Contrans Group Inc. Reports Steady Improvement
(TSX:CSS)
WOODSTOCK, ON, Aug. 5 /CNW/ -
FINANCIAL HIGHLIGHTS
(in millions except for -------------------------------------------
per share amounts) Three Months
For the periods ended June 30 2010 2009
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Revenue - as stated $ 101.0 $ 87.4
- fuel surcharges(1) (9.9) (6.0)
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Revenue - transportation
services(1) 91.1 100.0% 81.4 100.0%
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Operating expenses - net of
fuel surcharges 69.7 76.5 63.7 78.3
Selling, general and
administration expenses 8.9 9.8 7.5 9.2
Foreign exchange gain (0.3) (0.3) (1.8) (2.2)
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Earnings before amortization,
interest and income taxes 12.8 14.0 12.0 14.7
Amortization of property and
equipment 3.1 3.4 3.1 3.8
Amortization of intangible
assets 1.0 1.1 1.0 1.2
Net interest expense 1.4 1.5 1.4 1.7
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Earnings before income taxes 7.3 8.0 6.5 8.0
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Income tax provision (recovery):
Current 1.0 1.1 2.1 2.6
Future 1.1 1.2 (1.8) (2.2)
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2.1 2.3 0.3 0.4
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Net earnings $ 5.2 5.7% $ 6.2 7.6%
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Earnings per share - basic
and diluted $ 0.16 $ 0.20
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(in millions except for -------------------------------------------
per share amounts) Six Months
For the periods ended June 30 2010 2009
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Revenue - as stated $ 194.8 $ 175.4
- fuel surcharges(1) (19.2) (13.1)
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Revenue - transportation
services(1) 175.6 100.0% 162.3 100.0%
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Operating expenses - net of
fuel surcharges 135.5 77.1 127.6 78.6
Selling, general and
administration expenses 17.0 9.7 16.7 10.3
Foreign exchange gain (0.2) (0.1) (0.6) (0.4)
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Earnings before amortization,
interest and income taxes 23.3 13.3 18.6 11.5
Amortization of property and
equipment 6.2 3.5 6.1 3.8
Amortization of intangible
assets 1.9 1.1 1.9 1.2
Net interest expense 2.9 1.7 2.8 1.7
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Earnings before income taxes 12.3 7.0 7.8 4.8
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Income tax provision (recovery)
Current 4.8 2.7 1.9 1.2
Future (1.1) (0.6) (1.8) (1.1)
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3.7 2.1 0.1 0.1
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Net earnings $ 8.6 4.9% $ 7.7 4.7%
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Earnings per share - basic
and diluted $ 0.28 $ 0.26
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(1) See "Use of non-GAAP Financial Measures" below.
"Contrans' steady improvement in year over year operating results continued in the second quarter," stated Contrans' Chairman and Chief Executive Officer, Stan Dunford. "Although revenue has not yet returned to pre-recession levels, aggressive sales efforts produced new business and contributed to an 11% increase in quarter over quarter revenue, net of fuel surcharges. In addition, improved equipment utilization and ongoing cost rationalization have helped to substantially restore our profit margins. Profit, measured as a percentage of revenue, has always been the key measure of success at Contrans. I am very proud of the efforts that have been made throughout the organization that have contributed to this accomplishment."
"In response to anticipated growth opportunities and favourable market conditions, Contrans raised $53 million in a bought deal that closed on June 2, 2010," added Mr. Dunford. "These funds bolstered a balance sheet that was already very strong. I am excited about the Company's prospects to make strategic acquisitions and the potential for delivering greater long-term value to our shareholders."
MANAGEMENT'S DISCUSSION AND ANALYSIS
On December 1, 2009, under a plan of arrangement, Contrans Income Fund ("the Fund") was effectively converted into a corporation, Contrans Group Inc. ("the Group"). This conversion was recorded using the continuity of interest method of accounting. Accordingly, the consolidated financial statements contained in this interim report, which have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and reported in Canadian funds, detail the performance and financial position of the Group and the Fund for the periods ended June 30, 2010 and 2009 as if the Group had always carried on the business carried on by the Fund. Accordingly, the use of "Contrans" hereafter is intended to be understood as a reference to the business carried on by the Fund and, after December 1, 2009, by the Group. The financial statements should be read in conjunction with the analysis that follows and the cautionary notes regarding use of non-GAAP measures and forward-looking statements.
RESULTS FROM OPERATIONS
Contrans revenue from transportation services ("revenue") has increased in 2010 compared to 2009 for both the second quarter ("2010 Q2" and "2009 Q2" respectively) and for the first six months. Contrans' customers in the construction and steel industries have experienced the strongest growth compared to 2009. In addition, new customers generated approximately $3.3 million of revenue in Q2 2010 ($5.1 million year-to-date). The acquisition of Truboy Freight International Inc. in the first quarter of 2010 generated revenue of $0.7 million in 2010 Q2 ($1.2 million year-to-date). Fuel surcharge revenue increased in 2010 Q2 compared to 2009 Q2 due to higher fuel prices and increased volumes. Revenue from the Company's bulk salt business, however, was $0.5 million lower in 2010 Q2 ($4.5 million lower year-to date) due to milder winter weather in 2010 compared to 2009.
Contrans' rationalization of company tractors in 2009 has continued to favourably affect equipment utilization and accordingly has reduced operating expenses measured as a percentage of revenue. In addition, operating margins have benefited from a slight easing of pricing pressures in 2010 compared to 2009. These positive effects have been partially offset by a $0.5 million increase in accident claim costs in 2010 Q2 compared to 2009 Q2 ($0.9 million increase year-to-date).
SG&A expenses have increased in 2010 primarily due to the cancellation of the salary and wage roll-back program and due to the reinstatement of management bonuses in 2010. In 2009, salaries and wages were rolled back and management bonuses were eliminated as part of Company-wide cost savings initiatives in response to the poor business climate at the time. Management continues to monitor staff levels and to scrutinise discretionary spending.
Contrans generates more US dollar revenue than US dollar expenses. Management manages the risk of fluctuating values of the Canadian dollar against the US dollar by entering into forward foreign exchange contracts when deemed appropriate. Contrans does not have any open foreign exchange contracts currently. In 2009 Q2, mark-to-market adjustments to Contrans' open foreign exchange contracts were primarily responsible for a foreign exchange gain of $1.8 million (2009 - $0.6 million gain year-to-date).
Contrans completed a public offering of its Class A subordinate voting shares on June 2, 2010. This provided net cash proceeds of $53.5 million to the Company. Net debt levels were significantly reduced accordingly. Interest rates on secure, highly liquid, short-term investments have remained low in 2010. Net interest expense has not materially changed in 2010 Q2 compared to 2009 Q2 as a result.
USE OF NON-GAAP FINANCIAL MEASURES
Management has included certain non-GAAP measures to supplement its consolidated financial statements which are presented in accordance with Canadian GAAP. Non-GAAP measures do not have any standardized meaning prescribed under Canadian GAAP and therefore they are unlikely to be comparable to similar measures employed by other issuers. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP. Management has included these non-GAAP measures for the reasons set forth below.
Revenue - transportation services, revenue - fuel surcharges:
Management believes that it is important to isolate the effects of fuel surcharges, a volatile source of revenue, when analyzing operating results. Management regards revenue from transportation services as the relevant indicator of business level activity. Accordingly, the percentages in the Financial Highlights table were calculated using revenue from transportation services as a base. In addition, operating expenses are stated after netting fuel surcharges against fuel expenses in the Financial Highlights table. Management believes that this presentation facilitates a better comparison of operating costs between periods.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements relate to future events or future performance and include, but are not limited to, changes in government regulations regarding weights and dimensions of highway equipment, the age and condition of the transportation fleet and the growth of Contrans' business. Often, but not always, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. Such statements reflect the current views and estimates of management of Contrans with respect to future events, as of the date such statements are made, and they involve known and unknown risks and uncertainties which may cause actual events or results to differ materially from those expressed or implied by forward-looking statements. In evaluating these statements, readers should specifically consider factors such as the risks outlined under "Risk Factors" in Contrans' Annual Information Form, which is available at www.sedar.com. Although management has attempted to identify important factors that could cause actual events, actions or results to differ materially from those described in the forward-looking statements, there may be other factors that cause such events, actions or results to differ. Management is under no obligation (and expressly disclaims any such obligation) to update or alter any forward-looking statements or assumption whether as a result of new information, future events or otherwise, except as required by law.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands except for per share amounts)
(unaudited)
-------------------------------------------
Three Months Six Months
For the periods ended June 30 2010 2009 2010 2009
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Revenue $ 100,961 $ 87,433 $ 194,753 $ 175,393
Operating expenses 79,649 69,860 154,698 140,786
Selling, general and
administration expenses 8,841 7,474 16,987 16,680
Foreign exchange gain (309) (1,773) (193) (615)
Amortization of property
and equipment 3,096 3,039 6,150 6,077
Amortization of intangible
assets 966 941 1,915 1,885
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8,718 7,892 15,196 10,580
Net interest expense (income)
- long-term 1,480 1,451 2,968 2,916
- short-term (68) (31) (103) (110)
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Earnings before Income Taxes 7,306 6,472 12,331 7,774
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Income Tax Provision (Recovery):
Current 1,052 2,130 4,811 1,948
Future 1,045 (1,768) (1,128) (1,831)
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2,097 362 3,683 117
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Net Earnings and
Comprehensive Income $ 5,209 $ 6,110 $ 8,648 $ 7,657
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Earnings per share - basic
and diluted $ 0.16 $ 0.20 $ 0.28 $ 0.26
Weighted average number of
shares outstanding - basic
and diluted 31,739 29,937 30,843 29,857
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CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
(in thousands)
(unaudited) -------------------------------------------
Three Months Six Months
For the periods ended June 30 2010 2009 2010 2009
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Retained Earnings (Deficit) -
Beginning of Period $ 2,961 $ (4,221) $ (478) $ 435
Net earnings 5,209 6,110 8,648 7,657
Dividend declared (2,395) - (2,395) (6,203)
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Retained Earnings - End of
Period $ 5,775 $ 1,889 $ 5,775 $ 1,889
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The accompanying notes are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS
(in thousands)
---------------------------
June 30 December 31
As at 2010 2009
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Assets (unaudited) (audited)
Current Assets
Cash and cash equivalents $ 85,402 $ 30,193
Accounts receivable 48,717 48,909
Income taxes recoverable - 495
Other current assets 5,737 5,089
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139,856 84,686
Restricted Cash (Note 5) 7,375 7,375
Note Receivable 27 88
Property and Equipment 105,258 104,381
Intangible Assets 13,580 15,135
Goodwill 63,815 63,764
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$ 329,911 $ 275,429
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 27,261 $ 32,057
Distributions payable - 4,491
Income taxes payable 4,424 -
Current portion of capital lease obligations 2,011 1,921
Current portion of long-term debt 734 339
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34,430 38,808
Capital Lease Obligations 6,527 6,978
Long-term Debt 85,920 85,193
Asset Retirement Obligations 674 720
Future Income Taxes 12,702 14,531
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140,253 146,230
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Shareholders' Equity (Note 3)
Contributed surplus 961 961
Share capital 182,922 128,716
Retained earnings (deficit) 5,775 (478)
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189,658 129,199
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$ 329,911 $ 275,429
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Subsequent Event (Note 9)
The accompanying notes are an integral part of these statements.
Signed on behalf of the Board of Directors
Stan G. Dunford, Director Archie M. Leach, C.A., Director
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(unaudited)
-------------------------------------------
Three Months Six Months
For the periods ended June 30 2010 2009 2010 2009
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Cash Provided by (Used in):
Operating Activities
Net earnings $ 5,209 $ 6,110 $ 8,648 $ 7,657
Items not affecting cash:
Change in unrealized loss
(gain) on foreign exchange 27 (3,310) 7 (3,825)
Unit-based compensation
expense - (7) - 43
Long-term debt - accretion 20 19 40 39
Gain on sale of business units - - - (23)
Fair value adjustment of notes
receivable - 257 - 257
Asset retirement obligations -
accretion 7 10 14 20
Amortization of property and
equipment 3,096 3,039 6,150 6,077
Amortization of intangible
assets 966 941 1,915 1,885
Future income taxes 1,045 (1,768) (1,128) (1,831)
Loss (gain) on sale of
equipment 61 16 (25) (327)
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10,431 5,307 15,621 9,972
Change in non-cash working
capital (Note 6) (2,315) (605) 1,789 6,050
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8,116 4,702 17,410 16,022
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Investing Activities
Expended on acquisitions
(Note 2) - - (466) (3,000)
Asset retirement
obligations - settlements (29) (2) (90) (58)
Proceeds from disposal of
business unit - 21 - 121
Proceeds from note receivable 30 - 61 -
Proceeds from sale of
equipment 644 1,325 1,141 2,507
Purchase of property and
equipment (4,648) (2,468) (8,905) (5,296)
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(4,003) (1,124) (8,259) (5,726)
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Financing Activities
Dividends paid (2,395) - (6,886) (9,290)
Proceeds from restricted cash - - - 3,000
Proceeds from long-term debt 754 32 872 126
Repayment of long-term debt (166) (85) (363) (354)
Payment of capital lease
obligations (504) (478) (1,070) (882)
Net proceeds from issuance
of shares/trust units
(Note 3) 53,505 - 53,505 1,531
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51,194 (531) 46,058 (5,869)
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Increase in Cash and Cash
Equivalents 55,307 3,047 55,209 4,427
Cash and Cash Equivalents -
Beginning of Period 30,095 19,831 30,193 18,451
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Cash and Cash Equivalents -
End of Period $ 85,402 $ 22,878 $ 85,402 $ 22,878
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The accompanying notes are an integral part of these statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended June 30, 2010 and 2009
(Unaudited, tabular amounts in thousands)
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1. Basis of Presentation
These unaudited consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
("GAAP") for interim financial statements using the same accounting
policies as were applied in the audited consolidated financial statements
for the year ended December 31, 2009. These interim financial statements
do not conform in all respects with disclosure required for annual
financial statements and should be read in conjunction with the audited
consolidated financial statements of Contrans for the year ended
December 31, 2009.
a) Continuity of interest
On December 1, 2009, under a plan of arrangement, Contrans Income Fund
("the Fund") was effectively converted into a corporation, Contrans Group
Inc. ("the Group"). This conversion was recorded using the continuity of
interest method of accounting. Accordingly, the consolidated financial
statements contained in this interim report, which have been prepared in
accordance with Canadian GAAP and reported in Canadian funds, detail the
performance and financial position of the Group and the Fund for the
periods ended June 30, 2010 and 2009 as if the Group had always carried
on the business carried on by the Fund.
2. Acquisition
Period ended June 30, 2010 Truboy
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Property and equipment $ 712
Intangible assets
Customer relationships 160
Non-competition agreements 200
Goodwill 51
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Fair value of assets acquired 1,123
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Accounts payable and accrued liabilities 5
Capital leases assumed on acquisition 79
Debt assumed on acquisition 573
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Fair value of liabilities assumed 657
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$ 466
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Consideration
Cash $ 466
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% Shares
Entity acquired Date Acquired Province Service Area
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Truboy Freight
International
Inc. ("Truboy") 29-Jan-10 Assets acquired Ontario Flatbed
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This acquisition has been accounted for using the purchase method. The
results of operations from the acquisition date have been included in
these consolidated financial statements. An additional $0.5 million of
consideration is payable contingent upon the achievement of certain
financial objectives. If earned, the contingent consideration will be
payable in three annual instalments and will be recorded as an increase
to goodwill.
3. Shareholders' Equity
Contributed Share Retained
Surplus Capital Earnings Total
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Balance at December 31, 2009 $ 961 $ 128,716 $ (478) $ 129,199
Issue of share capital(a) - 54,206 - 54,206
Net earnings - - 8,648 8,648
Dividends declared(1) - - (2,395) (2,395)
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Balance at June 30, 2010 $ 961 $ 182,922 $ 5,775 $ 189,658
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(1) A dividend of $0.08 per share was paid on May 14, 2010 to
shareholders of record as at April 30, 2010.
a) Issue of share capital
On June 2, 2010 Contrans issued 5,856,800 Class A Subordinate Voting
Shares, for cash, at a price of $9.60 per share. The total number of
Class A Subordinate Voting Shares in issue at June 30, 2010 was
34,326,474.
Proceeds from issue of share capital
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Gross proceeds $ 56,225
Costs of issue (2,720)
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Net cash proceeds 53,505
Future tax benefit on costs of issue 701
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Increase in equity $ 54,206
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b) Normal course issuer bid
On April 20, 2010, Contrans received regulatory approval to proceed with
a normal course issuer bid to purchase certain of its outstanding Class A
Subordinate Voting Shares to a maximum of 2,349,446 shares. The bid
commenced on April 22, 2010 and expires on April 21, 2011. Class A shares
purchased pursuant to the bid will be cancelled. There were no
repurchases of shares in the period to June 30, 2010.
4. Financial Instruments
Risk management
Contrans is exposed to credit risk, foreign exchange risk, interest rate
risk and liquidity risk from its financial assets and liabilities. Risk
management strategies are designed to ensure Contrans' risks and related
exposures are consistent with its business objectives and risk tolerance.
There have been no significant changes to Contrans' risk management
strategies since December 31, 2009.
5. Restricted Cash
Under the terms of Contrans' long-term debt facility, restricted cash may
only be used to repay senior secured notes and to fund growth
opportunities.
6. Cash Flow
Change in non-cash working capital:
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Three Months Six Months
For the periods ended June 30 2010 2009 2010 2009
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Decrease (increase) in
accounts receivable ($1,530) ($124) $192 $6,898
Decrease (increase) in
other current assets 210 191 (648) (99)
Decrease in accounts payable
and accrued liabilities (2,094) (2,916) (2,674) (2,467)
Increase in income taxes
payable 1,099 2,244 4,919 1,718
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Net change in non-cash
working capital ($2,315) ($605) $1,789 $6,050
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Cash paid (received) in
respect of:
Interest paid $1,417 $1,458 $2,881 $2,916
Interest received (68) (37) (103) (135)
Income taxes - net 212 (153) 125 288
Non-cash transactions:
Value of equipment financed
through capital leases - - 702 -
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7. Seasonality
Generally the second quarter is Contrans' strongest period. Volumes from
customers in the construction industry typically increase as temperatures
warm in the spring, peak in the fall and then decline with the onset of
winter weather. Some manufacturing customers close their plants during
the summer and many customers either shut down their production
facilities or otherwise reduce shipments during the Christmas holiday
season.
8. Future Accounting Changes
International Financial Reporting Standards ("IFRS")
In February 2008 the Canadian Accounting Standards Board ("AcSB")
announced that publicly-listed companies would, for fiscal years
beginning on or after January 1, 2011, be required to report their
results under IFRS. IFRS allows for different accounting treatments on
first implementation. Contrans has completed its initial assessment of
the possible impacts of implementing IFRS and the standards which may
have the most significant impact on Contrans, upon first adoption of IFRS
include IAS 16 - Property, Plant and Equipment, IAS 36 - Impairment of
Assets, and IFRS 1 - First-time Adoption of International Financial
Reporting Standards. The adoption of IFRS will require restatement of
Contrans' consolidated financial statements for comparative purposes for
its year ended December 31, 2010 and of the opening balance sheet as at
January 1, 2010.
9. Subsequent Event
Dividend
On July 19, 2010 Contrans announced a dividend of $0.08 per share
($2.9 million in total) to be paid on August 13, 2010 to shareholders of
record at July 31, 2010.
10. Comparative Figures
Certain comparative figures have been restated to conform to the current
period's basis of presentation.
For further information: Stan G. Dunford, Chairman and Chief Executive Officer, or Gregory W. Rumble, President and Chief Operating Officer, Phone: 519-421-4600, E-mail: [email protected], Web site: www.contrans.ca
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