CONTRANS ANNOUNCES THIRD QUARTER RESULTS
(TSX:CSS)
WOODSTOCK, ON, Nov. 4 /CNW/ -
FINANCIAL HIGHLIGHTS
(in millions except for per share amounts)
For the ------------------------------------------------------------
periods ended Three Months Nine Months
September 30 2010 2009 2010 2009
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Revenue - as
stated $ 101.7 $ 99.0 $ 296.4 $ 274.4
Revenue - fuel
surcharges(1) (8.9) (8.0) (28.1) (21.1)
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Revenue -
transportation
services (1) 92.8 100.0 % 91.0 100.0 % 268.3 100.0 % 253.3 100.0 %
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Operating
expenses - net
of fuel
surcharges 71.1 76.6 69.8 76.7 206.6 77.0 197.4 77.9
Selling,
general and
administration
expenses 9.6 10.3 9.3 10.2 26.5 9.9 26.0 10.3
Foreign exchange
loss (gain) 0.1 0.1 (0.7) (0.8) (0.1) - (1.3) (0.5)
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Earnings before
amortization,
interest and
income taxes 12.0 13.0 12.6 13.9 35.3 13.1 31.2 12.3
Amortization of
property and
equipment 3.2 3.4 3.0 3.3 9.4 3.5 9.1 3.6
Amortization of
intangible
assets 1.0 1.1 0.9 1.0 2.9 1.1 2.8 1.1
Net interest
expense 1.3 1.4 1.4 1.5 4.2 1.6 4.2 1.7
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Earnings before
income taxes 6.5 7.1 7.3 8.1 18.8 6.9 15.1 5.9
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Income tax
provision
(recovery):
Current 1.2 1.3 (0.4) (0.4) 6.0 2.2 1.5 0.6
Future 0.9 1.0 0.9 1.0 (0.2) (0.1) (0.9) (0.4)
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2.1 2.3 0.5 0.6 5.8 2.2 0.6 0.2
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Net earnings $ 4.4 4.8 % $ 6.8 7.5 % $ 13.0 4.7 % $ 14.5 5.7 %
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Earnings per
share - basic
and diluted $ 0.12 $ 0.23 $ 0.40 $ 0.48
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(1) See "Use of non-GAAP Financial Measures" below.
"Contrans is having an exciting year," stated Contrans' Chairman and Chief Executive Officer, Stan Dunford. "In spite of the slow pace of economic recovery, Contrans' financial performance has been very solid. This has enabled Contrans to pay dividends to its shareholders at a rate that we believe is rewarding and appropriate under the circumstances. Earlier in the year, we raised $53 million of new equity. This transaction bolstered a balance sheet that was already the envy of our competitors and positioned Contrans for growth."
"On September 21, 2010, we announced the acquisition of ProWerx Disposal Ltd., a company in the industrial, commercial and residential waste collection business located in Edmonton, Alberta," added Mr. Dunford. "Two weeks later, we completed the purchase of certain contracts and waste collection assets from BFI Canada Inc.'s Edmonton operation. This second acquisition immediately added volume and density to ProWerx's existing routes. Waste collection is relatively non-cyclical, an attribute that will complement the diverse nature of Contrans' customer base and other service offerings."
"For nearly two decades, Contrans has grown steadily while maintaining healthy profit margins and a strong balance sheet," concluded Mr. Dunford. "This success has been largely due to management's unwavering focus on profitability and a similarly disciplined approach to growth. We look forward to the challenge of continuing to add long-term value for Contrans' shareholders."
MANAGEMENT'S DISCUSSION AND ANALYSIS
On December 1, 2009, under a plan of arrangement, Contrans Income Fund ("the Fund") was effectively converted into a corporation, Contrans Group Inc. ("the Group"). This conversion was recorded using the continuity of interest method of accounting. Accordingly, the consolidated financial statements contained in this interim report, which have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and reported in Canadian funds, detail the performance and financial position of the Group and the Fund for the periods ended September 30, 2010 and September 30, 2009 respectively as if the Group had carried on the business carried on by the Fund. The use of "Contrans" hereafter is intended to be understood as a reference to the business carried on by the Fund and, after December 1, 2009, by the Group. The financial statements should be read in conjunction with the analysis that follows and the cautionary notes regarding use of non-GAAP measures and forward-looking statements.
RESULTS FROM OPERATIONS
Contrans' customers, particularly those in the construction and steel industries, have experienced a resurgence in shipping volumes in the first half of 2010 that has increased revenue this year compared to 2009. In addition, several new, major customers have contributed approximately $8.5 million of revenue year-to-date in 2010 (Q3 - $3.4 million). Companies acquired by Contrans in 2010 have also added $1.9 million of revenue in 2010 (Q3 - $0.9 million). Project work however, which did not commence until the third quarter in 2010 and in 2009, fell from $4.6 million in 2009 to $1.3 million in 2010. The project work performed in 2009 involved environmentally- sensitive materials that required specialized handling to ensure regulatory compliance. Contrans received a rate premium for this work last year.
Management rationalized Contrans' company-owned tractor fleet in the first half of 2009 in response to the then prevailing poor economic conditions. Since then, utilization of company-owned tractors has improved resulting in lower operating expenses measured as a percentage of revenue. Operating margins in 2010 have also benefited from a slight easing of pricing pressures. These positive effects have been partially offset by a $0.3 million increase in accident claim costs in the third quarter of 2010 ("Q3 2010") compared to the third quarter of 2009 ("Q3 2009") ($1.2 million increase year-to-date).
SG&A expenses have increased in 2010 primarily due to the cancellation of the salary and wage roll-back program and to the reinstatement of management bonuses. In 2009, salaries and wages were rolled back and management bonuses were eliminated as part of Company-wide cost savings initiatives in response to the poor business climate at the time. Management continues to monitor staff levels and to scrutinize discretionary spending.
In Q3 2009, mark-to-market adjustments to Contrans' open foreign exchange contracts were primarily responsible for a foreign exchange gain of $0.7 million (2009 - $1.3 million gain year-to-date). Contrans does not currently have any open foreign exchange contracts.
Contrans completed a public offering of its Class A subordinate voting shares on June 2, 2010. This provided net cash proceeds of $53.5 million that have been invested in secure, highly liquid, short-term investments bearing low rates of interest. Net interest expense has not materially changed in Q3 2010 compared to Q3 2009 as a result.
The income tax provision has increased significantly. This is primarily due to the conversion to a corporation from an income trust on December 1, 2009.
Contrans recently completed acquisitions that did not materially impact operating results for the period ended September 30, 2010 but are expected to have a more pronounced impact on future results. ProWerx Disposal Ltd. ("ProWerx"), a waste collection company acquired on September 20, 2010, is expected to produce annual revenues of approximately $7 million. On October 4, 2010, Contrans acquired certain contracts and waste collection assets of BFI Canada Inc.'s Edmonton, Alberta operation which were consolidated into the ProWerx operation. This second acquisition is expected to contribute approximately $5 million of revenue annually.
USE OF NON-GAAP FINANCIAL MEASURES
Management has included certain non-GAAP measures to supplement its consolidated financial statements which are presented in accordance with Canadian GAAP. Non-GAAP measures do not have any standardized meaning prescribed under Canadian GAAP and therefore they are unlikely to be comparable to similar measures employed by other issuers. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP. Management has included these non-GAAP measures for the reasons set forth below.
Revenue - transportation services, revenue - fuel surcharges:
Management believes that it is important to isolate the effects of fuel surcharges, a volatile source of revenue, when analyzing operating results. Management regards revenue from transportation services as the relevant indicator of business level activity. Accordingly the percentages in the "Financial Highlights" table were calculated using revenue from transportation services as a base. In addition, operating expenses are stated after netting fuel surcharges against fuel expenses in the "Financial Highlights" table. Management believes that this presentation facilitates a better comparison of operating costs between periods.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements relate to future events or future performance and include, but are not limited to, changes in government regulations regarding weights and dimensions of highway equipment, the age and condition of the transportation fleet and the growth of Contrans' business. Often, but not always, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. Such statements reflect the current views and estimates of management of Contrans with respect to future events, as of the date such statements are made, and they involve known and unknown risks and uncertainties which may cause actual events or results to differ materially from those expressed or implied by forward-looking statements. In evaluating these statements, readers should specifically consider factors such as the risks outlined under "Risk Factors" in Contrans' Annual Information Form, which is available at www.sedar.com. Although management has attempted to identify important factors that could cause actual events, actions or results to differ materially from those described in the forward-looking statements, there may be other factors that cause such events, actions or results to differ. Management is under no obligation (and expressly disclaims any such obligation) to update or alter any forward-looking statements or assumption whether as a result of new information, future events or otherwise, except as required by law.
ADDITIONAL INFORMATION
Additional information, including Contrans' Annual Information Form, is available at www.sedar.com.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands except for per share amounts)
(unaudited)
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For the periods ended Three Months Nine Months
September 30 2010 2009 2010 2009
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Revenue $ 101,684 $ 99,009 $ 296,437 $ 274,402
Operating expenses 80,027 77,717 234,725 218,503
Selling, general and
administration expenses 9,559 9,279 26,546 25,959
Foreign exchange loss (gain) 129 (658) (64) (1,273)
Amortization of property and
equipment 3,203 2,985 9,353 9,062
Amortization of intangible
assets 980 943 2,895 2,828
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7,786 8,743 22,982 19,323
Net interest expense (income)
- long-term 1,508 1,456 4,476 4,372
- short-term (169) (35) (272) (145)
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Earnings before Income Taxes 6,447 7,322 18,778 15,096
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Income Tax Provision (Recovery):
Current 1,180 (419) 5,991 1,529
Future 930 921 (198) (910)
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2,110 502 5,793 619
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Net Earnings and Comprehensive
Income $ 4,337 $ 6,820 $ 12,985 $ 14,477
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Earnings per share - basic and
diluted $ 0.12 $ 0.23 $ 0.40 $ 0.48
Weighted average number of
shares outstanding - basic
and diluted 35,794 29,937 32,512 29,884
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CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
(in thousands)
(unaudited)
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For the periods ended Three Months Nine Months
September 30 2010 2009 2010 2009
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Retained Earnings (Deficit) -
Beginning of Period $ 5,775 $ 1,889 $ (478) $ 435
Net earnings 4,337 6,820 12,985 14,477
Dividend declared (2,864) - (5,259) (6,203)
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Retained Earnings - End of
Period $ 7,248 $ 8,709 $ 7,248 $ 8,709
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The accompanying notes are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS
(in thousands)
------------------------------
September 30 December 31
As at 2010 2009
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Assets (unaudited) (audited)
Current Assets
Cash and cash equivalents $ 83,819 $ 30,193
Accounts receivable 53,819 48,909
Income taxes recoverable - 495
Other current assets 5,853 5,089
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143,491 84,686
Restricted Cash - 7,375
Note Receivable - 88
Property and Equipment 111,950 104,381
Intangible Assets 18,330 15,135
Goodwill 66,603 63,764
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$ 340,374 $ 275,429
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 32,533 $ 32,057
Distributions payable - 4,491
Income taxes payable 5,506 -
Current portion of capital lease
obligations 1,979 1,921
Current portion of long-term debt 804 339
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40,822 38,808
Capital Lease Obligations 5,962 6,978
Long-term Debt 86,995 85,193
Asset Retirement Obligations 684 720
Future Income Taxes 14,780 14,531
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149,243 146,230
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Shareholders' Equity (Note 3)
Contributed surplus 961 961
Share capital 182,922 128,716
Retained earnings (deficit) 7,248 (478)
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191,131 129,199
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$ 340,374 $ 275,429
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Commitments (Note 8)
Subsequent Events (Note 9)
The accompanying notes are an integral part of these statements.
Signed on behalf of the Board of Directors
Stan G. Dunford, Director Archie M. Leach , C.A., Director
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(unaudited)
-------------------------------------------
For the periods ended Three Months Nine Months
September 30 2010 2009 2010 2009
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Cash Provided by (Used in):
Operating Activities
Net earnings $ 4,337 $ 6,820 $ 12,985 $ 14,477
Items not affecting cash:
Change in unrealized loss
(gain) on foreign exchange (20) (1,272) (13) (5,097)
Unit-based compensation
expense - 84 - 127
Long-term debt - accretion 20 20 60 59
Gain on sale of business
units - - - (23)
Fair value adjustment of
notes receivable - 311 - 568
Asset retirement obligations
- accretion 8 10 22 30
Amortization of property
and equipment 3,203 2,985 9,353 9,062
Amortization of intangible
assets 980 943 2,895 2,828
Future income taxes 930 921 (198) (910)
Loss (gain) on sale of
equipment (212) 177 (237) (150)
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9,246 10,999 24,867 20,971
Change in non-cash working
capital (Note 5) 1,016 (2,556) 2,805 3,494
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10,262 8,443 27,672 24,465
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Investing Activities
Expended on acquisitions
(Note 2) (10,880) (75) (11,346) (3,075)
Asset retirement obligations
- settlements (10) (75) (100) (133)
Proceeds from disposal of
business unit - - - 100
Proceeds from note receivable 27 32 88 53
Proceeds from sale of
equipment 1,282 1,401 2,423 3,908
Purchase of property and
equipment (7,323) (2,847) (16,228) (8,143)
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(16,904) (1,564) (25,163) (7,290)
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Financing Activities
Dividends paid (2,864) - (9,750) (9,290)
Proceeds from restricted cash 7,375 - 7,375 3,000
Proceeds from long-term debt 1,321 2,143 2,193 2,269
Repayment of long-term debt (196) (39) (559) (393)
Payment of capital lease
obligations (577) (493) (1,647) (1,375)
Net proceeds from issuance
of equity (Note 3) - - 53,505 1,531
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5,059 1,611 51,117 (4,258)
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Increase (decrease) in Cash
and Cash Equivalents (1,583) 8,490 53,626 12,917
Cash and Cash Equivalents -
Beginning of Period 85,402 22,878 30,193 18,451
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Cash and Cash Equivalents -
End of Period $ 83,819 $ 31,368 $ 83,819 $ 31,368
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The accompanying notes are an integral part of these statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended September 30, 2010 and 2009
(Unaudited, tabular amounts in thousands)
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1. BASIS OF PRESENTATION
These unaudited consolidated financial statements have been prepared in
accordance with GAAP for interim financial statements using the same
accounting policies as were applied in the audited consolidated
financial statements for the year ended December 31, 2009. These
interim financial statements do not conform in all respects with
disclosure required for annual financial statements and should be read
in conjunction with the audited consolidated financial statements of
Contrans for the year ended December 31, 2009.
Continuity of interest
On December 1, 2009, under a plan of arrangement, the Fund was
effectively converted into a corporation, the Group. This conversion was
recorded using the continuity of interest method of accounting.
Accordingly, the consolidated financial statements contained in this
interim report, which have been prepared in accordance with GAAP and
reported in Canadian funds, detail the performance and financial position
of the Group and the Fund for the periods ended September 30, 2010 and
September 30, 2009 as if the Group had always carried on the business
carried on by the Fund.
2. ACQUISITION
Period ended September 30, 2010 Truboy ProWerx(1) Total
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Accounts receivable $ - $ 1,880 $ 1,880
Property and equipment 712 3,630 4,342
Intangible assets
Customer relationships 160 3,590 3,750
Non-competition agreements 200 2,140 2,340
Goodwill 51 2,788 2,839
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Fair value of assets acquired 1,123 14,028 15,151
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Accounts payable and accrued liabilities 5 2,000 2,005
Capital leases assumed on acquisition 79 - 79
Debt assumed on acquisition 573 - 573
Future tax liability - 1,148 1,148
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Fair value of liabilities assumed 657 3,148 3,805
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$ 466 $ 10,880 $ 11,346
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Consideration
Cash $ 466 $ 10,880 $ 11,346
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(1) The allocation of the ProWerx Disposal Ltd. (ProWerx) purchase price
is preliminary and may change upon final determination of the fair
value of the assets acquired and liabilities assumed.
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% Shares
Entity acquired Date Acquired Province Service Area
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Truboy Freight International Assets
Inc. ("Truboy") 29-Jan-10 acquired Ontario Flatbed
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ProWerx Disposal Ltd. 20-Sep-10 100% Alberta Waste
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These acquisitions have been accounted for using the purchase method. The
results of operations from the acquisition dates have been included in
these consolidated financial statements.
Additional consideration of $0.5 million is payable to the vendors of
Truboy, contingent upon the achievement of certain financial objectives.
If earned, the contingent consideration will be payable in three annual
instalments and will be recorded as an increase to goodwill.
3. SHAREHOLDERS' EQUITY
Contributed Share Retained
Surplus Capital Earnings Total
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Balance at December 31, 2009 $ 961 $ 128,716 $ (478) $ 129,199
Issue of share capital(a) - 54,206 - 54,206
Net earnings - - 12,985 12,985
Dividends declared - - (5,259) (5,259)
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Balance at September 30, 2010 $ 961 $ 182,922 $ 7,248 $ 191,131
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a) Issue of share capital
On June 2, 2010 Contrans issued 5,856,800 Class A Subordinate Voting
Shares, for cash, at a price of $9.60 per share. The total number of
Class A Subordinate Voting Shares in issue at September 30, 2010 was
34,326,474. The impact on share capital was as follows:
Gross proceeds $ 56,225
Costs of issue (2,720)
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Net cash proceeds 53,505
Future tax benefit on costs of issue 701
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Increase in share capital $ 54,206
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b) Normal course issuer bid
On April 20, 2010, Contrans received regulatory approval to proceed
with a normal course issuer bid to purchase certain of its
outstanding Class A Subordinate Voting Shares to a maximum of
2,349,446 shares. The bid commenced on April 22, 2010 and expires on
April 21, 2011. Class A shares purchased pursuant to the bid will be
cancelled. There were no repurchases of shares in the period to
September 30, 2010.
4. FINANCIAL INSTRUMENTS
Risk management
Contrans is exposed to credit risk, foreign exchange risk, interest rate
risk and liquidity risk from its financial assets and liabilities. Risk
management strategies are designed to ensure Contrans' risks and related
exposures are consistent with its business objectives and risk tolerance.
There have been no significant changes to Contrans' risk management
strategies since December 31, 2009.
5. CASH FLOW
Change in non-cash working capital:
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For the periods ended Three Months Nine Months
September 30 2010 2009 2010 2009
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Increase in accounts
receivable ($3,222) ($8,871) ($3,030) ($1,973)
Decrease (increase) in other
current assets (116) 349 (764) 250
Increase in accounts payable
and accrued liabilities 3,272 6,502 598 4,035
Increase (decrease) in income
taxes payable 1,082 (536) 6,001 1,182
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Net change in non-cash working
capital $1,016 ($2,556) $2,805 $3,494
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Cash paid (received) in
respect of:
Interest paid $1,463 $1,456 $4,344 $4,372
Interest received (169) (35) (272) (145)
Income taxes - net 113 121 (12) 409
Non-cash transactions:
Value of equipment financed
through capital leases - - 702 -
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6. SEASONALITY
Generally the second quarter is Contrans' strongest period. Volumes from
customers in the construction industry typically increase as temperatures
warm in the spring, peak in the fall and then decline with the onset of
winter weather. Some manufacturing customers close their plants during
the summer and many customers either shut down their production
facilities or otherwise reduce shipments during the Christmas holiday
season.
7. FUTURE ACCOUNTING CHANGES
International Financial Reporting Standards ("IFRS")
In February 2008 the Canadian Accounting Standards Board announced that
publicly-listed companies would, for fiscal years beginning on or after
January 1, 2011, be required to report their results under IFRS. IFRS
allows for different accounting treatments on first implementation.
Contrans has completed its initial assessment of the possible impacts of
implementing IFRS, and the standards which may have the most significant
impact on Contrans, upon first adoption of IFRS include IAS 16 -
Property, Plant and Equipment, IAS 36 - Impairment of Assets, and IFRS 1
- First-time Adoption of International Financial Reporting Standards.
The adoption of IFRS will require restatement of Contrans' consolidated
financial statements for comparative purposes for its year ended
December 31, 2010 and of the opening balance sheet as at January 1, 2010.
8. COMMITMENTS
As at September 30, 2010, the Company had equipment on order with a value
of approximately $7.6 million.
9. SUBSEQUENT EVENTS
a) Acquisition
On October 4, 2010 Contrans acquired certain waste collection assets
and customer contracts from BFI Canada Inc's Edmonton, Alberta
operation for $4.5 million.
b) Dividend
On October 18, 2010 Contrans announced a dividend of $0.08 per share.
As a result, approximately $2.9 million will be paid on November 15,
2010 to shareholders of record as at October 31, 2010.
10. COMPARATIVE FIGURES
Certain comparative figures have been restated to conform to the current
period's basis of presentation.
For further information: Stan G. Dunford, Chairman and Chief Executive Officer, or Gregory W. Rumble, President and Chief Operating Officer, Phone: 519-421-4600, E-mail: [email protected], Web site: www.contrans.ca
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