WOODSTOCK, ON,
(unaudited) --------------------------------- For the periods ended September 30 Three Months (in millions except per unit amounts) 2009 2008 ------------------------------------------------------------------------- Revenue - as stated $ 99.0 $ 128.9 - fuel surcharges(1) (8.0) (24.3) ------------------------------------------------------------------------- Revenue - transportation services(1) 91.0 100.0% 104.6 100.0% ------------------------------------------------------------------------- Operating expenses - net of fuel surcharges 69.8 76.7 77.0 73.6 Selling, general and administration expenses 9.3 10.2 10.6 10.1 Foreign exchange gain (0.7) (0.8) - - ------------------------------------------------------------------------- Earnings before amortization, interest and income taxes 12.6 13.9 17.0 16.3 Amortization of property and equipment 3.0 3.3 3.2 3.1 Amortization of intangible assets 0.9 1.0 0.9 0.9 Net interest expense 1.4 1.5 1.5 1.4 ------------------------------------------------------------------------- Earnings before income taxes 7.3 8.1 11.4 10.9 ------------------------------------------------------------------------- Income tax provision (recovery): Current (0.4) (0.4) 0.1 0.1 Future 0.9 1.0 (0.1) (0.1) ------------------------------------------------------------------------- 0.5 0.6 - - ------------------------------------------------------------------------- Net earnings $ 6.8 7.5% $ 11.4 10.9% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per unit - basic and diluted $ 0.23 $ 0.39 ------------------------------------------------------------------------- (unaudited) ---------------------------------- For the periods ended September 30 Nine Months (in millions except per unit amounts) 2009 2008 ------------------------------------------------------------------------- Revenue - as stated $ 274.4 $ 379.2 - fuel surcharges(1) (21.1) (66.5) ------------------------------------------------------------------------- Revenue - transportation services(1) 253.3 100.0% 312.7 100.0% ------------------------------------------------------------------------- Operating expenses - net of fuel surcharges 197.4 77.9 237.0 75.8 Selling, general and administration expenses 26.0 10.3 32.6 10.4 Foreign exchange gain (1.3) (0.5) (0.5) (0.2) ------------------------------------------------------------------------- Earnings before amortization, interest and income taxes 31.2 12.3 43.6 14.0 Amortization of property and equipment 9.1 3.6 9.3 3.0 Amortization of intangible assets 2.8 1.1 2.8 0.9 Net interest expense 4.2 1.7 4.3 1.4 ------------------------------------------------------------------------- Earnings before income taxes 15.1 5.9 27.2 8.7 ------------------------------------------------------------------------- Income tax provision (recovery): Current 1.5 0.6 0.4 0.1 Future (0.9) (0.4) 0.2 0.1 ------------------------------------------------------------------------- 0.6 0.2 0.6 0.2 ------------------------------------------------------------------------- Net earnings $ 14.5 5.7% $ 26.6 8.5% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per unit - basic and diluted $ 0.48 $ 0.92 ------------------------------------------------------------------------- (1) See "Use of non-GAAP Financial Measures" below.
"Early in 2009, Contrans' Board of Trustees declared distributions amounting to
"The tremendous popularity of income trusts, prior to the federal government's decision to make them taxable, was a clear sign to us of the significant demand for yield-bearing securities," continued
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
RESULTS FROM OPERATIONS
The current recession has significantly affected the North American trucking industry in 2009. The Fund's year over year revenues and profit performance have declined across all service lines. Third quarter revenue remained lower than last year but has recovered slightly from the first two quarters of 2009. Part of the third quarter improvement came from a project involving the transportation of environmentally-sensitive material that generated
Overcapacity persists in the freight transportation industry and has adversely affected equipment utilization and freight rates. This has caused the Fund's operating expenses, measured as a percentage of revenue, to increase in 2009. Improved third quarter revenue volume has, however, had a favourable impact on the Fund's operating margin. Accident claim costs fell
Cost cutting initiatives undertaken by management in late 2008 and in early 2009 have reduced the Fund's selling, general and administration ("SG&A") expenses in 2009 compared to 2008. Cuts to staff levels and to the management incentive program reduced compensation expenses by
In 2009, the Fund also incurred the following SG&A expenses that are not expected to recur: - $0.3 million that related to the Fund's proposed conversion to a corporation in the third quarter. Additional conversion costs of $0.6 million are expected to be incurred in the fourth quarter. - $0.3 million write down on the value of a piece of property in the third quarter. The property is no longer in use and has been listed for sale. - $0.3 million provision against notes receivable in the third quarter ($0.6 million year-to-date) to recognize an increased credit risk.
In 2008, the Fund realigned its east coast operations and approximately
Foreign exchange gains in 2009 resulted primarily from mark-to-market adjustments to the Fund's outstanding foreign exchange contracts (See "Financial Instruments" below).
Net debt levels fell in 2009 compared to 2008 and as a result net interest expense has decreased by
SUMMARY OF QUARTERLY RESULTS (unaudited) -------------------------------------------------------- (in millions First Second Third Fourth except per unit Quarter Quarter Quarter Quarter amounts) 2009 2008 2009 2008 2009 2008 2008 2007 ------------------------------------------------------------------------- Revenue - as stated $ 88.0 $120.5 $ 87.4 $129.7 $ 99.0 $128.9 $109.6 $118.5 - fuel surcharges(1) (7.1) (18.2) (6.0) (23.9) (8.0) (24.3) (12.7) (15.2) ------------------------------------------------------------------------- Revenue - transportation services(1) $ 80.9 $102.3 $ 81.4 $105.8 $ 91.0 $104.6 $ 96.9 $103.3 ------------------------------------------------------------------------- Net earnings $ 1.5 $ 5.0 $ 6.2 $ 10.2 $ 6.8 $ 11.4 $ 3.0 $ 7.5 ------------------------------------------------------------------------- Earnings per unit - basic and diluted $ 0.05 $ 0.17 $ 0.20 $ 0.35 $ 0.23 $ 0.39 $ 0.10 $ 0.26 ------------------------------------------------------------------------- (1) See "Use of non-GAAP Financial Measures" below.
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. In 2009 the seasonal factors affecting the Fund's business have been less noticeable due to the impact of the recession.
CASH FLOW
The Fund's Board of Trustees suspended distributions in
Due to the achievement of certain performance objectives contained in the purchase agreement with respect to Tripar Transportation Inc., a company acquired by the Fund in 2006, a final payment of
The Fund has continued to rationalize its fleet during the economic downturn resulting in the sale of more equipment than in 2008. In addition, the Fund sold a terminal, located in
In
The balances of accounts receivable and accounts payable increased in the third quarter due to increased revenue volumes. Income taxes payable have also increased primarily due to the suspension of distributions. Accrued liabilities have decreased by
LIQUIDITY AND CAPITAL RESOURCES (unaudited) (in millions) September 30, December 31, As at 2009 2008 ------------------------------------------------------------------------- Cash and cash equivalents $ 31.4 $ 18.5 Restricted cash $ 7.4 $ 10.4 Operating line available $ 27.4 $ 29.1 Current ratio 2.8:1 1.9:1 Total debt (including future tax obligations) to equity ratio 1.0:1 1.1:1 -------------------------------------------------------------------------
The Fund requires working capital for day-to-day operations. This is sourced from operating cash flows and from its operating line. Management believes that the Fund's operating line, which is secured by and margined with its accounts receivable, is adequate to meet seasonal bulges in working capital requirements.
Under the terms of its long-term credit agreement, the Fund's restricted cash can only be used to finance growth activities or to repay senior secured notes.
Principal maturities of the Fund's senior secured debt are as follows: (millions) ---------------------------- December 15, 2013 $ 31.9 October 15, 2016 $ 50.0 ---------------------------- CASH DISTRIBUTIONS (unaudited) -------------------------------------------- Three Nine Previously completed Months Months fiscal years ended ended Sept 30, Sept 30, (in thousands) 2009 2009 2008 2007 ------------------------------------------------------------------------- Cash flow provided by operating activities $ 8,443 $ 24,465 $ 50,474 $ 46,597 Net earnings 6,820 14,477 29,512 26,225 Distributions declared - 6,203 36,457 36,033 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Surplus of cash flow from operating activities over distributions declared $ 8,443 $ 18,262 $ 14,017 $ 10,564 Surplus (deficit) of net earnings over distributions declared $ 6,820 $ 8,274 $ (6,945) $ (9,808) ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net earnings $ 6,820 $ 14,477 $ 29,512 $ 26,225 Change in unrealized loss (gain) on foreign exchange (1,272) (5,097) 5,131 (553) Amortization of intangible assets 943 2,828 3,778 3,881 Change in future income tax provision (recovery) 921 (910) 113 6,897 ------------------------------------------------------------------------- Net earnings before change in unrealized loss (gain) on foreign exchange, amortization of intangible assets and future income tax provision (recovery) $ 7,412 $ 11,298 $ 38,534 $ 36,450 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Surplus of net earnings before change in unrealized loss (gain) on foreign exchange, amortization of intangible assets and future income tax provision (recovery) over distributions declared $ 7,412 $ 5,095 $ 2,077 $ 417 ------------------------------------------------------------------------- ------------------------------------------------------------------------- DISTRIBUTABLE CASH(1) (unaudited) (in thousands except per unit amounts) ------------------------------------------- For the periods ended Three Months Nine Months September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Cash flow provided by operating activities $ 8,443 $ 18,909 $ 24,465 $ 30,833 Change in non-cash working capital 2,556 (3,013) (3,494) 8,499 Proceeds on sale of equipment 1,401 833 3,908 2,496 Asset retirement obligations - settlements (75) (121) (133) (144) Repayment of capital lease obligations (493) (938) (1,375) (1,260) Repayment of long-term debt (39) - (393) (378) Maintenance capital expenditures(1) (1,628) (883) (4,104) (3,226) ------------------------------------------------------------------------- Distributable cash earned before proceeds on disposal of business units(1) 10,165 14,787 18,874 36,820 Proceeds on disposal of business units - 2,107 100 2,107 ------------------------------------------------------------------------- Distributable cash earned(1) 10,165 16,894 18,974 38,927 Distributions declared - 9,146 6,203 27,228 ------------------------------------------------------------------------- Surplus of distributable cash earned over distributions declared $ 10,165 $ 7,748 $ 12,771 $ 11,699 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Per unit calculations Distributable cash earned before proceeds on sale of business units $ 0.34 $ 0.51 $ 0.63 $ 1.27 Proceeds on sale of business units - 0.07 - 0.07 ------------------------------------------------------------------------- $ 0.34 $ 0.58 $ 0.63 $ 1.34 Distributions declared per unit - 0.31 0.21 0.94 ------------------------------------------------------------------------- Surplus of distributable cash earned over distributions declared per unit $ 0.34 $ 0.27 $ 0.42 $ 0.40 ------------------------------------------------------------------------- Weighted average number of units outstanding 29,937 29,219 29,884 29,003 ------------------------------------------------------------------------- Purchase of property and equipment Maintenance capital expenditures(1) $ 1,628 $ 883 $ 4,104 $ 3,226 Growth capital expenditures(1) 1,219 111 4,039 2,547 ------------------------------------------------------------------------- Total $ 2,847 $ 994 $ 8,143 $ 5,773 ------------------------------------------------------------------------- (1) See "Use of non-GAAP Financial Measures" below.
On
In the event that this conversion takes place, management will be recommending a dividend policy. While no final decision can be made concerning this dividend policy at this time, management believes that a payout of 30% of the free cash flow of the new public corporation, paid quarterly, would satisfy the goals of yield-seeking investors. However, the payment of dividends will always remain subject to the discretion of the corporation's Board of Directors.
On
DISTRIBUTABLE CASH EARNED - RECONCILIATION
Cash used to fund working capital, growth capital expenditures or debt repayments does not affect amounts that can be distributed to unitholders when financing is available. Similarly, cash generated by changes in non-cash working capital is not considered distributable to unitholders. Proceeds from the sale of retired highway equipment effectively reduce the cost of maintenance capital expenditures and therefore these proceeds need to be considered when determining what amounts can be distributed to unitholders. Settlements of asset retirement obligations reflect amounts paid by the Fund, at the termination of equipment leases, to bring such equipment to the condition that was stipulated and agreed to in each lease contract. Accordingly, these settlements need to be considered when determining distributable cash earned since they are not deducted from cash provided by (used in) operating activities in the consolidated statements of cash flow. Maintenance capital expenditures refer to capital expenditures that are necessary to sustain current revenue levels and therefore reduce the amount of cash that is available for distribution.
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.
Distributable cash, distributable cash earned, maintenance capital expenditures, 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.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (in thousands except for per unit amounts) (unaudited) ------------------------------------------- For the periods ended Three Months Nine Months September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Revenue $ 99,009 $ 128,933 $ 274,402 $ 379,204 Operating expenses 77,717 101,234 218,503 303,465 Selling, general and administration expenses 9,279 10,643 25,959 32,611 Foreign exchange loss (gain) (658) 17 (1,273) (502) Amortization of property and equipment 2,985 3,164 9,062 9,240 Amortization of intangible assets 943 944 2,828 2,833 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 8,743 12,931 19,323 31,557 Net interest expense (income) - long-term 1,456 1,609 4,372 4,695 - short-term (35) (118) (145) (360) ------------------------------------------------------------------------- Earnings before Income Taxes 7,322 11,440 15,096 27,222 ------------------------------------------------------------------------- Income Tax Provision (Recovery) Current (419) 158 1,529 452 Future 921 (140) (910) 200 ------------------------------------------------------------------------- 502 18 619 652 ------------------------------------------------------------------------- Net Earnings and Comprehensive Income $ 6,820 $ 11,422 $ 14,477 $ 26,570 ------------------------------------------------------------------------- Earnings per unit - basic and diluted $ 0.23 $ 0.39 $ 0.48 $ 0.92 Weighted average number of units outstanding - basic and diluted 29,937 29,219 29,884 29,003 ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (in thousands) (unaudited) ------------------------------------------- For the periods ended Three Months Nine Months September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Retained Earnings - Beginning of Period $ 1,889 $ 4,446 $ 435 $ 7,380 Net earnings 6,820 11,422 14,477 26,570 Distributions declared - (9,146) (6,203) (27,228) ------------------------------------------------------------------------- Retained Earnings - End of Period $ 8,709 $ 6,722 $ 8,709 $ 6,722 ------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. CONSOLIDATED BALANCE SHEETS (in thousands) ---------------------------- September 30, December 31, As at 2009 2008 ------------------------------------------------------------------------- Assets (unaudited) (audited) Current Assets Cash and cash equivalents $ 31,368 $ 18,451 Accounts receivable 50,970 49,089 Income taxes recoverable - 538 Other current assets 5,907 6,167 ------------------------------------------------------------------------- 88,245 74,245 Restricted Cash (Note 6) 7,375 10,375 Notes Receivable (Note 3) 320 538 Property and Equipment 101,820 106,551 Intangible Assets 16,077 18,905 Goodwill 63,764 63,978 ------------------------------------------------------------------------- $ 277,601 $ 274,592 ------------------------------------------------------------------------- Liabilities and Unitholders' Equity Current Liabilities Accounts payable and accrued liabilities $ 29,320 $ 33,215 Distributions payable - 3,087 Income taxes payable 644 - Current portion of capital lease obligations 1,646 1,823 Current portion of long-term debt 333 - ------------------------------------------------------------------------- 31,943 38,125 Long-term Debt 85,288 83,686 Capital Lease Obligations 6,189 7,518 Asset Retirement Obligations 932 1,036 Future Income Taxes 14,863 15,773 ------------------------------------------------------------------------- 139,215 146,138 ------------------------------------------------------------------------- Unitholders' Equity (Note 4) Contributed surplus 961 834 Trust units 128,716 127,185 Retained earnings 8,709 435 ------------------------------------------------------------------------- 138,386 128,454 ------------------------------------------------------------------------- $ 277,601 $ 274,592 ------------------------------------------------------------------------- Subsequent event (Notes 12) The accompanying notes are an integral part of these statements. CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands) (unaudited) ------------------------------------------- For the periods ended Three Months Nine Months September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Cash Provided by (Used in): Operating Activities Net earnings $ 6,820 $ 11,422 $ 14,477 $ 26,570 Items not affecting cash: Change in unrealized loss (gain) on foreign exchange (1,272) 445 (5,097) 388 Unit-based compensation expense (Note 7) 84 22 127 67 Long-term debt - accretion 20 36 59 110 Loss (gain) on sale of business units (Note 3) - 79 (23) 79 Fair value adjustment of notes receivable (Note 3) 311 - 568 - Asset retirement obligations - accretion 10 12 30 38 Amortization of property and equipment 2,985 3,164 9,062 9,240 Amortization of intangible assets 943 944 2,828 2,833 Future income taxes 921 (140) (910) 200 Loss (gain) on sale of equipment 177 (88) (150) (193) ------------------------------------------------------------------------- 10,999 15,896 20,971 39,332 Change in non-cash working capital (Note 8) (2,556) 3,013 3,494 (8,499) ------------------------------------------------------------------------- 8,443 18,909 24,465 30,833 ------------------------------------------------------------------------- Investing Activities Expended on acquisitions (Note 9) (75) - (3,075) - Transfer from restricted cash - - 3,000 - Asset retirement obligations - settlements (75) (121) (133) (144) Proceeds on disposal of business units (Note 3) - 2,107 100 2,107 Proceeds from note receivable (Note 3) 32 - 53 - Proceeds on sale of equipment 1,401 833 3,908 2,496 Purchase of property and equipment (2,847) (994) (8,143) (5,773) ------------------------------------------------------------------------- (1,564) 1,825 (4,290) (1,314) ------------------------------------------------------------------------- Financing Activities Distributions paid - (9,122) (9,290) (27,167) Repayment of operating loan - (4,851) - - Proceeds from long-term debt 2,143 68 2,269 321 Repayment of long-term debt (39) - (393) (378) Repayment of capital lease obligations (493) (938) (1,375) (1,260) Distribution reinvestment plan (Note 4) - 1,992 1,531 4,905 ------------------------------------------------------------------------- 1,611 (12,851) (7,258) (23,579) ------------------------------------------------------------------------- Increase in Cash and Cash Equivalents 8,490 7,883 12,917 5,940 Cash and Cash Equivalents - Beginning of Period 22,878 358 18,451 2,301 ------------------------------------------------------------------------- Cash and Cash Equivalents - End of Period $ 31,368 $ 8,241 $ 31,368 $ 8,241 ------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the periods ended September 30, 2009 and 2008 (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, 2008 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, 2008. 2. Adoption of Accounting Standards Effective January 1, 2009, the Fund adopted the Canadian Institute of Chartered Accountants ("CICA") revised Handbook Section 3064 - Goodwill and Intangible Assets. This section establishes new standards for the recognition and measurement of intangible assets, but does not affect accounting for goodwill. Adoption of this revised section had no impact on the Fund's financial statements. Effective January 20, 2009 the Fund adopted the Emerging Issues Committee ("EIC") abstract EIC 173 - Credit Risks and the Fair Value of Financial Assets and Liabilities. This abstract provides further guidance on CICA Handbook Section 3855 Financial Instruments - Recognition and Measurement and concludes that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities. Adoption of EIC 173 had no significant impact on the Fund's financial statements. 3. Disposal of Business Units Net book value of assets disposed: Business Unit Veritrans(1) ------------------------------------------------------------------------- Property and Equipment $ 53 Goodwill 289 Other current assets 10 Accounts receivable 31 Accounts payable and accrued liabilities (6) ------------------------------------------------------------------------- $ 377 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consideration received: Cash $ 100 Note receivable (fair value): Current 137 Long-term 163 ------------------------------------------------------------------------- $ 400 ------------------------------------------------------------------------- Loss (gain) on sale of business unit $ (23) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Notes receivable (fair value) Current Long-term Total ------------------------------------------------------------------------- Note received as part consideration for plant services $ 307 $ 687 $ 994 Fair value adjustment - 2008 (77) (149) (226) ------------------------------------------------------------------------- As at December 31, 2008 $ 230 $ 538 $ 768 Note received as part consideration for Veritrans 137 163 300 Cash received (53) - (53) Fair value adjustments - 2009 (187) (381) (568) ------------------------------------------------------------------------- As at September 30, 2009 $ 127 $ 320 $ 447 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) In March 2009, the Fund disposed of its fuel tax reporting and driver log checking operation (Veritrans). This operation was acquired by the Fund in 2005 and generated $0.2 million of revenues for the year ended December 31, 2008. Principal payments are based on revenues generated and are payable monthly. The note matures in April 2013. The current portions of the notes receivable are included in accounts receivable. The fair value adjustments to the notes receivable were made to reflect increased credit risk. 4. Unitholders' Equity Contributed Trust Retained Surplus Units Earnings Total ------------------------------------------------------------------------- Balance at December 31, 2008 $ 834 $ 127,185 $ 435 $ 128,454 Net earnings - - 14,477 14,477 Distributions declared - - (6,203) (6,203) Distribution reinvestment plan - 1,531 - 1,531 Unit-based compensation 127 - - 127 ------------------------------------------------------------------------- Balance at September 30, 2009 $ 961 $ 128,716 $ 8,709 $ 138,386 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Conversion On August 5, 2009, the Fund's Board of Trustees recommended to unitholders that they approve a conversion of the Fund into a corporate entity. If the Fund's unitholders approve this recommendation, the conversion will be treated as a change in business form and will be accounted for using the continuity of interests method, in accordance with EIC 170, "Conversion of an Unincorporated Entity to an Incorporated Entity". The unitholder vote on the conversion will take place on November 26, 2009. Transaction costs will be treated as an expense in the period in which they are incurred. Costs incurred to date have amounted to $0.3 million. Comparative information will be that of the pre-conversion entity as previously reported and changes in tax balances will be included as part of the income tax provision. 5. Financial Instruments a) Derivative financial instruments The Fund, from time to time, enters into foreign exchange contracts to manage its exposure to currency fluctuations. As at September 30, 2009 the Fund had the following net contracts in place to sell US dollars in order to hedge foreign exchange risk on US dollar-denominated net assets: ------------------------------------------------------------- Maturity dates Monthly amount CAD $ Settlement rates ------------------------------------------------------------- Oct 2009 US $2 million $1.0200 - $1.1095 ------------------------------------------------------------- Nov and Dec 2009 US $2 million $1.0500 - $1.1529 ------------------------------------------------------------- As at September 30, 2009, the fair value of these contracts was a nominal amount (December 31, 2008 - liability of $4.9 million) and is included in accounts receivable on the consolidated balance sheets. b) Risk Management The Fund 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 the Fund's risks and related exposures are consistent with its business objectives and risk tolerance. There have been no significant changes to the Fund's risk management strategies since December 31, 2008. 6. Restricted Cash Under the terms of the long-term debt facility, the restricted cash amount of $7.4 million on hand at September 30, 2009 (December 31, 2008 - $10.4 million) may only be used to repay senior secured notes and to fund growth opportunities. 7. Unit-based Compensation Weighted Average Exercise Units Price ------------------------------------------------------------------------- Unit options outstanding - December 31, 2008 2,019 $12.22 Terminated (2,014) - Cancelled (5) - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Unit options outstanding - September 30, 2009 - - ------------------------------------------------------------------------- ------------------------------------------------------------------------- All outstanding unit options were returned by employees during 2009 and cancelled by the Fund. Vesting was considered to be accelerated in accordance with generally accepted accounting principles resulting in an additional charge to compensation expense of $0.1 million. 8. Cash Flow Change in non-cash working capital: ----------------------------------------- Three Months Nine Months Period ended September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Increase in accounts receivable ($8,871) ($561) ($1,973) ($8,860) Decrease (increase) in other current assets 349 613 250 (762) Increase in accounts payable and accrued liabilities 6,502 2,846 4,035 2,014 Increase (decrease) in income taxes payable (536) 115 1,182 (891) ------------------------------------------------------------------------- Net change in non-cash working capital ($2,556) $3,013 $3,494 ($8,499) ------------------------------------------------------------------------- Cash paid in respect of: Interest $1,456 $1,664 $4,372 $4,750 Income taxes - net 121 119 409 1,556 Non-cash transactions Value of equipment financed through capital leases - 3,409 - 10,050 ------------------------------------------------------------------------- 9. Acquisitions Due to the achievement of certain performance objectives, in January, 2009, additional consideration of $3 million was paid out of restricted cash, to the former owners of Tripar Transportation Inc ("Tripar"), a company acquired by the Fund in 2006. This additional consideration was accrued in the financial statements at December 31, 2008 and was allocated to goodwill. In addition, due to the achievement of certain performance objectives, additional consideration of $75,000 was paid to the former owners of Narum Transport Ltd, an operation acquired by the Fund in 2007. 10. Comparative Figures Certain comparative figures have been restated to conform to the current period's basis of presentation. 11. 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. In 2009 the seasonal factors affecting the Fund's business have been less noticeable due to the impact of the recession. 12. Subsequent Event On October 5, 2009, the Fund's Board of Trustees announced that it would be paying a distribution of $0.44 per unit, on October 30, 2009, to unitholders of record on October 15, 2009. This distribution amounted to $13.2 million. 13. Future Accounting Changes a) Financial Instruments - Disclosure In June 2009, the CICA amended Section 3862, "Financial Instruments - Disclosures" to include additional disclosure requirements about fair value measurement of financial instruments and liquidity risk disclosures. These amendments require a three-level hierarchy that reflects the significance of the inputs used in making the fair value measurements. Fair value of assets and liabilities included in Level 1 are determined by reference to quoted prices in active markets for identical assets and liabilities. Assets and liabilities in Level 2 include valuations using inputs other than the quoted prices for which all significant inputs are based on observable market data, either directly or indirectly. Level 3 valuations are based on inputs that are not based on observable market data. The amendments to Section 3862 apply for annual financial statements relating to fiscal years ending after September 30, 2009. The Fund is assessing the impact of these amendments on its consolidated financial statements. b) International Financial Reporting Standards ("IFRS") In February 2008 the 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. The Fund has completed its initial assessment of the possible impacts of implementing IFRS and the standards which may have the most significant impact on the Fund, 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 quantitative impacts, if any, to the consolidated financial statements upon the adoption of IFRS are not reasonably determinable at present. ------------------------------------------------------------------------- Contrans has been providing freight transportation services since 1985. With approximately 1,200 power units and 2,200 trailers under management, Contrans is one of the largest freight transportation companies in Canada.
For further information: 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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