Livingston International Income Fund announces results for the third quarter
2009

TORONTO, Nov. 4 /CNW/ - Livingston International Income Fund (TSX: LIV.UN), Canada's largest customs broker and a leading North American provider of customs brokerage, transportation and integrated logistics services, today announced its results for the third quarter ended September 30, 2009.

"Economic activity in North America remains slow," said Peter Luit, president and chief executive officer of Livingston International. "Volumes and revenues continue to be sluggish, as a result of significant and continuing declines in international trade volumes. Nonetheless, Livingston is prepared. We have benefitted from cost-cutting measures instituted in earlier quarters and continue to closely monitor our expenses, without compromising on client service. We feel that the recently announced offer to purchase Livingston by a private equity consortium consisting of the Canada Pension Plan Investment Board and Sterling Partners is a vote of confidence in the direction we have taken and in our long-term prospects."

Third quarter results

Livingston generated revenues and interest income of $61.4 million during the quarter, a drop of 23.9% from the $80.6 million recorded in the third quarter of 2008. The cost of services for the period also declined, decreasing 22.9% from $45.0 million in the same period last year to $34.7 million. Selling, general and administrative expenses were $13.1 million, down from $17.4 million in the third quarter of 2008, largely due to lower payroll costs. Net income was $3.5 million compared with $10.4 million in the corresponding period last year.

EBITDA(1), or earnings before interest, taxes, other income or expense, depreciation, amortization and impairment of goodwill, intangibles and fixed assets, was $13.6 million compared with $18.2 million for the third quarter of 2008. This represented 22.2% of revenue, virtually unchanged from the 22.6% recorded in the same quarter a year earlier, a reflection of our operational efficiency in the face of lower revenues.

Year-to-date results

Livingston's revenues and interest income for the first nine months of the year were $182.5 million, a drop of 26.7% from the $249.0 million recorded in the first nine months of 2008. The cost of services declined by 20.9% to $110.5 million. Selling, general and administrative expenses were $43.0 million compared with $53.6 million in the corresponding period in 2008, a decline of 19.9%. The net loss for the year to date was $14.7 million compared with net income of $30.8 million in the first nine months of last year.

EBITDA(1) was $26.0 million, a decline from $55.7 million in the same period of 2008. This represented 14.3% of revenue, a decline from the 22.4% recorded in the first nine months of last year.

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 Thursday, November 5, 2009 at 10:00 a.m. EST. The number to call is 1-866-696-5910 or, in the Toronto area, 416 340-2217, entering pass code 1786021.

A playback will also be available following the scheduled call, until December 5, 2009, by dialling 416 695-5800 in the Toronto area or 1-800-408-3053 and asking for the Livingston International 3rd Quarter 2009 Financial Results conference call. The pass code for the playback is 3000856. An audio recording will also be archived on Livingston's web site for one month following the call.

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 Toronto, Ontario, Livingston has approximately 2,500 staff located at some 100 key border points, seaports, airports and other strategic locations across Canada and the U.S.

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 September 30, 2009 and September 30, 2008.

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 Canada and the United States, which conduct the Fund's day-to-day business operations, for the three- and nine-month periods ended September 30, 2009 and 2008.

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 December 31, 2008, included in the Fund's Annual Report 2008. This information is available from the Investor Relations page of Livingston's web site at www.livingstonintl.com and also from the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.

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 Canada for imported vehicle registration), loss of clients and the impact of pandemics or natural or other disasters, among others. These factors should not be considered exhaustive.

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 November 3, 2009. Except as expressly required by law, neither the Fund nor Livingston assumes any obligation to update or revise such statements or any information contained in this report, or to publicly release the results of any revisions to forward-looking statements to reflect new events, assumptions or circumstances that the Fund or Livingston may become aware of after November 3, 2009. Undue reliance should not be placed on forward-looking statements.

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. See Tables 3 through 5 for these reconciliations.

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 October 8, 2009 that it has agreed to sell substantially all of its assets to a consortium consisting of the Canada Pension Plan Investment Board and Sterling Partners (the "Consortium"). The transaction provides for a payment of Cdn$8.00 cash per unit to unitholders (less applicable withholding taxes in the case of non-residents of Canada) and is proposed to be effected by way of a sale of all of the assets of the Fund under a plan of arrangement, following which the proceeds will be payable on closing of this transaction. Subsequently, these proceeds will be distributed to unitholders and the Fund will be wound up. Further information on the acquisition is included in the management information circular issued October 28, 2009, available on SEDAR at www.sedar.com as well as from Livingston's web site at www.livingstonintl.com.

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 November 24, 2009. The proposed transaction is also subject to other approvals and consents, including those required by the Investment Canada Act and competition legislation. The transaction is currently anticipated to close in December 2009.

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 $10 million, under certain circumstances.

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 May 2009, the lenders agreed to provide this additional flexibility by waiving the leverage ratio covenant as at March 31, 2009 and increasing the leverage ratio covenant to 3.75 until September 30, 2009, and then reducing it progressively by quarter to 2.50 by September 30, 2010 and for the remainder of the term of the credit agreement.

In addition to a one-time fee of $1.3 million and higher interest charges, Livingston is paying down a portion of its term loan as required by the terms of the amended credit facility.

On July 31, 2009, the credit agreement was further amended to clarify the calculation of Livingston's borrowing base and usage of its credit facility, to allow it to draw on the revolving credit facility in amounts up to $25 million in excess of its borrowing base for each month for the quarter ended September 30, 2009 and in excess of up to $20 million for each month for the quarter ending December 31, 2009.

The amendments to the credit facility have been filed on SEDAR at www.sedar.com.

In June 2009, the Fund issued an additional 6.9 million Fund units from treasury as part of an equity financing transaction, at a price of $4.30 per Fund unit, to raise gross proceeds of $29.7 million. After deducting underwriter, legal and other fees in the amount of $1.6 million (net of recoverable taxes of $0.3 million), the resulting net proceeds from the equity financing totalled $28.1 million. These net proceeds were available to be used to reduce borrowing under the revolving line of credit for June and a portion of the term loan.

The July amendment also includes a provision to use $25 million of the net proceeds from the June 2009 equity financing to reduce the bank term debt, as initially contemplated by the equity financing transaction. The repayment of $25 million of the bank term debt was effected on July 31, 2009.

    
    Results of Operations

    Three months ended September 30, 2009
    

The Fund recorded consolidated revenues and interest income of $61.4 million for the quarter ended September 30, 2009, down 23.9% from $80.6 million in the same period in 2008. The decrease was the result of lower revenues in all of the operating segments owing to the downturn in the economy. The changes in revenue are more fully described below in the analysis by reporting segment.

The cost of services decreased by 22.9% to $34.7 million compared with $45.0 million for the same period in 2008, due to lower costs in all of the operating segments. As a result, the contribution margin, defined as revenues less the cost of services, decreased to $26.7 million in the quarter ended September 30, 2009, down from $35.6 million for the same period in 2008. As a per cent of revenue, the contribution margin decreased to 43.5% in the quarter ended September 30, 2009 from 44.2% in the quarter ended September 30, 2008. Further comments are included in the discussion on individual reporting segments below.

Selling, general and administrative expenses, including the administrative expenses of the Fund, for the quarter ended September 30, 2009 were $13.1 million compared with $17.4 million for the same period in 2008. This was primarily due to lower payroll costs.

The net income for the quarter ended September 30, 2009 was $3.5 million compared with net income of $10.4 million for the same quarter in 2008.

EBITDA(1) for the quarter ended September 30, 2009 was $13.6 million, or 22.2% of revenue, a $4.6 million decrease from $18.2 million in the same period in 2008. The EBITDA(1) margin as a per cent of revenue was relatively consistent at 22.6% in the third quarter of 2008 compared with 22.2% in the same quarter of 2009.

Depreciation expense for the quarter ended September 30, 2009 was $1.4 million compared with $2.0 million, a $0.6 million decrease compared with the same period in 2008. This decrease reflects lower capital expenditures incurred in the current year. This non-cash expense was related to the depreciation of property, plant and equipment, comprised chiefly of facilities, computers and office equipment used in operations.

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 $3.8 million in the quarter ended September 30, 2009 compared with $4.2 million for the same period in 2008. This non-cash expense mainly relates to the amortization of the value of client relationships realized through acquisitions and of application software. See "Changes in Accounting Policies" for details.

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 $1.4 million for the quarter ended September 30, 2009 compared with a foreign-exchange gain of $1.4 million for the same quarter last year. The change was primarily due to the strengthening of the Canadian dollar during the quarter. As is contemplated by the Fund's economic hedging policy, to reduce the volatility of the impact of foreign-exchange risk, Livingston's subsidiaries continued to enter into a number of short-term forward-exchange contracts to sell U.S. currency. In the quarter ended September 30, 2009, there was an unrealized gain on hedging of $8 thousand and a realized gain of $0.2 million included in the foreign-exchange loss of $1.4 million, compared with an unrealized gain on hedging of $35 thousand and a realized loss of $0.2 million in the same period in 2008. For accounting purposes, the Fund records these forward-exchange contracts at market value at the end of the respective quarter.

Interest expense on long-term debt, relating primarily to the bank term debt, was $2.2 million for the quarter ended September 30, 2009, compared with $1.8 million for the same period in 2008. This increase reflects the higher interest charges under the amended credit facility, offset in part by the pay-down of the term loan.

In 2005, Livingston entered into an interest-rate swap for $23 million, which fixed the interest rate at 3.73% until December 16, 2009. In September 2006, Livingston entered into three additional interest-rate swap agreements. In accordance with the swap agreements, Livingston pays interest at a fixed rate of 3.79% per annum on its Canadian-dollar-denominated debt of $34 million and 4.63% on its U.S.-dollar-denominated debt of US$5 million, and receives a floating rate. The effective interest rate fluctuates depending on certain financial performance ratios. These three swaps have a maturity date of January 11, 2011. Under the terms of the May 11, 2009 amendment to its credit facility and current financial performance ratios, the effective interest rate for each swap has increased by approximately 5.0%.

Other interest expense, related to the revolving line of credit for government remittances, was $0.7 million for the quarter ended September 30, 2009, down from $0.8 million a year earlier. This is due to reduced borrowings resulting from lower government remittances.

Interest income of $52 thousand was included in revenue for the Canadian brokerage segment for the quarter ended September 30, 2009, compared with $350 thousand for the quarter ended September 30, 2008. The decrease in interest income was a result of lower interest rates and fewer funds available for investment purposes.

While the Fund reported pre-tax income of $4.0 million for the quarter ended September 30, 2009, it recognized a tax provision of $0.5 million, comprised of a future income tax recovery of $0.1 million and a current tax expense of $0.6 million. On the pre-tax income of $4.0 million, the overall expected income tax expense was $1.4 million compared with a tax provision reported of $0.5 million. Income allocated to the Fund and its subsidiary partnerships reduced income tax expense by $0.5 million, non-deductible items, including goodwill, changes in income tax rates and other items, decreased tax expense by $0.8 million, and the change in the valuation allowance increased tax expense by $0.4 million. At September 30, 2009, the Fund, through its subsidiaries, had approximately $27.9 million of losses, which may potentially offset future taxable income. These losses are scheduled to expire between 2024 and 2029, if not utilized.

The net income was $3.5 million, or $0.10 per Fund unit, after the income tax provision of $0.5 million for the quarter ended September 30, 2009. In the same period in 2008, the net income was $10.4 million, or $0.38 per Fund unit, after the income tax provision of $539 thousand. For a further breakdown of the results of operations by quarter for the 2009 and 2008 fiscal years, refer to Tables 1 and 2, respectively.

Nine months ended September 30, 2009

The Fund recorded consolidated revenues and interest income of $182.5 million for the nine months ended September 30, 2009, 26.7% lower than the $249.0 million for the same period in 2008. The decrease was the result of lower revenues in all operating segments owing to the downturn in the economy. Revenue changes are more fully described below in the analysis for each reporting segment.

The cost of services decreased by 20.9% to $110.5 million in the nine-month period ended September 30, 2009 compared with the same period in 2008, due to lower costs in all operating segments. The contribution margin decreased to $72.0 million, or 39.5% of revenue, in the nine months ended September 30, 2009 from $109.4 million, or 43.9% of revenue, in the same period in 2008. See the analysis for each reporting segment for further comments.

Selling, general and administrative expenses, including the administrative expenses of the Fund, for the nine months ended September 30, 2009 were $43.0 million, or 23.5% of revenue, compared with $53.6 million, or 21.5% of revenue, for the same period in 2008. The decrease in expenses resulted primarily from lower payroll costs.

Restructuring costs for employee terminations prompted by continuing economic challenges were incurred in the amount of $3.0 million in the nine months ended September 30, 2009.

For the first nine months of 2009, the net loss was $14.7 million compared with net income of $30.8 million for the same period in 2008. For the nine-month period ended September 30, 2009, EBITDA(1) was $26.0 million, or 14.3% of revenue, compared with $55.7 million, or 22.4% of revenue, in the first nine months of 2008.

Depreciation expense for the nine months ended September 30, 2009 was $4.4 million compared with $5.6 million for the same period in 2008. This was the result of lower capital expenditures incurred in 2009. This non-cash expense was related to the depreciation of property, plant and equipment, comprised chiefly of facilities, computers and office equipment used in operations.

Intangible assets are amortized over the expected periods of benefit, generally from two to 10 years, resulting in an $11.7 million charge in the nine months ended September 30, 2009 compared with a $12.7 million charge for the same period in 2008. This non-cash expense was mainly related to the amortization of the value of client relationships realized through acquisitions and of application software. See "Changes in Accounting Policies" for details.

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 March 31, 2009, a provision for the impairment of fixed assets in the amount of $0.2 million was recorded relating to the transportation and logistics segment. This impairment charge was primarily due to the integration of operations. Upon completion of the goodwill impairment test as at March 31, 2009, a provision for the impairment of goodwill in the amount of $10.7 million was recorded relating to the U.S. customs brokerage segment and $5.6 million relating to the transportation and logistics segment. These impairment charges were primarily the result of the decline in business in these segments due to adverse economic conditions.

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 $3.4 million for the nine months ended September 30, 2009 compared with a foreign-exchange gain of $2.0 million for the same period last year. The change was primarily due to the strengthening of the Canadian dollar. As is contemplated by the Fund's economic hedging policy, to reduce the volatility of the impact of foreign-exchange risk, Livingston's subsidiaries continued to enter into a number of short-term forward-exchange contracts to sell U.S. currency. In the nine months ended September 30, 2009, the Fund recognized an unrealized gain on hedging in the amount of $8 thousand and a realized gain of $0.9 million, included in the foreign-exchange loss of $3.4 million, compared with an unrealized gain on hedging in the amount of $29 thousand and a realized loss of $273 thousand in the same period in 2008.

Interest expense on long-term debt, relating chiefly to the bank term debt, was $5.7 million for the first nine months of 2009, down slightly from $5.8 million in 2008. This decrease was due to lower bank debt as a result of loan repayments beginning in June 2009, offset by higher interest charges on all bank debt arising from the credit facility amendments.

Other interest expense, related to the revolving line of credit for government remittances, was $1.9 million for the nine months ended September 30, 2009 compared with $2.5 million for the same period in 2008. The decrease was the result of reduced borrowings due to lower government remittances, partially offset by higher interest rates.

Interest income, included in Canadian customs brokerage revenues, was $0.2 million for the first nine months of 2009 compared with $1.2 million earned in the first nine months of 2008. The decrease in interest income was a result of lower interest rates and fewer funds available for investment purposes.

While the Fund reported a pre-tax loss of $17.5 million for the nine months ended September 30, 2009, it recognized a recovery of income taxes of $2.7 million, comprised of a future income tax recovery of $3.4 million and a current tax expense of $0.7 million. On the pre-tax loss of $17.5 million, the overall expected income tax recovery was $5.5 million compared with a tax recovery reported of $2.7 million. Income allocated to the Fund and its subsidiary partnerships reduced income tax expense by $2.9 million, non-deductible items, including goodwill, changes in income tax rates and other items, increased the tax expense by $5.3 million and the change in the valuation allowance increased tax expense by $0.4 million.

The net loss was $14.7 million, or $0.49 per Fund unit, after the recovery of income taxes of $2.7 million for the nine months ended September 30, 2009. The net loss was primarily due to the recognition of a $16.3 million impairment of goodwill related to the U.S. customs brokerage and the transportation and logistics segments in the first quarter, offset by somewhat improved results in the third quarter. In the same period in 2008, the net income was $30.8 million, or $1.13 per Fund unit, after income taxes of $0.3 million. For a further breakdown of the results of operations by quarter for fiscal 2009 and 2008, refer to Tables 1 and 2, respectively.

Canadian Customs Brokerage

Revenues and interest income for the quarter ended September 30, 2009 decreased by $7.6 million to $30.9 million compared with the same period in 2008. This decrease in revenue was mainly due to decreased trade volumes from clients, down approximately 13.1% from the previous year as a result of the economic slowdown, a 7.0% lower average price per import transaction, owing to increased pricing pressure and the mix of transactions, and lower interest income. Revenues generated by event logistics and Canadian customs consulting were also slightly lower relative to 2008.

The cost of services decreased by 18.3% to $14.0 million in the quarter ended September 30, 2009 over the same period in 2008, primarily due to lower payroll and other costs as a result of personnel reductions completed in late 2008 and the first half of 2009 as well as continued rigorous cost management.

The contribution margin decreased from approximately $21.3 million, or 55.4% of revenues, in the quarter ended September 30, 2008 to $16.9 million, or 54.6% of revenues, in the quarter ended September 30, 2009.

Revenues and interest income for the nine months ended September 30, 2009 decreased by $21.9 million to $92.9 million compared with the same period in 2008. This decrease in revenue was mainly due to lower trade volumes from clients of approximately 17.2%, as a result of the economic slowdown, lower interest income and a 1.4% lower average price per import transaction. Revenues generated by event logistics and Canadian customs consulting were also slightly lower than the comparable period in 2008.

The cost of services decreased by 14.5% to $44.6 million in the nine months ended September 30, 2009 compared with the same period in 2008, primarily due to lower payroll and other costs. The contribution margin decreased from approximately $62.6 million, or 54.5% of revenues, in the first nine months of 2008 to $48.3 million, or 52.0% of revenues, in the first nine months of 2009.

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 $10.3 million compared with the same period in 2008. U.S. brokerage volumes into the United States were down approximately 22.8% compared with the prior year's quarter, decreasing revenue by $2.8 million. This was offset by the foreign-exchange translation of U.S.-dollar revenues into Canadian dollars, contributing to $0.5 million in higher revenues. In addition, increased pricing for additional value-added services to clients resulted in a $0.2 million increase in revenues compared with the third quarter of 2008.

The average Canada-United States currency-exchange rate for the quarter ended September 30, 2009 was Cdn$1.10 to US$1.00 compared with Cdn$1.04 to US$1.00 for the same period in 2008. In U.S. dollars, overall 2009 revenues for the U.S. customs brokerage operation were down $2.7 million, or 21.5%, over the same period in 2008, primarily as a result of lower volumes from clients.

In Canadian dollars, the overall cost of services for the U.S. customs brokerage segment was $5.8 million, $1.7 million less than the same period last year. This was due to various cost reductions totalling $1.9 million, including personnel reductions in response to lower revenues resulting from the sluggish economy. This was offset by the unfavourable $0.2 million foreign-exchange impact when translating U.S.-dollar costs into Canadian dollars during the quarter.

In U.S. dollars, the overall cost of services for the U.S. customs brokerage operation was down by $1.9 million. Due to the variances in revenue and cost of services mentioned above, the contribution margin for the U.S. customs brokerage operation decreased in Canadian dollars to $4.5 million from $5.0 million in the same period in 2008. As a per cent of revenues, the contribution margin increased to 44.0% in 2009 from 40.1% in 2008. This was primarily the result of a significant decrease in costs from reduced headcount as well as efficiencies achieved through the implementation of the document imaging system in 2009.

In Canadian dollars, overall revenues for the nine months ended September 30, 2009 decreased in the U.S. customs brokerage segment by 15.6% to $33.2 million compared with the same period a year earlier. U.S. brokerage volumes were approximately 25.3% lower year over year, decreasing revenue by $9.9 million. Lower pricing to clients also contributed to $0.5 million lower revenues. This was offset by the foreign-exchange translation of U.S.-dollar revenues into Canadian dollars, resulting in a $4.3 million increase in revenues compared with the same period in 2008.

The average Canada-United States currency-exchange rate for the nine months ended September 30, 2009 was Cdn$1.17 to US$1.00 compared with Cdn$1.02 to US$1.00 for the same period in 2008. In U.S. dollars, overall 2009 revenues for the U.S. customs brokerage operation were down $10.2 million, or 26.6%, for the nine months ended September 30, 2009 compared with the same period in 2008, owing primarily to reduced volumes.

In Canadian dollars, the overall cost of services for the U.S. customs brokerage segment decreased by $3.6 million, or 14.9%, to $20.3 million in the nine-month period compared with 2008. This was the result of efficiencies achieved through the implementation of document imaging technology as well as various cost reductions.

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 $12.9 million in the nine months ended September 30, 2009 from $15.5 million in the same period in 2008. As a per cent of revenues, the contribution margin decreased slightly to 38.9% in the nine months ended September 30, 2009 from 39.4% for the same period in 2008.

Transportation and Logistics

Revenues in the quarter ended September 30, 2009 decreased by $5.0 million to $11.5 million compared with the same period in 2008. This was primarily due to lower volumes in the integrated logistics (including North American transportation), international freight forwarding and vehicle transportation businesses.

The cost of services decreased by $3.1 million to $10.3 million for the quarter ended September 30, 2009 compared with the same period in 2008. Costs were lower in the integrated logistics (including North American transportation), international freight forwarding and vehicle transportation businesses, primarily the result of staff reductions prompted by declining business volumes. This resulted in a contribution margin of $1.2 million for the quarter ended September 30, 2009 compared with $3.1 million for the same period in 2008. The decline in the contribution margin percentage from 18.7% of revenue in 2008 to 10.6% in 2009 reflects lower margins due to the general economic decline affecting all of the businesses in this segment.

For the nine months ended September 30, 2009, net revenues decreased by $13.7 million to $35.1 million compared with the same period in 2008. This decrease was primarily due to decreased volumes in the integrated logistics (including North American transportation), international freight forwarding and vehicle transportation businesses.

The cost of services decreased by $6.8 million to $33.5 million for the nine months ended September 30, 2009 compared with the same period in 2008. Costs were lower in the integrated logistics (including North American transportation), international freight forwarding and vehicle transportation businesses, primarily as a result of staff reductions driven by declining business volumes. This resulted in a contribution margin of $1.5 million for the nine months ended September 30, 2009 compared with $8.4 million for the same period in 2008. The decline in the margin percentage from 17.3% in 2008 to 4.4% in 2009 reflects lower margins due to challenges experienced by all of the businesses in this segment.

Border Services

Revenues decreased by 34.5% to $8.7 million for the quarter ended September 30, 2009 compared with the same period in 2008. This was largely due to a 40.8% drop in volumes in the managed services' imported vehicle registration operation. This was partially offset by higher revenues from the other business operations in managed services. The reduced imported vehicle registration volumes experienced in the third quarter of 2009 can be primarily attributed to the weakened Canadian dollar and general economic slowdown compared with the same period in 2008.

The cost of services in this segment decreased in the third quarter of 2009 by 34.7% to $4.5 million over the same quarter in 2008, primarily in managed services due to the decline in imported vehicle registration volumes.

As a result of decreased revenues, the contribution margin for border services dropped to $4.1 million, down from $6.3 million in 2008. As a per cent of revenues, the contribution margin increased slightly to 47.5% of revenues in 2009 from 47.4% in 2008.

Revenues fell by 53.5% to $21.5 million for the nine months ended September 30, 2009 compared with the same period in 2008. This was chiefly due to the reduction in volumes in imported vehicle registration.

The cost of services decreased by 48.0% to $12.1 million for the nine months ended September 30, 2009 compared with the same period in 2008. This decrease came primarily from managed services, reflecting fewer imported vehicle registrations.

As a result of decreased revenues, the contribution margin for the border services segment decreased to $9.3 million, down from $22.9 million in the nine months ended September 30, 2008. As a per cent of revenues, the contribution margin decreased to 43.5% of revenues in 2009 from 49.6% in the same period a year ago.

    
    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 $10.5 million, or $0.307 per Fund unit, for the quarter ended September 30, 2009. This represents a decrease compared with the same quarter in 2008, when the adjusted operating cash flows after maintenance capital expenditures(2) totalled $13.9 million, or $0.512 per Fund unit. The Fund had positive cash flows of $11.9 million from operating activities (calculated in accordance with GAAP) in the quarter. After deducting $1.2 million for the net change in current assets and liabilities and deducting $0.2 million for maintenance capital expenditures, the adjusted operating cash flows after maintenance capital expenditures(2) were $10.5 million, or $0.307 per Fund unit, for the third quarter of 2009. This compares with positive cash flows from operating activities (calculated in accordance with GAAP) of $50.3 million in the same period in 2008. After deducting the net change in assets and liabilities of $35.0 million and deducting maintenance capital expenditures of $1.4 million, the adjusted operating cash flows after maintenance capital expenditures(2) totalled $13.9 million, or $0.512 per Fund unit, in the third quarter of 2008.

The Fund did not declare any distributions for the quarter ended September 30, 2009, compared with distributions of $11.6 million, or $0.426 per Fund unit, for the same quarter in 2008. Distributions were suspended after the payment of the May 2009 distribution, which occurred in June 2009, as the Fund used a portion of the excess cash flows to pay down its bank term debt, as required by the terms of the amended credit facility.

As the Fund suspended distributions effective in June 2009, the payout ratio for adjusted operating cash flows after maintenance capital expenditures(2) for the quarter ended September 30, 2009 was nil compared with 83.3% for the same period in 2008.

For the nine months ended September 30, 2009, the Fund generated $16.4 million, or $0.550 per Fund unit, of adjusted operating cash flows after maintenance capital expenditures(2). This represents a decrease compared with the same period in 2008, when the adjusted operating cash flows after maintenance capital expenditures(2) totalled $42.3 million, or $1.554 per Fund unit. The Fund generated $46.2 million of cash flows from operating activities (calculated in accordance with GAAP) in the first nine months of the year. After deducting $28.4 million for the net change in current assets and liabilities and $1.4 million for maintenance capital expenditures, the adjusted operating cash flows after maintenance capital expenditures(2) were $16.4 million, or $0.550 per Fund unit, for the nine months ended September 30, 2009. This compares with positive cash flows from operating activities (calculated in accordance with GAAP) of $41.3 million in the same period in 2008. After adding the net change in assets and liabilities of $4.0 million and deducting maintenance capital expenditures of $3.0 million, the adjusted operating cash flows after maintenance capital expenditures(2) totalled $42.3 million, or $1.554 per Fund unit, in the same period in 2008.

The Fund declared distributions of $5.7 million, or $0.210 per Fund unit, for the nine-month period ended September 30, 2009 compared with distributions of $34.8 million, or $1.278 per Fund unit, for the same period in 2008. Distributions to unitholders were lower in the nine months ended September 30, 2009 owing to the reduction of distributions announced in January 2009 and the subsequent suspension of distributions announced in May 2009, as a result of the significantly weakened economy.

The payout ratio for adjusted operating cash flows after maintenance capital expenditures(2) for the nine months ended September 30, 2009 was 34.8% compared with 82.2% for the same period in 2008.

    
    -------------------------------------------------------------------------
    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 September 30, 2009, there were $11.9 million of cash flows from operating activities compared with $38.7 million after the payment of cash distributions for the quarter ended September 30, 2008.

There was $3.5 million of net income in the quarter ended September 30, 2009 compared with a shortfall of net income in the amount of $1.2 million after the payment of cash distributions in the quarter ended September 30, 2008.

No distributions were paid in the quarter ended September 30, 2009 as distributions were suspended after the May 2009 distribution which was paid in June 2009.

For the nine months ended September 30, 2009, there was an excess of $36.6 million of cash flows from operating activities relative to cash distributions paid compared with an excess of $6.4 million for the nine months ended September 30, 2008.

There was a shortfall of $24.3 million of net income relative to cash distributions paid for the nine months ended September 30, 2009, compared with a shortfall of $4.0 million for the nine months ended September 30, 2008.

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 September 30, 2009 was primarily due to the nature of these non-cash charges.

    
    -------------------------------------------------------------------------
    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 January 2006, Livingston entered into a credit facility in the amount of $250 million for a term of five years. In May and July 2009, this credit agreement was amended. See "Financing Activities" below for further details. The credit facility consists of a $130 million revolving line of credit for operations, capital expenditures and acquisitions and a $120 million five-year term loan, which was reduced to $110.5 million effective January 11, 2009. The term loan amount fluctuates depending on the exchange rate, as approximately $11.1 million is U.S.-dollar-denominated debt. Of the $130 million revolving line of credit, $83.1 million was not drawn as at September 30, 2009. The effective term loan interest rate was 6.14% for the nine months ended September 30, 2009 compared with 6.18% for the same period in 2008. As at September 30, 2009, the effective term loan interest rate was 8.52%, up from 5.80% as at September 30, 2008. The Fund believes that the $130 million revolving credit facility should be sufficient to meet its financing requirements.

A portion of the $130 million revolving facility is required typically at the end of each month to facilitate the payment of government remittances on behalf of Livingston's clients. This is reduced throughout the following month as payments are received from clients. Difficulties by the Fund's clients to make payments or access credit owing to the weakened economy could adversely affect the Fund. The Fund continues to monitor clients' payment patterns to seek to mitigate the impact of potential credit losses.

In June 2009, the Fund issued an additional 6.9 million units from treasury as part of an equity financing transaction, at a price of $4.30 per unit, to raise gross proceeds of $29.7 million. After deducting underwriter, legal and other fees in the amount of $1.6 million (net of recoverable tax of $0.3 million), the resulting net proceeds from the equity financing totalled $28.1 million. These net proceeds were available to be used to reduce Livingston's borrowing under the revolving line of credit for June and a portion of the term loan referred to above. The term debt was reduced by $25 million effective July 31, 2009.

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 September 30, 2009, the Fund generated $11.9 million of cash flow from operating activities, down from $50.3 million in the same period in 2008. These amounts are inclusive of the net change in current assets and liabilities, which increased cash flow by $1.2 million in the quarter ended September 30, 2009 and by $35.0 million in the same period last year. In the quarter ended September 30, 2009, the $1.2 million increase was primarily the result of an increase of $8.1 million and $4.3 million in accounts receivable and prepaids, respectively, offset by a $12.5 million increase in government remittances and accounts payable. These changes reflect the fluctuation in timing between the receipt of funds from clients and the payment of duties and/or the goods and services tax ("GST") to Canadian and U.S. governments.

For the nine months ended September 30, 2009, the Fund generated $46.2 million of cash flow from operating activities, up from $41.3 million in the same period in 2008. These amounts are inclusive of the net change in current assets and liabilities, which increased cash flow by $28.4 million in the nine months ended September 30, 2009 and decreased cash flow by $4.0 million in the same period last year. In the nine months ended September 30, 2009, the $28.4 million increase was primarily a result of a $60.2 million decrease in accounts receivable, partially offset by a $29.2 million decrease in government remittances and accounts payable and an increase of $3.2 million in prepaids. These changes reflect both a lower volume in economic activity and a corresponding reduction in government remittances.

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 $0.4 million for the quarter ended September 30, 2009 compared with $2.1 million for the same period in 2008. In the quarter ended September 30, 2009, maintenance capital expenditures related to the improvement of office facilities and the replacement of workstations were $0.2 million, down from $1.3 million in the same period in 2008. In management's judgment, non-maintenance - or growth - capital expenditures refer to capital expenditures that increase revenues, margins or EBITDA(1). Those expenditures amounted to approximately $0.2 million in the quarter ended September 30, 2009, down from $0.8 million in the same quarter in 2008.

Livingston incurred capital expenditures, net of disposals, of $1.7 million for the nine months ended September 30, 2009 compared with $4.9 million for the same period in 2008. In the nine months ended September 30, 2009, maintenance capital expenditures related to the improvement of office facilities and the replacement of workstations were $1.3 million, down from $2.9 million in the same period in 2008. Non-maintenance or growth capital expenditures totalled approximately $0.6 million for the nine months ended September 30, 2009, down from $2.0 million for the same period in 2008. Disposals during the first nine months of 2009 totalled $0.2 million.

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 $18.0 million increase in the operating facility for the quarter ended September 30, 2009 compared with a decrease of $35.1 million for the quarter ended September 30, 2008. This resulted from the difference in timing between payments received from clients and remittances made to governments on their behalf at the end of the period. For the nine months ended September 30, 2009, there was a decrease in the operating facility of $49.2 million compared with a decrease of $7.8 million for the same period in 2008. The decrease for the nine-month period ended September 30, 2009 was due largely to net proceeds of $3.1 million from the equity raised in the June 2009 equity financing transaction after $25 million of the term loan was paid off, which reduced the funding required under the operating facility to support government remittances on behalf of clients and due to lower requirements for customs payments.

Livingston negotiated its credit facility effective January 11, 2006 in the amount of $250 million for a term of five years, consisting of a $130 million revolving line of credit referred to above and a $120 million five-year term loan. This credit facility was updated to allow for legal restructurings and other changes to the agreement, effective September 28, 2007.

Subsequently in May 2009, the agreement was further amended following discussions initiated by Livingston with its lenders to provide for greater flexibility in the leverage ratio covenant, owing to the economic downturn, which has significantly affected trade volumes. As a result, the lenders agreed to provide this additional flexibility by increasing the leverage ratio to 3.75 until September 30, 2009 and then reducing it progressively by quarter to 2.50 by September 30, 2010 and for the remainder of the term of the credit agreement. Furthermore, the lenders also agreed to waive the prior leverage ratio covenant requirements as of March 31, 2009. As at September 30, 2009, the Fund was in compliance with its financial covenants.

Under the terms of the May 2009 amendment, the interest rate on the term bank loan, which is collateralized by a general security agreement on all of the assets of the Fund's subsidiaries, varies between 5.3% and 9.7%, dependent upon certain financial performance ratios. Also as part of the amended agreement, Livingston incurred fees in the amount of $1.3 million that have been accounted for as deferred financing fees to be amortized over the remaining term of the credit agreement until January 11, 2011.

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 $1.6 million of its term loan in June and a further $7.0 million in the latest quarter, bringing the total term loan debt to $75.4 million. An additional amount of approximately $9.5 million is expected to be repaid on the term loan in the 12-month period ending September 30, 2010 as a result of this provision.

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 June 2009. At the Fund's discretion, the payment of distributions may be reinstated, subject to the leverage ratio being maintained at or below 2.50 for two consecutive quarters.

The suspension of distributions followed the January announcement by the Fund to reduce monthly distributions by 70%, to $0.042 per Fund unit, or $0.504 per annum, starting with the January 2009 distribution paid at the end of February 2009. Accordingly, no cash distributions were declared to Fund unitholders in the quarter ended September 30, 2009 compared with $11.6 million for the same period in 2008. For the nine months ended September 30, 2009, distributions were $5.7 million compared with $34.8 million for the same period in 2008, owing to the reduced level of distributions.

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 July 31, 2009, to allow Livingston to draw on this revolving credit facility in amounts up to $25 million in excess of its borrowing base for each month for the quarter ending September 30, 2009 and in excess of up to $20 million for each month for the quarter ending December 31, 2009. The July amendment also included a provision to use $25 million of the net proceeds from the June 2009 equity financing to reduce the bank term debt, as initially contemplated by that transaction. This $25 million repayment was made on July 31, 2009.

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 $20.0 million lower at September 30, 2009 than at September 30, 2008, reflecting fewer funds drawn under the revolving line of credit for government remittances. This was primarily as a result of the net proceeds of $3.1 million from the equity raised in the June 2009 equity financing transaction after $25 million of the term loan was paid off, reducing the funding required under the revolving credit facility and lower requirements for customs payments.

Together with cash flows generated from operating activities, capital expenditures and other investing activities, the total cash and cash equivalents were approximately $6.0 million at September 30, 2009 compared with $21.4 million at September 30, 2008 and $28.2 million at December 31, 2008.

    
    -------------------------------------------------------------------------
    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 September 30, 2009.

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, $2.8 million was transferred on the balance sheet as at December 31, 2008, and $2.3 million was transferred on the June 30, 2009 balance sheet. Henceforth, all subsequent application software purchases have been included in intangible assets. For the three and nine months ended September 30, 2008, $0.5 million and $1.4 million, respectively, were transferred from depreciation expense to amortization expense. Amortization expense relating to application software for 2009 has been recorded directly in amortization expense.

International Financial Reporting Standards

In January 2006, the Canadian Accounting Standards Board ("AcSB") announced its decision to replace Canadian GAAP with international financial reporting standards ("IFRS") for all Canadian publicly accountable enterprises. In February 2008, the decision was confirmed by the AcSB. The effective date of this requirement will be January 1, 2011 for annual periods beginning on or after January 1, 2011. The Fund has established a project team to manage the transition to IFRS and ensure its successful implementation. The Fund's IFRS Steering Committee is updated regularly on the progress of the conversion plan. The Fund has also engaged a professional services firm to assist and advise on the Fund's transition to IFRS. The Fund's progress to date to convert to IFRS is set out below.

As at December 31, 2008, a preliminary report had been completed by external consultants, who identified areas of significant impact to Livingston upon the adoption of IFRS. During the first half of 2009, management began evaluating the impact of the adoption of IFRS on the Fund's financial statements and worked with external resources to develop a plan to transition to the new standards, in accordance with the guidelines of IFRS 1 First-time Adoption of International Financial Reporting Standards.

    
    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 January 1, 2011. Certain standards, if approved and implemented in their current state, could result in material differences between the Fund's current Canadian GAAP reporting and proposed IFRS reporting. The major areas that would be affected are: revenue recognition; provisions and contingencies; lease accounting; financial statement presentation; employee benefits; and income taxes. The Fund will continue to closely follow the development of these standards and assess the impact of any changes on its opening balance sheet at the transition date and on its financial statements and disclosures.

As at September 30, 2009, the Fund is not reasonably in a position to determine the financial impact that adopting IFRS will have on its financial statements. These disclosures reflect the Fund's expectations based on information available as at September 30, 2009. Changes in IFRS standards or circumstances relating to the Fund may cause the Fund to revise its expectations, conversion plan and potential IFRS accounting policy choices prior to the conversion date.

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 Canada Border Services Agency ("CBSA") and U.S. Customs and Border Protection ("CBP").

There have been no significant changes to Livingston's off balance sheet arrangements since December 31, 2008, except for certain amounts outstanding as of September 30, 2009 as indicated below. For more information on off balance sheet arrangements, refer to the consolidated financial statements for the year ended December 31, 2008 and the notes to the consolidated financial statements included in the Fund's Annual Report 2008.

As at September 30, 2009, the fair value of the plan assets exceeded the accrued pension obligation for the Livingston defined benefit pension plan by $2.5 million. This compares with the accrued pension asset on the balance sheet of $8.0 million. The difference of $5.5 million is comprised of unamortized past service costs of $0.9 million, which are being amortized on a linear basis at a rate of $0.1 million per year, and unamortized losses of $4.6 million. Unamortized losses in excess of 10% of the greater of the accrued benefit obligation and the fair value of plan assets are amortized over the expected average remaining service life of active defined benefit pension plan members. The decrease in the actuarial loss associated with the defined benefit pension plan from December 31, 2008 and September 30, 2009 is mainly the result of an increase in the value of the pension assets.

The Fund had an accrued benefit obligation of $9.4 million for other benefit plans, which includes post-retirement benefits, and an accrued liability of $9.7 million. The difference is comprised of unamortized past service costs of $35 thousand which are being amortized on a linear basis at a rate of $7 thousand per year, and unamortized gains of $0.3 million. Unamortized gains in excess of 10% of the accrued benefit obligation are amortized over the expected average remaining service life of active members of other benefit plans. The decrease in the actuarial gain associated with the other benefit plans is the result of the amortization of the gain and past service costs.

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 September 30, 2009, Livingston had arranged for approximately $30.3 million in bonds in favour of the Canadian and U.S. governments, down from $45.1 million as at September 30, 2008. The bonds are required in order to operate as a customs broker and to facilitate the release of clients' goods from Customs prior to the payment of duties and taxes.

Under its credit agreement, Livingston has also issued letters of credit in the total amount of $0.4 million as at September 30, 2009 and $0.6 million as at September 30, 2008, in support of various contracts.

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 February 11, 2002 through to September 30, 2009.

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 September 30, 2009 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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 December 31, 2008. Critical accounting estimates require management to make certain judgments and estimates, some of which may be uncertain. Changes in these accounting estimates may have an impact on the financial results of Livingston and the Fund. There have been no significant changes in critical accounting estimates of the Fund relative to those established as at December 31, 2008.

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 December 31, 2008 and the notes to the consolidated financial statements included in the Fund's Annual Report 2008.

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

SOURCE LIVINGSTON INTERNATIONAL INCOME FUND

For further information: For further information: Dawneen MacKenzie, vice-president, public affairs, 1-800-387-7582 ext. 3109


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