to the effective portion
of the hedge and the deferred loss related to the settlement of the
interest-rate swaps in 2006.

    Section 3251, Equity
    Accumulated other comprehensive income is included in the consolidated
balance sheet as a separate component of unitholders' equity and includes the
effective portion of gains and losses on the interest-rate swaps designated as
cash flow hedges and the deferred loss related to the settlement of the
interest-rate swaps in 2006.

    Section 3855, Financial Instruments - Recognition and Measurement and
    Section 3861, Financial Instruments - Disclosure and Presentation
    Financial assets and financial liabilities are recognized at fair value,
and their subsequent measurement is dependent upon the classification of the
financial instrument as designated by the Fund. The adoption of these sections
has had an impact on the Fund's financial instruments, as set out below.

    
    -   The Fund's interest-rate swaps are derivative financial instruments
        and, accordingly, are recorded in the consolidated balance sheet at
        fair value. The interest-rate swaps are designated as cash flow
        hedges and are, therefore, accounted for in accordance with Section
        3865, Hedges, as described below.

    -   The Fund's foreign-exchange contracts are also derivative financial
        instruments and, accordingly, are recorded in the consolidated
        balance sheet at fair value. Changes in fair value are recorded in
        the statement of income as the Fund has not elected to apply hedge
        accounting. This policy is consistent with the way in which these
        contracts were recorded in the 2006 annual consolidated financial
        statements.

    -   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. Starting in
        the quarter ended March 31, 2007, the amortized deferred finance fees
        are recognized in income using the effective interest-rate method.
        The difference in the amount calculated using the effective interest-
        rate method compared with the previous straight-line method is not
        material.

    -   The Fund has classified its cash and cash equivalents as held-for-
        trading financial assets; accounts receivable as loans and
        receivables; and operating facility for government remittances,
        government remittances payable, unitholder distributions payable,
        accounts payable and accrued liabilities, client deposits, long-term
        debt and other liabilities as other financial liabilities.
    

    Section 3865, Hedges
    The Fund also uses derivative financial instruments to reduce the
interest-rate risk on the Fund's long-term debt. The interest-rate swaps of
the Fund's subsidiaries are effective as cash flow hedges and, accordingly,
are accounted for under hedge accounting. The Fund assesses the anticipated
effectiveness of designated hedging relationships at inception and for each
reporting period thereafter. 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 on the balance sheet and recognized in income in the
period in which the underlying hedge transaction is recognized. In the event a
designated hedged item is sold, extinguished or matures prior to the
termination of the related derivative instrument, any realized or unrealized
gain or loss on such derivative instrument is recognized as a gain or loss on
extinguishment of debt.
    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, which is not material, is expensed in the
consolidated statement of income. The fair value of the interest-rate swaps as
at January 1, 2007 was $0.9 million and has been recorded as an adjustment to
opening accumulated other comprehensive income. In addition, the deferred loss
of $1.0 million associated with the settlement of certain swaps acquired in
the PBB acquisition has been reclassified from other long-term assets to
accumulated other comprehensive income.

    Section 1535, Capital Disclosures
    The Fund has recognized the new disclosure requirement for capital,
effective for interim and annual financial statements relating to periods
beginning on or after October 1, 2007. Management is currently reviewing the
pronouncement and has not yet determined the effect on the financial
statements.

    Section 3862, Financial Instruments - Disclosures and
    Section 3863, Financial Instruments - Presentations
    These new sections replace Section 3861, revising and enhancing its
disclosure requirements, and carrying forward unchanged its presentation
requirements, effective for interim and annual financial statements for
periods beginning on or after October 1, 2007. Management is currently
reviewing the pronouncement and has not yet determined the effect on the
financial statements.

    Financial Instruments

    The financial instruments of the Fund's subsidiaries consist of cash and
cash equivalents, accounts receivable, interest-rate swaps, foreign-exchange
contracts, the government remittance operating facility, government
remittances payable, accounts payable and accrued liabilities, unitholder
distributions payable, long-term debt and other liabilities, as indicated in
the Fund's balance sheet as at September 30, 2007.
    Livingston is exposed to foreign-exchange risk, as approximately 22% of
revenue in 2007 was earned in U.S. dollars, and has assets and liabilities
that will be settled in U.S. currency. Foreign-exchange rates may also affect
trade flows, increasing the risk associated with these rates. To reduce the
volatility of foreign-exchange fluctuations, Livingston had seven short-term
forward-exchange contracts (to be settled in Canadian dollars within three
months) to sell approximately $3.5 million in U.S. currency at an average rate
of 1.0182 and recorded an unrealized foreign-exchange gain of $0.08 million as
at September 30, 2007. This compares to a realized foreign-exchange gain of
$0.12 million when the foreign-exchange contracts were actually settled, as a
result of the strengthening of the Canadian dollar. As of November 7, 2007,
Livingston had nine short-term forward-exchange contracts (to be settled
within one month) to sell approximately $4.5 million in U.S. currency at an
average rate of 0.9577.
    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 6.23%,
maturing on December 16, 2009. In September 2006, Livingston entered into
three new interest-rate swap agreements to replace the three interest-rate
swaps acquired in the PBB acquisition. PBB had converted $34 million and
US$5 million of its long-term floating rate debt to fixed-rate debt. In
accordance with the new swap agreements, Livingston pays interest at a fixed
rate of 6.29% per annum on its Canadian-dollar-denominated bank debt of
$34 million and 7.13% per annum on its U.S.-dollar-denominated debt of
US$5 million. The new swaps have a maturity date of January 11, 2011. 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 company
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.
    In accordance with Canadian GAAP, the hedging relationship for the former
interest-rate swaps of PBB was considered terminated for accounting purposes
on the date of the acquisition, due to the repayment of PBB's debt with
Livingston's new credit facility. Accordingly, these swaps were accounted for
on a marked-to-market basis for the period from January 11, 2006 to
September 11, 2006. The fair value of these swaps at September 11, 2006 was an
asset of $1.1 million and is being amortized over the term of the swap
agreements, using the effective interest-rate method. Upon adoption of Section
3865, Financial Instruments - Recognition and Measurement, the deferred loss
on the settlement of these swaps was reclassified to the opening balance of
other comprehensive income as at January 1, 2007.
    There have been no significant changes to the nature of these financial
instruments since December 31, 2006, except as noted above under the section
entitled "Changes in Accounting Policies."
    The Fund's policy for cash equivalents is to invest in short-term
commercial paper guaranteed by financial institutions. As of September 30,
2007, the cash-and-cash-equivalents balance consisted solely of cash and did
not contain any asset-backed commercial paper.

    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 Canada Border Services Agency ("CBSA")
and U.S. Customs and Border Protection ("CBP").
    There have been no significant changes to Livingston's off balance sheet
arrangements since December 31, 2006, except for certain amounts outstanding
as of September 30, 2007 as indicated below. For more information on off
balance sheet arrangements, refer to the consolidated financial statements for
the year ended December 31, 2006 and the notes to the consolidated financial
statements included in the Fund's Annual Report 2006.
    As at September 30, 2007, the Fund had an accrued benefit obligation for
the Livingston defined benefit pension plan of $1.4 million and an accrued
pension asset of $6.3 million. This actuarial loss of $7.7 million is being
amortized over the expected average remaining service life of active defined
benefit pension plan members.
    The Fund had an accrued benefit obligation of $11.3 million for other
benefit plans, which includes post-retirement benefits, and an accrued
liability of $8.9 million. This actuarial loss of $2.4 million is being
amortized over the expected average remaining service life of active members
of other benefit plans.
    The actuarial losses associated with the defined benefit pension plan and
other post-retirement benefits are the result of a reduction in the discount
rate used to estimate these obligations. The majority of active employees, all
new employees of Livingston and all employees of PBB participate in the
defined contribution retirement plan.
    As at September 30, 2007, $62 million, or approximately 58%, of
Livingston's long-term debt of $108 million is subject to fixed rate
interest-rate swap contracts. The remaining portion bears interest at the
current floating rate in accordance with Livingston's credit agreement.
    As required by the CBSA and the CBP, Livingston has provided
approximately $47 million in bonds in favour of the Canadian and U.S.
governments as at September 30, 2007, down from $55 million as at
September 30, 2006. 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 has arranged for its banks to issue letters of credit
under its credit agreement in the total amount of $0.6 million as at
September 30, 2007 in support of various contracts, for which Livingston is
responsible to reimburse its lender. This is a decrease of $1.8 million since
September 30, 2006 relative to the outstanding letters of credit in the amount
of $2.4 million, which were no longer required in 2007.

    Transactions with Related Parties

    Related parties are defined as individuals who can influence the
direction or management of the Fund or any of its subsidiaries and are,
therefore, the trustees of the Fund or the directors and officers of the
Fund's primary subsidiaries. Where the Fund has acquired other companies, any
transactions with related parties prior to acquisition are specifically
excluded from this definition. 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
September 30, 2007.

    Disclosure Controls and Procedures

    Disclosure controls and procedures are designed to ensure that
information is recorded and reported to securities regulatory authorities, tax
authorities and other regulatory bodies, unitholders and other stakeholders on
a timely basis. The Fund is committed to providing timely and accurate
disclosure of all material information. As at December 31, 2006, 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 2006.
    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 September 30, 2007.

    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 September 30, 2007 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 2006. Critical accounting
estimates require management to make certain judgments and estimates, some of
which may be uncertain. Changes in these accounting estimates may have an
impact on the financial results of Livingston and the Fund. There have been no
significant changes in critical accounting estimates of the Fund in the first
nine months of 2007 compared with 2006.
    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, 2006 and the notes to the
consolidated financial statements included in the Fund's Annual Report 2006.

    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 2006 and its 2006 Annual Information Form. To
management's knowledge, no significant changes to these risks and
uncertainties have occurred in the first nine months of 2007.

    Subsequent Events

    To simplify the legal corporate structure, the Fund has started the
process to amalgamate the PBB-related companies acquired on January 11, 2006.
Effective October 1, 2007, the changes set out below were made to the Fund's
legal entity structure.

    
    -   The U.S. operating subsidiary of Unicity Customs Services Inc.
        ("UCS") carrying on business as Unicity Customs Brokers, Inc., was
        dissolved into UCS.

    -   Concurrently, PBB Global Logistics Inc., UCS and Carrier Connections
        International were discontinued as operating companies and
        amalgamated with Livingston.

    -   Focus Carriers was merged with Clarke Transportation Services, Inc.
        on October 1, 2007.

    -   Lastly, the Trust's partnership structure, holding M&C International
        Trade LP and PBB Global Logistics LP, was reorganized on October 1,
        2007 to create a separate General Partner for each of the Limited
        Partnerships.
    

    As a result of the legal entity simplification, Livingston updated its
bank credit facility effective October 1, 2007.

    Outlook

    Looking ahead, it is expected that the North American economy will adjust
to the challenge presented in the third quarter by the continued rapid
appreciation of the Canadian dollar against its U.S. counterpart. Although
this development was far beyond the control of the Fund and created difficult
market conditions for Livingston, by careful management of the factors that
could be controlled, management successfully mitigated the impact.
    The rise of the Canadian dollar has been continuing over a long period,
yet its sudden breakthrough to parity took many by surprise. However, the
effects of surpassing that barrier may be more psychological than directly
economic since many Canadian businesses have absorbed some of the appreciation
and adjusted their operations accordingly. While future exchange-rate
fluctuations cannot be predicted, Livingston clients are dealing with this new
reality.
    This leads management to be cautiously optimistic that the conditions for
business and trade may stabilize, resulting in a more favourable climate for
the operations of the Fund.
    Livingston's focus must be to do all it can within the environment it
faces. The integration of PBB's operations has been substantially completed,
on time and on budget, and management anticipates moving from cost savings to
revenue-enhancing synergies in 2008 and beyond. The diversification of
Livingston's business lines, as well as the potential for new business arising
from the highly successful Crossing Borders conference, held in Atlanta in
September, should also contribute to the Fund's growth.
    The Fund's strategy remains simple: to remain financially strong, to
maintain optimal operations, to invest in areas that diversify the business
and to sell more services to clients. The growing complexity of cross-border
logistics, together with a tightened security regime, puts Livingston in a
good position to do so. As an industry leader, Livingston can expect to see
demand for its services grow over the long term. That is expected to allow the
Fund to meet and overcome the current challenges and strengthen Livingston's
ability to deliver the distributions that unitholders expect.

    
    -------------------------
    (1) Cash available for distribution, or distributable cash, is a non-GAAP
        financial measure. Refer to Cash Available for Distribution under
        Non-GAAP Financial Measures above.
    (2) EBITDA (earnings before interest, taxes, other (income) expense,
        depreciation and amortization) is a non-GAAP financial measure. Refer
        to EBITDA under Non-GAAP Financial Measures above.


    Consolidated Balance Sheet
    September 30, 2007

    (in thousands of dollars, unaudited)             As at          As at
                                                  September 30,  December 31,
                                                      2007           2006
    -------------------------------------------------------------------------
    Assets
    Current assets
    Cash and cash equivalents                           21,025        36,043
    Accounts receivable                                305,416       291,712
    Prepaid expenses                                     4,131         4,499
    Income taxes recoverable                                 -           533
    Future income taxes                                  3,055         2,862
    -------------------------------------------------------------------------
                                                       333,627       335,649
    Property, plant and equipment                       24,724        28,633
    Goodwill                                           328,169       328,169
    Intangible assets                                  111,464       128,890
    Future income taxes                                  4,523         5,394
    Employee future benefits - pension                   6,334         4,150
    Deferred finance fees                                    -         2,643
    Other long-term assets                               1,332           994
    -------------------------------------------------------------------------
                                                       810,173       834,522
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current liabilities
    Operating facility for government
     remittances                                       142,526        80,803
    Government remittances payable                     120,109       162,656
    Unitholder distributions payable                     3,869         3,867
    Accounts payable and accrued liabilities            70,591        76,496
    Income taxes payable                                   704             -
    Client deposits and advances                         5,449         9,472
    Current portion of long-term debt                      610         1,188
    -------------------------------------------------------------------------
                                                       343,858       334,482
    Long-term debt                                     106,941       111,498
    Other liabilities                                    2,074         1,947
    Future income taxes                                 24,233        29,227
    Employee future benefits                             8,927         8,582
    -------------------------------------------------------------------------
                                                       486,033       485,736
    -------------------------------------------------------------------------
    Unitholders' Equity
    Units                                              408,350       408,349
    Restricted units                                         -            34
    -------------------------------------------------------------------------
                                                       408,350       408,383
    -------------------------------------------------------------------------

    Accumulated earnings                                73,465        64,064
    Distributions to unitholders                      (158,483)     (123,661)
    -------------------------------------------------------------------------
    Deficit                                            (85,018)      (59,597)
    -------------------------------------------------------------------------
    Accumulated other comprehensive income                 808             -
    -------------------------------------------------------------------------
                                                       324,140       348,786
    -------------------------------------------------------------------------
                                                       810,173       834,522
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Income and Deficit
    For the period ended September 30, 2007

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

                         Three         Three          Nine          Nine
                         months        months        months        months
                         ended         ended         ended         ended
                      September 30, September 30, September 30, September 30,
                          2007          2006          2007          2006
    -------------------------------------------------------------------------
    Net revenues           79,672         80,918       237,705       239,751
    Interest income           779            758         2,017         2,077
    -------------------------------------------------------------------------
                           80,451         81,676       239,722       241,828

    Cost of services       46,413         45,927       139,547       135,496
    Selling, general
     and administrative
     expenses              17,136         16,561        52,319        53,009
    Costs related to the
     integration of PBB       219            813         1,315         2,518
    Depreciation            2,735          2,804         8,571         7,879
    Amortization            5,538          6,042        17,428        17,897

    -------------------------------------------------------------------------
    Income before the
     undernoted             8,410          9,529        20,542        25,029
    -------------------------------------------------------------------------

    Other expenses          1,506            175         4,003           352
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt        2,077          1,923         6,107         5,652
      Other                 1,136            570         2,890         2,486
    -------------------------------------------------------------------------
                            3,213          2,493         8,997         8,138
    -------------------------------------------------------------------------

    Income before
     income taxes           3,691          6,861         7,542        16,539
    -------------------------------------------------------------------------

    Provision for
     (recovery of) income
     taxes
      Current               1,344            627         2,666           549
      Future               (1,360)        (1,205)       (4,525)       (4,852)
    -------------------------------------------------------------------------
                              (16)          (578)       (1,859)       (4,303)
    -------------------------------------------------------------------------

    Net income for
     the period             3,707          7,439         9,401        20,842

    Deficit - beginning
     of period            (77,118)       (40,537)      (59,597)      (31,534)

    Distributions to
     unitholders          (11,607)       (11,596)      (34,822)      (34,002)

    -------------------------------------------------------------------------
    Deficit - end of
     period               (85,018)       (44,694)      (85,018)      (44,694)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income per unit      0.14           0.27          0.35          0.78
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted net income
     per unit                0.14           0.27          0.35          0.78
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statement of Comprehensive Income
    For the period ended September 30, 2007

    (in thousands of dollars, unaudited)

                                                     Three          Nine
                                                     months        months
                                                     ended         ended
                                                  September 30, September 30,
                                                      2007          2007
    ----------------------------------------------------------- -------------

    Net income for the period                            3,707         9,401

    Other comprehensive income, net of tax:
      Change in fair value of interest-rate
       swaps (net of tax of nil for the quarter
       and the nine months ended September 30, 2007)      (716)          408

      Amortization of deferred (gain) loss on
       settlement of interest-rate swaps (net of tax
       for the three-month period: $22; and for the
       nine-month period: $47)                              40           117
                                                  ------------- -------------

                                                          (676)          525

                                                  ------------- -------------
    Comprehensive income for the period                  3,031         9,926
                                                  ------------- -------------


    Consolidated Statements of Cash Flows
    For the period ended September 30, 2007
    (in thousands of dollars, unaudited)

                         Three         Three          Nine          Nine
                         months        months        months        months
                         ended         ended         ended         ended
                      September 30, September 30, September 30, September 30,
                          2007          2006          2007          2006
    -------------------------------------------------------------------------

    Cash provided by
     (used in)
    Operating activities
      Net income for
       the period            3,707         7,439         9,401        20,842
      Adjustment for
       non-cash items
        Depreciation
         and amortization    8,273         8,846        25,999        25,776
        Future income
         taxes              (1,360)       (1,205)       (4,525)       (4,852)
        Other liabilities      (81)          (29)         (138)          (86)
        Non-cash interest
         and other expense     232           203           716           617
        Employee future
         benefits             (613)         (400)       (1,839)       (1,200)
        Restricted units         -             4             -           525
        Foreign-exchange
         loss (gain)           651             2         2,322          (175)
                      ------------- ------------- ------------- -------------
                            10,809        14,860        31,936        41,447
      Net change in
       current assets and
       liabilities         (44,211)        4,394       (62,911)      (10,640)
                      ------------- ------------- ------------- -------------
                           (33,402)       19,254       (30,975)       30,807
                      ------------- ------------- ------------- -------------
    Investing activities
      Acquisition of
       businesses, net of
       cash and cash
       equivalents acquired      -          (618)       (3,117)        9,613
      Property, plant and
       equipment, net of
       disposals            (1,008)       (2,919)       (4,662)       (6,442)

                      ------------- ------------- ------------- -------------
                            (1,008)       (3,537)       (7,779)        3,171
                      ------------- ------------- ------------- -------------

    Financing activities
      Distributions to
       unitholders         (11,607)      (11,590)      (34,822)      (32,252)
      Repayment of
       long-term debt         (341)         (293)         (935)         (788)
      Increase (decrease)
       in operating
       facility             44,733       (12,655)       61,034           740
      Increase in deferred
       finance fees              -             -             -        (2,616)
                      ------------- ------------- ------------- -------------
                            32,785       (24,538)       25,277       (34,916)
                      ------------- ------------- ------------- -------------

    Foreign-exchange
     (loss) gain on cash
     held in foreign
     currency                 (443)           13        (1,541)         (283)

                      ------------- ------------- ------------- -------------
    Decrease in cash and
     cash equivalents       (2,068)       (8,808)      (15,018)       (1,221)

    Cash and cash
     equivalents -
     beginning of period    23,093        18,887        36,043        11,300

                      ------------- ------------- ------------- -------------
    Cash and cash
     equivalents - end
     of period              21,025        10,079        21,025        10,079
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Cash disbursements
     made for:
      Income taxes           1,341         1,446         3,841         5,310
      Interest               2,981         2,290         8,281         7,521

    





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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