Contrans Income Fund announces second quarter results



    (TSX. Symbol CSS.UN)

    WOODSTOCK, ON, Aug. 8 /CNW/ -

    
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                                                            Canadian dollars

    (in millions except                   Three Months         Six Months
     per unit amounts)                    2007      2006      2007      2006
    ----------------------------------------------------- -------------------
    Revenue - transportation
     services(2)                       $ 111.2   $ 102.2   $ 217.6   $ 196.8
    Revenue - fuel surcharges(1)(2)       14.6      15.4      27.6      28.3
    ----------------------------------------------------- -------------------
    Revenue - total                      125.8     117.6     245.2     225.1
    ----------------------------------------------------- -------------------
    Operating expenses - net of fuel
     surcharges                           84.6      78.0     167.4     151.6
    Selling, general and
     administration expenses              12.0       9.0      22.3      18.5
    ----------------------------------------------------- -------------------
    Earnings before amortization,
     interest, gain on sale of land
     and income taxes (EBITDA)(2)         14.6      15.2      27.9      26.7
    Amortization of property and
     equipment                             3.3       3.4       6.6       6.5
    Amortization of intangible assets      1.0       0.6       2.0       1.0
    Net interest expense                   1.3       0.5       2.5       0.9
    ----------------------------------------------------- -------------------
    Earnings before gain on sale of
     land and income taxes                 9.0      10.7      16.8      18.3
    Gain on sale of land                     -         -         -       2.9
    ----------------------------------------------------- -------------------
    Earnings before income taxes           9.0      10.7      16.8      21.2
    Income taxes - Current                 0.4       0.1       0.6       0.4
                 - Future(3)               7.1       0.3       6.6       0.8
    ----------------------------------------------------- -------------------
    Net earnings and comprehensive
     income                            $   1.5   $  10.3   $   9.6   $  20.0
    ----------------------------------------------------- -------------------
    ----------------------------------------------------- -------------------
    Earnings per unit - basic and
     diluted
      Excluding gain on sale of land   $  0.05   $  0.36   $  0.33   $  0.61
      Including gain on sale of land   $  0.05   $  0.36   $  0.33   $  0.70
    ----------------------------------------------------- -------------------
    ----------------------------------------------------- -------------------

    Distributions declared             $  0.31   $  0.31   $  0.63   $  0.63
    ----------------------------------------------------- -------------------
    ----------------------------------------------------- -------------------

    (1) 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.
    (2) Revenue - transportation services, revenue - fuel surcharges and
        EBITDA, are not measures recognized by Canadian generally accepted
        accounting principles ("GAAP"), do not have standardized meanings
        prescribed by GAAP and are therefore unlikely to be comparable to
        similarly named measures presented by other issuers. However,
        management believes that they are important and useful measures in
        evaluating the performance of the Fund. Reasons for using these
        non-GAAP measures are outlined under "Use of Non-GAAP Financial
        Measures" in the Fund's 2006 Annual Report.
    (3) Reflects a $7.6 million one-time, non-cash charge resulting from
        enactment of new taxes, on Income Trusts, commencing in 2011.

                    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The attached consolidated financial statements, 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 Contrans Income Fund (the "Fund") for the periods ended June 30, 2007 and
2006. The financial statements should be read in conjunction with the analysis
that follows. A cautionary note regarding non-GAAP measures and forward-
looking statements follows management's discussion and analysis of operations
and financial condition.

    FINANCIAL HIGHLIGHTS
    (unaudited)                        --------------------------------------
    Periods ended June 30                           Three Months
    (in millions except per unit amounts)     2007                2006
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    Revenue - transportation services  $ 111.2     100.0%  $ 102.2     100.0%
    Revenue - fuel surcharges             14.6                15.4
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    Revenue - total                      125.8               117.6
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    Operating expenses - net of fuel
     surcharges                           84.6      76.1      78.0      76.3
    Selling, general and
     administration expenses              12.0      10.8       9.0       8.8
    -------------------------------------------------------------------------
    Earnings before amortization,
     interest, gain on sale of land
     and income taxes (EBITDA)            14.6      13.1      15.2      14.9
    Amortization of property and
     equipment                             3.3       3.0       3.4       3.3
    Amortization of intangible assets      1.0       0.9       0.6       0.6
    Net interest expense                   1.3       1.2       0.5       0.5
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    Earnings before gain on sale of
     land and income taxes                 9.0       8.0      10.7      10.5
    Gain on sale of land                     -         -         -         -
    -------------------------------------------------------------------------
    Earnings before income taxes (EBT)     9.0       8.0      10.7      10.5
    Income tax provision:
      Current                              0.4       0.3       0.1       0.1
      Future(1)                            7.1       6.4       0.3       0.3
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                                           7.5       6.7       0.4       0.4
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    Net earnings                       $   1.5       1.3%  $  10.3      10.1%
    -------------------------------------------------------------------------
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    Earnings per unit - basic and
     diluted
      Excluding gain on sale of land(2)$  0.05             $  0.36
      Including gain on sale of land   $  0.05             $  0.36
    -------------------------------------------------------------------------


                                       --------------------------------------
    Periods ended June 30                            Six Months
    (in millions except per unit amounts)     2007                2006
    -------------------------------------------------------------------------
    Revenue - transportation services  $ 217.6     100.0%  $ 196.8     100.0%
    Revenue - fuel surcharges             27.6                28.3
    -------------------------------------------------------------------------
    Revenue - total                      245.2               225.1
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    Operating expenses - net of fuel
     surcharges                          167.3      76.9     151.6      77.0
    Selling, general and
     administration expenses              22.3      10.2      18.5       9.4
    -------------------------------------------------------------------------
    Earnings before amortization,
     interest, gain on sale of land
     and income taxes (EBITDA)            28.0      12.9      26.7      13.6
    Amortization of property and
     equipment                             6.6       3.0       6.5       3.3
    Amortization of intangible assets      2.0       1.0       1.0       0.5
    Net interest expense                   2.6       1.2       0.9       0.5
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    Earnings before gain on sale of
     land and income taxes                16.8       7.7      18.3       9.3
    Gain on sale of land                     -         -       2.9       1.5
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    Earnings before income taxes (EBT)    16.8       7.7      21.2      10.8
    Income tax provision:
      Current                              0.6       0.3       0.4       0.2
      Future(1)                            6.6       3.0       0.8       0.4
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                                           7.2       3.3       1.2       0.6
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    Net earnings                       $   9.6       4.4%  $  20.0      10.2%
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    Earnings per unit - basic and
     diluted
      Excluding gain on sale of land(2)$  0.33             $  0.61
      Including gain on sale of land   $  0.33             $  0.70
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    (1) Reflects a $7.6 million charge resulting from the enactment of new
        taxes on income trusts commencing in 2011.
    (2) The $7.6 million future tax charge has reduced the Fund's 2007 second
        quarter earnings per unit (basic and diluted) from $0.31 to $0.05.
        For the year-to-date, the impact has reduced earnings per unit (basic
        and diluted) from $0.59 to $0.33.

    SUMMARY OF QUARTERLY RESULTS
                                      ---------------------------------------
    (unaudited)                          First Quarter       Second Quarter
    (in millions except               ---------------------------------------
     per unit amounts)                   2007      2006      2007      2006
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    Revenue - transportation services  $ 106.4   $  94.6   $ 111.2   $ 102.2
    Revenue - fuel surcharges             13.0      12.9      14.6      15.4
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    Revenue - total                    $ 119.4   $ 107.5   $ 125.8   $ 117.6
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    Net earnings from continuing
     operations                        $   8.1   $   9.7   $   1.5   $  10.3
    Earnings (loss) from discontinued
     operations                              -         -         -         -
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    Net earnings                       $   8.1   $   9.7   $   1.5   $  10.3
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    Earnings (loss) per unit - basic
      Continuing operations            $  0.28   $  0.34   $  0.05   $  0.36
      Discontinued operations                -         -         -         -
    -------------------------------------------------------------------------
                                       $  0.28   $  0.34   $  0.05   $  0.36
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    Earnings (loss) per unit - diluted
      Continuing operations            $  0.28   $  0.34   $  0.05   $  0.36
      Discontinued operations                -         -         -         -
    -------------------------------------------------------------------------
                                       $  0.28   $  0.34   $  0.05   $  0.36
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                                      ---------------------------------------
    (unaudited)                          Third Quarter       Fourth Quarter
    (in millions except               ---------------------------------------
     per unit amounts)                   2006      2005      2006      2005
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    Revenue - transportation services  $  99.5   $  83.3   $ 103.6   $  90.0
    Revenue - fuel surcharges             14.9      13.4      12.0       9.5
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    Revenue - total                    $ 114.4   $  96.7   $ 115.6   $  99.5
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    Net earnings from continuing
     operations                        $   7.9   $   7.5   $   7.8   $   6.3
    Earnings (loss) from discontinued
     operations                              -      (0.7)        -         -
    -------------------------------------------------------------------------
    Net earnings                       $   7.9   $   6.8   $   7.8   $   6.3
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    Earnings (loss) per unit - basic
      Continuing operations            $  0.28   $  0.27   $  0.27   $  0.23
      Discontinued operations                -     (0.03)        -         -
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                                       $  0.28   $  0.24   $  0.27   $  0.23
    -------------------------------------------------------------------------
    Earnings (loss) per unit - diluted
      Continuing operations            $  0.28   $  0.27   $  0.27   $  0.22
      Discontinued operations                -     (0.03)        -         -
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                                       $  0.28   $  0.24   $  0.27   $  0.22
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    RESULTS FROM OPERATIONS

    Acquisitions generated additional revenues from transportation services
("revenue") of $16.6 million in the second quarter of 2007 and additional EBT
of $2.0 million ($36.9 million and $3.9 million year-to-date respectively)
compared to the same period in 2006. Core operations (operations existing at
the beginning of 2006) continued to be adversely affected by the strong
Canadian dollar, slowing economies in Central and Eastern Canada as well as a
slowdown in construction activity in both Canada and the US. Increased
competition in the marketplace has put pressure on pricing that has also
adversely affected revenue. Lower average fuel prices have caused revenue from
fuel surcharges to decrease in 2007 compared to 2006. The Fund's operating
expenses, as a percentage of revenue, have remained stable due to the impact
of the acquisition of an LTL operation in the fourth quarter of 2006. This LTL
operation has lower operating costs and higher selling, general and
administration expenses ("SG&A") compared to the Fund's logistics and
truckload operations.
    Acquisitions added $1.8 million to SG&A expenses during the quarter
($3.3 million year-to-date). Together with the effects of the Fund's LTL
operation, the Fund recognized a foreign exchange loss of $1.3 million (2006 -
loss of $0.4 million) during the quarter. Year-to-date foreign exchange losses
have amounted to $1.0 million in 2007 (2006 - loss of $0.4 million). In
addition, second quarter SG&A expenses in 2007 were reduced by a $0.3 million
downward adjustment to the management incentive compensation plan (2006 - $1.2
million downward adjustment).
    Net interest expense increased as a result of long-term debt, net of
cash, being higher in 2007 compared to 2006. This increase was largely caused
by the acquisitions made in 2006 and was also due to purchases of property and
equipment.
    On June 5, 2007, UPM, a major customer of the Fund, announced its
intention to close down its plant in Eastern Canada at the end of August 2007
for a period of up to one year and possibly indefinitely. The Fund is seeking
to replace this anticipated loss of revenue.
    On June 22, 2007, federal legislation (the "SIFT Rules") received royal
assent that will cause publicly-traded income trusts and partnerships to be
subject to income taxes in the same manner as corporations commencing in 2011.
Accordingly, the Fund recognized a one-time, non-cash, future income tax
provision of $7.6 million ($0.26 per unit) in the second quarter of 2007.

    SEASONALITY

    Generally, the second quarter is the Fund's 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. Harsh winter weather
conditions hinder traffic and increase operating costs.

    CASH FLOW

    Cash flow from operating activities (before changes in non-cash working
capital balances) amounted to $12.7 million in the second quarter of 2007
compared to $14.6 million in the second quarter of 2006 ($24.5 million and
$25.7 million year-to-date respectively). This decrease was primarily due to
the decrease in pre-tax earnings.
    The increase in non-cash working capital is due principally to the
increase in receivables arising from increased business activity that is
customary with the first half of the year. In addition, certain liabilities
relating to past acquisitions were settled during the second quarter. Licence
renewals also increased non-cash working capital by $0.6 million over the
first quarter.
    Due to reduced shipping volumes, the Fund has continued to dispose of
redundant equipment. Proceeds from the sale of property and equipment have
increased as a result compared to the same period in 2006. The Fund continues
to replace productive equipment as needed.

    PRODUCTIVE CAPACITY

    Definition

    The Fund's productive capacity is a function of:
    -   Tractors and trailers owned or leased by the Fund
    -   Tractors and trailers of owner-operators under contract with the Fund
    -   Partner carriers under contract with the Fund

    The Fund's capital requirements are affected by the proportion of
shipments made by each mode of providing service to its customers. In
addition, capital requirements also vary within the Fund's service offerings.
For example, a dry van trailer can cost between $25,000 and $40,000 whereas a
pneumatic tank trailer can cost in excess of $150,000.
    The Fund considers capital expenditures made to replace currently
productive tractors or trailers as expenditures made to maintain current
productive capacity ("maintenance capital expenditures"). In general, these
expenditures are made on specialized trailers, however, the Fund also incurs
capital expenditures designed to add to the Fund's productive capacity to meet
the needs of newly acquired customers. ("growth capital expenditures").

    History

    (unaudited)
    For the periods ended June 30         Three Months         Six Months
    (in millions)                        2007      2006      2007      2006
    -------------------------------------------------------------------------
    Revenue - Linehaul(1)              $  98.2   $  99.5   $ 190.9   $ 188.3
            - Brokerage(2)                27.6      18.1      54.3      36.8
    -------------------------------------------------------------------------
    Total Revenue                      $ 125.8   $ 117.6   $ 245.2   $ 225.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Purchase of property and equipment
    (unaudited)
    For the periods ended June 30         Three Months         Six Months
    (in millions)                        2007      2006      2007      2006
    -------------------------------------------------------------------------
    Maintenance - Tractors             $   0.1   $   0.5   $   0.1   $   0.8
                - Trailers                 0.6       1.5       2.6       2.9
                - Other(3)                 0.1         -       0.2       0.1
    -------------------------------------------------------------------------
    Total maintenance expenditure          0.8       2.0       2.9       3.8
    -------------------------------------------------------------------------
    Growth(4)   - Tractors                 0.1       0.1       0.1       1.1
                - Trailers                 0.8       2.9       2.2       6.3
                - Other(3)                 0.3       1.3       0.5       1.3
    -------------------------------------------------------------------------
    Total growth expenditure               1.3       4.3       2.8       8.8
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Purchase of property and
     equipment                         $   2.0   $   6.3   $   5.7   $  12.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Revenue - linehaul refers to revenue generated on company or
        owner-operated equipment.
    (2) Revenue - brokerage refers to revenue generated on partner carrier
        equipment.
    (3) Other includes real estate, yard improvements and office & shop
        equipment.
    (4) Growth includes anticipated growth and capital expenditure for new or
        existing customers, where customer needs exceed current productive
        capacity.

    Productive Capacity Management Strategy

    The Fund generally prefers the use of owner-operators over the use of
company tractors. Owner-operators own their own tractors providing the Fund
with equipment that it would otherwise have to lease or purchase. Some owner-
operators also own their own trailers. Accordingly, these individuals are
effectively a source of capital as well as providers of freight-hauling
capacity. In addition, owner-operators' goals are generally well-aligned with
those of the Fund since they need to make maximum use of their tractors just
as the Fund must make maximum use of its trailers. As a result, the Fund is
very focused on recruiting and retaining qualified owner-operators.
    The Fund is also focused on maintaining good working relationships with
partner carriers that are safe, provide reliable service and have adequate
insurance coverage. The Fund is often an important source of revenue for these
carriers who, in turn, provide service to the Fund's customers when the Fund
cannot provide its own equipment or when it is more efficient to make use of a
partner carrier capacity.

    Financing Strategy

    The Fund is averse to the inherent risk associated with fluctuations in
the market for used tractors and in the market for certain types of trailers
and, accordingly, prefers to lease these assets. Terms of tractor leases
usually co-terminate with engine warranty periods to protect the Fund from
costly repairs.

    LIQUIDITY AND CAPITAL RE

SOURCES (unaudited) (in millions) As at June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Cash and cash equivalents $ - $ 2.8 Operating line cash available $ 25.8 $ 30.0 Long-term debt available(1) $ 16.0 $ 16.0 Current ratio 1.7:1 1.7:1 Total debt (including future tax obligations) to equity ratio 1.0:1 0.9:1 ------------------------------------------------------------------------- (1) Availability expires November 1, 2007 but may be renewed by lender. Draws on this facility can be made for growth purposes only. The Fund requires working capital to meet day-to-day operating activities, to fund maintenance capital expenditures and to pay distributions. In 2007, management expects that the Fund's cash flow from operating activities will be sufficient to meet these requirements. Management believes that the Fund's operating line is adequate to meet seasonal fluctuations in working capital requirements. The trustees of the Fund assess the level of distribution each month based on the Fund's actual and expected performance as well as on the expected capital requirements to maintain its fleet over the longer term. The long-term debt facility is available to fund growth opportunities. DEBT FINANCING STRATEGY The Fund has entered into non-amortizing long-term loan agreements that provide for a single balloon payment at the end of each term. The payment of interest only as well as the fact that debt service costs are fixed provides added stability to the Fund's distributions. One of the term loans, with a principal balance of $37.5 million, matures on December 15, 2008. There is a risk that the Fund will not be able to refinance all, or part of, the balloon payments. The Fund is required to maintain certain financial ratios and thresholds. As at June 30, 2007, the Fund was at approximately 80% of the threshold of what management feels is the most stringent financial covenant. These factors pose a risk to the distributions that the Fund can pay to unitholders. PROPERTY AND EQUIPMENT (unaudited) As at June 30, 2007 Owner- Owned Leased operated Total ------------------------------------------------------------------------- Tractors 247 464 788 1,499 Trailers 1,700 542 140 2,382 Major office and terminal locations 16 4 - 20 ------------------------------------------------------------------------- TAX ATTRIBUTES OF DISTRIBUTIONS The tax attributes of the distributions made to holders of the Fund's subordinate voting trust units can be found on the Fund's website at www.contrans.ca under Investor Relations. CONTRACTUAL OBLIGATIONS In 2007, there has not been any material change in the Fund's contractual obligations outside the ordinary course of business. OUTSTANDING UNITS (unaudited) As at July 31, 2007 (in thousands) ------------------------------------------- Subordinate voting trust units 22,755 Class A LP units 4,810 Class B LP units 1,468 ------------------------------------------- Total 29,033 ------------------------------------------- CRITICAL ACCOUNTING ESTIMATES Management is required to make significant estimates and assumptions in preparing its financial statements. Management's discussion and analysis in the Fund's 2006 annual report contains a discussion of critical accounting estimates on page 9 of that annual report. These estimates have remained substantially unchanged. Furthermore, management does not believe that there are changes that are reasonably likely to occur in the assumptions that have been used that will have a material impact on the Fund's financial position, changes in financial condition or results of operations. NEW ACCOUNTING PRONOUNCEMENTS The Fund has adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income; CICA Handbook Section 3251, Equity; CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement; CICA Handbook Section 3861, Financial Instruments - Disclosure and Presentation; and CICA Handbook Section 3865, Hedges. These new Handbook Sections, which apply to fiscal years beginning on or after October 1, 2006, provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. The adoption of CICA Handbook Section 3855, has reduced both other current assets and long-term loans by $0.5 million at June 30, 2007 and has resulted in a nominal amount being reclassified from selling, general and administration expenses to interest expense for the quarter ended June 30, 2007. Financing fees and related transaction costs are offset against long- term debt and charged against income using the effective interest method over the life of the long-term debt. FINANCIAL INSTRUMENTS The Fund from time to time enters into foreign exchange contracts to manage its net exposure to currency fluctuations against the US dollar. As at June 30, 2007, the Fund had contracts with an aggregate value of US $1.7 million to sell US funds through August 2007. The contracts expire on a monthly basis over the period and require the Fund to sell US dollars for CAD dollars at rates between $1.0554 and $1.1643. As at June 30, 2007, the fair value of these contracts was $0.1 million. BUSINESS RISKS Management's discussion and analysis in the Fund's 2006 annual report contains a discussion of business risks on pages 10 and 11. Those risks remain in effect as at June 30, 2007. ECONOMIC AND INDUSTRY CONDITIONS The Canadian manufacturing and export sectors have been adversely affected by the strength of the Canadian dollar. This has had a direct impact on freight volumes in the transportation industry. In addition, legislation with respect to hours of service for truck drivers was introduced in Canada and became effective in 2007. These changes have not had a significant effect on the productivity of the Fund's drivers. TRANSACTIONS WITH RELATED PARTIES In the second quarter of 2007, $1.6 million ($3.0 million year-to-date) was paid by the Fund to Peterbilt of Ontario Inc., a company controlled by the Chairman of the Fund, for tractor repairs, maintenance and equipment lease costs. The Fund also leased certain premises to Peterbilt of Ontario Inc. in 2007 for consideration of $0.1 million year-to-date. These transactions were carried out in the normal course of business and recorded at the exchange amount, which management believes approximates an arm's length arrangement. 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. EBITDA, maintenance capital expenditures and growth capital expenditures: Management believes that these measures are useful supplements to the information contained in the Fund's statements of cash flow as they facilitate a greater depth of analysis. Accordingly, these measures can enhance the evaluation of the Fund's historical and prospective operating performances as well as the sustainability of the Fund's distributions. 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 Management's discussion and analysis 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 the Fund's 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 the Fund 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 the Fund's Annual Information Form, which is available at www.sedar.com. Although the Fund 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. ADDITIONAL INFORMATION Additional information, including the Fund's Annual Information Form, is available at www.sedar.com. August 8, 2007 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands except for per unit amounts) (unaudited) ---------------------------------------------- For the periods ended Three Months Six Months June 30 2007 2006 2007 2006 ------------------------------------------------------------------------- Revenue $ 125,850 $ 117,560 $ 245,253 $ 225,055 Operating expenses 99,288 93,370 194,940 179,888 Selling, general and administration expenses 11,999 9,021 22,309 18,481 Amortization of property and equipment 3,299 3,380 6,634 6,483 Amortization of intangible assets 954 565 1,991 1,031 ------------------------------------------------------------------------- 10,310 11,224 19,379 19,172 Net interest expense (income) - long-term 1,242 675 2,499 1,326 - short-term 60 (169) 51 (460) ------------------------------------------------------------------------- Earnings before Gain on Sale of Land and Income Taxes 9,008 10,718 16,829 18,306 Gain on sale of land (Note 10) - - - 2,867 ------------------------------------------------------------------------- Earnings before Income Taxes 9,008 10,718 16,829 21,173 Income taxes 7,462 424 7,218 1,140 ------------------------------------------------------------------------- Net Earnings and Comprehensive Income $ 1,546 $ 10,294 $ 9,611 $ 20,033 ------------------------------------------------------------------------- Earnings per unit - basic and diluted $ 0.05 $ 0.36 $ 0.33 $ 0.70 Weighted average number of units outstanding - basic 28,899 28,472 28,823 28,426 - diluted 28,899 28,540 28,823 28,553 ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (in thousands) (unaudited) ---------------------------------------------- For the periods ended Three Months Six Months June 30 2007 2006 2007 2006 ------------------------------------------------------------------------- Retained Earnings - Beginning of Period $ 17,999 $ 20,312 $ 18,975 $ 19,629 Net earnings 1,546 10,294 9,611 20,033 Premium paid on units repurchased - (597) (48) (773) Distributions declared (9,043) (8,900) (18,036) (17,780) ------------------------------------------------------------------------- Retained Earnings - End of Period $ 10,502 $ 21,109 $ 10,502 $ 21,109 ------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. CONSOLIDATED BALANCE SHEETS (in thousands) ------------------------ As at June 30 December 31 2007 2006 ------------------------------------------------------------------------- Assets (unaudited) (audited) Current Assets Cash and cash equivalents $ - $ 2,844 Accounts receivable 59,611 55,615 Income taxes recoverable 114 - Other current assets 7,683 6,389 ------------------------------------------------------------------------- 67,408 64,848 Property and Equipment 110,700 112,747 Goodwill 58,681 56,987 Intangible Assets 24,805 26,314 ------------------------------------------------------------------------- $ 261,594 $ 260,896 ------------------------------------------------------------------------- Liabilities Current Liabilities Operating loan $ 4,223 $ - Accounts payable and accrued liabilities 31,083 35,138 Distributions payable 3,020 3,102 Income taxes payable - 87 Current portion of long-term debt 474 420 ------------------------------------------------------------------------- 38,800 38,747 Long-Term Debt 74,117 74,914 Asset Retirement Obligations 1,104 1,029 Future Income Taxes 15,393 8,763 ------------------------------------------------------------------------- 129,414 123,453 ------------------------------------------------------------------------- Unitholders' Equity (Note 4) Contributed surplus 722 663 Trust units 120,956 117,805 Retained earnings 10,502 18,975 ------------------------------------------------------------------------- 132,180 137,443 ------------------------------------------------------------------------- $ 261,594 $ 260,896 ------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. Signed on behalf of the Board of Trustees Stan G. Dunford, Trustee Archie M. Leach, C.A., Trustee CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands) (unaudited) ---------------------------------------------- For the periods ended Three Months Six Months June 30 2007 2006 2007 2006 ------------------------------------------------------------------------- Cash Provided by (Used in) Operating Activities Net earnings $ 1,546 $ 10,294 $ 9,611 $ 20,033 Items not affecting cash: Unit-based compensation cost (Note 6) 22 (12) 59 180 Unrealized foreign exchange gain (99) - (80) - Long term debt - accretion 29 - 64 - Asset retirement obligations - accretion 14 12 27 23 Amortization of property and equipment 3,299 3,380 6,634 6,483 Amortization of intangible assets 954 565 1,991 1,031 Future income taxes (Note 8) 7,106 250 6,630 810 Gain on sale of land (Note 10) - - - (2,867) Loss (gain) on sale of equipment (169) 92 (435) (39) ------------------------------------------------------------------------- 12,702 14,581 24,501 25,654 Change in non-cash working capital (Note 7) (5,543) (6,267) (10,121) (10,610) ------------------------------------------------------------------------- 7,159 8,314 14,380 15,044 ------------------------------------------------------------------------- Investing Activities Expended on acquisitions (Note 3) - (13,854) (3,256) (19,027) Asset retirement obligations - settlements (28) (40) (50) (52) Sale of land - - - 3,717 Sale of equipment 1,121 449 2,775 1,220 Purchase of property and equipment (2,015) (6,290) (5,682) (12,548) ------------------------------------------------------------------------- (922) (19,735) (6,213) (26,690) ------------------------------------------------------------------------- Financing Activities Distributions paid - regular (9,026) (8,894) (18,118) (17,755) - special - - - (6,501) Proceeds from long-term debt 65 11 80 125 Repayment of long-term debt (108) (64) (299) (93) Repurchase of units - (981) (91) (1,277) Issuance of units 1,759 1,967 3,194 4,276 ------------------------------------------------------------------------- (7,310) (7,961) (15,234) (21,225) ------------------------------------------------------------------------- Decrease in Cash and Cash Equivalents (1,073) (19,382) (7,067) (32,871) Cash and Cash Equivalents (Operating Loan) - Beginning of Period (3,150) 32,770 2,844 46,259 ------------------------------------------------------------------------- Cash and Cash Equivalents (Operating Loan) - End of Period $ (4,223) $ 13,388 $ (4,223) $ 13,388 ------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the periods ended June 30, 2007 and 2006 (Unaudited, tabular amounts in thousands except for per unit amounts) ------------------------------------------------------------------------ 1. BASIS OF PRESENTATION These unaudited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles for interim financial statements using the same accounting policies as were applied in the audited consolidated financial statements for the year ended December 31, 2006 except as described in note 2. 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 the Fund for the year ended December 31, 2006. 2. CHANGES IN ACCOUNTING POLICIES The Fund has adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income; CICA Handbook Section 3251, Equity; CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement; CICA Handbook Section 3861, Financial Instruments - Disclosure and Presentation; and CICA Handbook Section 3865, Hedges. These new Handbook Sections, which apply to fiscal years beginning on or after October 1, 2006, provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Under these new standards, all financial instruments are classified into one of the following five categories: held for trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments, including derivatives, are included on the consolidated balance sheet and are measured either at fair market value, with the exception of loans and receivables, held-to-maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and recognition of changes in fair value of financial instruments depend on their initial classification. Held for trading financial investments are measured at fair value and all gains and losses are included in net income in the period in which they arise. Available-for-sale financial instruments are measured at fair value with revaluation gains and losses included in other comprehensive income until the assets are removed from the balance sheet. The standards also require derivative instruments to be recorded as either assets or liabilities measured at their fair value unless exempted from derivative treatment as a normal purchase and sale. Certain derivatives embedded in other contracts must also be measured at fair value. All changes in the fair value of derivatives are recognized in earnings unless specific hedge criteria are met, which requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The adoption of these standards by the Fund has reduced both prepaid expenses and long term loans by $0.5 million at June 30, 2007 and has resulted in a nominal amount being reclassified from selling, general and administration expenses to interest expense for the period ended June 30, 2007. Financing fees and related transaction costs are offset against long-term debt and charged against income using the effective interest method over the life of the long-term debt. 3. ACQUISITIONS Period ended June 30, 2007 Marco ECL Total ------------------------------------------------------------------------- Accounts receivable $ 706 $ - $ 706 Other current assets 8 - 8 Property and equipment 1,147 - 1,147 Intangible assets - Customer relationships 200 - 200 Non-competition agreements 282 - 282 Goodwill - 1,694 1,694 ------------------------------------------------------------------------- Fair value of assets acquired 2,343 1,694 4,037 ------------------------------------------------------------------------- Accounts payable & accrued liabilities 781 - 781 ------------------------------------------------------------------------- Fair value of liabilities assumed 781 - 781 ------------------------------------------------------------------------- $ 1,562 $ 1,694 $ 3,256 ------------------------------------------------------------------------- Consideration Cash $ 1,562 $ 1,694 $ 3,256 ------------------------------------------------------------------------- ------------------------------------------------------------------------- % Shares Service Entity acquired Date Acquired Province Area ------------------------------------------------------------------------- Marco Transport Inc. ("Marco") 1-Mar-07 100% Quebec Dump ------------------------------------------------------------------------- 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. The purchase price and fair value allocation are subject to final adjustments. Due to the achievement of certain performance objectives, the Fund paid additional consideration to the former owner of Elgin Cartage Limited ("ECL"), a company acquired by the Fund in 2004. Contributed Trust Retained Surplus Units Earnings Total ------------------------------------------------------------------------- Balance - December 31, 2006 $ 663 $ 117,805 $ 18,975 $ 137,443 Net earnings for the period - - 9,611 9,611 Distributions declared - - (18,036) (18,036) Unit-based compensation 59 - - 59 Issuance of units - 3,194 - 3,194 Repurchase of units - (43) (48) (91) ------------------------------------------------------------------------- Balance - June 30, 2007 $ 722 $ 120,956 $ 10,502 $ 132,180 ------------------------------------------------------------------------- 5. FINANCIAL INSTRUMENTS The Fund from time to time enters into foreign exchange contracts to manage its net exposure to currency fluctuations against the US dollar. As at June 30, 2007, the Fund had contracts with an aggregate value of US $ 1.7 million to sell US funds through August 2007. The contracts expire on a monthly basis evenly over the period and require the Fund to sell US dollars for CAD dollars at rates between $1.0554 and $1.1643. As at June 30, 2007, the fair value of these contracts was $0.1 million (December 31, 2006 - liability of $0.1 million) which has been included in other current assets on the balance sheet. Weighted Average Exercise Units Price ------------------------------------------------------------------------- Unit options outstanding, December 31, 2006 2,179 $ 12.21 Granted - - Exercised - - ------------------------------------------------------------------------- Unit options outstanding, June 30, 2007 2,179 $ 12.21 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Unit options exercisable, end of period 1,241 $ 12.02 Period ended June 30, 2007 Amount charged to compensation expense - three months $ 22 - six months $ 59 ------------------------------------------------------------------------- 7. CASH FLOW Change in non-cash working capital: Period ended June 30 Three Months Six Months ---------------------- ---------------------- 2007 2006 2007 2006 ------------------------------------------------------------------------- Increase in accounts receivable $ (826) $ (4,274) $ (3,290) $ (6,043) Increase in other current assets (559) (158) (1,794) (1,983) Decrease in accounts payable and accrued liabilities (4,439) (2,127) (4,836) (2,144) Change in income taxes 281 292 (201) (440) ------------------------------------------------------------------------- Net change in non-cash working capital $ (5,543) $ (6,267) $ (10,121) $ (10,610) ------------------------------------------------------------------------- Cash paid (received) in respect of: Interest $ 1,292 $ 489 $ 2,503 $ 835 Income taxes 102 (80) 816 808 ------------------------------------------------------------------------- 8. INCOME TAXES On June 22, 2007, legislation (the "SIFT Rules") relating to the federal income taxation of publicly-listed or traded trusts (such as income trusts and real estate investment trusts) and partnerships received royal assent. The SIFT Rules apply to a publicly-traded trust that is a specified investment flow-through entity (a "SIFT") which existed before November 1, 2006 ("Existing Trust") commencing with taxation years ending in 2011. From 2011, certain distributions attributable to a SIFT will not be deductible in computing the SIFT's taxable income, and the SIFT will be subject to tax on such distributions at a rate that is substantially equivalent to the general tax rate applicable to Canadian corporations. Distributions paid by a SIFT as returns of capital will not be subject to this tax. There may be circumstances where an Existing Trust could lose its transitional relief where its equity capital grows beyond certain dollar limits measured by reference to the Existing Trust's market capitalization at the close of trading on October 31, 2006. The Fund is a SIFT as defined in the Legislation. Accordingly, the Fund will be subject to taxes on distributions of certain income earned from investments in its trading partnerships made after 2010. The Fund is also required to recognize future income tax assets and liabilities with respect to the temporary differences between the carrying amount and the tax bases of its assets and liabilities and those of its flow-through entities that are expected to reverse in or after 2011. The impact of this legislation in this period is a future income tax expense of $7.6 million. 9. SEASONALITY The Fund is subject to seasonal influences. Freight transportation volumes have historically peaked in the second and third quarters of the year. Freight shipments in the first and fourth quarters are affected by winter weather conditions and plant closings during the Christmas holiday season. 10. SALE OF LAND During the first quarter of 2006, the Fund sold a vacant parcel of surplus land that was in excess of operating requirements for proceeds of $3.7 million. This transaction resulted in a gain of $2.9 million before an income tax charge of $0.4 million.

For further information:

For further information: Stan Dunford, Chairman and Chief Executive
Officer, or Greg Rumble, President and Chief Operating Officer, Phone: (519)
421-4600, E-mail: info@contrans.ca, Web site: www.contrans.ca

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Contrans Group Inc.

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