Contrans Income Fund

Contrans Income Fund

March 01, 2005 16:30 ET

Contrans Income Fund 'TSX:CSS.UN' Announces Fourth Quarter Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: CONTRANS INCOME FUND

TSX SYMBOL: CSS.UN

MARCH 1, 2005 - 16:30 ET

Contrans Income Fund 'TSX:CSS.UN' Announces Fourth
Quarter Results

WOODSTOCK, ONTARIO--(CCNMatthews - March 1, 2005) - Contrans Income Fund
(TSX:CSS.UN) -



Highlights

---------------------------------------------------------------------
Period ended December 31 Fourth Quarter Year
($ millions except per
unit amounts) 2004 2003 2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue (1) $ 99.1 $ 76.9 $ 371.9 $ 306.0
EBITDA $ 11.1 $ 6.3 $ 42.6 $ 32.9
Earnings Before Taxes $ 6.5 $ 2.4 $ 24.9 $ 18.5
Net income $ 6.1 $ 1.9 $ 24.5 $ 17.8

Distributions per unit $ 0.31 $ 0.31 $ 1.25 $ 1.25

(1) Revenue reported in 2003 has been increased by $2.7 million and
$13.1 million for the three and twelve month periods ended
December 31 respectively. This reclassification is a result of
treating amounts billed for fuel surcharges as a revenue item.
Previously, amounts billed as fuel surcharges were treated as a
recovery of costs. There has been no impact on earnings as a
result of this reclassification.


"Contrans had a phenomenal year in 2004. We made several accretive
acquisitions. We also enjoyed internal growth with our operating margins
returning to levels to which we are more accustomed," stated Chairman
and Chief Executive Officer, Stan Dunford. "These two factors enabled us
to lower our payout ratio. To top it off, the market began to recognize
Contrans' value with unitholders benefiting from a total return for the
twelve months ended December 31, 2004 of 52.5%." (Total return is
defined as distributions plus unit price appreciation.)

MANAGEMENT'S DISCUSSION AND ANALYSIS

The attached consolidated financial statements, which have been prepared
in accordance with Canadian generally accepted accounting principles and
reported in Canadian funds, detail the performance and financial
position of Contrans Income Fund (the "Fund") for the years ended
December 31, 2004 and 2003. The financial statements should be read in
conjunction with the analysis that follows.



FINANCIAL HIGHLIGHTS

Year ended December 31

---------------------------------------------------------------------
2004 2003 2002(1)
(in millions except
per unit amounts) (Audited) (Audited) (Unaudited)
---------------------------------------------------------------------
Revenue -
transportation
services $ 347.9 100.0(2)% $ 292.9 100.0% $ 280.0 100.0%
Revenue - fuel
surcharges 24.0 13.1 7.0
---------------------------------------------------------------------
Revenue - total 371.9 306.0 287.0
---------------------------------------------------------------------
Earnings before
interest, taxes
and amortization
(EBITDA)(3) 42.6 12.2% 32.9 11.2% 35.8 12.8%
Total amortization
charges 15.2 4.4 12.7 4.3 11.2 4.0
Interest 2.5 0.7 1.7 0.6 2.0 0.7
---------------------------------------------------------------------
Earnings before taxes
(EBT) 24.9 7.1 18.5 6.3 22.6 8.1
Income tax provision 0.4 0.1 0.7 0.2 4.9 1.8
---------------------------------------------------------------------
Net income $ 24.5 7.0% $ 17.8 6.1% $ 17.7 6.3%
---------------------------------------------------------------------
Earnings per unit
- basic and diluted $ 0.90 $ 0.75 $ 0.84(4)
Total assets 219.5 160.4 171.8
Long-term debt(5) 43.0 14.6 26.7
Cash (operating loan) 20.7 (7.6) 4.8
Distributions
declared per unit $ 1.25 $ 1.25 $ 0.52
---------------------------------------------------------------------

Percentages calculated using revenue from transportation services
as a base.

(1) 2002 figures are the combined results of Contrans Income Fund and
its corporate predecessor, Contrans Corp.
(2) 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.
(3) EBITDA is not an earnings measure recognized by generally
accepted accounting principles in Canada (''GAAP''), does not
have a standardized meaning prescribed by GAAP and is therefore
unlikely to be comparable to similar measures presented by other
issuers. However, management believes that EBITDA is a useful
measure in determining the Fund's cash flow and evaluating the
performance of the Fund.
(4) Imputes a 4:1 split of the outstanding shares of Contrans Corp.
as at July 22, 2002 and, for the purpose of calculating basic
earnings per share, treats this as the average number of shares
outstanding for the period January 1, 2002 through July 22, 2002.
(5) Includes current portion.


Revenue from transportation services ("revenue") increased in 2004 due
to acquisitions and increased numbers of owner-operators and company
drivers in core freight operations. Rate increases obtained from freight
customers also increased revenues and helped to offset the increased
costs of insurance as well as driver and owner-operator pay that have
arisen in recent years. Income tax expenses were substantially
eliminated when Contrans Corp. converted into an income trust on July
22, 2002.



FOURTH QUARTER RESULTS

(Unaudited)
Quarter ended December 31

(in millions except per
unit amounts) 2004 2003
---------------------------------------------------------------------
Revenue - transportation services $ 90.0 100.0% $ 74.2 100.0%
Revenue - fuel surcharge 9.1 2.7
---------------------------------------------------------------------
Revenue - Total $ 99.1 $ 76.9
---------------------------------------------------------------------
Earnings before interest, taxes
and amortization (EBITDA) 11.1 12.3% 6.3 8.5%
Total amortization charges 4.0 4.4 3.4 4.6
Interest 0.6 0.7 0.5 0.7
---------------------------------------------------------------------
Earnings before taxes (EBT) 6.5 7.2 2.4 3.2
Income tax provision 0.4 0.4 0.5 0.7
---------------------------------------------------------------------
Net income $ 6.1 6.8% $ 1.9 2.5%
---------------------------------------------------------------------

Earnings per unit
- basic and diluted $ 0.22 $ 0.08
---------------------------------------------------------------------

Percentages calculated using revenue from transportation services
as a base.


Acquisitions contributed additional revenue of $13.7 million and EBITDA
of $1.8 million in the fourth quarter. During the fourth quarter of 2003
certain expenses were incurred that do not reflect typical operations of
the fund. These included:

- $600,000 - closure of an underperforming freight operation and related
write-downs and losses on the disposal of redundant equipment

- $500,000 - provision against amounts receivable from a freight
customer that entered into CCAA protection

- $200,000 - prepayment penalty recognized as a result of management's
decision to terminate a third party equipment loan prior to maturity.

- $200,000 - professional fees arising from certain contemplated school
bus company acquisitions which were abandoned



SUMMARY OF QUARTERLY RESULTS

---------------------------------------------------------------------
(Unaudited) First Second Third Fourth
(in millions Quarter Quarter Quarter Quarter
except per ---------------------------------------------------
unit amounts) 2004 2003 2004 2003 2004 2003 2004 2003
---------------------------------------------------------------------
Revenue
- transportation
services $ 79.8 $75.4 $91.2 $72.7 $86.9 $ 70.6 $ 90.0 $74.2
Revenue
- fuel
surcharges 3.6 3.8 5.3 4.0 6.0 2.6 9.1 2.7
---------------------------------------------------------------------
Revenue $ 83.4 $79.2 $96.5 $76.7 $ 92.9 $ 73.2 $ 99.1 $76.9
---------------------------------------------------------------------
Net income 5.3 4.5 8.4 5.5 4.7 5.9 6.1 1.9
Earnings per unit
- basic and
diluted $ 0.21 $0.19 $0.30 $0.23 $ 0.17 $ 0.25 $ 0.22 $0.08
---------------------------------------------------------------------


RESULTS FROM OPERATIONS
Freight Transportation

(Unaudited)
Year ended December 31 ----------------------------------
(in millions) 2004 2003
---------------------------------------------------------------------
Revenue - transportation services $ 323.3 100.0% $ 270.1 100.0%
Revenue - fuel surcharges 24.0 13.1
---------------------------------------------------------------------
Revenue - total $ 347.3 $ 283.2
---------------------------------------------------------------------
---------------------------------------------------------------------
EBITDA 40.7 12.6% 32.7 12.1%
Total amortization charges 10.6 3.3 8.1 3.0
Interest 4.0 1.2 5.8 2.1
---------------------------------------------------------------------
EBT $ 26.1 8.1% $ 18.8 7.0%
---------------------------------------------------------------------
---------------------------------------------------------------------

Percentages calculated using revenue from transportation services
as a base.

EBT includes allocations of head office costs.


Acquisitions completed in 2004 generated revenues of $36.8 million and
EBITDA of $6.2 million. Rate increases amounting to $6.3 million and
other sources of internal growth in core operations accounted for the
remainder of the increase in revenue.

Pay rates for company drivers and owner-operators have been increased in
an effort to compete more effectively in this labour market resulting in
additional operating costs of $3.2 million.

Insurance premiums were $1.8 million higher in 2004 than they were in
2003. Management believes that the increase in these costs is a result
of the lingering effects of September 11, 2001 and the fact that there
are a limited number of insurers in the transportation segment. The
Fund's insurance rates, however, were stabilized with its annual policy
renewal which took effect October 1, 2004. There is no guarantee that
these premiums will not increase with the scheduled renewal on October
1, 2005.

Foreign exchange losses amounted to $600,000 in 2004 compared to $1.3
million in 2003. Approximately 13% of the Fund's freight revenues were
billed in U.S. dollars in 2004. Management's controls its currency risk
by converting customers to Canadian dollar billing wherever possible,
putting foreign exchange escalators in U.S. dollar rate agreements,
entering foreign exchange contracts and by denominating equipment
financing in U.S. dollars.

A stronger Canadian dollar also makes U.S. carriers more price
competitive. Management believes, however, that increased border
security and consequent delays coupled with a driver shortage in the
U.S. deters many American carriers from hauling freight into Canada.

SEASONALITY

Generally the second and fourth quarters are the strongest periods for
freight operations. Volumes from customers in the construction industry
typically build as temperatures warm in the spring, peak in the autumn
and then drop off with 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. Harsh winter weather conditions hinder traffic
and increase operating costs.



School Bus Transportation

(Unaudited)
Year ended December 31 -----------------------------------
(in millions) 2004 2003
---------------------------------------------------------------------
Revenue $ 24.6 100.0% $ 22.8 100.0%
---------------------------------------------------------------------
EBITDA 5.0 20.3 5.2 22.8
Total amortization charges 4.1 16.7 4.0 17.5
Interest 1.2 4.8 1.0 4.4
---------------------------------------------------------------------
EBT $ (0.3) (1.2)% $ 0.2 0.9%
---------------------------------------------------------------------

EBT includes allocations of head office costs.


Acquisitions contributed $1.3 million of additional revenue in 2004.
Fuel costs were $600,000 higher in 2004 than they were in 2003 and
insurance premiums were $400,000 higher in 2004 than they were in 2003.
The Fund has been aggressively pursuing recovery of these increased
costs from the school boards that it services.

SEASONALITY

The Fund's school bus operations typically incur operating losses during
the third quarter. Revenues from school bus operations fluctuate with
the number of school days in a period. During the summer school break,
revenue is derived solely from private charter services. In addition,
relatively little revenue is generated during March and Christmas breaks
thus adversely affecting first and fourth quarter results respectively.

CASH FLOW

Cash flow from operating activities before changes in non- cash working
capital balances amounted to $39.5 million in 2004 compared to $30.5
million in 2003. This improvement was primarily due to the increase in
net income. Non- cash working capital increased in 2004 by $7.3 million.
The increase was due primarily to the increase in accounts receivable
which arose primarily from substantially increased volumes compared to
the previous year.

The Fund expended $13.3 million on property and equipment in 2004. Of
this amount, $5.5 million related to growth expenditures the majority of
which consisted of trailers bought to service new business. The
remaining $7.8 million was spent to replace retired assets of which $3.3
million was for new buses and $4.2 million was for new tractors and
trailers. There has been little need for replacement capital in the
Fund's freight operations in each of the past two years. The rolling
stock is relatively new and well-maintained. Furthermore, the Fund has a
refurbishment program for certain trailing fleets to prolong their
working lives. Management estimates the average annual requirement for
maintenance capital expenditures will approximate $10 million over the
next 10 years. Actual expenditures will vary from year to year depending
on the age and condition of the fleet and may also be affected by
regulatory changes.



UNITHOLDER DISTRIBUTIONS
Distributable Cash(1)

(Unaudited)
Period ended December 31 Three months Twelve months
(in thousands except per ---------------------------------------
unit amounts) 2004 2003 2004 2003
---------------------------------------------------------------------
Cash flow from operating
activities $ 13,311 $ 11,090 $ 32,171 $ 35,727
Proceeds from sale of property
and equipment(2) 2,044 1,777 4,206 7,985
Net change in non-cash working
capital(3) (3,198) (5,146) 7,319 (5,231)
Maintenance capital
expenditures(1)(4) (1,143) (261) (7,804) (5,912)
---------------------------------------------------------------------
Distributable cash $ 11,014 $ 7,460 $ 35,892 $ 32,569
Distributions declared 8,691 7,459 33,881 29,722
---------------------------------------------------------------------
Distributable cash per unit $ 0.40 $ 0.31 $ 1.33 $ 1.37
Distributions declared per unit $ 0.31 $ 0.31 $ 1.25 $ 1.25
---------------------------------------------------------------------
Weighted average number of units
outstanding 27,792 23,846 27,087 23,763
---------------------------------------------------------------------
Capital expenditures
Maintenance capital
expenditures $ 1,143 $ 261 $ 7,804 $ 5,912
Growth capital expenditures(1) 1,571 1,226 5,469 3,986
---------------------------------------------------------------------
Total $ 2,714 $ 1,487 $ 13,273 $ 9,898
---------------------------------------------------------------------

(1) Distributable cash, maintenance capital expenditures and growth
capital expenditures are not measures recognized by GAAP, do not
have standardized meanings prescribed by GAAP and are therefore
unlikely to be comparable to similarly named measures presented
by other issuers. However, management believes that they are
important and useful measures for readers to evaluate the
performance of the Fund.
(2) Proceeds from the sale of property and equipment are considered
distributable to unitholders when there are not any prior ranking
claims on these funds.
(3) It is important to note that cash used to fund working capital or
growth capital expenditures does not affect amounts that can be
distributed to unitholders where financing is available other
than with respect to financing costs. Similarly, cash generated
by changes in non-cash working capital that is part of a normal
operating cycle is not considered distributable to unitholders.
(4) Maintenance capital expenditures refer to capital expenditures
that are necessary to sustain current revenue levels.


Fourth quarter distributable cash was greater in 2004 than in 2003 due
to a stronger earnings performance. During the third quarter of 2003,
the Fund received $4.3 million in proceeds from the sale of its Calgary
property which resulted in a gain on sale of $300,000. This property
exceeded the Fund's operating requirements for terminal space. The Fund
does not customarily dispose of its real estate holdings and has made no
such disposals in 2004.

Management makes distributions based on the actual and expected
performance of operations and expected average net annual capital
requirements to maintain its fleet. The trustees of the Fund assess the
level of distribution each month based on the Fund's actual performance.

LIQUIDITY AND CAPITAL RESOURCES

On January 8, 2004, the Fund entered into new borrowing arrangements
that provided a $37.5 million term loan and a $30 million demand loan.
The term loan is repayable with a single principal payment due December
15, 2008 and bears interest at a fixed rate of 6.589%. Proceeds from the
term loan were used to repay certain existing indebtedness. The demand
loan provides funding for acquisitions and other growth opportunities as
well as for working capital needs.

On March 1, 2004, the Fund issued 3.7 million subordinate voting trust
units at a price of $11.00 each. Some of the net proceeds of the
offering have been used to fund acquisitions. As at December 31, 2004,
the Fund had $20.7 million in cash as well as $23.5 million available in
operating line. As at December 31, 2004, the current ratio was 2.1:1 and
the total debt (including future tax obligations) to equity ratio 0.6:1.

As at December 31, 2004, the Fund had 347 tractors and 509 trailers
under operating leases as well as 801 tractors and 143 trailers that
were under contract with owner-operators. As at December 31, 2004, the
Fund owned 1,477 trailers, 164 tractors, 717 school buses and 19 of its
major office and terminal facilities.



OUTSTANDING UNITS
As at January 31, 2005
(Unaudited)
(in thousands)
---------------------------------------------------------------
Subordinate voting trust units 21,421
Class A LP units 4,951
Class B LP units 1,468
---------------------------------------------------------------
Total 27,840
---------------------------------------------------------------


CONTRACTUAL OBLIGATIONS
(Unaudited)
---------------------------------------------------------------------
(in millions) 2005 2006 2007 2008 2009 Thereafter Total
---------------------------------------------------------------------
Long-term debt $ 1.4 $ 1.0 $ 0.6 $ 37.5 $ - $ 2.5 $ 43.0
Lease
obligations 10.7 7.7 5.1 2.8 1.2 0.7 $ 28.2
---------------------------------------------------------------------
Total $ 12.1 $ 8.7 $ 5.7 $ 40.3 $ 1.2 $ 3.2 $ 71.2
---------------------------------------------------------------------


CHANGES IN ACCOUNTING POLICIES AND RECOMMENDATIONS

The CICA has issued new recommendations on the recognition of asset
retirement obligations, which establishes standards for recognizing,
measuring and disclosing liabilities for asset retirement obligations
and the associated asset retirement costs. A liability is recognized at
fair value when an obligation is incurred and it can be reasonably
estimated. The asset retirement cost is allocated to expense using a
systematic and rational method over the estimated useful life of the
related asset. The recommendations were applied effective January 1,
2004 and have not had a material impact on the Fund.

The CICA has issued new recommendations on impairment of long-lived
assets, which establishes standards for recognizing, measuring and
disclosing impairment of long-lived assets held for use. Impairment is
recognized when the carrying amount of an asset to be held and used
exceeds the sum of undiscounted cash flows expected from its use and
disposal. Impairment is measured as the amount by which the carrying
amount of long-lived assets exceeds their fair value. The
recommendations were applied effective January 1, 2004. As at December
31, 2004, there was no impairment in the carrying value of the Fund's
long-lived assets.

On March 25, 2004, the Fund granted options to acquire trust units to
key employees, directors and trustees to encourage their ownership of
the Fund. The CICA has issued new recommendations recognizing
stock-based compensation as an expense. Accordingly, the fair value
method has been applied and a charge to earnings of $330, 000 resulted
from the granting of these options.

The Fund enters into foreign exchange contracts periodically to hedge
against its U.S. dollar-denominated revenues. The Fund applies the
standards set out in the CICA's Accounting Guideline 13 to account for
these contracts. Gains and losses arising from these contracts are
recognized in the same period as the foreign currency revenues to which
they relate. The Fund formally documents all relationships between
hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking these transactions. The Fund also
formally assesses, both at inception and on an ongoing basis, the
effectiveness of all hedges.

On January 19, 2005 the Canadian Institute of Chartered Accountants
issued emerging issues committee abstract 151 ("EIC 151"), "Exchangeable
Securities Issued by Subsidiaries of Income Trusts". The abstract sets
out the conditions that must be met in order to present exchangeable
securities representing the retained interest in a subsidiary of an
income trust as part of unitholders' equity. Management has determined,
after obtaining an opinion from its legal counsel, that the
characteristics of the Class A and B Limited Partnership units of
Contrans Holding Limited Partnership, a subsidiary of the Fund, satisfy
the conditions of EIC 151 and are therefore appropriately presented as
part of unitholders' equity.

CRITICAL ACCOUNTING ESTIMATES

Management is required to make significant estimates and assumptions in
preparing its financial statements, the most significant of which are as
follows:



Financial Statement Item Methodology, assumptions

Accounts receivable - provisions Specific account analysis performed
for doubtful accounts and a general provision is
established based on past
performance.

Goodwill and long-lived assets Based on expected future cash flows.
- impairment testing Consideration given to past
performance and future conditions
that are known or expected to
change that will affect future cash
flows.

Property, equipment and Based on past performance.
intangible assets
- useful lives

Accrued liabilities - matters Accruals for settlement established
involving litigation based on information provided by
legal counsel or insurance claims
professionals.


Management does not believe that there are changes that are reasonably
likely to occur in the assumptions that have been used that will have a
material impact on the Fund's financial position, changes in financial
condition or results of operations.

FINANCIAL INSTRUMENTS

The Fund from time to time enters into foreign exchange contracts to
manage its exposure to currency fluctuations. As at December 31, 2004,
the Fund had foreign exchange contracts with an aggregate value of U.S.
$18,000,000 to sell U.S. funds throughout 2005. The contracts expire on
a monthly basis over the year and enable the Fund to sell U.S. dollars
between $1.20 and $1.2695.

BUSINESS RISKS

Legislation has been introduced and taken effect in the U.S. with
respect to hours of service for truck drivers, with similar legislation
anticipated to be introduced in Canada in the near future. Generally,
under the U.S. legislation, drivers are restricted to on-duty time of 14
hours, a maximum 11 of which may be driving hours. Non-driving time
spent, such as loading product or crossing borders, is included as
on-duty time. These changes may result in a reduction in productivity of
some drivers. Management believes that this potential loss in
productivity can be mitigated by charging customers for inefficiencies
such as undue delays in loading, unloading and waiting time.

The Fund is affected by economic cycles. Freight transportation
operations service approximately 6,000 customers in various industries
and geo-graphic regions with a fleet of dry van, flatbed, dump, dry bulk
and liquid tank trailers. Some of the largest freight customers are in
industries where demand for their goods is relatively inelastic. School
bus operations provide transportation services to school boards which
are unaffected by economic cycles.

The diversity of the customer base also limits concentration of credit
risk. No single customer accounts for more than 10% of the Fund's
revenue.

Cross-border travel is required to service many customers in the Fund's
freight operations. Approximately 40% of the total distance travelled by
the Fund's trucks is travelled in the U.S. Accordingly, border crossings
and customs clearances affect these shipments. Today's political
uncertainties and border security concerns present risks to the
efficiency of cross-border traffic. The Fund participates in
professional and industry associations designed to lobby for the
transportation industry's interests. In addition, management is
informing customers about the loss of efficiency and costs of border
delays and seeks fair compensation for lost productivity.

The Fund is subject to certain foreign exchange risks as it has positive
U.S. dollar cash flow arising from its freight operations. Management
manages this risk through foreign exchange contracts, denominating
equipment leases in U.S. dollars and through customer negotiations.

Changes in the relative value of the Canadian dollar against the U.S.
dollar also affect both the flow of goods between Canada and the U.S.
and competition for freight. Management competes for this freight by
providing high levels of service to service-sensitive customers.

The Fund's operating entities are subject to lawsuits from accidents and
other insurable risks. Management maintains prudent levels of insurance
coverage and high safety standards to minimize this exposure.
Furthermore, management contracts only with insurers licensed to
underwrite in Canada. The Canadian insurance industry is highly
regulated with stringent capital and liquidity requirements.

The Fund's freight operations rely primarily on the services of
owner-operators and professional drivers. As at December 31, 2004 the
Fund had 801 owner-operators under contract, employed 512 company truck
drivers and 708 school bus drivers. Besides offering competitive rates
of pay, management is conscious of the quality of the working
environment. In addition, when the Fund lacks its own hauling resources,
partner carriers can provide additional capacity.

The price of fuel is an expense over which management has little or no
control. Although the Fund has fuel surcharge programs with most of its
customers that offset higher fuel prices, the effectiveness of these
programs during times of sudden, significant increases in fuel prices is
diminished. Rapid fluctuations in fuel prices, moreover, absorb a lot of
management time and redirects management's attention from other aspects
of operations.

Changes in interest rates affect both interest paid on floating rate
debt and interest received on surplus cash. After giving effect to the
Fund's refinancing on January 8, 2004, approximately 94% of long-term
debt has a fixed interest rate.

TRANSACTIONS WITH RELATED PARTIES

The Fund purchased certain highway tractors for consideration of $1.5
million from Peterbilt of Ontario Inc., a company controlled by the
Chairman of the Fund. In addition, certain of the Fund's tractor repairs
and maintenance were carried out by this company for consideration of
$2.1 million. These transactions were carried out in the normal course
of business and recorded at the exchange amount, which management
believes approximates an arm's length arrangement.

ADDITIONAL INFORMATION

Additional information, including the Fund's Annual Information Form, is
available at www.sedar.com.

FORWARD-LOOKING STATEMENTS

Management's discussion and analysis contains certain forward- looking
statements. These statements relate to future events or future
performance. In some cases, 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 of management of the Fund with respect to future events. Actual
events or results may differ materially. In evaluating these statements,
readers should specifically consider various factors, including the
risks outlined under '' Risk Factors" in the Fund's Annual Information
Form which is available at www. sedar. com. These factors may cause
actual results to differ materially from any forward-looking statement.



CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31
(in thousands except per unit amounts)

2003
2004 (Note 16)
---------------------------------------------------------------------
Revenue $ 371,856 $ 305,993
Operating expenses 294,845 244,688
Selling, general and administration expenses 34,414 28,391
Amortization of property and equipment 13,649 12,509
Amortization of intangible assets 1,579 169
---------------------------------------------------------------------
27,369 20,236
Net interest expense (Note 6) 2,500 1,660
---------------------------------------------------------------------
Income Before Income Taxes 24,869 18,576
Income taxes (Note 7) 369 731
---------------------------------------------------------------------
Net Income $ 24,500 $ 17,845
---------------------------------------------------------------------
Earnings per unit - basic and diluted
(Note 15) $ 0.90 $ 0.75
Weighted average number of units outstanding
(Note 15)
Basic 27,087 23,763
Diluted 27,206 23,763
---------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the years ended December 31
(in thousands)

2004 2003
---------------------------------------------------------------------
Retained Earnings - Beginning of Year $ 42,010 $ 53,887
Net income 24,500 17,845
Distributions declared (33,881) (29,722)
---------------------------------------------------------------------
Retained Earnings - End of Year $ 32,629 $ 42,010
---------------------------------------------------------------------

The accompanying notes are an integral part of these statements.


CONSOLIDATED BALANCE SHEETS
As at December 31
(in thousands)

2004 2003
---------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 20,699 $ 137
Accounts receivable 42,943 30,190
Other current assets 6,330 5,741
---------------------------------------------------------------------
69,972 36,068
Property and Equipment (Note 4) 104,531 91,777
Goodwill 32,666 29,135
Intangible Assets (Note 5) 12,355 3,387
---------------------------------------------------------------------
$ 219,524 $ 160,367
---------------------------------------------------------------------

Liabilities
Current Liabilities
Operating loan (Note 6) $ - $ 7,701
Accounts payable and accrued liabilities 27,782 22,783
Distributions payable 2,899 2,489
Income taxes payable 699 119
Current portion of long-term debt (Note 6) 1,334 7,317
---------------------------------------------------------------------
32,714 40,409
Long-Term Debt (Note 6) 41,645 7,254
Future Income Taxes (Note 7) 6,058 5,463
---------------------------------------------------------------------
80,417 53,126
---------------------------------------------------------------------

Unitholders' Equity
Contributed surplus (Note 8) 330 -
Trust units (Note 8) 106,148 65,231
Retained earnings 32,629 42,010
---------------------------------------------------------------------
139,107 107,241
---------------------------------------------------------------------
$ 219,524 $ 160,367
---------------------------------------------------------------------

Commitments and contingencies (Notes 9 and 10)

The accompanying notes are an integral part of these statements.


CONSOLIDATED STATEMENTS OF CASH FLOW
For the years ended December 31
(in thousands)

2004 2003
---------------------------------------------------------------------
Cash Provided by (Used in)
Operating Activities
Net income $ 24,500 $ 17,845
Items not affecting cash:
Unit-based compensation cost (Note 8) 330 -
Amortization of property and equipment 13,649 12,509
Amortization of intangible assets 1,579 169
Future income taxes (137) 335
Gain on sale of property and equipment (431) (362)
---------------------------------------------------------------------
39,490 30,496
Net change in non-cash working capital
(Note 13) (7,319) 5,231
---------------------------------------------------------------------
32,171 35,727
---------------------------------------------------------------------
Investing Activities
Expended on acquisitions (Note 3) (23,877) (5,710)
Proceeds from sale of property and equipment 4,206 7,985
Purchase of property and equipment (13,273) (9,898)
---------------------------------------------------------------------
(32,944) (7,623)
---------------------------------------------------------------------
Financing Activities
Distributions paid (33,471) (29,705)
Proceeds from long-term debt 37,500 1,288
Repayment of long-term debt (15,270) (13,466)
Proceeds from (repayment of) operating loan (8,341) 7,701
Proceeds from issuance of units (Note 8) 40,917 1,406
---------------------------------------------------------------------
21,335 (32,776)
---------------------------------------------------------------------
Increase (Decrease) in Cash and
Cash Equivalents 20,562 (4,672)
Cash and Cash Equivalents - Beginning of Year 137 4,809
---------------------------------------------------------------------
Cash and Cash Equivalents - End of Year $ 20,699 $ 137
---------------------------------------------------------------------

The accompanying notes are an integral part of these statements.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2004 and 2003
(tabular amounts in thousands except for per unit amounts)
---------------------------------------------------------------------


1. Organization

Contrans Income Fund (the "Fund") is an unincorporated, open- ended
limited purpose trust established under the laws of the province of
Ontario. The Fund was created for the purpose of acquiring and holding
certain investments, initially through the effective acquisition of
Contrans Corp. and its direct and indirect operating entities.

The Fund operates in the freight and school bus transportation
industries.

2. Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION

The purchase method of accounting for business combinations has been
used and the accounts of all subsidiaries have been consolidated with
those of the Fund.

GOODWILL AND INTANGIBLE ASSETS

Goodwill is tested for impairment on an annual basis. Management
periodically reviews the estimated lives of intangible assets and
adjusts amortization accordingly. Intangible assets are amortized as
follows:

Non-competition agreements - Straight-line over the life of the agreement

Customer relationships - Straight-line over 10 years

PROPERTY AND EQUIPMENT

Property and equipment are valued at acquisition cost less accumulated
amortization. Amortization is provided over the estimated service lives
of the assets as follows:

Buildings - Straight-line over 15 to 40 years

Rolling Stock

Tractors - 25% declining balance

Trailers - Straight-line over 10 to 15 years

School buses - Based on usage over 8 to 12 years

Service Vehicles and Other Equipment - 20% to 30% declining balance

Management periodically reviews the estimated service lives of these
assets and adjusts amortization accordingly.

REVENUE RECOGNITION

Revenue for freight transportation is recognized upon delivery of the
goods to the customer. Revenue for school bus transportation services is
recognized when services are provided.

INCOME TAXES

The Fund is a mutual fund trust as defined under the Income Tax Act
(Canada). Pursuant to the Declaration of Trust, all of the taxable
income earned directly by the Fund in the period is distributable to
unitholders and such distributions are deducted for income tax purposes.
Consequently, no provision for income taxes is required for the Fund.
Certain of the Fund's subsidiaries are, however, subject to income
taxation and provide for income tax obligations based upon statutory
corporate tax rates and provide for federal large corporations taxes as
necessary.

FUTURE INCOME TAXES

The liability method is used to account for future income taxes. Under
this method, future income tax assets and liabilities are recognized for
the estimated income tax consequences attributable to differences
between financial statement carrying amounts of assets and liabilities
and their respective income tax bases. Future income tax assets and
liabilities are measured using tax rates expected to be in effect when
the temporary differences are expected to be recovered or settled. The
effects of changes in income tax rates are reflected in future income
tax assets and liabilities in the period that the rate changes are
substantively enacted.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on deposit and short-term
interest-bearing securities with maturities at purchase date of three
months or less.

UNIT-BASED COMPENSATION

The Fund applies the fair value-based method to account for awards made
under its long-term incentive plan described in Note 8.

HEDGING RELATIONSHIPS

The Fund enters into foreign exchange contracts periodically to hedge
against its U.S. dollar-denominated revenues. The Fund applies the
standards set out in the CICA's Accounting Guideline 13, "Hedging
Relationships" and the CICA's Emerging Issues Committee's abstract 128
"Accounting for Trading, Speculative or Non-hedging Derivative Financial
Instruments" to account for these contracts when the following
conditions are met. The Fund formally documents all relationships
between hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking these transactions.
The Fund also formally assesses, both at inception and on an ongoing
basis, whether the contracts are highly effective as hedges.

Gains and losses arising from these contracts are recognized in the same
period as the foreign currency revenues to which they relate.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets, including property and equipment and purchased
intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that their carrying
amounts may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future
cash flows, an impairment charge is recognized by the amount by which
the carrying amount of the asset exceeds the fair value of the asset.
Assets to be disposed of would be separately presented in the balance
sheet and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer amortized. The asset and
liabilities of a disposed group classified as held for sale would be
presented separately in the appropriate asset and liability sections of
the balance sheet.

ASSET RETIREMENT OBLIGATIONS

The Fund recognizes the fair value of a future asset retirement
obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible long-lived assets
that results from the acquisition, construction, development, and/or
normal use of the assets. The Fund concurrently recognizes a
corresponding increase in the carrying amount of the related long-lived
asset that is amortized over the life of the asset.

EARNINGS PER UNIT

Basic earnings per unit is computed by dividing net income by the
weighted average units outstanding during the year. Diluted earnings per
unit is similarly computed except that the weighted average shares
outstanding are increased to include additional units from an assumed
exercise of unit options, if dilutive. The number of additional units is
calculated by assuming that outstanding unit options were exercised and
that the proceeds from such exercises were used to acquire units at
average market prices.

MEASUREMENT UNCERTAINTY

The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts at the date
of, and for the period of, the financial statements. Actual results
could differ from those estimates. Estimates are reviewed on a regular
basis and, as adjustments become necessary, they are reported in income
in the periods in which they become known. The assets and liabilities
which require management to make significant estimates and assumptions
in determining carrying values include accounts receivable, property and
equipment, goodwill, intangible assets, accounts payable and accrued
liabilities and future income taxes.



3. Acquisitions

2004
Olinyk Elgin Clark KTS Pickway Walsh Firm Total
---------------------------------------------------------------------
Accounts
receivable $ 263 $2,323 $1,416 $582 $ - $ 124 $1,288 $5,996
Other current
assets 62 298 250 48 22 147 30 857
Property and
equipment 562 9,371 4,318 1,056 129 1,390 79 16,905
Intangible
assets with
finite lives
Customer
relationships 210 1,692 2,170 920 150 685 2,610 8,437
Non-competition
agreements 40 840 420 40 40 40 690 2,110
Goodwill 65 470 868 324 103 1,342 359 3,531
---------------------------------------------------------------------
Fair value of
assets
acquired 1,202 14,994 9,442 2,970 444 3,728 5,056 37,836
---------------------------------------------------------------------

Operating loan - 640 - - - - - 640
Accounts
payable
& accrued
liabilities 219 1,664 1,343 901 26 716 1,026 5,895
Income taxes
payable 6 464 30 - - - 14 514
Long-term debt - 4,890 - 195 116 977 - 6,178
Future income
taxes 80 282 175 54 - 141 - 732
---------------------------------------------------------------------
Fair value of
liabilities
acquired 305 7,940 1,548 1,150 142 1,834 1,040 13,959
---------------------------------------------------------------------
$ 897 $7,054 $7,894 $1,820 $ 302 $1,894 $4,016 $23,877
---------------------------------------------------------------------
Consideration
Cash $ 897 $7,054 $7,894 $1,820 $ 302 $1,894 $4,016 $23,877
---------------------------------------------------------------------


On January 1, 2004, the Fund acquired all of the outstanding shares of
Olinyk Trucking Ltd.("Olinyk"), a flatbed trucking operation located in
Edmonton, Alberta.

On March 1, 2004, the Fund acquired all of the outstanding shares of
Elgin Cartage Limited ("Elgin"). Located in London, Ontario, Elgin
provides a range of truckload transportation services principally
focused on transportation of industrial dry waste. Elgin also transports
other bulk commodities in dump and liquid trailers. The business
operates mainly within Ontario and Michigan. Approximately $1.5 million
of additional consideration is payable contingent upon Elgin achieving
certain performance objectives over the next three years. Any additional
consideration that is paid will be charged to goodwill.

On April 1, 2004, the Fund acquired all of the outstanding shares of
Clark Leasing Limited ("Clark"). Located in Perth, Ontario, Clark
provides a range of truckload transportation services utilizing
refrigerated and dry van trailers and ocean containers. The business
operates mainly within Ontario, Quebec and the northeastern United
States.

On June 1, 2004, the Fund acquired all of the outstanding shares of
Keruda Traffic Service Inc. ("KTS"). Located in Waterford, Ontario, KTS
provides truckload transportation services utilizing dry van trailers
mainly within Ontario, Michigan, Ohio and Indiana.

On July 1, 2004, the Fund acquired all operating assets of Pickway
Transportation Inc. ("Pickway"). Located in Pickering, Ontario, Pickway
provides school bus transportation services.

On October 1, 2004, the Fund acquired all of the outstanding shares of
Walsh Transportation Ltd. ("Walsh"). Located in Haileybury, Ontario,
Walsh provides school bus and other transportation services in
Northeastern Ontario.

On November 1, 2004, the Fund acquired all of the outstanding shares of
Firm Transportation and Distribution Services Inc. ("Firm"). Located in
Toronto, Ontario, Firm is a third party logistics provider.
Approximately $2.0 million of additional consideration is payable
contingent upon Firm achieving certain performance objectives over the
next three years. Any additional consideration that is paid will be
charged to goodwill.



2003
Bird RLL CASCO Total
---------------------------------------------------------------------
Other current assets $ - $ 17 $ 50 $ 67
Property and equipment 1,000 567 967 2,534
Goodwill - 133 - 133
Intangible assets
Customer relationships - - 2,215 2,215
Non-competition agreements - 900 - 900
---------------------------------------------------------------------
Fair value of assets acquired 1,000 1,617 3,232 5,849
---------------------------------------------------------------------
Accounts payable and accrued
liabilities - (117) (22) (139)
---------------------------------------------------------------------

Fair value of liabilities assumed - (117) (22) (139)
---------------------------------------------------------------------
$ 1,000 $ 1,500 $ 3,210 $ 5,710
---------------------------------------------------------------------
Consideration
Cash $ 1,000 $ 1,500 $ 3,210 $ 5,710
---------------------------------------------------------------------


On January 29, 2003, the Fund acquired the business and certain
operating assets of Harold Bird Trucking Inc. ("Bird"), a provider of
bulk transportation services. Rolling stock consisting of highway
tractors and trailing equipment was acquired.

On April 15, 2003, the Fund entered into an agreement, which became
effective May 1, 2003, to acquire the shares of Robert Lindsay Limited
("RLL"), a school bus transportation provider based in Nanticoke,
Ontario. RLL operates its fleet under the name Lindsay Bus Lines.

On May 16, 2003, the Fund acquired certain highway tractors, liquid tank
and van trailers and other transportation assets (the "equipment") from
one of its customers, Canada Starch Company ("CASCO"). In conjunction
with transportation and logistics contracts executed on the same day,
the Fund will use the equipment as the exclusive transportation supplier
to this customer.

The acquisitions have been accounted for by the purchase method and the
results of operations from the acquisition date have been included in
these consolidated financial statements.



4. Property and Equipment

Accumulated
2004 Cost amortization Net
---------------------------------------------------------------------
Land $ 7,135 $ - $ 7,135
Buildings 19,862 6,009 13,853
Rolling stock and other
equipment 131,074 47,531 83,543
---------------------------------------------------------------------
$ 158,071 $ 53,540 $ 104,531
---------------------------------------------------------------------

Accumulated
2003 Cost amortization Net
---------------------------------------------------------------------
Land $ 6,449 $ - $ 6,449
Buildings 18,105 5,283 12,822
Rolling stock and other
equipment 110,292 37,786 72,506
---------------------------------------------------------------------
$ 134,846 $ 43,069 $ 91,777
---------------------------------------------------------------------


5. Intangible Assets

2004 2003
---------------------------------------------------------------------
Customer relationships 10,652 2,215
Non-competition agreements 3,520 1,410
Accumulated amortization (1,817) (238)
---------------------------------------------------------------------
12,355 3,387
---------------------------------------------------------------------


7. Income Taxes

The following table reconciles the provision for income taxes
recorded in the statement of earnings with a statutory income tax
rate of 35.7% :

2004 2003
---------------------------------------------------------------------
Income before income taxes $ 24,869 $ 18,576
---------------------------------------------------------------------
Computed income tax expense at
Canadian statutory rate 8,878 6,633
Reduction of taxes due to taxable
income allocated to unitholders (8,878) (6,633)
Increase in future tax liability
associated with changes in
substantively enacted tax rates - 335
Reduction in future tax liability
associated with dilution of ownership
on public offering (521) -
Large corporation tax 100 300
U.S. taxes 315 175
Other 475 (79)
---------------------------------------------------------------------
Income tax expense $ 369 $ 731
---------------------------------------------------------------------

The tax effects of temporary differences that give rise to future
tax assets and liabilities are presented below:

2004 2003
---------------------------------------------------------------------
Future tax assets
Non-capital loss carry forwards $ (2,541) $ (1,403)
Future tax liabilities

Property and equipment - differences
between tax and accounting values 9,009 8,456
Other (410) (1,590)
---------------------------------------------------------------------
Net future income tax liability $ 6,058 $ 5,463
---------------------------------------------------------------------


8. Trust Units

AUTHORIZED

Unlimited numbers of Subordinate Voting Trust units ("Trust units")
and Class A Limited Partnership ("LP") units and 1,467,724 Class B LP
units are authorized.

ISSUED AND FULLY PAID

2004 2003
---------------------------------------------------------------------
Units $ Units $
---------------------------------------------------------------------
Trust units 21,404 $ 98,067 16,970 $ 56,465
Class A LP units 4,951 6,783 5,451 7,468
Class B LP units 1,468 1,298 1,468 1,298
---------------------------------------------------------------------
Total 27,823 $ 106,148 23,889 $ 65,231
---------------------------------------------------------------------


VOTING, DISTRIBUTION AND EXCHANGE RIGHTS

The Trust units and the Class A LP units are entitled to one vote each.
The Class B LP units are entitled to ten votes each. Distributions are
made equally on a pro rata basis. Each Class A LP unit and Class B LP
unit is exchangeable for a Trust unit effectively giving the Class A and
Class B LP units the same rights and entitlements as the Trust units.

REDEMPTION RIGHTS

Trust units are redeemable by the Fund at any time at a price equal to
the lesser of 90% of their market price during the five trading day
period commencing immediately after the date of surrender and 100% of
the closing market price on the redemption date.

ISSUE OF TRUST UNITS

On March 1, 2004, the Fund issued 3,700,000 Trust units at a price of
$11.00 each. Proceeds of the offering were used for working capital
purposes and for funding strategic growth opportunities. The net
proceeds after deducting costs of the offering were $38.3 million. The
first cash distribution in which purchasers of this issue were entitled
to participate was for the month of March 2004 with a record date of
March 31, 2004 and a payment date of April 15, 2004. The Fund also
received proceeds of $2.6 million (2003 - $1.4 million) from the
issuance of 234,000 (2003 - 166,000) Trust units under the dividend
reinvestment plan and the optional cash plan. In addition, 500,000 Class
A LP units were exchanged for an equal number of Trust units.

UNIT-BASED COMPENSATION PLAN

The Fund maintains a unit option plan to encourage ownership of the Fund
by directors, officers and key employees of the Fund. Under the terms of
the plan, 2,762,165 Trust units have been reserved for issuance. The
maximum number of options that can be issued to an individual is 5% of
the subordinate voting trust units outstanding at the time of the grant.

On March 25, 2004, the Fund granted 1,575,000 options to key employees,
trustees and directors. Upon issuance, 20% of the options vested
immediately and the remainder vest at a rate of 20% annually over the
next four anniversary dates. The exercise price is $11.50, which was the
closing trading price of the Fund on the day prior to the date of the
grant. Unexercised options expire on March 25, 2014. Options issued
under the plan are non- transferable. Any option granted which is
cancelled or terminated for any reason prior to exercise will be
returned to the pool and will be available for future unit option
grants. During the year, 35,000 options were terminated leaving 1,540,
000 outstanding as at December 31, 2004.

The estimated grant-date fair value was $0.47 per unit. The amount
charged to compensation cost and contributed surplus during the year was
$330,000.

Below are the assumptions used to determine the fair value of the
options on the grant date:



Risk-free interest rate 4.62%
Expected life 9 years
Expected volatility 20%
Expected dividend yield 10.87%

9. Lease Commitments

Future minimum payments for operating lease obligations are as
follows:

2005 $ 10,724
2006 7,706
2007 5,080
2008 2,778
2009 1,167
Thereafter 691
--------------------------------------------------------


10. Contingencies

OUTSTANDING LITIGATION

In September 1994, two actions were filed by separate groups of former
employees against Laidlaw Carriers Inc. ("Laidlaw") and an Ontario loan
and trust company. These actions involved the valuation of the
employees' benefit plans in 1988. In 2001, after application for leave
to appeal an earlier court decision was denied, these actions became a
single class proceeding. Management is unable to determine the outcome
of this lawsuit at this time.

Laidlaw had been a wholly-owned subsidiary of Contrans Corp. and, upon
amalgamations that took place on July 23, 2002, the potential liability
surrounding these actions was combined with Contrans Corp., a
corporation controlled by the Fund that continues to provide
administrative services to the Fund and the operating entities.

11. Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities, distributions payable and
long-term debt approximate their fair value. The fair value of long-term
debt is determined at the net present value of contractual future
payments of principal discounted at current market rates of interest for
similar debt instruments with terms stretching over the remaining lives
of the outstanding loans. Floating rate debt is assumed to be carried at
fair value.

The Fund services a large customer base in various industries which
helps limit concentration of credit risk. Some of the Fund's largest
customers are in industries where demand for their goods is relatively
inelastic. The Fund undertakes credit checks on new accounts and closely
monitors the credit performance of all its customers.

The Fund from time to time enters into foreign exchange contracts to
manage its net exposure to currency fluctuations against the U.S.
dollar. As at December 31, 2004, the Fund had contracts with an
aggregate value of U.S. $18,000,000 to sell U.S. funds throughout 2005.
The contracts expire on a monthly basis over the year and enable the
Fund to sell U.S. dollars at amounts between a minimum of $1.20 and a
maximum of $1.2695. As at December 31, 2004, the fair value of these
contracts was a nominal amount.



12. Related Party Transactions

The Fund had business transactions with a company controlled by the
Chairman of the Fund as follows:

2004 2003
--------------------------------------------------------------------
Transactions during the year
Equipment and purchases $ 1,534 $ 119
Repairs and maintenance 2,149 2,044
Rental income 179 145
Balances at end of year
Accounts payable 118 113
Accounts receivable 9 2
--------------------------------------------------------------------

These transactions were carried out in the normal course of business
and recorded at the exchange amount, which management approximates
an arm's length arrangement.

13. Cash Flow

Change in non-cash working capital:

2004 2003
---------------------------------------------------------------------
Decrease (increase) in accounts receivable (6,757) 3,137
Decrease (increase) in other current assets 268 (917)
Increase (decrease) in accounts payable and
accrued liabilities (896) 3,501
Increase (decrease) in income taxes payable 66 (490)
---------------------------------------------------------------------
Net change in non-cash working capital (7,319) 5,231
---------------------------------------------------------------------
Cash paid in respect of:
Interest 2,616 1,646
Income taxes 440 886
---------------------------------------------------------------------


14. Segmented Information

The Fund operates in the freight and school bus transportation
industries, both based in Canada. There have been no transactions
between operating segments. Certain of the costs incurred at the Fund's
head office, denoted as "Other" in the table below, are allocated to
each operating segment.



Amorti-
zation Income
Net of (loss)
interest property before Capital
2004 expense and income Good- Total expend-
Revenue (income) equipment taxes will assets itures
---------------------------------------------------------------------
Freight $347,255 $3,985 $ 9,22 $26,126 $12,161 $112,317 $ 8,654
School
bus 24,601 1,153 3,900 (257) 20,505 54,525 4,313
Other - (2,638) 528 (1,000) - 52,682 306
---------------------------------------------------------------------
$ 371,856 $ 2,500 $ 13,649 $24,869 $32,666 $219,524 $ 13,273
---------------------------------------------------------------------

Amorti-
zation Income
Net of (loss)
interest property before Capital
2003 expense and income Good- Total expend-
Revenue (income) equipment taxes will assets itures
---------------------------------------------------------------------
Freight $283,173 $ 5,761 $ 8,069 $18,791 $10,074 $ 88,796 $ 3,011
School
bus 22,820 960 3,935 236 19,061 51,587 6,105
Other - (5,061) 505 (451) - 19,984 782
---------------------------------------------------------------------
$ 305,993 $ 1,660 $ 12,509 $18,576 $29,135 $160,367 $ 9,898
---------------------------------------------------------------------


15. Earnings per Unit

The computations for earnings per unit are based on the following:

---------------------------------------------------------------------
---------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------
Weighted average number of units outstanding:

Basic 27,087 23,763
Effect of unit options 119 -
---------------------------------------------------------------------
Diluted 27,206 23,763
---------------------------------------------------------------------


As at December 31, 2003, no unit options were outstanding.

16. Comparative Figures

The 2003 comparative figures have been reclassified to reflect amounts
billed for fuel surcharge as revenue. The effect of the reclassification
was to increase revenue and operating expenses each by $13,112,000.

-30-

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