Chemtrade Logistics Income Fund Announces 2007 Third Quarter Results



    Releases Conclusions of Review of Strategic Alternatives

    TORONTO, Oct. 25 /CNW/ - Chemtrade Logistics Income Fund (TSX: CHE.UN)
today announced results for the three months ended September 30, 2007. The
strong demand for Chemtrade's products in the first half of the year continued
in the third quarter, producing another period of solid operating results.
During the third quarter, the operating businesses generated earnings before
interest, income taxes, depreciation and amortization ("EBITDA") of
$24.1 million compared with $20.0 million in the third quarter of 2006. The
benefit of strong operating results in the third quarter was partially offset
by higher corporate costs, particularly those related to the senior management
change at the end of the period, and to the review of strategic alternatives.
    Distributable cash after maintenance capital expenditures for the period
was $14.3 million, or $0.42 per unit (2006: $13.3 million, or $0.40 per unit),
generated from revenue of $143.2 million (2006: $148.7 million) and EBITDA of
$19.4 million (2006: $16.7 million). Net earnings for the third quarter were
$7.1 million compared with a net loss of $10.2 million in the same period in
2006. The results for the third quarter of 2007 include costs totalling
approximately $1.4 million related to a senior management change and the
review of strategic alternatives. The net loss in 2006 included a non-cash
charge of $15.6 million with respect to impairment in the net book value of
property, plant and equipment used to manufacture powder SHS.
    For the nine months ended September 30, 2007 distributable cash after
maintenance capital expenditures was $31.4 million (2006: $37.5 million), or
$0.94 per unit (2006: $1.12). EBITDA was $46.7 million (2006: $51.4 million),
and revenue was $402.1 million (2006: $405.2 million). Net earnings for the
first nine months of 2007 were $11.6 million (2006: net loss $1.6 million). In
addition to the higher corporate costs noted as impacting the third quarter,
the numbers for the year-to-date also include $2.5 million relating to the
cessation of powder SHS production at the Leeds plant.
    Mark Davis, President and Chief Executive Officer of Chemtrade, said,
"The significant improvement from our Sulphur Products & Performance Chemicals
group was the key driver of our strong third quarter results. Additionally,
the benefits of some of the initiatives we recently took, such as the
reorganization of our powder SHS business, the addition of the Olin business
and our focus on enhancing the reliability of our regen and merchant acid
plants, were apparent in the third quarter. We have also been able to
capitalize on higher demand and prices for acid - merchant, ultra pure and
regen. We expect these market dynamics to continue."
    Sulphur Products & Performance Chemicals ("SPPC") generated revenue of
$84.6 million (2006: $73.3 million) in the third quarter, reflecting higher
volumes and prices for merchant and ultra pure acid, and higher volumes of
SHS. The higher volumes of SHS included sales to customers added as a result
of the Olin asset acquisition during the second quarter. EBITDA was
$16.8 million compared with $12.3 million in 2006. The improvements were
partially offset by higher zinc costs.
    Pulp Chemicals reported third quarter revenue of $14.8 million compared
with $13.4 million in 2006, and EBITDA was $5.0 million, compared with
$5.7 million in 2006. Higher selling prices for sodium chlorate were offset by
higher input costs, particularly salt, a key raw material used in the
production of sodium chlorate.
    International reported revenue of $43.8 million for the third quarter
compared with $62.1 million reported in 2006. The decrease is due primarily to
the Fund's adopting recommendations of the Canadian Institute of Chartered
Accountants ("CICA") Handbook Section 3855, which required certain sales
transactions to be recorded on a net margin basis. EBITDA for the third
quarter was $2.3 million compared with $2.0 million in 2006.

    Distributions

    Distributions declared in the third quarter totalled $0.30 per unit,
comprised of monthly distributions of $0.10 per unit.

    Review of Strategic Alternatives

    On February 28, 2007, the Fund announced that the Board of Trustees had
initiated a process to identify and evaluate strategic alternatives available
to maximize Unitholder value. The review was undertaken largely as a response
to the Government's initiative to tax income trust distributions and the
possible restriction to growth that these initiatives may pose. A summary of
the conclusions reached during the review include:

    
    -  Chemtrade will continue to focus on improving and growing its
       portfolio of chemical businesses and related assets;

    -  Chemtrade will adopt the business and legal structure that maximizes
       Unitholder value. Based on current legislation and access to capital,
       the Fund believes the current income trust structure maximizes
       Unitholder value;

    -  Based on existing tax laws and an analysis of restructuring options,
       Chemtrade expects that commencing in 2011 the Fund's earnings will be
       subject to a Canadian effective tax rate of no more than 10%, since a
       large portion of the Fund's earnings are non-Canadian source or are
       received in the form of dividends;

    -  Growth of size and scale will continue to be a key element of
       Chemtrade's strategy. To the extent possible, the Fund will continue
       financing these initiatives with a combination of debt and equity
       which the Fund does not believe will materially restrict its ability
       to pay distributions and maximize Unitholder value. However, if
       necessary, the Fund would consider increasing its debt leverage to
       facilitate strategic growth even if the increased leverage temporarily
       restricted or reduced the ability to pay distributions;

    -  Distributable cash generated in excess of the Fund's current
       distribution rate will be used primarily to reduce debt, improve
       operations or fund incremental growth projects; and

    -  Finally, consideration of the sale of the Fund as one strategic
       alternative has been terminated. Although the Fund received numerous
       indications of interest, given the current state of the credit markets
       the Board concluded that a transaction would not be in the best
       interest of Chemtrade Unitholders at this time.
    

    Chemtrade operates a diversified business providing industrial chemicals
and services to customers in North America and around the world. Chemtrade is
one of the world's largest suppliers of sulphuric acid, liquid sulphur dioxide
and sodium hydrosulphite, and a leading processor of spent acid. Chemtrade is
also a leading regional supplier of sulphur, sodium chlorate, phosphorous
pentasulphide, and zinc oxide.

    This news release contains certain statements which may constitute
    "forward-looking" statements within the meaning of certain securities
    laws, including the "safe harbour" provisions of the Securities Act
    (Ontario). The use of any of the words "anticipate", "continue",
    estimate", "expect", "may", "will", "project", "should", "believe" and
    similar expressions are intended to identify forward-looking statements.

    This news release contains forward-looking statements about the
    objectives, strategies, financial condition, results of operations and
    businesses of the Fund. These statements are "forward-looking" as they
    are based on current expectations about our business and the markets we
    operate in, and on various estimates and assumptions.

    
    -  Forward-looking statements in this news release describe our
       expectations as of the date of this news release.

    -  Our actual results could be materially different from our expectations
       if known or unknown risks affect our business, or if our estimates or
       assumptions turn out to be inaccurate. As a result, we cannot
       guarantee that any forward-looking statement will materialize.

    -  Forward-looking statements do not take into account the effect that
       transactions or non-recurring items announced or occurring after the
       statements are made may have on our business.

    -  We disclaim any intention or obligation to update any forward-looking
       statement even if new information becomes available, as a result of
       future events or for any other reason.

    -  Risks that could cause our actual results to differ materially from
       our current expectations are discussed in the RISKS AND UNCERTAINTIES
       section of our MD&A.
    

    Further information can be found in the disclosure documents filed by
    Chemtrade Logistics Income Fund with the securities regulatory
    authorities, available at www.sedar.com.

    A conference call to review the third quarter 2007 results will be
webcast live on www.chemtradelogistics.com and www.newswire.ca/webcast on
Friday, October 26, 2007 at 10:00 a.m.

    
    CHEMTRADE LOGISTICS INCOME FUND
    Consolidated Balance Sheets
    (in thousands of dollars)

                                                       September    December
                                                        30, 2007    31, 2006
    -------------------------------------------------------------------------
                                                      (unaudited)
    ASSETS

    Current assets
      Cash and cash equivalents                        $   5,777   $   6,147
      Accounts receivable                                 78,912      71,909
      Inventories                                         16,130      26,900
      Prepaid expenses and other assets (note 2)           6,103       6,380

    -------------------------------------------------------------------------
                                                         106,922     111,336

    Property, plant and equipment                        149,569     180,909
    Other assets (note 2)                                  2,643       3,370
    Future tax asset                                      11,564       8,829
    Intangibles (note 3)                                 148,781     167,412
    Goodwill                                              87,871      96,255

    -------------------------------------------------------------------------
                                                       $ 507,350   $ 568,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities
      Operating line of credit (note 5)                $  41,148   $  13,191
      Accounts payable                                    35,875      49,074
      Accrued liabilities                                 26,811      24,013
      Distributions payable                                3,358       4,030
      Income taxes payable                                   932       1,447
      Current portion of long-term debt                        -      16,359
      Derivatives (note 2)                                    62           -

    -------------------------------------------------------------------------
                                                         108,186     108,114

    Long-term debt (notes 2 & 5)                         155,367     173,932
    Other long-term liabilities (notes 3 & 4)              4,121       1,874
    Post-employment benefits                               3,945       4,143
    Future tax liability                                  27,142      32,924
    Minority interest                                         15          25

    Unitholders' equity
      Units (note 6)                                     412,957     412,944
      Equity component of convertible
       debentures (note 6)                                     -         160
      Deficit                                           (153,037)   (134,579)
      Accumulated other comprehensive
       income (loss) (note 2)                            (51,346)    (31,426)

    -------------------------------------------------------------------------
                                                         208,574     247,099

    -------------------------------------------------------------------------
                                                       $ 507,350   $ 568,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements


    CHEMTRADE LOGISTICS INCOME FUND
    Consolidated Statements of Operations
    (in thousands of dollars, except net earnings per unit amounts)
    (unaudited)

                                  Three Months Ended       Nine Months Ended

                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Revenue                    $ 143,232   $ 148,692   $ 402,056   $ 405,198

    Cost of sales
     and services                114,546     124,833     326,491     333,834

    -------------------------------------------------------------------------
    Gross profit                  28,686      23,859      75,565      71,364

    Selling, general,
     administrative and
     other costs                   9,305       7,112      26,900      19,924
    Restructuring costs (note 4)       -           -       1,971           -

    -------------------------------------------------------------------------
    Earnings before
     the under-noted              19,381      16,747      46,694      51,440

    Depreciation
     and amortization              9,596      11,277      29,543      34,397
    Impairment of property,
     plant and equipment               -      15,596           -      15,596
    Net interest
     and accretion expense         3,361       3,018       9,583       8,446

    -------------------------------------------------------------------------
    Earnings (loss) before
     income taxes and
     minority interest             6,424     (13,144)      7,568      (6,999)

    Income taxes
      Current                        422         418         916       1,157
      Future                      (1,069)     (3,344)     (4,948)     (6,591)

    -------------------------------------------------------------------------
                                    (647)     (2,926)     (4,032)     (5,434)

    -------------------------------------------------------------------------
    Earnings (loss) before
     minority interest             7,071     (10,218)     11,600      (1,565)

    Minority interest                 (3)          -          (7)          -

    -------------------------------------------------------------------------
    Net earnings (loss)        $   7,074   $ (10,218)  $  11,607   $  (1,565)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Net earnings (loss) per unit (note 6)
      Basic                    $    0.21   $   (0.30)  $    0.35   $   (0.05)
      Diluted                  $    0.21   $   (0.30)  $    0.35   $   (0.05)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements


    CHEMTRADE LOGISTICS INCOME FUND
    Consolidated Statements of Changes in Unitholders' Equity
    (in thousands of dollars)
    (unaudited)
                                  Three Months Ended       Nine Months Ended

                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Units
    Balance,
     beginning of period       $ 412,957   $ 412,944   $ 412,944   $ 412,944
    Issued on conversion
     of debentures (note 6)            -           -          13           -
    -------------------------------------------------------------------------
    Balance, end of period     $ 412,957   $ 412,944   $ 412,957   $ 412,944
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Equity component of convertible debentures
    Balance,
     beginning of period       $       -   $     160   $     160   $     160
    Redemption of
     debentures (note 6)               -           -        (160)          -
    -------------------------------------------------------------------------
    Balance, end of period     $       -   $     160   $       -   $     160
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Deficit
    Balance,
     beginning of period       $(150,036)  $(105,567)  $(134,579)  $ (90,266)
    Redemption of
     debentures (note 6)               -           -         160           -
    Net earnings (loss)            7,074     (10,218)     11,607      (1,565)
    Distributions                (10,075)    (12,090)    (30,225)    (36,044)
    -------------------------------------------------------------------------
    Balance, end of period     $(153,037)  $(127,875)  $(153,037)  $(127,875)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive income  (loss)
    Balance,
     beginning of period       $ (41,937)  $ (38,086)  $ (31,426)  $ (29,775)
    Changes in accounting
     policies (note 2)                 -           -       1,783           -
    -------------------------------------------------------------------------
    Balance, beginning of
     period, as adjusted         (41,937)    (38,086)    (29,643)    (29,775)
    Other comprehensive (loss)    (9,409)        205     (21,703)     (8,106)
    -------------------------------------------------------------------------
    Balance, end of period     $ (51,346)  $ (37,881)  $ (51,346)  $ (37,881)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements


    Consolidated Statements of Comprehensive Income
    (in thousands of dollars)
    (unaudited)
                                  Three Months Ended       Nine Months Ended

                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Net earnings (loss)        $   7,074   $ (10,218)  $  11,607   $  (1,565)

    Change in unrealized
     (loss) on translation of
     self-sustaining foreign
     operations                   (8,315)        205     (20,758)     (8,106)
    Change in unrealized gain
     on derivatives designated
     as cash flow hedges          (1,094)          -        (945)          -
    -------------------------------------------------------------------------
    Other comprehensive (loss)    (9,409)        205     (21,703)     (8,106)

    -------------------------------------------------------------------------
    Comprehensive (loss)       $  (2,335)  $ (10,013)  $ (10,096)  $  (9,671)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements


    CHEMTRADE LOGISTICS INCOME FUND
    Consolidated Statements of Cash Flows
    (in thousands of dollars)
    (unaudited)
                                  Three Months Ended       Nine Months Ended

                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
      Net earnings (loss)      $   7,074   $ (10,218)  $  11,607   $  (1,565)
      Items not affecting cash:
        Depreciation
         and amortization          9,596      11,277      29,543      34,397
        Future income taxes       (1,069)     (3,344)     (4,948)     (6,591)
        Minority interest             (3)          -          (7)          -
        Debt accretion expense       226           8         589          24
        (Gain) on sale of property,
         plant and equipment         (72)          -        (232)          -
        Early settlement
         of debt (note 6)              -           -          29           -
        Impairment of property,
         plant and equipment           -      15,596           -      15,596
        Change in fair value
         of derivatives             (211)          -        (288)          -
        Non-cash restructuring
         costs                         -           -          48           -
        Unrealized foreign
         exchange (gain) loss       (213)        448      (1,086)     (1,054)

    -------------------------------------------------------------------------
                                  15,328      13,767      35,255      40,807

    (Increase) decrease in
     working capital              (1,572)      1,074      (7,244)     (4,700)

    -------------------------------------------------------------------------
                                  13,756      14,841      28,011      36,107

    Financing activities:
      Redemption of
       convertible debentures          -           -     (16,378)          -
      (Decrease) increase in
       operating line of credit   (1,291)     (5,004)     27,957       1,474
      Distributions
       to unitholders            (10,075)    (12,090)    (30,896)    (35,819)
      Increase in other
       long-term liabilities        (365)          -       2,178           -
      Financing transaction
       costs                           -           -        (317)          -

    -------------------------------------------------------------------------
                                 (11,731)    (17,094)    (17,456)    (34,345)

    Investing activities:
      Additions to property,
       plant and equipment        (1,362)       (826)     (4,355)     (4,265)
      Acquisitions (note 3)            -           -      (6,909)          -
      Proceeds from disposal
       of property, plant
       and equipment                 105           -         325           -

    -------------------------------------------------------------------------
                                  (1,257)       (826)    (10,939)     (4,265)

    Effect of exchange rates
     on cash held in foreign
     currencies                      (31)        (18)         14          20

    -------------------------------------------------------------------------

    Increase (Decrease) in cash
     and cash equivalents            737      (3,097)       (370)     (2,483)

    Cash and cash equivalents
     - beginning of period         5,040      11,009       6,147      10,395

    -------------------------------------------------------------------------
    Cash and cash equivalents
     - end of period           $   5,777   $   7,912   $   5,777   $   7,912
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information:
      Cash taxes paid          $      63   $     110   $   1,431   $   1,041
      Cash interest paid       $   3,483   $   2,680   $  10,247   $   9,051

    See accompanying notes to consolidated financial statements



    CHEMTRADE LOGISTICS INCOME FUND
    Notes to Consolidated Financial Statements
    (in thousands of dollars)
    (uaudited)

    September 30, 2007

    -------------------------------------------------------------------------

    1.  ORGANIZATION AND DESCRIPTION OF THE BUSINESS:

        Chemtrade Logistics Income Fund ("the Fund") commenced operations on
        July 18, 2001 when it completed an Initial Public Offering and the
        acquisition of certain sulphur related assets and operations. The
        Fund operates in four business segments: Sulphur Products &
        Performance Chemicals ("SPPC"), Pulp Chemicals, International and
        Corporate. For additional information regarding the Fund's business
        segments see note 7.

        These interim consolidated financial statements of the Fund have been
        prepared by management in accordance with accounting principles
        generally accepted in Canada. These interim consolidated financial
        statements include the accounts of the Fund and its subsidiaries.
        Inter-company transactions and balances have been eliminated. These
        interim consolidated financial statements have been prepared
        following the same accounting policies and methods of computation as
        the annual consolidated financial statements of the Fund for the year
        ended December 31, 2006, except as disclosed in note 2. These interim
        consolidated financial statements do not contain all disclosures
        required by generally accepted accounting principles and accordingly
        should be read in conjunction with the 2006 annual consolidated
        financial statements and the notes thereto.

    2.  CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

        (a) Changes in Accounting Policies

        (i) Accounting Changes

        Effective January 1, 2007, the Fund adopted the recommendations of
        the Canadian Institute of Chartered Accountants ("CICA") Handbook
        Section 1506, Accounting Changes. This section describes the criteria
        for changing accounting policies, along with the accounting and
        disclosure for changes in accounting policies, changes in accounting
        estimates and corrections of errors.

        (ii) Financial Instruments

        Effective January 1, 2007, the Fund adopted the recommendations of
        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. These sections apply to
        fiscal years beginning on or after October 1, 2006 and provide
        standards for recognition, measurement, disclosure and presentation
        of financial assets, financial liabilities, non-financial derivatives
        and embedded derivatives, and describe when and how hedge accounting
        may be applied. Section 1530 establishes standards for reporting and
        presenting comprehensive income, which is defined as the change in
        equity from transactions and other events from non-owner sources.
        Other comprehensive income refers to items recognized in
        comprehensive income that are excluded from net income calculated in
        accordance with generally accepted accounting principles. Under the
        new standards, policies followed for periods prior to the effective
        date generally are not reversed and therefore, the comparative
        figures have not been restated.

        Under the new standards, financial instruments must be classified
        into one of these five categories: held-for-trading, held-to-
        maturity, loans and receivables, available-for-sale financial assets
        or other financial liabilities. All financial instruments are
        initially recorded on the balance sheet at fair value. After initial
        recognition, the financial instruments are measured at their fair
        values, except for held-to-maturity investments, loans and
        receivables and other financial liabilities, which are measured at
        amortized cost. The effective interest related to the financial
        liabilities and the gain or loss arising from the change in the fair
        value of a financial asset or liability classified as held-for-
        trading is included in net income for the period in which it arises.
        If a financial asset is classified as available-for-sale, the gain or
        loss is recognized in other comprehensive income until the financial
        asset is de-recognized and all cumulative gain or loss is then
        recognized in net income.

        The Fund has classified its cash and cash equivalents as held-for-
        trading, which are measured at fair value. Accounts receivable are
        classified as loans and receivables, which are measured at amortized
        cost. Operating line of credit, accounts payable, accrued
        liabilities, distributions payable and long-term debt, are classified
        as other financial liabilities, which are measured at amortized cost,
        using the effective interest method. The Fund had neither available-
        for-sale, nor held-to-maturity instruments during the nine months
        ended September 30, 2007.

        The foreign currency translation adjustment on self-sustaining,
        foreign operations of $(31,426) as of December 31, 2006 presented in
        the consolidated balance sheet has been reclassified to accumulated
        other comprehensive income.

        Transaction costs that are directly attributable to the acquisition
        or issuance of financial assets or liabilities are accounted for as
        part of the respective asset or liability's carrying value at
        inception. Costs considered as commitment fees paid to financial
        institutions are recorded in other assets, and amortized on a
        straight-line basis over the term of the debt. With respect to the
        transaction costs attributable to long-term debt, the impact was a
        decrease in other assets of $1,980, and a decrease in long-term debt
        of $1,980 as at January 1, 2007. There was no impact on opening
        deficit.

        In 2005, the Fund entered into swap arrangements with its principal
        bankers, which fix interest rates on all of its outstanding term
        debt. These swap arrangements qualify and have been designated by the
        Fund as cash flow hedges. The effective portion of changes in the
        fair value of derivatives that are designated and qualify as cash
        flow hedges is recognized in other comprehensive income. Any gain or
        loss in fair value relating to the ineffective portion is recognized
        immediately in the statement of operations in net interest and
        accretion expense. As a result of the adoption of the new standards,
        as at January 1, 2007, other assets were increased by $2,701
        (US$1,765 and $644), future tax liability was increased by $918 and
        accumulated other comprehensive income was increased by $1,783 (net
        of future taxes of $918).

        The Fund has entered into forward foreign exchange contracts to
        manage its exposure to foreign currencies. The Fund buys and sells
        specific amounts of currencies at pre-determined dates and exchange
        rates, which are matched with the anticipated operational cash flows.
        The new standard has no impact on these contracts, as the fair values
        had previously been recognized in prepaid expenses and other assets.
        These contracts are measured at fair value and the change in fair
        value is included in the statement of operations in selling, general,
        administrative and other costs.

        To manage its exposure to changes in the price of natural gas, the
        Fund has entered into natural gas forward contracts. The Fund buys
        and sells specific quantities of natural gas at pre-determined dates
        on indices which are matched with the anticipated operational cash
        flows. These contracts are measured at fair value and the change in
        fair value is included in the statement of operations in cost of
        sales.

        The Fund's International business segment has commitments to buy and
        sell commodities and has entered into commodity forward contracts to
        manage its exposure to commodity price changes. Under the change in
        accounting policies, the commitments to buy and sell commodities are
        treated as non-financial derivatives and are measured at fair value.
        The commodity forward contracts are derivatives and are measured at
        fair value. The change in fair value of both the commitments and the
        forward contracts is included in the statement of operations in
        revenue. Under the change in accounting policies, the net revenue
        generated from the commodity commitments is recorded as revenue.

        Section 3855 requires that the Fund identify embedded derivatives
        that require separation from the related host contract and measure
        those embedded derivatives at fair value. Subsequent changes in fair
        value of embedded derivatives are recognized in the consolidated
        statement of operations in the period the change occurs. This change
        had an immaterial impact on the financial statements of the Fund.

        The components of accumulated other comprehensive income (loss) as at
        September 30, 2007 and other comprehensive income (loss) for the nine
        months then ended with comparatives for 2006 were as follows:


                              Opening                            Ending
    Accumulated Other         Balance   Change in               Balance
    Comprehensive Income     December  Accounting      Net    September
    (loss)                   31, 2006    Policies     Change   30, 2007
    -------------------------------------------------------------------------

    Unrealized (loss)
     on translation of
     self-sustaining
     foreign operations     $ (31,426)  $       -  $ (20,758) $ (52,184)  (1)
    Unrealized gain on
     derivatives
     designated as
     cash flow hedges               -       1,783       (945)       838   (2)
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive
     income (loss)          $ (31,426)  $   1,783  $ (21,703) $ (51,346)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                          Opening                Ending
                                          Balance               Balance
                                         December      Net     September
                                         31, 2005     Change   30, 2006
    -------------------------------------------------------------------------

    Unrealized (loss)
     on translation of
     self-sustaining
     foreign operations                 $ (29,775) $  (8,106) $ (37,881)  (1)
    Unrealized gain on
     derivatives
     designated as
     cash flow hedges                           -          -          -
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive
     income (loss)                      $ (29,775) $  (8,106) $ (37,881)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Net of income tax expense of $nil.
    (2) Net of income tax expense of $432.

        (b) Recent Accounting Pronouncements

        (i) Capital Disclosures

        In December 2006, the CICA issued Handbook Section 1535, Capital
        Disclosures, which establishes standards for disclosing information
        about an entity's capital and how it is managed. The entity's
        disclosure should include information about its objectives, policies
        and processes for managing capital and disclose whether or not it has
        complied and the consequences of non-compliance with any capital
        requirements to which it is subject. The new standard will become
        effective on January 1, 2008 for the Fund. The Fund is currently
        evaluating the impact of the adoption of this new section on the
        consolidated financial statements.

        (ii) Financial Instruments - Disclosures and Financial Instruments -
        Presentation

        In December 2006, the CICA issued Handbook Sections 3862, Financial
        Instruments - Disclosures, and 3863, Financial Instruments -
        Presentation. Section 3862 modifies the disclosure requirements of
        Section 3861, Financial Instruments - Disclosure and Presentation,
        including required disclosure of the assessment of the significance
        of financial instruments for an entity's financial position and
        performance and of the extent of risks arising from financial
        instruments to which the Fund is exposed and how the Fund manages
        those risks, whereas Section 3863 carries forward the presentation
        related requirements of Section 3861. The new standards will become
        effective on January 1, 2008 for the Fund. The Fund is currently
        evaluating the impact of the adoption of Section 3862 while the Fund
        does not expect the adoption of 3863 to have a significant effect on
        the consolidated financial statements.

        (iii) Inventories

        In March 2007, the CICA issued Handbook Section 3031, Inventories,
        which replaces Section 3030, Inventories. Under the new section,
        inventories are required to be measured at the "lower of cost and net
        realizable value", which is different from the existing guidance of
        the "lower of cost and market". The new section contains guidance on
        the determination of cost and also requires the reversal of any
        write-downs previously recognized, if applicable. Certain minimum
        disclosures are required, including the accounting policies used,
        carrying amounts, amounts recognized as an expense, write-downs, and
        the amount of any reversal of any write-downs recognized as a
        reduction in expenses. The new standard will become effective on
        January 1, 2008 for the Fund. The Fund is currently evaluating the
        impact of the adoption of this new section on the consolidated
        financial statements.

    3.  PURCHASE OF OLIN CUSTOMER CONTRACTS:

        On May 1, 2007, the Fund completed the purchase of Olin Corporation's
        liquid sodium hydrosulphite ("SHS") customer contracts for $6,744
        (US$6,043), a portion of which is subject to certain earn out
        provisions. A total of $2,248 (US$2,014) has been accrued with
        respect to these earn-out provisions, with $1,499 (US$1,343)
        classified as other long-term liabilities and the balance as accrued
        liabilities. The acquisition does not include Olin's manufacturing
        assets. The Fund incurred transaction related costs of $165.

        These consolidated financial statements reflect the acquired
        contracts at assigned fair value as intangibles. These assets include
        the value associated with the customer relationships and are being
        amortized over their estimated useful lives of five years.

    4.  RESTRUCTURING COSTS:

        During the fourth quarter of 2006, the Fund decided to discontinue
        production of powder SHS and costs of $2,706 related to this decision
        were recorded in that quarter. Accounting rules prescribe when costs
        are to be recorded in such situations and certain costs can only be
        recorded when they are incurred. Consequently, the Fund recorded an
        additional $1,971 ($nil in the third quarter) with respect to this
        decision during the first nine months of 2007. The Fund estimates
        that substantially all costs related to this decision have now been
        recognized.

        The following table provides a summary of the costs recognized and
        cash payments made in respect of these restructuring initiatives in
        2006 and 2007, as well as the corresponding liability as at
        September 30, 2007.

                                                           Site
        Restructuring                     Employee  Closing and
        and Other Costs                  Severance  Other Costs        Total
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Balance - January 1, 2006        $       -    $       -    $       -
          Charges during 2006                  890        1,816        2,706
          Cash draw downs                        -          501          501
        ---------------------------------------------------------------------
        Balance - December 31, 2006      $     890    $   1,315    $   2,205
          Charges during 2007                  563        1,408        1,971
          Cash draw downs                    1,396        1,531        2,927
        ---------------------------------------------------------------------
        Balance - September 30, 2007     $      57    $   1,192    $   1,249
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At September 30, 2007 the outstanding amount of site closing and
        other costs has been shown as other long-term liabilities on the
        balance sheet, as it is unlikely to be paid out within the next
        twelve months.

    5.  OPERATING LINE OF CREDIT AND LONG-TERM DEBT:

        During the first quarter of 2007, the Fund increased the aggregate
        amount that can be borrowed under the Fund's senior credit facilities
        with its principal bankers by $50,000 in the form of operating lines
        of credit. The Fund incurred transaction costs of $317 with respect
        to this amendment. These costs have been included in long-term debt
        and are being expensed in net interest and accretion expense using
        the effective interest method.

    6.  UNITS:

        (a)  Units outstanding:

                                                 Number of Units      Amount
             ----------------------------------------------------------------
             ----------------------------------------------------------------
             Units
               Balance - January 1, 2007              33,582,040   $ 412,944
               Issued on conversion of debentures            896          13
             ----------------------------------------------------------------
               Balance - September 30, 2007           33,582,936   $ 412,957
             ----------------------------------------------------------------
             ----------------------------------------------------------------

        (b)  Net earnings (loss) per unit:

             Net earnings (loss) per unit has been calculated on the basis of
             the weighted average number of units outstanding for the three
             and nine months ended September 30, 2007 which amounted to
             33,582,936 units and 33,582,818 units respectively
             (2006 - 33,582,040 units and 33,582,040 units respectively). For
             2006, the effect of conversion of the convertible debentures
             into trust units was not included in the computation of diluted
             net earnings per unit as the effect of conversion was anti-
             dilutive.

        (c)  Equity component of convertible debentures:

             There were no convertible debentures converted into units during
             the three months ended September 30, 2007 and September 30,
             2006. During the nine months ended September 30, 2007, 13
             (2006 - nil) convertible debentures were converted into 896
             (2006 - nil) units, which resulted in an increase in the book
             value of units of $13 (2006 - $nil), and a decrease in the debt
             and equity components of convertible debentures of $13 and nil,
             respectively (2006 - $nil).

             In the first quarter of 2007, the Fund redeemed the remaining
             16,378 convertible debentures, which resulted in a decrease in
             the debt and equity components of convertible debentures of
             $16,349 and $160, respectively. The Fund recorded a gain of $29
             related to the repayment of the debt component of the debentures
             in selling, general, administrative and other costs. The Fund
             also recorded a capital transaction on the equity component of
             $160 in retained earnings.

        (d)  Distributions:

             Distributions paid for the three and nine months ended
             September 30, 2007 were $10,075 and $30,896 respectively
             (2006 - $12,090 and $35,819 respectively). All of the Fund's
             distributions are discretionary.

    7.  BUSINESS SEGMENTS:

        The Fund operates in four business segments: Sulphur Products and
        Performance Chemicals ("SPPC"), Pulp Chemicals ("Pulp"),
        International ("Intl") and Corporate ("Corp").

        SPPC markets, removes and/or produces five major products - merchant
        and regenerated sulphuric acid, liquid sulphur dioxide, sodium
        hydrosulphite, elemental sulphur and phosphorous pentasulphide. These
        products are marketed primarily to North American customers.

        Pulp Chemicals operations produce sodium chlorate and crude tall oil.
        These products are marketed primarily to Canadian customers.

        International operations provide removal and marketing services for
        two products - elemental sulphur and sulphuric acid. These products
        are marketed to customers in Europe, the Middle East, Latin America,
        South America and the Asia-Pacific region.

        Corporate is a non-operating segment that provides centralized
        services such as treasury, finance, information systems, human
        resources and risk management.


        Three Months Ended September 30, 2007
        ---------------------------------------------------------------------
                          SPPC       Pulp       Intl       Corp      Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers     $  84,630  $  14,818  $  43,784  $       -  $ 143,242

        Earnings
         before the
         under-noted      16,784      5,032      2,281     (4,716)    19,381
        Depreciation
         and
         amortization      6,880      2,341        375          -      9,596
        Net interest
         and debt
         accretion
         expense           2,905        561       (105)         -      3,361
        Income tax
         expense            (896)         -        249          -       (647)
        Minority
         interest              -          -         (3)         -         (3)

        Net earnings
         (loss)            7,895      2,130      1,765     (4,716)     7,074

        Total assets     306,959    122,100     74,753      3,538    507,350

        Goodwill          57,814          -     30,057          -     87,871

        Intangibles       96,691     46,353      5,737          -    148,781

        Capital
         expenditures        726        101        514         21      1,362
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Three Months Ended September 30, 2006
        ---------------------------------------------------------------------
                          SPPC       Pulp       Intl       Corp      Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers     $  73,268  $  13,353  $  62,071  $       -  $ 148,692

        Inter-segment
         revenues              -          -          -          -          -

        Earnings
         before the
         under-noted      12,264      5,714      2,023     (3,254)    16,747
        Depreciation
         and
         amortization      8,541      2,325        411          -     11,277
        Impairment of
         property, plant
         and equipment    15,596          -          -          -     15,596
        Net interest
         and debt
         accretion
         expense           2,172        500        (66)       412      3,018
        Income tax
         expense          (3,205)         -        279          -     (2,926)

        Net (loss)
         earnings        (10,840)     2,889      1,399     (3,666)   (10,218)

        Total assets     350,813    119,113     75,730      2,643    548,299

        Goodwill          62,804          -     31,104          -     93,908

        Intangibles      109,379     51,758      7,297          -    168,434

        Capital
         expenditures        826        (58)         3         55        826
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Nine Months Ended September 30, 2007
        ---------------------------------------------------------------------
                          SPPC       Pulp       Intl       Corp      Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers     $ 235,568  $  43,458  $ 123,030  $       -  $ 402,056

        Earnings
         before the
         under-noted      39,109     14,220      5,533    (12,168)    46,694
        Depreciation
         and
         amortization     21,066      7,018      1,459          -     29,543
        Net interest
         and debt
         accretion
         expense           8,149      1,566       (301)       169      9,583
        Income tax
         expense          (4,394)         -        362          -     (4,032)
        Minority
         interest              -          -         (7)         -         (7)

        Net earnings
         (loss)           14,288      5,636      4,020    (12,337)    11,607

        Total assets     306,959    122,100     74,753      3,538    507,350

        Goodwill          57,814          -     30,057          -     87,871

        Intangibles       96,691     46,353      5,737          -    148,781

        Capital
         expenditures      3,376        332        542        105      4,355
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Nine Months Ended September 30, 2006
        ---------------------------------------------------------------------
                          SPPC       Pulp       Intl       Corp      Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers     $ 212,476  $  39,533  $ 153,189  $       -  $ 405,198

        Inter-segment
         revenues              -          -        430          -        430

        Earnings
         before the
         under-noted      36,832     16,507      5,572     (7,471)    51,440
        Depreciation
         and
         amortization     26,166      6,966      1,265          -     34,397
        Impairment of
         property, plant
         and equipment    15,596          -          -          -     15,596
        Net interest and
         debt accretion
         expense           5,909      1,465       (166)     1,238      8,446
        Income tax
         expense          (6,109)         -        675          -     (5,434)

        Net (loss)
         earnings         (4,730)     8,076      3,798     (8,709)    (1,565)

        Total assets     350,813    119,113     75,730      2,643    548,299

        Goodwill          62,804          -     31,104          -     93,908

        Intangibles      109,379     51,758      7,297          -    168,434

        Capital
         expenditures      3,311        449        373        132      4,265
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Geographic segments:

        The Fund operates primarily in Canada, the United States and Europe.
        Revenue is attributed to customers based on location of customer.

        Revenue
        ---------------------------------------------------------------------
                                 Three Months Ended       Nine Months Ended
        ---------------------------------------------------------------------
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
        ---------------------------------------------------------------------

        North America          $  99,448   $  86,621   $ 279,026   $ 252,009
        Europe                    43,784      62,071     123,030     153,189

        ---------------------------------------------------------------------
                               $ 143,232   $ 148,692   $ 402,056   $ 405,198
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Property, Plant and Equipment, Goodwill and Intangibles
        ---------------------------------------------------------------------
                                                       September    December
                                                        30, 2007    31, 2006
        ---------------------------------------------------------------------

        North America                                  $ 346,915   $ 401,246
        Europe                                            39,306      43,330

        ---------------------------------------------------------------------
                                                       $ 386,221   $ 444,576
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        For the nine months ended September 30, 2007, the Fund obtained
        product from a producer that accounted for 11.9% (2006 - 10.1%) of
        the Fund's total revenue. There were no customers that accounted for
        more than 10% of the Fund's total revenue in 2006 or 2007.

    8.  FAIR VALUES OF FINANCIAL INSTRUMENTS:

        The carrying amounts of cash and cash equivalents, accounts
        receivable, accounts payable and accrued liabilities and operating
        line of credit approximate their fair values because of the short-
        term maturity of these financial instruments.

        In 2005, the Fund entered into swap arrangements with its principal
        bankers, which fix interest rates on all of its outstanding term
        debt. Under the swap arrangements the effective interest rate on the
        outstanding U.S. dollar debt is 5.85% and on the outstanding Canadian
        dollar debt is 5.22%. As at September 30, 2007 the fair values of the
        swap arrangements are $492 (US$495) and $777 respectively. These
        amounts have been included in other assets.

        The Fund has entered into forward foreign exchange contracts to
        manage its exposure to foreign currencies. The Fund buys and sells
        specific amounts of currencies at pre-determined dates and exchange
        rates, which are matched with the anticipated operational cash flows.
        Contracts in place at September 30, 2007 include future contracts of
        US$10,924, SEK 1,400 and (euro) 1,583 at weighted average exchange
        rates of $1.206, US$0.14 and US$1.38, respectively. There are
        unrealized gains of $2,256 (December 31, 2006 - $1,162) and
        unrealized losses of $62 from these hedge contracts at September 30,
        2007. The gain has been included in prepaid expenses and other
        assets, and the loss has been included in derivatives.

        To manage its exposure to changes in the price of natural gas, the
        Fund has entered into natural gas forward contracts. The Fund buys
        and sells specific quantities of natural gas at pre-determined dates
        on indices, which are matched with the anticipated operational cash
        flows. There is a net unrealized gain of $338 (December 31, 2006 -
        nil) from these forward contracts at September 30, 2007. This amount
        has been included in prepaid expenses and other assets.

        The Fund's International business segment has commitments to buy and
        sell commodities and has entered into commodity forward contracts to
        manage its exposure to commodity price changes. Under the change in
        accounting policies, the commitments to buy and sell commodities are
        treated as derivatives and are measured at fair value. The commodity
        forward contracts are derivatives and are measured at fair value. At
        September 30, 2007, the net unrealized value of these transactions is
        immaterial.

    9.  INCOME TAXES:

        On June 22, 2007, legislation (the ''SIFT Rules'') relating to the
        federal income taxation of publicly-listed or traded trusts (such as
        income trusts and real estate investment trusts) and partnerships
        received royal assent. The SIFT Rules apply to a publicly-traded
        trust that is a specified investment flow-through entity (a "SIFT")
        which existed before November 1, 2006 ("Existing Trust") commencing
        with taxation years ending in 2011.

        Certain distributions attributable to a SIFT will not be deductible
        in computing the SIFT's taxable income, and the SIFT will be subject
        to tax on such distributions at a rate that is substantially
        equivalent to the general tax rate applicable to Canadian
        corporations. Distributions paid by a SIFT as returns of capital will
        not be subject to this tax. There will be circumstances where an
        Existing Trust may lose its transitional relief where its equity
        capital grows beyond certain dollar limits measured by reference to
        the Existing Trust's market capitalization at the close of trading on
        October 31, 2006.

        The Fund is a SIFT as defined in the Legislation. Accordingly, the
        Fund will be subject to taxes on distributions of certain income
        earned from investments in its subsidiaries made after 2010. The Fund
        is also required to recognize future income tax assets and
        liabilities with respect to the temporary differences between the
        carrying amount and tax bases of its assets and liabilities and those
        of its flow-through subsidiaries that are expected to reverse in or
        after 2011. The Fund expects that its aggregate temporary differences
        and those of its flow-through subsidiaries will reverse prior to
        2011. Accordingly, there was no impact in the second quarter as a
        result of the Legislation. The Fund expects that its distributions
        will not be subject to tax prior to 2011 and accordingly has not
        provided for future income taxes on the temporary differences
        expected to reverse prior to then.

        The Legislation does not affect the current and future tax amounts of
        the Fund's corporate subsidiaries.

    10. COMPARATIVE FIGURES:

        Certain comparative figures have been reclassified in order to comply
        with the current period's presentation.



                       CHEMTRADE LOGISTICS INCOME FUND

                    MANAGEMENT'S DISCUSSION AND ANALYSIS

             FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2007
    

    The information in this Management's Discussion and Analysis, or MD&A, is
intended to assist the reader in the understanding and assessment of the
trends and significant changes in the results of operations and financial
condition of Chemtrade Logistics Income Fund. Throughout this MD&A, the term
the "Fund" refers to Chemtrade Logistics Income Fund and its consolidated
subsidiaries. The terms "we", "us" or "our" similarly refers to the Fund. This
MD&A should be read in conjunction with the unaudited consolidated financial
statements of the Fund for the three and nine month periods ended
September 30, 2007 and the annual MD&A for the year ended December 31, 2006.
    The Fund's financial statements are prepared in accordance with
accounting principles generally accepted in Canada, or Canadian GAAP. The
Fund's reporting currency is the Canadian dollar. In this MD&A per unit
amounts are calculated using the weighted average number of units outstanding
for the applicable period unless otherwise indicated.
    This MD&A contains certain statements which may constitute "forward-
looking" statements within the meaning of certain securities laws, including
the "safe harbour" provisions of the Securities Act (Ontario). The use of any
of the words "anticipate", "continue", estimate", "expect", "may", "will",
"project", "should", "believe" and similar expressions are intended to
identify forward-looking statements.
    This MD&A contains forward-looking statements about the objectives,
strategies, financial condition, results of operations and businesses of the
Fund. These statements are "forward-looking" as they are based on current
expectations about our business and the markets we operate in, and on various
estimates and assumptions.

    
    -   Forward-looking statements in this MD&A describe our expectations as
        of the date of this MD&A.

    -   Our actual results could be materially different from our
        expectations if known or unknown risks affect our business, or if our
        estimates or assumptions turn out to be inaccurate. As a result, we
        cannot guarantee that any forward-looking statement will materialize.

    -   Forward-looking statements do not take into account the effect that
        transactions or non-recurring items announced or occurring after the
        statements are made may have on our business.

    -   We disclaim any intention or obligation to update any forward-looking
        statement even if new information becomes available, as a result of
        future events or for any other reason.

    -   Risks that could cause our actual results to differ materially from
        our current expectations are discussed in the RISKS AND UNCERTAINTIES
        section of this MD&A.


    FINANCIAL HIGHLIGHTS

                                 Three Months Ended      Nine Months Ended
                                 ------------------      -----------------
    ($'000 except per          September   September   September   September
     unit amounts)              30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Revenue                    $ 143,232   $ 148,692   $ 402,056   $ 405,198

    Gross profit               $  28,686   $  23,859   $  75,565   $  71,364

    Net earnings               $   7,074   $ (10,218)  $  11,607   $  (1,565)

    Net earnings per unit
     - Basic                   $    0.21   $   (0.30)  $    0.35   $   (0.05)
     - Diluted                 $    0.21   $   (0.30)  $    0.35   $   (0.05)

    Total assets               $ 507,350   $ 548,299   $ 507,350   $ 548,299

    Long-term debt             $ 155,367   $ 185,500   $ 155,367   $ 185,500

    EBITDA(3)                  $  19,381   $  16,747   $  46,694   $  51,440
    EBITDA per unit(1)         $    0.58   $    0.50   $    1.39   $    1.53

    Cash flows from
     operating activities      $  13,756   $  14,841   $  28,011   $  36,107
    Cash flows from operating
     activities per unit(1)    $    0.41   $    0.44   $    0.83   $    1.08

    Adjusted cash flows from
     operating activities(3)   $  15,372   $  13,749   $  35,508   $  40,827
    Adjusted cash flows from
     operating activities
     per unit(1)               $    0.46   $    0.41   $    1.06   $    1.22

    Distributable cash after
     maintenance capital
     expenditures(3)           $  14,269   $  13,328   $  31,430   $  37,485
    Distributable cash after
     maintenance capital
     expenditures per unit(1)  $    0.42   $    0.40   $    0.94   $    1.12

    Distributions declared     $  10,075   $  12,090   $  30,225   $  36,044
    Distributions declared
     per unit(2)               $    0.30   $    0.36   $    0.90   $    1.07

    Distributions paid         $  10,075   $  12,090   $  30,896   $  35,819
    Distributions paid
     per unit(2)               $    0.30   $    0.36   $    0.92   $    1.07
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Based on weighted
        average number of units
        outstanding for the
        period of:            33,582,936  33,582,040  33,582,818  33,582,040

    (2) Based on actual number
        of units outstanding
        on record date.

    (3) See NON-GAAP MEASURES.
    


    NON-GAAP MEASURES

    EBITDA -

    Throughout this MD&A, the term EBITDA is used to describe earnings before
any deduction for net interest and debt accretion, taxes, depreciation and
amortization and other non-cash charges such as minority interest. EBITDA is a
metric used by many investors and analysts to compare organizations on the
basis of ability to generate cash from operations. Management considers EBITDA
(as defined) to be an indirect measure of operating cash flow, which is a
significant indicator of the success of any business. It is not intended to be
representative of cash flow from operations or results of operations
determined in accordance with Canadian generally accepted accounting
principles ("GAAP") or cash available for distribution.
    EBITDA is not a recognized measure under Canadian GAAP. The Fund's method
of calculating EBITDA may differ from methods used by other income funds or
companies, and accordingly may not be comparable to similar measures presented
by other organizations. A reconciliation of EBITDA to net earnings follows:


    
                                 Three Months Ended      Nine Months Ended
                                 ------------------      -----------------
                               September   September   September   September
    ($'000)                     30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Net earnings               $   7,074   $ (10,218)  $  11,607   $  (1,565)
      Add:
        Depreciation and
         amortization              9,596      11,277      29,543      34,397
        Impairment of property,
         plant and equipment           -      15,596           -      15,596
        Net interest and debt
         accretion expense         3,361       3,018       9,583       8,446
        Net taxes                   (647)     (2,926)     (4,032)     (5,434)
        Minority interest             (3)          -          (7)          -
    -------------------------------------------------------------------------
    EBITDA(1)                  $  19,381   $  16,747   $  46,694   $  51,440
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) EBITDA for the three and nine months ended September 30, 2007
        includes charges for restructuring of $nil and $1,971 respectively.
    

    Cash Flow -

    The following table is derived from, and should be read in conjunction
with, the consolidated statement of cash flows. Management believes this
supplementary disclosure provides useful additional information related to the
cash flows of the Fund including the amount of cash available for distribution
to Unitholders, repayment of debt and other investing activities. Certain sub-
totals presented within the cash flows table below, such as "Adjusted cash
flows from operating activities", "Distributable cash after maintenance
capital expenditure" and "Distributable cash after all capital expenditure",
are not defined terms under Canadian GAAP. These sub-totals are used by
management as measures of internal performance and as a supplement to the
consolidated statement of cash flows. Investors are cautioned that these
measures should not be construed as an alternative to using net income as a
measure of profitability or as an alternative to the GAAP consolidated
statement of cash flows. Further, the Fund's method of calculating each
measure may not be comparable to calculations used by other income trusts
bearing the same description.

    
                                 Three Months Ended      Nine Months Ended
                                 ------------------      -----------------
                               September   September   September   September
    ($'000)                     30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Cash flows from operating
     activities                $  13,756   $  14,841   $  28,011   $  36,107

    Add (deduct):

    Changes in non-cash working
     capital and other items       1,616      (1,092)      7,497       4,720
    -------------------------------------------------------------------------
    Adjusted cash flows from
     operating activities         15,372      13,749      35,508      40,827

    Less:

    Maintenance capital
     expenditure                   1,103         421       4,078       3,342
    -------------------------------------------------------------------------
    Distributable cash after
     maintenance capital
     expenditure                  14,269      13,328      31,430      37,485

    Less:

    Non-maintenance capital
     expenditure(1)                  259         405         277         923
    -------------------------------------------------------------------------
    Distributable cash after
     all capital expenditure      14,010      12,923      31,153      36,562

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Non-maintenance capital expenditures are either pre-funded, usually
        as part of a significant acquisition and related financing or are
        considered to expand the capacity of the Fund's operations.
    

    CONSOLIDATED OPERATING RESULTS

    Consolidated revenue for the third quarter of 2007 was $143.2 million, a
decrease of $5.5 million from consolidated revenue of $148.7 million recorded
in the third quarter of 2006. Consolidated revenue for the first nine months
of 2007 and 2006 were $402.1 million and $405.2 million respectively. The
principal reason for the decrease in consolidated revenue was a result of the
change in accounting policy implemented by the Fund in recording its revenue
related to the International segment. The change in policy is due to the
adoption of the Canadian Institute of Chartered Accountants ("CICA") Handbook
Section 3855, Financial Instruments. This decrease was partially offset by
increases in revenue in the SPPC and Pulp Chemicals segments for the three and
nine month periods ended September 30, 2007.
    The Fund's net earnings and EBITDA for the third quarter of 2007 were
$7.1 million and $19.4 million respectively compared to $(10.2) million and
$16.7 million respectively for the third quarter of 2006. Net earnings and
EBITDA for the first nine months of 2007 were $11.6 million and $46.7 million
respectively. Comparable net earnings and EBITDA for the first nine months of
2006 were $(1.6) million and $51.4 million respectively. The main reason for
the improvement in EBITDA during the third quarter of 2007 was stronger
results from the SPPC segment. On a year-to-date basis, improved results in
2007 from the SPPC segment were more than offset by higher costs in the
Corporate segment, higher costs in the Pulp segment and restructuring costs
recorded during the first two quarters of 2007 (as described in the
RESTRUCTURING section below). 2006 net earnings were negatively impacted by a
non-cash charge of $15.6 million with respect to impairment in the net book
value of property, plant and equipment used to manufacture powder SHS.

    RESULTS OF OPERATIONS BY BUSINESS SEGMENT

    
    SPPC -

                                 Three Months Ended      Nine Months Ended
                                 ------------------      -----------------
                               September   September   September   September
    ($'000)                     30, 2007    30, 2006    30, 2007    30, 2006
    -------------------------------------------------------------------------

    Revenue                    $  84,630   $  73,268   $ 235,568   $ 212,476

    Earnings before the
     under-noted                  16,784      12,264      39,109      36,832
    Depreciation and
     amortization                  6,880       8,541      21,066      26,166
    Impairment of property,
     plant and equipment               -      15,596           -      15,596
    Net interest and debt
     accretion expense             2,905       2,172       8,149       5,909
    Income tax (recovery)           (896)     (3,205)     (4,394)     (6,109)

    -------------------------------------------------------------------------
    Net earnings               $   7,895   $ (10,840)  $  14,288   $  (4,730)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    SPPC manufactures and distributes sulphuric acid and other sulphur based
products to an extensive customer base in Canada and the U.S., and provides
acid regeneration services to the petroleum industry, primarily in the U.S.
Gulf Coast area. SPPC also supplies liquid and powder sodium hydrosulphite,
which is sold to the pulp and paper industry and to a lesser extent, to the
textile industry.
    Results for 2007 were negatively impacted by the recording of
$2.0 million related to the cessation of production of powder SHS (as
described in the RESTRUCTURING section below).
    For the third quarter of 2007, SPPC generated revenue of $84.6 million,
which compares to $73.3 million for the third quarter of 2006. The increase in
2007 revenue is primarily the result of higher volumes and prices for merchant
acid and higher volumes of SHS. SHS results include sales to customers
acquired as the result of the Olin asset acquisition (as described in the
LIQUIDITY AND CAPITAL RE

SOURCES - Investing Activities - Acquisitions section). During the third quarter of 2007, SPPC's EBITDA and net earnings were higher than the levels achieved in 2006 by $4.5 million and $18.7 million respectively. The improvement in results in 2007 is principally due to higher prices and volumes for merchant acid, although most products showed improvements over the third quarter of 2006. These improvements were partially offset by higher zinc costs. For the first nine months of 2007, SPPC generated revenues of $235.6 million, a significant increase over the level achieved during the first nine months of 2006. The increase in 2007 revenue is the result of higher merchant acid volumes and prices and higher SHS volumes. During the first nine months of 2007, SPPC's EBITDA increased by $2.3 million. Stronger results across most products, particularly merchant acid, were partially offset by higher costs for zinc and the recording of $2.0 million related to the cessation of production of powder SHS (as described in the RESTRUCTURING section below). 2007 net earnings additionally benefited by having lower levels of depreciation and amortization relative to 2006. The third quarter and first nine months of 2007 income tax recovery related to increased future tax loss benefits and reduced temporary differences between the accounting and tax basis of certain future tax liabilities. Pulp Chemicals - Three Months Ended Nine Months Ended ------------------ ----------------- September September September September ($'000) 30, 2007 30, 2006 30, 2007 30, 2006 ------------------------------------------------------------------------- Revenue $ 14,818 $ 13,353 $ 43,458 $ 39,533 Earnings before the under-noted 5,032 5,714 14,220 16,507 Depreciation and amortization 2,341 2,325 7,018 6,966 Net interest expense 561 500 1,566 1,465 ------------------------------------------------------------------------- Net earnings $ 2,130 $ 2,889 $ 5,636 $ 8,076 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Pulp Chemicals produces sodium chlorate and crude tall oil ("CTO"), both of which are chemicals used in the pulp and paper industry. Sodium chlorate is used to bleach pulp and CTO is used as a less expensive alternative energy source to natural gas. Third quarter 2007 Pulp Chemicals revenue was $1.5 million higher than the level achieved during the third quarter of 2006. On a year-to-date basis, the improvement in revenue during 2007 was $4.0 million. The main reason for this increase was higher selling prices for sodium chlorate. Net earnings and EBITDA for the three and nine month periods ended September 30, 2007 were lower than the levels achieved during the comparable periods of 2006. Higher selling prices for sodium chlorate were not enough to fully offset the increase in input costs, particularly for salt, a key raw material used in the production of sodium chlorate. International - Three Months Ended Nine Months Ended ----------------------- ----------------------- September September September September ($'000) 30, 2007 30, 2006 30, 2007 30, 2006 ------------------------------------------------------------------------- Revenue $ 43,784 $ 62,071 $ 123,030 $ 153,189 Earnings before the under-noted 2,281 2,023 5,533 5,572 Depreciation and amortization 375 411 1,459 1,265 Net interest income (105) (66) (301) (166) Income tax expense 249 279 362 675 Minority interest (3) - (7) - ------------------------------------------------------------------------- Net earnings $ 1,765 $ 1,399 $ 4,020 $ 3,798 ------------------------------------------------------------------------- ------------------------------------------------------------------------- During the third quarter of 2007, International's revenue was $43.8 million compared to $62.1 million for the same period of 2006. For the first nine months of 2007, International's revenue was $123.0 million compared to $153.2 million for the first nine months of 2006. The decrease in 2007 revenue is primarily due to a change in accounting policy implemented by the Fund as a result of the adoption of the recommendations of the CICA Handbook Section 3855. This resulted in certain transactions being recorded on a net basis. International net earnings and EBITDA during the three and nine month periods ended September 30, 2007 were similar to the comparable periods of 2006. Corporate - Three Months Ended Nine Months Ended ----------------------- ----------------------- September September September September ($'000) 30, 2007 30, 2006 30, 2007 30, 2006 ------------------------------------------------------------------------- Cost of services $ 4,716 $ 3,254 $ 12,168 $ 7,471 Loss before the under-noted (4,716) (3,254) (12,168) (7,471) Net interest and debt accretion expense - 412 169 1,238 ------------------------------------------------------------------------- Net earnings $ (4,716) $ (3,666) $ (12,337) $ (8,709) ------------------------------------------------------------------------- ------------------------------------------------------------------------- The Corporate segment includes the administrative costs of corporate activities which are not directly allocable to an operating segment, such as information technology, finance and human resources. For the third quarter and first nine months of 2007 corporate costs were $4.7 million and $12.2 million respectively compared to $3.3 million and $7.5 million respectively for the third quarter and first nine months of 2006. The increase in corporate costs during the third quarter of 2007 was mainly due to the recording of expenses related to the departure of a senior executive at the end of the third quarter (approximately $0.9 million) and certain activities related to the Fund's review of strategic alternatives that was announced in February 2007 (approximately $0.5 million). The total level of corporate costs were also affected by the recording of foreign exchange gains, as during the third quarter of 2007, a net foreign exchange gain of $0.7 million was recorded, whereas during the same quarter of 2006, there was a net foreign exchange gain of $0.1 million. These foreign exchange amounts for the third quarter of 2007 and 2006 include an unrealized gain of $0.3 million and an unrealized loss of $0.4 million, respectively. The increase in corporate costs during the first nine months of 2007 was mainly due to the recording of $3.4 million associated with the Fund's long term incentive plan ("LTIP") and the higher costs recorded during the third quarter of 2007 as described above. This was partially offset by the recognition of US$0.8 million related to the Hurricane Rita insurance claim. The LTIP accruals relate to the 2006 transitional LTIP and the 2006 and 2007 LTIP. The 2006 transitional LTIP was paid out in July 2007 and the 2006 and 2007 LTIP's are payable at the beginning of 2009 and 2010 respectively. Although an accrual with respect to these two plans has been recorded, the payouts will be based upon total shareholder return ("TSR"), as described in the Fund's Management Information Circular, achieved over the three-year performance periods of each plan. The nature of this calculation makes it difficult to forecast the amount of LTIP expenses that will be recordable in any period as it is based upon future distributions and changes in unit value. During the first nine months of 2007 and 2006, a net foreign exchange gain of $3.0 million was recorded. These foreign exchange amounts for the 2007 and 2006 include an unrealized gain of $1.1 million and $1.0 million, respectively. Net interest and debt accretion expense in the third quarter and first nine months of 2007 was $nil and $0.2 million respectively compared to $0.4 million and $1.2 million for the third quarter and first nine months of 2006. The decrease in the expense in the third quarter of 2007 from 2006 was due to the redemption of all the remaining outstanding convertible debentures in the first quarter of 2007. RESTRUCTURING During the fourth quarter of 2006, the Fund decided to discontinue production of powder SHS and costs of $2.7 million related to that decision were recorded in that quarter. Accounting rules prescribe when costs are to be recorded in such situations and certain costs can only be recorded when they are incurred. Consequently, the Fund has recorded an additional $2.0 million of costs with respect to this decision during the first nine months of 2007 (third quarter - $nil). These costs consist of severances and other costs required to effect the cessation of production. The Fund estimates that substantially all costs related to this decision have now been recorded. FOREIGN EXCHANGE The Fund has operating subsidiaries that are U.S. based. BCT, the Fund's international subsidiary, uses the U.S. dollar as its reporting currency. As the Fund reports in Canadian dollars, its reported earnings are exposed to fluctuations in the Canadian/U.S. dollar exchange rate. The Fund now estimates that, on an unhedged basis, a $0.01 increase in the Canadian/U.S. dollar exchange rate reduces distributable cash after maintenance capital expenditures by less than $0.2 million on an annual basis and vice-versa. To manage the volatility of foreign exchange rates, the Fund has entered into a series of foreign exchange contracts with its principal bankers. All foreign exchange contracts are under International Swap and Derivatives Association ("ISDA") agreements. As of September 30, 2007, approximately all planned transfers for the remainder of 2007 and 2008 planned transfers have been effectively hedged at $0.8292. Contracts in place at September 30, 2007 include future contracts of US$10.9 million, SEK 1.4 million and (euro)1.6 million at weighted average exchange rates of $1.206, US$0.14 and US$1.38, respectively. There are unrealized gains of $2.3 million and unrealized losses of $0.1 million from these hedge contracts at September 30, 2007. The purpose of these contracts is to hedge the value of the funds which are used to pay dividends and interest by subsidiary companies to the Fund and to meet other commitments. The amount of the related derivative must be recorded at fair market value at the period end. The resultant non-cash charge or gain is grouped with Selling, General and Administrative expense and is also included with Prepaid expenses and other assets on the balance sheet. The impact of this non-cash charge or gain is excluded from the computation of distributable cash. The rate of exchange used to translate U.S. denominated balances has changed from $0.8581 at December 31, 2006 to $1.0052 at September 30, 2007. The Fund's International and U.S. based operations are considered to be self-sustaining, as they are financially independent. As a result, gains or losses arising from the translation of the assets and liabilities of self-sustaining operations are recorded in other comprehensive income. The changes recorded in the accumulated other comprehensive income account since December 31, 2006 were a result of changes in the Canadian/U.S. dollar exchange rate between December 31, 2006 and September 30, 2007. See RISKS AND UNCERTAINTIES for additional comments on foreign exchange. NET INTEREST AND DEBT ACCRETION EXPENSE Net interest and debt accretion expense was $3.4 million in the third quarter of 2007 compared to $3.0 million in the third quarter of 2006. Net interest and debt accretion expense was $9.6 million for the first nine months of 2007 compared to $8.4 million for the first nine months of 2006. Interest expenses were higher as the Fund recorded additional accretion expenses pursuant to the adoption of the new CICA handbook section on Financial Instruments and due to increased usage of the operating lines of credit. Interest on the Canadian dollar denominated term debt amounted to $1.4 million and $3.4 million in the third quarter and first nine months of 2007 respectively and $0.9 million and $2.3 million in the third quarter and first nine months of 2006 respectively. The increase in interest expense was a result of increased usage of the operating lines of credit, primarily due to the redemption of all of the outstanding convertible debentures and an increase in the effective annual interest rate. These loans have an effective annual interest rate of 5.22% at September 30, 2007 (December 31, 2006 - 4.97%). The interest on the U.S. dollar denominated term debt was $1.8 million and $5.4 million for the third quarter and first nine months of 2007 respectively, compared to $1.7 million and $4.9 million for the third quarter and first nine months of 2006 respectively. The increase in interest is due to increased usage of the operating lines of credit and an increase in the effective annual interest rate. The effective annual interest rate at September 30, 2007 was 5.85% (December 31, 2006 - 5.60%). See LIQUIDITY AND CAPITAL RE

SOURCES - Financing Activities - Financial Instruments for information concerning swap arrangements. Interest on the outstanding 10% convertible debentures was $nil for the third quarter of 2007 and $0.2 million in the first nine months of 2007, compared to $0.4 million for the third quarter of 2006 and $1.2 million in the first nine months of 2006. The expense in the third quarter and first nine months of 2007 was lower than 2006 due to the redemption of all of the outstanding convertible debentures in the first quarter of 2007. At September 30, 2007, there were no debentures outstanding compared to 16,391 debentures outstanding at September 30, 2006. During the third quarter and first nine months of 2007, the Fund recorded $0.2 million and $0.6 million of accretion expense respectively, which was due to the adoption of the new Canadian Institute of Chartered Accountants recommendations with respect to Financial Instruments. This accretion is due to the amortization of transaction costs related to the Fund's borrowings, which were previously recorded in depreciation and amortization. At September 30, 2007, $7.1 million ((euro)5.0 million) and $2.7 million (US$2.7 million) of the total facility have been utilized in the form of standby Letters of Credit (December 31, 2006 - $7.6 million ((euro)5.0 million) and US$2.7 million) and another $22.3 million and US$19.0 million has been utilized under the operating lines of credit (December 31, 2006 - $2.7 million and US$9.0 million). During the first quarter of 2007, the Fund increased the aggregate amount that can be borrowed under the Fund's senior credit facilities with its principal bankers by $50.0 million. The term bank debt facility and the operating lines are secured by a fixed and floating charge on the assets of the Fund and certain of its subsidiaries. The facility is subject to certain financial and reporting covenants, all of which have been met at September 30, 2007. INCOME TAXES Current income tax expense was $0.4 million for the third quarter of 2007 and $0.9 million for the first nine months of 2007, compared to $0.4 million and $1.2 million for the third quarter and first nine months of 2006 respectively. The decrease in current tax expense for the first nine months of 2007 reflects decreased earnings in certain International business operations. The increase in future tax asset of $2.7 million at September 30, 2007 compared to December 31, 2006 is the result of increased tax loss carry forwards and other tax benefits reported by certain operating subsidiaries. The decrease in future tax liability of $5.8 million at September 30, 2007 compared to December 31, 2006 is the result of reduced timing differences between the accounting basis and the tax basis of assets associated with certain operating subsidiaries and the impact of the exchange rate used to translate U.S. denominated balances. CONTINGENT LIABILITIES See RISKS AND UNCERTAINTIES - Marsulex Claim for a discussion of this issue, in the context of CONTINGENT LIABILITIES. EXCESS CASH FLOWS AND NET INCOME OVER DISTRIBUTIONS PAID The following table presents excess cash flows from operating activities and net income over distributions paid for the three and nine month periods ended September 30, 2007 and for the years ended December 31, 2006 and 2005. Three Nine Months Months Year Year Ended Ended Ended Ended September September December December ($'000) 30, 2007 30, 2007 31, 2006(1) 31, 2005(1) ------------------------------------------------------------------------- Cash flows from operating activities $ 13,756 $ 28,011 $ 41,949 $ 47,734 Net income 7,074 11,607 3,820 13,217 Distributions paid during period 10,075 30,896 47,908 48,506 Excess (shortfall) of cash flows from operating activities over cash distributions paid 3,681 (2,885) (5,959) (772) Excess (shortfall) of net income over cash distributions paid $ (3,001) $ (19,289) $ (44,088) $ (35,289) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Cash flow from operating activities for the years ended 2006 and 2005 have been restated to comply with the current period's presentation. The Fund considers the amount of cash generated by the business in determining the amount of distributions payable to its Unitholders. In general, the Fund does not take into account quarterly working capital fluctuations as these tend to be temporary in nature. The Fund does not generally consider net income in setting the level of distributions as this is a non-cash metric and is not reflective of the level of cash flow that the Fund can generate. This divergence is particularly relevant for the Fund as it has a relatively high level of depreciation and amortization expenses. For the year ended December 31, 2005, distributions to Unitholders exceeded cash flows from operating activities mainly because 2005 cash flows were negatively impacted by Hurricane Rita. The additional distribution was funded by an increase in bank debt. A portion of this loss was covered by insurance and the Fund recovered approximately US$0.8 million in 2007. For the year ended December 31, 2006 and the nine months ended September 30, 2007, distributions to Unitholders exceeded cash flows from operating activities mainly due to an increase in working capital. Distributions - On January 4, 2007, the Fund announced a change in the monthly distribution rate to $0.10 per unit, effective with the January 2007 declaration. Since inception, the Fund has distributed $230.8 million. Distributions to Unitholders for the three and nine months ended September 30, 2007 were declared as follows: Distribution Total Record Date Payment Date Per Unit ($'000) ------------------------------------------------------------------------- Three months ended September 30: July 31, 2007 August 31,2007 $ 0.10 $ 3,358 August 31, 2007 September 28, 2007 0.10 3,358 September 30, 2007 October 31, 2007 0.10 3,359 ------------------------------------------------------------------------- Sub-Total $ 0.30 $10,075 Six months ended June 30 $ 0.60 $20,150 ------------------------------------------------------------------------- Total for nine months ended September 30 $ 0.90 $30,225 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions declared in the three and nine months ended September 30, 2006 were as follows: Distribution Total Record Date Payment Date Per Unit ($'000) ------------------------------------------------------------------------- Three months ended September 30: July 31, 2006 August 31, 2006 $ 0.12 $ 4,030 August 31, 2006 September 29, 2006 0.12 4,030 September 29, 2006 October 31, 2006 0.12 4,030 ------------------------------------------------------------------------- Sub-Total $ 0.36 $12,090 Six months ended June 30 $ 0.71 $23,954 ------------------------------------------------------------------------- Total for nine months ended September 30 $ 1.07 $36,044 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Treatment of the Fund's distributions for Canadian Income Tax purposes for 2006 and 2007 is as follows: Foreign Other Eligible Non-Business Return of Income Dividends Income Capital Total ------------------------------------------------------------------------- 2006 53.7% 25.8% 20.5% 0.0% 100.0% 2007(1) 60% 15% 25% 0% 100% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Represents planned distributions treatment. The final treatment of 2007 distributions will be determined by February 28, 2008. LIQUIDITY AND CAPITAL RE

SOURCES The Fund's distributions to Unitholders are sourced entirely from its investments in operating subsidiary companies. The Fund's investments are financed by trust units held by Unitholders, long-term debt and operating lines of credit. The cash flow of the Fund is required to fund distributions to Unitholders, capital expenditures and third party interests. Cash from Operating Activities ------------------------------ Cash flow from operating activities for the third quarter of 2007 was $13.8 million, a decrease of $1.1 million from the level generated during the third quarter of 2006. The decrease in cash flow is due to an increase of $1.6 million in the level of working capital during the third quarter of 2007 compared with a decrease of $1.1 million in the same period of 2006. The principal reason for the increased working capital during the third quarter of 2007 was a reduction in the level of accounts payable and accrued liabilities. These were lower mainly due to the payout of the transitional LTIP as described in the Results of Operations by Business Segment - Corporate segment above. For the first nine months of 2007, cash flow from operating activities was $28.0 million, a decrease of approximately $8.0 million from the level achieved in 2006. The decrease in cash flow is primarily due to the lower level of EBITDA generated in the first nine months of 2007 relative to the first nine months of 2006 and due to increase in the level of working capital during 2007. Financing Activities -------------------- Distributions to Unitholders during the third quarter and first nine months of 2007 were $2.0 million and $4.9 million lower respectively than the third quarter and first nine months of 2006. These decreased distributions were due to the lower distribution rates in 2007. During the first quarter of 2007, the Fund increased the aggregate amount that can be borrowed under the Fund's senior credit facilities with its principal bankers by $50.0 million. During the first quarter of 2007, the Fund used part of this increased credit facility to redeem the 16,378 convertible debentures outstanding for the principal amount plus accrued and unpaid interest. For additional information on cash distributions, see DISTRIBUTABLE CASH AND CASH DISTRIBUTIONS. Financial Instruments - The Fund has entered into swap agreements with its principal bankers in order to fix the interest rates on its long-term debt. Under the swap agreements, which are treated as a hedge for accounting purposes, the interest rate on the outstanding U.S. long-term debt is 5.85% and on the Canadian dollar long-term debt is 5.22%. At September 30, 2007, the fair value of these agreements were US$0.5 million and $0.8 million respectively. See comments under NET INTEREST AND DEBT ACCRETION EXPENSE for comments on these rates. See Results of Operations by Business Segment - Foreign Exchange for additional comments on hedging. To manage its exposure to changes in the price of natural gas, the Fund has entered into natural gas forward contracts. The Fund buys and sells specific quantities of natural gas at pre-determined dates on indices which are matched with the anticipated operational cash flows. At September 30, 2007, the fair value of these agreements is $0.3 million in favour of the Fund. These contracts are accounted for as non-financial derivatives. Investing Activities -------------------- Investment in capital expenditures was $1.4 million in the third quarter of 2007, compared to $0.8 million in the third quarter of 2006. These amounts include $1.1 million in the third quarter of 2007 and $0.4 million in the third quarter of 2006 for maintenance capital requirements. Investment in capital expenditures for the first nine months of 2007 was $4.4 million compared to $4.3 million for the first nine months of 2006. The maintenance capital expenditure components were $4.1 million for the first nine months of 2007 and $3.3 million for the first nine months of 2006. Total maintenance capital expenditures for the balance of 2007 are estimated at $3.4 million. Of this total, $3.3 million is planned for SPPC, $0.2 million for International and $0.4 million for Pulp Chemicals. Investment in non-maintenance capital expenditures were $0.3 million and $0.3 million during the third quarter and first nine months of 2007 respectively compared to $0.4 million and $0.9 million during the third quarter and first nine months of 2006 respectively. Non-maintenance capital expenditures are either pre-funded, usually as part of a significant acquisition and related financing or are considered to expand or improve the capacity of the Fund's operations. Acquisitions - On May 1, 2007, the Fund completed the purchase of Olin Corporation's liquid sodium hydrosulphite ("SHS") customer contracts for $6.7 million (US$6.0 million), a portion of which is subject to certain earn out provisions. The acquisition does not include Olin's manufacturing assets. The Fund incurred transaction related costs of $0.2 million. Cash Balances - At September 30, 2007 the Fund had net cash balances of $5.8 million and working capital of $37.2 million. Comparable numbers for December 31, 2006 were $6.1 million and $30.7 million, respectively. The Fund defines working capital to exclude cash, operating line of credit, distributions payable and current portion of long-term debt. Cash generated by the Fund will be used to fund cash distributions to Unitholders, capital requirements, interest and other legal obligations. The Fund expects that its liquidity will be sufficient to fund its expected requirements for the balance of 2007. SUMMARY OF QUARTERLY RESULTS Three Months Ended ------------------ December March June September ($'000) 31, 2006 31, 2007 30, 2007 30, 2007 ------------------------------------------------------------------------- Revenue $ 146,930 $ 128,661 $ 130,163 $ 143,232 Cost of sales and services 122,026 108,654 103,291 114,546 ------------------------------------------------------------------------- Gross profit 24,904 20,007 26,872 28,686 Selling, general, administrative and other costs 8,281 7,502 10,093 9,305 Restructuring costs 2,706 1,481 490 - ------------------------------------------------------------------------- Earnings before the under-noted 13,917 11,024 16,289 19,381 Depreciation and amortization 9,970 10,218 9,729 9,596 Impairment of property, plant and equipment (3,320) - - - Net interest and accretion expense 2,992 3,060 3,162 3,361 Income taxes (net) (1,110) (1,714) (1,671) (647) Minority interest - (2) (2) (3) ------------------------------------------------------------------------- Net earnings (loss) $ 5,385 $ (538) $ 5,071 $ 7,074 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended ------------------ December March June September ($'000) 31, 2005 31, 2006 30, 2006 30, 2006 ------------------------------------------------------------------------- Revenue $ 114,068 $ 121,925 $ 134,581 $ 148,692 Cost of sales and services 92,569 98,926 110,075 124,833 ------------------------------------------------------------------------- Gross profit 21,499 22,999 24,506 23,859 Selling, general, administrative and other costs 6,465 7,316 5,496 7,112 ------------------------------------------------------------------------- Earnings before the under-noted 15,034 15,683 19,010 16,747 Depreciation and amortization 11,853 11,262 11,858 11,277 Impairment of property, plant and equipment - - - 15,596 Net interest and accretion expense 2,532 2,665 2,763 3,018 Income taxes (net) (2,429) (2,030) (478) (2,926) Minority interest 1 1 (1) - ------------------------------------------------------------------------- Net earnings $ 3,077 $ 3,785 $ 4,868 $ (10,218) ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONTRACTUAL OBLIGATIONS Information concerning contractual obligations is shown below: Contractual Less Than 1-3 4-5 After Obligations Total 1 Year Years Years 5 Years ($'000) ------------------------------------------------------------------------- Long Term Debt $156,823 $ - $156,823 $ - $ - Operating Leases 37,909 15,208 16,507 4,113 2,080 Interest on Long-Term Debt 16,160 8,815 7,346 - - ------------------------------------------------------------------------- Total Contractual Obligations $210,892 $ 24,023 $180,676 $ 4,113 $ 2,080 ------------------------------------------------------------------------- ------------------------------------------------------------------------- RISKS AND UNCERTAINTIES The Fund is one of the world's largest suppliers of sulphuric acid ("acid"), liquid sulphur dioxide ("SO(2)") and sodium hydrosulphite ("SHS") and a leading processor of spent acid, particularly in the U.S. Gulf Coast region. The Fund is also a leading regional supplier of sulphur, sodium chlorate and phosphorus pentasulphide, and also produces zinc oxide at three North American locations. As such the Fund faces various risks associated with its business. These risks include, amongst others, the loss of a portion of its customer base, the interruption of the supply of sulphur-based products or raw materials, price fluctuations in the products sold and/or raw materials purchased, industry over-capacity, acquisition integration and operational and product hazard risks associated with the nature of its business. The Fund imports key raw materials and products from overseas and as such has additional risks associated with the sourcing activity. The Fund makes extensive use of the railway system to transport material within North America. Certain locations are serviced by a sole carrier and thus a disruption in service could have a significant negative impact on results. In addition, the Fund sells a significant portion of its major products to large customers. While many of these customers are under contract, there can be no assurance that these contracts will be renewed. As the Fund's business is international in nature, it is exposed to foreign exchange risks related to the payment of dividends and other transactions by its foreign subsidiaries. The Fund manages the risks associated with its customer base and sales price by seeking to obtain contractual protection to mitigate these risks. The Fund also seeks to differentiate its products and services with customers to mitigate price fluctuations and uses its scale to obtain beneficial raw material contracts. All members of the Fund's senior management team were involved with the process, which included a review of our North American and international operations. Key risks were identified and prioritized for review and the development of action plans. This enterprise-wide risk review process will be an on-going aspect of the Fund's risk management program. In addition, the Fund maintains an extensive insurance program which includes general liability and environmental coverage. As noted in the Fund's IPO Prospectus dated July 12, 2001, the Fund is aware of proceedings having been undertaken by the Department of Justice in the United States relating to the sulphuric acid market. The Fund has received assurances from the Department of Justice that an arrangement currently in place with Marsulex Inc. will be extended to the Fund, and will ensure that the Fund has no criminal liability in this matter as long as the Fund complies with the requirements of the Department of Justice. The Fund intends to comply with this requirement. Marsulex Inc., which formerly owned certain operations of the Fund, has agreed to indemnify the Fund in respect of (i) any criminal liability relating to the proceedings, and (ii) any civil claims of industry participants claiming damages as a result of conduct being investigated in these proceedings, and (iii) any costs relating to defending against such liability or claims, provided that the Fund complies with the requirements of the arrangement with the Department of Justice. Marsulex Claim - During the third quarter of 2005, the Fund received and responded to a claim from Marsulex Inc. ("Marsulex") against the Fund alleging that the acquisition of Peak Sulfur, Inc. and Peak Chemical LLC is a breach of a non-competition agreement in favour of Marsulex. Marsulex is seeking damages in the amount of $72.8 million, as well as other relief. The Fund has received advice from its legal advisors that the non-competition covenants contained in such agreement are likely unenforceable. The Fund has filed a statement of defence and a counter-claim in the amount of $87.8 million in respect of this action and intends to defend the claim brought against it by Marsulex and pursue its counter-claim. Dependence on Inco Relationship - Inco is the Fund's largest sulphur products supplier. While the Fund's relationship with Inco has been in place for more than 70 years, there is no assurance that the Fund will be able to maintain this relationship beyond the current agreement term. If this agreement is not renewed, it will expire at the end of 2009. There is also no assurance that any subsequent agreement with Inco will have terms as favourable as those contained in the current agreement. The Fund has recorded an intangible asset with respect to this relationship. Income Taxes - On June 22, 2007, legislation (the "SIFT Rules") relating to the federal income taxation of publicly-listed or traded trusts (such as income trusts and real estate investment trusts) and partnerships received royal assent. The SIFT Rules apply to a publicly-traded trust that is a specified investment flow-through entity (a "SIFT") which existed before November 1, 2006 ("Existing Trust") commencing with taxation years ending in 2011. Certain distributions attributable to a SIFT will not be deductible in computing the SIFT's taxable income, and the SIFT will be subject to tax on such distributions at a rate that is substantially equivalent to the general tax rate applicable to Canadian corporations. Distributions paid by a SIFT as returns of capital will not be subject to this tax. There will be circumstances where an Existing Trust may lose its transitional relief where its equity capital grows beyond certain dollar limits measured by reference to the Existing Trust's market capitalization at the close of trading on October 31, 2006. The Fund is a SIFT as defined in the Legislation. Accordingly, the Fund will be subject to taxes on distributions of certain income earned from investments in its subsidiaries made after 2010. The Fund is also required to recognize future income tax assets and liabilities with respect to the temporary differences between the carrying amount and tax bases of its assets and liabilities and those of its flow-through subsidiaries that are expected to reverse in or after 2011. The Fund expects that its aggregate temporary differences and those of its flow-through subsidiaries will reverse prior to 2011. Accordingly, there is no impact in the current period as a result of the Legislation. The Fund expects that its distributions will not be subject to tax prior to 2011 and accordingly has not provided for future income taxes on the temporary differences expected to reverse prior to then. The Legislation does not affect the current and future tax amounts of the Fund's corporate subsidiaries. CRITICAL ACCOUNTING POLICIES The Fund's accounting policies are described in Note 2 to the consolidated financial statements for the year ended December 31, 2006 except as disclosed in Note 2 to the consolidated financial statements for the period ended September 30, 2007. There have been no changes to the critical accounting policies as disclosed in the Fund's annual MD&A for the year ended December 31, 2006, except as discussed below under Financial Instruments. Financial Instruments - Effective January 1, 2007, the Fund adopted the recommendations of the 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. These sections apply to fiscal years beginning on or after October 1, 2006 and provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities, non-financial derivatives and embedded derivatives, and describe when and how hedge accounting may be applied. Section 1530 establishes standards for reporting and presenting comprehensive income, which is defined as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income that are excluded from net income calculated in accordance with generally accepted accounting principles. Under the new standards, policies followed for periods prior to the effective date generally are not reversed and therefore, the comparative figures have not been restated. Under the new standards, financial instruments must be classified into one of these five categories: held-for-trading, held-to-maturity, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments are initially recorded on the balance sheet at fair value. After initial recognition, the financial instruments should be measured at their fair values, except for held-to-maturity investments, loans and receivables and other financial liabilities, which should be measured at amortized cost. The effective interest related to the financial liabilities and the gain or loss arising from the change in the fair value of a financial asset or liability classified as held-for-trading is included in net income for the period in which it arises. RECENT ACCOUNTING PRONOUNCEMENTS Capital Disclosures - In December 2006, the CICA issued Handbook Section 1535, Capital Disclosures, which establishes standards for disclosing information about an entity's capital and how it is managed. The entity's disclosure should include information about its objectives, policies and processes for managing capital and disclose whether or not it has complied and the consequences of non-compliance with any capital requirements to which it is subject. The new standard will become effective on January 1, 2008 for the Fund. The Fund is currently evaluating the impact of the adoption of this new section on the consolidated financial statements. Financial Instruments - Disclosures and Financial Instruments - Presentation - In December 2006, the CICA issued Handbook Sections 3862, Financial Instruments - Disclosures, and 3863, Financial Instruments - Presentation. Section 3862 modifies the disclosure requirements of Section 3861, Financial Instruments - Disclosure and Presentation, including required disclosure for the assessment of the significance of financial instruments for an entity's financial position and performance and of the extent of risks arising from financial instruments to which the Fund is exposed and how the Fund manages those risks, whereas Section 3863 carries forward the presentation related requirements of Section 3861. The new standards will become effective on January 1, 2008 for the Fund. The Fund is currently evaluating the impact of the adoption of Section 3862 while the Fund does not expect the adoption of 3863 to have a significant effect on the consolidated financial statements. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES In accordance with the requirements of Canadian securities regulators, the CEO and CFO of the Fund are required to certify that they have designed the Fund's disclosure controls and have evaluated their effectiveness for the applicable period. Disclosure controls are those controls and procedures which ensure that information that is required to be disclosed is recorded, processed and reported within the time frames specified by the regulators. The effectiveness of the Fund's Disclosure Policies and Procedures was reviewed by the CEO and CFO, primarily by the completion of questionnaires which were reviewed with the Trustees. The CEO and CFO of the Fund have concluded that the Disclosure Policies and Procedures of the Fund will provide reasonable assurance that the Fund's policy of providing timely, consistent, fair and accurate public disclosure of material information will be achieved. OUTLOOK We anticipate generally stable demand for our products with particularly strong demand for sulphuric acid. The strong demand and associated price increases should be sufficient to more than offset foreseeable cost pressures in certain raw materials such as sulphur and zinc. We therefore expect to generate higher levels of distributable cash after maintenance capital expenditure over the next twelve months, relative to the previous twelve months. Although the total of our capital expenditures for fiscal 2007 is consistent with our previous guidance, the timing of certain projects will result in fourth quarter capital expenditures being higher than previously anticipated. Material and labour costs associated with our capital program are rapidly escalating and as a result we foresee increased spending in 2008. We are confident in our ability to generate sufficient cash flow to adequately maintain our distributions and address the anticipated higher capital spending. OTHER Additional information concerning the Fund, including the Annual Information Form, is filed on SEDAR and can be accessed at www.sedar.com. October 25, 2007

For further information:

For further information: Mark Davis, President and CEO, Tel: (416)
496-4176; Rohit Bhardwaj, Vice-President, Finance and CFO, Tel: (416)
496-4177


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