Chemtrade Logistics Income Fund Announces 2009 Fourth Quarter and Annual
Results

TORONTO, Feb. 24 /CNW/ - Chemtrade Logistics Income Fund (TSX: CHE.UN) today announced results for the three months and year ended December 31, 2009. Chemtrade generated Distributable cash after maintenance capital expenditures for the year and fourth quarter that comfortably exceeded the Fund's current rate of distributions to Unitholders.

Mark Davis, President and Chief Executive Officer of Chemtrade, said, "We are pleased with the resiliency of our business as evidenced by our 2009 financial results. Similar to many companies, Chemtrade faced difficult economic conditions in 2009. We also faced some supply challenges with our Beaumont plant not resuming full operations until the second quarter and then the cessation of product supply from Vale Inco, a key supplier of sulphur products, since early May. In spite of these challenges, Chemtrade generated distributable cash after maintenance capital expenditures of $1.46 per unit for the year and $0.41 for the quarter, both of which more than adequately covered our annual distribution of $1.20 per unit."

Adjusted cash flow from operating activities for the fourth quarter was $22.1 million (2008: $18.7 million) and Distributable cash after maintenance capital expenditures for the period was $12.7 million, or $0.41 per unit (2008: $11.5 million, or $0.35 per unit), generated from revenue of $132.8 million (2008: $292.8 million). Earnings before interest, income taxes, depreciation and amortization (EBITDA) for the fourth quarter were $24.1 million (2008: $24.2 million) and net earnings were $12.5 million compared with a net loss of $2.5 million in the same period in 2008, which included unrealized foreign exchange losses of $12.2 million. Results for the fourth quarter of 2009 reflected the strong operating performance of the International and Pulp segments. The quarter's aggregate results also include the settlement of the business interruption insurance claim for the incident at the Beaumont plant in August 2008, offset by increased corporate costs. The fourth quarter 2008 results were affected by the Beaumont plant being off-line, and an increase of $3.4 million in the allowance for doubtful accounts.

For the full year, adjusted cash flow from operating activities was $68.7 million (2008: $99.0 million) and Distributable cash after maintenance capital expenditures was $44.9 million (2008: $83.5 million), or $1.46 per unit (2008: $2.50 per unit). EBITDA was $81.3 million (2008: $118.9 million) and net earnings for 2009 were $46.9 million (2008: $40.3 million).

Sulphur Products & Performance Chemicals (SPPC) generated revenue of $68.6 million in the fourth quarter compared with $148.4 million in the fourth quarter of 2008, reflecting lower prices for sulphur and sulphuric acid and lower volumes for most products, particularly lower sulphuric acid volume due to the work stoppage at Vale Inco, Chemtrade's largest supplier of sulphur products. EBITDA was $20.7 million in the fourth quarter compared with $16.5 million in 2008. EBITDA for the fourth quarter included an insurance recovery of $8.6 million relating to the settlement of the Beaumont business interruption claim whereas in the fourth quarter of 2008 Beaumont was off-line because of the incident. Net earnings of $14.2 million in the fourth quarter of 2009 compared with $5.1 million in the fourth quarter of 2008 reflected the higher operating results and lower interest expense and income taxes.

Pulp Chemicals reported improved fourth quarter revenue of $13.4 million compared with $10.2 million in 2008, reflecting increased demand. EBITDA was $5.2 million, compared with $3.4 million in 2008 and net earnings were $2.5 million in the fourth quarter of 2009 compared with $0.6 million earned in the same quarter of 2008.

International reported revenue of $50.7 million for the fourth quarter, compared with $134.2 million in 2008. Although revenue was lower than in 2008 when demand and prices were stronger, the segment benefited from certain contracts where customers who had delayed delivery from earlier in the year honoured their commitments in the fourth quarter. International generated EBITDA for the quarter of $16.2 million compared with $10.5 million last year.

Mr. Davis said, "Chemtrade's 2009 financial results reflected solid operating performances of our underlying businesses under difficult economic conditions and challenging supply issues for our largest volume product. The results demonstrate the ability of our business model and diversity of our earnings to mitigate the impact of adverse factors, and the success of our team in finding solutions that maintained our customer relationships.

"Looking ahead, the economy is on a stronger footing than a year ago. Demand for our products has stabilized and we expect the current level to be sustained or improve during 2010. The supply/demand characteristics for one of our key products, merchant sulphuric acid, are improving. Increased demand and the reduction of the acid supply base are among the positive trends for Chemtrade, though it may take some time for these factors to work their way through the supply chain. We believe these positive trends, together with our strong balance sheet and ample liquidity, are more than sufficient to maintain our distribution rate of $1.20 per unit."

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 2009.

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

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

This news release contains forward-looking statements about the objectives, strategies, financial condition, results of operations and businesses of the Fund, including, but not limited to:

    
    -   The state of the economy and its effect on the Fund's business and
        products.
    -   The Fund's ability to sustain its current distribution rate.
    

Financial outlook information contained in this press release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this press release should not be used for purposes other than those for which it is disclosed herein.

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 2009 results will be webcast live on www.chemtradelogistics.com and www.newswire.ca/webcast on Thursday, February 25, 2010 at 10:00 a.m.

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

                                                   December 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------

    ASSETS

    Current assets
      Cash and cash equivalents                    $    19,885   $    48,050
      Accounts receivable (note 4)                      75,748       138,640
      Inventories (note 6)                              20,107        38,124
      Prepaid expenses and other assets (note
       18(b))                                            2,284         6,259

    -------------------------------------------------------------------------
                                                       118,024       231,073

    Restricted cash (note 8(a))                          2,599             -
    Notes receivable (note 7)                            2,627         3,045
    Property, plant and equipment (note 8)             156,960       169,174
    Other assets (note 16(a))                            2,164         2,583
    Future tax asset (note 14)                          14,084        13,283
    Intangibles (note 9)                               108,389       137,227
    Goodwill (note 9)                                   90,630        98,840

    -------------------------------------------------------------------------
                                                   $   495,477   $   655,225
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities
      Accounts payable                                  42,918       122,685
      Accrued and other liabilities (notes 11(f)
       and 18(b))                                       42,920        71,024
      Distributions payable                              3,067         3,178
      Income taxes payable                               2,855         8,157

    -------------------------------------------------------------------------
                                                        91,760       205,044

    Long-term debt (note 10)                           160,105       185,023
    Other long-term liabilities (notes 11(f)
     and 18(b))                                         19,075        12,706
    Post-employment benefits (note 15)                   4,051         4,238
    Future tax liability (note 14)                      20,082        30,278

    Unitholders' equity
      Units (note 11(b))                               377,144       389,932
      Contributed surplus (note 11(c))                   9,720         5,272
      Deficit                                         (143,112)     (153,141)
      Accumulated other comprehensive (loss)
      (note 12)                                        (43,348)      (24,127)

    -------------------------------------------------------------------------
                                                       200,404       217,936

    Commitments and contingencies (note 16)
    -------------------------------------------------------------------------
                                                   $   495,477   $   655,225
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------

    Revenue                                        $   546,192   $ 1,178,826

    Cost of sales and services (excluding
     depreciation disclosed below)                     422,010     1,015,945

    -------------------------------------------------------------------------
    Gross profit                                       124,182       162,881

    Selling, general, administrative and other
     costs (note 13)                                    42,863        45,183
    Restructuring costs (note 5)                             -        (1,238)

    -------------------------------------------------------------------------
    Earnings before the under-noted                     81,319       118,936

    Unrealized foreign exchange (gain) loss and
     ineffectiveness of cash flow hedges               (10,937)       16,712
    Depreciation and amortization                       44,146        41,123
    Loss (gain) on disposal of property, plant
     and equipment                                          79          (250)
    Net interest and accretion expense (note 10)         8,693        13,535

    -------------------------------------------------------------------------
    Earnings before income taxes                        39,338        47,816

    Income taxes (note 14)
      Current                                            3,040         7,613
      Future                                           (10,622)         (128)

    -------------------------------------------------------------------------
                                                        (7,582)        7,485

    -------------------------------------------------------------------------
    Net earnings                                   $    46,920   $    40,331
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per unit (note 11(d))
      Basic                                        $      1.52   $      1.21
      Diluted                                      $      1.52   $      1.21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cost of sales and services for the year ended December 31, 2009 does not
    include $22,412 (2008 - $17,020) of depreciation relating to plant
    buildings and equipment.

    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 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------

    Units
    Balance, beginning of year                     $   389,932   $   412,957
    Re-purchase of units (note 11(c))                  (12,788)      (23,025)
    -------------------------------------------------------------------------
    Balance, end of year                           $   377,144   $   389,932
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Contributed surplus
    Balance, beginning of year                     $     5,272   $         -
    Re-purchase of units (note 11(c))                    4,448         5,272
    -------------------------------------------------------------------------
    Balance, end of year                           $     9,720   $     5,272
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Deficit
    Balance, beginning of year                     $  (153,141)  $  (154,040)
    Changes in accounting policies                           -           474
    -------------------------------------------------------------------------
    Balance, beginning of year, as adjusted           (153,141)     (153,566)
    Net earnings                                        46,920        40,331
    Distributions                                      (36,891)      (39,906)
    -------------------------------------------------------------------------
    Balance, end of year                           $  (143,112)  $  (153,141)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive income
     (loss) (note 12)
    Balance, beginning of year                     $   (24,127)  $   (53,305)
    Other comprehensive (loss) income                  (19,221)       29,178
    -------------------------------------------------------------------------
    Balance, end of year                           $   (43,348)  $   (24,127)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.


    Consolidated Statements of Comprehensive Income
    (in thousands of dollars)

                                                    Year ended    Year ended
                                                   December 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------

    Net earnings                                   $    46,920   $    40,331

    Change in unrealized loss on translation of
     self-sustaining foreign operations                (21,524)       33,456
    Change in unrealized loss on derivatives
     designated as cash flow hedges                        397        (4,525)
    Losses on derivatives designated as cash
     flow hedges in prior years transferred to
     net income in the current year                      1,906           247
    -------------------------------------------------------------------------
    Other comprehensive (loss) income                  (19,221)       29,178

    -------------------------------------------------------------------------
    Comprehensive income                           $    27,699   $    69,509
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
       Net earnings                                $    46,920   $    40,331
       Items not affecting cash:
         Depreciation and amortization                  44,146        41,123
         Future income taxes                           (10,622)         (128)
         Accretion expense                                 575           664
         Loss (gain) on sale of property, plant
          and equipment                                     79          (309)
         Gain on settlement of property damage
          claim (note 4)                                (2,671)            -
         Change in fair value of derivatives and
          unrealized foreign exchange (gain) loss       (9,813)       17,406

    -------------------------------------------------------------------------
                                                        68,614        99,087

      (Increase) decrease in working capital           (27,481)       48,817

    -------------------------------------------------------------------------
                                                        41,133       147,904

    Financing activities:
      Distributions to unitholders                     (37,003)      (40,086)
      Re-purchase of units (note 11(c))                 (8,340)      (17,753)
      (Decrease) in operating line of credit                 -       (41,113)
      Financing transaction costs                            -          (628)
      Increase in other long-term liabilities            6,330         7,590

    -------------------------------------------------------------------------
                                                       (39,013)      (91,990)

    Investing activities:
      Decrease in restricted cash                          181             -
      Additions to property, plant and equipment,
       net of insurance proceeds (note 4)              (24,706)      (19,828)
      Acquisitions (note 8(a))                          (6,106)            -
      Proceeds from disposal of property, plant
       and equipment                                       279         2,787
      Notes receivable                                       -        (2,523)

    -------------------------------------------------------------------------
                                                       (30,352)      (19,564)

    Effect of exchange rates on cash held in
     foreign currencies                                     67          (104)

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

    (Decrease) increase in cash and cash
     equivalents                                       (28,165)       36,246

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

    -------------------------------------------------------------------------
    Cash and cash equivalents - end of year        $    19,885   $    48,050
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information:
      Cash taxes paid                              $     8,343   $     1,018
      Cash interest paid                           $     8,901   $    13,219
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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, 2009

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

    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 17.

    2.  CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

        (a) Changes in accounting policies:

        (i) Financial instruments disclosures

        In May 2009, the Canadian Institute of Chartered Accountants (CICA)
        amended Handbook Section 3862, Financial Instruments - Disclosures,
        to include additional disclosure requirements about fair market value
        measurements for financial instruments and liquidity risk
        disclosures. These amendments require a three-level hierarchy that
        reflects the significance of the inputs used in making the fair value
        measurements. Fair values of assets and liabilities included in
        Level 1 are determined by reference to unadjusted quoted prices at
        the measurement date for identical assets and liabilities in active
        markets. Assets and liabilities in Level 2 include valuations using
        observable inputs other than quoted prices included in Level 1, such
        as quoted prices for similar assets and liabilities in active
        markets; quoted prices for identical or similar assets and
        liabilities in markets that are not active; or other inputs that are
        observable or can be corroborated by observable market data. Level 3
        valuations are based on significant unobservable inputs which are
        supported by little or no market activity. This new standard became
        effective for the Fund on December 31, 2009, and the related
        disclosure is included in note 18(c) to the consolidated financial
        statements.

        (ii) Goodwill and intangible assets

        Effective January 1, 2009, the Fund adopted the recommendations of
        the CICA 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 adoption of this section did not have an impact on
        the Fund's consolidated financial statements.

        (iii) Fair value of financial assets and financial liabilities

        Effective January 1, 2009, the Fund adopted the recommendations of
        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. The adoption
        of this EIC did not have an impact on the Fund's consolidated
        financial statements.

        (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 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 continues to assess the impact of the
        convergence of Canadian GAAP and IFRS, and will implement the new
        IFRS standards.

        (ii) Business combinations

        In January 2009, the CICA issued Handbook Sections 1582, Business
        Combinations; 1601, Consolidated Financial Statements; and 1602,
        Non-Controlling Interests. These sections replace Handbook Sections
        1581, Business Combinations; and 1600, Consolidated Financial
        Statements. Section 1582 establishes standards for the accounting for
        business combinations that is equivalent to the business combination
        accounting standard under IFRS. Section 1582 is applicable for the
        Fund's business combinations with acquisition dates on or after
        January 1, 2011. Early adoption of this section is permitted.
        Sections 1601 and 1602 establish standards for the preparation of
        consolidated financial statements and for accounting for a
        non-controlling interest in a subsidiary in the consolidated
        financial statements subsequent to a business combination. Sections
        1601 and 1602 are applicable for the Fund's interim and annual
        consolidated financial statements for its fiscal year beginning
        January 1, 2011. Early adoption of these sections is also permitted.
        If the Fund chooses to early adopt any one of these sections, the
        other two sections must also be adopted at the same time. The Fund is
        currently evaluating the effect of these new sections on the
        consolidated financial statements.

    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 GmbH, Chemtrade
            Performance Chemicals Canada Inc., Chemtrade Performance
            Chemicals US, LLC, Chemtrade Pulp Chemicals Limited Partnership,
            Chemtrade Refinery Services Inc., Chemtrade Phosphorous
            Specialties L.L.C. and Alliance Specialty Chemicals, Inc. 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, 2009 and 2008.

        (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. 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 of an acquired business exceeds the sum of the amounts
            allocated to the assets acquired, less liabilities assumed, based
            on their fair values. Goodwill is allocated as of the date of the
            business combination to the Fund's reporting units that are
            expected to benefit from the synergies of the business
            combination.

            Goodwill is not amortized and is tested for impairment annually,
            or more frequently if events or changes in circumstances indicate
            that the asset might be impaired. The impairment test is carried
            out in two steps. In the first step, the carrying amount of the
            reporting unit is compared with its fair value. When the fair
            value of a reporting unit exceeds its carrying amount, goodwill
            of the reporting unit is considered not to be impaired and the
            second step of the impairment test is unnecessary. The second
            step is carried out when the carrying amount of a reporting unit
            exceeds its fair value, in which case the implied fair value of
            the reporting unit's goodwill is compared with its carrying
            amount to measure the amount of the impairment loss, if any. The
            implied fair value of goodwill is determined in the same manner
            as the value of goodwill is determined in a business combination
            described in the preceding paragraph, using the fair value of the
            reporting unit as if it was the purchase price. When the carrying
            amount of reporting unit goodwill exceeds the implied fair value
            of the goodwill, an impairment loss is recognized in an amount
            equal to the excess and is presented as a separate line item in
            the Consolidated Statements of Earnings.

        (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
            pro-rated 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. Total Unitholder return is the aggregate of
            unit price changes and per unit 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 (loss) 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, 2009 $606 (2008 - $660) has been included in
            other long-term liabilities.

        (n) 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. The Fund's
            own credit risk and the credit risk of the counter-party are
            taken into account in determining the fair value of financial
            assets and financial liabilities, including the derivative
            instruments. 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 earnings 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, restricted
            cash 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 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. The Fund had neither
            available-for-sale, nor held-to-maturity investments at the year
            ended December 31, 2009 or 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
            commitment.

            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 on-going 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 earnings. Any gain or loss in
            fair value relating to the ineffective portion is recognized
            immediately in the Consolidated Statements of Earnings in
            unrealized foreign exchange (gain) loss and ineffectiveness of
            cash flow hedges. 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.

        (o) 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.
            Significant judgements and estimates include provisions for
            non-performance of customer and supplier contracts, allowance for
            doubtful accounts and goodwill.

    4.  INSURANCE CLAIM:

        During the third quarter of 2008, an incident occurred at the Fund's
        Beaumont, Texas facility, which resulted in property damage and
        business interruption. The Fund has settled the property damage and
        the business interruption insurance claim with its insurer.

        During 2009, the Fund received payments of US$5,500 and has recorded
        a receivable of US$5,140 at December 31, 2009 related to its business
        interruption claim. The related income has been recorded as a
        reduction to selling, general, administrative and other costs in the
        SPPC segment.

        During the fourth quarter of 2008 and the first quarter of 2009, the
        Fund incurred capital expenditures of US$9,839 relating to the repair
        of damaged property at the Beaumont facility. The Fund has concluded
        its property damage claim and has recovered most of its capital
        expenditures relating to the repair. Since the repair costs exceeded
        the net book value of the damaged assets and because the Fund was
        reimbursed the repair costs, the Fund recognized a non-cash gain of
        $2,671 at the conclusion of the claim. This gain was included in
        selling, general, administrative and other costs in the SPPC segment.
        The Fund also recovered $1,097 of costs incurred to preserve the
        assets during the repair process. This recovery was included in cost
        of sales and services in the SPPC segment where the costs were
        originally recorded.

    5.  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.

    6.  INVENTORIES:

                                                          2009          2008
        ---------------------------------------------------------------------

        Raw materials and work in process          $     3,465   $     4,487
        Finished goods                                  13,924        30,462
        Operating supplies                               2,718         3,175

        ---------------------------------------------------------------------
                                                   $    20,107   $    38,124
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    7.  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.

    8.  PROPERTY, PLANT AND EQUIPMENT:

                                                          2009          2008
        ---------------------------------------------------------------------

        Land                                       $     4,102   $     3,699
        Plant and equipment                            270,621       278,127
        Facilities and equipment under
         construction                                   19,837        17,637
        ---------------------------------------------------------------------
                                                       294,560       299,463
        Accumulated depreciation                      (137,600)     (130,289)
        ---------------------------------------------------------------------
         Property, plant and equipment             $   156,960   $   169,174
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Depreciation expense                       $    24,278   $    20,715
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (a) Alliance Specialty Chemicals, Inc.:

            On October 2, 2009 the Fund completed the purchase of the
            outstanding shares of Alliance Specialty Chemicals, Inc.
            (Alliance) for $6,106 (US$5,630). The Fund incurred transaction
            related costs of $150 (US$138).

            The acquisition has been accounted for as an acquisition of
            assets. These consolidated financial statements reflect the
            acquired assets at assigned fair values as follows:

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

            Restricted cash                                      $     2,781
            Property, plant and equipment                              3,325

            -----------------------------------------------------------------
            Consideration paid in cash                           $     6,106
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            Restricted cash is restricted for reimbursement of significant
            non-routine maintenance costs at one of the Fund's facilities.

        (b) Gain on disposal of property:

            During 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 recognized a gain on disposal of
            $250 (US$245).

    9.  INTANGIBLES AND GOODWILL:

        Intangibles                                       2009          2008
        ---------------------------------------------------------------------

        Intangibles subject to amortization:
          Customer relationships                   $   198,884   $   214,226
          Vendor relationships                           8,160         9,431
          Other                                            631           731
        ---------------------------------------------------------------------
                                                       207,675       224,388
        Accumulated amortization                       (99,286)      (87,161)
        ---------------------------------------------------------------------
        Intangibles                                $   108,389   $   137,227
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Amortization expense                       $    19,868   $    20,408
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At the time of the Fund's IPO, it had recorded intangibles of $29,157
        related to the Vale Inco Limited (Vale Inco) agreement and these
        intangibles were considered to have an indefinite life. When the
        agreement with Vale Inco was renewed in the first quarter of 2008,
        management revised its estimate of the useful life of the intangibles
        to 10 years to coincide with the current 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, 2009, the Fund recorded amortization of $2,916 (2008 -
        $2,916).

        The decrease in goodwill of $8,210 is due to translation of goodwill
        of foreign operations.

    10. LONG-TERM DEBT:

                                                          2009          2008
        ---------------------------------------------------------------------

        Term bank debt
          US$153,138 (2008 - US$153,138)           $   160,948   $   186,522
        Less: Transaction costs                           (843)       (1,499)
        ---------------------------------------------------------------------
        Long-term debt                             $   160,105   $   185,023
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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.

        At December 31, 2009, the Fund had senior credit facilities of
        $236,626. Borrowings under these facilities may be made in Canadian
        or U.S. dollars. The credit facilities are allocated as follows:
        $160,948 term loan and $75,678 in revolving credit facilities
        (operating lines of credit of US$68,103 ($71,576) as well as bank
        overdraft facilities of $2,000 and US$2,000 ($2,102)). The term bank
        debt is not due or payable until August 2011. 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 LIBOR. 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.

        At December 31, 2009, $7,309 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, 2008 -
        $nil).

        The bank agreement contains various financial covenants that if not
        complied with, could result in a restriction on funds available for
        distribution.

        The interest rate on the Fund's term debt is the aggregate of LIBOR
        and a margin which varies based on the level of a ratio, as set out
        in the Fund's credit agreement. During the first quarter of 2009, the
        Fund entered into new interest rate swap arrangements which fixed the
        LIBOR component of its interest rate on all of its outstanding term
        debt until August 2011. For the year ended December 31, 2009, the
        Fund's weighted average effective interest rate on its term debt was
        4.83%.

        Previously the Fund had interest rate swaps related to its term debt
        and operating lines of credit, which fixed interest rates until
        August 2010. The Fund collapsed all of these interest rate swaps upon
        entering into the new interest rate swap arrangements and rolled the
        related fair value liability of $9,790 into its new interest rate
        swaps. This value will be amortized on a straight-line basis over the
        remaining term of the term debt in unrealized foreign exchange (gain)
        loss and ineffectiveness of cash flow hedges.

        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.

    11. UNITS:

        (a) Authorized:

            Unlimited number of units.

        (b) Outstanding:

                         Number of          2009     Number of          2008
                             Units        Amount         Units        Amount
        ---------------------------------------------------------------------
        Units
        Balance -
         beginning
         of year        31,710,410  $    389,932    33,582,936   $   412,957
        Units
         re-purchased
         for
         cancellation
         (note 11(c))   (1,039,940)      (12,788)   (1,872,526)      (23,025)
        ---------------------------------------------------------------------
        Balance - end
         of year        30,670,470  $    377,144    31,710,410   $   389,932
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (c) Normal course issuer bid:

            From September 23, 2008 to September 22, 2009, the Fund purchased
            an aggregate of 2,912,466 of its units by way of a normal course
            issuer bid through the facilities of the Toronto Stock Exchange
            (TSX). The purchases were made in accordance with the policies
            and rules of the TSX and units were purchased for cancellation.
            The prices that the Fund paid for the units purchased were the
            market price of such units at the time of acquisition.

            During 2009, the Fund purchased 1,039,940 units at an average per
            unit price of $8.02 for an aggregate purchase amount of $8,340.
            This resulted in $12,788 being recorded as a reduction to the
            value of units and $4,448 being recorded as contributed surplus.

            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, 2009 which amounted to 30,818,352 units (2008 -
            33,370,769 units).

        (e) Distributions:

            Distributions paid for the year ended December 31, 2009 were
            $37,003 (2008 - $40,086). All of the Fund's distributions are
            discretionary.

        (f) 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 over a performance period. Total Unitholder
            return consists of changes in unit price and distributions paid
            to Unitholders. 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
            aggregate compensation cost accrued during the performance period
            is not adjusted below zero. For the year ended December 31, 2009,
            the Fund recorded an expense of $12,545 (2008 - $3,165) related
            to the TR LTIP. As at December 31, 2009 a liability of $15,979
            (2008 - $5,161) has been recorded, of which $5,177 (2008 -
            $1,661) is included in Accrued and other liabilities and $10,802
            (2008 - $3,500) is included in Other long-term liabilities.

    12. ACCUMULATED OTHER COMPREHENSIVE (LOSS):

        The components of accumulated other comprehensive (loss) as at
        December 31, 2009 and 2008 and other comprehensive income (loss) for
        the year ended were as follows:

        Accumulated
         other                Balance               Transferred      Balance
         comprehensive    December 31,                   to net  December 31,
          (loss)                 2007   Net change       income         2008
        ---------------------------------------------------------------------

        Unrealized (loss)
         gain on
         translation of
         self-sustaining
         foreign
         operations
         (note 3(k))      $   (52,867) $    33,456  $         -  $(19,411)(1)
        (Loss) gain on
         derivatives
         designated as
         cash flow hedges        (438)      (4,525)       247(2)   (4,716)(3)
        ---------------------------------------------------------------------
        Accumulated other
         comprehensive
         (loss)           $   (53,305) $    28,931  $       247  $   (24,127)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Accumulated                                       Ending
         other                          Transferred      balance
         comprehensive                       to net  December 31,
          (loss)            Net change       income         2009
        ---------------------------------------------------------

        Unrealized (loss)
         gain on
         translation of
         self-sustaining
         foreign
         operations
         (note 3(k))      $   (21,524) $         -  $(40,935)(1)
        (Loss) gain on
         derivatives
         designated as
         cash flow hedges         397      1,906(4)   (2,413)(3)
        --------------------------------------------------------
        Accumulated other
         comprehensive
         (loss)           $   (21,127) $     1,906  $   (43,348)
        --------------------------------------------------------
        --------------------------------------------------------
        (1) Net of income tax expense of $nil (2008 - $nil).
        (2) Losses on derivatives designated as cash flow hedges in prior
            years transferred to net income in the current year.
        (3) Net of cumulative income tax recovery of $2,266 (2008 - $3,144).
        (4) Ineffectiveness of cash flow hedges.


    13. SELLING, GENERAL, ADMINISTRATIVE AND OTHER COSTS:

        Selling, general, administrative and other costs include a net
        foreign exchange gain of $1,809 (2008 - $3,046).

    14. 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. The Fund
        will not be subject to tax on income received from non-Canadian
        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 certain 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 32.2% (2008 - 32.5%). The
        differences are as follows:

                                                            2009        2008
        ---------------------------------------------------------------------
        Earnings before income taxes                  $   39,338  $   47,816

        Computed income tax expense at Canadian
         statutory rate                                   12,667      15,540

        Increase (decrease) resulting from:
          Income of trust taxed directly to unitholders  (15,437)     (8,486)
          Non-deductible goodwill and other intangibles      262         264
          Difference in substantially enacted tax rate       285         (14)
          International income tax rate differences       (6,506)     (6,904)
          Change in valuation allowance                    1,461       7,279
          Other                                             (314)       (194)
        ---------------------------------------------------------------------
        Income tax (recovery) expense                 $   (7,582) $    7,485
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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:

                                                            2009        2008
        ---------------------------------------------------------------------
        Non-current future tax assets:
          Inventories                                 $      616  $    1,421
          Loss carry forwards                             44,992      51,339
          Issuance costs                                     900       1,060
          Long-term incentive plan and incentive
           compensation                                    5,135       1,464
          Interest                                        12,273      10,398
          Asset retirement obligations                       229         250
          Prepaid expenses                                 1,985       2,725
          Allowance for doubtful accounts                  1,803       1,501
          Unrealized foreign exchange                      1,545           -
          Other                                              785       1,292
        ---------------------------------------------------------------------
                                                          70,263      71,450
          Valuation allowance                            (36,814)    (37,117)
        ---------------------------------------------------------------------
        Total future tax assets                           33,449      34,333
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Non-current future tax liabilities:
          Property, plant and equipment                   23,840      28,372
          Intangible assets                               14,829      19,192
          Unrealized foreign exchange                          -       3,034
          Ground lease                                       698         725
          Deferred charges                                    80           5
        ---------------------------------------------------------------------
        Total future tax liabilities                      39,447      51,328
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net future tax liability                      $   (5,998) $  (16,995)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Classified in the financial statements as:
          Future non-current tax asset                $   14,084  $   13,283
          Future non-current tax liability               (20,082)    (30,278)
        ---------------------------------------------------------------------
        Net future tax liability                      $   (5,998) $  (16,995)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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 $7,946. In 2008, the aggregate tax bases
        exceeded the aggregate carrying values by $6,952. At December 31,
        2009 a future tax asset of $1,140 (2008 - $nil) has been recorded
        with respect to these temporary differences.

        Certain corporate subsidiaries of the Fund have losses for income tax
        purposes that are available to reduce future taxable income. A
        valuation allowance has been applied against $57,776 of the losses in
        one of the U.S. corporate subsidiaries. The losses expire as follows:

        ---------------------------------------------------------------------
        2010                                                      $    1,026
        2014                                                           2,918
        2015                                                           6,410
        2022 and thereafter                                          132,794
        ---------------------------------------------------------------------
                                                                  $  143,148
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    15. POST-EMPLOYMENT BENEFITS:

        The Fund provides certain health care and pension benefits for
        certain employees upon retirement of Pulp Chemicals and Kemmax. Both
        the pension and health care benefits are funded on a pay-as-you go
        basis.

        Components of net periodic benefit cost             2009        2008
        ---------------------------------------------------------------------
        Current service cost                          $       35  $       66
        Interest cost                                        219         198
        Actuarial (gain)                                     339        (407)
        ---------------------------------------------------------------------
        Costs arising in the period                          593        (143)
        Differences between costs arising in the
         period and costs recognized in the period in
         respect of actuarial gain                          (350) 	      87
        ---------------------------------------------------------------------
        Net periodic benefit cost recognized          $      243  $      (56)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Weighted average assumptions                        2009        2008
        ---------------------------------------------------------------------
        Discount rate                                  5.30-7.25%  6.00-7.50%
        Ultimate other medical trend rate                   4.50%       4.60%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Change in accrued benefit obligation                2009        2008
        ---------------------------------------------------------------------
        Accrued benefit obligation at beginning
         of year                                      $    3,896  $    3,574
        Current service cost                                  35          66
        Interest cost                                        219         198
        Plan amendments                                       41         124
        Benefits paid                                       (263)       (185)
        Foreign exchange                                    (430)        527
        Actuarial (gain)                                     339        (408)
        ---------------------------------------------------------------------
        Accrued benefit obligation at end of year     $    3,837  $    3,896
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Reconciliation of funded status                     2009        2008
        ---------------------------------------------------------------------
        Deficit at end of year                        $   (3,837) $   (3,896)
        Unamortized net actuarial (gain) loss               (214)       (342)
        ---------------------------------------------------------------------
        Accrued benefit liability                     $   (4,051) $   (4,238)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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 2009
        was $179 (2008 - $189).

        BCT employees participate in a Swiss multi-employer defined benefit
        pension plan. The employer related expense under this Plan in 2009
        was $295 (2008 - $174).

    16. COMMITMENTS AND CONTINGENCIES:

        (a) Operating leases:

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

            -----------------------------------------------------------------
            2010                                                  $   19,232
            2011                                                      13,789
            2012                                                      11,174
            2013                                                       8,027
            2014                                                       2,934
            2015 and thereafter                                        3,186
            -----------------------------------------------------------------
                                                                  $   58,342
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            The Fund has recorded deferred rent expense of $1,827 (2008 -
            $1,898) 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 of these sites and
            consequently the Fund has not accrued any amount in 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.

    17. 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 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 produces sodium chlorate and crude tall oil. These products are
        marketed primarily to Canadian customers.

        Intl. provides removal and marketing services for 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.

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

        Year Ended December 31, 2009
        ---------------------------------------------------------------------
                              SPPC      Pulp     Intl.     Corp.       Total
        ---------------------------------------------------------------------
        Revenue from
         external
         customers        $323,928  $ 52,386  $169,878  $      -    $546,192

        Earnings before the
         under-noted        66,334    19,161    28,083   (32,259)     81,319
        Unrealized foreign
         exchange (gain)         -         -         -   (10,937)    (10,937)
        Depreciation and
         amortization       32,585     9,328     2,233         -      44,146
        Loss on disposal of
         property, plant and
         equipment               -         -        79         -          79
        Net interest and
         accretion expense   6,978     1,832      (116)       (1)      8,693
        Income taxes       (10,404)        -     3,962    (1,140)     (7,582)

        Net earnings        37,175     8,001    21,925   (20,181)     46,920

        Total assets       241,940   103,821   148,512     1,204     495,477

        Goodwill            60,097         -    30,533         -      90,630

        Intangibles         69,934    34,192     4,263         -     108,389

        Capital
         expenditures       21,964     1,404       673       665      24,706
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------



        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, plant
         and  equipment       (250)        -         -         -        (250)
        Net interest and
         accretion expense  11,235     2,700     (400)         -      13,535
        Income taxes         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
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Geographic segments:

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

        ---------------------------------------------------------------------
                                          Property,                 Property,
                                         Plant and                 Plant and
                                         Equipment,                Equipment,
                                          Goodwill                  Goodwill
                              Revenue    and Other      Revenue    and Other
                           Year ended  Intangibles   Year ended  Intangibles
                          December 31, December 31, December 31, December 31,
                                 2009         2009         2008         2008
        ---------------------------------------------------------------------
    	    Canada             $  119,875   $  110,876   $  144,927   $  122,318

        USA and other         256,439      202,174      447,357      234,540

        Europe                169,878       42,929      586,542       48,383
        ---------------------------------------------------------------------

                           $  546,192   $  355,979   $1,178,826   $  405,241
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        There were no producers from which the Fund obtained product that
        accounted for more than 10% of the Fund's total revenue in 2009. In
        2008, the Fund obtained product from a producer that accounted for
        13.2% of the Fund's total revenue. In 2009, revenue from a customer
        accounted for 10.2% of the Fund's total revenue. There were no
        customers that accounted for more than 10% of the Fund's total
        revenue in 2008.

    18. FINANCIAL INSTRUMENTS:

        (a) Categories of financial assets and liabilities:

            The following table summarizes information regarding the carrying
            values of the Fund's financial instruments:

                                                            2009        2008
            -----------------------------------------------------------------
            Held for trading
              Cash and cash equivalents               $   19,885  $   48,050
              Restricted cash                              2,599           -
              Notes receivable                             2,627       3,045
              Derivatives designated as held for
               trading - gain / (loss)                     1,007         742

            Loans and receivables
              Accounts receivable                         75,748     138,640

            Other financial liabilities
              Accounts payable                            42,918     122,685
              Accrued and other liabilities               42,920      71,024
              Distributions payable                        3,067       3,178
              Derivatives designated as cash flow
               hedges - gain / (loss)                     (6,677)     (7,861)
              Long-term debt                             160,105     185,023
            -----------------------------------------------------------------
            -----------------------------------------------------------------

        (b) Derivatives and hedging:

            -----------------------------------------------------------------
                                         2009                       2008
                                      Fair Value                 Fair Value
                        Notional           Liabil-  Notional          Liabil-
                          Amount    Asset     ity     Amount   Asset     ity
            -----------------------------------------------------------------
            Cash flow
             hedges
              Interest
               rate
               swaps  US$153,138  $     - $ 6,677 US$155,828 $     - $ 7,861

            Derivatives
             not
             designated
             in a formal
             hedging
             relationship

              Interest
               rate swaps      -        -       -  US$34,456       -   1,247

    	        Foreign
             exchange
             contracts(1)      -    1,166     159          -   1,029     215

            Commodity
             forward
             contracts(2)    N/A      148     148        N/A   1,246      71
            -----------------------------------------------------------------
            Total                 $ 1,314 $ 6,984            $ 2,275 $ 9,394
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            Current               $ 1,314 $   307            $ 2,275 $ 2,978
            Non-current                 -   6,677                  -   6,416
            -----------------------------------------------------------------
            Total                 $ 1,314 $ 6,984            $ 2,275 $ 9,394
            -----------------------------------------------------------------
            -----------------------------------------------------------------
            (1) See below for notional amounts.
            (2) Includes natural gas forward contracts, commitments to buy
                and sell commodities and commodity forward contracts related
                to those commitments.

            The Fund has entered into swap arrangements with its principal
            banker, which fix the LIBOR component of its interest rates on
            all of its outstanding term debt.  In the first quarter of 2009,
            the Fund entered into new swap arrangements which fixed the LIBOR
            component of its interest rates on all of its term debt until
            August 2011. Previously the Fund had interest rate swaps related
            to its term debt and operating lines of credit, which fixed the
            LIBOR component of its interest rate until August 2010. The Fund
            collapsed all of these interest rate swaps upon entering into the
            new swap arrangements.  Losses are included in accrued and other
            liabilities and other long-term liabilities with the offset
            included in other comprehensive income, except for the
            amortization of the fair value liability of the interest rate
            swaps entered into during the first quarter of 2009 as discussed
            in note 10 which is included in unrealized foreign exchange
            (gain) loss and ineffectiveness of cash flow hedges.

            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, 2009
            include future contracts to sell US$8,407, C$7,602 and
            (euro)1,416 at weighted average exchange rates of (euro)0.79,
            (euro)0.65 and US$1.43, respectively, for periods through to
            January 2011.

            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.

            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, 2009 and December 31, 2008, the net unrealized
            value of these transactions is not significant.

        (c) 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, restricted cash, notes receivable, 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.

            For fair value estimates relating to derivatives (described
            above), the Fund classifies its fair value measurements within a
            fair value hierarchy, which reflects the significance of the
            inputs used in making the measurements as defined in CICA
            Handbook section 3862, Financial Instruments - Disclosures.

            Level 1 - Unadjusted quoted prices at the measurement date for
            identical assets or liabilities in active markets.

            Level 2 - Observable inputs other than quoted prices included in
            Level 1, such as quoted prices for similar assets and liabilities
            in active markets; quoted prices for identical or similar assets
            and liabilities in markets that are not active; or other inputs
            that are observable or can be corroborated by observable market
            data.

            Level 3 - Significant unobservable inputs which are supported by
            little or no market activity.

            The fair value hierarchy also requires an entity to maximize the
            use of observable inputs and minimize the use of unobservable
            inputs when measuring fair value.

            The following is a summary of the inputs used as of December 31,
            2009 in valuing the Fund's derivative financial instruments
            carried at fair value:

                                  Quoted
                                  prices
                                in active
                                 markets  Significant
                                   for       other    Significant
                                identical  observable  unobservable
                                  assets    inputs        inputs
                                (Level 1)  (Level 2)    (Level 3)    Total
            -----------------------------------------------------------------
            Derivatives
             designated as
             held for trading
            Foreign exchange
             contracts        $        -  $    1,007  $        -  $    1,007
            Natural gas
             forward contracts         -           -           -           -
            -----------------------------------------------------------------
            Total             $        -  $    1,007  $        -  $    1,007
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            Derivatives
             designated as
             cash flow hedges
            Interest rate swap
             arrangements     $        -  $   (6,677) $        -  $   (6,677)
            -----------------------------------------------------------------
            Total             $        -  $   (6,677) $        -  $   (6,677)
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            The fair value of the foreign exchange contracts is the
            difference between the forward exchange rate and the contract
            rate. The fair value of the natural gas forward contracts is the
            difference between the forward natural gas rate and the contract
            rate. The fair value of the interest rate swap arrangements is
            the difference between the forward interest rates and the
            contract rates discounted. All of the Fund's derivative financial
            instruments are classified within Level 2 because they are based
            on rates quoted by banks and other public data sources.

        (d) 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, 2009 are as follows:

                                        Less
                                        Than       1-3       4-5     After
                             Total    1 Year     Years     Years   5 Years
              ---------------------------------------------------------------
              Long-Term
    	           Debt
               (note 10) $ 160,948 $       - $ 160,948 $       - $       -

              Interest on
               Long-Term
               Debt         12,302     7,770     4,532         -         -
              ---------------------------------------------------------------
              Total
               Financial
               Liabilit-
               ies       $ 173,250 $   7,770 $ 165,480 $       - $       -
              ---------------------------------------------------------------
              ---------------------------------------------------------------

        (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 would have an impact on Distributable cash after
              maintenance capital expenditures of less than $100 per annum.

              On an unhedged basis, the Fund also currently estimates that a
              one-cent change in the exchange rate would have an impact on
              the translation of the net earnings of its U.S. currency based
              subsidiaries of less than $200 per annum. A one-cent change in
              the exchange rate would also have an impact of approximately
              $500 on the Fund's net earnings because of its U.S. dollar
              denominated long-term debt.

              (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, 2009, on an unhedged basis, a
              change in interest rates of 1% per annum would have an impact
              of approximately $1,600 on the Fund's net earnings per annum.
              As at December 31, 2009, the Fund had fixed interest rates on
              100% of its total long-term debt, until August 2011.

              (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 $800. Typically, given the risk-
              sharing aspect of a key supply contract, the impact of price
              changes on earnings would have ranged from $300 to $350. 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.

    19. 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, 2009 and December 31, 2008, the Fund was in
        compliance with the above covenants.

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

    20. COMPARATIVE FIGURES:

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



                       CHEMTRADE LOGISTICS INCOME FUND
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
                     FOR THE YEAR ENDED DECEMBER 31, 2009
    

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, 2009.

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", "expected", "intend", "may", "will", "project", "plan", "should", "believe" and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this MD&A describe the expectations of the Fund as of the date of this MD&A. The Fund's actual results could be materially different from its expectations if known or unknown risks affect its business, or if its estimates or assumptions turn out to be inaccurate. As a result, the Fund 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 the Fund's business. The Fund disclaims 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.

This MD&A contains forward-looking statements about the objectives, strategies, financial condition, results of operations and businesses of the Fund including, but not limited to (capitalized terms are as defined in the MD&A):

- all of the risks identified in "RISKS AND UNCERTAINTIES" section;

- all of the forward-looking statements in the "OUTLOOK" section;

- the amount of any TR LTIP payouts;

- the ability to comply with the new emission limits imposed by the EPA and the expected cost of compliance;

- the estimated impact of the Canadian/U.S. dollar exchange rate on the Fund's business;

- the anticipated tax characterization of planned distributions;

- the Fund's ability to renew its term debt at maturity;

- the use and sufficiency of cash flows from operating activities; and

- the potential impact of recent accounting pronouncements, including the timing of the implementation of various steps in connection with the transition to IFRS.

Financial outlook information contained in the MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A should not be used for purposes other than those for which it is disclosed herein.

    
    FINANCIAL HIGHLIGHTS

                     Three Months Ended                Year Ended
    ($'000 except    ------------------                ----------
     per unit      December    December    December    December    December
     amounts)      31, 2009    31, 2008    31, 2009    31, 2008    31, 2007
    -------------------------------------------------------------------------

    Revenue       $  132,756  $  292,789  $  546,192  $1,178,826  $  546,636

    Net earnings
     (loss)(4)    $   12,491  $   (2,460) $   46,920  $   40,331  $   20,596

    Net earnings
     (loss) per
     unit
     - Basic      $     0.41  $    (0.08) $     1.52  $     1.21  $     0.61
     - Diluted(5) $     0.41  $    (0.08) $     1.52  $     1.21  $     0.61

    Total
     assets(4)    $  495,477  $  655,225  $  495,477  $  655,225  $  510,575

    Long-term
     debt         $  160,105  $  185,023  $  160,105  $  185,023  $  155,206

    EBITDA(3)     $   24,057  $   24,204  $   81,319  $  118,936  $   68,644
    EBITDA per
     unit(1)(3)   $     0.78  $     0.74  $     2.64  $     3.56  $     2.04

    Cash flows from
     operating
     activities   $   25,375  $   94,182  $   41,133  $  147,904  $   47,742
    Cash flows from
     operating
     activities
     per unit(1)  $     0.83  $     2.88  $     1.33  $     4.43  $     1.42

    Adjusted cash
     flows from
     operating
     activit-
     ies(3)       $   22,139  $   18,667  $   68,681  $   99,043  $   54,351
    Adjusted cash
     flows from
     operating
     activities per
     unit(1)(3)   $     0.72  $     0.57  $     2.23  $     2.97  $     1.62

    Distributable
     cash after
     maintenance
     capital expe-
     nditures(3)  $   12,678  $   11,490  $   44,900  $   83,488  $   47,501
    Distributable
     cash after
     maintenance
     capital
     expenditures
     per
     unit(1)(3)   $     0.41  $     0.35  $     1.46  $     2.50  $     1.41

    Distributions
     declared     $    9,201  $    9,691  $   36,891  $   39,906  $   40,299
    Distributions
     declared per
     unit(2)      $     0.30  $     0.30  $     1.20  $     1.20  $     1.20

    Distributions
     paid         $    9,201  $    9,861  $   37,003  $   40,086  $   40,971
    Distributions
     paid per
     unit(2)      $     0.30  $     0.30  $     1.20  $     1.20  $     1.20
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Based on
        weighted
        average
        number of
        units
        outstanding
        for the
        period
        of:       30,670,470  32,738,881  30,818,352  33,370,769  33,582,848

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

    (3) See NON-GAAP MEASURES.

    (4) For the 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).

    (5) There were no dilutive common shares which impacted diluted net
    	   earnings (loss) per unit.
    

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 charges such as unrealized foreign exchange (gain) loss and ineffectiveness of cash flow hedges. 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. EBITDA 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, 2009    31, 2008    31, 2009    31, 2008    31, 2007
    -------------------------------------------------------------------------
    Net earnings
     (loss)       $   12,491  $   (2,460) $   46,920  $   40,331  $   20,596
      Add:
        Unrealized
         foreign
         exchange
         loss (gain)
         and ineffect-
         iveness of
         cash flow
         hedges        1,109      12,195     (10,937)     16,712        (776)
        Depreciation
         and amortiz-
         ation        10,623      11,240      44,146      41,123      38,713
        (Gain) loss
         on disposal
         of property,
         plant and
         equipment       (15)          -          79        (250)          -
        Net interest
         and
         accretion
         expense       2,126       4,070       8,693      13,535      12,633
        Net taxes     (2,277)       (841)     (7,582)      7,485      (2,480)
        Minority
         interest          -           -           -           -         (22)
    -------------------------------------------------------------------------
    EBITDA(1)     $   24,057  $   24,204  $   81,319  $  118,936  $   68,664
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      (1)  EBITDA for the three months and year ended December 31, 2009
           includes recoveries of $nil and $nil respectively (2008 recoveries
           of $nil and $1,238 respectively) for restructuring. EBITDA for
           the year ended December 31, 2007 included charges of $1,971 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, 2009    31, 2008    31, 2009    31, 2008    31, 2007
    -------------------------------------------------------------------------

    Cash flows from
     operating
     activities   $   25,375  $   94,182  $   41,133  $  147,904  $   47,742

    Add (deduct):

    Changes in
     non-cash
     working
     capital and
     other items      (3,236)    (75,515)     27,548     (48,861)      6,609
    -------------------------------------------------------------------------
    Adjusted cash
     flows from
     operating
     activities       22,139      18,667      68,681      99,043      54,351

    Less:

    Maintenance
     capital
     expenditure       9,461       7,177      23,781      15,555       6,850
    -------------------------------------------------------------------------
    Distributable
     cash after
     maintenance
     capital
     expenditure      12,678      11,490      44,900      83,488      47,501

    Less:

    Non-maintenance
     capital
     expenditure(1)      265       1,061         925       4,273       2,216
    -------------------------------------------------------------------------
    Distributable
     cash after all
     capital
     expenditure      12,413      10,429      43,975      79,215      45,285

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

    (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 2009 was $132.8 million, compared with consolidated revenue of $292.8 million recorded in the fourth quarter of 2008. Consolidated revenue for the years ended December 31, 2009 and 2008 were $546.2 million and $1.2 billion respectively. The main reason for the quarterly and annual declines was lower prices for sulphur and sulphuric acid in the International and SPPC segments. Additionally, most product lines experienced lower volumes owing to a general reduction in demand, driven by the global economic conditions prevalent through most of 2009 and a labour disruption at the Fund's largest supplier of sulphur products that started half-way through 2009.

The Fund's net earnings and EBITDA for the fourth quarter of 2009 were $12.5 million and $24.1 million respectively compared to net loss and EBITDA for the fourth quarter of 2008 of $2.5 million and $24.2 million respectively. EBITDA for the fourth quarter of 2009 was similar to the same quarter of 2008. The negative impact of lower volume and prices for most product lines and unusually high accruals for the Fund's Total Return Long-Term Incentive Plan (TR LTIP), was offset by strong performance in the International segment and the settlement of the business interruption insurance claim (more fully described in the BEAUMONT INCIDENT section) during the fourth quarter of 2009. Net earnings for the fourth quarter of 2009 were significantly higher than the same quarter of 2008 primarily due to the high unrealized foreign exchange loss recorded in 2008. These unrealized foreign exchange gains and losses relate to the translation of the Fund's long-term debt which is denominated in U.S. dollars.

Net earnings and EBITDA for 2009 were $46.9 million and $81.3 million respectively. Comparable net earnings and EBITDA for 2008 were $40.3 million and $118.9 million respectively. EBITDA in 2009 was lower than the same period of 2008 due to significantly lower results in SPPC and International, reflecting the weak economic conditions prevalent through most of 2009. The positive impact of the insurance recovery was partially offset by higher TR LTIP accruals during 2009. Despite EBITDA in 2009 being lower that 2008, 2009 earnings were stronger than 2008. This was mainly due to unrealized foreign exchange gains recorded during 2009 compared with large unrealized foreign exchange losses during 2008.

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

    
    SPPC -
                               Three Months Ended           Year Ended
                               ------------------           ----------
                             December     December     December     December
    ($'000)                  31, 2009     31, 2008     31, 2009     31, 2008
    -------------------------------------------------------------------------
    Revenue                 $  68,588    $ 148,438    $ 323,928    $ 538,930

    Earnings before the
     under-noted (EBITDA)      20,712       16,495       66,334       86,477
    Depreciation and
     amortization               7,862        8,551       32,585       30,350
    Gain on disposal of
     property                       -            -            -         (250)
    Net interest and
     accretion expense          1,717        3,626        6,978       11,235
    Income tax (recovery)
     expense                   (3,083)        (757)     (10,404)       3,497
    -------------------------------------------------------------------------
    Net earnings            $  14,216    $   5,075    $  37,175    $  41,645
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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 2009, SPPC generated revenue of $68.6 million, compared with revenue of $148.4 million for the fourth quarter of 2008. The main reason for the decline in revenue was lower realized pricing for sulphur and sulphuric acid. Additionally, sales volumes for most products in 2009 were lower than 2008, reflecting weaker demand and the labour disruption at the Fund's largest supplier of sulphur products. Results were also negatively impacted by lower margins realized on sulphuric acid, as market conditions in 2009 were less buoyant than in 2008. The negative impact of reduced acid profitability was partially offset by improved results in the SHS product line, where lower costs more than compensated for reduced volumes. 2009 fourth quarter results also benefited from the inclusion of an insurance recovery of $8.6 million with respect to the conclusion of the Fund's business interruption claim relating to the incident at the Beaumont plant in 2008 (more fully described in the BEAUMONT INCIDENT section), whereas during the fourth quarter of 2008, the Beaumont plant was off-line as result of this incident. Consequently, EBITDA generated during the fourth quarter of 2009 was $4.2 million higher than the same quarter of 2008. Net earnings showed an even stronger improvement due to lower income taxes and interest expense in 2009 relative to 2008.

For the year ended December 31, 2009, SPPC generated revenues of $323.9 million, a decrease of approximately 40% from the level achieved during 2008. The decrease in 2009 revenue is principally the result of lower prices for acid and sulphur and lower volume for acid, reflecting the generally weak economic conditions prevalent through most of 2009 and the labour disruption at the Fund's largest supplier of sulphur products. 2009 EBITDA includes $13.5 million with respect to the settlement of the property damage and business interruption insurance claims (more fully described in the BEAUMONT INCIDENT section). The insurance recovery was not enough to fully offset the impact of the reduced acid profitability, resulting in a reduction in SPPC's EBITDA of $20.2 million in 2009 relative to 2008. Earnings in 2009 were only $4.1 million lower than 2008 as income taxes in 2009 were significantly lower than 2008 and also due to lower interest expenses.

The lower income tax expense during the fourth quarter and year ended December 31, 2009 is due mainly to lower income in higher tax rate jurisdictions and the decrease in the taxable temporary differences between the accounting carrying amount and the tax basis of assets associated with certain Canadian and foreign corporate subsidiaries.

Pulp Chemicals -

    
                               Three Months Ended           Year Ended
                               ------------------           ----------
                             December     December     December     December
    ($'000)                  31, 2009     31, 2008     31, 2009     31, 2008
    -------------------------------------------------------------------------

    Revenue                 $  13,435    $  10,153    $  52,386    $  53,354

    Earnings before the
     under-noted (EBITDA)       5,180        3,358       19,161       18,635
    Depreciation and
     amortization               2,263        2,182        9,328        9,156
    Net interest and
     accretion expense            436          547        1,832        2,700

    -------------------------------------------------------------------------
    Net earnings            $   2,481    $     629    $   8,001    $   6,779
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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 2009 Pulp Chemicals revenue was $3.3 million higher than the level achieved during the fourth quarter of 2008. The main reason for the increase was due to increased customer demand relative to the fourth quarter of 2008 when a large customer decided to take downtime. This was also the primary reason for the improvement in EBITDA and net earnings generated during the fourth quarter of 2009 relative to the same quarter of 2008.

Revenue for 2009 was similar to 2008. EBITDA for 2009 was slightly higher than 2008 due to lower costs. Net earnings in 2009 showed an even stronger improvement over 2008 as interest costs were lower, due to lower interest rates in 2009.

International -

    
                              Three Months Ended            Year Ended
                              ------------------            ----------

                             December     December     December     December
    ($'000)                  31, 2009     31, 2008     31, 2009     31, 2008
    -------------------------------------------------------------------------

    Revenue                 $  50,733    $ 134,198    $ 169,878    $ 586,542

    Earnings before the
     under-noted (EBITDA)      16,175       10,450       28,083       34,884
    Depreciation and
     amortization                 498          507        2,233        1,617
    (Gain) loss on disposal
     of property, plant and
     equipment                    (15)           -           79            -
    Net interest income           (26)        (103)        (116)        (400)
    Income tax expense
     (recovery)                 1,946          (84)       3,962        3,988

    -------------------------------------------------------------------------
    Net earnings            $  13,772    $  10,130    $  21,925    $  29,679
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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 2009, International's revenue was $50.7 million compared with $134.2 million for the same period of 2008. For 2009, International's revenue decreased by $416.7 million from the level of $586.5 million achieved during 2008. The decrease in revenues is primarily due to significantly lower prices for acid and sulphur in global markets. The very significant drop in revenues in 2009 relative to 2008 did not have a proportionate effect on EBITDA, as cost of sales were significantly lower as well.

International net earnings and EBITDA during the fourth quarter of 2009 was higher than 2008 as a result of certain contracts where customers who had delayed delivery from earlier in the year honoured their commitments in the fourth quarter. Although 2009 was a very strong year for the International segment, EBITDA and earnings were lower than 2008 when global conditions for sulphur and acid were exceptionally favourable.

Corporate -

    
                              Three Months Ended            Year Ended
                              ------------------            ----------

                             December     December     December     December
    ($'000)                  31, 2009     31, 2008     31, 2009     31, 2008
    -------------------------------------------------------------------------

    Cost of services        $  18,010    $   6,098    $  32,259    $ 21,060

    Loss before the
     under-noted (EBITDA)     (18,010)      (6,098)     (32,259)    (21,060)
    Unrealized foreign
     exchange loss (gain)
     and ineffectiveness of
     cash flow hedges           1,109       12,195      (10,937)     16,712
    Net interest and
     accretion expense             (1)           -           (1)          -
    Income tax recovery        (1,140)           -       (1,140)          -

    -------------------------------------------------------------------------
    Net loss                $ (17,978)   $ (18,293)   $ (20,181)   $(37,772)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The Corporate segment includes the administrative costs of corporate activities such as treasury, finance, information technology, human resources, legal and risk management, which are not directly allocable to an operating segment.

For the fourth quarter of 2009, corporate costs, excluding unrealized foreign exchange gains and losses, were $11.9 million higher than 2008. The main reason for the higher expense in 2009 was an accrual of $10.0 million with respect to the Fund's Total Return Long-Term Incentive Plan (TR LTIP) because of the increased unit price, compared with a net reversal of $0.6 million in the fourth quarter of 2008. Relative to the fourth quarter of 2008, the fourth quarter of 2009 was negatively impacted by $3.1 million, due to unrealized natural gas losses and realized foreign exchange losses. This was partially offset by lower bad debt expenses in the fourth quarter of 2009 relative to the same quarter of 2008, when the expenses were high due to expected losses in connection with two customers who later filed for Chapter 11 re-organization.

For the year ended December 31, 2009, the main reason for the $11.2 million increase in corporate costs relative to the year ended December 31, 2008 was also the Fund's TR LTIP. During 2009, TR LTIP accruals were $9.4 million higher than 2008. Additionally, during 2009, unrealized losses on natural gas swaps were $1.8 million higher than 2008, and realized foreign exchange gains were lower than 2008 by $1.4 million. This was partially offset by lower bad debt provisions in 2009 relative to 2008 as described above.

The comments on TR LTIP expenses relate to the 2007, 2008 and 2009 TR LTIP. Awards under the 2007, 2008 and 2009 TR LTIP are payable at the beginning of 2010, 2011 and 2012 respectively. At the end of 2009, $16.0 million has been accrued with respect to these Plans, although the actual 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 gains on the translation of U.S. dollar denominated debt, which were a result of the sharp appreciation in the Canadian dollar relative to the U.S. dollar during 2009. This exchange rate fluctuation also resulted in large unrealized foreign exchange losses on the translation of U.S. dollar denominated assets. However, in accordance with accounting rules, those losses are required to be shown in the other comprehensive income rather than in earnings.

Also included in unrealized foreign exchange (loss) gain and ineffectiveness of cash flow hedges is the ineffectiveness of the Fund's cash flow hedges entered into in the first quarter of 2009 (see Liquidity and CAPITAL RESOURCES - Financing Activities - Financial Instruments for more detail).

The income tax recovery of $1.1 million represents future taxes related to deductible temporary differences of certain flow-through subsidiaries expected to reverse subsequent to 2010.

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 which resulted in property damage as well as business interruption. After a lengthy period of repairs, the plant was operational during the first quarter of 2009. During the first six months of 2009, the Fund incurred operational, legal and consulting costs relating to this incident.

During the fourth quarter of 2008 and the first quarter of 2009, the Fund incurred capital expenditures relating to the repair of damaged property at the Beaumont facility. During 2009, the Fund concluded its property damage claim and recovered US$9.8 million of its capital expenditures relating to the repair. Since the repair costs exceeded the net book value of the damaged assets and because the Fund was reimbursed the repair costs, the Fund recognized a non-cash gain of $2.7 million at the conclusion of the claim. This gain was included in selling, general, administrative and other costs in the SPPC segment. The Fund also recovered $1.1 million of costs incurred to preserve the assets during the repair process.

This recovery was included in cost of sales and services in the SPPC segment where the costs were originally recorded.

During 2009, the Fund also concluded its insurance claims for losses due to the ensuing business interruption and received payments of US$5.5 million. Since the claim was concluded towards the end of 2009, the Fund did not receive the entire proceeds from this settlement and as at December 31, 2009 the Fund has a receivable from its insurer of US$5.1 million with respect to the remainder of the claim.

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 were 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 are required to meet these stricter limits by various agreed dates ranging from December 2009 to December 2012. Chemtrade anticipates that these compliance actions will cost 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. Chemtrade is in compliance with these requirements and remains confident that it will fulfill its obligations under this agreement. Because of Chemtrade's existing overall levels of control, the civil penalty paid by Chemtrade was 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. In addition, BCT Chemtrade Corporation, the Fund's international subsidiary, uses the U.S. dollar as its measurement 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. Contracts in place at December 31, 2009 include future contracts to sell US$8.4 million, C$7.6 million and (euro)1.4 million at weighted average exchange rates of (euro)0.79, (euro)0.65 and US$1.43, respectively, for periods through to January 2011. There are unrealized losses of $0.2 million and unrealized gains of $1.2 million from these contracts at December 31, 2009.

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, 2008 were a result of changes in the Canadian/U.S. dollar exchange rate between December 31, 2008 and December 31, 2009. The Fund's Canadian based operations have all its term debt denominated in U.S. dollars. The gains or losses arising from the translation of these loans are recorded on the Consolidated Statements of Earnings as unrealized foreign exchange (gain) loss. The rate of exchange used to translate U.S. denominated balances has changed from a rate of US$1.00 = $1.22 at December 31, 2008 to US$1.00 = $1.05 at December 31, 2009. See Risks and Uncertainties for additional comments on foreign exchange.

NET INTEREST AND ACCRETION EXPENSE

Net interest and accretion expense was $2.1 million in the fourth quarter of 2009 compared with $4.1 million in the fourth quarter of 2008. Net interest and accretion expense was $8.7 million for 2009 compared with $13.5 million for 2008.

Interest expense in 2009 was lower than 2008 mainly due to lower levels of borrowing on the Fund's operating lines of credit and due to lower interest rates experienced during 2009 relative to 2008.

The weighted average effective annual interest rate at December 31, 2009 was 4.83% (2008 - 5.19%). See LIQUIDITY AND CAPITAL RESOURCES - Financing Activities - Financial Instruments for information concerning swap arrangements.

During the fourth quarter and 2009, the Fund recorded accretion expense of $0.1 million and $0.6 million respectively compared with $0.1 million and $0.7 million for the fourth quarter and 2008 respectively. This accretion is due to the amortization of transaction costs related to the Fund's borrowings.

INCOME TAXES

Current income tax expense was $0.2 million for the fourth quarter of 2009 and $3.0 million for the year ended December 31, 2009, compared with $2.2 million and $7.6 million for the fourth quarter and year ended December 31, 2008 respectively. The future income tax recovery was $2.5 million for the fourth quarter of 2009 and $10.6 million for the year ended December 31, 2009, compared to the future income tax recovery of $3.0 million for the fourth quarter of 2008 and $0.1 million for the year ended December 31, 2008. The effective tax rates for the fourth quarter and year ended December 31, 2009 differ from the statutory tax rate of 32.2% primarily due to the operating losses in high tax rate jurisdictions and operating profits in low tax rate jurisdictions and flow-through entities.

The increase in future tax asset of $0.8 million at December 31, 2009 relative to December 31, 2008 is the result of increased tax loss carry forwards, net of valuation allowances, and other deductible temporary differences, net of valuation allowances, available in certain Canadian and foreign corporate subsidiaries.

The decrease in future tax liability of $10.2 million at December 31, 2009 relative to December 31, 2008 is the result of the decrease 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, 2009, the Fund has $7.9 million of deductible temporary differences related to certain flow-through subsidiaries compared with $7.0 million for 2008. The Fund has recorded $1.1 million for future taxes related to the portion of these deductible temporary differences that are expected to reverse after 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, 2009 and for the years ended December 31, 2009, 2008 and 2007.

    
                           Three Months
                               Ended    Year Ended   Year Ended   Year Ended
                             December     December     December     December
    ($'000)                  31, 2009     31, 2009     31, 2008   31, 2007(1)
    -------------------------------------------------------------------------

    Cash flows from
     operating activities   $  25,375    $  41,133    $ 147,904    $  47,742
    Net earnings               12,491       46,920       40,331       20,596
    Distributions paid
     during period              9,201       37,003       40,086       40,971
    Excess of cash flows
     from operating
     activities over cash
     distributions paid        16,174        4,130      107,818        6,771
    Excess (shortfall) of
     net income over cash
     distributions paid     $   3,290    $   9,917    $     245    $( 20,375)

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

    (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.

Distributions -

Distributions to Unitholders for the three months ended December 31, 2009 were declared as follows:

    
                                                   Distribution       Total
    Record Date                    Payment Date        Per Unit      ($'000)
    -------------------------------------------------------------------------
    Three months ended December 31:
      October 30, 2009             November 30, 2009     $ 0.10     $  3,067
      November 30, 2009            December 31, 2009       0.10        3,067
      December 31, 2009            January 29, 2010        0.10        3,067
    -------------------------------------------------------------------------
                        Sub-Total                        $ 0.30     $  9,201

    Nine months ended September 30                       $ 0.90     $ 27,690

    -------------------------------------------------------------------------
    Total for the year ended December 31                 $ 1.20     $ 36,891
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Distributions declared in the three months ended December 31, 2008 were 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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Treatment of the Fund's distributions for Canadian Income Tax purposes for 2008 and 2009 is as follows:

    
                                               Foreign
                                             Non-Business
                       Other Income             Income               Total
    -------------------------------------------------------------------------
    2008                   76.6%                 23.4%               100.0%
    2009(1)                75.0%                 25.0%               100.0%
    -------------------------------------------------------------------------

    (1) Represents anticipated tax characterization of planned distributions.
        The actual tax treatment of 2009 distributions will be determined by
        February 28, 2010.
    

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 term debt as well as the re-purchase of units under the Normal Course Issuer Bid as discussed below. The Fund intends to renew its long-term debt prior to maturity.

    
    Cash Flow from Operating Activities
    -----------------------------------
    

Cash flow from operating activities for the fourth quarter of 2009 was $25.4 million, a decrease of $68.8 million from the level generated during the fourth quarter of 2008. The main reason for this difference is the significant reduction in working capital during the fourth quarter of 2008, when working capital decreased by $75.4 million. The decrease during the fourth quarter of 2008 was primarily due to reductions in the International segment as a result of significantly lower prices for sulphur and acid towards the end of 2008.

For 2009, cash flow from operating activities was $41.1 million, a decrease of approximately $106.8 million from the level achieved in 2008. The decrease in cash flow is due to an increase in working capital of $27.4 million in 2009 whereas in 2008, working capital decreased by $48.8 million. Working capital at the end of 2008 was negative and it had been anticipated that it would increase to positive levels during 2009. The remainder of the decrease is due to a reduction in the levels of earnings generated by SPPC and International segments in 2009 relative to 2008, as described above.

    
    Financing Activities
    --------------------
    

Distributions to Unitholders during the quarter and year ended December 31, 2009 were $0.7 million and $3.1 million lower than the quarter and year-ended December 31, 2008 respectively. These decreased distributions were 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).

Normal Course Issuer Bid -

From September 23, 2008 to September 22, 2009, the Fund purchased an aggregate of 2,912,466 of its units by way of a normal course issuer bid through the facilities of the Toronto Stock Exchange (TSX). The purchases were made in accordance with the policies and rules of the TSX and units were purchased for cancellation. The prices that the Fund paid for the units purchased were the market price of such units at the time of acquisition.

During year ended December 31, 2009, the Fund purchased 1,039,940 units at an average per unit price of $8.02 for an aggregate purchase amount of $8.3 million. This resulted in $12.8 million being recorded as a reduction to the value of units and $4.4 million being recorded as contributed surplus.

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 the value of 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 term debt. In the first quarter of 2009, the Fund entered into new swap arrangements which will fix interest rates on all of its term debt until August 2011. Previously the Fund had interest rate swaps related to its term debt and operating lines of credit, which fixed interest rates until August 2010. The Fund collapsed all of these interest rate swaps upon entering into the new swap arrangements and rolled the related fair value liability of $9.8 million into its new interest rate swaps. This value will be amortized on a straight-line basis over the remaining term of the term debt in unrealized foreign exchange (gain) loss and ineffectiveness of cash flow hedges. The weighted average effective interest rate under the new swap arrangements is 4.83%. At December 31, 2009, the fair value of the above noted agreements was a liability of $6.7 million (US$6.4 million). See comments under Net Interest and Accretion Expense for comments on these rates.

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.

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 was included in net interest and accretion expense.

During the second quarter of 2008, the Fund extended its senior credit facilities with its principal bankers to August 2, 2011. This was a two-year extension on substantially the same terms as the then existing agreement. The Fund incurred transaction costs of $0.6 million related to this extension. As the Fund treated this extension as a modification of the debt, rather than an extinguishment, these transaction costs were 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.

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, 2009, there were no outstanding contracts. 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 $9.7 million in the fourth quarter of 2009, compared with $8.2 million in the fourth quarter of 2008. These amounts include $9.5 million in the fourth quarter of 2009 and $7.2 million in the fourth quarter of 2008 for maintenance capital requirements. Investment in capital expenditures for 2009 was $24.7 million compared with $19.8 million for 2008. The maintenance capital expenditure components were $23.8 million for 2009 and $15.6 million for 2008.

Investment in non-maintenance capital expenditures were $0.3 million and $0.9 million during the fourth quarter and 2009 respectively compared with $1.1 million and $4.3 million during the fourth quarter and 2008 respectively. Non-maintenance capital expenditures are either pre-funded, usually as part of a significant acquisition and related financing or are considered to expand or improve the capacity of the Fund's operations.

During the fourth quarter of 2009, the Fund completed the purchase of the outstanding shares of Alliance Specialty Chemicals, Inc. for $6.1 million (US$5.6 million). The Fund incurred transaction related costs of $0.2 million (US$0.1 million).

During the third quarter of 2008, the Fund sold excess vacant land at its site in Leeds, South Carolina for 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 of 2008, 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.

Cash Balances -

At December 31, 2009 the Fund had net cash balances of $19.9 million and working capital of $9.4 million. Comparable numbers for December 31, 2008 were $48.1 million and negative working capital of $18.8 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 on-going 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, 2009, the Fund had senior credit facilities of $236.6 million, consisting of a term loan of $160.9 million and a revolving credit facility of $75.7 million. The term bank debt, which is fully drawn, is not due or payable until August 2011. At December 31, 2009, the Fund had nothing drawn on its operating lines of credit and had committed a total of $7.3 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, 2009, 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)                   2009          2009          2009          2009
    -------------------------------------------------------------------------

    Revenue            $   161,823   $   124,624   $   126,989   $   132,756
    Cost of sales and
     services              137,522        96,539        95,660        92,289
    -------------------------------------------------------------------------
    Gross profit            24,301        28,085        31,329        40,467
    Selling, general,
     administrative
     and other costs         6,025        10,625         9,803        16,410
    -------------------------------------------------------------------------
    Earnings before
     the under-noted        18,276        17,460        21,526        24,057
    Unrealized
     foreign exchange
     loss (gain) and
     ineffectiveness of
     cash flow hedges        3,903        (9,147)       (6,802)        1,109
    Depreciation and
     amortization           11,165        11,272        11,086        10,623
    Loss (gain) on
     disposal of
     property, plant
     and equipment               -             -            94           (15)
    Net interest and
     accretion expense       2,103         2,342         2,122         2,126
    Income taxes (net)        (216)         (580)       (4,509)       (2,277)
    -------------------------------------------------------------------------

    Net earnings       $     1,321   $    13,573   $    19,535   $    12,491
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                         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)
    -------------------------------------------------------------------------

    Net earnings (loss)$     9,454   $    13,847   $    19,490   $    (2,460)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Revenues for every quarter during 2008 were high due to exceptionally strong market conditions for sulphuric acid and sulphur. These were particularly noticeable in the International segment. Revenues during the fourth quarter of 2008 started to decline as prices for sulphuric acid and sulphur started to decline in the International markets. During 2009, in addition to these lower prices, revenue was also negatively impacted by generally weaker demand for most products and because the Beaumont plant was off-line for part of the first quarter resulting in lower sales volume.

The strong conditions during 2008 resulted in higher earnings. The effect was less pronounced in the fourth quarter of 2008 when the Fund's largest plant located in Beaumont was off-line for the entire quarter (as described in the BEAUMONT INCIDENT section).

Selling, general, administrative and other costs (S,G&A) during the first quarter of 2008 were high as they included an accrual of $4.1 million relating to the Fund's TR LTIP, caused by an appreciation in the Fund's unit value. S,G&A for the second quarter of 2008 were high as they included unrealized mark-to-market losses of $1.5 million on natural gas forward contracts. S,G&A during the third quarter of 2008 were low as they included lower TR LTIP accruals. S,G&A for the fourth quarter of 2008 were high as they include an increase of $3.4 million in the allowance for doubtful accounts. The increase was mainly due to a provision for expected losses in connection with two customers, who then filed for re-organization under Chapter 11 of the U.S. Bankruptcy Code in January 2009. S,G&A during the first quarter of 2009 were low as they included a reversal of $3.4 million with respect to the TR LTIP owing to a reduction in the Fund's unit value. Finally, S,G&A during the fourth quarter of 2009 were high as they included an accrual of $10.0 million relating to the Fund's TR LTIP, caused by an appreciation in the Fund's unit value, and high unrealized natural gas losses and realized foreign exchange losses. These additional expenses were partially offset by business interruption insurance claim recoveries booked in the quarter.

Unrealized foreign exchange losses were higher commencing with the third quarter of 2008 up to and including the first quarter of 2009 due to the impact of the weaker Canadian dollar relative to the U.S. dollar on the Fund's long-term debt which is U.S. dollar denominated. There was a corresponding unrealized gain on the Fund's U.S. dollar denominated assets, but accounting rules require that those be recorded in other comprehensive income. During the second, third and fourth quarters of 2009, the Canadian dollar strengthened relative to the U.S. dollar, thereby causing an unrealized foreign exchange gain on the Fund's long-term debt. However, the gain during the fourth quarter of 2009 was more than offset by ineffectiveness booked related to the initial fair value liability on the Fund's interest rate swap arrangements entered into during the first quarter of 2009.

CONTRACTUAL OBLIGATIONS

Information concerning contractual obligations is shown below:

    
    Contractual
    Obligations                Less Than      1-3         4-5        After
    ($'000)           Total      1 Year      Years       Years      5 Years
    -------------------------------------------------------------------------

    Long-Term Debt $ 160,948   $       -   $ 160,948   $       -   $       -

    Operating
     Leases           58,342      19,232      24,963      10,961       3,186

    Interest on
     Long-Term Debt   12,302       7,770       4,532           -           -
    -------------------------------------------------------------------------

    Total
     Contractual
     Obligations   $ 231,592   $  27,002   $ 190,443   $  10,961   $   3,186
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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 on-going aspect of the Fund's risk management program. In addition, the Fund maintains an extensive insurance program which includes general liability and environmental coverage.

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. Effective January 1, 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. This 10-year contract contains similar terms to the prior agreements between the parties. For the year ended December 31, 2009, this supply source accounted for approximately 7% of the Fund's revenues. Vale Inco had a significant collective bargaining agreement which expired on May 31, 2009. The Vale Inco union and management were unable to reach an agreement and a strike commenced on July 13, 2009. Although the strike continues, partial production commenced in January 2010. The Fund's ability to continue supplying its customers could be affected depending upon the duration of the labour disruption, the availability of other sources of product supply and demand levels. Currently the Fund does not expect any disruption to its customers.

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.

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.

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 would have an impact on Distributable cash after maintenance capital expenditures of less than $0.1 million per annum.

On an unhedged basis, the Fund also currently estimates that a one-cent change in the exchange rate would have an impact on the translation of the net earnings of its U.S. currency based subsidiaries of less than $0.2 million per annum. A one-cent change in the exchange rate would also have an impact of approximately $0.5 million on the Fund's net earnings because of its U.S. dollar denominated long-term debt.

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, 2009, on an unhedged basis, a change in interest rates of 1% per annum would have an impact of approximately $1.6 million on the Fund's net earnings per annum. As at December 31, 2009, the Fund had fixed interest rates on all of its term debt, until August 2011.

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 Pulp Limited Partnership 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 -

The Fund has several collective bargaining agreements and expiry dates range from 2010 to 2014. The Fund's operations could be disrupted if new collective bargaining agreements are not concluded prior to their expiry dates.

CRITICAL ACCOUNTING POLICIES

The Fund's accounting policies are described in note 3 to the consolidated financial statements for the year ended December 31, 2009.

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. Significant judgements and estimates include provisions for non-performance of customer and supplier contracts, allowance for doubtful accounts and goodwill.

Financial Instruments -

In May 2009, the Canadian Institute of Chartered Accountants (CICA) amended Handbook Section 3862, Financial Instruments - Disclosures, to include additional disclosure requirements about fair market value measurements for financial instruments and liquidity risk disclosures. These amendments require a three-level hierarchy that reflects the significance of the inputs used in making the fair value measurements. Fair values of assets and liabilities included in Level 1 are determined by reference to unadjusted quoted prices at the measurement date for identical assets and liabilities in active markets. Assets and liabilities in Level 2 include valuations using observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 valuations are based on significant unobservable inputs which are supported by little or no market activity. This new standard became effective for the Fund on December 31, 2009, and the related disclosure is included in note 18(c) to the consolidated financial statements.

Goodwill and Intangible Assets -

Effective January 1, 2009, the Fund adopted the recommendations of the CICA 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 adoption of this section did not have an impact on the Fund's consolidated financial statements.

Fair Value of Financial Assets and Financial Liabilities -

Effective January 1, 2009, the Fund adopted the recommendations of 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. The adoption of this EIC did not have an impact on the Fund's consolidated financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

Convergence to International Financial Reporting Standards -

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 re-statement 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, 2009:

    
    -------------------------------------------------------------------------
      Key Activity             Milestones               Status/Deadlines
    -------------------------------------------------------------------------
    IFRS Conversion Scoping  Review of current        The review is complete
    Phase                    standards vs. IFRS.      and the determination
                             Identification of        of financial impact is
                             significant              in progress.
                             differences.
                                                      Changes to Canadian
                             Assessment of            GAAP and IFRS are
                             available resources.     monitored and assessed
                                                      on an on-going basis.
                             Assignment and training
                             of cross-functional
                             and core team.

                             Monitoring of changes
                             to Canadian GAAP and
                             IFRS and their impact
                             to the Fund.
    -------------------------------------------------------------------------
    Decisions on Accounting  Formal review of         All review sessions
    Policies and IFRS1       differences in each      have been completed.
                             area with the core team
                             and members of           Substantially all IFRS1
                             cross-functional team    and accounting policy
                             as required.             choice decisions made.

                             Assessment of
                             differences between
                             IFRS and the Fund's
                             current practices.

                             Decision on accounting
                             policy choices and
                             IFRS1 for each
                             assessed area.
    -------------------------------------------------------------------------
    Information Technology   Identification of IT     The Fund has upgraded
    Evaluation               requirements, both       its ERP software in
                             hardware and software,   readiness for IFRS and
                             for IFRS conversion.     believes that minimal
                                                      further IT changes
                             Development of           will be required.
                             implementation plan for
                             new or upgraded
                             software and any
                             additional hardware
                             required.
    -------------------------------------------------------------------------
    Control Environment:     Review and assessment     As the Fund completes
    Internal Control Over    of impact of accounting   reviews and
    Financial Reporting      policy choices and        assessments of
    and Disclosure           changes relating to IFRS  accounting sections
    Controls and             conversion.               and makes decisions
    Procedures                                         on accounting policies
                             Update of internal        and IFRS1 choices,
                             control testing           appropriate changes
                             procedures and            to ensure the
                             documentation for all     integrity of internal
                             accounting policy         control over financial
                             choices and changes.      reporting and
                                                       disclosure controls
                             Implementation of         and procedures are
                             appropriate changes:      being made.

                             - MD&A Disclosure
                               Requirements

                             - Key Performance
                               Indicators

                             - Investor Relations
                               Communication
                               Process
    -------------------------------------------------------------------------
    Financial Statement      Identification of         Skeleton financial
    Preparation              transactions impacted     statements will be
                             by IFRS conversion.       developed in 2010.

                             An assessment of these
                             transactions,
                             appropriate changes
                             and re-mapping will be
                             completed.

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


    International Financial Reporting Standards
    -------------------------------------------
    

The Accounting Standards Board (AcSB) confirmed in February 2008 that International Financial Reporting Standards (IFRS) will replace Canadian GAAP for publicly accountable enterprises for financial periods beginning on and after January 1, 2011.

    
    Impact of Adoption of IFRS
    --------------------------
    

IFRS are premised on a conceptual framework similar to Canadian GAAP, however, significant differences exist in certain matters of recognition, measurement and disclosure. The following disclosure highlights areas in which adjustments are required to be made on adoption of IFRS in order to provide an opening balance sheet and the significant accounting policies, required or expected to be applied by the fund subsequent to adoption of IFRS that will be significantly different from the Fund's current accounting policies.

IFRS1 - First Time Adoption of International Financial Reporting Standards

The Funds adoption of IFRS will require the application of IFRS1 First Time Adoption of International Financial Reporting Standards (IFRS1), which provides guidance for an entity's initial adoption of IFRS. IFRS1 generally requires that an entity apply all IFRS effective at the end of its first IFRS reporting period retrospectively. However, IFRS1 does require certain mandatory exceptions and limited optional exemptions in specified areas of certain standards from this general requirement. The following are the optional exemptions available under IFRS1 significant to the Fund.

Deemed Cost - IFRS1 provides a choice between measuring property, plant and equipment at its fair value at the date of transition and using those amounts as deemed cost or using the historical valuation under the prior GAAP. The Fund will continue to apply the cost model for property, plant and equipment and will not restate property, plant and equipment to fair value under IFRS. The Fund will use the historical bases under Canadian GAAP as deemed cost under IFRS at the Transition Date.

Business Combinations - IFRS1 allows for the guidance under IFRS3, Business Combinations to be applied retrospectively. Retrospective application would require that the Fund restate all business combinations occurred prior to the Transition Date. The Fund will not elect to retrospectively apply IFRS3 to business combinations that occurred prior to the Transition Date.

Cumulative Translation Differences - IAS21, The Effects of Changes in Foreign Exchange Rates, requires an entity to determine the translation differences in accordance with IFRS from the date on which a subsidiary was formed or acquired. IFRS1 permits cumulative translation gains and losses to be reset to zero at the Transition Date. The Fund will elect to reset all cumulative translation gains and losses to zero in opening retained earnings at the Transition Date.

IFRS1 allows for certain other optional exemptions; however, the Fund does not expect such exemptions to be significant to its adoption of IFRS.

Impact of IFRS on the Balance Sheet

The Fund is currently in the process of assessing the impact of IFRS1 on its January 1, 2010 balance sheet.

On-going IFRS to Canadian GAAP Differences

    
    Property, Plant and Equipment
    -----------------------------
    

Componentization - Componentization requirements under IFRS are more explicit than Canadian GAAP. Component accounting is required for significant parts and also required if the useful life and/or depreciation method is different from the remainder of the asset. This requirement will have an impact on the Fund's property, plant and equipment values. The Fund is currently in the process of assessing this impact.

Borrowing Costs - Under IFRS, borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset are capitalized as part of the cost of the qualifying asset. IAS23 is more explicit than Canadian GAAP and the Fund does not capitalize borrowing costs under Canadian GAAP. The Fund is currently in the process of assessing the impact of the IAS21 requirements.

    
    Intangibles
    -----------
    

IAS38 explicitly restricts an intangible asset's useful life to the shorter of the economic factors and legal factors. The Fund expects the value of intangibles to be reduced. However, it is still in the process of assessing the amount of the impact.

    
    Share-Based Payments
    --------------------
    

IFRS2 will require the Fund's TR LTIP accrual to be calculated based on a fair value approach. Under Canadian GAAP the accrual for TR LTIP is calculated based on an intrinsic value approach. The Fund expects that this change in valuation method will have an impact on its Accrued and Other Liabilities, Other Long-Term Liabilities and Selling, General, Administrative and Other Costs. The Fund is currently in the process of assessing the impact of this change.

Business Combinations -

In January 2009, the CICA issued Handbook Sections 1582, Business Combinations; 1601, Consolidated Financial Statements; and 1602, Non-Controlling Interests. These sections replace Handbook Sections 1581, Business Combinations; and 1600, Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under IFRS. Section 1582 is applicable for the Fund's business combinations with acquisition dates on or after January 1, 2011. Early adoption of this section is permitted. Sections 1601 and 1602 establish standards for the preparation of consolidated financial statements and for accounting for a non-controlling interest in a subsidiary in the consolidated financial statements subsequent to a business combination. Sections 1601 and 1602 are applicable for the Fund's interim and annual consolidated financial statements for its fiscal year beginning January 1, 2011. Early adoption of these sections is also permitted. If the Fund chooses to early adopt any one of these sections, the other two sections must also be adopted at the same time. The Fund is currently evaluating the effect of these new sections on the consolidated financial statements.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

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, 2009 through inquiry, review and testing. The Chief Executive Officer and the Chief Financial Officer have concluded that, as at December 31, 2009, 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, 2009. Based on this evaluation, management has concluded that as at December 31, 2009, the Fund's internal controls over financial reporting were effective.

OUTLOOK

Demand for our products has stabilized, albeit at lower levels than 2008. We anticipate this demand level will be sustained or improve during 2010. The supply/demand characteristics for one of our key products, acid, is improving. We are well positioned to benefit from any increase in demand. Additionally Vale Inco, our largest supplier of acid, has resumed partial production which will simplify our supply chain logistics. The effects of the lower levels of economic activity seen in 2009 may continue to adversely affect Chemtrade and its customers as it will take some time for the full effect of the economic recovery to work its way through the entire supply chain.

We continue to maintain a healthy balance sheet and ample liquidity. The nature of our business model as demonstrated by the strength of our businesses even in times of low demand, coupled with our strong balance sheet are more than sufficient to sustain our current distribution rate.

OTHER

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

February 24, 2010



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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