Livingston International Income Fund announces results for the third quarter
2009
"Economic activity in
Third quarter results
Livingston generated revenues and interest income of
EBITDA(1), or earnings before interest, taxes, other income or expense, depreciation, amortization and impairment of goodwill, intangibles and fixed assets, was
Year-to-date results
Livingston's revenues and interest income for the first nine months of the year were
EBITDA(1) was
A copy of the full financial report, including notes to the consolidated financial statements, is available from Livingston's Investor Relations page at www.livingstonintl.com and has been filed on SEDAR at www.sedar.com.
Highlights
Three months Nine months
(in millions of dollars except per ended Sept. 30, ended Sept. 30,
unit amounts, unaudited) 2009 2008 2009 2008
-------------------------------------------------------------------------
Net revenues $61.4 $80.6 182.5 249.0
-------------------------------------------------------------------------
Net income (loss) 3.5 10.4 (14.7) 30.8
-------------------------------------------------------------------------
Cash flow from operations 11.9 50.3 46.2 41.3
-------------------------------------------------------------------------
EBITDA(1) 13.6 18.2 26.0 55.7
-------------------------------------------------------------------------
Conference call
Livingston International Income Fund invites interested investors, analysts and financial media to dial in to its conference call to review its third quarter financial results to be held on
A playback will also be available following the scheduled call, until
About Livingston
Livingston International Income Fund is a trust that holds the securities of Livingston International Inc., a leading North American provider of customs, transportation and integrated logistics services. Headquartered in
Management's discussion and analysis
This Management's Discussion and Analysis, the accompanying unaudited consolidated financial statements of Livingston International Income Fund (the "Fund") and the notes thereto present the consolidated results of the Fund for the three- and nine-month periods ended
These interim unaudited consolidated financial statements include the results of the Fund's primary operating subsidiary, Livingston International Inc. ("Livingston" or "Livingston International"), and its affiliated companies and partnerships in
These interim unaudited consolidated financial statements are intended to be read in conjunction with the annual audited consolidated financial statements and accompanying notes to the consolidated financial statements for the year ended
The accounting policies as disclosed in these interim unaudited consolidated financial statements are consistent with those followed in the 2008 audited consolidated financial statements, included in the Fund's Annual Report 2008, except that the Fund has adopted the following accounting policy effective January 1, 2009: Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3064, Goodwill and Intangible Assets. As required, this standard has been adopted on a prospective basis. Prior year comparative statements have not been restated, in accordance with CICA Handbook guidance.
All financial information is presented in Canadian dollars, unless specified otherwise.
Overview of the Business
The Fund operates a number of businesses, which, for reporting purposes, it has grouped under four main operating segments.
Canadian customs brokerage comprises all of the Fund's Canadian customs brokerage, event logistics and customs consulting operations.
U.S. customs brokerage includes all of its U.S. customs brokerage operations, including U.S. air/sea customs clearance operations and U.S. customs consulting services.
Transportation and logistics include its international freight forwarding (including air/sea forwarding), vehicle transportation and integrated logistics (including North American ground freight, warehousing and distribution) operations.
Border services are comprised of its managed services operation (imported vehicle registration, carrier services, program management, information management and contact centre services) and technology services.
Forward-Looking Statements
This Management's Discussion and Analysis contains "forward-looking statements," which reflect management's current beliefs and expectations regarding the Fund and Livingston International's future growth, results of operations, performance, business prospects and opportunities.
Such forward-looking statements, which may be identified by words such as "anticipate", "should", "would", "could", "believe", "continue", "expect", "intend", "may", "will", "project" and "estimate", are based on information currently available to management. Forward-looking statements involve significant risks and uncertainties. Many factors are beyond the Fund's control and could cause actual results to differ materially from the results discussed in the forward-looking statements, including risks related to dependence on cross-border trade, economic conditions, protectionist measures, taxation of income trusts, limited partnerships or corporations and other tax matters, mutual fund trust status, disruptions in border crossings, increases or decreases in foreign trade, competition, effects of hedging, acquisitions and the integration of acquisitions, dispositions, regulatory change, foreign-exchange rates, interest rates, the ability to meet credit facility covenants and borrowing limits, continued availability of credit facilities, continued solvency and liquidity of Livingston's lenders and other credit counter-parties, continued availability of bonds, credit and collection experience, the ability to make all required government payments, reliance on key personnel, potential for uninsured or underinsured losses, continued availability of transportation equipment, contract changes, gains and losses or non-renewal of contracts (including, without limitation, the contract with Transport
In formulating forward-looking statements herein, Livingston management has considered prevailing economic conditions as well as current financial market issues. Management has assumed that business and economic conditions affecting it will continue substantially in the ordinary course, including without limitation with respect to trading patterns, general levels of economic activity, regulations, foreign-exchange rates and interest rates, that there will be no material changes in its credit and hedging arrangements, bonding arrangements or credit and collection experience and that its credit facilities will be sufficient for its needs.
Although the forward-looking statements are based upon what management believes to be reasonable assumptions, the Fund and Livingston cannot assure investors that actual results will be consistent with these forward-looking statements. When relying on forward-looking statements to make decisions, investors should ensure that the preceding information is carefully considered.
Such forward-looking statements are made as of
Non-GAAP Financial Measures
The Fund provides some non-GAAP (generally accepted accounting principles) measures as supplementary information that management believes may be useful to investors to explain the Fund's financial results. These non-GAAP measures include EBITDA(1) (earnings before interest, taxes, other (income) expense, depreciation, amortization and impairment of goodwill, intangibles and fixed assets) and certain information related to the calculation of cash flows.
The Fund has reconciled these non-GAAP measures to the most comparable Canadian GAAP items included in the consolidated financial statements.
EBITDA(1)
EBITDA(1) does not have a standardized meaning according to Canadian GAAP, is not a recognized measure under GAAP and should not be construed as an alternative to net income or cash flows determined in accordance with GAAP as an indicator of the Fund's performance or cash flows.
The Fund's method of calculating EBITDA(1) may differ from that of other companies or income trusts and may not be comparable to measures used by other companies or income trusts. For a reconciliation of net income determined in accordance with GAAP to EBITDA(1), see Table 5.
Adjusted Operating Cash Flows(2)
The Fund has adopted the Canadian Securities Administrators' ("CSA") guidelines for income trusts regarding operating cash flows. The supplementary information provided in Tables 3 and 4 regarding the cash flows of the Fund, the repayment of debt and other investing activities is intended to help investors reconcile former measures, such as distributable cash and payout ratio, to GAAP measures and EBITDA(1). Certain subtotals, such as adjusted operating cash flows after maintenance capital expenditures(2), that are presented and reconciled to GAAP are not defined terms under GAAP and should not be construed as an alternative to cash flows determined in accordance with GAAP. Management uses this information as a measure of internal performance and a supplement to the consolidated statements of cash flows as defined in accordance with GAAP. Investors are cautioned that the Fund may calculate these measures differently than other companies or income trusts do and that, therefore, they may not be comparable.
The information provided in Table 3, Summary of Cash Flows, is derived from, and should be read in conjunction with, the unaudited interim consolidated statement of cash flows.
Recent Developments
Proposed Acquisition of Livingston
The Fund announced on
The transaction is subject to the approval of more than two-thirds of the Fund's unitholders voting at a special meeting to be held
The support agreement entered into between Livingston and the Consortium provides for, among others, a non-solicitation covenant on the part of Livingston, subject to customary fiduciary-out provisions, which entitle Livingston to consider and accept a superior proposal, subject to the right of the Consortium to match the superior proposal and the payment to the Consortium of a break-up fee of up to
Credit Facility Agreement
In the second quarter of 2009, Livingston concluded discussions with its lenders to allow for greater flexibility in the leverage ratio covenant with respect to its existing credit facility. Livingston had initiated these discussions late in the first quarter in response to the economic downturn, which had significantly and adversely affected trade volumes. As a result, in
In addition to a one-time fee of
On
The amendments to the credit facility have been filed on SEDAR at www.sedar.com.
In
The July amendment also includes a provision to use
Results of Operations
Three months ended September 30, 2009
The Fund recorded consolidated revenues and interest income of
The cost of services decreased by 22.9% to
Selling, general and administrative expenses, including the administrative expenses of the Fund, for the quarter ended
The net income for the quarter ended
EBITDA(1) for the quarter ended
Depreciation expense for the quarter ended
Acquisitions made by the Fund have been accounted for as business combinations with the purchase price being allocated to the assets acquired and the liabilities assumed, based on their estimated fair values at the date of acquisition. For past acquisitions, a portion of the purchase price was allocated to intangible assets, which represent the value of client relationships, contracts and technology acquired. Intangible assets are amortized over the expected periods of benefit, generally from two to 10 years, resulting in a charge of
Included in other expense (income) are unrealized and realized losses or gains from the translation of U.S.-dollar-denominated monetary assets and liabilities of the Fund's subsidiaries. There was a foreign-exchange loss of
Interest expense on long-term debt, relating primarily to the bank term debt, was
In 2005, Livingston entered into an interest-rate swap for
Other interest expense, related to the revolving line of credit for government remittances, was
Interest income of
While the Fund reported pre-tax income of
The net income was
Nine months ended
The Fund recorded consolidated revenues and interest income of
The cost of services decreased by 20.9% to
Selling, general and administrative expenses, including the administrative expenses of the Fund, for the nine months ended
Restructuring costs for employee terminations prompted by continuing economic challenges were incurred in the amount of
For the first nine months of 2009, the net loss was
Depreciation expense for the nine months ended
Intangible assets are amortized over the expected periods of benefit, generally from two to 10 years, resulting in an
During the first quarter of 2009, as a result of the aggregate unit value declining below the book value of the Fund, management concluded that a triggering event had occurred, necessitating an impairment assessment on the Fund's goodwill and long-lived assets. Upon completion of the long-lived asset impairment test as at
Included in other expense (income) are unrealized and realized losses or gains from the translation of U.S.-dollar-denominated monetary assets and liabilities of the Fund's subsidiaries. There was a foreign-exchange loss of
Interest expense on long-term debt, relating chiefly to the bank term debt, was
Other interest expense, related to the revolving line of credit for government remittances, was
Interest income, included in Canadian customs brokerage revenues, was
While the Fund reported a pre-tax loss of
The net loss was
Canadian Customs Brokerage
Revenues and interest income for the quarter ended
The cost of services decreased by 18.3% to
The contribution margin decreased from approximately
Revenues and interest income for the nine months ended
The cost of services decreased by 14.5% to
U.S. Customs Brokerage
In Canadian dollars, overall revenues for the U.S. customs brokerage segment decreased in the third quarter of 2009 by 17.1% to
The average Canada-United States currency-exchange rate for the quarter ended
In Canadian dollars, the overall cost of services for the U.S. customs brokerage segment was
In U.S. dollars, the overall cost of services for the U.S. customs brokerage operation was down by
In Canadian dollars, overall revenues for the nine months ended
The average Canada-United States currency-exchange rate for the nine months ended
In Canadian dollars, the overall cost of services for the U.S. customs brokerage segment decreased by
Due to the variances in revenue and cost of services discussed above, the contribution margin in Canadian dollars for the U.S. customs brokerage operation decreased to
Transportation and Logistics
Revenues in the quarter ended
The cost of services decreased by
For the nine months ended
The cost of services decreased by
Border Services
Revenues decreased by 34.5% to
The cost of services in this segment decreased in the third quarter of 2009 by 34.7% to
As a result of decreased revenues, the contribution margin for border services dropped to
Revenues fell by 53.5% to
The cost of services decreased by 48.0% to
As a result of decreased revenues, the contribution margin for the border services segment decreased to
Table 1 provides quarterly financial information for the quarters ended
December 31, 2008 to September 30, 2009.
-------------------------------------------------------------------------
Table 1 Quarterly Consolidated Statements of Income
For the quarters ended December 31, 2008 to September 30, 2009
(in thousands of dollars, except per Fund unit amounts and Fund units
outstanding, unaudited)
-------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31,
Quarter ended 2009 2009 2009 2008
-------------------------------------------------------------------------
Net revenues 61,323 61,778 59,257 73,559
Interest income 52 12 123 312
-------------------------------------------------------------------------
61,375 61,790 59,380 73,871
Cost of services 34,656 35,884 39,979 43,298
-------------------------------------------------------------------------
Contribution margin 26,719 25,906 19,401 30,573
Selling, general and
administrative expenses 13,080 13,708 16,191 14,726
Restructuring costs - 2,154 867 1,865
-------------------------------------------------------------------------
EBITDA(1) 13,639 10,044 2,343 13,982
Depreciation 1,431 1,302 1,660 1,913
Amortization 3,832 3,862 4,030 4,210
Impairment of goodwill and
other assets - - 16,458 143,741
-------------------------------------------------------------------------
Income (loss) before the
undernoted 8,376 4,880 (19,805) (135,882)
-------------------------------------------------------------------------
Other expense (income) 1,375 3,210 (1,232) (5,048)
-------------------------------------------------------------------------
Interest expense
Long-term debt 2,210 1,941 1,611 1,886
Other 747 597 448 686
-------------------------------------------------------------------------
2,957 2,538 2,059 2,572
-------------------------------------------------------------------------
Income (loss) before
income taxes 4,044 (868) (20,632) (133,406)
Provision for (recovery of)
income taxes
Current 649 (96) 91 268
Future (103) 118 (3,378) (13,892)
-------------------------------------------------------------------------
546 22 (3,287) (13,624)
-------------------------------------------------------------------------
Net income (loss) for
the period 3,498 (890) (17,345) (119,782)
-------------------------------------------------------------------------
Net income (loss) per
Fund unit, undiluted
and diluted 0.10 (0.03) (0.64) (4.39)
-------------------------------------------------------------------------
Weighted-average Fund
units outstanding,
undiluted and diluted 34,147,667 28,157,557 27,247,667 27,247,667
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Table 2 provides quarterly financial information for the quarters ended
December 31, 2007 to September 30, 2008.
-------------------------------------------------------------------------
Table 2 Quarterly Consolidated Statements of Income
For the quarters ended December 31, 2007 to September 30, 2008
(in thousands of dollars, except per Fund unit amounts and Fund units
outstanding, unaudited)
-------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31,
Quarter ended 2008 2008 2008 2007
-------------------------------------------------------------------------
Net revenues 80,249 87,811 79,779 83,512
Interest income 350 290 517 604
-------------------------------------------------------------------------
80,599 88,101 80,296 84,116
Cost of services 44,969 47,687 46,978 45,878
-------------------------------------------------------------------------
Contribution margin 35,630 40,414 33,318 38,238
Selling, general and
administrative expenses 17,390 19,113 17,137 16,778
Costs related to the
integration of PBB - - - 328
-------------------------------------------------------------------------
EBITDA(1) 18,240 21,301 16,181 21,132
Depreciation 1,976 1,866 1,729 1,862
Amortization 4,177 4,178 4,379 6,029
Impairment of goodwill and
other assets - - - 37,803
-------------------------------------------------------------------------
Income (loss) before the
undernoted 12,087 15,257 10,073 (24,562)
-------------------------------------------------------------------------
Other (income) expense (1,436) 295 (881) 420
-------------------------------------------------------------------------
Interest expense
Long-term debt 1,813 1,918 2,043 2,096
Other 754 739 989 1,067
-------------------------------------------------------------------------
2,567 2,657 3,032 3,163
-------------------------------------------------------------------------
Income (loss) before
income taxes 10,956 12,305 7,922 (28,145)
Provision for (recovery
of) income taxes
Current 952 1,167 491 2,526
Future (413) (993) (855) (5,934)
-------------------------------------------------------------------------
539 174 (364) (3,408)
-------------------------------------------------------------------------
Net income (loss) for
the period 10,417 12,131 8,286 (24,737)
-------------------------------------------------------------------------
Net income (loss) per Fund
unit, undiluted and diluted 0.38 0.45 0.30 (0.91)
-------------------------------------------------------------------------
Weighted-average Fund
units outstanding,
undiluted and diluted 27,247,667 27,247,667 27,247,667 27,247,667
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Payments to Livingston International Income Fund
The Fund recorded adjusted operating cash flows after maintenance capital expenditures(2) of
The Fund did not declare any distributions for the quarter ended
As the Fund suspended distributions effective in
For the nine months ended
The Fund declared distributions of
The payout ratio for adjusted operating cash flows after maintenance capital expenditures(2) for the nine months ended
-------------------------------------------------------------------------
Table 3 Summary of Cash Flows
For the periods ended September 30, 2009 and 2008 and the year ended
December 31, 2008
(in thousands of dollars, except per Fund unit amounts and Fund units
outstanding, unaudited)
-------------------------------------------------------------------------
Nine Nine
Quarter Quarter months months Year
ended ended ended ended ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Dec. 31,
2009 2008 2009 2008 2008
-------------------------------------------------------------------------
Cash flows provided
by operating
activities 11,891 50,276 46,159 41,255 45,472
(Deduct) add:
Net change in
current assets
and liabilities* (1,211) (34,990) (28,444) 4,037 10,351
-------------------------------------------------------------------------
10,680 15,286 17,715 45,292 55,823
Maintenance capital
expenditures(xx) (210) (1,343) (1,287) (2,945) (4,415)
-------------------------------------------------------------------------
Adjusted operating
cash flows after
maintenance capital
expenditures(2) 10,470 13,943 16,428 42,347 51,408
-------------------------------------------------------------------------
Distributions to
unitholders+ - 11,608 5,722 34,822 46,429
-------------------------------------------------------------------------
Payout ratio based
on adjusted
operating cash
flows after
maintenance capital
expenditures(2)++ 0.0% 83.3% 34.8% 82.2% 90.3%
-------------------------------------------------------------------------
Per Fund unit in
dollars
Adjusted operating
cash flows after
maintenance capital
expenditures(2) 0.307 0.512 0.550 1.554 1.887
-------------------------------------------------------------------------
Distributions to
unitholders+ 0.000 0.426 0.210 1.278 1.704
-------------------------------------------------------------------------
Weighted-average
Fund units
outstanding 34,147,667 27,247,667 29,876,238 27,247,667 27,247,667
-------------------------------------------------------------------------
-------------------------------------------------------------------------
* The net change in current assets and liabilities has been excluded
as these are non-cash in nature. These items also tend to
fluctuate from quarter to quarter primarily as a result of the
timing of billings and the payment of government remittances
around the end of the period.
(xx) Maintenance capital expenditures are additions, including
additions classified as intangibles, replacements or improvements
to property, plant and equipment to maintain Livingston's business
operations. These expenditures involve the replacement of
information technology equipment and software as well as certain
improvements to facilities.
+ Distributions are the amounts declared in the period, not what was
actually paid.
++ The payout ratio is calculated by dividing the distributions to
unitholders by the adjusted operating cash flows after maintenance
capital expenditures(2), consistent with the CSA guidelines for
the calculation of the payout ratio.
-------------------------------------------------------------------------
Table 4 Analysis of Cash Flows from Operating Activities, Net Income and
Cash Distributions
For the periods ended September 30, 2009 and 2008 and the year ended
December 31, 2008
(in thousands of dollars, unaudited)
-------------------------------------------------------------------------
Nine Nine
Quarter Quarter months months Year
ended ended ended ended ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Dec. 31,
2009 2008 2009 2008 2008
-------------------------------------------------------------------------
Cash flows provided
by operating
activities 11,891 50,276 46,159 41,255 45,472
-------------------------------------------------------------------------
Net income (loss) 3,498 10,417 (14,739) 30,834 (88,948)
-------------------------------------------------------------------------
Distributions to
unitholders - 11,608 9,591 34,822 46,429
-------------------------------------------------------------------------
Excess (shortfall)
of cash flows from
operating activities
over (to) cash
distributions paid 11,891 38,668 36,568 6,433 (957)
-------------------------------------------------------------------------
Excess (shortfall)
of net income
(loss) over (to)
cash distributions
paid 3,498 (1,191) (24,330) (3,988) (135,377)
-------------------------------------------------------------------------
For the quarter ended
There was
No distributions were paid in the quarter ended
For the nine months ended
There was a shortfall of
Net income includes non-cash charges for depreciation and the amortization and write-downs of intangible assets, fixed assets and goodwill. The shortfall of net income relative to cash distributions paid for the nine months ended
-------------------------------------------------------------------------
Table 5 Reconciliation of Net Income to EBITDA(1)
For the periods ended September 30, 2009 and 2008 and the year ended
December 31, 2008
(in thousands of dollars, unaudited)
-------------------------------------------------------------------------
Nine Nine
Quarter Quarter months months Year
ended ended ended ended ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Dec. 31,
2009 2008 2009 2008 2008
-------------------------------------------------------------------------
Net income (loss) 3,498 10,417 (14,739) 30,834 (88,948)
Add (deduct):
Income taxes 546 539 (2,719) 349 (13,275)
Interest expense 2,957 2,567 7,554 8,256 10,828
Other expense
(income) 1,375 (1,436) 3,353 (2,022) (7,070)
Depreciation 1,431 1,976 4,394 5,571 7,484
Amortization 3,832 4,177 11,724 12,734 16,944
Impairment of
goodwill and other
assets - - 16,458 - 143,741
-------------------------------------------------------------------------
EBITDA(1) 13,639 18,240 26,025 55,722 69,704
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liquidity and Capital Resources
This section is intended to be read in conjunction with the interim unaudited consolidated balance sheet below and the notes to the consolidated financial statements.
In
A portion of the
In
Cash Flow from Operating Activities
This section is intended to be read in conjunction with the interim unaudited consolidated statements of cash flows below and the notes to the consolidated financial statements.
For the quarter ended
For the nine months ended
As cash flow from operations has been determined in accordance with Canadian GAAP, management believes that the reconciliation of this measure to adjusted operating cash flows after maintenance capital expenditures(2) provides useful supplemental information for investors, as set out in Table 3 above.
Capital Expenditures and Other Investing Activities
This section is intended to be read in conjunction with the interim unaudited consolidated statements of cash flows below.
Livingston incurred capital expenditures, net of disposals, of
Livingston incurred capital expenditures, net of disposals, of
Financing Activities
This section is intended to be read in conjunction with the interim unaudited consolidated statements of cash flows below and the notes to the consolidated financial statements.
Livingston International has an operating facility, composed of a revolving line of credit and outstanding cheques, used primarily for making government remittances on behalf of clients. This balance fluctuates depending on the timing of payments to U.S. and Canadian governments near the end of each month and the timing of cash receipts from clients.
There was an
Livingston negotiated its credit facility effective
Subsequently in
Under the terms of the
Under the terms of the amended credit facility, Livingston is obliged to pay down a portion of its term loan, by an amount equal to 75% of its available cash flow (as defined in the agreement) until its leverage ratio drops to or below 2.50 for two consecutive quarters. Accordingly, Livingston repaid
In conjunction with the credit agreement amendment described above, the Fund suspended distributions to unitholders following payment of the May distribution at the end of
The suspension of distributions followed the January announcement by the Fund to reduce monthly distributions by 70%, to
The credit facility also contains a limit on draw-downs based on a borrowing base. Occasionally, Livingston's month-end draws, for government remittances made on behalf of clients, have been in excess of this borrowing base plus overdraft maximum. This has been typically remedied several days later as client payments are received, as is contemplated in the terms of the credit facility. The credit agreement was further amended on
Table 6 below shows the net balance when cash and cash equivalents are netted against the operating facility for government remittances. The net operating facility was approximately
Together with cash flows generated from operating activities, capital expenditures and other investing activities, the total cash and cash equivalents were approximately
-------------------------------------------------------------------------
Table 6 Net Operating Facility
As at September 30, 2009, December 31, 2008 and September 30, 2008
(in thousands of dollars, unaudited)
-------------------------------------------------------------------------
Sept. 30, December 31, Sept. 30,
2009 2008 2008
-------------------------------------------------------------------------
Operating facility for government
remittances 46,943 95,957 82,322
Cash and cash equivalents 5,974 28,245 21,371
-------------------------------------------------------------------------
Net operating facility 40,969 67,712 60,951
-------------------------------------------------------------------------
Changes in Accounting Policies
The following describes the new accounting policy that the Fund has implemented in the nine-month period ended
Section 3064, Goodwill and Intangible AssetsSection 3064, Goodwill and Intangible Assets of the CICA Handbook replaces Section 3062, Goodwill and Intangible Assets and Section 3450, Research and Development Costs, and establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. The adoption of this new standard did not have a material impact on the interim unaudited financial statements.
This standard requires that certain items of property, plant and equipment, namely application software, be included in intangible assets. In order for the Fund to meet this requirement, the application software balances were transferred from property, plant and equipment to intangible assets. Accordingly,
International Financial Reporting Standards
In
As at
This plan covered the following:
- accounting policies (initial selection among policies permitted under
IFRS);
- information technology and data systems required for the
implementation of IFRS;
- internal control over financial reporting;
- disclosure controls and procedures, including investor relations and
external communication plans;
- financial reporting expertise and training required; and
- business activities, such as foreign currency and hedging activities,
as well as matters that may be influenced by financial or GAAP
measures, such as debt covenants, capital requirements and
compensation arrangements.
During the third quarter of 2009, the Fund continued to make progress in many areas of its conversion plan, including assessing the impact of adopting significant accounting policies that may affect the Fund, determining how best to make 2010 comparative IFRS information available for the 2011 reporting periods and identifying the structure of the financial statements and disclosure requirements under IFRS.
Livingston has substantially completed reviews of the key areas that may
have an impact on the Fund:
- property, plant and equipment;
- revenue recognition;
- foreign exchange;
- provisions and contingencies;
- earnings per unit;
- leases;
- financial instruments;
- employee benefits; and
- impairments.
To date, management has not identified any significant system changes or amendments required under the credit agreement that will be necessary in order to convert to IFRS.
Management is in the process of amending accounting policies and internal controls as well as preparing an IFRS version of financial statements to address the impact on the areas referred to above.
For the remainder of 2009, the Fund intends to continue to consider the options available under IFRS 1, First Time Adoption of International Financial Reporting Standards, develop its significant accounting policies under IFRS, develop a training plan and finalize the determination of the impact of converting to IFRS on systems, processes and internal controls. Upon completion of the training plan, Livingston expects to implement training in 2010, to position the Fund to incorporate the IFRS requirements into its systems, processes and internal controls.
A number of the IFRS standards are currently being amended, and amendments to existing standards are expected to continue until the transition date of
As at
Off Balance Sheet Arrangements
The Fund or its subsidiaries have various off balance sheet arrangements, including a defined benefit pension plan and a post-retirement benefits plan, the direct GST payment program with clients and bonds that are necessary to operate as a customs broker with the
There have been no significant changes to Livingston's off balance sheet arrangements since
As at
The Fund had an accrued benefit obligation of
Livingston has a number of clients who make GST and duty payments directly to the CBSA. As part of its service to clients, Livingston submits clients' cheques payable to the CBSA on their behalf, but the receivable and corresponding duty and GST amounts payable are not, in such cases, recorded in either accounts receivable or government remittances payable on the Fund's balance sheet. This is because the Fund does not have title to these cheques and does not have an obligation to collect these funds on behalf of the CBSA.
As required by the CBSA and CBP, as at
Under its credit agreement, Livingston has also issued letters of credit in the total amount of
Transactions with Related Parties
Related parties are defined as individuals who can influence the direction or management of the Fund or any of its subsidiaries and are, therefore, the trustees of the Fund or the directors and officers of the Fund's primary subsidiaries. Neither the Fund nor any of its subsidiaries entered into any material transactions with related parties as defined above since the Fund acquired Livingston on
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information is recorded and reported to securities regulatory authorities, tax authorities and other regulatory bodies, unitholders and other stakeholders on a timely basis, in accordance with applicable laws. The Fund is committed to providing timely and accurate disclosure of material information in accordance with applicable laws.
On an on-going basis, management evaluates the effectiveness of the Fund's disclosure controls and procedures and has found them to be effective. However, due to the inherent limitations in control systems and procedures, their evaluation can provide only reasonable, not absolute, assurance that such disclosure controls and procedures are operating effectively.
Changes in Internal Control over Financial Reporting
There have been no changes in the Fund's internal control over financial reporting during the quarter ended
Critical Accounting Estimates
A summary of significant accounting policies is included in note 2 of the notes to the consolidated financial statements for the year ended
For more information on critical accounting estimates, see Management's Discussion and Analysis as well as the audited consolidated financial statements for the year ended
Risks and Uncertainties
Information relating to the risks and uncertainties of the Fund and its subsidiaries is summarized in Management's Discussion and Analysis in the Fund's Annual Report 2008 and its 2008 Annual Information Form, which are available on SEDAR at www.sedar.com. To management's knowledge, no significant changes to these risks and uncertainties have occurred in the first nine months of 2009.
Certain risks associated with an investment in units of the Fund are set
out below.
- The payment of distributions is subject to the terms of the recently
amended credit facility, is at the discretion of the Fund's trustees
and further depends on numerous factors; see the Fund's Short-Form
Prospectus dated June 12, 2009 for more complete information on these
factors.
- There can be no assurance that the Fund will reinstate distributions
nor, were they to be reinstated, any assurance regarding the amount
or level of such distributions.
Outlook
The North American economy has been weak throughout 2009, and Livingston expects that this weakness will continue for the foreseeable future. It is impossible to predict with any accuracy when growth will occur again, and management anticipates that the process of economic recovery is likely to be long and slow.
Livingston had begun preparing for this downturn in the latter half of 2008 and, in the quarter just completed, started to see the full benefits of its targeted cost-cutting measures. Expenses have been contained, and Livingston will continue to trim costs where appropriate. These steps are a necessary response to soft economic conditions and an increasingly price-sensitive environment. They reflect an adaptation to a long recession and are consistent with Livingston's commitment to managing for the long term.
Livingston benefitted in the quarter from new business gains coming on the heels of new contracts won in the previous quarter. These achievements are an indication that Livingston is not standing still or merely trying to weather the storm. It continues to seek new business and cross-sell services to its existing clients; and it intends to continue to invest in its sales efforts as required, in order to build its market share.
While Livingston is ready for any upswing in the economy that might occur, it is also equipped to deal with prolonged weak economic conditions. Management recognizes that lower volumes and competition will continue to put pressure on Livingston's business. Livingston will respond, as it always has, by relying on its close relationships with clients and on its specialized focus on compliance to retain its leadership position in the marketplace.
-----------------
(1) EBITDA (earnings before interest, taxes, other (income) expense,
depreciation, amortization and impairment of goodwill, intangibles
and fixed assets) is a non-GAAP financial measure. Refer to "EBITDA"
under Non-GAAP Financial Measures and Table 5 above for a
reconciliation of net income to EBITDA.
(2) Adjusted operating cash flows after maintenance capital expenditures
is a non-GAAP financial measure. Refer to "Adjusted Operating Cash
Flows" under Non-GAAP Financial Measures and Table 3 above for
further information.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2009
As at As at
September 30, December 31,
(in thousands of dollars, unaudited) 2009 2008
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 5,974 28,245
Accounts receivable 167,173 231,236
Prepaid expenses 6,588 3,487
Future income taxes 1,594 2,103
-------------------------------------------------------------------------
181,329 265,071
Property, plant and equipment 12,555 16,029
Goodwill 146,986 163,235
Intangible assets 67,534 78,675
Future income taxes 28,902 30,869
Employee future benefits - pension 8,033 7,634
-------------------------------------------------------------------------
445,339 561,513
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Current liabilities
Operating facility for government remittances 46,943 95,957
Government remittances payable 80,338 83,866
Unitholder distributions payable - 3,869
Accounts payable and accrued liabilities 43,508 70,912
Income taxes payable 3,430 2,698
Client deposits and advances 4,888 5,097
Future income taxes 1,147 3,255
Current portion of long-term debt 9,616 121
-------------------------------------------------------------------------
189,870 265,775
Long-term debt 64,690 110,031
Other liabilities 3,837 4,956
Future income taxes 19,513 21,988
Employee future benefits 9,741 9,504
-------------------------------------------------------------------------
287,651 412,254
-------------------------------------------------------------------------
Unitholders' Equity
-------------------------------------------------------------------------
Units 436,439 408,350
-------------------------------------------------------------------------
Accumulated loss (54,959) (40,220)
Distributions to unitholders (222,241) (216,519)
-------------------------------------------------------------------------
Deficit (277,200) (256,739)
-------------------------------------------------------------------------
Accumulated other comprehensive loss (1,551) (2,352)
-------------------------------------------------------------------------
157,688 149,259
-------------------------------------------------------------------------
445,339 561,513
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT
FOR THE PERIOD ENDED SEPTEMBER 30, 2009
Three Three Nine Nine
months months months months
(in thousands of dollars, ended ended ended ended
except per unit amounts, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
unaudited) 2009 2008 2009 2008
-------------------------------------------------------------------------
Net revenues 61,323 80,249 182,358 247,839
Interest income 52 350 187 1,157
-------------------------------------------------------------------------
61,375 80,599 182,545 248,996
Cost of services 34,656 44,969 110,518 139,634
Selling, general and
administrative expenses 13,080 17,390 42,981 53,640
Restructuring costs - - 3,021 -
Depreciation 1,431 1,976 4,394 5,571
Amortization 3,832 4,177 11,724 12,734
Impairment of goodwill and
other assets - - 16,458 -
-------------------------------------------------------------------------
Income (loss) before the
undernoted 8,376 12,087 (6,551) 37,417
-------------------------------------------------------------------------
Other expense (income) 1,375 (1,436) 3,353 (2,022)
-------------------------------------------------------------------------
Interest expense
Long-term debt 2,210 1,813 5,700 5,774
Other 747 754 1,854 2,482
-------------------------------------------------------------------------
2,957 2,567 7,554 8,256
-------------------------------------------------------------------------
Income (loss) before income
taxes 4,044 10,956 (17,458) 31,183
-------------------------------------------------------------------------
Provision for (recovery of)
income taxes
Current 649 952 646 2,610
Future (103) (413) (3,365) (2,261)
-------------------------------------------------------------------------
546 539 (2,719) 349
-------------------------------------------------------------------------
Net income (loss) for
the period 3,498 10,417 (14,739) 30,834
Deficit - beginning
of period (280,698) (124,159) (256,739) (121,362)
Distributions to
unitholders - (11,608) (5,722) (34,822)
-------------------------------------------------------------------------
Deficit - end of period (277,200) (125,350) (277,200) (125,350)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted net income
(loss) per unit 0.10 0.38 (0.49) 1.13
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE PERIOD ENDED SEPTEMBER 30, 2009
Three Three Nine Nine
months months months months
ended ended ended ended
(in thoursands of dollars, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
unaudited) 2009 2008 2009 2008
-------------------------------------------------------------------------
Net income (loss) for
the period 3,498 10,417 (14,739) 30,834
Other comprehensive income
(loss), net of tax:
Change in fair value of
interest-rate swaps
(net of tax for the
three-month period:
$160 (2008: nil); for
the nine-month period:
$162 (2008: tax of nil) 314 (542) 679 (1,446)
Amortization of deferred
loss on settlement of
interest-rate swaps
(net of tax for the
three-month period:
$20 (2008: tax of $21);
for the nine-month period:
$63 (2008: tax of $80) 42 41 123 106
-------------------------------------------------------------------------
356 (501) 802 (1,340)
-------------------------------------------------------------------------
Comprehensive income (loss)
for the period 3,854 9,916 (13,937) 29,494
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD ENDED SEPTEMBER 30, 2009
Three Three Nine Nine
months months months months
ended ended ended ended
(in thousands of dollars, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
unaudited) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by
Operating activities
Net income (loss) for
the period 3,498 10,417 (14,739) 30,834
Adjustment for non-cash
items
Depreciation and
amortization 5,263 6,153 16,118 18,305
Future income taxes (103) (413) (3,365) (2,261)
Other liabilities (109) (97) (627) (201)
Non-cash interest and
other expense 466 225 1,064 710
Employee future benefits (46) (213) (162) (638)
Impairment of goodwill
and other assets - - 16,458 -
Unrealized foreign-exchange
loss (gain) 1,711 (786) 2,968 (1,457)
-------------------------------------------------------------------------
10,680 15,286 17,715 45,292
Net change in current
assets and liabilities 1,211 34,990 28,444 (4,037)
-------------------------------------------------------------------------
11,891 50,276 46,159 41,255
-------------------------------------------------------------------------
Investing activities
Payment of contingent
consideration as part
of a business acquisition - - - (137)
Property, plant and
equipment, net of
disposals (424) (2,084) (1,721) (4,883)
-------------------------------------------------------------------------
(424) (2,084) (1,721) (5,020)
-------------------------------------------------------------------------
Financing activities
Distributions to
unitholders - (11,608) (9,591) (34,822)
Repayment of long-term
debt (32,049) (43) (33,706) (445)
Increase in deferred
financing fees - - (1,274) -
Increase (decrease) in
operating facility 17,950 (35,087) (49,172) (7,798)
Issuance of units, net
of issuance costs - - 28,089 -
-------------------------------------------------------------------------
(14,099) (46,738) (65,654) (43,065)
-------------------------------------------------------------------------
Foreign-exchange (loss)
gain on cash held in
foreign currency (597) 644 (1,055) 915
-------------------------------------------------------------------------
(Decrease) increase in
cash and cash equivalents (3,229) 2,098 (22,271) (5,915)
Cash and cash equivalents
- beginning of period 9,203 19,273 28,245 27,286
-------------------------------------------------------------------------
Cash and cash equivalents
- end of period 5,974 21,371 5,974 21,371
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash disbursements made for:
Income taxes 142 1,935 908 4,675
Interest 2,524 2,345 6,523 7,569
-------------------------------------------------------------------------
-------------------------------------------------------------------------
%SEDAR: 00017249E
For further information: Dawneen MacKenzie, vice-president, public affairs, 1-800-387-7582 ext. 3109
Share this article