Livingston International Income Fund reports solid results for the second quarter of 2007



    Analyst conference call scheduled for Friday August 10 at 10:00 a.m.

    TORONTO, Aug. 9 /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 solid results for the second quarter ended June 30, 2007.
    "The Fund continued to deliver solid results for unitholders despite
somewhat lower trade volumes in both directions between Canada and the United
States," said Peter Luit, president and chief executive officer of Livingston.
"The prolonged increased strength of the Canadian dollar continued to affect
key sectors of the economy which, in turn, had an impact on transportation and
customs brokerage services. The stronger domestic currency is affecting trade
and prompting changes to our clients' operations. Livingston is strongly
positioned to withstand the current challenging environment and to benefit
from new trade patterns."

    Distributions

    During the second quarter, the Fund declared distributions of
$11.6 million, or $0.426 per unit, equal to the distributions declared in the
second quarter of 2006. Cash available for distribution(1) was $13.3 million,
or $0.488 per unit, in the second quarter of 2007 compared with $15.2 million,
or $0.560 per unit, in the second quarter of 2006. In the most recent quarter,
the payout ratio was 87.2% compared with 76.1% in the same period in 2006. The
average payout ratio since inception in February 2002 to the end of June 2007
has been 80.9%.

    Second quarter results

    In the second quarter of 2007, Livingston recorded revenues and interest
income of $82.2 million compared with $83.0 million in the same quarter of
2006. Net income for the quarter was $3.4 million, or $0.12 per unit. In the
second quarter of 2006, net income was $8.2 million, or $0.31 per unit.
EBITDA(2), or earnings before interest, taxes, other income or expense,
depreciation and amortization, was $17.2 million in the quarter, or 20.9% of
revenue, compared with $18.5 million, or 22.3% of revenue, in the same quarter
in 2006. The difference in net income was primarily due to lower EBITDA(2)
from operations, higher other expense due to foreign-exchange losses, higher
interest expense and a lower income tax recovery in 2007 compared with 2006.
This includes the impact of approximately $1.6 million in non-recurring costs
related to restructuring in the transportation and logistics operations and
other parts of the business.

    Year-to-date results

    The Fund recorded revenues and interest income of $159.3 million for the
six months ended June 30, 2007, compared with $160.2 million in the same
period in 2006. Net income for the first half of the year was $5.7 million, or
$0.21 per unit, after the recovery of income taxes of $1.8 million. In the
same period in 2006, net income was $13.4 million, or $0.51 per unit, after
the recovery of income taxes of $3.7 million. EBITDA(2) was $29.9 million, or
18.7% of revenue, compared with $32.4 million, or 20.3% of revenue, in the
same period in 2006. The decline in net income was primarily due to lower
EBITDA(2) from operations, higher depreciation, higher other expense due to
foreign-exchange losses and a lower income tax recovery in 2007 compared with
2006.
    A copy of the full financial report, including notes to the consolidated
financial statements, is available from the Livingston's Investor Relations
page at www.livingstonintl.com and has been filed on www.sedar.com.

    
    Highlights

    (in millions of dollars         Three months ended      Six months ended
    except per unit amounts,                   June 30               June 30
    unaudited)                         2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                           $82.2      $83.0     $159.3     $160.2
    -------------------------------------------------------------------------
    Net income                          3.4        8.2        5.7       13.4
    -------------------------------------------------------------------------
    Cash flow from operations          16.7        1.8        2.4       11.6
    -------------------------------------------------------------------------
    Earnings before interest, taxes,
     other expense (income),
     depreciation and amortization
     (EBITDA)(2)                       17.2       18.5       29.9       32.4
    -------------------------------------------------------------------------
    Cash available for
     distribution(1)                   13.3       15.2       22.7       26.7
    -------------------------------------------------------------------------
    Distributions to unitholders       11.6       11.6       23.2       22.4
    -------------------------------------------------------------------------
    Cash available for
     distribution(1) per
     unit(*)                          0.488      0.560      0.835      1.010
    -------------------------------------------------------------------------
    Cash available for
     distribution(1) per unit
     (diluted)(xx)                    0.488      0.559      0.835      0.999
    -------------------------------------------------------------------------
    Distributions per unit to
     unitholders(*)                   0.426      0.426      0.852      0.826
    -------------------------------------------------------------------------
    Payout ratio                       87.2%      76.1%     102.1%      84.0%
    -------------------------------------------------------------------------
    Payout ratio since inception       80.9%      79.4%      80.9%      79.4%
    -------------------------------------------------------------------------
    (*) The per-unit calculation is based on the weighted average number of
    units outstanding.
    (xx) The diluted per-unit calculation includes the impact of the 1,003
    restricted units not yet exercised as at June 30, 2007.
    

    Conference call

    Livingston International Income Fund invites interested investors,
analysts and financial media to dial in to its conference call to review its
second quarter financial results to be held on Friday, August 10, 2007 at
10:00 a.m. EDT. The number to call is 1-800-446-4498 or, in the Toronto area,
(416) 695-5252, citing confirmation number T647619L.
    A playback will also be available following the scheduled call, until
September 9, 2007, by dialling (416) 695-5275 in the Toronto area or
1-888-509- 0081 and asking for the Livingston International 2nd Quarter 2007
Financial Results conference call. The pass code for the playback is 647619
followed by the number sign. An audio webcast recording will also be archived
on Livingston's web site for one month following the call.

    About Livingston

    Livingston International Income Fund owns, among other companies,
Livingston International Inc., which is a leading North American provider of
customs, transportation and integrated logistics services. Headquartered in
Toronto, Ontario, Livingston International operates in four business segments:
Canadian customs brokerage services; U.S. customs brokerage services;
transportation and logistics services; and other services, which include
imported vehicle registration, international trade consulting, managed
services, event logistics, corporate travel services and technology services.
The Fund and its subsidiaries employ a staff of more than 3,250 located at
over 125 key border points, seaports and airports as well as other strategic
locations across Canada and the United States.

    Management's Discussion and Analysis
    For the period ended June 30, 2007

    This Management's Discussion and Analysis, the accompanying interim
unaudited consolidated financial statements of Livingston International Income
Fund (the "Fund") and the notes thereto present the results of the Fund for
the periods ended June 30, 2007 and June 30, 2006. The accompanying interim
unaudited consolidated financial statements include the results of the Fund's
primary operating subsidiary, Livingston International Inc. ("Livingston" or
"Livingston International"), and its affiliates in Canada and the United
States, which conduct the Fund's day-to-day business operations, for the three
and six-month periods ended June 30, 2007, as well as the businesses formerly
owned by PBB Global Logistics Income Fund ("PBB" or "PBB Global Logistics"),
for the period from January 11 to June 30, 2006.
    These interim unaudited financial statements are intended to be read in
conjunction with the annual audited financial statements and accompanying
notes to the consolidated financial statements for the year ended
December 31, 2006, included in the Fund's Annual Report 2006. This information
is available from the Investor Relations page of Livingston's web site at
www.livingstonintl.com and also at www.sedar.com.
    The accounting policies as disclosed in these interim unaudited
consolidated financial statements are consistent with those followed in the
2006 audited consolidated financial statements, included in the Fund's Annual
Report 2006, except that the Fund has adopted the following accounting
policies effective January 1, 2007: Canadian Institute of Chartered
Accountants ("CICA") Handbook Section 1530, Comprehensive Income; Section
3251, Equity; Section 3855, Financial Instruments - Recognition and
Measurement; Section 3861, Financial Instruments - Disclosure and
Presentation; and Section 3865, Hedges. As required, these standards have been
adopted on a prospective basis, with certain adjustments being recorded to the
opening accumulated other comprehensive income. Prior year comparative
statements have not been restated, in accordance with the CICA Handbook
guidance.
    As it relates to the Fund, comprehensive income includes net income plus
the change in the fair value of financial instruments, such as the interest-
rate swaps, net of tax.
    The proposed legislation rendering publicly traded income trusts taxable
became substantively enacted on June 12, 2007. Accordingly, the Fund has
recorded future income tax liabilities for its partnership subsidiaries.
    All financial information is presented in Canadian dollars, unless
specified otherwise.

    Forward-Looking Statements

    The Fund's interim unaudited consolidated financial statements, including
this Management's Discussion and Analysis, contain "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 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, taxation of income trusts, limited partnerships or
corporations and other tax matters, disruptions in border crossings, increases
or decreases in foreign trade, competition, effects of derivative and other
financial instruments, integration of acquisitions, regulatory change,
foreign- exchange rates, interest rates, continued availability of credit
facilities, availability of bonds, credit and collection experience, reliance
on key personnel, potential for uninsured or underinsured losses, continued
availability of transportation equipment, contract changes, loss or non-
renewal of contracts or 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 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,
taxes, foreign-exchange rates and interest rates, that there will be no
material changes in its credit arrangements, bonding requirements or credit
and collections experience and that the integration of PBB will proceed
relatively smoothly.
    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 the preceding information is carefully considered.
    Such forward-looking statements are made as of August 9, 2007. 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 August 9, 2007. Undue
reliance should not be placed on forward-looking statements.

    Non-GAAP Measures

    The Fund provides some non-GAAP (generally accepted accounting
principles) measures as supplementary information that management believes
would be useful to investors to explain the Fund's financial results. These
non-GAAP measures include cash available for distribution(1) and EBITDA(2).
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 Fund has reconciled these non-GAAP measures to the most comparable
Canadian GAAP items included in the consolidated financial statements. See
Tables 3 and 4 for these reconciliations.
    Cash Available for Distribution(1)
    The term cash available for distribution(1), or distributable cash, does
not have a standardized meaning under Canadian GAAP, should not be construed
as an alternative to GAAP measures and may not be representative of cash flow
or results of operations determined in accordance with GAAP. It may not be
comparable to measures used by other companies or income trusts.
    The calculation of cash available for distribution(1) specifically
excludes other (income) expense, which includes realized and unrealized
foreign-currency losses or gains and is, therefore, different from actual cash
flow. Similarly, there are some accrued expenses, such as employee benefits,
that reduce the cash available for distribution(1) but that are not actually
paid during the period, thereby creating a difference between cash available
for distribution(1) and actual cash flow in accordance with GAAP.
    For a reconciliation of cash flow from operating activities (determined
in accordance with GAAP) to cash available for distribution(1), see Table 3.
For a reconciliation of cash available for distribution(1) to EBITDA(2), see
Table 4.

    EBITDA(2)

    The term EBITDA(2) (earnings before interest, taxes, other (income)
expense, depreciation and amortization) 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 determined in accordance with
GAAP as an indicator of the Fund's performance or cash flows.
    The Fund's method of calculating EBITDA(2) 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(2), see Table 4.

    Business Lines

    Livingston and its affiliates operate four business lines: Canadian
customs brokerage services; U.S. customs brokerage services; transportation
and logistics services, which include integrated logistics services
(integrated supply-chain management operations, warehousing and distribution
services), freight services (international freight forwarding, air/sea
brokerage operations, transportation management and vehicle transportation
services); and other services, which include imported vehicle registration,
managed services (administrative, contact centre and document management
services), event logistics (specialized services for trade shows and special
events, and corporate travel services), consulting (international trade and
customs compliance services) and technology services.
    The operating results of the Fund's limited partnerships subsidiaries are
included in the four business lines. Specifically, Livingston LP is part of
Canadian customs brokerage services, PBB Global Logistics LP is part of
transportation and logistics services and Adminserv Canada LP is part of other
services.
    Prior year comparatives for revenue, cost of services and selling,
general and administrative expenses, where appropriate, have been reclassified
to conform to current-year reporting. Revenues are expressed net of certain
charges paid to external parties.

    Results of Operations

    Three months ended June 30, 2007
    Livingston International recorded consolidated revenues and interest
income of $82.2 million for the quarter ended June 30, 2007, slightly down by
0.9% from $83.0 million in the same period in 2006.
    Cost of services increased by 2.7% to $46.8 million in the quarter ended
June 30, 2007 compared with the same period in 2006, due to higher costs in
all reporting segments with the exception of U.S. customs brokerage, where
costs were lower primarily a result of the stronger Canadian dollar. The
contribution margin decreased to $35.4 million, or 43.1% of revenue, in the
quarter ended June 30, 2007 down from $37.5 million, or 45.1% of revenue, for
the same period in 2006. Further comments on each reporting segment are
included in the discussion on reporting segments.
    Selling, general and administrative expenses, including administrative
expenses of the Fund, for the quarter ended June 30, 2007 were $17.8 million,
or 21.6% of revenue, compared with $17.9 million, or 21.5% of revenue, for the
same period in 2006.
    The Fund also incurred certain integration costs that did not qualify to
be recorded as a liability in the purchase price allocation for the 2006
acquisition of PBB. Such costs include various severances and other lease or
contract termination costs for Livingston personnel and offices as well as
consulting services directly related to the integration of PBB. These fees and
expenses are non-recurring in nature as they are directly related to the
integration and are expected to continue until the integration is complete.
For the quarter ended June 30, 2007, the Fund incurred $0.5 million in
integration costs compared with $1.1 million recorded in the quarter ended
June 30, 2006. In addition, $1.6 million of restructuring-related and other
one-time costs was incurred in the quarter ended June 30, 2007.
    An accrual in the amount of $6.2 million was provided at January 11, 2006
in the allocation of the purchase price for severance and other employee-
related expenses as well as the cost of terminating certain leases or other
contracts that have been or are expected to be incurred with respect to the
integration of PBB. Of this amount, approximately $3.0 million was paid during
2006, and $3.9 million was paid as at June 30, 2007.
    Net income for the quarter ended June 30, 2007 was $3.4 million, compared
with $8.2 million for 2006.
    For the quarter ended June 30, 2007, EBITDA(2) was $17.2 million, or
20.9% of revenue, compared with $18.5 million, or 22.3% of revenue, in the
quarter ended June 30, 2006.
    Depreciation expense for the quarter ended June 30, 2007 was
$2.9 million, compared with $3.0 million for the quarter ended June 30, 2006.
This expense related to the depreciation of property, plant and equipment,
comprised chiefly of facilities, computers and office equipment used in
operations.
    When the Fund purchased Livingston International, part of the purchase
price was allocated to intangible assets, which represent the value of client
relationships, contracts and technology acquired.
    On January 11, 2006, Livingston acquired the assets of PBB for a total
purchase price of $247.6 million. The purchase price was allocated to the
assets acquired and liabilities assumed, including intangible assets, which
represent the value of brand names, client relationships and a non-compete
agreement.
    Intangible assets are amortized over the expected periods of benefit,
generally from two to 10 years, which resulted in a charge of $5.6 million in
the quarter ended June 30, 2007, compared with $6.0 million for the same
period in 2006. The lower cost in the current quarter was a result of certain
intangible assets being fully amortized in the quarter ended March 31, 2007.
The value attributable to brand names for Livingston's acquisitions is being
amortized over a two-year period, which started in the fourth quarter in 2006,
due to Livingston's decision in 2006 to unite many of its operations over this
period under a single, clear visual Livingston brand and to communicate a
sharp, clear image of the company and its service offerings. The amortization
expense related to the brand names was $0.9 million in the quarter ended
June 30, 2007, and a further $1.9 million will be amortized over the next two
quarters.
    In accordance with GAAP, goodwill represents the excess of the purchase
price over the fair value of tangible and intangible assets acquired and is
not amortized. It is, however, subject to an annual impairment test, which is
typically completed in the fourth quarter, to determine if the carrying value
is below fair value.
    Included in other (income) expense 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 were foreign-exchange losses of
$2.8 million for the quarter ended June 30, 2007, compared with a foreign-
exchange loss of $0.3 million in the same quarter last year. This was
primarily due to the strengthening of the Canadian dollar during the quarter.
The loss was partially offset by the Fund's subsidiaries' hedging policy.
During the quarter, the Fund's subsidiaries continued to enter into a number
of short-term forward-exchange contracts to sell U.S. currency. In the quarter
ended June 30, 2007, there was a realized gain on the forward-exchange
contracts of $0.2 million, which is included in the total foreign-exchange
loss of $2.8 million, compared with a realized gain of $0.1 million in the
same period in 2006. For accounting purposes, the Fund records these forward-
exchange contracts at fair value and changes in fair value are recorded in
other income.
    Interest expense on long-term debt, mostly relating to the bank term
debt, was $2.0 million for the quarter ended June 30, 2007, up from
$1.6 million for the same period a year earlier, due to additional borrowing
in 2007. Included in the $2.0 million is non-cash interest expense of
$0.2 million relating to the amortization of deferred finance fees, the
discount on the Searail Cargo Surveys Ltd. ("Searail") earnout (described
below) and the amortization of the deferred loss on interest-rate swaps
settled in fiscal 2006.
    Under the terms of the Searail purchase agreement in 2005, the liability
related to the earnout for the Searail acquisition was approximately
$5.1 million. Since it was determined to be probable and is expected to be
paid over three years, the liability was discounted at the borrowing rate of
4.98%, the current rate at the time of the acquisition. The discount is
amortized over the three years remaining in the earnout period from the date
of acquisition.
    In 2005, Livingston entered into an interest-rate swap for $23 million,
which fixed the effective interest rate at 4.98% until December 16, 2009. In
September 2006, Livingston entered into three additional interest-rate swap
agreements to replace the three interest-rate swaps that PBB had negotiated
prior to the acquisition. In accordance with the new swap agreements,
Livingston pays interest at a fixed rate of 6.04% per annum on its Canadian-
dollar-denominated bank debt of $34 million and 6.88% on its U.S.-dollar-
denominated bank debt of US$5 million. The new swaps have a maturity date of
January 11, 2011. The former PBB interest-rate swaps were refinanced in
September 2006.
    Other interest expense, primarily related to the revolving line of credit
for government remittances, was $1.0 million for the quarter ended June 30,
2007, compared with $0.8 million a year earlier. This increase was due to
additional borrowings required to support a larger remittance for duties and
for goods and service taxes ("GST") at the end of the month.
    Interest income of $0.6 million was included in revenue for the quarter
ended June 30, 2007, lower than the $0.8 million recorded in the quarter ended
June 30, 2006. This was primarily due to lower interest rates and lower funds
available for investment purposes.
    While the Fund reported pre-tax income of $3.0 million for the quarter
ended June 30, 2007, it recognized a recovery of income taxes of $0.4 million,
comprised of a future income tax recovery of $1.1 million and a current tax
expense of $0.7 million. On pre-tax income of $3.0 million, the overall
expected income tax expense was $1.0 million, compared with a tax recovery
reported of $0.4 million. Income allocated to the Fund and its subsidiary
limited partnerships reduced income tax expense by $4.3 million, while non-
deductible items, differences in income tax rates and an additional valuation
allowance increased the tax expense by $2.2 million. The Fund has also
recorded a future tax expense of $0.7 million for its partnership subsidiaries
in compliance with the federal tax legislation on flow-through entities,
including income trusts, which became substantively enacted on June 12, 2007.
The future income tax recovery of $1.1 million is related to a reduction in
future tax liabilities, primarily as a result of the amortization of
intangible assets, offset by the recognition of a valuation allowance against
certain future tax assets and the recognition of future income taxes of the
subsidiary partnerships. The valuation allowance was recorded in the current
quarter due to losses in these entities and the uncertainty of realizing the
benefit of these future tax assets. At June 30, 2007, the Fund had
approximately $22.5 million of losses, which can be used to offset future
taxable income. Of these losses, $13.5 million will expire in 2026 and the
balance of $9.0 million will expire in 2027.
    Net income for the quarter was $3.4 million, or $0.12 per Fund unit,
after the income tax recovery of $0.4 million for the quarter ended
June 30, 2007. In the same period in 2006, net income was $8.2 million, or
$0.31 per Fund unit, after the recovery of income taxes of $1.4 million. The
decline in net income in the current quarter was primarily due to lower
EBITDA(2) generated by operations, higher other expense due to foreign-
exchange losses, higher interest expense and a lower income tax recovery in
the quarter ended June 30, 2007 compared with 2006. For a further breakdown of
the results of operations by quarter for the 2007 and 2006 fiscal years, refer
to Tables 1 and 2.

    Six months ended June 30, 2007
    Livingston International recorded consolidated revenues and interest
income of $159.3 million for the six months ended June 30, 2007, slightly
lower than the $160.2 million for the same period in 2006. As the PBB
acquisition was effective January 11, 2006, there were six additional business
days in the six months ended June 30, 2007 for the acquired businesses,
compared with the same period in 2006.
    Cost of services increased by 4.0% to $93.1 million in the six months
ended June 30, 2007 compared with the same period in 2006, due to higher costs
in all reporting segments. The contribution margin decreased to $66.1 million
or 41.5% of revenue in the six months ended June 30,2007, from $70.6 million
or 44.1% of revenue in the same period in 2006. Further comments on each
reporting segment are included in the discussion on reporting segments.
    Selling, general and administrative expenses, including administrative
expenses of the Fund, for the six-month period ended June 30, 2007 were
$35.2 million, or 22.1% of revenue, compared with $36.5 million, or 22.8% of
revenue, for the same period in 2006. The decrease in expenses resulted
primarily from the realization of cost synergies associated with the PBB
acquisition, offset by higher costs related to the six additional business
days for the acquired PBB businesses.
    The Fund also incurred certain integration costs that did not qualify to
be recorded as a liability in the purchase price allocation for the 2006
acquisition of PBB. For the six-month period ended June 30, 2007, the Fund
incurred $1.1 million in integration costs, which were recorded as expenses,
compared with $1.7 million recorded in the six months ended June 30, 2006.
    Net income for the first half of 2007 was $5.7 million compared with
$13.4 million for 2006. For the six months ended June 30, 2007, EBITDA(2) was
$29.9 million, or 18.7% of revenue, compared with $32.4 million, or 20.3% of
revenue, in the same period in 2006.
    Depreciation expense for the six months ended June 30, 2007 was
$5.8 million compared with $5.1 million for the same period in 2006,
reflecting the additional capital expenditures related to the PBB acquisition.
This expense 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, which resulted in a charge of $11.9 million in
2007, consistent with the same period in 2006. The amortization cost for the
six months ended June 30, 2007 was affected by the full six-month impact of
the PBB acquisition, the amortization of brand names and certain intangible
assets being fully amortized in the first quarter. The amortization expense
related to brand names was $1.8 million in the six months ended June 30, 2007.
    Included in other (income) expense 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 were foreign-exchange losses of
$2.5 million for the six months ended June 30, 2007 compared with a foreign-
exchange loss of $0.8 million in the same period in 2006. This was primarily
due to the pace of strengthening in the Canadian dollar for the first six
months of this year compared with the same period last year. The loss was
partially offset by the Fund's subsidiaries' hedging policy. For the six
months ended June 30, 2007, the Fund's subsidiaries continued to enter into a
number of short-term forward-exchange contracts to sell U.S. currency. There
was a realized gain on the foreign-exchange contracts of $0.25 million, which
is included in the total foreign-exchange loss of $2.5 million, compared with
a realized gain of $0.13 million in the same period in 2006. For accounting
purposes, the Fund records these forward-exchange contracts at fair value and
changes in fair value are recorded in other income/expense.
    Interest expense on long-term debt, mostly relating to the bank term
debt, was $4.0 million for the first six months, up from $3.7 million for the
same period in 2006, due to additional borrowing in 2007. Included in this
amount is a non-cash interest expense of $0.5 million relating to the
amortization of deferred finance fees, the discount on the Searail earnout and
the amortization of the deferred loss on interest-rate swaps settled in fiscal
2006.
    Other interest expense, primarily related to the revolving line of credit
for government remittances, was $1.8 million for the six months ended
June 30, 2007 compared with $1.9 million for the same period in 2006.
    Interest income in the first six months of 2007 was $1.2 million,
$0.1 million lower than the same period in 2006.
    While the Fund reported pre-tax income of $3.9 million for the six months
ended June 30, 2007, it recognized a recovery of income taxes of $1.8 million,
comprised of a future income tax recovery of $3.1 million and a current tax
expense of $1.3 million. On pre-tax income of $3.9 million, the overall
expected income tax expense was $1.4 million, compared with a tax recovery
reported of $1.9 million. Income allocated to the Fund and its subsidiary
limited partnerships reduced income tax expense by $8.1 million, while non-
deductible items, differences in income tax rates, additional valuation
allowance and the future income tax impact on flow-through entities increased
the tax expense by $4.8 million. The future income tax recovery of
$3.1 million is related to a reduction in future tax liabilities, primarily as
a result of the amortization of intangible assets offset by the recognition of
a valuation allowance against certain future tax assets and the recognition of
future income taxes of the subsidiary partnerships. The valuation allowance
was recorded due to losses in these entities and the uncertainty of realizing
the benefit of these future tax assets.
    The current income tax provision of $1.3 million was $1.4 million higher
in the six months ended June 30, 2007 than the $0.1 million recovery of
current income taxes in 2006. This was primarily due to losses carried back in
2006 to offset taxable income of prior years.
    Net income for the six months ended June 30, 2007 was $5.7 million, or
$0.21 per Fund unit, after the recovery of income taxes of $1.8 million. In
the same period in 2006, net income was $13.4 million, or $0.51 per Fund unit,
after the recovery of income taxes of $3.7 million. The decline in net income
was primarily due to lower EBITDA(2) generated by operations, higher
depreciation, higher other expense due to foreign-exchange losses and a lower
income tax recovery in the six months ended June 30, 2007 compared with 2006.
For a further breakdown of the results of operations by quarter for the 2007
and 2006 fiscal years, refer to Tables 1 and 2.

    Canadian Customs Brokerage

    Revenues and interest income for the quarter ended June 30, 2007
decreased by $3.7 million to $34.9 million, approximately 9.5% lower than the
same period in 2006. The decrease in revenue was primarily due to lower
volumes of approximately 3% from existing clients as a result of the slowdown
in the economy, the impact of the Canadian dollar and the mix of more lower-
priced than higher-priced import transactions in the quarter.
    The cost of services increased modestly by $0.3 million, or 1.7%, to
$16.4 million in the quarter ended June 30, 2007 compared with the same period
in 2006.
    The contribution margin for the second quarter of 2007 was $18.5 million
and lower than the $22.4 million for the year-earlier quarter. The
contribution margin percentage decreased to 53.0% of revenue in the quarter
ended June 30, 2007 from 58.2% of revenue in the same period in 2006.
    Revenues and interest income for the six months ended June 30, 2007
decreased by $4.0 million to $71.0 million, approximately 5.3% lower than the
same period in 2006. As the PBB acquisition was effective January 11, 2006,
there are six additional business days in the six months ended June 30, 2007
as compared to the same period in 2006. The decrease in revenue was primarily
due to approximately 2% lower volumes from existing clients as a result of the
slowdown in the economy, the impact of the Canadian dollar and the mix of more
lower-priced than higher-priced import transactions.
    The cost of services increased modestly by $0.5 million, or 1.5%, to
$32.2 million in the six months ended June 30, 2007 compared with the same
period in 2006. The six additional business days in 2007 increased the cost of
services by approximately $0.7 million. This additional cost in 2007 implies a
reduction in the cost of services of $0.2 million in the six months ended June
30, 2007 compared with the same period in 2006.
    The contribution margin for the first six months of 2007 was lower at
$38.7 million, or 54.5% of revenue, than the $43.2 million, or 57.6% of
revenue, in the same period in 2006.

    U.S. Customs Brokerage

    In Canadian dollars, overall revenues for the quarter ended June 30, 2007
increased in the U.S. customs brokerage segment by 0.9% to $14.1 million from
$14.0 million a year earlier. The provision of additional value-added services
to clients contributed higher revenues of $0.7 million. This was offset by
lower trade volumes of approximately 2% into the United States, which
decreased revenue by $0.3 million, and the foreign-exchange translation of
U.S.-dollar revenues into Canadian dollars, which reduced revenue by
$0.3 million, compared with the same quarter in 2006.
    The average Canada-United States currency-exchange rate for the quarter
ended June 30, 2007 was 1.10 compared with 1.12 for the same period in 2006.
In U.S. dollars, overall 2007 revenues for the U.S. customs brokerage
operation were up $0.4 million over 2006, primarily due to increased pricing
offset by lower volumes.
    In Canadian dollars, the overall cost of services for the U.S. customs
brokerage segment decreased by $0.3 million, or 4.5%, to $6.8 million in the
quarter ended June 30, 2007 compared with 2006. In U.S. dollars, the overall
cost of services for U.S. customs brokerage decreased by $0.2 million compared
with 2006.
    Due to the variances in revenue and cost of services mentioned above, the
contribution margin for the U.S. customs brokerage operation increased to
$7.3 million, or 51.8% of revenue, in the quarter ended June 30, 2007 from
$6.8 million, or 49.1% of revenue, in the same period in 2006.
    In Canadian dollars, overall revenues for the six months ended
June 30, 2007 increased in the U.S. customs brokerage segment by 1.6% to
$27.8 million from $27.4 million a year earlier. The revenue from the six
additional business days in the six months ended June 30, 2007 added
approximately $0.4 million to revenue. The provision of additional value-added
services to clients contributed higher revenues of $1.6 million. This was
offset by lower trade volumes of approximately 4% into the United States,
which decreased revenue by $1.4 million, and the foreign-exchange translation
of U.S.-dollar revenues into Canadian dollars, which reduced revenue by
$0.2 million, compared with the six months ended June 30, 2006.
    The average Canada-United States currency-exchange rate for the six
months ended June 30, 2007 was 1.13 compared with 1.14 for the same period in
2006. In U.S. dollars, overall 2007 revenues for the U.S. customs brokerage
operation were up $0.5 million over 2006, primarily due to increased pricing
offset by lower volumes.
    In Canadian dollars, the overall cost of services for the U.S. customs
brokerage segment increased by $0.2 million, or 1.3%, to $14.7 million in the
six months ended June 30, 2007 compared with 2006. Of this increase, the cost
of services for the six additional business days in 2007 was roughly
$0.1 million, and payroll and other costs added $0.1 million.
    In U.S. dollars, the overall cost of services for the U.S. customs
brokerage operation increased by $0.2 million over 2006.
    Due to the variances in revenue and cost of services mentioned above, the
contribution margin for the U.S. customs brokerage operation increased to
$13.2 million, or 47.3% of revenue, in the six months ended June 30, 2007 from
$12.9 million, or 47.2% of revenue, in the same period in 2006.

    Transportation and Logistics

    Net revenues increased by $0.8 million to $19.7 million in the quarter
ended June 30, 2007 from $18.9 million in the same period in 2006. This was
primarily in the vehicle transportation operation, which continued to show
strong sales growth and increased revenue by $1.2 million.
    The cost of services increased by $0.4 million to $15.9 million for the
quarter ended June 30, 2007 from $15.5 million for the same period in 2006.
The increase in cost of services was primarily due to increased costs in the
vehicle transportation operation to support the increased revenue. There were
also some one-time costs related to the restructuring of some of the
transportation and logistics businesses incurred in the second quarter. This
was offset by lower costs in the other areas reflecting an increased focus on
cost containment. This resulted in an increase in the contribution margin from
$3.5 million, or 18.3% of revenue, in the quarter ended June 30, 2006 to
$3.8 million, or 19.3% of revenue, in the quarter ended June 30, 2007.
    For the six months ended June 30, 2007, revenue decreased by $0.3 million
to $37.2 million from $37.5 million in the same period last year. This
decrease was largely due to a decline in business from the transportation
management operation previously acquired by PBB. This was offset by six
additional business days in the first half of 2007, which added approximately
$1.2 million of revenue, and the continued growth in the vehicle
transportation operation, which increased revenue by $2.6 million.
    The cost of services increased by $1.4 million to $31.7 million for the
six months ended June 30, 2007 from $30.3 million for the same period in 2006.
The increase in the cost of services was primarily due to the six additional
business days in 2007 and higher costs from the vehicle transportation
operation.
    This resulted in a decline in the contribution margin from $7.1 million,
or 19.0% of revenue, in the six months ended June 30, 2006 to $5.4 million, or
14.6% of revenue, in the six months ended June 30, 2007.

    Other Services

    Revenues increased by $1.9 million, or 16.8%, to $13.5 million for the
quarter ended June 30, 2007, from $11.6 million for the same period in 2006.
This was mainly due to higher volumes in the imported vehicle registration
operation that increased revenues by 13.7%. International trade consulting
increased its revenues in the quarter ended June 30, 2007 as a result of
claims that were approved by the Canada Border Services Agency ("CBSA") on
behalf of its clients. This was offset by slightly lower revenues in event
logistics (specialized services for trade shows and special events) due to the
strength of the Canadian dollar reducing the demand for such services.
    The cost of services increased by $0.8 million to $7.7 million in the
quarter ended June 30, 2007 from $6.9 million in the year-earlier period. This
was primarily due to higher costs in the imported vehicle registration
business to support the growth in revenues.
    The contribution margin for other services improved to $5.8 million, or
43.2% of revenue, in the quarter ended June 30, 2007, up from $4.7 million, or
40.7% of revenue, in the same period a year earlier.
    For the six months ended June 30, 2007, revenues increased by
$2.9 million, or 14.6%, to $23.3 million, from $20.4 million in the same
period in 2006. This was due to higher volumes in the imported vehicle
registration operation that increased revenue by 13.1% and higher revenue in
international trade consulting.
    The cost of services increased by $1.5 million to $14.5 million for the
six-month period ended June 30, 2007 compared with $13.0 million in the year-
earlier period. This was mainly due to higher costs from the imported vehicle
registration operation to support the higher revenues.
    The contribution margin for other services was $8.8 million or 37.9% of
revenues in the six months ended June 30, 2007, up from $7.4 million or 36.2%
of revenues in the same period in 2006.
    Table 1 provides quarterly financial information for the quarters ended
Sept. 30, 2006 to June 30, 2007.

    
    Table 1
    Quarterly Consolidated Statements of Income

    For the quarters ended September 30, 2006 to June 30, 2007
    (in thousands of dollars, except per Fund unit amounts, unaudited)

                                    June 30,   Mar. 31,   Dec. 31,  Sept. 30,
    Quarter ended                      2007       2007       2006       2006
    -------------------------------------------------------------------------
    Net revenues                     81,626     76,407     80,444     80,918
    Interest income                     597        641        768        758
    -------------------------------------------------------------------------
                                     82,223     77,048     81,212     81,676
    Cost of services                 46,788     46,347     45,852     45,779
    -------------------------------------------------------------------------
    Contribution margin              35,435     30,701     35,360     36,897
    Selling, general and
     administrative expenses         17,774     17,409     17,028     16,709
    Costs related to the
     integration of PBB                 480        616        947        813
    -------------------------------------------------------------------------
    EBITDA(2)                        17,181     12,676     17,385     18,375
    Depreciation                      2,913      2,923      3,091      2,804
    Amortization                      5,580      6,309      9,111      6,042
    Impairment of goodwill                -          -     11,000          -
    -------------------------------------------------------------------------
    Income (loss) before the
     undernoted                       8,688      3,444     (5,817)     9,529
    -------------------------------------------------------------------------
    Other expense (income)            2,752       (255)    (1,870)       175
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt                  2,018      2,012      1,934      1,923
      Other                             963        791        820        570
    -------------------------------------------------------------------------
                                      2,981      2,803      2,754      2,493
    -------------------------------------------------------------------------
    Income (loss) before income
     taxes                            2,955        896     (6,701)     6,861
    Provision for (recovery of)
     income taxes
      Current                           677        604       (812)       627
      Future                         (1,117)    (2,007)    (2,592)    (1,205)
    -------------------------------------------------------------------------
                                       (440)    (1,403)    (3,404)      (578)
    -------------------------------------------------------------------------
    Net income (loss) for the
     quarter                          3,395      2,299     (3,297)     7,439
    -------------------------------------------------------------------------
    Net income (loss) per Fund
     unit                              0.12       0.08      (0.12)      0.27
    -------------------------------------------------------------------------
    Net income (loss) per Fund
     unit, diluted                     0.12       0.08      (0.12)      0.27
    -------------------------------------------------------------------------
    Weighted average Fund units
     outstanding(*)              27,247,607 27,247,607 27,242,675 27,212,274
    -------------------------------------------------------------------------
    Weighted average Fund units
     outstanding, diluted(*)     27,248,610 27,249,138 27,244,177 27,228,155
    -------------------------------------------------------------------------
    (*) On January 11, 2006, as part of the PBB acquisition, an additional
    10,699,636 Fund units were issued from treasury, increasing the number of
    Fund units to 27,112,836 from 16,413,200. During the year ended
    December 31, 2006, 134,771 restricted units were converted to Fund units
    increasing to 27,247,607 the number of Fund units outstanding as at
    December 31, 2006. The weighted average Fund units outstanding, diluted
    is calculated by adding the restricted units outstanding as of the end of
    the period to the weighted average number of Fund units outstanding. As
    at June 30, 2007, there were 1,003 restricted units outstanding.

    Table 2 provides quarterly financial information for the quarters ended
Sept 30, 2005 to June 30, 2006.

    Table 2
    Quarterly Consolidated Statements of Income

    For the quarters ended September 30, 2005 to June 30, 2006
    (in thousands of dollars, except per Fund unit amounts, unaudited)

                                    June 30,   Mar. 31,   Dec. 31,  Sept. 30,
    Quarter ended                      2006       2006       2005       2005
    -------------------------------------------------------------------------
    Net revenues                     82,244     76,590     44,661     44,128
    Interest income                     768        551        622        497
    -------------------------------------------------------------------------
                                     83,012     77,140     45,283     44,625
    Cost of services                 45,561     44,008     24,800     24,191
    -------------------------------------------------------------------------
    Contribution margin              37,451     33,132     20,483     20,434
    Selling, general and
     administrative expenses         17,879     18,569     10,364      9,762
    Costs related to the
     integration of PBB               1,056        649          -          -
    -------------------------------------------------------------------------
    EBITDA(2)                        18,516     13,914     10,119     10,672
    Depreciation                      2,989      2,086      1,433      1,486
    Amortization                      6,043      5,812      3,548      3,229
    -------------------------------------------------------------------------
    Income before the undernoted      9,484      6,016      5,138      5,957
    -------------------------------------------------------------------------
    Other expense (income)              309       (132)       191        239
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt                  1,582      2,147        446        523
      Other                             779      1,137        119        146
    -------------------------------------------------------------------------
                                      2,361      3,284        565        669
    -------------------------------------------------------------------------
    Income before income taxes        6,814      2,864      4,382      5,049
    Provision for (recovery of)
     income taxes
      Current                           851       (929)       189      1,081
      Future                         (2,231)    (1,416)      (613)      (848)
    -------------------------------------------------------------------------
                                     (1,380)    (2,345)      (424)       233
    -------------------------------------------------------------------------
    Net income for the period         8,194      5,209      4,806      4,816
    -------------------------------------------------------------------------
    Net income per Fund unit           0.31       0.20       0.29       0.29
    -------------------------------------------------------------------------
    Net income per Fund unit,
     diluted                           0.30       0.20       0.29       0.29
    -------------------------------------------------------------------------
    Weighted average Fund units
     outstanding(*)              27,126,764 25,923,988 16,413,200 16,413,200
    -------------------------------------------------------------------------
    Weighted average Fund units
     outstanding, diluted(*)     27,184,930 26,087,284 16,413,200 16,413,200
    -------------------------------------------------------------------------
    (*) On March 2, 2005, as part of the Great Lakes acquisition, an
    additional 210,600 Fund units were issued from treasury. On
    April 6, 2005, in a public offering, the Fund issued 1.1 million Fund
    units from treasury. These two transactions increased the number of Fund
    units outstanding from 15,102,600 to 16,413,200. On January 11, 2006, as
    part of the PBB acquisition, an additional 10,699,636 Fund units were
    issued from treasury, increasing the number of Fund units outstanding to
    27,112,836 from 16,413,200.
    

    Cash Available for Distribution(1)

    The Fund generated $13.3 million, or $0.488 per Fund unit, of cash
available for distribution(1) for the quarter ended June 30, 2007. This
represents a decrease compared with the same quarter in 2006, when the cash
available for distribution(1) totalled $15.2 million, or $0.560 per Fund unit.
    The Fund generated $16.7 million of cash flows from operating activities
in the quarter ended June 30, 2007. After deducting $4.7 million for the net
change in current assets and liabilities and adding $1.3 million for other
items, cash available for distribution(1) totalled $13.3 million, or $0.488
per Fund unit, for the quarter ended June 30, 2007. This compares to cash
flows from operating activities of $1.8 million in the same period in 2006.
After adding the net change in assets and liabilities of $13.1 million and
other items totalling $0.3 million, cash available for distribution(1) was
$15.2 million, or $0.560 per Fund unit, in the same period in 2006.
    The decrease in cash available for distribution(1) of approximately
$1.9 million in the quarter ended June 30, 2007 compared with the same period
in 2006 was a result of lower EBITDA(2) of $1.3 million, primarily from lower
revenue and a higher cost of services from operations, and higher cash
interest expense of $0.6 million.
    For the six months ended June 30, 2007, the Fund generated $22.7 million,
or $0.835 per Fund unit, of cash available for distribution(1). This is lower
than a year earlier when the cash available for distribution(1) was
$26.7 million or $1.010 per Fund unit.
    The Fund generated $2.4 million of cash flows from operating activities
in the six months ended June 30, 2007. After adding $18.7 million for the net
change in current assets and liabilities and $1.6 million for other items,
cash available for distribution(1) totalled $22.7 million, or $0.835 per Fund
unit, for the six months ended June 30, 2007. This compares to cash flows from
operating activities of $11.6 million in same period in 2006. After adding the
net change in assets and liabilities of $15.0 million and other items in the
amount of $0.1 million, cash available for distribution(1) was $26.7 million,
or $1.010 per Fund unit, for the same period in 2006.
    The decrease in cash available for distribution(1) of approximately
$4.0 million in the six months ended June 30, 2007 compared with the same
period in 2006 was a result of lower EBITDA(2) of $2.6 million, primarily from
a higher cost of services from operations, and higher cash income taxes of
$1.4 million.
    See Tables 3 and 4 for a reconciliation of cash flows from operating
activities to cash available for distribution(1) and the breakdown of these
figures for the periods ended June 30, 2007 and June 30, 2006 as well as for
the year ended December 31, 2006.


    
    Table 3
    Reconciliation of Cash Flows from Operating Activities to Cash
    Available for Distribution(1)

    For the periods ended June 30, 2007 and 2006 and the year ended
    December 31, 2006

    (in thousands of                               Six        Six
    dollars, except      Quarter    Quarter     months     months       Year
    per Fund unit          ended      ended      ended      ended      ended
    amounts,             June 30,   June 30,   June 30,   June 30,   Dec. 31,
    unaudited)              2007       2006       2007       2006       2006
    -------------------------------------------------------------------------
    Cash flows from
     operating
     activities           16,674      1,832      2,426     11,553     73,721
    -------------------------------------------------------------------------
    Net change in non-
     cash current
     assets and
     liabilities          (4,715)    13,057     18,698     15,034    (15,309)
    Maintenance
     capital
     expenditures(*)        (929)    (1,004)    (1,584)    (1,700)    (2,822)
    Costs related to
     the integration
     of PBB                  480      1,056      1,096      1,705      3,465
    Tax impact of
     integration
     costs(xx)                 -       (372)         -       (600)         -
    -------------------------------------------------------------------------
                          11,510     14,569     20,636     25,992     59,055
    -------------------------------------------------------------------------
    Other liabilities         29         28         57         57        114
    Employee future
     benefits                613        402      1,226        800      1,672
    Restricted units           -       (200)         -       (521)     (535)
    Change in value of
     the interest-
     rate swaps                -          -                              141
    Unrealized foreign-
     exchange (loss)
     gain                 (1,597)        84     (1,670)       177         95
    Other expense
     (income)              2,752        309      2,497        177     (1,518)
    -------------------------------------------------------------------------
    Cash available for
     distribution(1)      13,307     15,192     22,746     26,682     59,024
    -------------------------------------------------------------------------
    Distributions to
     unitholders(xxx)     11,608     11,561     23,215     22,406     45,608
    -------------------------------------------------------------------------
    Excess of cash
     available for
     distribution(1)
     over actual
     distributions         1,699      3,631       (469)     4,276     13,416
    -------------------------------------------------------------------------
    Payout ratio(+)         87.2%      76.1%     102.1%      84.0%      77.3%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Per Fund unit in
     dollars
    -------------------------------------------------------------------------
    Cash available for
     distribution(1)       0.488      0.560      0.835      1.010      2.196
    -------------------------------------------------------------------------
    Cash available for
     distribution(1),
     diluted               0.488      0.559      0.835      0.999      2.196
    -------------------------------------------------------------------------
    Distributions to
     unitholders(xxx)      0.426      0.426      0.852      0.845      1.697
    -------------------------------------------------------------------------
    Excess (shortfall)
     of cash available
     for distribution(1)
     over actual
     distributions         0.062      0.134     (0.017)     0.165      0.499
    -------------------------------------------------------------------------
    Excess (shortfall)
     of cash available
     for distribution(1)
     over actual
     distributions,
     diluted               0.062      0.133     (0.017)     0.154      0.499
    -------------------------------------------------------------------------
    Payout ratio since
     Fund's inception(+)    80.9%      79.4%      80.9%      79.4%      77.8%
    -------------------------------------------------------------------------
    Weighted average
     Fund units
     outstanding(++)  27,247,607 27,126,764 27,247,607 26,528,698 26,880,958
    -------------------------------------------------------------------------
    Weighted average
     Fund units
     outstanding,
     diluted(++)      27,248,610 27,184,930 27,248,610 26,586,864 26,882,460
    -------------------------------------------------------------------------
    (*)    Maintenance capital expenditures are additions, 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 the improvement of facilities.
    (xx)   In the three months and six months ended June 30, 2007, the
           company recorded an additional valuation allowance against the
           future tax assets of certain entities due to the uncertainty of
           realizing the benefits. Consistent with the 2006 annual financial
           statements, the tax benefit of these deductions for the
           integration costs has not been recognized in these financial
           statements.
    (xxx)  Distributions are the amounts declared in the quarter, not what
           was actually paid.
    (+)    The payout ratio is calculated by dividing the distributions to
           unitholders by cash available for distribution(1).
    (++)   On January 11, 2006, as part of the PBB acquisition, an additional
           10,699,636 Fund units were issued from treasury, increasing the
           number of Fund units outstanding to 27,112,836 from 16,413,200.
           During 2006, an additional 134,771 restricted units were converted
           to Fund units, increasing to 27,247,607 the number of Fund units
           outstanding at December 31, 2006 and which remained unchanged at
           June 30, 2007.



    Table 4
    Reconciliation of Net Income to EBITDA(2) and Cash Available for
    Distribution(1)

    For the periods ended June 30, 2007 and 2006 and the year ended
    December 31, 2006

    (in thousands of                               Six        Six
    dollars, except      Quarter    Quarter     months     months       Year
    per Fund unit          ended      ended      ended      ended      ended
    amounts,             June 30,   June 30,   June 30,   June 30,   Dec. 31,
    unaudited)              2007       2006       2007       2006       2006
    -------------------------------------------------------------------------
    Net income             3,395      8,194      5,694     13,403     17,545
    (Deduct) add:
      Income taxes          (440)    (1,380)    (1,843)    (3,725)    (7,707)
      Interest expense     2,981      2,361      5,784      5,645     10,892
      Other expense        2,752        309      2,497        177     (1,518)
      Depreciation         2,913      2,989      5,836      5,075     10,970
      Amortization         5,580      6,043     11,889     11,855     27,008
      Impairment of
       goodwill                           -          -          -     11,000
    -------------------------------------------------------------------------
    EBITDA(2)             17,181     18,516     29,857     32,430     68,190
    -------------------------------------------------------------------------
    Add:
      Costs related
       to the
       integration of
       PBB                   480      1,056      1,096      1,705      3,465
    Less:
      Tax impact of
       integration
       costs(*)                -        372          -        600          -
    -------------------------------------------------------------------------
                          17,661     19,200     30,953     33,535     71,655
    -------------------------------------------------------------------------
    Less:
      Cash interest
       expense(xx)         2,748      2,153      5,301      5,231     10,072
      Maintenance capital
       expenditures(xxx)     929      1,004      1,584      1,700      2,822
    -------------------------------------------------------------------------
      Cash income taxes
       (recovery)(+)         677        851      1,322        (78)      (263)
    -------------------------------------------------------------------------
    Cash available for
     distribution(1)      13,307     15,192     22,746     26,682     59,024
    -------------------------------------------------------------------------
    (*)    In the three and six months ended June 30, 2007, the company
           recorded an additional valuation allowance against the future tax
           assets of certain entities due to the uncertainty of realizing the
           benefits. Consistent with the 2006 annual financial statements,
           the tax benefit of these deductions for the integration costs has
           not been recognized in these financial statements.
    (xx)   Cash interest expense is interest expense calculated in accordance
           with GAAP less the amortization of deferred finance fees and
           imputed interest related to the earnout obligation included in
           other liabilities.
    (xxx)  Maintenance capital expenditures are additions, 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 the improvement of facilities.
    (+)    Cash income taxes are current income taxes calculated in
           accordance with GAAP.
    

    Distributions

    The Fund declared distributions of $11.6 million, or $0.426 per Fund
unit, for the quarter ended June 30, 2007, consistent with $11.6 million, or
$0.426 per Fund unit, for the same period in 2006. Cash available for
distribution(1) exceeded actual distributions declared in the quarter ended
June 30, 2007 by $1.7 million, or $0.062 per Fund unit. This compares with the
quarter ended June 30, 2006 when cash available for distribution(1) exceeded
actual distributions by $3.6 million, or $0.134 per Fund unit.
    The payout ratio for the quarter ended June 30, 2007 was 87.2%, up from
76.1% in the same period in 2006, bringing the payout ratio since the
inception of the Fund to 80.9%.
    For the six months ended June 30, 2007, the Fund declared distributions
of $23.2 million, or $0.852 per Fund unit, compared with $22.4 million, or
$0.826 per Fund unit, for the same period in 2006. Actual distributions
declared in the six months ended June 30, 2007 exceeded the cash available for
distribution(1) by $0.5 million, or $0.017 per Fund unit, and were funded from
the excess of cash available for distribution(1) over actual distributions
from prior periods. This compares with the six months ended June 30, 2006 when
cash available for distribution(1) exceeded actual distributions by $4.3
million, or $0.165 per Fund unit.
    The payout ratio for the six months ended June 30, 2007 was 102.1%, up
from 84.0% for the same period in 2006.

    Liquidity and Capital Resources

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows below.
    In January 2006, in connection with the acquisition of PBB, the Fund
entered into a new credit facility in the amount of $250 million for a term of
five years. This new 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, of which approximately $110 million was drawn as
at December 31, 2006 and at June 30, 2007. The new credit facility bears
interest at prime plus varying premiums between 0% and 1.25%, dependent upon
certain financial performance ratios, and is collateralized by a general
security agreement by all of the Fund's subsidiaries.
    This new credit facility replaced the previous $100 million facility
negotiated on December 16, 2004. A portion of the $130 million revolving term
facility is required typically at the beginning of each month to facilitate
the payment of government remittances on behalf of clients. This is reduced
throughout the month as payments are received from clients. The facility was
increased to allow for additional capacity to finance acquisitions, including
PBB, and certain capital expenditures. As at June 30, 2007, Livingston was in
compliance with its financial covenants as specified in the new credit
agreement.

    Cash Flows from Operating Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows below.
    For the quarter ended June 30, 2007, the Fund had an increase of
$16.7 million in cash flows from operating activities, compared with an
increase in cash flows from operating activities of $1.8 million for the same
period in 2006. These amounts are inclusive of the net change in current
assets and liabilities, which increased cash flows by $4.7 million in the
quarter ended June 30, 2007 compared with a decrease of $13.1 million in the
same period last year. For the quarter ended June 30, 2007, the net change in
current assets and liabilities was due to lower accounts receivable of
$27.8 million and other items of $0.3 million, offset by lower government
remittances payable, accounts payable and accrued liabilities of
$23.4 million. The decrease in accounts receivable reflects the lower billings
in June 2007 compared with March 2007.
    For the six months ended June 30, 2007, the Fund had an increase of
$2.4 million in cash flows from operating activities compared with an increase
in cash flows from operating activities of $11.6 million for the same period
in 2006. These amounts are inclusive of the net change in current assets and
liabilities, which decreased cash flows by $18.7 million and $15.0 million in
the quarters ended June 30, 2007 and 2006, respectively. For the first six
months of 2007, the net change in current assets and liabilities was due to a
decrease in government remittances payable, accounts payable and accrued
liabilities of $26.4 million and other items of $3.5 million, offset by a
decrease in accounts receivable of $11.2 million. The decrease in accounts
receivable reflects the lower billings in June 2007 compared with December
2006.
    As cash flows from operating activities have been determined in
accordance with Canadian GAAP, management believes that the reconciliation of
this measure to cash available for distribution(1) provides useful
supplemental information for investors, as illustrated in Table 3.

    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 of $2.2 million, net of
disposals, for the quarter ended June 30, 2007 compared with $2.5 million for
the same period in 2006. In the quarter ended June 30, 2007, maintenance
capital expenditures relating to the improvement of office facilities and the
replacement of workstations were $1.0 million, consistent with the same period
in 2006. In management's judgment, non-maintenance or growth capital
expenditures refer to capital expenditures that increase revenues, margins or
EBITDA(2). These expenditures amounted to approximately $0.1 million for the
quarter ended June 30, 2007, down from $1.1 million in same quarter in 2006.
Capital expenditures related to the integration in the amount of $1.1 million
were incurred in the quarter ended June 30, 2007, up from $0.4 million in the
same period last year.
    For the six months ended June 30, 2007, Livingston incurred capital
expenditures in the amount of $3.7 million compared with $3.5 million for the
year-earlier period. In the period, $1.6 million was included for maintenance
capital expenditures related to improvement of office facilities and the
replacement of workstations, down from $1.7 million for the same period in
2006. Non-maintenance or growth capital expenditures amounted to approximately
$0.2 million for the six months ended June 30, 2007, down from $1.5 million in
the same period last year. Capital expenditures related to the integration in
the amount of $1.9 million were incurred in the six months ended
June 30, 2007, higher than the $0.5 million incurred in the same period last
year. In addition, in the six months ended June 30, 2006, there was a net
reduction of $0.2 million related to the disposal of fixed assets.
    The Fund acquired all of the businesses of PBB effective January 11,
2006. The purchase price, including fees, of $247.6 million was financed
through the issuance of Fund units, restricted units and cash of $4.6 million.
As part of the acquisition, the Fund incurred legal, accounting and advisory
fees of approximately $3.5 million in the year ended December 31, 2005 and an
additional $1.1 million in the quarter ended March 31, 2006.
    Under the terms of the February 28, 2005 purchase agreement related to
the PBB acquisition of Unicity Integrated Logistics, Inc., up to $3.3 million
can be paid as an earnout, dependent upon future earnings generated by this
operation. Due to the likelihood that the earnout payments would be made,
$3.0 million was accrued under accounts payable and accrued liabilities and
recorded in the purchase price allocation, $1.5 million of which was paid in
2006.
    As part of the terms of the September 1, 2005 purchase agreement related
to PBB's acquisition of M&C International Trade, $1.1 million was accrued in
the purchase price allocation in respect of a working capital adjustment and
paid in the second quarter of 2006.
    As part of the terms of the April 7, 2005 purchase agreement related to
the acquisition of Searail, certain purchase considerations were accrued.
During the quarter ended June 30, 2007, $3.1 million of additional accrued
purchase consideration was paid in respect of the Searail acquisition.

    Financing Activities

    This section is intended to be read in conjunction with the interim
unaudited consolidated statements of cash flows below.

    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 governments near the end of each month and the
timing of cash receipts from clients. There was a decrease in the operating
facility of $8.8 million for the quarter ended June 30, 2007 compared with an
increase of $18.8 million for the same period in 2006. This was due to the
impact of the timing when financing is required to support government
remittances on behalf of clients as well as the effect of the PBB acquisition
in 2006.
    For the six months ended June 30, 2007, there was an increase in the
operating facility of $16.3 million, compared with an increase of
$13.4 million for the same period in 2006. This was due to the impact of the
timing when financing is required to support government remittances on behalf
of clients as well as the effect of the PBB acquisition in 2006.
    Of the $130 million revolving line of credit, approximately $32 million
was available as at June 30, 2007. Of the $120 million bank term credit
facility, $105 million was utilized to repay $30 million of Livingston's long-
term debt and $75 million of PBB's former credit facility. In the fourth
quarter of 2006, an additional $5 million was drawn to bring the total as at
December 31, 2006 to approximately $110 million, which remained unchanged as
at June 30, 2007.
    Cash distributions paid to Fund unitholders in the quarter ended June 30,
2007 were $11.6 million, unchanged from the same quarter in 2006. For the six
months ended June 30, 2007, cash distributions were $23.2 million, compared
with $20.7 million for the same period in 2006.
    Table 5 below shows the net balance when cash and cash equivalents are
netted against the operating facility for government remittances. The net
operating facility at June 30, 2007 was $74.4 million, approximately
$29.7 million higher than at December 31, 2006, but lower than the
$81.8 million at June 30, 2006, reflecting additional funds drawn under the
revolving line of credit for higher government remittances. This was within
the $130 million bank revolving line of credit.
    Together with the cash flows generated from operating activities, capital
expenditures and other investing activities, total cash and cash equivalents
were approximately $23 million at June 30, 2007 compared with $19 million at
June 30, 2006 and $36 million at December 31, 2006.

    
    Table 5
    Net Operating Facility
    As at June 30, 2007, December 31, 2006 and June 30, 2006
    (in thousands of dollars)

    -------------------------------------------------------------------------
                                          June 30, December 31,      June 30,
                                             2007         2006          2006
    -------------------------------------------------------------------------
    Operating facility for government
     remittances                           97,511       80,803       100,720
    Cash and cash equivalents              23,093       36,043        18,887
    -------------------------------------------------------------------------
    Net operating facility                 74,418       44,760        81,833
    -------------------------------------------------------------------------
    

    Changes in Accounting Policies

    The following are a number of accounting policies that the Fund has
implemented in the period ended June 30, 2007.

    Section 1530, Comprehensive Income
    The Fund's comprehensive income consists of the net income for the period
and other comprehensive income. Other comprehensive income includes the change
in the fair value of the interest-rate swaps related to the effective portion
of the hedge and the deferred loss related to the settlement of the interest-
rate swaps in 2006.

    Section 3251, Equity
    Accumulated other comprehensive income is included in the consolidated
balance sheet as a separate component of unitholders' equity and includes the
effective portion of gains and losses on the interest-rate swaps designated as
cash flow hedges and the deferred loss related to the settlement of the
interest-rate swaps in 2006.

    Section 3855, Financial Instruments - Recognition and Measurement and
    Section 3861, Financial Instruments - Disclosure and Presentation
    Financial assets and financial liabilities are recognized at fair value,
and their subsequent measurement is dependent upon the classification of the
financial instrument as designated by the Fund. The adoption of these sections
has had an impact on the Fund's financial instruments, as set out below.

    
    -   The Fund's interest-rate swaps are derivative financial instruments
        and, accordingly, are recorded in the consolidated balance sheet at
        fair value. The interest-rate swaps are designated as cash flow
        hedges and are, therefore, accounted for in accordance with Section
        3865, Hedges, as described below.

    -   The Fund's foreign-exchange contracts are also derivative financial
        instruments and, accordingly, are recorded in the consolidated
        balance sheet at fair value. Changes in fair value are recorded in
        the statement of income as the Fund has not elected to apply hedge
        accounting. This policy is consistent with the way in which these
        contracts were recorded in the 2006 annual consolidated financial
        statements.

    -   The Fund's long-term debt is carried at amortized cost. The deferred
        finance fees are transaction costs associated with the long-term debt
        and, therefore, have been netted with the long-term debt. Starting in
        the quarter ended March 31, 2007, the amortized deferred finance fees
        are recognized in income using the effective interest-rate method.
        The difference in the amount calculated using the effective interest-
        rate method compared with the previous straight-line method is not
        material.

    -   The Fund has classified its cash and cash equivalents as held-for-
        trading financial assets; accounts receivable as loans and
        receivables; and operating facility for government remittances,
        government remittances payable, unitholder distributions payable,
        accounts payable and accrued liabilities, client deposits, long-term
        debt and other liabilities as other financial liabilities.
    

    Section 3865, Hedges
    The Fund also uses derivative financial instruments to reduce the
interest-rate risk on the Fund's long-term debt. The interest-rate swaps of
the Fund's subsidiaries are effective as cash flow hedges and, accordingly,
are accounted for under hedge accounting. The Fund assesses the anticipated
effectiveness of designated hedging relationships at inception and for each
reporting period thereafter. Under hedge accounting, interest expense is
recognized as if the cash flow hedge and the hedged item were a single
instrument. Realized and unrealized gains or losses associated with derivative
instruments, which have been terminated or cease to be effective prior to
maturity, are deferred on the balance sheet and recognized in income in the
period in which the underlying hedge transaction is recognized. In the event a
designated hedged item is sold, extinguished or matures prior to the
termination of the related derivative instrument, any realized or unrealized
gain or loss on such derivative instrument is recognized as a gain or loss on
extinguishment of debt.
    Changes in the fair value of the interest-rate swaps are recognized in
accumulated other comprehensive income to the extent that the hedge is
effective. The ineffective portion, which is not material, is expensed in the
consolidated statement of income. The fair value of the interest-rate swaps as
at January 1, 2007 was $0.9 million and has been recorded as an adjustment to
opening accumulated other comprehensive income. In addition, the deferred loss
of $1.0 million associated with the settlement of certain swaps acquired in
the PBB acquisition has been reclassified from other long-term assets to
accumulated other comprehensive income.

    Financial Instruments

    The financial instruments of the Fund's subsidiaries consist of cash and
cash equivalents, accounts receivable, interest-rate swaps, foreign-exchange
contracts, the government remittance operating facility, government
remittances payable, accounts payable and accrued liabilities, unitholder
distributions payable, long-term debt and other liabilities, as indicated in
the Fund's balance sheet as at June 30, 2007.
    Livingston is exposed to foreign-exchange risk, as approximately 22% of
revenue in 2007 was earned in U.S. dollars, and has assets and liabilities
that will be settled in U.S. currency. To reduce the volatility of foreign-
exchange fluctuations, Livingston had eight short-term forward-exchange
contracts (to be settled within three months in Canadian dollars) to sell
approximately $4.0 million in U.S. currency at an average rate of 1.0639 and
recorded an unrealized foreign-exchange gain of $2 thousand as at
June 30, 2007. This compares to a realized foreign-exchange gain of
$69 thousand when the foreign-exchange contracts were actually settled, as a
result of the strengthening of the Canadian dollar. As of August 8, 2007,
Livingston had seven short-term forward-exchange contracts (to be settled
within one month) to sell approximately $3.5 million in U.S. currency at an
average rate of 1.0532.
    To minimize exposure to fluctuating interest rates, Livingston converted
$23 million of its term bank loan on June 15, 2005 (due January 11, 2011) to
fixed-rate debt by means of an interest-rate swap at the rate of 5.98%,
maturing on December 16, 2009. In September 2006, Livingston entered into
three new interest-rate swap agreements to replace the three interest-rate
swaps acquired in the PBB acquisition. PBB had converted $34 million and
US$5 million of its long-term floating rate debt to fixed-rate debt. In
accordance with the new swap agreements, Livingston pays interest at a fixed
rate of 6.04% per annum on its Canadian-dollar-denominated bank debt of
$34 million and 6.88% per annum on its U.S.-dollar-denominated debt of
US$5 million. The new swaps have a maturity date of January 11, 2011. In
connection with the new swap agreements, Livingston has released its lenders
from the obligation to compensate the Fund for PBB's former swap arrangements.
The purpose of the interest-rate swaps is to act as a cash flow hedge to
manage the floating rate payable under the new credit facility. The company
documented its hedging relationships and determined that its interest-rate
swap agreements qualify for hedge accounting.
    Having met the conditions for applying hedge accounting, the interest-
rate swaps are accounted for using "synthetic instrument" accounting. Under
this method, interest expense is recognized as if the cash flow hedge and the
hedged item were a single instrument, i.e. fixed-rate debt.
    In accordance with Canadian GAAP, the former interest-rate swaps of PBB
were considered terminated for accounting purposes on the date of the
acquisition, due to the repayment of PBB's debt with Livingston's new credit
facility. Accordingly, they were accounted for on a marked-to-market basis for
the period from January 11, 2006 to September 11, 2006. The fair value of
these swaps at September 11, 2006 was an asset of $1.1 million and is being
amortized over the term of the swap agreements, using the effective interest-
rate method. Upon adoption of Section 3865, Financial Instruments -
Recognition and Measurement, the deferred loss on the settlement of these
swaps was reclassified to the opening balance of other comprehensive income as
at January 1, 2007.
    There have been no significant changes to the nature of these financial
instruments since December 31, 2006, except as noted above under the section
entitled "Changes in Accounting Policies."

    Off Balance Sheet Arrangements

    The Fund or its subsidiaries have various off balance sheet arrangements,
including a defined benefit pension plan, 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 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, 2006, except for certain amounts outstanding
as of June 30, 2007 as indicated below. For more information on off balance
sheet arrangements, refer to the consolidated financial statements for the
year ended December 31, 2006 and the notes to the consolidated financial
statements included in the Fund's Annual Report 2006.
    As at June 30, 2007, the Fund had an accrued benefit obligation for the
Livingston defined benefit pension plan of $1.0 million and an accrued pension
asset of $5.6 million. This actuarial loss of $6.6 million is being amortized
over the expected average remaining service life of active defined benefit
pension plan members.
    The Fund had an accrued benefit obligation of $11.3 million for other
benefit plans, which includes post-retirement benefits, and an accrued
liability of $8.8 million. This actuarial loss of $2.5 million is being
amortized over the expected average remaining service life of active members
of other benefit plans.
    The actuarial losses associated with the defined benefit pension plan and
other post-retirement benefits are the result of a reduction in the discount
rate used to estimate these obligations. The majority of active employees, all
new employees of Livingston and all employees of PBB participate in the
defined contribution retirement plan.
    As at June 30, 2007, $62 million, or approximately 57%, of Livingston's
long-term debt of $109 million is subject to fixed rate interest-rate swap
contracts. The remaining portion bears interest at the current floating rate
in accordance with Livingston's credit agreement.
    As required by the CBSA and the CBP, Livingston has provided
approximately $47 million in bonds in favour of the Canadian and U.S.
governments as at June 30, 2007, down from $55 million as at June 30, 2006.
The bonds are required in order to operate as a customs broker and facilitate
the release of clients' goods from Customs prior to the payment of duties and
taxes.
    Livingston also has arranged for its banks to issue letters of credit
under the new credit agreement in the total amount of $0.8 million as at June
30, 2007 in support of various contracts, for which Livingston is responsible
to reimburse its lender. This is a decrease of $1.7 million as at
June 30, 2006 relative to the outstanding letters of credit in the amount of
$2.5 million, which were no longer required in 2007.

    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. Where the Fund has acquired other companies, any
transactions with related parties prior to acquisition are specifically
excluded from this definition. 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
June 30, 2007.

    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. The Fund is committed to providing timely and accurate
disclosure of all material information. As at December 31, 2006, management
evaluated the effectiveness of disclosure controls and procedures and
concluded that they are effective, subject to the qualifications relating to
internal control over financial reporting in the Fund's Annual Report 2006.
    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.
    There have been no material changes in the Fund's disclosure controls and
procedures during the period ended June 30, 2007.

    Internal Control over Financial Reporting

    In accordance with Multilateral Instrument 52-109 - Certification of
Disclosure in Issuers' Annual and Interim Filings, management is responsible
for the design of internal control over financial reporting of the Fund in
order to provide reasonable assurance over the reliability of financial
reporting and the preparation of financial statements of the Fund in
accordance with Canadian GAAP.
    Due to the inherent limitations in any control system, internal control
over financial reporting may not prevent or detect all material misstatements.
Also, any conclusions on the effectiveness of a system of internal control in
the future are subject to risk as they may become inadequate due to changes in
business conditions, the degree of compliance or the impact of other risks and
uncertainties on internal controls.
    There have been no changes in the Fund's internal control over financial
reporting during the period ended June 30, 2007 that have materially affected
or are reasonably expected to materially affect the Fund's 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 2006. 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 in the first
six months of 2007 compared with 2006.
    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, 2006 and the notes to the
consolidated financial statements included in the Fund's Annual Report 2006.

    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 2006 and
its 2006 Annual Information Form. To management's knowledge, no significant
changes to these risks and uncertainties have occurred in the first six months
of 2007.

    Outlook

    In the second quarter of fiscal 2007, the increasing strength of the
Canadian dollar as it approached parity with the U.S. currency continued to
affect core sectors of the economy which, in turn, had an impact on
transportation and customs brokerage businesses. The continued higher value of
the Canadian dollar over a prolonged period indicates that this is not an
aberration or fluctuation, but that a strong domestic currency may be the "new
normal," requiring operating adjustments by importers and exporters. While the
short-term implications of the new exchange rate include changes to trade into
and out of Canada and the United States, over the longer term the two
countries are most likely to maintain their strong trading relationship.
Livingston is in a comparatively strong position to compete while exporters
and importers adjust to these changes and is confident that its overall trade
volumes will remain robust.
    While external conditions have clearly affected results over successive
quarters, the Fund has maintained its operating performance. Livingston is
well positioned to manage successfully through a more challenging economic
environment and to deliver solid results over the longer term. The acquisition
of PBB Global Logistics in January 2006 has provided synergies that the Fund
continues to realize, and the integration is on time and on budget.
    As the integration approaches its final stages, more efforts are being
turned toward increasing the market's awareness of Livingston and the cross-
selling of services. Furthermore, management is encouraged by signs of
improvement in the transportation and logistics businesses in the second
quarter and remains confident that this segment will play an important part in
Livingston's growth going forward.
    Despite the continued strong Canadian dollar and somewhat lower United
States-Canada trade volumes in both directions, it is Livingston's goal to
continue to adapt to its clients' needs and provide them with additional
value-added services. Livingston continues to focus on optimizing operations,
minimizing the effects of the Canadian dollar, cross-selling services,
reducing costs and aligning its business to take advantage of opportunities.
    Regardless of the economic climate, Livingston has a solid record of
generating value for unitholders. While Livingston is well aware of the
external challenges it faces, management believes that Livingston has the
right people, expertise and market position to continue to manage through this
period and beyond. Past performance in overcoming challenges gives the Fund
confidence that it will be successful.

    
    ------------------
    (1) Cash available for distribution, or distributable cash, is a non-GAAP
    financial measure. Refer to Cash Available for Distribution under Non-
    GAAP Financial Measures above.

    (2) EBITDA (earnings before interest, taxes, other (income) expense,
    depreciation and amortization) is a non-GAAP financial measure. Refer to
    EBITDA under Non-GAAP Financial Measures above.



    Livingston International Income Fund
    Consolidated Balance Sheet
    June 30, 2007

    (in thousands of dollars, unaudited)                 As at         As at
                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    Assets
    Current assets
    Cash and cash equivalents                           23,093        36,043
    Accounts receivable                                277,369       291,712
    Prepaid expenses                                     2,974         4,499
    Income taxes recoverable                             1,446           533
    Future income taxes                                  2,874         2,862
    -------------------------------------------------------------------------
                                                       307,756       335,649
    Property, plant and equipment                       26,451        28,633
    Goodwill                                           328,169       328,169
    Intangible assets                                  117,003       128,890
    Future income taxes                                  5,175         5,394
    Employee future benefits - pension                   5,606         4,150
    Deferred finance fees                                    -         2,643
    Other long-term assets                               2,047           994
    -------------------------------------------------------------------------
                                                       792,207       834,522
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current liabilities
    Operating facility for government remittances       97,511        80,803
    Government remittances payable                     141,315       162,656
    Unitholder distributions payable                     3,869         3,867
    Accounts payable and accrued liabilities            66,308        76,496
    Client deposits and advances                         5,188         9,472
    Current portion of long-term debt                      224         1,188
    -------------------------------------------------------------------------

                                                       314,415       334,482
    Long-term debt                                     108,263       111,498
    Other liabilities                                    2,136         1,947
    Future income taxes                                 25,832        29,227
    Employee future benefits                             8,812         8,582
    -------------------------------------------------------------------------
                                                       459,458       485,736
    -------------------------------------------------------------------------
    Unitholders' Equity
    Units                                              408,349       408,349
    Restricted units                                        34            34
    -------------------------------------------------------------------------
                                                       408,383       408,383
    -------------------------------------------------------------------------

    Accumulated earnings                                69,758        64,064
    Distributions to unitholders                      (146,876)     (123,661)
    -------------------------------------------------------------------------
    Deficit                                            (77,118)      (59,597)
    -------------------------------------------------------------------------
    Accumulated other comprehensive income               1,484             -
    -------------------------------------------------------------------------
                                                       332,749       348,786
    -------------------------------------------------------------------------
                                                       792,207       834,522
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Livingston International Income Fund
    Consolidated Statements of Income and Deficit
    For the period ended June 30, 2007

    (in thousands of dollars, except per unit amounts, unaudited)

                                            Three    Three      Six      Six
                                           months   months   months   months
                                            ended    ended    ended    ended
                                          June 30, June 30, June 30, June 30,
                                             2007     2006     2007     2006
    -------------------------------------------------------------------------
    Net revenues                           81,626   82,244  158,033  158,833
    Interest income                           597      768    1,238    1,319
    -------------------------------------------------------------------------
                                           82,223   83,012  159,271  160,152

    Cost of services                       46,788   45,561   93,135   89,569
    Selling, general and administrative
     expenses                              17,774   17,879   35,183   36,448
    Costs related to the integration
     of PBB                                   480    1,056    1,096    1,705
    Depreciation                            2,913    2,989    5,836    5,075
    Amortization                            5,580    6,043   11,889   11,855

    -------------------------------------------------------------------------
    Income before the undernoted            8,688    9,484   12,132   15,500
    -------------------------------------------------------------------------

    Other expenses                          2,752      309    2,497      177
    -------------------------------------------------------------------------
    Interest expense
      Long-term debt                        2,018    1,582    4,030    3,729
      Other                                   963      779    1,754    1,916
    -------------------------------------------------------------------------
                                            2,981    2,361    5,784    5,645
    -------------------------------------------------------------------------

    Income before income taxes              2,955    6,814    3,851    9,678
    -------------------------------------------------------------------------

    Provision for (recovery of) income taxes
      Current                                 677      851    1,322      (78)
      Future                               (1,117)  (2,231)  (3,165)  (3,647)
    -------------------------------------------------------------------------
                                             (440)  (1,380)  (1,843)  (3,725)
    -------------------------------------------------------------------------

    Net income for the period               3,395    8,194    5,694   13,403

    Deficit - beginning of period         (68,905) (37,170) (59,597) (31,534)

    Distributions to unitholders          (11,608) (11,561) (23,215) (22,406)

    -------------------------------------------------------------------------
    Deficit - end of period               (77,118) (40,537) (77,118) (40,537)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income per unit                      0.12     0.31     0.21     0.51
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted net income per unit              0.12     0.30     0.21     0.50
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Livingston International Income Fund
    Consolidated Statement of Comprehensive Income
    For the period ended June 30, 2007

    (in thousands of dollars, unaudited)

                                                         Three        Six
                                                         months      months
                                                         ended       ended
                                                        June 30,    June 30,
                                                          2007        2007
    -------------------------------------------------------------  ----------
    Net income for the period                              3,395       5,694

    Other comprehensive income, net of tax:
      Change in fair value of interest-rate swaps
       (net of tax of nil)                                 1,089       1,125
      Amortization of deferred loss on settlement
       of interest-rate swaps (net of tax for the
       three-month period: $22; for the six-month
       period: $47)                                           39          76
                                                      -----------  ----------
                                                           1,128       1,201

                                                      -----------  ----------
    Comprehensive income for the period                    4,523       6,895
                                                      -----------  ----------




    Livingston International Income Fund
    Consolidated Statements of Cash Flows
    For the period ended June 30, 2007
    (in thousands of dollars, unaudited)

                                    Three       Three       Six       Six
                                    months      months     months    months
                                    ended       ended      ended     ended
                                   June 30,    June 30,   June 30,  June 30,
                                     2007       2006       2007      2006
                                  ---------- ---------- ---------- ----------

    Cash provided by (used in)
    Operating activities
      Net income for the period       3,395      8,194      5,694     13,403
      Adjustment for non-cash items
        Depreciation and
         amortization                 8,493      9,032     17,725     16,930
        Future income taxes          (1,117)    (2,231)    (3,165)    (3,647)
        Other liabilities               (29)       (28)       (57)       (57)
        Non-cash interest and
         other expense                  233        208        483        414
        Employee future benefits       (613)      (402)    (1,226)      (800)
        Restricted units                  -        200          -        521
        Foreign-exchange loss
         (gain)                       1,597        (84)     1,670       (177)
                                  ---------- ---------- ---------- ----------
                                     11,959     14,889     21,124     26,587
      Net change in current
       assets and liabilities         4,715    (13,057)   (18,698)   (15,034)
                                  ---------- ---------- ---------- ----------
                                     16,674      1,832      2,426     11,553
                                  ---------- ---------- ---------- ----------
    Investing activities
      Acquisition of businesses,
       net of cash and cash
       equivalents acquired          (3,117)    (2,966)    (3,117)    10,231
      Property, plant and
       equipment, net of disposals   (2,169)    (2,538)    (3,654)    (3,523)
                                  ---------- ---------- ---------- ----------
                                     (5,286)    (5,504)    (6,771)     6,708
                                  ---------- ---------- ---------- ----------

    Financing activities
      Distributions to unitholders  (11,608)   (11,550)   (23,213)   (20,662)
      Repayment of long-term debt      (296)      (328)      (595)      (495)
      (Decrease) increase in
       operating facility            (8,839)    18,754     16,301     13,395
      Increase in deferred
       finance fees                       -          -          -     (2,616)
                                  ---------- ---------- ---------- ----------
                                    (20,743)     6,876     (7,507)   (10,378)
                                  ---------- ---------- ---------- ----------
    Foreign-exchange loss on cash
     held in foreign currency        (1,102)      (295)    (1,098)      (296)
                                  ---------- ---------- ---------- ----------
    (Decrease) increase in cash
     and cash equivalents           (10,457)     2,909    (12,950)     7,587

    Cash and cash equivalents
     - beginning of period           33,550     15,978     36,043     11,300
                                  ---------- ---------- ---------- ----------
    Cash and cash equivalents
     - end of period                 23,093     18,887     23,093     18,887
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------

    Cash disbursements made for:
      Income taxes                    1,362      1,857      2,473      3,864
      Interest                        2,748      2,153      5,301      5,231
    




For further information:

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

Organization Profile

LIVINGSTON INTERNATIONAL INCOME FUND

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Livingston International Inc.

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