Contrans Income Fund Announces Third Quarter Results

WOODSTOCK, ON, Nov. 10 /CNW/ - (TSX:CSS.UN)

    
    (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 $0.21 per unit," stated Contrans Income Fund's Chairman and Chief Executive Officer, Stan G. Dunford. "On October 5, 2009, the Board declared a further distribution of $0.44 per unit and announced that it will consider a final distribution in anticipation of converting back to a corporation on December 1, 2009. Delivering these returns in a year where mere survival has been considered to be a success for many companies is an amazing accomplishment. It speaks volumes about Contrans' ability to perform well in the bleakest of times."

"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 Mr. Dunford. "Indeed, there is much to be said for companies that provide regular returns with cash payments over pure growth companies that can only offer the prospect of future stock appreciation. As we move forward, our goal is to continue to deliver great returns to our shareholders, in good times and in bad times. We believe that we can best achieve this goal by continuing to operate in a disciplined and intelligent manner and by remaining a high-yielding security."

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 September 30, 2009 and 2008. 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.

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 $4.6 million in revenue. Fuel surcharge revenue was lower in 2009 compared to 2008 due to lower fuel prices as well as lower overall volumes.

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 $0.5 million in the third quarter of 2009 compared to the third quarter of 2008 ($1.6 million lower year-to-date) which has also lowered operating expenses.

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 $1.0 million in the third quarter of 2009 compared to the third quarter of 2008 ($3.9 million reduction year-to-date). Discretionary spending has continued to be closely scrutinized in an effort to further rationalize costs wherever practical. These efforts have reduced third quarter SG&A expenses by $1.2 million in 2009 compared to 2008 (year-to-date savings of $2.5 million).

    
    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 $1.0 million of costs were incurred over the first nine months of the year relating to severance and for early lease termination penalties. The costs were recorded as SG&A expenses.

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 $0.1 million. The Fund has not had to use its operating line during 2009 other than for letters of credit. Interest earned on cash balances has fallen due to lower average interest rates.

    
    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 March 2009 in reaction to the Fund's operating results and the recession. On October 5, 2009, however, a distribution of $0.44 per unit ($13.2 million in total) was declared after considering the improved operating results of the Fund. This distribution was paid on October 30, 2009.

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 $3 million was paid out of the Fund's restricted cash and cash equivalents in January, 2009 to Tripar's former owners. Similarly, 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.

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 Perth, Ontario, for proceeds of $0.6 million.

In May 2009, the Fund's distribution reinvestment plan ("DRIP") was terminated. The DRIP had provided $1.5 million in 2009 (2008 - $2.9 million).

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 $4.9 million in 2009 due to the settlement of foreign exchange contracts that were on hand at December 31, 2008.

    
    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 August 5, 2009, the Fund's Board of Trustees announced its intention to recommend to unitholders that they approve a conversion of the Fund into a corporation. The effective date of the conversion will be on or about December 1, 2009. The conversion is subject to unitholder approval which will be requested at a special meeting of unitholders to be held on November 26, 2009.

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 October 5, 2009 the Board of Trustees met and declared a cash distribution of $0.44 per unit, payable on October 30, 2009, to unitholders of record as at October 15, 2009. This decision was made based on the Fund's financial performance to date in 2009, its financial condition, the current economic climate, as well as the financial covenants that are contained in the Fund's loan agreements. The Board had previously suspended distributions at a meeting held on March 12, 2009. The Board of Trustees will also be considering a final distribution for the Fund at a meeting scheduled for November 20, 2009. The Board of Trustees has indicated that the amount of the final distribution may be equal to the Fund's 2009 estimated taxable income through November 30, 2009 less distributions previously paid. The Board of Trustees will carefully consider the Fund's operating results, financial position and financing commitments, the economic environment in which the Fund operates before declaring this distribution. If declared, the distribution is expected to be paid in January of 2010 to unitholders of record on or about November 30, 2009.

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: info@contrans.ca, Web site: www.contrans.ca

Organization Profile

Contrans Group Inc.

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