Chemtrade Logistics Income Fund announces 2008 fourth quarter and record annual results



    TORONTO, Feb. 19 /CNW/ - Chemtrade Logistics Income Fund (TSX: CHE.UN)
today announced results for the three months and year ended December 31, 2008.
High prices and margins for sulphuric acid throughout the year resulted in
significant increases in annual revenue and earnings for Chemtrade's Sulphur
Products & Performance Chemicals and International segments. Although a fall
in demand late in the year for most of Chemtrade's products negatively
impacted fourth quarter results, revenue and earnings for the full year were
the highest since Chemtrade's formation in 2001.
    Mark Davis, President and Chief Executive Officer of Chemtrade, said, "We
were pleased with the outstanding financial results achieved for 2008 in spite
of our Beaumont plant being off-line for the last four months of the year and
the impact of the deepening recession in the fourth quarter."
    Adjusted cash flow from operating activities for the fourth quarter was
$18.7 million (2007: $18.8 million) and distributable cash after maintenance
capital expenditures for the period was $11.5 million, or $0.35 per unit
(2007: $16.1 million, or $0.48 per unit), generated from revenue of $292.8
million (2007: $144.6 million). Earnings before interest, income taxes,
depreciation and amortization ("EBITDA") for the fourth quarter were $24.2
million (2007: $23.0 million) and net loss was $2.5 million compared with net
earnings of $9.1 million in the same period in 2007. Operating results for the
fourth quarter of 2008 reflected the Beaumont plant situation and a $3.4
million increase in allowance for doubtful debts. Maintenance capital
expenditure was $4.4 million higher than in 2007, and net earnings were
impacted by unrealized foreign exchange losses of $12.2 million.
    For the full year, adjusted cash flow from operating activities was $99.0
million (2007: $54.4 million) and distributable cash after maintenance capital
expenditures was $83.5 million (2007: $47.5 million), or $2.50 per unit (2007:
$1.41 per unit). EBITDA was $118.9 million (2007: $68.6 million) and net
earnings for 2008 were $40.3 million (2007: $20.6 million).
    Sulphur Products & Performance Chemicals ("SPPC") generated EBITDA of
$16.5 million in the fourth quarter compared with $12.9 million in 2007 and
net earnings of $5.1 million in the fourth quarter of 2008 compared with $3.6
million in the fourth quarter of 2007. Increased revenue from higher prices
and margins for sulphuric acid and the effect of the weaker Canadian dollar
more than offset the impact of lower volumes from the Beaumont plant being
off-line for the entire quarter and reduced demand late in the quarter. EBITDA
was also impacted by additional spending on maintenance while the Beaumont
plant was being repaired.
    Pulp Chemicals reported fourth quarter EBITDA of $3.4 million, compared
with $5.3 million in 2007 and net earnings of $0.6 million in the fourth
quarter of 2007 compared with $2.5 million earned in the same quarter of 2007.
The decrease reflected lower volumes during the quarter as a result of reduced
demand towards the end of the quarter including the largest customer's
decision to take downtime during December.
    International reported revenue of $134.2 million for the fourth quarter,
compared with $56.1 million in 2007. Strong prices for sulphuric acid and
sulphur that prevailed during the year continued for most of the quarter,
although global demand and prices began to decline during the period. Spot
sales of uncommitted volumes early in the quarter generated high margins.
International generated EBITDA for the quarter of $10.5 million compared with
$9.4 million last year.
    Mr. Davis said, "Chemtrade's excellent 2008 financial results reflected
the strong operating performances of our underlying businesses resulting from
the initiatives implemented in recent years including improvements to the
operational reliability of our facilities. The results are also indicative of
our ability to capitalize on the prices and margins for sulphuric acid that
strengthened throughout most of the year. Our strong cash generation during
the year also enabled us to strengthen our balance sheet and enhance our
financial flexibility by paying off our operating line of credit, thereby
reducing our net debt by US$41 million.
    "It is difficult to forecast demand for our products in 2009, but we
foresee no appreciable increase in demand over the fourth quarter of 2008,
until at least the second half of 2009. Our business model and certain of our
contracts do mitigate the effects of some commodity movements, but a sustained
decrease in demand would have an adverse impact on Chemtrade. We believe that
we will generate distributable cash after maintenance capital expenditures
during 2009 at least equal to our current distribution rate. This is possible
because we have strengthened and repositioned certain of our businesses since
2007. Even though we plan on higher levels of capital expenditure in 2009
relative to 2007, and even if the economy does not recover from what we have
seen since December, we believe that we will achieve distributable cash in
excess of our $1.20 per unit distribution rate."

    Distributions

    Distributions declared in the fourth quarter totalled $0.30 per unit,
comprised of monthly distributions of $0.10 per unit declared in October,
November and December 2008.
    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 new release contains non-GAAP measures such as EBITDA (earnings
before any deduction for net interest and accretion expense, taxes,
depreciation and amortization and other non-cash charges such as minority
interest) and distributable cash after maintenance capital expenditures.
Further information on these measures and reconciliations with appropriate
GAAP measures are contained in the Fund's Management, Discussion and Analysis
for the year ended December 31, 2008.
    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 fourth quarter and full year 2008 results
will be webcast live on www.chemtradelogistics.com and www.newswire.ca/webcast
on Friday, February 20, 2009 at 10:00 a.m.


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

                                                        December    December
                                                        31, 2008    31, 2007
    -------------------------------------------------------------------------

    ASSETS

    Current assets
      Cash and cash equivalents                        $  48,050   $  11,804
      Accounts receivable                                138,640      76,203
      Inventories (notes 2(a)(ii) and 7)                  38,124      24,331
      Prepaid expenses and other assets (note 19(b))       6,259       5,942

    -------------------------------------------------------------------------
                                                         231,073     118,280

    Notes receivable (note 8)                              3,045           -
    Property, plant and equipment (notes 5 and 9)        169,174     148,942
    Other assets                                           2,583       1,413
    Future tax asset (note 15)                            13,283      10,272
    Intangibles (note 10)                                137,227     143,968
    Goodwill (note 10)                                    98,840      87,700

    -------------------------------------------------------------------------
                                                       $ 655,225   $ 510,575
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities
      Operating line of credit (note 11)               $       -   $  41,113
      Accounts payable                                   122,685      42,509
      Accrued and other liabilities (note 19(b))          71,024      26,496
      Distributions payable                                3,178       3,358
      Income taxes payable                                 8,157       1,563

    -------------------------------------------------------------------------
                                                         205,044     115,039

    Long-term debt (note 11)                             185,023     155,206
    Other long-term liabilities (note 19(b))              12,706       5,081
    Post-employment benefits (note 16)                     4,238       3,767
    Future tax liability (note 15)                        30,278      25,396

    Unitholders' equity
      Units (note 12(b))                                 389,932     412,957
      Contributed surplus (note 12(c))                     5,272           -
      Deficit                                           (153,141)   (153,566)
      Accumulated other comprehensive income (loss)
       (note 13)                                         (24,127)    (53,305)

    -------------------------------------------------------------------------
                                                         217,936     206,086

    Subsequent event (note 22)

    Commitments and contingencies (note 17)
    -------------------------------------------------------------------------
                                                       $ 655,225   $ 510,575
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements



    CHEMTRADE LOGISTICS INCOME FUND
    Consolidated Statements of Earnings
    (in thousands of dollars, except per unit amounts)

                                                      Year ended  Year ended
                                                        December    December
                                                        31, 2008    31, 2007
    -------------------------------------------------------------------------

    Revenue                                           $1,178,826   $ 546,636

    Cost of sales and services (excluding
     depreciation disclosed below)                     1,015,945     437,263

    -------------------------------------------------------------------------
    Gross profit                                         162,881     109,373

    Selling, general, administrative and other
     costs (note 14)                                      45,183      38,738
    Restructuring costs (note 6)                          (1,238)      1,971

    -------------------------------------------------------------------------
    Earnings before the under-noted                      118,936      68,664

    Unrealized foreign exchange loss (gain)               16,712        (776)
    Depreciation and amortization                         41,123      38,713
    Gain on disposal of property (note 5)                   (250)          -
    Net interest and accretion expense                    13,535      12,633

    -------------------------------------------------------------------------
    Earnings before income taxes and minority interest    47,816      18,094

    Income taxes (note 15)
      Current                                              7,613       2,219
      Future                                                (128)     (4,699)

    -------------------------------------------------------------------------
                                                           7,485      (2,480)

    -------------------------------------------------------------------------
    Earnings before minority interest                     40,331      20,574

    Minority interest                                          -         (22)

    -------------------------------------------------------------------------
    Net earnings                                       $  40,331   $  20,596
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per unit (note 12(d))
      Basic                                            $    1.21   $    0.61
      Diluted                                          $    1.21   $    0.61
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cost of sales and services for the year ended December 31, 2008 does not
    include $17,020 (2007 -$19,963) of depreciation relating to plant
    buildings and equipment (note 2).

    See accompanying notes to consolidated financial statements



    CHEMTRADE LOGISTICS INCOME FUND
    Consolidated Statements of Changes in Unitholders' Equity
    (in thousands of dollars)

                                                      Year ended  Year ended
                                                        December    December
                                                        31, 2008    31, 2007
    -------------------------------------------------------------------------

    Units
    Balance, beginning of year                         $ 412,957   $ 412,944
    Repurchase of units (note 12(c))                     (23,025)          -
    Issued on conversion of debentures (note 12(e))            -          13
    -------------------------------------------------------------------------
    Balance, end of year                               $ 389,932   $ 412,957
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Contributed surplus
    Balance, beginning of year                         $       -   $       -
    Repurchase of units (note 12(c))                       5,272           -
    -------------------------------------------------------------------------
    Balance, end of year                               $   5,272   $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Equity component of convertible debentures
    Balance, beginning of year                         $       -   $     160
    Redemption of debentures (note 12(e))                      -        (160)
    -------------------------------------------------------------------------
    Balance, end of year                               $       -   $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Deficit
    Balance, beginning of year                         $(154,040)  $(134,579)
    Changes in accounting policies (note 2(a)(ii))           474         556
    -------------------------------------------------------------------------
    Balance, beginning of year, as adjusted             (153,566)   (134,023)
    Redemption of debentures (note 12(e))                      -         160
    Net earnings                                          40,331      20,596
    Distributions                                        (39,906)    (40,299)
    -------------------------------------------------------------------------
    Balance, end of year                               $(153,141)  $(153,566)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive income (loss)
     (note 13)
    Balance, beginning of year                         $ (53,305)  $ (31,426)
    Changes in accounting policies                             -       1,783
    -------------------------------------------------------------------------
    Balance, beginning of year, as adjusted              (53,305)    (29,643)
    Other comprehensive income (loss)                     29,178     (23,662)
    -------------------------------------------------------------------------
    Balance, end of year                               $ (24,127)  $ (53,305)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements


    Consolidated Statements of Comprehensive Income
    (in thousands of dollars)

                                                      Year ended  Year ended
                                                        December    December
                                                        31, 2008    31, 2007
    -------------------------------------------------------------------------

    Net earnings                                       $  40,331   $  20,596

    Change in unrealized loss on translation of
     self-sustaining foreign operations                   33,456     (21,441)
    Change in unrealized loss on derivatives
     designated as cash flow hedges                       (4,525)     (2,221)
    Losses on derivatives designated as cash flow
     hedges in prior years transferred to net
     income in the current year                              247           -
    -------------------------------------------------------------------------
    Other comprehensive income (loss)                     29,178     (23,662)

    -------------------------------------------------------------------------
    Comprehensive income (loss)                        $  69,509   $  (3,066)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements



    CHEMTRADE LOGISTICS INCOME FUND
    Consolidated Statements of Cash Flows
    (in thousands of dollars)

                                                      Year ended  Year ended
                                                        December    December
                                                        31, 2008    31, 2007
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net earnings                                     $  40,331   $  20,596
      Items not affecting cash:
        Depreciation and amortization                     41,123      38,713
        Future income taxes                                 (128)     (4,699)
        Minority interest                                      -         (22)
        Accretion expense                                    664         800
        Gain on sale of property, plant and equipment
         (note 5)                                           (309)       (232)
        Early settlement of debt                               -          28
        Change in fair value of derivatives and
         unrealized foreign exchange loss (gain)          17,406        (986)
        Non-cash restructuring costs                           -          48

    -------------------------------------------------------------------------
                                                          99,087      54,246

    Decrease (increase) in working capital                48,817      (6,504)

    -------------------------------------------------------------------------
                                                         147,904      47,742

    Financing activities:
      Distributions to unitholders                       (40,086)    (40,971)
      Repurchase of units                                (17,753)          -
      Redemption of convertible debentures                     -     (16,378)
      (Decrease) increase in operating line of credit    (41,113)     27,922
      Financing transaction costs                           (628)       (317)
      Increase in other long-term liabilities              7,590       3,084

    -------------------------------------------------------------------------
                                                         (91,990)    (26,660)

    Investing activities:
      Additions to property, plant and equipment         (19,828)     (9,066)
      Acquisitions                                             -      (6,535)
      Proceeds from disposal of property, plant
       and equipment                                       2,787         325
      Notes receivable                                    (2,523)          -

    -------------------------------------------------------------------------
                                                         (19,564)    (15,276)

    Effect of exchange rates on cash held in
     foreign currencies                                     (104)       (149)

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

    Increase in cash and cash equivalents                 36,246       5,657

    Cash and cash equivalents - beginning of year         11,804       6,147

    -------------------------------------------------------------------------
    Cash and cash equivalents - end of year            $  48,050   $  11,804
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information:
      Cash taxes paid                                  $   1,018   $   2,103
      Cash interest paid                               $  13,219   $  13,210
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements



    CHEMTRADE LOGISTICS INCOME FUND
    Notes to Consolidated Financial Statements
    (in thousands of dollars, except amounts per tonne)

    December 31, 2008

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

    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
        purchased various assets and related businesses from Marsulex Inc.
        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 18.

    2.  CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

        (a) Changes in Accounting Policies:

        (i) Capital disclosures

        Effective January 1, 2008, the Fund adopted the recommendations of
        the Canadian Institute of Chartered Accountants ("CICA") Handbook
        Section 1535, Capital Disclosures. This section 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. This new
        section relates to disclosure and did not have an impact on the
        Fund's financial results. These disclosures are contained in note 20.

        (ii) Inventories

        Effective January 1, 2008, the Fund adopted the recommendations of
        CICA Handbook Section 3031, 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 previous guidance of
        the "lower of cost and market". The new section requires the reversal
        of any write-downs previously recognized, if applicable. Certain
        minimum disclosures are also 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 section also clarifies the definition of cost to include all
        costs of purchase, costs of conversion and other costs incurred to
        bring inventories to their present location and condition. Costs of
        conversion include a systematic allocation of fixed and variable
        production overheads that are incurred in converting materials into
        finished goods. The allocation of fixed production overheads is based
        on normal production capacity of the production facilities.

        The new section requires that depreciation be included in the fixed
        costs of conversion when costing inventories. Previously, the Fund
        had excluded depreciation from its cost of inventory. The Fund has
        elected to apply this section retrospectively and has adjusted the
        comparative figures to comply with the new section. As a result, the
        opening deficit balances as of January 1, 2008 and 2007 have been
        decreased by $474 and $556 respectively. The closing inventory and
        deficit balances as at December 31, 2007 have also been adjusted by
        $474 to comply with the new section. Depreciation and amortization
        expense for the year ended December 31, 2008, includes the
        depreciation expense related to cost of sales and services of $17,020
        (2007 - $19,963).

        (iii) Financial instruments

        Effective January 1, 2008, the Fund adopted the recommendations of
        CICA 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. These
        new sections relate to disclosure and presentation only and did not
        have an impact on the Fund's financial results. These disclosures are
        contained in note 19.

        (b) Recent Accounting Pronouncements:

        (i) Convergence to international financial reporting standards
            ("IFRS")

        In January 2006, the CICA Accounting Standards Board ("AcSB") adopted
        a strategic plan for the direction of accounting standards in Canada.
        The AcSB has recently confirmed that accounting standards in Canada
        for public companies are to converge with IFRS effective for fiscal
        periods beginning on or after January 1, 2011. The Fund has assembled
        an IFRS transition team which has started to assess the impact of the
        convergence of Canadian GAAP and IFRS, and will implement the new
        IFRS standards.

        (ii) Goodwill and intangible assets

        In February 2008, the CICA issued Handbook Section 3064, Goodwill and
        Intangible Assets. Section 3064 states that upon their initial
        identification, intangible assets are to be recognized as assets if
        they meet the definition of an intangible asset and if they satisfy
        the recognition criteria contained in the Handbook section. This
        section also provides further information on the recognition of
        internally generated intangible assets (including research and
        development costs).

        Section 3064 carries forward the requirements of the old
        Section 3062, Goodwill and Other Intangible Assets with regards to
        the subsequent measurement of intangible assets, goodwill, and
        disclosure. The new section will become effective on January 1, 2009
        for the Fund. The Fund is still in the process of evaluating the
        effect of the adoption of this new section on the consolidated
        financial statements; however it does not expect it to have a
        material impact.

        (iii) Fair value of financial assets and financial liabilities

        On January 20, 2009, the CICA published EIC-173, entitled Credit Risk
        and the Fair Value of Financial Assets and Financial Liabilities,
        which provides further information on the determination of the fair
        value of financial assets and financial liabilities under
        Section 3855, entitled Financial Instruments - Recognition and
        Measurement. This EIC states that an entity's own credit and the
        credit risk of the counter-party should be taken into account in
        determining the fair value of financial assets and financial
        liabilities, including derivative instruments. This recommendation
        should be applied retrospectively without restatement of prior
        periods to all financial assets and liabilities measured at fair
        value in interim and annual financial statements for periods ending
        on or after the date of issuance of the Abstract, that is January 20,
        2009. The new section will become effective on January 1, 2009 for
        the Fund. The Fund is currently evaluating the effect of the adoption
        of this new section on the consolidated financial statements; however
        it does not expect it to have a material impact.

    3.  SIGNIFICANT ACCOUNTING POLICIES:

        These consolidated financial statements have been prepared by
        management in accordance with accounting principles generally
        accepted in Canada.

        (a) Basis of consolidation:

            These consolidated financial statements include the accounts of
            the Fund and its wholly owned subsidiaries from their respective
            dates of acquisition. The principal operating subsidiaries are:
            Chemtrade Logistics Inc., Chemtrade Logistics (US), Inc., BCT
            Chemtrade Corporation, Kemmax GmbH, RuhrTrans Transport GmbH,
            Chemtrade Performance Chemicals Canada Inc., Chemtrade
            Performance Chemicals US, LLC, Chemtrade Pulp Chemicals Limited
            Partnership, Chemtrade Refinery Services Inc. and Chemtrade
            Phosphorous Specialties L.L.C. All significant inter-company
            balances and transactions have been eliminated for the purposes
            of these consolidated financial statements.

        (b) Cash and cash equivalents:

            Cash equivalents are comprised of highly liquid investments
            having original terms to maturity of 90 days or less when
            acquired and are valued at fair value. There were no cash
            equivalents held at December 31, 2008 and 2007.

        (c) Inventories:

            Finished goods are valued at the lower of average cost and net
            realizable value. Average cost includes all costs of purchase,
            costs of conversion and other costs incurred to bring inventories
            to their present location and condition. Costs of conversion
            include a systematic allocation of fixed and variable production
            overheads that are incurred in converting materials into finished
            goods. The allocation of fixed production overheads is based on
            normal production capacity of the production facilities. Raw
            material inventory is recorded at the lower of cost determined on
            a first-in, first-out basis, and net realizable value.

        (d) Property, plant and equipment:

            Property, plant and equipment are depreciated on a straight-line
            basis with buildings depreciated over 15 to 20 years, equipment
            depreciated over 10 to 15 years, and furniture and other
            equipment depreciated over three to five years.

            Facilities and equipment under construction do not begin to be
            depreciated until substantially complete and ready for productive
            use.

        (e) Goodwill:

            Goodwill is the residual amount that results when the purchase
            price for an acquired business exceeds the sum of the amounts,
            based on fair values, allocated to assets acquired, less
            liabilities assumed. Goodwill is not amortized and is tested for
            impairment at least annually.

        (f) Intangibles:

            Intangibles include the estimated value at the date of
            acquisition of long-term customer and vendor relationships and
            other intangible assets. Intangibles associated with these
            relationships are amortized on a straight-line basis over 6 to 15
            years and other intangible assets are amortized on a straight-
            line basis over five years.

        (g) Impairment of long-lived assets:

            Long-lived assets, including property, plant and equipment are
            reviewed for impairment whenever events or changes in
            circumstances indicate that the carrying amount of an asset may
            not be recoverable. Recoverability of assets is measured by
            comparing the carrying amount of an asset with the estimated
            undiscounted future cash flows expected to be generated by the
            asset. If the carrying amount of an asset exceeds its estimated
            future cash flows, an impairment charge is recognized by the
            amount by which the carrying amount of the asset exceeds the fair
            value of the asset.

        (h) Income taxes:

            The Fund uses the asset and liability method of accounting for
            income taxes. Under the asset and liability method, future tax
            assets and liabilities are recognized for the future tax
            consequences attributable to differences between the financial
            statement carrying amounts of existing assets and liabilities and
            their respective tax bases. Future tax assets and liabilities are
            measured using the enacted or substantively enacted tax rates
            expected to apply to taxable income in the years in which those
            temporary differences are expected to be recovered or settled. A
            valuation allowance is recorded against a future income tax asset
            if it is not anticipated that the asset will be realized in the
            foreseeable future. The effect on future tax assets and
            liabilities of a change in tax rates is recognized in income in
            the period that includes the date of enactment or substantive
            enactment.

        (i) Post-employment benefits:

            The Fund provides health care and pension benefits for certain
            employees upon retirement. The Fund accrues these employee future
            benefits over the periods from the date of hire to the full
            eligibility date. The cost of employee future benefits is
            actuarially determined using the accumulated benefit method
            prorated based on service. These actuarial valuations are
            prepared at least every three years, with the most recent one
            valuing the obligation as at December 31, 2007.

        (j) Unit based compensation:

            The Fund operates a Total Return Long-Term Incentive Plan ("TR
            LTIP") which grants cash awards based on achieving total
            Unitholder return. The two elements that comprise total
            Unitholder return are: changes in unit price and distributions
            paid to Unitholders, over the performance period. The Fund treats
            these awards as liabilities with the value of these liabilities
            being re-measured at each reporting period, based upon changes in
            the intrinsic value of the awards. Any gains or losses on re-
            measurement are recorded in the Consolidated Statements of
            Earnings, provided that the compensation cost accrued during the
            performance period is not adjusted below zero. For any forfeiture
            of awards, accrued compensation costs are adjusted by decreasing
            compensation costs in the period of forfeiture.

        (k) Foreign currency translation:

            The accounts of the Fund's foreign operations, whose functional
            currency is U.S. dollars, are considered to be self-sustaining
            and are translated into Canadian dollars using the current rate
            method. Assets and liabilities are translated at the rates in
            effect at the balance sheet date and revenue and expenses are
            translated at average exchange rates for the period. Gains or
            losses arising from the translation of the financial statements
            of self-sustaining foreign operations are deferred in accumulated
            other comprehensive income until there is a realized reduction in
            the net investment.

            Transactions in foreign currencies are recorded at the rate in
            effect at the date of the transaction.

            Monetary assets and liabilities denominated in foreign currencies
            have been translated into Canadian dollars at the rate of
            exchange in effect at the balance sheet date and gains or losses
            are recognized in earnings.

        (l) Revenue recognition:

            Revenue from the sale of products is recognized upon shipment to,
            or receipt by customers, depending on contractual terms. Revenue
            earned on processing services is recognized when the services
            have been rendered in accordance with contractual terms. Revenue
            on the sale of certain commodities within the International
            segment are recorded on a net basis. In all cases, revenue is
            only recognized when selling prices have been fixed or are
            determinable, and collection is reasonably assured.

        (m) Asset retirement obligations:

            The fair value of estimated asset retirement obligations is
            recognized when identified and a reasonable estimate of fair
            value can be made. The asset retirement cost, equal to the
            estimated fair value of the asset retirement obligation, is
            capitalized as part of the cost of the related long-lived asset.
            The asset retirement costs are depreciated over the asset's
            estimated useful life and included in depreciation and
            amortization expense. Increases in the asset retirement
            obligation resulting from the passage of time are recorded as
            accretion of asset retirement obligation. Actual expenditures
            incurred are charged against the accumulated obligation.

            At December 31, 2008 $660 (2007 - $505) has been included in
            other long-term liabilities.

        (n) Convertible debentures:

            The convertible debentures are presented partially as debt and
            partially as equity. The equity component, representing the
            holder's option to convert into units, is presented as part of
            Unitholders' Equity. The liability component of convertible
            debentures increases to its face value over the term of the
            debenture. The offsetting charge to earnings is classified as
            accretion expense on the Consolidated Statements of Earnings.
            Conversions of debentures decrease the liability and the equity
            components of convertible debentures and increase the Fund's
            units. The convertible debentures were fully redeemed during
            2007.

        (o) Financial instruments:

            Financial instruments are 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, including embedded derivatives, 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 and notes
            receivable 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 investments during the
            year ended December 31, 2008.

            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.

            Derivative financial instruments are utilized by the Fund in the
            management of its foreign currency, commodity commitments and
            interest rate exposures. The Fund's policy is not to utilize
            derivative financial instruments for trading or speculative
            purposes. The Fund formally documents all relationships between
            hedging instruments and hedged items, as well as its risk
            management objective and strategy for undertaking various hedge
            transactions. The Fund also formally assesses, both at the
            hedge's inception and on an ongoing basis, whether the
            derivatives that are used in hedging transactions are effective
            in offsetting changes in fair values or cash flows of hedged
            items.

            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. Upon settlement, the cumulative
            gain or loss is recognized in net income. Any gain or loss in
            fair value relating to the ineffective portion is recognized
            immediately in the Consolidated Statements of Earnings in net
            interest and accretion expense. All derivative instruments that
            do not qualify for hedge accounting, or are not designated as a
            hedge, are recorded as either an asset or liability with changes
            in fair value recognized in earnings.

            The Fund has designated hedge accounting for interest swap
            arrangements. The Fund's foreign exchange contracts, natural gas
            forward contracts and commodity forward contracts have not been
            designated for hedge accounting.

        (p) Use of estimates:

            The preparation of financial statements in conformity with
            Canadian generally accepted accounting principles requires
            management to make estimates and assumptions that affect the
            reported amounts of assets and liabilities and disclosure of
            contingent assets and liabilities at the date of the balance
            sheet and reported amounts of revenue and expenses during the
            period. Actual results could differ from those estimates.

            The extreme pricing volatility currently being experienced in the
            Fund's International business could result in future results
            being affected by the non-performance of suppliers or customers.
            To the extent that such non-performance is likely, the Fund has
            made adequate provisions.

    4.  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), of which $2,248 (US$2,014) had been accrued with respect
        to certain earn out provisions. During the fourth quarter of 2007,
        the Fund refined its earn out provision accrual and reduced the
        original accrual to $1,869 (US$1,675). As at December 31, 2008, the
        total accrual is $1,206 (US$990), with $490 (US$402) 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.

    5.  GAIN ON DISPOSAL OF PROPERTY:

        During the third quarter of 2008, the Fund sold excess vacant land at
        its site in Leeds, South Carolina for gross proceeds of US$2,927. As
        a result of the sale, the Fund has recognized a gain on disposal of
        $250 (US$245).

    6.  RESTRUCTURING COSTS:

        During the fourth quarter of 2006, the Fund decided to discontinue
        production of powder SHS and costs of $2,706 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 recorded an
        additional $1,971 with respect to this decision during 2007. These
        costs included a provision for a penalty on a long-term supply
        agreement. During 2008, the penalty was waived. As a result, the Fund
        reversed the penalty provision previously recorded of $1,238.

    7.  INVENTORIES:

                                                            2008        2007
        ---------------------------------------------------------------------
        Raw materials and work in process              $   4,487   $   4,299
        Finished goods                                    30,462      17,531
        Operating supplies                                 3,175       2,501

        ---------------------------------------------------------------------
                                                       $  38,124   $  24,331
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  NOTES RECEIVABLE:

        During the second quarter of 2008, the Fund invested $2,523
        (US$2,500) in Meranol S.A.C.I. ("Meranol"). Meranol is based in
        Buenos Aires, Argentina and is a leading Argentine producer of
        sulphuric acid and other sulphur products. The investment was made in
        the form of convertible notes, convertible into 10% of the equity of
        Meranol. The notes bear an interest rate of 10% per annum. The Fund
        also has options over a specified period of time, to increase its
        investment to up to 45% of Meranol's common stock at a pre-determined
        price.

    9.  PROPERTY, PLANT AND EQUIPMENT:

                                                            2008        2007
        ---------------------------------------------------------------------

        Land                                           $   3,699   $   5,540
        Plant and equipment                              278,127     230,552
        Facilities and equipment under construction       17,637       4,907

        ---------------------------------------------------------------------
                                                         299,463     240,999
        Accumulated depreciation                        (130,289)    (92,057)
        ---------------------------------------------------------------------
        Property, plant and equipment                  $ 169,174   $ 148,942
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Depreciation expense                           $  20,715   $  21,283
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    10. INTANGIBLES AND GOODWILL:

        Intangibles                                         2008        2007
        ---------------------------------------------------------------------

        Intangibles subject to amortization:
          Customer relationships                       $ 214,226   $ 164,742
          Vendor relationships                             9,431       7,706
          Other                                              731         595
        ---------------------------------------------------------------------
                                                         224,388     173,043
        Accumulated amortization                         (87,161)    (58,232)
        ---------------------------------------------------------------------
                                                         137,227     114,811
        Intangibles not subject to amortization:
          Customer relationships                               -      29,157
        ---------------------------------------------------------------------
        Intangibles                                    $ 137,227   $ 143,968
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Amortization expense                           $  20,408   $  17,430
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        During the first quarter of 2008, the Fund renewed its agreement with
        Vale Inco Limited for the marketing of all sulphur by-products
        produced by the Vale Inco smelter in Sudbury, Ontario. This 10-year
        contract, effective as of January 1, 2008, contains similar terms to
        the previous agreements between the parties.

        At the time of the Fund's IPO, it had recorded intangibles of $29,157
        related to the Vale Inco Limited agreement and these intangibles were
        considered to have an indefinite life. Management has revised its
        estimate of the useful life of this relationship to 10 years in line
        with the current agreement term. As a result, the Fund has begun
        amortizing these intangibles on a straight-line basis over 10 years
        beginning January 1, 2008. Consequently, for the year ended
        December 31, 2008, the Fund recorded amortization of $2,916.

        The increase in goodwill of $11,140 is due to translation of goodwill
        of foreign operations.

    11. LONG-TERM DEBT:

                                                            2008        2007
        ---------------------------------------------------------------------

        Term bank debt
          US$153,138 (2007 - US$100,285)               $ 186,522   $  99,412
          Canadian dollar denominated                          -      57,060
        ---------------------------------------------------------------------
                                                         186,522     156,472
        Less: Transaction costs                           (1,499)     (1,266)
        ---------------------------------------------------------------------
        Long-term debt                                 $ 185,023   $ 155,206
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        During the third quarter of 2008, under provisions allowed by its
        credit agreement, the Fund converted its Canadian dollar denominated
        term debt of $57,060 into U.S. dollar term debt and $25,200 of its
        outstanding Canadian dollar lines of credit into U.S. dollar lines of
        credit.

        During the second quarter of 2008, the Fund extended the term of its
        senior credit facilities to August 2, 2011. This was a two year
        extension to the original term, on substantially the same terms as
        the original agreement. The Fund incurred transaction costs of $628
        related to this extension. As the Fund is treating this extension as
        a modification of the debt, rather than an extinguishment, these
        transaction costs have been added to the remaining unamortized
        transaction costs from the pre-existing agreements.

        During 2007, the Fund increased the aggregate amount that can be
        borrowed under the Fund's senior credit facilities by increasing the
        size of its operating lines of credit by $50,000. The Fund incurred
        transaction costs of $317 with respect to this amendment. The Fund
        used part of these funds to redeem the 16,378 convertible debentures
        outstanding for the principal amount plus accrued and unpaid
        interest.

        At December 31, 2008, the Fund had senior credit facilities of
        $273,907. Borrowings under these facilities may be made in Canadian
        or U.S. dollars. The credit facilities are allocated as follows:
        $186,522 term loan and $87,385 in revolving credit facilities. Under
        the credit agreement, the Fund has operating lines of credit of
        US$68,103 ($82,949) as well as bank overdraft facilities of $2,000
        and US$2,000 ($2,436). The term bank debt is not due or payable until
        August 2011. Interest is payable on outstanding term loans at rates
        that vary with Banker's Acceptances or Libor. The related financing
        costs of $3,729 have been included in the long-term debt. All
        transaction costs will be expensed to net interest and accretion
        expense using the effective interest method over the life of the
        debt.

        Borrowings under the revolving credit facilities are subject to
        interest at rates that vary with Banker's Acceptances or Libor. At
        December 31, 2008, $8,450 of the total facility has been utilized in
        the form of standby letters of credit and there are no amounts
        outstanding on the operating lines of credit (December 31, 2007 -
        $31,200 and US$10,000 ($9,913)). 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 bank agreement contains various financial covenants that if not
        complied with, could result in a restriction on funds available for
        distribution.

        In the second quarter of 2008, the Fund entered into new swap
        arrangements with its principal banker, which fix interest rates on
        all of its U.S. dollar term debt and Canadian dollar denominated term
        debt from August 2009, the previous maturity date of the Fund's
        credit facility, until August 2010. Previously, the Fund had swap
        arrangements with its principal banker which fixed interest rates on
        all of its U.S. dollar term debt and Canadian dollar denominated term
        debt until August 2009.

        In the third quarter of 2008, the Fund collapsed its swap
        arrangements on its Canadian dollar denominated term debt and
        recognized a loss of $897 which has been included in net interest and
        accretion expense. The Fund also entered into new swap arrangements
        with its principal banker in order to fix interest rates on the
        converted debt until 2010. These swap arrangements covered the entire
        amount of its converted U.S. dollar term debt (US$52,853) and a
        portion of its then outstanding converted operating lines of credit
        (US$23,342).

        During 2007, the Fund entered into a new swap arrangement with its
        principal banker which fixed the interest rate on US$10,000 of its
        then outstanding operating lines of credit until August 2009.

    12. UNITS:

        (a) Authorized:

            Unlimited number of units.

        (b) Outstanding:

                           Number of        2008     Number of        2007
                             Units         Amount      Units         Amount
        ---------------------------------------------------------------------
        Units
          Balance -
           beginning of
           year            33,582,936   $  412,957   33,582,040   $  412,944
          Issued on
           conversion of
           debentures               -            -          896           13
         Units repurchased
          for cancellation
          (note 12(c))     (1,872,526)     (23,025)           -            -
        ---------------------------------------------------------------------
        Balance - end
         of year           31,710,410   $  389,932   33,582,936   $  412,957
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        (c) Normal course issuer bid:

            On September 19, 2008, the Fund announced that it intends to
            purchase up to 3,330,094 of its units by way of a normal course
            issuer bid (the "Bid") through the facilities of the Toronto
            Stock Exchange ("TSX"), representing 10% of the public float on
            the day thereof. The purchases commenced on September 23, 2008
            and will terminate by September 22, 2009. The purchases will be
            made in accordance with the policies and rules of the TSX and
            units will be purchased for cancellation. The prices that
            Chemtrade will pay for any units will be the market price of such
            units at the time of acquisition.

            During 2008, the Fund purchased 1,872,526 units at an average per
            unit price of $9.48 for an aggregate purchase amount of $17,753.
            This resulted in $23,025 being recorded as a reduction to the
            value of units and $5,272 being recorded as contributed surplus.

        (d) Net earnings per unit:

            Net earnings per unit has been calculated on the basis of the
            weighted average number of units outstanding for the year ended
            December 31, 2008 which amounted to 33,370,769 units (2007 -
            33,582,848 units).

        (e) Equity component of convertible debentures:

            For the year ended December 31, 2007, 13 convertible debentures
            were converted into 896 units which resulted in an increase in
            units of $13 and a decrease in the debt and equity components of
            convertible debentures of $13 and $nil, respectively.

            During 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 $28 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.

        (f) Distributions:

            Distributions paid for the year ended December 31, 2008 were
            $40,086 (2007 - $40,971). All of the Fund's distributions are
            discretionary.

        (g) Long-term incentive plan:

            The Fund operates a Total Return Long-Term Incentive Plan ("TR
            LTIP") which grants cash awards based on achieving total
            Unitholder return. The two elements that comprise total
            Unitholder return are: changes in unit price and distributions
            paid to Unitholders, over the performance period. The Fund treats
            these awards as liabilities with the value of these liabilities
            being re-measured at each reporting period, based upon changes in
            the intrinsic value of the awards. Any gains or losses on re-
            measurement are recorded in the Consolidated Statements of
            Earnings, provided that the compensation cost accrued during the
            performance period is not adjusted below zero. For the year ended
            December 31, 2008, the Fund recorded total expenses of $3,165
            (2007 - $4,449) related to the TR LTIP. As at December 31, 2008
            $5,161 is outstanding, of which $1,661 (2007 - $nil) is included
            in Accrued and other liabilities, and $3,500 (2007 - $2,013) is
            included in Other long-term liabilities.

    13. OTHER COMPREHENSIVE INCOME (LOSS):

        The components of accumulated other comprehensive income (loss) as at
        December 31, 2008 and 2007 and other comprehensive income (loss) for
        the year ended were as follows:

        Accumulated
         other                Balance    Change in                   Balance
         comprehensive    December 31,  accounting               December 31,
         income (loss)           2006     policies   Net change         2007
        ---------------------------------------------------------------------
        Unrealized (loss)
         gain on
         translation of
         self-sustaining
         foreign operations
         (note 3(k))      $   (31,426) $         -  $   (21,441) $(52,867)(1)
        (Loss) gain on
         derivatives
         designated as
         cash flow hedges           -        1,783       (2,221)     (438)(2)
        ---------------------------------------------------------------------

        Accumulated other
         comprehensive
         income (loss)    $   (31,426) $     1,783  $   (23,662) $   (53,305)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Accumulated                                      Ending
         other                         Transferred      balance
         comprehensive                      to net  December 31,
         income (loss)     Net change       income         2008
        --------------------------------------------------------
        Unrealized (loss)
         gain on
         translation of
         self-sustaining
         foreign operations
         (note 3(k))      $    33,456  $         -  $(19,411)(1)
        (Loss) gain on
         derivatives
         designated as
         cash flow hedges      (4,525)       247(3)   (4,716)(2)
        --------------------------------------------------------

        Accumulated other
         comprehensive
         income (loss)    $    28,931  $       247  $   (24,127)
        --------------------------------------------------------
        --------------------------------------------------------
        (1) Net of income tax expense of $nil (2007 - $nil).
        (2) Net of cumulative income tax recovery of $3,144 (2007 - $226).
        (3) Losses on derivatives designated as cash flow hedges in prior
            years transferred to net income in the current year.


    14. SELLING, GENERAL, ADMINISTRATIVE AND OTHER COSTS:

        Selling, general, administrative and other costs include a net
        foreign exchange gain of $3,046 (2007 - $2,161).

    15. INCOME TAXES:

        The Fund is a mutual fund trust for income tax purposes and will be a
        specified investment flow-through trust ("SIFT") for years commencing
        after 2010. As such, prior to January 1, 2011 the Fund is only
        subject to current income taxes on any taxable income not distributed
        to Unitholders. Subsequent to December 31, 2010, the Fund will be
        subject to current income taxes on any taxable income not distributed
        to Unitholders and on all taxable income earned from Canadian
        corporate and flow-through subsidiaries, other than dividends from
        Canadian corporate subsidiaries distributed to Unitholders. If the
        Fund's equity capital grows beyond certain dollar limits prior to
        January 1, 2011, the Fund would become a SIFT and would commence in
        that year being subject to tax on income distributed. The Fund
        expects that its income distributed will not be subject to tax prior
        to 2011 and accordingly has not provided for future income taxes on
        its temporary differences and those of its flow-through subsidiary
        trust and partnerships expected to reverse prior to 2011 as it is
        considered tax exempt for accounting purposes.

        Taxable income distributed by the Fund to its Unitholders will be
        taxable income of those Unitholders.

        The provision for income taxes in the consolidated statements of
        operations and deficit represents an effective rate different than
        the Canadian corporate statutory rate of 32.5% (2007 - 33.4%). The
        differences are as follows:

                                                          2008          2007
        ---------------------------------------------------------------------

        Earnings before income taxes and minority
         interest                                    $  47,816     $  18,094

        Computed income tax expense at Canadian
         statutory rate                                 15,540         6,043

        Increase (decrease) resulting from:
          Income of trust taxed directly to
           unitholders                                  (8,486)      (12,538)
          Non-deductible goodwill and other
           intangibles                                     264           284
          Difference in substantially enacted tax
           rate                                            (14)          912
          International income tax rate differences     (6,904)       (4,092)
          Change in valuation allowance                  7,279         6,853
          Other                                           (194)           58
        ---------------------------------------------------------------------
        Income tax expense (recovery)                $   7,485     $  (2,480)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The tax effect of temporary differences of the Fund's corporate
        subsidiaries that give rise to significant portions of future tax
        assets and future tax liabilities are presented below:

                                                          2008          2007
        ---------------------------------------------------------------------

        Non-current future tax assets:
          Inventories                                $   1,421     $   1,012
          Loss carry forwards                           51,339        45,591
          Issuance costs                                 1,060         1,075
          Long-term incentive plan                       1,464         1,893
          Interest                                      10,398         7,586
          Asset retirement obligations                     250           705
          Prepaid expenses                               2,725             -
          Other                                              -           109
        ---------------------------------------------------------------------
                                                        68,657        57,971
          Valuation allowance                          (37,117)      (24,137)
        ---------------------------------------------------------------------
        Total future tax assets                         31,540        33,834
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Non-current future tax liabilities:
          Property, plant and equipment                 28,372        26,981
          Intangible assets                             19,192        20,742
          Ground lease                                     725           547
          Prepaid expenses                                   -           660
          Deferred charges                                   5            28
          Other                                            241             -
        ---------------------------------------------------------------------
        Total future tax liabilities                    48,535        48,958
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net future tax liability                     $ (16,995)    $ (15,124)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Classified in the financial statements as:
          Future non-current tax asset               $  13,283     $  10,272
          Future non-current tax liability             (30,278)      (25,396)
        ---------------------------------------------------------------------
        Net future tax liability                     $ (16,995)    $ (15,124)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        A valuation allowance has been provided against future tax assets of
        certain Canadian and foreign subsidiaries where the Fund has
        determined that it is more likely than not that those future tax
        assets will not be realized. The valuation allowance may be reduced
        in future periods if the Fund determines that it is more likely than
        not that all or a portion of those future tax assets will be
        realized.

        The aggregate tax bases of the Fund's assets and liabilities and the
        assets and liabilities of its flow-through subsidiaries exceed the
        aggregate carrying values by $6,952. In 2007, the aggregate tax
        bases exceeded the aggregate carrying values by $405. No future tax
        assets or liabilities have been recorded with respect to these
        temporary differences.

        Certain corporate subsidiaries of the Fund have income tax losses
        available for carry forward that expire as follows:

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

        2009                                                       $     139
        2010                                                           5,314
        2014                                                           2,918
        2015                                                           7,438
        2022 and thereafter                                          141,031

        ---------------------------------------------------------------------
                                                                   $ 156,840
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    16. POST-EMPLOYMENT BENEFITS:

        The Fund provides certain health care and pension benefits for
        certain employees upon retirement of Pulp Chemicals and Kemmax.

        Components of net periodic benefit cost           2008          2007
        ---------------------------------------------------------------------
          Current service cost                       $      66     $      90
          Interest cost                                    198           181
          Actuarial (gain)                                (407)         (693)
        ---------------------------------------------------------------------
          Costs arising in the period                     (143)         (422)
          Differences between costs arising in the
           period and costs recognized in the period
           in respect of actuarial gain                     87           224
        ---------------------------------------------------------------------
          Net periodic benefit cost recognized       $     (56)    $    (198)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Weighted-average assumptions                2008           2007
        ---------------------------------------------------------------------
          Discount rate                          6.00 - 7.50%   5.25 - 5.50%
          Ultimate other medical trend rate         4.60%          4.60%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Change in accrued benefit obligation              2008          2007
        ---------------------------------------------------------------------
          Accrued benefit obligation at beginning
           of year                                   $   3,574     $   4,256
          Current service cost                              66            90
          Interest cost                                    198           181
          Plan amendments                                  124            88
          Benefits paid                                   (185)         (170)
          Foreign exchange                                 527          (178)
          Actuarial (gain)                                (408)         (693)
        ---------------------------------------------------------------------
          Accrued benefit obligation at end of year  $   3,896     $   3,574
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Reconciliation of funded status                   2008          2007
        ---------------------------------------------------------------------
          Deficit at end of year                     $  (3,896)    $  (3,574)
          Unamortized net actuarial (gain) loss           (342)         (193)
        ---------------------------------------------------------------------
          Accrued benefit liability                  $  (4,238)    $  (3,767)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Both the pension and health care benefits are funded on a pay-as-you
        go basis. As both the pension and health care benefits are not
        funded, the Fund's accrued benefit liability was $4,238 (2007 -
        $3,767). Benefits paid in 2008 were $185 (2007 - $170). The Fund has
        not made any contributions during 2008 or 2007 for either plan. No
        assets have been segregated or restricted to provide for either plan.

        Pulp Chemicals hourly employees participate in the Pulp and Paper
        Industry Pension Trust Fund, a multi-employer, defined contribution
        pension plan. The plan is funded by employer and employee
        contributions. The employer related expense under this plan in 2008
        was $189 (2007 - $206).

        BCT employees participate in a Swiss multi-employer defined benefit
        pension plan. The employer related expense under this Plan in 2008
        was $174 (2007 - $91).

        In 2006, the Fund recorded a pension prepayment and other income of
        $717 (CHF 750), gross of future tax liability of $73, in connection
        with the liquidation of a parental welfare fund. At December 2008,
        the balance of the pension prepayment was $449 (CHF 394).

    17. COMMITMENTS AND CONTINGENCIES:

        (a) Operating leases:

            Under the terms of operating leases, the Fund is committed to
            rental payments as follows:

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

            2009                                                    $ 18,760
            2010                                                      12,243
            2011                                                       8,134
            2012                                                       5,817
            2013 and thereafter                                        6,634

            -----------------------------------------------------------------
                                                                    $ 51,588
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            The Fund has recorded deferred rent expense of $1,898 (2007 -
            $1,366) in other assets.

        (b) Environmental clean-up costs:

            The Fund's operations are subject to numerous laws, regulations
            and guidelines relating to air emissions, water discharges, solid
            and hazardous wastes, transportation and handling of hazardous
            substances and employee health and safety in Canada, the United
            States and other foreign countries where they operate. These
            environmental regulations are continually changing and are
            generally becoming more restrictive.

            The Fund owns a number of sites as a result of the acquisitions
            of certain businesses. Subject to certain limitations, the Fund
            has been indemnified by the vendors for any remediation costs or
            environmental actions that may arise as a result of conditions
            existing at the time of acquisition and consequently the Fund has
            not accrued any amount with this respect. Environmental
            assessments were conducted prior to the purchase of the sites as
            a basis to, among other things, evaluate indemnity protections
            and, where applicable, to verify the appropriateness of estimates
            for remediation costs.

        (c) Other claims:

            The Fund is involved in certain claims arising from the ordinary
            course and conduct of its business which, in the opinion of
            management, will not have a material impact upon the financial
            position of the Fund. The Fund has received indemnities from the
            vendors with respect to claims arising prior to the related
            acquisitions.

    18. 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 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 Mediterranean, North Africa,
        Central and South America, North America, as well as in the Pacific
        region.

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


        Year Ended December 31, 2008
        ---------------------------------------------------------------------
                            SPPC       Pulp       Intl       Corp      Total
        ---------------------------------------------------------------------
        Revenue from
         external
         customers    $  538,930 $   53,354 $  586,542 $        - $1,178,826

        Earnings
         before the
         under-noted      86,477     18,635     34,884    (21,060)   118,936
        Unrealized
         foreign
         exchange loss         -          -          -     16,712     16,712
        Depreciation
         and
         amortization     30,350      9,156      1,617          -     41,123
        Gain on
         disposal of
         property           (250)         -          -          -       (250)
        Net interest
         and accretion
         expense          11,235      2,700       (400)         -     13,535
        Income tax
         expense           3,497          -      3,988          -      7,485

        Net earnings      41,645      6,779     29,679    (37,772)    40,331

        Total assets     367,677     91,687    195,128        733    655,225

        Goodwill          66,883          -     31,957          -     98,840

        Intangibles       91,762     39,597      5,868          -    137,227

        Capital
         expenditures     13,628        906      4,472        822     19,828
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Year Ended December 31, 2007
        ---------------------------------------------------------------------
                            SPPC       Pulp       Intl       Corp      Total
        ---------------------------------------------------------------------
        Revenue from
         external
         customers    $  309,416 $   58,093 $  179,127 $        - $  546,636

        Earnings before
         the under-
         noted            52,040     19,546     14,942    (17,864)    68,664
        Unrealized
         foreign
         exchange gain         -          -          -       (776)      (776)
        Depreciation
         and
         amortization     27,581      9,321      1,811          -     38,713
        Net interest
         and accretion
         expense          10,762      2,094       (392)       169     12,633
        Income tax
         (recovery)
         expense          (4,079)         -      1,599          -     (2,480)
        Minority
         interest              -          -        (22)         -        (22)

        Net earnings      17,776      8,131     11,946    (17,257)    20,596

        Total assets     302,611    117,940     87,983      2,041    510,575

        Goodwill          57,672          -     30,028          -     87,700

        Intangible
         assets           93,436     45,002      5,530          -    143,968

        Capital
         expenditures      6,065        342      2,353        306      9,066
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Geographic segments:

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

        ---------------------------------------------------------------------
                               Property, Plant                Property, Plant
                                and Equipment,                 and Equipment,
                                   Goodwill                        Goodwill
                   Revenue        and Other        Revenue        and Other
                  Year ended     Intangibles      Year ended     Intangibles
                 December 31,    December 31,    December 31,    December 31,
                     2008            2008            2007            2007
        ---------------------------------------------------------------------

        Canada   $   144,927     $   122,318     $   135,221     $   133,900

        USA and
         other       447,357         234,540         232,288         206,000

        Europe       586,542          48,383         179,127          40,710

        ---------------------------------------------------------------------
                $  1,178,826     $   405,241     $   546,636     $   380,610
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        In 2008, the Fund obtained product from a producer that accounted for
        13.2% (2007 - 11.4%) of the Fund's total revenue. There were no
        customers that accounted for more than 10% of the Fund's total
        revenue in 2007 or 2008.

    19. FINANCIAL INSTRUMENTS:

        (a) Fair values of financial instruments:

            Fair value is the value that would be agreed upon in an arm's
            length transaction between willing and knowledgeable counter-
            parties. The carrying amounts of cash and cash equivalents,
            accounts receivable, operating line of credit, accounts payable,
            accrued and other liabilities and distributions payable
            approximate their fair values because of the short-term maturity
            of these financial instruments. The carrying amount of long-term
            debt, excluding transaction costs, approximates fair value as the
            debt accrues interest at prevailing market rates.

            The Fund has classified its cash and cash equivalents and notes
            receivable as held-for-trading, which are recorded at fair value.
            Accounts receivable are classified as loans and receivables,
            which are recorded at amortized cost. Operating line of credit,
            accounts payable, accrued and other liabilities, distributions
            payable and long-term debt, are classified as other financial
            liabilities, which are measured at amortized cost, using the
            effective interest method.

        (b) Derivatives and hedging:

            The Fund has entered into swap arrangements with its principal
            banker, which fix interest rates on all of its outstanding long-
            term debt. In the second quarter of 2008, the Fund entered into
            new swap arrangements with its principal banker which will fix
            interest rates on all of its term debt from August 2009, the
            previous maturity date of the Fund's credit facility, until
            August 2010. In the third quarter of 2008, the Fund converted its
            Canadian dollar long-term debt into U.S. dollar long-term debt,
            and consequently collapsed its swap arrangements on the Canadian
            dollar long-term debt. The Fund also entered into new swap
            arrangements with its principal banker which fixes interest rates
            on all of its converted U.S. dollar long-term debt and a portion
            of its converted U.S. dollar operating lines of credit. In 2007,
            the Fund entered into a swap arrangement with its principal
            banker, which fixed the interest rate on US$10,000 of its
            operating lines of credit. Gains are included in other assets and
            losses are included in accrued and other liabilities and other
            long-term liabilities with the offset included in other
            comprehensive income, except for the loss on the operating line
            of credit swap arrangements which is included in net interest and
            accretion expense. Summarized information related to the interest
            rate swaps is as follows:

        ---------------------------------------------------------------------
                                                  Fair Value      Fair Value
                                   Effective            Loss      Loss (Gain)
        Hedged      Maturity        Interest     December 31,    December 31,
         Item           Date            Rate            2008            2007
        ---------------------------------------------------------------------
        U.S.
         dollar
         long-
         term                                         $5,560            $936
         debt    August 2010           5.48%       (US$4,565)        (US$944)
        ---------------------------------------------------------------------
        Converted
         U.S.
         dollar
         long-
         term                                         $2,301
         debt    August 2010           4.64%       (US$1,889)          ($347)
        ---------------------------------------------------------------------
        U.S.
         dollar
         operating
         lines of                                      $234              $75
         credit  August 2010           5.48%        (US$192)          (US$76)
        ---------------------------------------------------------------------
        Converted
         U.S.
         dollar
         operating
         lines of                                    $1,013
         credit  August 2010           4.64%        (US$832)              $-
        ---------------------------------------------------------------------

            The Fund has entered into 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 December 31, 2008
            include future contracts to sell US$6,000, US$12,033, CHF 3,000
            and SEK 3,000 at weighted average exchange rates of C$1.1805,
            (euro)0.748, US$0.84 and US$0.13 respectively for periods through
            to December 2009. There are unrealized losses of $215 (2007 -
            $26) and unrealized gains of $1,029 (2007 - $1,960) from these
            contracts at December 31, 2008. Gains are included in prepaid
            expenses and other assets, and losses are included in accrued and
            other liabilities with the offset included in unrealized foreign
            exchange loss (gain).

            To manage its exposure to changes in the price of natural gas,
            the Fund has entered into natural gas forward contracts. The Fund
            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 $1,175 (2007 -
            $367) from these forward contracts at December 31, 2008. Losses
            are included in accrued and other liabilities and gains are
            included in prepaid expenses and other assets with the offset
            included in selling, general, administrative and other costs.

            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.

            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
            December 31, 2008 and December 31, 2007, the net unrealized value
            of these transactions is not significant.

        (c) Risks associated with financial instruments:

        (i)   Credit risk

        Credit risk arises from the non-performance by counter-parties of
        contractual financial obligations. The Fund manages credit risk for
        trade and other receivables through established credit monitoring
        activities. The Fund does not have a significant concentration of
        credit risk with any single counter-party or group of counter-
        parties. The primary counter-parties related to the foreign exchange
        forward contracts, commodity price contracts and interest rate swaps
        carry investment grade ratings. The Fund's maximum exposure to credit
        risk at the reporting date is the carrying value of its receivables
        and derivative assets.

        (ii)  Liquidity risk

        Liquidity risk is the risk that an entity will encounter difficulty
        in meeting obligations associated with financial liabilities. The
        Fund manages liquidity risk by maintaining adequate cash and cash
        equivalent balances, and by appropriately utilizing its lines of
        credit. The Fund's Treasury Department continuously monitors and
        reviews both actual and forecasted cash flows, and also matches the
        maturity profile of financial assets and liabilities.

        The Fund's financial liabilities recorded in accounts payable,
        accrued and other liabilities, distributions payable and income taxes
        payable are generally due within one year. The undiscounted cash flow
        requirements for long-term financial liabilities as at December 31,
        2008 are as follows:

                                   Less Than                          After
                          Total     1 Year    1-3 Years  4-5 Years   5 Years
    -------------------------------------------------------------------------
    Long-Term Debt     $ 186,522  $       -  $ 186,522  $       -  $       -

    Interest on Long-
     Term Debt            20,451      9,473     10,978          -          -
    -------------------------------------------------------------------------

    Total Financial
     Liabilities       $ 206,973  $   9,473  $ 197,500  $       -  $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        (iii) Market risk

        Market risk is the risk that the fair value or future cash flows of a
        financial instrument will fluctuate due to changes in market prices.
        Market risk comprises of three types of risk: currency risk, interest
        rate risk and other price risk. The Fund's market risks are as
        follows:

          (a) Currency risk

          The Fund is exposed to fluctuations in the exchange rate of the
          U.S. dollar relative to the Canadian dollar, as a portion of the
          Fund's Distributable cash after maintenance capital expenditures is
          earned in U.S. dollars. On an unhedged basis, the Fund currently
          estimates that a one-cent change in the exchange rate will have an
          impact on Distributable cash after maintenance capital expenditures
          of less than $100 per annum. The Fund is fully hedged for 2009 at a
          rate of US$0.85 per Canadian dollar.

          (b) Interest rate risk

          The Fund has a credit facility with long-term debt and operating
          lines of credit which bear variable rates of interest. As at
          December 31, 2008, on an unhedged basis, a change in interest rates
          of 1% per annum would have an impact of approximately $1,900 per
          annum. As at December 31, 2008, the Fund had fixed interest rates
          on 100% of its total debt, until August 2010.

          (c) Other price risks

          Sulphuric acid pricing -

          A change in realized sulphuric acid pricing, net of freight, of
          $1 per tonne, would have an impact in the year on revenues in North
          America of approximately $1,050. However, given the risk-sharing
          aspect of a key supply contract, the impact of price changes on
          earnings would have ranged from $450 to $550. In any specific
          period, the exact impact would also depend upon the volume that is
          subject to sales contracts where pricing has been fixed for a
          period of time. The magnitude of realized price changes also
          depends upon regional market dynamics.

          Sulphur costs -

          The Fund uses sulphur in the manufacturing of several of its
          products in North America, including sulphuric acid. At current
          operating levels, an increase of $1 per tonne would have an impact
          of approximately $120 for the year, with approximately 82% of this
          related to the production of sulphuric acid. It is important to
          note that a change in the cost of sulphur is likely to lead to a
          change in the price for sulphuric acid as this is a key input cost
          in the manufacturing of sulphuric acid. Thus, the net impact on
          earnings of changes in sulphur costs would depend upon changes in
          sulphuric acid pricing. Increasingly, the pricing of sulphuric acid
          is being adjusted for changes in sulphur costs and consequently
          future changes in the cost of sulphur are expected to be offset by
          changes in sulphuric acid pricing.

    20. CAPITAL MANAGEMENT:

        The Fund's objective when managing its capital is to safeguard the
        Fund's assets and its ability to continue as a going concern, to meet
        external capital requirements related to its credit facilities, and
        to maximize the growth of its business and the returns to its
        Unitholders. The Fund's capital structure is comprised of units and
        long-term debt. The long-term debt does not require payment until
        August 2011.

        The Fund intends to maintain a flexible capital structure consistent
        with the objectives stated above and to respond to changes in
        economic conditions and the risk characteristics of underlying
        assets. In order to maintain or adjust its capital structure, the
        Fund may purchase units for cancellation, issue new units, raise debt
        (secured, unsecured, convertible and/or other types of available debt
        instruments) or refinance existing debt with different
        characteristics.

        The Fund utilizes annual capital and operating expenditure budgets to
        facilitate the management of its capital requirement. These budgets
        are approved by the Board of Trustees. Budgets are updated if there
        are significant changes in the fundamental underlying assumptions
        during a period.

        The Fund is subject to certain covenants on its credit facilities,
        which include a debt to EBITDA ratio (as both terms are defined in
        the credit agreement) and an interest coverage ratio. The Fund
        monitors these ratios and reports them to its lenders on a quarterly
        basis. As at December 31, 2008 and December 31, 2007, the Fund was in
        compliance with the above covenants.

        There were no changes in the Fund's approach to managing capital
        during the period.

    21. COMPARATIVE FIGURES:

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

    22. SUBSEQUENT EVENT:

        Subsequent to December 31, 2008, the Fund amended its existing
        interest rate swap arrangements related to its long-term debt, to
        extend the term to August 2011. The average effective interest under
        the new swap arrangements is 4.83%. The Fund also collapsed the
        US$34,456 of interest rate swap arrangements on its operating lines
        of credit.

                       CHEMTRADE LOGISTICS INCOME FUND
                    MANAGEMENT'S DISCUSSION AND ANALYSIS
                    FOR THE YEAR ENDED DECEMBER 31, 2008
    

    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 audited consolidated financial
statements of the Fund for the year ended December 31, 2008.
    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


    ($'000         Three Months Ended                 Year Ended
     except per    ------------------                 ----------
     unit        December    December     December     December     December
     amounts)    31, 2008    31, 2007     31, 2008     31, 2007     31, 2006
    -------------------------------------------------------------------------
    Revenue     $ 292,789  $   144,580  $ 1,178,826  $   546,636  $   552,128

    Net
     earnings
     (loss)
     (4)        $  (2,460) $     9,108  $    40,331  $    20,596  $     3,820

    Net
     earnings
     (loss) per
     unit
     - Basic     $  (0.08) $      0.27  $      1.21  $      0.61  $      0.11
     - Diluted   $  (0.08) $      0.27  $      1.21  $      0.61  $      0.11

    Total
     assets(4)   $655,225  $   510,575  $   655,225  $   510,575  $   568,111

    Long-term
     debt        $185,023  $   155,206  $   185,023  $   155,206  $   173,932

    EBITDA(3)    $ 24,204  $    23,042  $   118,936  $    68,644  $    65,723
    EBITDA per
     unit(1)     $   0.74  $      0.69  $      3.56  $      2.04  $      1.96

    Cash flows
     from
     operating
     activities  $ 94,183  $    19,731  $   147,905  $    47,742  $    41,950
    Cash flows
     from
     operating
     activities
     per
     unit(1)     $   2.88  $      0.59  $      4.43  $      1.42  $      1.25

    Adjusted
     cash flows
     from
     operating
     activities(3)
                 $ 18,667  $    18,843  $    99,043  $    54,351  $    52,991
    Adjusted cash
     flows from
     operating
     activities
     per
     unit(1)(3)  $   0.57  $      0.56  $      2.97  $      1.62  $      1.58

    Distributable
     cash after
     maintenance
     capital
     expend-
     itures(3)   $ 11,490  $    16,071  $    83,488  $    47,501  $    46,383
    Distributable
     cash after
     maintenance
     capital
     expenditures
     per
     unit(1)(3)  $   0.35  $      0.48  $      2.50  $      1.41  $      1.38

    Distributions
     declared    $  9,691  $    10,074  $    39,906  $    40,299  $    48,133
    Distributions
     declared
     per unit(2) $ 0.3000  $    0.3000  $    1.2000  $    1.2000  $    1.4333

    Distributions
     paid        $  9,861  $    10,075  $    40,086  $    40,971  $    47,908
    Distributions
     paid per
     unit(2)     $ 0.3000  $    0.3000  $    1.2000  $    1.2200  $    1.4266
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Based on
     weighted average
     number of units
     outstanding
     for the
     period
     of:       32,738,881   33,582,936   33,370,769   33,582,848   33,582,040

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

    (3) See NON-GAAP MEASURES.

    (4) For the three months and year ended December 31, 2007, net earnings
        and total assets have been adjusted as a result of adopting CICA
        Handbook Section 3031, Inventories on a retrospective basis. The
        adjustment did not have a material impact on net earnings per unit
        (basic and diluted)
    

    NON-GAAP MEASURES

    EBITDA -

    Throughout this MD&A, the term EBITDA is used to describe earnings before
any deduction for net interest and accretion expense, 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           Year Ended
                            ------------------           ----------
                            December  December  December  December  December
    ($'000)                 31, 2008  31, 2007  31, 2008  31, 2007  31, 2006
    -------------------------------------------------------------------------

    Net earnings (loss)     $ (2,460) $  9,108  $ 40,331  $ 20,596  $  3,820
      Add:
      Unrealized foreign
       exchange loss (gain)   12,195       296    16,712      (776)      366
      Depreciation and
       amortization           11,240     9,051    41,123    38,713    44,367
      Impairment of
       property, plant and
       equipment                   -         -         -         -    12,276
      Gain on disposal of
       property                    -         -      (250)        -         -
      Net interest and
       accretion expense       4,070     3,050    13,535    12,633    11,438
      Net taxes                 (841)    1,552     7,485    (2,480)   (6,544)
      Minority interest            -       (15)        -       (22)        -
    -------------------------------------------------------------------------
    EBITDA(1)               $ 24,204  $ 23,042  $118,936  $ 68,664  $ 65,723
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) EBITDA for the three months and year ended December 31, 2008 includes
        recoveries of $nil and $1,238 respectively (2007 charges of $nil and
        $1,971 respectively) for restructuring. EBITDA for the year ended
        December 31, 2006 included charges of $2,706 for restructuring.
    


    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          Year Ended
                            ------------------          ----------
                            December  December  December  December  December
    ($'000)                 31, 2008  31, 2007  31, 2008  31, 2007  31, 2006
    -------------------------------------------------------------------------
    Cash flows from
     operating activities   $ 94,183  $ 19,731  $147,905  $ 47,742  $ 41,950

    Add (deduct):

    Changes in non-cash
     working capital and
     other items             (75,516)     (888)  (48,862)    6,609    11,041
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operating
     activities               18,667    18,843    99,043    54,351    52,991

    Less:

    Maintenance capital
     expenditure               7,177     2,772    15,555     6,850     6,608
    -------------------------------------------------------------------------
    Distributable cash
     after maintenance
     capital expenditure      11,490    16,071    83,488    47,501    46,383

    Less:

    Non-maintenance
     capital expenditure(1)    1,061     1,939     4,273     2,216       937
    -------------------------------------------------------------------------
    Distributable cash
     after all capital
     expenditure              10,429    14,132    79,215    45,285    45,446

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 fourth quarter of 2008 was $292.8 million,
which was more than double the consolidated revenue of $144.6 million recorded
in the fourth quarter of 2007. Consolidated revenues for the year ended
December 31, 2008 of $1.2 billion was also more than double the revenue of
$546.6 million recorded for the year ended December 31, 2007. The main reason
for the increase in quarterly and annual revenues was the extremely high
prices for acid and sulphur, both in North America and in markets served by
the International segment.
    The Fund's net loss and EBITDA for the fourth quarter of 2008 were $2.5
million and $24.2 million respectively compared to net earnings and EBITDA for
the fourth quarter of 2007 of $9.1 million and $23.0 million respectively. Net
earnings and EBITDA for 2008 were $40.3 million and $118.9 million
respectively. Comparable net earnings and EBITDA for 2007 were $20.6 million
and $68.7 million respectively. The main reason for the improvement in EBITDA
in 2008 was stronger results from the SPPC and International segments. Also,
2008 included a recovery of $1.2 million relating to restructuring activities,
whereas 2007 results included costs of $2.0 million with respect to such
activities (as described in the RESTRUCTURING section below). 2008's fourth
quarter and annual earnings were negatively impacted by the inclusion of
unrealized foreign exchange losses of $12.2 million and $16.7 million
respectively. These losses were a result of the sharp decline in the Canadian
dollar relative to the U.S. dollar towards the end of 2008. Conversely, the
Fund recorded unrealized gains on the translation of its U.S. dollar
denominated assets in foreign operations, but those are included in Other
Comprehensive Income and not Consolidated Statements of Earnings.

    
    RESULTS OF OPERATIONS BY BUSINESS SEGMENT

    SPPC -
                                 Three Months Ended          Year Ended
                                 ------------------          ----------
                                December    December    December    December
    ($'000)                     31, 2008  31, 2007(1)   31, 2008  31, 2007(1)
    -------------------------------------------------------------------------

    Revenue                     $148,438    $ 73,848    $538,930    $309,416

    Earnings before the
     under-noted (EBITDA)         16,495      12,931      86,477      52,040
    Depreciation and
     amortization                  8,551       6,395      30,350      27,581
    Gain on disposal of
     property                          -           -        (250)          -
    Net interest and debt
     accretion expense             3,626       2,613      11,235      10,762
    Income tax (recovery)
     expense                        (757)        315       3,497      (4,079)
    -------------------------------------------------------------------------
    Net earnings                $  5,075    $  3,608    $ 41,645    $ 17,776
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Depreciation and amortization and net earnings have been adjusted as
        a result of adopting CICA Handbook Section 3031, Inventories on a
        retrospective basis.
    

    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.
    For the fourth quarter of 2008, SPPC generated revenue of $148.4 million,
which was more than double the revenue of $73.8 million recorded during the
fourth quarter of 2007. The increase in 2008 revenue is primarily the result
of higher prices for acid and the effect of the weaker Canadian dollar
relative to the U.S. dollar on U.S. dollar denominated revenues. The strength
in acid prices more than offset the impact of lower volumes resulting from the
Beaumont plant being off-line for the entire fourth quarter (as described in
the BEAUMONT INCIDENT section). During the fourth quarter of 2008, SPPC's
EBITDA was $3.6 million higher than the level achieved in 2007, mainly due to
higher pricing realized for acid. This was partially offset by a few negative
items experienced during the quarter: a) lower volume of acid due to the
Beaumont plant being off-line; b) period costs incurred at Beaumont, which
should be recoverable under the Fund's business interruption insurance; c)
costs of certain maintenance activities undertaken at Beaumont while the plant
was off-line; d) higher costs for replacement SO2 purchased to offset the
reduced supply from Xstrata's Kidd Creek plant while they were undergoing a
labour disruption; and e) the impact of lower volumes and higher costs for SHS
which were only partially offset by higher selling prices for SHS. The
improvement in net earnings during the fourth quarter of 2008, relative to the
fourth quarter of 2007 was lower than the EBITDA improvement, due to increased
depreciation and amortization and higher net interest expenses. Depreciation
and amortization for the fourth quarter of 2008 were higher than the fourth
quarter of 2007 due to capital additions and amortization being recorded on
intangible assets related to the Vale Inco contracts. Net interest expenses
were higher in the fourth quarter of 2008 due mainly to the impact of the
weaker Canadian dollar relative to the U.S. dollar on U.S. dollar denominated
interest expense.
    For the year ended December 31, 2008, SPPC generated revenues of $538.9
million, an increase of approximately 74% over the level achieved during 2007.
The increase in 2008 revenue is principally the result of higher prices for
acid and sulphur, although higher prices were achieved for all products. The
effect of higher prices was moderated by lower volume of acid, due to the
Beaumont plant being off-line for the last four months of the year. During
2008, SPPC's EBITDA increased by $34.4 million. Strong results from acid more
than offset the impact of the Beaumont incident and volume and cost pressures
on SHS. The improvement in 2008 net earnings was not as much as the EBITDA
improvement, mainly due to higher depreciation and amortization expenses and
income taxes. Depreciation and amortization was higher in 2008 than 2007 due
to reasons already described above. Income tax expense was higher for 2008 due
mainly to increased earnings. Restructuring costs also had a modest, positive
impact on 2008 EBITDA and net earnings relative to 2007 (as described in the
RESTRUCTURING section below).

    
    Pulp Chemicals -

                                 Three Months Ended          Year Ended
                                 ------------------          ----------
                                December    December    December    December
    ($'000)                     31, 2008  31, 2007(1)   31, 2008  31, 2007(1)
    -------------------------------------------------------------------------
    Revenue                     $ 10,153    $ 14,635    $ 53,354    $ 58,093

    Earnings before the
     under-noted (EBITDA)          3,358       5,326      18,635      19,546
    Depreciation and
     amortization                  2,182       2,303       9,156       9,321
    Net interest expense             547         528       2,700       2,094
    -------------------------------------------------------------------------

    Net earnings                $    629    $  2,495    $  6,779    $  8,131
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Depreciation and amortization and net earnings have been adjusted as
        a result of adopting CICA Handbook Section 3031, Inventories on a
        retrospective basis.
    

    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.
    Fourth quarter 2008 Pulp Chemicals revenue was $4.4 million lower than
the level achieved during the fourth quarter of 2007. The main reason for the
decline was due to reduced customer demand towards the end of the fourth
quarter including the decision by a large customer to take downtime at the end
of December. This volume decline also negatively impacted full year revenues
and consequently, 2008 revenues were $4.7 million lower than 2007. Net
earnings and EBITDA for the fourth quarter were lower than the levels achieved
during the comparable period in 2007, also mainly due to the lower sales
volume as described above. Higher sales prices achieved during 2008 were not
enough to offset the effect of the lower sales volume in the fourth quarter
and consequently net earnings and EBITDA were lower than the levels achieved
during 2007. 2008 net earnings were negatively impacted by higher interest
expenses in 2008 due to the unwinding of interest rate swaps in conjunction
with the conversion of Canadian dollar denominated debt into U.S. dollars in
September 2008.

    
    International -

                                 Three Months Ended          Year Ended
                                 ------------------          ----------
                                December    December    December   December
     ($'000)                    31, 2008   31, 2007(1)  31, 2008  31, 2007(1)
    -------------------------------------------------------------------------
    Revenue                     $134,198    $ 56,097    $586,542    $179,127

    Earnings before the
     under-noted (EBITDA)         10,450       9,409      34,884      14,942
    Depreciation and
     amortization                    507         352       1,617       1,811
    Net interest income             (103)        (91)       (400)       (392)
    Income tax expense               (84)      1,237       3,988       1,599
    Minority interest                  -         (15)          -         (22)

    -------------------------------------------------------------------------
    Net earnings                $ 10,130    $  7,926    $ 29,679    $ 11,946
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Depreciation and amortization and net earnings have been adjusted as
        a result of adopting CICA Handbook Section 3031, Inventories on a
        retrospective basis.
    

    International operations provide removal and marketing services for
elemental sulphur and sulphuric acid. These products are marketed to customers
globally.
    During the fourth quarter of 2008, International's revenue was $134.2
million compared with $56.1 million for the same period of 2007. For 2008,
International's revenue increased by $407.4 million from the level of $179.1
achieved during 2007. The increase in revenues is primarily due to
significantly higher prices for acid and sulphur.
    International net earnings and EBITDA during the fourth quarter and year
ended December 31, 2008 were considerably higher than the comparable periods
in 2007. Although towards the end of 2008, global demand and prices for
sulphur and acid started to decline, a relatively low volume of product that
was not committed to specific customers resulted in extremely high margins and
was a key driver of the improved EBITDA and earnings. Further, during the
volatile market conditions prevalent in 2008, this segment was able to
leverage its market knowledge and infrastructure to significantly add value to
suppliers and customers and thereby earn incremental margin.

    
    Corporate


                             Three Months Ended             Year Ended
                             ------------------             ----------
                          December 31, December 31, December 31, December 31,
    ($'000)                   2008         2007         2008         2007
    -------------------------------------------------------------------------
    Cost of services        $   6,098    $   4,624    $  21,060    $  17,864

    Loss before the
     under-noted (EBITDA)      (6,098)      (4,624)     (21,060)     (17,864)
    Unrealized foreign
     exchange loss (gain)      12,195          296       16,712         (776)
    Net interest and
     accretion expense              -            -                       169
    -------------------------------------------------------------------------
    Net earnings            $ (18,293)   $  (4,920)   $ (37,772)   $ (17,257)
    -------------------------------------------------------------------------
    

    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 fourth quarter
and year ended December 31, 2008 corporate costs, excluding unrealized foreign
exchange losses were $6.1 million and $21.1 million respectively compared with
$4.6 million and $17.9 million respectively for the fourth quarter and year
ended December 31, 2007.
    Corporate costs in the fourth quarter of 2008 were negatively impacted by
an increase of $3.4 million in the allowance for doubtful accounts. The
increase was mainly due to a provision for losses expected as a result of two
customers filing for Chapter 11 reorganization in January 2009. This was
partially offset by higher realized foreign exchange gains of $0.8 million
recognized during the fourth quarter of 2008, relative to the fourth quarter
of 2007. Finally, incentive compensation recorded during the fourth quarter of
2008 was $1.2 million lower than the fourth quarter of 2007. This decrease was
mainly due to lower accruals for the Total Return Long- Term Incentive Plan
("TR LTIP").
    The increase in corporate costs during 2008 was mainly due to the
increase of $3.4 million in the allowance for doubtful accounts as explained
above. 2008 corporate costs also included legal and consulting costs relating
to the Beaumont incident (as described in the BEAUMONT INCIDENT section) and
legal and other costs relating to the EPA settlement (as described in the U.S.
ENVIRONMENTAL PROTECTION AGENCY ("EPA") SETTLEMENT section). These increases
were partially offset by lower incentive compensation costs of $0.6 million
and higher realized foreign exchange gains of $0.9 million recognized in 2008,
relative to 2007. The decrease in incentive compensation was mainly due to
lower TR LTIP accruals. 2007 corporate costs benefited from the inclusion of
US$0.8 million related to the Hurricane Rita insurance claim recovery.
    The TR LTIP accruals relate to the 2006, 2007 and 2008 TR LTIP. The 2006,
2007 and 2008 TR LTIP's are payable at the beginning of 2009, 2010 and 2011
respectively. Although an accrual with respect to these plans has been
recorded, the payouts will be based upon Total Return, 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 TR LTIP expenses that will be recordable
in any period as it is based upon future distributions and changes in unit
value.
    The Corporate segment includes large unrealized foreign exchange losses
on the translation of U.S. dollar denominated debt, which were a result of the
sharp decline in the Canadian dollar relative to the U.S. dollar towards the
end of 2008. This exchange rate fluctuation also resulted in large unrealized
foreign exchange gains on the translation of U.S. dollar denominated assets.
However, as per accounting rules, those gains are required to be shown in
Other Comprehensive Income rather than in the Consolidated Statements of
Income.
    There was no net interest and accretion expense recorded in 2008 and the
expense recorded in 2007 was relating to convertible debentures prior to their
redemption 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. The Fund recorded an additional $2.0 million of
costs related to this decision during 2007. These costs included a provision
for a penalty on a long-term supply agreement. During 2008, the penalty was
waived. As a result, the Fund reversed the penalty provision previously
recorded of $1.2 million.

    Beaumont Incident

    During the third quarter of 2008, an explosion occurred at the Fund's
Beaumont, Texas facility. Currently, it is not possible to estimate the amount
of income the Fund has lost or the expected amount of recovery the Fund will
receive under its business interruption insurance policies and therefore as at
December 31, 2008, no insurance recovery has been recorded. An insurance
recovery will be recorded when the amount of the recovery is determined. The
Beaumont plant commenced operations in January 2009. During the fourth quarter
of 2008, the Fund incurred legal and consulting costs relating to this
incident.
    During the fourth quarter of 2008, the Fund incurred capital expenditures
relating to the repair of damaged property at the Beaumont facility. These
costs are recoverable under the Fund's property insurance policy and to the
extent payment had not been received prior to December 31, 2008, an amount has
been included in Accounts receivable.

    U.S. Environmental Protection Agency ("EPA") Settlement

    In January 2009, the Fund reached a settlement with the EPA and certain
States, whereby new emission limitations will be established at each of its
five sulphuric acid manufacturing facilities. The agreement with Chemtrade
arose from a broader EPA initiative regarding the domestic sulphuric acid
manufacturing industry. Chemtrade's plants will meet these stricter limits by
various agreed dates ranging from December 2009 to December 2012. Chemtrade
anticipates that these compliance actions will cost it approximately US$6.0
million in respect of four facilities, most of which will be spent to bring
its Riverton, Wyoming facility into compliance with the new limits by December
2012. Because of Chemtrade's existing overall levels of control, the civil
penalty to be paid by Chemtrade is not material and it was recorded in 2008.
Certain additional funds and penalties will be expended in respect of
Chemtrade's Cairo facility, but those costs will be paid for by Marsulex Inc.,
pursuant to an indemnity agreement between the two companies.

    Foreign Exchange

    The Fund has operating subsidiaries that are based in the U.S. 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
currently 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 $0.1 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 December 31, 2008, approximately all
planned transfers for 2009 have been effectively hedged at $0.8471. Contracts
in place at December 31, 2008 include future contracts to sell US$6,000, US
$12,033, CHF 3,000 and SEK 3,000 at weighted average exchange rates of
C$1.1805, (euro)0.748, US$0.84 and US$0.13 respectively, for periods through
to December 2009. There are unrealized losses of $0.2 million and unrealized
gains of $1.0 million from these contracts at December 31, 2008.
    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 is recorded at
fair market value at the period end and included with Prepaid expenses and
other assets or Accrued and other liabilities on the balance sheet. The
resultant non-cash charge or gain is reported as unrealized foreign exchange
loss (gain). The impact of this non-cash charge or gain is excluded from the
computation of Distributable cash after maintenance capital expenditures. See
NON-GAAP MEASURES - Cash Flow.
    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, 2007 were a result of changes in the Canadian/U.S. dollar
exchange rate between December 31, 2007 and December 31, 2008. The rate of
exchange used to translate U.S. denominated balances has changed from a rate
of US $1.00 = $0.99 at December 31, 2007 to US$1.00 = $1.22 at December 31,
2008. See Risks and Uncertainties for additional comments on foreign exchange.

    Net Interest and Accretion Expense

    Net interest and accretion expense was $4.1 million in the fourth quarter
of 2008 compared with $3.1 million in the fourth quarter of 2007. Net interest
and accretion expense was $13.5 million for 2008 compared with $12.6 million
for 2007.
    Interest on the Canadian dollar denominated debt amounted to $nil and
$4.1 million in the fourth quarter and 2008 respectively and $1.2 million and
$4.6 million in the fourth quarter and 2007 respectively. Interest expense
during 2008 was lower than interest expense for 2007 due to the conversion of
the Canadian dollar denominated long-term debt into U.S. dollar denominated
long-term debt. This was partially offset by the recognition of the $0.9
million loss resulting from the unwinding of interest rate swaps.
    The interest on the U.S. dollar denominated debt was $1.8 million and
$6.8 million for the fourth quarter and 2008 respectively, compared with $1.6
million and $7.0 million for the fourth quarter and 2007 respectively.
Interest expense was higher during the fourth quarter of 2008 due to the
conversion of Canadian dollar denominated long- term debt into U.S. dollar
denominated long-tem debt. Interest expense for 2008 was lower than 2007
primarily because of lower usage of operating lines of credit and lower
effective annual interest rates, partially offset by interest on the converted
long-term debt. The effective annual interest rate at December 31, 2008 was
5.48% on the pre-existing debt (2007 - 5.85%) and 4.64% on the converted debt
(2007 - 5.23%). See Liquidity and Capital Resources - Financing Activities -
Financial Instruments for information concerning swap arrangements.
    Interest on the outstanding 10% convertible debentures was $nil for both
the fourth quarter and 2008, compared to $nil for the fourth quarter of 2007
and $0.2 million in 2007. The expense was lower in 2008 than 2007 due to the
redemption of all of the outstanding convertible debentures in the first
quarter of 2007.
    During the fourth quarter and 2008, the Fund recorded accretion expense
of $0.1 million and $0.7 million respectively compared with $0.2 million and
$0.8 million for the fourth quarter and 2007 respectively. This accretion is
due to the amortization of transaction costs related to the Fund's borrowings.
    During the fourth quarter and 2008, the Fund recorded interest expense of
$1.1 million and $1.2 million respectively due to the recognition of the fair
value losses of its US$34.5 million interest rate swaps which were previously
included in other comprehensive income. These hedges were de-recognized during
2008 as the operating lines of credit were repaid.

    Income Taxes

    Current income tax expense was $2.2 million for the fourth quarter of
2008 and $7.6 million for 2008, compared to $1.3 million and $2.2 million for
the fourth quarter and for 2007, respectively. The effective tax rate for 2008
was 15.6% compared to the statutory corporate tax rate of 32.5%. This
difference is primarily the result of lower tax rates in certain international
business operations and distribution of trust income to the Unitholders,
offset by the increase in the valuation allowance.
    The increase in future tax asset of $3.0 million at December 31, 2008
relative to December 31, 2007 is the result of increased tax loss carry
forwards, net of valuation allowances, and other deductible temporary
differences available in certain Canadian and foreign corporate subsidiaries.
    The increase in future tax liability of $4.9 million at December 31, 2008
relative to December 31, 2007 is the result of the increase in the taxable
temporary differences between the accounting carrying amount and the tax basis
of assets associated with certain Canadian and foreign corporate subsidiaries.
    At December 31, 2008, the Fund has $7.0 million of deductible temporary
differences related to certain flow-through subsidiaries compared with $0.4
million for 2007. The Fund has not provided for future taxes on this amount as
it is expected that these deductible temporary differences will substantially
all reverse prior to the Fund being subject to SIFT tax in 2011.

    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 month period ended
December 31, 2008 and for the years ended December 31, 2008, 2007 and 2006.

    
                         Three Months
                             Ended     Year Ended   Year Ended   Year Ended
                          December 31, December 31, December 31, December 31,
    ($'000)                   2008         2008       2007(1)        2006
    -------------------------------------------------------------------------
    Cash flows from
     operating activities   $  94,183    $ 147,905    $  47,742    $  41,950
    Net earnings               (2,460)      40,331       20,596        3,820
    Distributions paid
     during period              9,861       40,086       40,971       47,908
    Excess (shortfall) of
     cash flows from
     operating activities
     over cash distributions
     paid                      84,322      107,819        6,771       (5,958)
    Excess (shortfall) of
     net income over cash
     distributions paid     $ (12,321)   $     245    $ (20,375)   $ (44,088)
    -------------------------------------------------------------------------
    (1) For the year ended December 31, 2007 net earnings has been adjusted
        as a result of adopting CICA Handbook Section 3031, Inventories on a
        retrospective basis.
    

    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 and
foreign exchange gains and losses.
    For the year ended December 31, 2006 distributions to Unitholders
exceeded cash flows from operating activities mainly due to an increase in
working capital. The additional distribution was funded by an increase in bank
debt.

    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.
    Distributions to Unitholders for the three months and year ended December
31, 2008 were declared as follows:

    
                                                      Distribution    Total
              Record Date           Payment Date        Per Unit     ($'000)
    -------------------------------------------------------------------------
    Three months ended December 31:
          October 31, 2008        November 28, 2008    $    0.10   $   3,277
          November 30, 2008       December 31, 2008         0.10       3,236
          December 31, 2008       January 30, 2009          0.10       3,178
    -------------------------------------------------------------------------
    Sub-Total                                          $    0.30   $   9,691

    Nine months ended September 30                     $    0.90   $  30,215

    -------------------------------------------------------------------------
    Total for the year ended December 31               $    1.20   $  39,906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Distributions declared in the three months and year ended December 31,
2007 were as follows:

                                                      Distribution    Total
              Record Date           Payment Date        Per Unit     ($'000)
    -------------------------------------------------------------------------
    Three months ended December 31:
          October 31, 2007        November 30, 2007    $    0.10   $   3,358
          November 30, 2007       December 31, 2007         0.10       3,358
          December 31, 2007       January 31, 2008          0.10       3,358
    -------------------------------------------------------------------------
    Sub-Total                                          $    0.30   $  10,074

    Nine months ended September 30                     $    0.90   $  30,225

    -------------------------------------------------------------------------
    Total for the year ended December 31               $    1.20   $  40,299
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Treatment of the Fund's distributions for Canadian Income Tax purposes for
2007 and 2008 is as follows:

                                    Foreign Non-Business
                 Other Income               Income                  Total
    -------------------------------------------------------------------------
    2007            77.0%                    23.0%                  100.0%
    2008(1)         75.0%                    25.0%                  100.0%
    -------------------------------------------------------------------------
    (1) Represents anticipated tax characterization of planned distributions.
        The actual tax treatment of 2008 distributions will be determined by
        February 28, 2009.
    

    Liquidity and Capital Resources

    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 payment of interest on long-term debt
as well as the repurchase of units under the Normal Course Issuer Bid as
discussed below. The Fund intends to renew its long-term debt at maturity.

    
    Cash Flow from Operating Activities
    -----------------------------------
    
    Cash flow from operating activities for the fourth quarter of 2008 was
$94.2 million, an increase of $74.5 million from the level generated during
the fourth quarter of 2007. The increase in cash flow is primarily due to a
drastic reduction in working capital, particularly in the International
segment. The reduction was due to significantly lower prices for sulphur and
acid towards the end of 2008. Working capital in North America was also lower,
but this was mainly due to the timing of certain payments and is expected to
partially reverse in the first quarter of 2009.
    For 2008, cash flow from operating activities was $147.9 million, an
increase of approximately $100.2 million from the level achieved in 2007. The
increase in cash flow is due to a reduction in working capital of $48.8
million in 2008 whereas in 2007, working capital increased by $6.5 million.
The remainder of the increase is due to the stronger earnings generated during
2008 by the SPPC and International segments as described above.

    
    Financing Activities
    --------------------
    
    Distributions to Unitholders during the fourth quarter and 2008 were $0.2
million and $0.9 million lower respectively than the same periods in 2007.
These decreased distributions were due to the lower distribution rates in 2008
and due to lower units outstanding as a result of the buy back and
cancellation of units by the Fund pursuant to a normal course issuer bid
commenced in September 2008 (as explained in the Normal Course Issuer Bid
below).
    During the third quarter of 2008, under provisions allowed by its credit
agreement, the Fund converted its Canadian dollar denominated term debt into
U.S. dollar term debt and $25.2 million of its outstanding Canadian dollar
lines of credit into U.S. dollar lines of credit. As at December 31, 2008, the
Fund has term debt of US$153.1 million and has no amounts outstanding on its
operating lines of credit.
    Also in the third quarter of 2008, the Fund collapsed its swap
arrangements on its Canadian dollar denominated term debt and recognized a
loss of $0.9 million which has been included in net interest and accretion
expense. The Fund also entered into new swap arrangements with its principal
banker in order to fix interest rates until 2010. These swap arrangements
covered the entire amount of its converted U.S. dollar term debt (US$52.9
million) and a portion of its converted operating lines of credit (US$23.3
million).
    During the second quarter of 2008, the Fund extended the term of its
senior credit facilities with its principal bankers to August 2, 2011 on
substantially unchanged terms and conditions. This was a two year extension to
the then existing term, on substantially the same terms as the existing
agreement. The Fund incurred transaction costs of $0.6 million related to this
extension. As the Fund is treating this extension as a modification of the
debt, rather than an extinguishment, these transaction costs have been added
to the remaining unamortized transaction costs from the pre-existing
agreements. These transaction costs will be recorded as net interest and
accretion expense using the effective interest method over the life of the
extended 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 $50.0 million. The Fund then used part of this increased
credit facility to redeem the 16,378 convertible debentures outstanding for
the principal amount plus accrued unpaid interest.

    Normal Course Issuer Bid -

    On September 19, 2008, the Fund announced that it intends to purchase up
to 3,330,094 of its units by way of a normal course issuer bid (the "Bid")
through the facilities of the Toronto Stock Exchange ("TSX"), representing 10%
of the public float on the day thereof. The purchases commenced on September
23, 2008 and will terminate by September 22, 2009. The purchases will be made
in accordance with the policies and rules of the TSX and units will be
purchased for cancellation. The prices that Chemtrade will pay for any units
will be the market price of such units at the time of acquisition.
    During 2008, the Fund purchased 1,872,526 units at an average per unit
price of $9.48 for an aggregate purchase amount of $17.8 million. This
resulted in $23.0 million being recorded as a reduction to units and $5.3
million being recorded as contributed surplus.
    For additional information on cash distributions, see NON-GAAP MEASURES -
Cash Flow and EXCESS CASH FLOWS AND NET INCOME OVER DISTRIBUTIONS PAID.

    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. In the second quarter
of 2008, the Fund entered into new swap arrangements with its principal
banker, which will fix interest rates on all of its U.S. dollar long-term debt
and Canadian dollar denominated long- term debt from August 2009, the previous
maturity date of the Fund's credit facility, until August 2010. In the third
quarter of 2008, the Fund converted its Canadian dollar long-term debt into
U.S. dollar long-term debt, and consequently collapsed its swap arrangements
on the Canadian long-term debt. The Fund also entered into new swap
arrangements with its principal banker which fixes interest rates on all of
its converted U.S. dollar long-term debt and a portion of its converted U.S.
dollar operating lines of credit. In the fourth quarter of 2007, the Fund
entered into a new swap arrangement to fix the interest rate on US$10 million
of its operating lines of credit. The effective interest rate under the
pre-existing swap arrangements is 5.48% and on the outstanding converted U.S.
dollar long-term debt and operating lines of credit swap arrangements is
4.64%. At December 31, 2008, the fair values of the above noted agreements
were liabilities of $9.1 million (US$7.5 million). See comments under Net
Interest and Accretion Expense for comments on these rates.
    Subsequent to December 31, 2008, the Fund amended its existing interest
rate swap arrangements related to its long-term debt, to extend the term to
August 2011. The average effective interest under the new swap arrangements is
4.83%. The Fund also collapsed the US $34.5 million of interest rate swap
arrangements on its operating lines of credit.
    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 December 31, 2008,
the fair value of these agreements is $1.2 million in favour of the Fund.
These contracts are accounted for as derivatives with gains or losses recorded
in selling, general, administrative and other costs.

    
    Investing Activities
    --------------------
    
    Investment in capital expenditures was $8.2 million in the fourth quarter
of 2008, compared with $4.7 million in the fourth quarter of 2007. These
amounts include $7.2 million in the fourth quarter of 2008 and $2.8 million in
the fourth quarter of 2007 for maintenance capital requirements. Investment in
capital expenditures for 2008 was $19.8 million compared with $9.1 million for
2007. The maintenance capital expenditure components were $15.6 million for
2008 and $6.9 million for 2007. As previously disclosed, the Fund intends to
continue upgrading its manufacturing assets and consequently maintenance
capital expenditures for 2009 are expected to be higher than 2008 and similar
to total 2008 expenditures.
    Investment in non-maintenance capital expenditures were $1.1 million and
$4.3 million during the fourth quarter and 2008 respectively compared with
$1.9 million and $2.2 million during the fourth quarter and 2007 respectively.
Most of the non-maintenance capital expenses during 2007 and 2008 were related
to the expansion of the Rotterdam terminal, in the International segment,
which was completed during 2008. 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.
    During the third quarter of 2008, the Fund sold excess vacant land at its
site in Leeds, South Carolina for gross proceeds of US$2.9 million. As a
result of the sale, the Fund has recognized a gain on disposal of $0.3 million
(US$0.2 million).
    During the second quarter, the Fund invested US$2.5 million in Meranol
S.A.C.I. ("Meranol"). Meranol is based in Buenos Aires, Argentina and is a
leading Argentine producer of sulphuric acid and other sulphur products. The
investment was made in the form of convertible notes, convertible into 10% of
the equity of Meranol. The notes bear an interest rate of 10% per annum. The
Fund also has options over a specified period of time, to increase its
investment to up to 45% of Meranol's common stock at a pre-determined price.
    On May 1, 2007, the Fund completed the purchase of Olin Corporation's
liquid sodium hydrosulphite ("SHS") customer contracts for $6.4 million
(US$5.7 million), a portion of which is subject to certain earn out
provisions. During the fourth quarter of 2007, the Fund refined its earn out
provision accrual and reduced the original accrual recognized upon
acquisition. The acquisition does not include Olin's manufacturing assets. The
Fund incurred transaction related costs of $0.2 million.

    Cash Balances -

    At December 31, 2008 the Fund had net cash balances of $48.1 million and
working capital deficit of $18.8 million. Comparable numbers for December 31,
2007 were $11.8 million and working capital of $35.9 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, general corporate purposes and other legal
obligations.

    Future Liquidity -

    The future liquidity of the Fund will be primarily dependant on cash
flows of its operating subsidiaries. These cash flows will be used to finance
ongoing expenditures, including maintenance capital, distributions to
Unitholders and normal course financial commitments. Cash flows are sensitive
to changes in volume, sales prices and input costs and any changes in these
may impact future liquidity. Management believes that cash flows from
operating activities will be sufficient for the Fund to meet future
obligations and commitments that arise in the normal course of business
activities.

    Capital Resources -

    At December 31, 2008, the Fund had senior credit facilities of $273.9
million, consisting of a term loan of $186.5 million and a revolving credit
facility of $87.4 million. The term bank debt is not due or payable until
August 2011. At December 31, 2008, in addition to the entire term loan, the
Fund had nothing drawn on its operating lines of credit, however, it had
committed a total of $8.5 million of its revolving credit facility towards
standby letter of credits. Subject to certain limits set out in the credit
agreement, the credit facilities may be used to finance working capital, fund
acquisitions, invest in capital assets, buy back units and pay distributions
to Unitholders.

    Debt Covenants -

    As at December 31, 2008, the Fund was compliant with all debt covenants
contained in its credit facility.

    
    Summary of Quarterly Results

                                           Three Months Ended
                                           ------------------
                          March 31,      June 30, September 30,  December 31,
    ($'000)                   2008          2008          2008          2008
    -------------------------------------------------------------------------
    Revenue              $ 217,790     $ 274,276     $ 393,971     $ 292,789
    Cost of sales and
     services              182,943       230,432       346,615       255,955
    -------------------------------------------------------------------------
    Gross profit            34,847        43,844        47,356        36,834
    Selling, general,
     administrative and
     other costs            13,333        13,558         5,662        12,630
    Restructuring costs     (1,238)            -             -            -
    -------------------------------------------------------------------------
    Earnings before the
     under-noted            22,752        30,286        41,694        24,204
    Unrealized foreign
     exchange loss             551           446         3,520        12,195
    Depreciation and
     amortization            9,845        10,145         9,893        11,240
    Gain on disposal of
     property                    -             -          (250)            -
    Net interest and
     accretion expense       3,031         2,795         3,639         4,070
    Income taxes (net)        (129)        3,053         5,402          (841)
    Minority interest            -             -             -
    -------------------------------------------------------------------------
    Net earnings (loss)  $   9,454     $  13,847     $  19,490     $  (2,460)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                           Three Months Ended
                                           ------------------
                           March 31,     June 30,  September 30, December 31,
    ($'000)                 2007(1)       2007(1)       2007(1)       2007(1)
    -------------------------------------------------------------------------
    Revenue              $ 128,661     $ 130,163     $ 143,232     $ 144,580
    Cost of sales and
     services              108,654       103,291       114,546       110,772
    -------------------------------------------------------------------------
    Gross profit            20,007        26,872        28,686        33,808
    Selling, general,
     administrative and
     other costs             7,530        10,893         9,549        10,766
    Restructuring costs      1,481           490             -             -
    -------------------------------------------------------------------------
    Earnings before the
     under-noted            10,996        15,489        19,137        23,042
    Unrealized foreign
     exchange loss (gain)      (28)         (800)         (244)          296
    Depreciation and
     amortization           10,225         9,792         9,645         9,051
    Net interest and
     accretion expense       3,060         3,162         3,361         3,050
    Income taxes (net)      (1,714)       (1,671)         (647)        1,552
    Minority interest           (2)           (2)           (3)          (15)
    -------------------------------------------------------------------------
    Net earnings (loss)  $    (545)    $   5,008     $   7,025     $   9,108
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Depreciation and amortization and net earnings (loss) have been
        adjusted as a result of adopting CICA Handbook Section 3031,
        Inventories on a retrospective basis.
    

    The Fund generally has higher earnings in the second half of the year
than the first half. This is because demand for SHS and Refinery Services is
typically highest in the summer months. The effect is exacerbated because
owing to the demand pattern, the Fund generally schedules maintenance
turnarounds at its major plants in the first half of the year.
    In 2007, earnings were even more weighted to the second half of the year,
as the first half of the year included restructuring costs of $2.0 million.
Additionally, to match the timing of a key customer's major maintenance
turnaround, the Fund decided to schedule turnarounds at two of its largest
regen plants during the first quarter. These factors resulted in the first
quarter of 2007 having an inordinately low level of earnings .
    Despite the typical maintenance turnarounds during the first two quarters
of 2008, revenues and earnings were relatively high, mainly due to higher
prices for sulphuric acid and sulphur, which led to strong results in SPPC and
International segments. In general, the improvement in earnings during 2008 is
mainly due to strong fundamentals for sulphuric acid. Revenue during the
fourth quarter of 2008 was less than the third quarter of 2008 mainly due to
lower revenue in the International segment, primarily as a result of lower
prices for acid and sulphur in International markets. This did not have a
significant impact on EBITDA. Earnings during the fourth quarter of 2008 were
negatively impacted by large unrealized foreign exchange losses as explained
in the Corporate Cost segment above.
    Selling, general, administrative and other costs ("S,G&A") during the
second quarter of 2007 were unusually high mainly due to the accrual of $3.1
million in connection with the Fund's TR LTIP. The accrual related to the 2006
transitional TR LTIP and the 2006 and 2007 TR LTIP. The 2006 transitional TR
LTIP was paid out in July 2007 and the 2006 and 2007 TR LTIP's are payable at
the beginning of 2009 and 2010 respectively. S,G&A was also high in the third
quarter of 2007 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).
S,G&A in the fourth quarter of 2007 and the first half of 2008 was high due to
accruals for the TR LTIP and for annual incentive compensation. Finally, S,G&A
during the fourth quarter of 2008 was negatively impacted by the accrual of
$3.4 million with respect to doubtful accounts.

    Contractual Obligations

    Information concerning contractual obligations is shown below:

    
    Contractual Obligations       Less Than                          After
           ($'000)         Total    1 Year   1-3 Years  4-5 Years   5 Years
    -------------------------------------------------------------------------
    Long Term Debt     $ 186,522  $       -  $ 186,522  $       -  $       -
    Operating Leases      51,588     18,760     20,377      8,347      4,104
    Interest on
     Long-Term Debt       20,451      9,473     10,978          -          -
    -------------------------------------------------------------------------
    Total Contractual
     Obligations       $ 258,561  $  28,233  $ 217,877  $   8,347  $   4,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    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. The Fund faces various risks associated with its
business. These risks include, amongst others, a general reduction in demand
for its products, 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 in an
enterprise-wide business risk assessment, which included a review of the 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 ongoing aspect of the Fund's
risk management program. In addition, the Fund maintains an extensive
insurance program which includes general liability and environmental coverage.

    Credit Risk -

    Credit risk arises from the non-performance by counter-parties of
contractual financial obligations. The Fund manages credit risk for trade and
other receivables through established credit monitoring activities. The Fund
does not have a significant concentration of credit risk with any single
counter-party or group of counter- parties. The primary counter-parties
related to the foreign exchange forward contracts, commodity price contracts
and interest rate swaps carry investment grade ratings. The Fund's maximum
exposure to credit risk at the reporting date is the carrying value of its
receivables and derivative assets.

    Dependence on Vale Inco Relationship -

    Vale Inco Limited ("Vale Inco") is the Fund's largest sulphur products
supplier. During the first quarter of 2008, the Fund renewed its agreement
with Vale Inco for the marketing of all sulphur by- products produced by the
Vale Inco smelter in Sudbury, Ontario. The new 10-year contract, which
contains similar terms to the prior agreements between the parties, was
effective as of January 1, 2008. For the year ended December 31, 2008, this
supply source accounted for approximately 13% of the Fund's revenues. Vale
Inco has a significant collective bargaining agreement which expires on May
31, 2009, which could result in a disruption of supply.

    Exchange Rates -

    The Fund is exposed to fluctuations in the exchange rate of the U.S.
dollar relative to the Canadian dollar, as a portion of the Fund's
Distributable cash after maintenance capital expenditures is earned in U.S.
dollars. On an unhedged basis, the Fund currently estimates that a one-cent
change in the exchange rate will have an impact on Distributable cash after
maintenance capital expenditures of less than $0.1 million per annum. The Fund
has forward exchange contracts in place for 2009 at a rate of US$0.85 per
Canadian dollar.
    Since certain Canadian entities within the group have U.S. dollar
denominated debt, unrealized gains and losses on the periodic translation of
this debt will be recorded in the Consolidated Statements of Earnings.
However, because these are unrealized they will not affect Distributable cash
after maintenance capital expenditures.

    Interest Rates -

    The Fund has a credit facility with term debt and operating lines of
credit which bear variable rates of interest. As at December 31, 2008, on an
unhedged basis, a change in interest rates of 1% per annum would have an
impact of approximately $1.9 million per annum. As at December 31, 2008, the
Fund had fixed interest rates on its total debt, until August 2010.

    Sulphuric Acid Pricing -

    A change in sulphuric acid pricing, net of freight, of $1 per tonne,
would have an impact on annual revenues in North America of approximately $1.1
million. However, given the risk-sharing aspect of a key supply contract, the
impact on EBITDA would range from $0.5 million to $0.6 million. In any
specific period, the exact impact would also depend upon the volume that is
subject to sales contracts where pricing has been fixed for a period of time.
The magnitude of realized price changes also depends upon regional market
dynamics.

    Sulphur Costs -

    The Fund uses sulphur in the manufacturing of several of its products,
including sulphuric acid. At current operating levels, an increase of $1 per
tonne would have an impact of approximately $0.1 million per annum. It is
important to note that a change in the cost of sulphur may lead to a change in
the price for sulphuric acid as this is a key input cost in the manufacturing
of sulphuric acid. Thus, the net impact of changes in sulphur costs would
depend upon changes in sulphuric acid pricing.

    Sodium Chlorate Pricing -

    Approximately 65% of the Fund's sodium chlorate sales are to Canfor on a
long-term contract, whereby selling price is adjusted based on changes in
virtually all variable costs. Thus, the Fund's exposure to changes in market
prices of sodium chlorate is limited to the remainder of its output.

    Other Input Costs -

    There are several other large input costs, such as natural gas, zinc,
salt and electricity, but in most cases there are contractual arrangements
with customers, or other offsets within the business, which mitigate the
exposure to changes in these costs.

    Labour Relations -

    As indicated in our Annual Information Form, the contract term of the
collective bargaining agreement with the Teamsters Union for the Fund's
Niagara Falls location will end on May 31, 2009 and negotiations have not yet
began. Although management believes the parties will enter into a mutually
acceptable agreement, there can be no assurance as to the terms of the new
agreement or that such agreement will be reached without interruption of work.
    All other union agreements are in effect through 2009, with expiry dates
ranging from 2010 to 2013.

    CRITICAL ACCOUNTING POLICIES

    The Fund's accounting policies are described in Note 3 to the
consolidated financial statements for the year ended December 31, 2008.

    Use of Estimates -

    The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the balance
sheet and reported amounts of revenue and expenses during the period. Actual
results could differ from those estimates.
    The extreme pricing volatility currently being experienced in the Fund's
International business could result in future results being affected by the
non-performance of suppliers or customers. To the extent that such
non-performance is likely, the Fund has made adequate provisions.

    Capital Disclosures -

    Effective January 1, 2008, the Fund adopted the recommendations of the
Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1535,
Capital Disclosures. This section 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. This new section relates to disclosure and does not have an impact
on the Fund's financial results.

    Inventories -

    Effective January 1, 2008, the Fund adopted the recommendations of CICA
Handbook Section 3031, 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 previous guidance of the "lower of cost and market". The
new section requires the reversal of any write-downs previously recognized, if
applicable. Certain minimum disclosures are also 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 section also clarifies the definition of cost to include all
costs of purchase, costs of conversion and other costs incurred to bring
inventories to their present location and condition. Costs of conversion
include a systematic allocation of fixed and variable production overheads
that are incurred in converting materials into finished goods. The allocation
of fixed production overheads is based on normal production capacity of the
production facilities.
    The new section requires that depreciation be included in the fixed costs
of conversion when costing inventories. Previously, the Fund had excluded
depreciation from its cost of inventory. The Fund has elected to apply this
section retrospectively and has adjusted the comparative figures to comply
with the new section.

    Financial Instruments -

    Effective January 1, 2008, the Fund adopted the recommendations of CICA
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. These new sections relate to disclosure and presentation only and do not
have an impact on the Fund's financial results.

    RECENT ACCOUNTING PRONOUNCEMENTS

    Fair Value of Financial Assets and Financial Liabilities -

    On January 20, 2009, the CICA published EIC-173, entitled Credit Risk and
the Fair Value of Financial Assets and Financial Liabilities, which provides
further information on the determination of the fair value of financial assets
and financial liabilities under Section 3855, entitled Financial Instruments -
Recognition and Measurement. This EIC states that an entity's own credit and
the credit risk of the counter-party should be taken into account in
determining the fair value of financial assets and financial liabilities,
including derivative instruments. This recommendation should be applied
retrospectively without restatement of prior periods to all financial assets
and liabilities measured at fair value in interim and annual financial
statements for periods ending on or after the date of issuance of the
Abstract, that is January 20, 2009. The new section will become effective on
January 1, 2009 for the Fund. The Fund is currently evaluating the effect of
the adoption of this new section on the consolidated financial statements;
however it does not expect it to have a material impact.

    Convergence to International Financial Reporting Standards ("IFRS") -

    In 2006, the Canadian Accounting Standards Board ("AcSB") published a new
strategic plan that will significantly affect financial reporting requirements
for Canadian publicly accountable entities. The AcSB strategic plan outlines
the convergence of Canadian GAAP with International Financial Reporting
Standards ("IFRS") over an expected five year transitional period. In February
2008 the AcSB announced that 2011 is the changeover date for publicly
accountable companies to use IFRS, replacing Canada's own GAAP. The changeover
date applies to interim and annual financial statements relating to fiscal
years beginning on or after January 1, 2011. For the Fund, the transition date
of January 1, 2011 will require the restatement for comparative purposes of
amounts reported by the Fund for the year ended December 31, 2010. The
following outlines the Fund's IFRS conversion plan.

    The Fund's IFRS Changeover Plan: Assessment as of December 31, 2008:

    
    -------------------------------------------------------------------------
    Key Activity                 Milestones                 Status/Deadlines
    -------------------------------------------------------------------------
    IFRS Conversion   Review of current standards vs.   The review is
     Scoping Phase    IFRS. Identification of           complete and the
                      significant differences.          determination of
                                                        financial impact is
                      Assessment of available           in progress.
                      resources.

                      Assignment and training of
                      cross-functional and core team.
    -------------------------------------------------------------------------
    Decisions on      Formal review of differences in   Some review sessions
     Accounting       each area with the core team and  have been completed.
     Policies and     members of cross functional team
     IFRS1            as required.                      The Fund will
                                                        continue review
                      Assessment of differences         sessions through
                      between IFRS and the Fund's       2009.
                      current practices.

                      Decision on accounting policy
                      choices and IFRS1 for each
                      assessed area.
    -------------------------------------------------------------------------
    Information       Identification of IT              Completed - The Fund
     Technology       requirements, both hardware and   has determined that
     Evaluation       software, for IFRS conversion.    an upgrade of its ERP
                                                        software is required.
                      Development of implementation
                      plan for new or upgraded          A transition plan has
                      software and any additional       been rolled out for
                      hardware required.                the ERP software
                                                        upgrade. The upgrade
                      Monitoring of transition plan.    is scheduled to be
                                                        implemented during
                                                        2009.
    -------------------------------------------------------------------------
    Control           Review and assessment of impact   As the Fund completes
     Environment:     of accounting policy choices      reviews and
     Internal         and changes relating to IFRS      assessments of
     Control Over     conversion.                       accounting sections
     Financial                                          and makes decisions
     Reporting and    Update of internal control        on accounting
     Disclosure       testing procedures and            policies and IFRS1
     Controls and     documentation for all accounting  choices, appropriate
     Procedures       policy choices and changes.       changes to ensure the
                                                        integrity of internal
                      Implementation of appropriate     control over
                      changes:                          financial reporting
                                                        and disclosure
                       -  MD&A Disclosure               controls and
                           Requirements                 procedures are being
                       -  Key Performance Indicators    made.
                       -  Investor Relations
                           Communication Process
    -------------------------------------------------------------------------
    Financial         Identification of transactions    Sign-off of skeleton
     Statement        impacted by IFRS conversion.      financial statements
     Preparation                                        from Senior
                      An assessment of these            Management to be
                      transactions, appropriate         received by the end
                      changes and re-mapping will be    of 2009.
                      completed.

                      The assessment and re-mapping
                      will form the skeleton of the
                      IFRS compliant financial
                      statements.
    -------------------------------------------------------------------------
    Financial Impact  Analysis of differences between   Quantification of
     Analysis for     Canadian GAAP and IFRS that was   differences between
     Transactional    completed will be quantified.     Canadian GAAP and
     Areas            Senior Management and external    IFRS will be
                      auditors to review and sign-off.  completed during
                                                        2010.
    -------------------------------------------------------------------------
    Business          Identification of impacts on      Assessments and
     Activities       business activities to be         identifications of
     Impact           completed.                        impacts of the
                                                        conversion to IFRS
                      Completion of any                 are underway.
                      renegotiations.                   Identification of
                                                        impacts is to be
                                                        completed during 2010
                                                        and any necessary re-
                                                        negotiations are to
                                                        be completed during
                                                        that period.
    -------------------------------------------------------------------------
    

    Goodwill and Intangible Assets -

    In February 2008, the CICA issued Handbook Section 3064 - Goodwill and
Intangible Assets. Section 3064 states that upon their initial identification,
intangible assets are to be recognized as assets only if they meet the
definition of an intangible asset and the recognition criteria. This section
also provides further information on the recognition of internally generated
intangible assets (including research and development costs). As for
subsequent measurement of intangible assets, goodwill, and disclosure, Section
3064 carries forward the requirements of the old Section 3062 - Goodwill and
Other Intangible Assets. The new section will become effective on January 1,
2009 for the Fund. The Fund is still in the process of evaluating the effect
of the adoption of this new section on the consolidated financial statements;
however it does not expect it to have a material impact.

    EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

    The Fund maintains a set of disclosure controls and procedures designed
to ensure that information required to be disclosed in the reports that the
Fund publicly files is recorded, processed, summarized and reported within a
timely manner and that such information is accumulated and communicated to the
Fund's management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding disclosure. The
Chief Executive Officer and the Chief Financial Officer have evaluated the
Fund's disclosure controls procedures as of December 31, 2008 through inquiry,
review and testing. The Chief Executive Officer and the Chief Financial
Officer have concluded that, as at December 31, 2008, the Fund's disclosure
control procedures were effective.
    The Fund also maintains a system of internal controls over financial
reporting designed under the supervision of the Fund's Chief Executive Officer
and Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with Canadian GAAP. The Fund retained an
independent third party consultant to assist in the assessment of its internal
control procedures.
    The Fund's management, including the Chief Executive Officer and the
Chief Financial Officer, is responsible for establishing and maintaining
adequate internal control over financial reporting and evaluating its
effectiveness. Management has used the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO") framework to evaluate the effectiveness of
the Fund's internal control over financial reporting as of December 31, 2008.
Based on this evaluation, management has concluded that as at December 31,
2008, the Fund's internal controls over financial reporting were effective.

    OUTLOOK

    It is extremely difficult to forecast demand for our products in the
current economic environment. We do not see an appreciable increase in demand
over the fourth quarter of 2008, until at least the second half of 2009. While
our business model and some of our contracts mitigate the effects of certain
commodity movements, a sustained decrease in demand will adversely affect
Chemtrade. Despite a lack of demand specificity, we believe that we will
generate per unit Distributable cash after maintenance capital expenditures,
at least equal to our current distribution rate. We have strengthened and
repositioned certain of our businesses since 2007. We plan on higher levels of
capital expenditures in 2009 relative to 2007, but believe that we will
achieve Distributable cash in excess of our $1.20 per unit distribution rate,
even if the economy does not recover from what we have seen since December
2008.
    Over the last few years we pursued initiatives to improve our business
and to position ourselves for the long term and will continue this process in
2009. Since macro-economic factors are beyond our control, we will maintain
our focus on generating cash, enhancing reliability through improvements to
our capital assets and processes and protecting our balance sheet to retain
our financial flexibility. We will however be closely monitoring the demand
for our products and will continue to maintain a healthy balance between
short-term and long-term initiatives.

    OTHER

    Additional information concerning the Fund, including the Annual
Information Form, is filed on SEDAR and can be accessed at www.sedar.com.

    February 19, 2009


    
                           UNITHOLDER INFORMATION

    Chemtrade Logistics Inc.
    ------------------------

        Officers                          Head Office
                                          Suite 300
        Mark Davis                        155 Gordon Baker Road
        President and CEO                 Toronto, Ontario
                                          M2H 3N5
        Rohit Bhardwaj
        Vice-President, Finance and CFO   Tel: (416) 496-5856
                                          Fax: (416) 496-9942
        Doug Cadwell
        Vice-President, Marketing         Website: www.chemtradelogistics.com

        Leon Aarts                        Stock Exchange Listing
        Vice-President, Sales             The Toronto Stock Exchange
                                          Stock symbol: CHE.UN
        Tab McCullough
        Vice-President, Manufacturing     Transfer Agent and Registrar
                                          CIBC Mellon Trust Company
        Maryann Romano                    P. O .Box 7010
        Vice-President, Human Resources   Adelaide Street Postal Station
                                          Toronto, Ontario
        Susan Paré                        M5C 2W9
        Corporate Secretary
                                          Answerline: Toronto (416) 643-5500
                                          Toll Free: 1-800-387-0825
                                          Email: inquiries@cibcmellon.com

                                          Website:
                                          www.cibcmellon.com/investorinquiry

                                          Investor Information
                                          Unitholders or other interested
                                          parties seeking financial
                                          information about the Fund are
                                          invited to call:

                                          Rohit Bhardwaj
                                          Vice-President, Finance and CFO
                                          (416) 496-5856
    





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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