Chemtrade Logistics Income Fund announces improved 2007 fourth quarter and year end results



    TORONTO, Feb. 14 /CNW/ - Chemtrade Logistics Income Fund (TSX: CHE.UN)
today announced results for the three months and the year ended December 31,
2007. All of Chemtrade's business segments reported positive results, with the
robust global market for sulphuric acid being the key driver of the higher
earnings and distributable cash reported by the Fund.
    Mark Davis, President and Chief Executive Officer of Chemtrade, said, "We
implemented key initiatives during 2007 that positioned us to take advantage
of the favourable market conditions for our products, particularly sulphuric
acid. The initiatives included investments to improve the long-term
reliability and efficiency of our plants and initiatives that stabilized our
SHS products."
    Cash flow from operating activities for the fourth quarter was
$19.7 million (2006: $5.8 million) and distributable cash after maintenance
capital expenditures for the period was $16.1 million, or $0.48 per unit
(2006: $8.9 million, or $0.26 per unit), generated from revenue of
$144.6 million (2006: $146.9 million). Earnings before interest, income taxes,
depreciation and amortization ("EBITDA") for the fourth quarter was
$22.7 million (2006: $13.9 million) and net earnings were $9.1 million
compared with $5.4 million in the same period in 2006. The results for the
fourth quarter of 2006 included restructuring costs of $2.7 million related to
the cessation of SHS powder production at Chemtrade's plant in Leeds, South
Carolina. Excluding these costs, for the fourth quarter of 2006, cash
available for distribution after maintenance capital expenditures was
$11.6 million, or $0.35 per unit.
    For the full year, cash flow from operating activities was $47.7 million
(2006: $42.0 million) and distributable cash after maintenance capital
expenditures was $47.5 million (2006: $46.4 million), or $1.41 per unit (2006:
$1.38 per unit). Excluding restructuring costs of $2.0 million in 2007
relating to the cessation of powder SHS production at the Leeds plant,
distributable cash after maintenance capital expenditures for the year was
$49.5 million, or $1.47 per unit (2006: $49.1 million, or $1.46 per unit,
before restructuring costs). EBITDA was $69.4 million (2006: $65.4 million),
or excluding the Leeds costs, $71.4 million (2006: $68.1 million). Net
earnings for 2007 were $20.7 million (2006: $3.8 million). In addition to the
fourth quarter restructuring charge, the net earnings for 2006 included a
non-cash charge of $12.3 million with respect to impairment in the value of
property, plant and equipment used to manufacture powder SHS.
    Sulphur Products & Performance Chemicals ("SPPC") generated EBITDA of
$12.9 million in the fourth quarter compared with $10.6 million in 2006 and
net earnings of $3.6 million in the fourth quarter of 2007 compared with
$6.1 million in the fourth quarter of 2006. The 2006 fourth quarter EDITDA
included restructuring costs of $2.7 million. Increased revenue from higher
prices for sulphuric acid and higher volumes of SHS products were partially
offset by the effect of the stronger Canadian dollar, and EBITDA was impacted
by higher sulphur costs used in the production of merchant sulphuric acid, by
net zinc costs in the liquid SHS operation, and by operating issues at a few
of our customers. Despite the improved EBITDA, net earnings in the fourth
quarter of 2007 were lower than the fourth quarter of 2006, as that quarter
benefited from an adjustment to the impairment charge, originally recorded in
the third quarter of 2006.
    Pulp Chemicals reported fourth quarter EBITDA of $5.3 million, compared
with $4.3 million in 2006 and net earnings of $2.5 million in the fourth
quarter of 2007, up from $1.5 million earned in the same quarter of 2006. The
increase reflected higher volumes and selling prices for sodium chlorate and
the disruption to production and sales in December 2006 due to the declaration
of Force Majeure by Chemtrade's major salt supplier at the time. Production
costs were higher due to increases in the cost of caustic soda and salt. Some
of these are recoverable under Chemtrade's long-term supply contract with
Canfor. Higher prices for sodium chlorate benefit Chemtrade's non-Canfor
sales, although the increases have not been sufficient to fully offset the
higher costs.
    International benefited from the robust global market for sulphuric acid.
Sales at spot rates of a relatively low quantity of acid not already committed
to specific customers earned very high margins, resulting in EBITDA of
$9.4 million for the quarter compared to $3.5 million in 2006. Similarly, net
earnings of $7.9 million were higher than the level of $2.8 million earned
during the same quarter of 2006.
    Mr. Davis said, "Chemtrade's 2007 results, particularly in the second
half, demonstrated our capacity to generate strong cash flows and earnings.
Key to this is our ability to take advantage of market conditions that create
strong demand for our products at attractive margins. Therefore, we will
continue to invest in our plants so they can operate reliably and efficiently
at maximum capacity.
    "We expect demand for most of our products to be generally stable in
2008, with strong demand for sulphuric acid continuing throughout the year. We
expect distributable cash after maintenance capital expenditures in 2008 to be
similar to that generated in 2007. Although EBITDA should be higher than 2007,
we expect higher capital expenditures as well. Finally, because of the timing
of our maintenance shutdowns, and the seasonality of some of our products, the
second half will again be stronger than the first half."

    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 2007.
    Chemtrade operates a diversified business providing industrial chemicals
and services to customers in North America and around the world. Chemtrade is
one of the world's largest suppliers of sulphuric acid, liquid sulphur dioxide
and sodium hydrosulphite, and a leading processor of spent acid. Chemtrade is
also a leading regional supplier of sulphur, sodium chlorate, phosphorous
pentasulphide, and zinc oxide.

    This new release contains non-GAAP measures such as EBITDA (earnings
before any deduction for net interest and debt accretion, taxes, depreciation
and amortization and other non-cash charges such as minority interest) and
distributable cash after maintenance capital expenditures. Further information
on these measures and reconciliations with appropriate GAAP measures are
contained in the Fund's Management, Discussion and Analysis for the year ended
December 31, 2007.
    This news release contains certain statements which may constitute
"forward-looking" statements within the meaning of certain securities laws,
including the "safe harbour" provisions of the Securities Act (Ontario). The
use of any of the words "anticipate", "continue", estimate", "expect", "may",
"will", "project", "should", "believe" and similar expressions are intended to
identify forward-looking statements.
    This news release contains forward-looking statements about the
objectives, strategies, financial condition, results of operations and
businesses of the Fund. These statements are "forward-looking" as they are
based on current expectations about our business and the markets we operate
in, and on various estimates and assumptions.

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

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

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

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

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

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

    A conference call to review the fourth quarter and full year 2007 results
will be webcast live on www.chemtradelogistics.com and www.newswire.ca/webcast
on Friday, February 15, 2008 at 10:00 a.m.


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

                                                        December    December
                                                        31, 2007    31, 2006
    -------------------------------------------------------------------------

    ASSETS

    Current assets
      Cash and cash equivalents                        $  11,804   $   6,147
      Accounts receivable                                 76,203      71,909
      Inventories (note 6)                                23,857      26,900
      Prepaid expenses and other assets (note 2)           5,942       6,380

    -------------------------------------------------------------------------
                                                         117,806     111,336

    Property, plant and equipment (notes 5 and 7)        148,942     180,909
    Other assets                                           1,413       3,370
    Future tax asset (note 12)                            10,272       8,829
    Intangibles (note 8)                                 143,968     167,412
    Goodwill (note 8)                                     87,700      96,255

    -------------------------------------------------------------------------
                                                       $ 510,101   $ 568,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities
      Operating line of credit (note 9)                $  41,113   $  13,191
      Accounts payable                                    42,509      49,074
      Accrued and other liabilities (notes 2 and 5)       26,496      24,013
      Distributions payable                                3,358       4,030
      Income taxes payable                                 1,563       1,447
      Current portion of long-term debt (note 9)               -      16,359

    -------------------------------------------------------------------------
                                                         115,039     108,114

    Long-term debt (note 9)                              155,206     173,932
    Other long-term liabilities (note 5)                   5,081       1,874
    Post-employment benefits (note 13)                     3,767       4,143
    Future tax liability (note 12)                        25,396      32,924
    Minority interest                                          -          25

    Unitholders' equity
      Units (note 10)                                    412,957     412,944
      Equity component of convertible debentures
       (note 10)                                               -         160
      Deficit                                           (154,040)   (134,579)
      Accumulated other comprehensive income (loss)
       (note 2)                                          (53,305)    (31,426)

    -------------------------------------------------------------------------
                                                         205,612     247,099

    Subsequent event (note 14(c))

    Commitments and contingencies (note 14)
    -------------------------------------------------------------------------
                                                       $ 510,101   $ 568,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements



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

                                                      Year ended  Year ended
                                                        December    December
                                                        31, 2007    31, 2006
    -------------------------------------------------------------------------

    Revenue                                            $ 546,636   $ 552,128

    Cost of sales and services                           437,263     455,860

    -------------------------------------------------------------------------
    Gross profit                                         109,373      96,268

    Selling, general, administrative and other costs
     (note 11)                                            37,962      28,205
    Restructuring costs (note 5)                           1,971       2,706

    -------------------------------------------------------------------------
    Earnings before the under-noted                       69,440      65,357

    Depreciation and amortization                         38,631      44,367
    Impairment and write-down of property,
     plant and equipment (note 5)                              -      12,276
    Net interest and accretion expense                    12,633      11,438

    -------------------------------------------------------------------------
    Earnings (loss) before income taxes and
     minority interest                                    18,176      (2,724)

    Income taxes (note 12)
      Current                                              2,219       1,372
      Future                                              (4,699)     (7,916)

    -------------------------------------------------------------------------
                                                          (2,480)     (6,544)

    -------------------------------------------------------------------------
    Earnings before minority interest                     20,656       3,820

    Minority interest                                        (22)          -

    -------------------------------------------------------------------------
    Net earnings                                       $  20,678   $   3,820
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per unit (note 10)
      Basic                                            $    0.62   $    0.11
      Diluted                                          $       -   $    0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements



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

                                                      Year ended  Year ended
                                                        December    December
                                                        31, 2007    31, 2006
    -------------------------------------------------------------------------

    Units
    Balance, beginning of year                         $ 412,944   $ 412,944
    Issued on conversion of debentures (note 10)              13           -
    -------------------------------------------------------------------------
    Balance, end of year                               $ 412,957   $ 412,944
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Equity component of convertible debentures
    Balance, beginning of year                         $     160   $     160
    Redemption of debentures (note 10)                      (160)          -
    -------------------------------------------------------------------------
    Balance, end of year                               $       -   $     160
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Deficit
    Balance, beginning of year                         $(134,579)  $ (90,266)
    Redemption of debentures (note 10)                       160           -
    Net earnings                                          20,678       3,820
    Distributions                                        (40,299)    (48,133)
    -------------------------------------------------------------------------
    Balance, end of year                               $(154,040)  $(134,579)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive income
    Balance, beginning of year                         $ (31,426)  $ (29,775)
    Changes in accounting policies (note 2)                1,783           -
    -------------------------------------------------------------------------
    Balance, beginning of year, as adjusted              (29,643)    (29,775)
    Other comprehensive loss                             (23,662)     (1,651)
    -------------------------------------------------------------------------
    Balance, end of year                               $ (53,305)  $ (31,426)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements



    Consolidated Statements of Comprehensive Income
    (in thousands of dollars)

                                                      Year ended  Year ended
                                                        December    December
                                                        31, 2007    31, 2006
    -------------------------------------------------------------------------

    Net earnings                                       $  20,678   $   3,820

    Change in unrealized loss on translation of
     self-sustaining foreign operations                  (21,441)     (1,651)
    Change in unrealized loss on derivatives
     designated as cash flow hedges                       (2,221)          -
    -------------------------------------------------------------------------
    Other comprehensive loss                             (23,662)     (1,651)

    -------------------------------------------------------------------------
    Comprehensive (loss) income                        $  (2,984)  $   2,169
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements



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

                                                      Year ended  Year ended
                                                        December    December
                                                        31, 2007    31, 2006
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
      Net earnings                                     $  20,678   $   3,820
      Items not affecting cash:
        Depreciation and amortization                     38,631      44,367
        Future income taxes                               (4,699)     (7,916)
        Minority interest                                    (22)          -
        Accretion expense                                    800          78
        (Gain) on sale of property, plant and equipment     (232)          -
        Early settlement of debt (note 10)                    28           -
        Impairment and write-down of property,
         plant and equipment (note 5)                          -      12,276
        Change in fair value of derivatives                 (358)          -
        Non-cash restructuring costs                          48           -
        Unrealized foreign exchange (gain) loss             (628)        230

    -------------------------------------------------------------------------
                                                          54,246      52,855

      (Increase) in working capital                       (6,504)    (10,905)

    -------------------------------------------------------------------------
                                                          47,742      41,950

    Financing activities:
      Redemption of convertible debentures               (16,378)          -
      Increase in operating line of credit                27,922       9,121
      Distributions to unitholders                       (40,971)    (47,908)
      Increase in other long-term liabilities              3,084           -
      Financing transaction costs                           (317)          -

    -------------------------------------------------------------------------
                                                         (26,660)    (38,787)

    Investing activities:
      Additions to property, plant and equipment          (9,066)     (7,547)
      Acquisitions (note 4)                               (6,535)          -
      Proceeds from disposal of property,
       plant and equipment                                   325           -

    -------------------------------------------------------------------------
                                                         (15,276)     (7,547)

    Effect of exchange rates on cash held in
     foreign currencies                                     (149)        136

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

    Increase (decrease) in cash and cash equivalents       5,657      (4,248)

    Cash and cash equivalents - beginning of year          6,147      10,395

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

    Supplemental information:
      Cash taxes paid                                  $   2,103   $   1,974
      Cash interest paid                               $  13,210   $  11,645
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements



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

    December 31, 2007

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

    1.  ORGANIZATION AND DESCRIPTION OF THE BUSINESS:

        Chemtrade Logistics Income Fund ("the Fund") commenced operations on
        July 18, 2001 when it completed an Initial Public Offering and
        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 15.

    2.  CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

        (a) Changes in Accounting Policies

        (i) Accounting Changes

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

        (ii) Financial Instruments

        Effective January 1, 2007, the Fund adopted the recommendations of
        CICA Handbook Section 1530, Comprehensive Income; Section 3251,
        Equity; Section 3855, Financial Instruments - Recognition and
        Measurement; Section 3861, Financial Instruments - Disclosure and
        Presentation; and Section 3865, Hedges. These sections apply to
        fiscal years beginning on or after October 1, 2006 and provide
        standards for recognition, measurement, disclosure and presentation
        of financial assets, financial liabilities, non-financial derivatives
        and embedded derivatives, and describe when and how hedge accounting
        may be applied. Section 1530 establishes standards for reporting and
        presenting comprehensive income, which is defined as the change in
        equity from transactions and other events from non-owner sources.
        Other comprehensive income refers to items recognized in
        comprehensive income that are excluded from net income calculated in
        accordance with generally accepted accounting principles. Under the
        new standards, policies followed for periods prior to the effective
        date generally are not reversed and therefore, the comparative
        figures have not been restated.

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

        The Fund has classified its cash and cash equivalents as held-for-
        trading, which are measured at fair value. Accounts receivable are
        classified as loans and receivables, which are measured at amortized
        cost. Operating line of credit, accounts payable, accrued
        liabilities, distributions payable and long-term debt, are classified
        as other financial liabilities, which are measured at amortized cost,
        using the effective interest method. The Fund had neither available-
        for-sale, nor held-to-maturity instruments during the year ended
        December 31, 2007.

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

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

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

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

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

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

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

        The components of accumulated other comprehensive income (loss) as at
        December 31, 2007 and 2006 for the years then ended:

    Accumulated Other                   Balance                 Balance
    Comprehensive Income               December       Net      December
    (loss)                             31, 2005      Change    31, 2006
    -------------------------------------------------------------------------
    Unrealized loss on translation
     of self-sustaining foreign
     operations                       $ (29,775)  $  (1,651)  $ (31,426)
    Unrealized gain (loss) on
     derivatives designated as
     cash flow hedges                         -           -           -
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     income (loss)                    $ (29,775)  $  (1,651)  $ (31,426)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                      Change in                 Balance
    Comprehensive Income             Accounting       Net      December
    (loss)                             Policies      Change    31, 2007
    -------------------------------------------------------------------------
    Unrealized loss on translation
     of self-sustaining foreign
     operations                       $       -   $ (21,441)  $ (52,867)  (1)
    Unrealized gain (loss) on
     derivatives designated as
     cash flow hedges                     1,783      (2,221)       (438)  (2)
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     income (loss)                    $   1,783   $ (23,662)  $ (53,305)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Net of income tax expense of $nil.
    (2) Net of income tax recovery of $226.


        (b) Recent Accounting Pronouncements

        (i) Capital Disclosures

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

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

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

        (iii) Inventories

        In March 2007, the CICA issued Handbook Section 3031, Inventories,
        which replaces Section 3030, Inventories. Under the new section,
        inventories are required to be measured at the "lower of cost and net
        realizable value", which is different from the existing guidance of
        the "lower of cost and market". The new section contains guidance on
        the determination of cost and also requires the reversal of any
        write-downs previously recognized, if applicable. Certain minimum
        disclosures are required, including the accounting policies used,
        carrying amounts, amounts recognized as an expense, write-downs, and
        the amount of any reversal of any write-downs recognized as a
        reduction in expenses. The new standard will become effective on
        January 1, 2008 for the Fund. The Fund evaluated the impact of the
        adoption of this new section on the consolidated financial statements
        and concluded the effect will not be material.

    3.  SIGNIFICANT ACCOUNTING POLICIES:

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

        (a) Basis of consolidation:

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

        (b) Cash and cash equivalents:

            Cash equivalents are comprised of highly liquid investments
            having original terms to maturity of 90 days or less when
            acquired and are valued at fair value. At December 31, 2007 the
            value of cash equivalents held was nil (2006 - $2,670).

        (c) Inventories:

            Finished goods are valued at the lower of average cost and net
            realizable value. Raw material inventory is recorded at the lower
            of cost determined on a first-in, first-out basis, and
            replacement cost.

        (d) Property, plant and equipment:

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

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

        (e) Goodwill:

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

        (f) Intangibles:

            Intangibles include the estimated value at the date of
            acquisition of long-term customer and vendor relationships and
            other intangible assets. Certain of the customer relationships
            have been in place for many years and have a history of renewal.
            Intangibles associated with these relationships are not amortized
            and are tested for impairment at least annually. Intangibles
            associated with other customer relationships and vendor
            relationships are amortized on a straight-line basis over six to
            fifteen 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 a
            comparison of the carrying amount of an asset to estimated
            undiscounted future cash flows expected to be generated by the
            asset. If the carrying amount of an asset exceeds its estimated
            future cash flows, an impairment charge is recognized by the
            amount by which the carrying amount of the asset exceeds the fair
            value of the asset.

        (h) Deferred charges:

            Deferred charges relating to debt are amortized on a straight-
            line basis over the term of the debt.

        (i) 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.
            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.

        (j) Post-employment benefits:

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

        (k) Unit based compensation:

            The Fund operates a Total Shareholder Return Long-Term Incentive
            Plan ("TSR LTIP") which grants cash awards based on achieving
            total Unitholder return. The two elements that comprise total
            Unitholder return, are changes in unit price and distributions
            paid to Unitholders, over the performance period. The Fund treats
            these awards as liabilities with the value of these liabilities
            being re-measured at each reporting period, based upon changes in
            the intrinsic value of the awards. Any gains or losses on re-
            measurement are recorded in the statement 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.

        (l) Foreign currency translation:

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

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

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

        (m) 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.

        (n) 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.

            Chemtrade completed an analysis of existing properties. This
            analysis reviewed existing contracts and current statutory
            requirements, and management has determined that there are no new
            provisions. At December 31, 2007 $505 (2006 - $559) has been
            included in other long-term liabilities.

        (o) Convertible debentures:

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

        (p) Financial instruments:

            Financial instruments are classified into one of these five
            categories: held-for-trading, held-to-maturity, loans and
            receivables, available-for-sale financial assets or other
            financial liabilities.

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

            The Fund has classified its cash and cash equivalents as held-
            for-trading, which are measured at fair value. Accounts
            receivable are classified as loans and receivables, which are
            measured at amortized cost. Operating line of credit, accounts
            payable, accrued liabilities, distributions payable and long-term
            debt, are classified as other financial liabilities, which are
            measured at amortized cost, using the effective interest method.
            The Fund had neither available-for-sale, nor held-to-maturity
            instruments during the year ended December 31, 2007.

            Transaction costs that are directly attributable to the
            acquisition or issuance of financial assets or liabilities are
            accounted for as part of the respective asset or liability's
            carrying value at inception. Costs considered as commitment fees
            paid to financial institutions are recorded in other assets, and
            amortized on a straight-line basis over the term of the debt.

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

            The effective portion of changes in the fair value of derivatives
            that are designated and qualify as cash flow hedges is recognized
            in other comprehensive income. Upon settlement, the cumulative
            gain or loss is recognized in net income. Any gain or loss in
            fair value relating to the ineffective portion is recognized
            immediately in the statement of operations in net interest and
            accretion expense. All derivative instruments that do not qualify
            for hedge accounting, or are not designated as a hedge, are
            recorded as either an asset or liability with changes in fair
            value recognized in earnings.

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

        (q) 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.

    4.  PURCHASE OF OLIN CUSTOMER CONTRACTS:

        On May 1, 2007, the Fund completed the purchase of Olin Corporation's
        liquid sodium hydrosulphite ("SHS") customer contracts for $6,744
        (US$6,043), of which $2,248 (US$2,014) had been accrued with respect
        to certain earn out provisions. During the fourth quarter of 2007,
        the Fund refined its earn out provision accrual and reduced the
        original accrual to $1,869 (US$1,675). As at December 31, 2007, the
        total accrual is $1,365 (US$1,377), with $698 (US$704) classified as
        other long-term liabilities and the balance as accrued liabilities.
        The acquisition does not include Olin's manufacturing assets. The
        Fund incurred transaction related costs of $165.

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

    5.  IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT AND RESTRUCTURING COSTS:

        In 2006, the Fund recorded a charge of $12,276 with respect to the
        impairment of certain property, plant and equipment. These assets are
        within the SPPC business segment and were used to manufacture powder
        SHS. Due to rising input costs and declining demand, the cash flows
        associated with these assets had been declining and could no longer
        support their carrying value. The fair value of the impaired assets
        was determined by using a discounted net present value of future cash
        flow method.

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

        The following table provides a summary of the costs recognized and
        cash payments made in respect of these restructuring initiatives in
        2006 and 2007, as well as the corresponding liability as at
        December 31, 2007.

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

        Balance - January 1, 2006          $       -   $       -   $       -
          Charges during 2006                    890       1,816       2,706
          Cash draw downs                          -         501         501
        ---------------------------------------------------------------------
        Balance - December 31, 2006        $     890   $   1,315   $   2,205
          Charges during 2007                    563       1,408       1,971
          Accretion expense                        -          42          42
          Cash draw downs                      1,453       1,564       3,017
        ---------------------------------------------------------------------
        Balance - December 31, 2007        $       -   $   1,201   $   1,201
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At December 31, 2007, the outstanding amount of site closing and
        other costs has been shown as other long-term liabilities on the
        Balance Sheet, as it is unlikely to be paid out within the next
        twelve months.

    6.  INVENTORIES:

                                                            2007        2006
        ---------------------------------------------------------------------
        Raw materials and work in process              $   4,299   $   5,900
        Finished goods                                    17,057      17,868
        Operating supplies                                 2,501       3,132

        ---------------------------------------------------------------------
                                                       $  23,857   $  26,900
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    7.  PROPERTY, PLANT AND EQUIPMENT:

                                                            2007        2006
        ---------------------------------------------------------------------

        Land                                           $   5,540   $   6,443
        Plant and equipment                              230,552     253,712
        Facilities and equipment under construction        4,907       2,458

        ---------------------------------------------------------------------
                                                         240,999     262,613
        Accumulated depreciation                         (92,057)    (81,704)
        ---------------------------------------------------------------------
        Property, plant and equipment                  $ 148,942   $ 180,909
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Depreciation expense                           $  21,201   $  25,798
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  INTANGIBLES AND GOODWILL:

        Intangibles                                         2007        2006
        ---------------------------------------------------------------------

        Intangibles subject to amortization:
          Customer relationships                       $ 164,742   $ 173,696
          Vendor relationships                             7,706       8,864
          Other                                              595         699
        ---------------------------------------------------------------------
                                                         173,043     183,259
        Accumulated amortization                         (58,232)    (45,004)
        ---------------------------------------------------------------------
                                                         114,811     138,255
        Intangibles not subject to amortization:
          Customer relationships                          29,157      29,157
        ---------------------------------------------------------------------
        Intangibles                                    $ 143,968   $ 167,412
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Amortization expense                           $  17,430   $  17,849
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The decrease in goodwill of $8,555 is due to translation of goodwill
        of foreign operations.

    9.  LONG-TERM DEBT:

                                                            2007        2006
        ---------------------------------------------------------------------

        Term bank debt
          US$100,285 (2006 - US$100,285)               $  99,412   $ 116,872
          Canadian dollar denominated                     57,060      57,060
        ---------------------------------------------------------------------
                                                         156,472     173,932
        Liability component of convertible debentures          -      16,359
        ---------------------------------------------------------------------
                                                         156,472     190,291
        Less: Current portion                                  -     (16,359)
        ---------------------------------------------------------------------
                                                         156,472     173,932
        Less: Transaction costs                           (1,266)          -
        ---------------------------------------------------------------------
        Long-term debt                                 $ 155,206   $ 173,932
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        During 2007, the Fund increased the aggregate amount that can be
        borrowed under the Fund's senior credit facilities with its principal
        bankers by $50,000 in the form of operating lines of credit. The Fund
        incurred transaction costs of $317 with respect to this amendment.
        These costs have been included in long-term debt and are being
        expensed in net interest and accretion expense using the effective
        interest method. The Fund used part of these funds to redeem the
        16,378 convertible debentures outstanding for the principal amount
        plus accrued and unpaid interest.

        At December 31, 2007, the Fund had senior credit facilities of
        $232,134. Borrowings under this facility may be made in Canadian or
        U.S. dollars. The credit facilities are allocated as follows:
        $156,472 term loan and $75,662 in revolving credit facilities. The
        term bank debt is not due or payable until August 2009. Interest is
        payable on outstanding term loans at rates that vary with Banker's
        Acceptances or Libor. The related financing costs of $3,101 have been
        included in long-term debt and are being expensed in net interest and
        accretion expense using the effective interest method. Under the
        credit agreement, the Fund has operating lines of credit of $50,964
        and US$20,897 ($20,715) as well as bank overdraft facilities of
        $2,000 and US$2,000 ($1,983). Borrowings under these lines are
        subject to interest at rates that vary with Banker's Acceptances or
        Libor. At December 31, 2007, (euro)4,950 ($6,944) and US$2,719
        ($2,695) of the total facility has been utilized in the form of
        standby Letters of Credit and another $31,200 and US$10,000 ($9,913)
        has been utilized under the operating lines of credit (December 31,
        2006 - $2,700 and US$9,002 ($10,491)). The term bank debt facility
        and the operating lines are secured by a fixed and floating charge on
        the assets of the Fund and certain of its subsidiaries.

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

        The Fund has swap arrangements with its principal banker which fix
        interest rates on all of its U.S. dollar term debt and Canadian
        dollar denominated term debt until August 2009. Under the swap
        arrangements, which are treated as cash flow hedges, the effective
        interest rate on the outstanding U.S. dollar debt is 5.85%. The
        effective interest rate on the Canadian dollar debt is 5.22%.

        During 2007, the Fund entered into a new swap arrangement with its
        principal banker which fixes the interest rate on US$10,000 of its
        operating lines of credit until August 2009. Under the swap
        arrangement, which is treated as a cash flow hedge, the effective
        interest rate on the debt is 5.73%.

    10. UNITS:

        (a) Authorized:

            Unlimited number of units.

        (b) Outstanding:

                           Number of        2007     Number of        2006
                             Units         Amount      Units         Amount
        ---------------------------------------------------------------------
        Units
          Balance -
           beginning of
           year            33,582,040   $  412,944   33,582,040   $  412,944
          Issued on
           conversion of
           debentures             896           13            -            -
        ---------------------------------------------------------------------
          Balance - end
           of year         33,582,936   $  412,957   33,582,040   $  412,944
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (c) Net earnings per unit:

            Basic net earnings per unit has been calculated on the basis of
            the weighted average number of units outstanding for the year
            which amounted to 33,582,848 units (2006 - 33,582,040). At
            December 31, 2006, the Fund's convertible debentures outstanding
            could be converted into units. Diluted net earnings per unit was
            calculated using the "if-converted" method. In 2006, the effect
            of conversion of the convertible debentures into trust units was
            not included in the computation of diluted net earnings per unit
            as the effect of conversion was anti-dilutive.

        (d) Equity component of convertible debentures:

            For the year ended December 31, 2007, 13 (2006 - nil) convertible
            debentures were converted into 896 (2006 - nil) units which
            resulted in an increase in units of $13 (2006 - $nil) and a
            decrease in the debt and equity components of convertible
            debentures of $13 (2006 - $nil) and $nil (2006 - $nil),
            respectively.

            During 2007, the Fund redeemed the remaining 16,378 convertible
            debentures, which resulted in a decrease in the debt and equity
            components of convertible debentures of $16,349 and $160,
            respectively. The Fund recorded a gain of $28 related to the
            repayment of the debt component of the debentures in selling,
            general, administrative and other costs. The Fund also recorded a
            capital transaction on the equity component of $160 in retained
            earnings.

        (e) Distributions:

            Distributions paid for year ended December 31, 2007 were $40,971
            (2006 - $47,908). All of the Fund's distributions are
            discretionary.

        (f) Long-term incentive plan:

            The Fund operates a Total Shareholder Return Long-Term Incentive
            Plan ("TSR LTIP") which grants cash awards based on achieving
            total Unitholder return. The two elements that comprise total
            Unitholder return, are changes in unit price and distributions
            paid to Unitholders, over the performance period. The Fund treats
            these awards as liabilities with the value of these liabilities
            being re-measured at each reporting period, based upon changes in
            the intrinsic value of the awards. Any gains or losses on re-
            measurement are recorded in the Statement of Earnings, provided
            that the compensation cost accrued during the performance period
            is not adjusted below zero. For the year ended December 31, 2007,
            the Fund recorded total expenses of $4,449 (2006 - $701) related
            to the TSR LTIP, of which $2,013 (2006 - $nil) is outstanding and
            included in Other long-term liabilities.

    11. SELLING, GENERAL, ADMINISTRATIVE AND OTHER COSTS:

        Selling, general, administrative and other costs include a net
        foreign exchange gain of $2,937 (2006 - $1,667).

    12. INCOME TAXES:

        The provision for income taxes in the consolidated statements of
        operations and deficit represents an effective rate different than
        the Canadian statutory rate of 33.4% (2006 - 34.5%). The differences
        are as follows:

                                                            2007        2006
        ---------------------------------------------------------------------
        Earnings (loss) before income taxes
         and minority interest                         $  18,176   $  (2,724)

        Computed income tax expense at
         Canadian statutory rate                           6,071        (940)

        Increase (decrease) resulting from:
          Income of trust taxed directly to unitholders  (12,538)    (12,870)
          Non-deductible goodwill and other intangibles      284         297
          Difference in substantially enacted tax rate       912         228
          International income tax rate differences       (4,092)     (3,092)
          Change in valuation allowance                    6,853      10,013
          Other                                               30        (180)

        ---------------------------------------------------------------------
        Income tax recovery                            $  (2,480)  $  (6,544)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

                                                            2007        2006
        ---------------------------------------------------------------------
        Non-current future tax assets:
          Inventories                                  $   1,012   $   1,588
          Deferred charges                                     -         466
          Loss carry forwards                             45,591      45,011
          Issuance costs                                   1,075       1,216
          Long-term incentive plan                         1,893       1,168
          Interest                                         7,586       4,661
          Asset retirement obligations                       705         808
          Other                                              109          56
        ---------------------------------------------------------------------
                                                          57,971      54,974
          Valuation allowance                            (24,137)    (18,471)
        ---------------------------------------------------------------------
        Total future tax assets                           33,834      36,503
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Non-current future tax liabilities:
          Property, plant and equipment                   26,981      30,682
          Intangible assets                               20,742      28,889
          Ground lease                                       547         559
          Prepaid expenses                                   660         468
          Deferred charges                                    28           -
        ---------------------------------------------------------------------
        Total future tax liabilities                      48,958      60,598
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net future tax liability                       $ (15,124)  $ (24,095)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Classified in the financial statements as:
          Future non-current tax asset                 $  10,272   $   8,829
          Future non-current tax liability               (25,396)    (32,924)
        ---------------------------------------------------------------------
        Net future tax liability                       $ (15,124)  $ (24,095)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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 $405. In 2006, the aggregate carrying
        values exceeded the aggregate tax bases by $5,462. No future tax
        assets or liabilities have been recorded with respect to these
        temporary differences.

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

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

        2008                                                       $   1,659
        2009                                                           2,801
        2010                                                           5,246
        2014                                                           7,594
        2015                                                          10,651
        2022 and thereafter                                          113,841

        ---------------------------------------------------------------------
                                                                   $ 141,792
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Fund is a mutual fund trust for income tax purposes. As such, the
        Fund is subject to current income taxes on taxable income not
        distributed to its Unitholders. For 2007 the Fund has distributed all
        current taxable income to its Unitholders and plans to continue to
        distribute all future current taxable income to its Unitholders.
        Accordingly, no provision for current income taxes or for future
        income taxes on temporary differences reversing prior to 2011 has
        been made in these consolidated financial statements with respect to
        the income earned directly by the Fund and its flow-through
        subsidiaries.

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

        Certain distributions of a SIFT will not be deductible in computing
        the SIFT's taxable income, and the SIFT will be subject to tax on
        such distributions at a rate that is substantially equivalent to the
        general tax rate applicable to Canadian corporations. Distributions
        paid by a SIFT as returns of capital will not be subject to this tax.
        There will be circumstances where an Existing Trust may lose its
        transitional relief where its equity capital grows beyond certain
        dollar limits measured by reference to the Existing Trust's market
        capitalization at the close of trading on October 31, 2006. As at
        December 31, 2007, the Fund has not exceeded these growth limits.

        The Fund is a SIFT as defined in the SIFT Rules. Accordingly,
        commencing January 1, 2011, the Fund will be subject to taxes on
        distributions of certain income earned from investments in its
        subsidiaries. The Fund is also required to recognize future income
        tax assets and liabilities with respect to the temporary differences
        between the carrying amount and tax bases of its assets and
        liabilities and those of its flow-through subsidiaries that are
        expected to reverse in or after 2011. The Fund expects that its
        aggregate temporary differences and those of its flow-through
        subsidiaries will reverse prior to 2011. Accordingly, the Fund has
        not provided for future taxes on these temporary differences. The
        Fund expects that its distributions will not be subject to tax prior
        to 2011 and accordingly has not provided for future income taxes on
        the temporary differences expected to reverse prior to then.

        Under the existing SIFT Rules, although not entirely clear, certain
        flow-through subsidiaries of the Fund may also meet the definition of
        a SIFT. If it is determined that these flow-through subsidiaries of
        the Fund meet the definition of a SIFT, there would be no impact on
        the future tax assets and liabilities of the Fund. On December 20,
        2007, the Minister of Finance announced proposed technical amendments
        to the SIFT Rules which clarify that, in certain circumstances, flow-
        through subsidiaries of a SIFT will not meet the definition of a
        SIFT. The flow-through subsidiaries of the Fund will not be SIFTs
        under the proposed technical amendments.

        The SIFT Rules do not affect the current and future tax amounts of
        the Fund's corporate subsidiaries.

    13. POST-EMPLOYMENT BENEFITS:

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

        Components of net periodic benefit cost           2007          2006
        ---------------------------------------------------------------------
          Current service cost                       $      90     $      92
          Interest cost                                    181           175
          Actuarial (gain)                                (693)         (139)
        ---------------------------------------------------------------------
          Costs arising in the period                     (422)          128
          Differences between costs arising in the
           period and costs recognized in the period
           in respect of actuarial gain                    224            20
        ---------------------------------------------------------------------
          Net periodic benefit cost recognized       $    (198)    $     148
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Weighted-average assumptions                      2007          2006
        ---------------------------------------------------------------------
          Discount rate                           5.25 - 5.50%  4.25 - 5.40%
          Ultimate other medical trend rate              4.60%         5.00%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Change in accrued benefit obligation              2007          2006
        ---------------------------------------------------------------------
          Accrued benefit obligation at
           beginning of year                         $   4,256     $   4,138
          Current service cost                              90            92
          Interest cost                                    181           175
          Plan amendments                                   88          (123)
          Benefits paid                                   (170)         (172)
          Foreign exchange                                (178)          285
          Actuarial (gain)                                (693)         (139)
        ---------------------------------------------------------------------
          Accrued benefit obligation at end of year  $   3,574     $   4,256
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Reconciliation of funded status                   2007          2006
        ---------------------------------------------------------------------
          Deficit at end of year                     $  (3,574)    $  (4,256)
          Unamortized net actuarial (gain) loss           (193)          113
        ---------------------------------------------------------------------
          Accrued benefit liability                  $  (3,767)    $  (4,143)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Both the pension and health care benefits are funded on a pay-as-you
        go basis. As both the pension and health care benefits are not
        funded, the Fund's accrued benefit liability was $3,767 (2006 -
        $4,143). Benefits paid in 2007 were $170 (2006 - $172). The Fund has
        not made any contributions during 2007 or 2006 for either plan. No
        assets have been segregated or restricted to provide for either plan.

        Pulp Chemicals hourly employees participate in the Pulp and Paper
        Industry Pension Trust Fund, a multi-employer, defined contribution
        pension plan. The plan is funded by employer and employee
        contributions. The employer related expense under this plan in 2007
        was $206 (2006 - $198).

        BCT employees participate in a Swiss multi-employer defined benefit
        pension plan. The employer related expense under this Plan in 2007
        was $91 (2006 - $95).

        In 2006, the Fund recorded a pension prepayment and other income of
        $717 (CHF 750), gross of future tax liability of $73, in connection
        with the liquidation of a parental welfare fund. At December 2007,
        the balance of the pension prepayment was $528 (CHF 599).

    14. COMMITMENTS AND CONTINGENCIES:

        (a) Operating leases:

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

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

            2008                                                   $  16,208
            2009                                                      11,101
            2010                                                       6,109
            2011                                                       2,716
            2012 and thereafter                                        3,018

            -----------------------------------------------------------------
                                                                   $  39,152
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            The Fund has recorded deferred rent expense of $1,366 (2006 -
            $1,454) 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 has purchased a number of sites as a result of the
            acquisitions of certain businesses. Subject to certain
            limitations, the Fund has been indemnified by the vendors for any
            remediation costs or environmental actions that may arise as a
            result of conditions existing at the time of acquisition and
            consequently the Fund has not accrued any amount with this
            respect. Environmental assessments were conducted prior to the
            purchase of the sites as a basis to, among other things, evaluate
            indemnity protections and, where applicable, to verify the
            appropriateness of estimates for remediation costs.

        (c) Contingent liability:

            The Fund has received and responded to a claim from Marsulex Inc.
            ("Marsulex") against the Fund alleging that the acquisition of
            Peak Sulfur, Inc. and Peak Chemical LLC is a breach of a non-
            competition agreement in favour of Marsulex. Marsulex is seeking
            damages in the amount of $72,800, as well as other relief. The
            Fund has received advice from its legal advisors that the non-
            competition covenants contained in such agreement are likely
            unenforceable. The Fund has filed a statement of defence and
            counter-claim in the amount of $87,750 in respect of this action,
            and intends to defend the claim brought against it by Marsulex
            and pursue its counter-claim. In February 2008, the Fund
            announced that it has reached an agreement with Marsulex on this
            matter and that the resolution did not have a material impact on
            the Fund.

        (d) Other claims:

            The Fund is involved in certain claims arising out of 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.

    15. BUSINESS SEGMENTS:

        The Fund operates in four business segments: SPPC, Pulp Chemicals,
        International and Corporate.

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

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

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

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

                                                                        2007
        ---------------------------------------------------------------------
                                        Pulp
                              SPPC   Chemicals    Intl   Corporate    Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers          $309,416  $ 58,093  $179,127  $      -  $546,636

        Earnings before the
         under-noted          52,040    19,546    14,942   (17,088)   69,440
        Depreciation and
         amortization         27,456     9,364     1,811         -    38,631
        Net interest and
         accretion expense    10,762     2,094      (392)      169    12,633
        Income tax
         (recovery) expense   (4,079)        -     1,599         -    (2,480)
        Minority interest          -         -       (22)        -       (22)

        Net earnings          17,901     8,088    11,946   (17,257)   20,678

        Total assets         302,248   117,829    87,983     2,041   510,101

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

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

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


                                                                        2006
        ---------------------------------------------------------------------
                                        Pulp
                              SPPC   Chemicals    Intl   Corporate    Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers          $284,966  $ 52,595  $214,567  $      -  $552,128

        Inter-segment
         revenues                  -         -       430         -       430

        Earnings before the
         under-noted          47,449    20,853     9,120   (12,065)   65,357
        Depreciation and
         amortization         33,366     9,299     1,702         -    44,367
        Impairment of
         property, plant
         and equipment        12,276         -         -         -    12,276
        Net interest and
         accretion expense     8,009     1,961      (187)    1,655    11,438
        Income tax
         (recovery)
         expense              (7,601)        -     1,057         -    (6,544)

        Net earnings           1,399     9,593     6,548   (13,720)    3,820

        Total assets         361,822   119,548    85,542     1,199   568,111

        Goodwill              64,744         -    31,511         -    96,255

        Intangible assets    109,618    50,407     7,387         -   167,412

        Capital
         expenditures          5,425       940       977       205     7,547
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Geographic segments:

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

        ---------------------------------------------------------------------
                               Property, Plant                Property, Plant
                                and Equipment,                 and Equipment,
                                   Goodwill                        Goodwill
                   Revenue        and Other        Revenue        and Other
                  Year ended     Intangibles      Year ended     Intangibles
                 December 31,    December 31,    December 31,    December 31,
                     2007            2007            2006            2006
        ---------------------------------------------------------------------

        Canada   $   135,221     $   133,900     $   125,602     $   143,779

        USA and
         other       232,288         206,000         211,959         257,467

        Europe       179,127          40,710         214,567          43,330
        ---------------------------------------------------------------------
                 $   546,636     $   380,610     $   552,128     $   444,576
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        In 2007, the Fund obtained product from a producer that accounted for
        11.4% (2006 - 10.5%) of the Fund's total revenue. There were no
        customers that accounted for more than 10% of the Fund's total
        revenue in 2006 or 2007.

    16. FAIR VALUES OF FINANCIAL INSTRUMENTS:

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

        The Fund has entered into swap arrangements with its principal
        banker, which fix interest rates on all of its outstanding term debt.
        Under the swap arrangements the effective interest rate on the
        outstanding U.S. dollar term debt is 5.85% and on the outstanding
        Canadian dollar term debt is 5.22%. In 2007, the Fund entered into a
        swap arrangement with its principal banker, which fixes interest
        rates on US$10,000 of its operating lines of credit. The effective
        interest rate under this swap arrangement is 5.73%. As at
        December 31, 2007 the fair value loss of the U.S. swap arrangements
        is $1,011 (US$1,020) and the fair value gain of the Canadian swap
        arrangements is $347. At December 31, 2006 the fair value gains of
        the U.S. and Canadian swap arrangements were $2,057 (US$1,765) and
        $644 respectively. Fair value gains are included in other assets and
        fair value losses are included in other long-term liabilities.

        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, 2007 include future contracts of
        US$9,340, CHF 1,950 and (euro) 1,468 at weighted average exchange
        rates of $1.206, US$0.89 and US$1.46, respectively. There are
        unrealized gains of $1,960 (2006 - $1,162) and unrealized losses of
        $26 from these contracts at December 31, 2007. The gain has been
        included in prepaid expenses and other assets, and the loss has been
        included in Accrued and other liabilities.

        To manage its exposure to changes in the price of natural gas, the
        Fund has entered into natural gas forward contracts. The Fund buys
        and sells specific quantities of natural gas at pre-determined dates
        on indices, which are matched with the anticipated operational cash
        flows. There is a net unrealized gain of $367 (2006 - nil) from these
        forward contracts at December 31, 2007. This amount has been included
        in prepaid expenses and other assets.

        The Fund's International business segment has commitments to buy and
        sell commodities and has entered into commodity forward contracts to
        manage its exposure to commodity price changes. Under the change in
        accounting policies, the commitments to buy and sell commodities are
        treated as derivatives and are measured at fair value. The commodity
        forward contracts are derivatives and are measured at fair value. At
        December 31, 2007, the net unrealized value of these transactions is
        immaterial.

    17. 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, 2007
    

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

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

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

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

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

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


    FINANCIAL HIGHLIGHTS

                    Three Months Ended                Year Ended
                    ------------------                ----------
    ($'000 except
     per unit       December    December    December    December    December
     amounts)       31, 2007    31, 2006    31, 2007    31, 2006    31, 2005
    -------------------------------------------------------------------------

    Revenue        $ 144,580   $ 146,930   $ 546,636   $ 552,128   $ 425,416

    Gross profit   $  33,808   $  24,904   $ 109,373   $  96,268   $  84,852

    Net earnings   $   9,071   $   5,385   $  20,678   $   3,820   $  13,217

    Net earnings
     per unit
      - Basic      $    0.27   $    0.16   $    0.62   $    0.11   $    0.48
      - Diluted    $       -   $    0.16   $       -   $    0.11   $    0.48

    Total assets   $ 510,101   $ 568,111   $ 510,101   $ 568,111   $ 595,455

    Long-term debt $ 155,206   $ 173,932   $ 155,206   $ 173,932   $ 190,019

    EBITDA(3)      $  22,746   $  13,917   $  69,440   $  65,357   $  58,909
    EBITDA per
     unit (1)      $    0.68   $    0.41   $    2.07   $    1.95   $    2.15

    Cash flows
     from operating
     activities    $  19,731   $   5,843   $  47,742   $  41,950   $  47,734
    Cash flows
     from operating
     activities per
     unit(1)       $    0.59   $    0.17   $    1.42   $    1.25   $    1.75

    Adjusted cash
     flows from
     operating
     activities(3) $  18,843   $  12,164   $  54,351   $  52,991   $  47,623
    Adjusted cash
     flows from
     operating
     activities
     per unit
     (1)(3)        $    0.56   $    0.36   $    1.62   $    1.58   $    1.74

    Distributable
     cash after
     maintenance
     capital
     expenditures
     (3)           $  16,071   $   8,898   $  47,501   $  46,383   $  43,244
    Distributable
     cash after
     maintenance
     capital
     expenditures
     per unit
     (1)(3)        $    0.48   $    0.26   $    1.41   $    1.38   $    1.58

    Distributions
     declared      $  10,074   $  12,089   $  40,299   $  48,133   $  49,729
    Distributions
     declared per
     unit(2)       $  0.3000   $  0.3600   $  1.2000   $  1.4333   $  1.8165

    Distributions
     paid          $  10,075   $  12,089   $  40,971   $  47,908   $  48,506
    Distributions
     paid per
     unit2)        $  0.3000   $  0.3600   $  1.2200   $  1.4266   $  1.8132
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Based on
        weighted
        average
        number of
        units
        outstanding
        for the
        period
        of:       33,582,936  33,582,040  33,582,848  33,582,040  27,340,711

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

    (3) See NON-GAAP MEASURES.
    

    NON-GAAP MEASURES

    EBITDA -

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

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

                    December    December    December    December    December
    ($'000)         31, 2007    31, 2006    31, 2007    31, 2006    31, 2005
    -------------------------------------------------------------------------

    Net earnings   $   9,071   $   5,385   $  20,678   $   3,820   $  13,217
      Add:
        Depreciation
         and
         amortization  9,088       9,970      38,631      44,367      35,855
        Impairment
         and
         write-down
         of
         property,
         plant and
         equipment         -      (3,320)          -      12,276         586
        Early
         settlement
         of debt           -           -           -           -       2,878

        Net interest
         and debt
         accretion
         expense       3,050       2,992      12,633      11,438       8,942
        Net taxes      1,552      (1,110)     (2,480)     (6,554)     (2,575)
        Minority
         interest        (15)          -         (22)          -           6
    -------------------------------------------------------------------------
    EBITDA(1)      $  22,746   $  13,917   $  69,440   $  65,357   $  58,909
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) EBITDA for the three months and year ended December 31, 2007 includes
        charges for restructuring of $nil and $1,971 respectively. EBITDA for
        the three months and year ended December 31, 2006 included charges of
        $2,706 for restructuring.
    

    Cash Flow -

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

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

                    December    December    December    December    December
    ($'000)         31, 2007    31, 2006    31, 2007    31, 2006    31, 2005
    -------------------------------------------------------------------------

    Cash flows from
     operating
     activities    $  19,731   $   5,843   $  47,742   $  41,950   $  47,734

    Add (deduct):

    Changes in
     non-cash
     working capital
     and other items    (888)      6,321       6,609      11,041        (111)
    -------------------------------------------------------------------------
    Adjusted cash
     flows from
     operating
     activities       18,843      12,164      54,351      52,991      47,623

    Less:

    Maintenance
     capital
     expenditure       2,772       3,266       6,850       6,608       4,379
    -------------------------------------------------------------------------
    Distributable
     cash after
     maintenance
     capital
     expenditure      16,071       8,898      47,501      46,383      43,244

    Less:

    Non-maintenance
     capital
     expenditure(1)    1,939          14       2,216         937       1,718
    -------------------------------------------------------------------------
    Distributable
     cash after all
     capital
     expenditure      14,132       8,884      45,285      45,446      41,526
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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 2007 was $144.6 million, a
decrease of $2.3 million from consolidated revenue of $146.9 million recorded
in the fourth quarter of 2006. Consolidated revenues for the years ended
December 31, 2007 and December 31, 2006 were $546.6 million and $552.1 million
respectively. The principal reasons for the decrease in consolidated revenue
was a result of the change in accounting policy implemented by the Fund in
recording its revenue related to the International segment and due to the
effect of the stronger Canadian dollar relative to the U.S. dollar, as some of
the Fund's revenues are denominated in U.S. dollars. The change in policy is
due to the adoption of the Canadian Institute of Chartered Accountants
("CICA") Handbook Section 3855, Financial Instruments. This decrease was
almost entirely offset by increases in revenue in the SPPC and Pulp Chemicals
segments for the three months and year ended December 31, 2007.
    The Fund's net earnings and EBITDA for the fourth quarter of 2007 were
$9.1 million and $22.7 million respectively compared to $5.4 million and
$13.9 million respectively for the fourth quarter of 2006. Net earnings and
EBITDA for the year ended 2007 were $20.7 million and $69.4 million
respectively. Comparable net earnings and EBITDA for the year ended 2006 were
$3.8 million and $65.4 million respectively. The main reason for the
improvement in EBITDA in 2007 was stronger results from the International
segment and because the fourth quarter of 2006 included restructuring costs
(as described in the ASSET IMPAIRMENT AND RESTRUCTURING section below). For
the full year, the improved results reflect the strength in the SPPC and
International segments. These improvements more than offset higher Corporate
costs and weaker results in the Pulp Chemicals segment. 2006 net earnings were
negatively impacted by a non-cash charge of $12.3 million with respect to
impairment in the net book value of property, plant and equipment used to
manufacture powder SHS.

    
    RESULTS OF OPERATIONS BY BUSINESS SEGMENT

    SPPC -

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

                                   December   December   December   December
    ($'000)                        31, 2007   31, 2006   31, 2007   31, 2006
    -------------------------------------------------------------------------

    Revenue                       $  73,848  $  72,490  $ 309,416  $ 284,966

    Earnings before the
     under-noted                     12,931     10,617     52,040     47,449
    Depreciation and amortization     6,390      7,200     27,456     33,366
    Impairment of property, plant
     and equipment                        -     (3,320)         -     12,276
    Net interest and debt
     accretion expense                2,613      2,100     10,762      8,009
    Income tax (recovery)               315     (1,492)    (4,079)    (7,601)

    -------------------------------------------------------------------------
    Net earnings                  $   3,613  $   6,129  $  17,901  $   1,399
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    SPPC manufactures and distributes sulphuric acid and other sulphur based
products to an extensive customer base in Canada and the U.S., and provides
acid regeneration services to the petroleum industry, primarily in the U.S.
Gulf Coast area. SPPC also supplies liquid and powder sodium hydrosulphite,
which is sold to the pulp and paper industry and to a lesser extent, to the
textile industry.
    Results for 2007 and 2006 were negatively impacted by the recording of
$2.0 million and $2.7 million respectively, related to the cessation of
production of powder SHS (as described in the ASSET IMPAIRMENT AND
RESTRUCTURING section below).
    For the fourth quarter of 2007, SPPC generated revenue of $73.8 million,
which compares to $72.5 million for the fourth quarter of 2006. The increase
in 2007 revenue is primarily the result of higher prices for merchant acid and
higher volumes of SHS. The increase in revenues was partially offset by the
effect of the stronger Canadian dollar relative to the U.S. dollar. SHS
results include sales to customers acquired as the result of the Olin asset
acquisition (as described in the LIQUIDITY AND CAPITAL RE

SOURCES - Investing Activities - Acquisitions section). During the fourth quarter of 2007, SPPC's EBITDA was higher than the levels achieved in 2006 by $2.3 million, mainly due to the restructuring costs recorded in the fourth quarter of 2006, and net earnings were lower by $2.5 million. During the fourth quarter of 2007, the benefit of higher prices for merchant acid was offset by higher sulphur and net zinc costs and by operating issues at a few of our customers. Despite the higher EBITDA in the fourth quarter of 2007, net earnings were lower than the fourth quarter of 2006, as that quarter benefited from an adjustment to the impairment charge, originally recorded in the third quarter of 2006. For the year ended December 31, 2007, SPPC generated revenues of $309.4 million, a significant increase over the level achieved during 2006. The increase in 2007 revenue is the result of higher merchant acid volumes and prices and higher SHS volumes. During 2007, SPPC's EBITDA increased by $4.6 million. Stronger results across most products, particularly merchant acid, were partially offset by higher sulphur and net zinc costs. 2007 net earnings additionally benefited by having lower levels of depreciation and amortization relative to 2006. 2006 earnings were also negatively impacted by the recording of impairment charges of $12.3 million (as described in the ASSET IMPAIRMENT AND RESTRUCTURING section below). The fourth quarter and year ended December 31, 2007 income tax recovery related to increased future tax loss benefits and reduced temporary differences between the accounting and tax basis of certain future tax liabilities. Pulp Chemicals - Three Months Ended Year Ended ------------------ ---------- December December December December ($'000) 31, 2007 31, 2006 31, 2007 31, 2006 ------------------------------------------------------------------------- Revenue $ 14,635 $ 13,062 $ 58,093 $ 52,595 Earnings before the under-noted 5,326 4,346 19,546 20,853 Depreciation and amortization 2,346 2,333 9,364 9,299 Net interest expense 528 496 2,094 1,961 ------------------------------------------------------------------------- Net earnings $ 2,452 $ 1,517 $ 8,088 $ 9,593 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 2007 Pulp Chemicals revenue was $1.6 million higher than the level achieved during the fourth quarter of 2006. On a year-to-date basis, the improvement in revenue during 2007 was $5.5 million. The main reason for this increase was higher selling prices and volumes for sodium chlorate. During the fourth quarter of 2006, production and sales were disrupted due to the declaration of force majeure by the previous supplier of salt, resulting in the plant operating at approximately 70% of planned capacity for the month of December. Net earnings and EBITDA for the fourth quarter were higher than the levels achieved during the comparable period in 2006, when operations were disrupted as described above. During the fourth quarter of 2007, costs were higher due to increases in costs for caustic soda and salt. Net earnings and EBITDA for 2007 were lower than the levels achieved in 2006. Higher selling prices and volumes for sodium chlorate were not enough to fully offset the increase in input costs, particularly for salt, a key raw material used in the production of sodium chlorate. International - Three Months Ended Year Ended ------------------ ---------- December December December December ($'000) 31, 2007 31, 2006 31, 2007 31, 2006 ------------------------------------------------------------------------- Revenue $ 56,097 $ 61,378 $ 179,127 $ 214,567 Earnings before the under-noted 9,409 3,548 14,942 9,120 Depreciation and amortization 352 437 1,811 1,702 Net interest income (91) (21) (392) (187) Income tax expense 1,237 382 1,599 1,057 Minority interest (15) - (22) - ------------------------------------------------------------------------- Net earnings $ 7,926 $ 2,750 $ 11,946 $ 6,548 ------------------------------------------------------------------------- ------------------------------------------------------------------------- During the fourth quarter of 2007, International's revenue was $56.1 million compared to $61.4 million for the same period of 2006. For 2007, International's revenue was $179.1 million compared to $214.6 million for 2006. The decrease in 2007 revenue is primarily due to a change in accounting policy implemented by the Fund as a result of the adoption of the recommendations of the CICA Handbook Section 3855. This resulted in certain transactions being recorded on a net basis. International net earnings and EBITDA during the fourth quarter and year ended December 31, 2007 were considerably higher than the comparable periods in 2006. Virtually all the improvement was in the fourth quarter and was primarily due to the tightness in the global sulphuric acid market. A relatively low volume of acid that was not committed to specific customers resulted in extremely high margins and was a key driver of the improved EBITDA and earnings. Corporate - Three Months Ended Year Ended ------------------ ---------- December December December December ($'000) 31, 2007 31, 2006 31, 2007 31, 2006 ------------------------------------------------------------------------- Cost of services $ 4,920 $ 4,594 $ 17,088 $ 12,065 Loss before the under-noted (4,920) (4,594) (17,088) (12,065) Net interest and debt accretion expense - 417 169 1,655 ------------------------------------------------------------------------- Net earnings $ (4,920) $ (5,011) $ (17,257) $ (13,720) ------------------------------------------------------------------------- ------------------------------------------------------------------------- The Corporate segment includes the administrative costs of corporate activities which are not directly allocable to an operating segment, such as information technology, finance and human resources. For the fourth quarter and year ended December 31, 2007 corporate costs were $4.9 million and $17.1 million respectively compared to $4.6 million and $12.1 million respectively for the fourth quarter and year ended December 31, 2006. Corporate costs in the fourth quarter of 2007 were slightly higher than the fourth quarter of 2006, although ignoring difference in foreign exchange gains/losses, costs were higher by $1.7 million. Most of this increase is due to accruals for the Total Shareholder Return Long-Term Incentive Plan ("TSR LTIP") and for annual incentive compensation. The total level of corporate costs is affected by differences in foreign exchange. During the fourth quarter of 2006, an unrealized foreign exchange loss of $1.4 million and a realized foreign exchange gain of $0.1 million were recorded. During the fourth quarter of 2007, there were no net foreign exchange gains as realized gains were offset by unrealized losses. The increase in corporate costs during 2007 was mainly due to the recording of $3.8 million associated with the Fund's TSR LTIP, costs associated with the departure of a senior executive during the third quarter of 2007 ($1.6 million) and costs related to the Fund's review of strategic alternatives that was announced in February 2007 ($0.7 million). This was partially offset by the recognition of US$0.8 million related to the Hurricane Rita insurance claim and higher net foreign exchange gains of $1.4 million. During 2007, realized and unrealized foreign exchange gains of $2.2 million and $0.8 million respectively were recorded, whereas during 2006, there was an unrealized loss of $0.4 million and a realized gain of $2.0 million. The TSR LTIP accruals relate to the 2006 transitional TSR LTIP and the 2006 and 2007 TSR LTIP. The 2006 transitional TSR LTIP was paid out in July 2007 and the 2006 and 2007 TSR LTIP's are payable at the beginning of 2009 and 2010 respectively. Although an accrual with respect to these two plans has been recorded, the payouts will be based upon Total Shareholder Return, 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 TSR LTIP expenses that will be recordable in any period as it is based upon future distributions and changes in unit value. Net interest and debt accretion expense in the fourth quarter and 2007 was $nil and $0.2 million respectively compared to $0.4 million and $1.7 million for the fourth quarter and 2006. The decrease in the expense in the fourth quarter of 2007 from 2006 was due to the redemption of all the remaining outstanding convertible debentures in the first quarter of 2007. ASSET IMPAIRMENT AND RESTRUCTURING During the fourth quarter of 2006, the Fund decided to discontinue production of powder SHS and costs of $2.7 million related to that decision were recorded in that quarter. Accounting rules prescribe when costs are to be recorded in such situations and certain costs can only be recorded when they are incurred. Consequently, the Fund has recorded an additional $2.0 million of costs with respect to this decision during 2007 (fourth quarter - $nil). These costs consist of severances and other costs required to effect the cessation of production. The Fund estimates that substantially all costs related to this decision have now been recorded. During 2006, the Fund recorded a charge of $12.3 million with respect to the impairment of certain property, plant and equipment. These assets were within the SPPC business segment and were used to manufacture powder SHS. Due to rising input costs and declining demand, the cash flows associated with these assets had been declining and could no longer support their carrying value. FOREIGN EXCHANGE The Fund has operating subsidiaries that are U.S. based. BCT, the Fund's international subsidiary, uses the U.S. dollar as its reporting currency. As the Fund reports in Canadian dollars, its reported earnings are exposed to fluctuations in the Canadian/U.S. dollar exchange rate. The Fund now estimates that, on an unhedged basis, a $0.01 increase in the Canadian/U.S. dollar exchange rate reduces distributable cash after maintenance capital expenditures by less than $0.15 million on an annual basis and vice-versa. To manage the volatility of foreign exchange rates, the Fund has entered into a series of foreign exchange contracts with its principal bankers. All foreign exchange contracts are under International Swap and Derivatives Association ("ISDA") agreements. As of December 31, 2007, approximately all planned transfers for 2008 have been effectively hedged at $0.8292. Contracts in place at December 31, 2007 include future contracts of US$ 9.3 million, CHF 2.0 million and (euro) 1.5 million at weighted average exchange rates of $1.206, US$0.89 and US$1.46, respectively. There are unrealized gains of $2.0 million and unrealized losses of less than $0.1 million from these hedge contracts at December 31, 2007. The purpose of these contracts is to hedge the value of the funds which are used to pay dividends and interest by subsidiary companies to the Fund and to meet other commitments. The amount of the related derivative must be recorded at fair market value at the period end. The resultant non-cash charge or gain is grouped with Selling, General and Administrative expense and is also included with Prepaid expenses and other assets on the balance sheet. The impact of this non-cash charge or gain is excluded from the computation of distributable cash. The rate of exchange used to translate U.S. denominated balances has changed from $0.8581 at December 31, 2006 to $1.0088 at December 31, 2007. The Fund's International and U.S. based operations are considered to be self-sustaining, as they are financially independent. As a result, gains or losses arising from the translation of the assets and liabilities of self-sustaining operations are recorded in other comprehensive income. The changes recorded in the accumulated other comprehensive income account since December 31, 2006 were a result of changes in the Canadian/U.S. dollar exchange rate between December 31, 2006 and December 31, 2007. See RISKS AND UNCERTAINTIES for additional comments on foreign exchange. NET INTEREST AND DEBT ACCRETION EXPENSE Net interest and debt accretion expense was $3.1 million in the fourth quarter of 2007 compared to $3.0 million in the fourth quarter of 2006. Net interest and debt accretion expense was $12.6 million for 2007 compared to $11.4 million for 2006. Interest expenses were higher as the Fund recorded additional accretion expenses pursuant to the adoption of the new CICA handbook section on Financial Instruments and due to increased usage of the operating lines of credit. Interest on the Canadian dollar denominated debt amounted to $1.2 million and $4.6 million in the fourth quarter and 2007 respectively and $0.6 million and $2.9 million in the fourth quarter and 2006 respectively. The increase in interest expense was a result of increased usage of the operating lines of credit, primarily due to the redemption of all of the outstanding convertible debentures and an increase in the effective annual interest rate. These loans have an effective annual interest rate of 5.22% at December 31, 2007 (December 31, 2006 - 4.97%). The interest on the U.S. dollar denominated debt was $1.6 million and $7.0 million for the fourth quarter and 2007 respectively, compared to $1.9 million and $6.8 million for the fourth quarter and 2006 respectively. The increase in interest is due to increased usage of the operating lines of credit and an increase in the effective annual interest rate. The effective annual interest rate at December 31, 2007 was 5.85% (December 31, 2006 - 5.60%). See LIQUIDITY AND CAPITAL RE

SOURCES - Financing Activities - Financial Instruments for information concerning swap arrangements. Interest on the outstanding 10% convertible debentures was $nil for the fourth quarter of 2007 and $0.2 million in 2007, compared to $0.4 million for the fourth quarter of 2006 and $1.7 million in 2006. The expense in the fourth quarter and 2007 was lower than 2006 due to the redemption of all of the outstanding convertible debentures in the first quarter of 2007. At December 31, 2007, there were no debentures outstanding compared to 16,391 debentures outstanding at December 31, 2006. During the fourth quarter and 2007, the Fund recorded $0.2 million and $0.8 million of accretion expense respectively, which was due to the adoption of the new Canadian Institute of Chartered Accountants recommendations with respect to Financial Instruments. This accretion is due to the amortization of transaction costs related to the Fund's borrowings, which were previously recorded in depreciation and amortization. INCOME TAXES Current income tax expense was $1.3 million for the fourth quarter of 2007 and $2.2 million for 2007, compared to $0.2 million and $1.4 million for the fourth quarter and 2006 respectively. The increase in current tax expense for 2007 reflects increased earnings in certain International business operations. The increase in future tax asset of $1.4 million at December 31, 2007 compared to December 31, 2006 is the result of increased tax loss carry forwards, net of valuation allowances, and other tax benefits reported by certain operating subsidiaries. The decrease in future tax liability of $7.5 million at December 31, 2007 compared to December 31, 2006 is the result of reduced timing differences between the accounting basis and the tax basis of assets associated with certain operating subsidiaries and the impact of the exchange rate used to translate U.S. denominated balances. CONTINGENT LIABILITIES See RISKS AND UNCERTAINTIES - Marsulex Claim for a discussion of this issue, in the context of CONTINGENT LIABILITIES. EXCESS CASH FLOWS AND NET INCOME OVER DISTRIBUTIONS PAID The following table presents excess cash flows from operating activities and net income over distributions paid for the three month period ended December 31, 2007 and for the years ended December 31, 2007, 2006 and 2005. Three Months Ended Year Ended Year Ended Year Ended December December December December ($'000) 31, 2007 31, 2007 31, 2006(1) 31, 2005(1) ------------------------------------------------------------------------- Cash flows from operating activities $ 19,731 $ 47,742 $ 41,950 $ 47,734 Net earnings 9,071 20,678 3,820 13,217 Distributions paid during period 10,075 40,971 47,908 48,506 Excess (shortfall) of cash flows from operating activities over cash distributions paid 9,656 6,771 (5,958) (772) Excess (shortfall) of net income over cash distributions paid $ (1,004) $ (20,293) $ (44,088) $ (35,289) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Cash flow from operating activities for the years ended 2006 and 2005 have been restated to comply with the current period's presentation. The Fund considers the amount of cash generated by the business in determining the amount of distributions payable to its Unitholders. In general, the Fund does not take into account quarterly working capital fluctuations as these tend to be temporary in nature. The Fund does not generally consider net income in setting the level of distributions as this is a non-cash metric and is not reflective of the level of cash flow that the Fund can generate. This divergence is particularly relevant for the Fund as it has a relatively high level of depreciation and amortization expenses. For the year ended December 31, 2005, distributions to Unitholders exceeded cash flows from operating activities mainly because 2005 cash flows were negatively impacted by Hurricane Rita. The additional distribution was funded by an increase in bank debt. A portion of this loss was covered by insurance and the Fund recovered approximately US$0.8 million in 2007. For the year ended December 31, 2006 distributions to Unitholders exceeded cash flows from operating activities mainly due to an increase in working capital. The additional distribution was funded by an increase in bank debt. Distributions - On January 4, 2007, the Fund announced a change in the monthly distribution rate to $0.10 per unit, effective with the January 2007 declaration. Since inception, the Fund has distributed $240.9 million. Distributions to Unitholders for the three months and year ended December 31, 2007 were declared as follows: Distribution Total Record Date Payment Date Per Unit ($'000) ------------------------------------------------------------------------- Three months ended December 31: October 31, 2007 November 30, 2007 $ 0.10 $ 3,358 November 30, 2007 December 31, 2007 0.10 3,358 December 31, 2007 January 31, 2008 0.10 3,358 ------------------------------------------------------------------------- Sub-Total $ 0.30 $ 10,074 Nine months ended September 30 $ 0.90 $ 30,225 ------------------------------------------------------------------------- Total for the year ended December 31 $ 1.20 $ 40,299 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions declared in the three months and year ended December 31, 2006 were as follows: Distribution Total Record Date Payment Date Per Unit ($'000) ------------------------------------------------------------------------- Three months ended December 31: October 31, 2006 November 30, 2006 $ 0.12 $ 4,030 November 30, 2006 December 29, 2006 0.12 4,030 December 29, 2006 January 31, 2007 0.12 4,029 ------------------------------------------------------------------------- Sub-Total $ 0.36 $ 12,089 Nine months ended September 30 $ 1.07 $ 36,044 ------------------------------------------------------------------------- Total for the year ended December 31 $ 1.43 $ 48,133 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Treatment of the Fund's distributions for Canadian Income Tax purposes for 2006 and 2007 is as follows: Eligible Foreign Non- Return of Other Income Dividends Business Income Capital Total ------------------------------------------------------------------------- 2006 53.7% 25.8% 20.5% 0.0% 100.0% 2007(1) 60% 15% 25% 0% 100% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Represents planned distributions treatment. The final treatment of 2007 distributions will be determined by February 28, 2008. LIQUIDITY AND CAPITAL RE

SOURCES The Fund's distributions to Unitholders are sourced entirely from its investments in operating subsidiary companies. The Fund's investments are financed by trust units held by Unitholders, long-term debt and operating lines of credit. The cash flow of the Fund is required to fund distributions to Unitholders, capital expenditures and third party interests. Cash Flow from Operating Activities ----------------------------------- Cash flow from operating activities for the fourth quarter of 2007 was $19.7 million, an increase of $13.9 million from the level generated during the fourth quarter of 2006. The increase in cash flow is primarily due to the improvement in earnings. For 2007, cash flow from operating activities was $47.7 million, an increase of approximately $5.7 million from the level achieved in 2006. The increase in cash flow is primarily due to the improvement in earnings. Financing Activities -------------------- Distributions to Unitholders during the fourth quarter and 2007 were $2.0 million and $6.9 million lower respectively than the same periods in 2006. These decreased distributions were due to the lower distribution rates in 2007. During the first quarter of 2007, the Fund increased the aggregate amount that can be borrowed under the Fund's senior credit facilities with its principal bankers by $50.0 million. During the first quarter of 2007, the Fund used part of this increased credit facility to redeem the 16,378 convertible debentures outstanding for the principal amount plus accrued and unpaid interest. For additional information on cash distributions, see DISTRIBUTABLE CASH AND CASH DISTRIBUTIONS. Financial Instruments - The Fund has entered into swap agreements with its principal bankers in order to fix the interest rates on its long-term debt. Under the swap agreements, which are treated as a cash flow hedge for accounting purposes, the effective interest rate on the outstanding U.S. long-term debt is 5.85% and on the Canadian dollar long-term debt is 5.22%. In the fourth quarter of 2007, the Fund entered into a new swap arrangement to fix the interest rate on US$10,000 of its operating lines of credit. The effective interest rate under the swap arrangement is 5.73%. At December 31, 2007, the fair values of these agreements were a loss of US$1.0 million and a gain of $0.3 million. See comments under NET INTEREST AND DEBT ACCRETION EXPENSE for comments on these rates. See RESULTS OF OPERATIONS BY BUSINESS SEGMENT - Foreign Exchange for additional comments on hedging. To manage its exposure to changes in the price of natural gas, the Fund has entered into natural gas forward contracts. The Fund buys and sells specific quantities of natural gas at pre-determined dates on indices which are matched with the anticipated operational cash flows. At December 31, 2007, the fair value of these agreements is $0.4 million in favour of the Fund. These contracts are accounted for as derivatives. Investing Activities -------------------- Investment in capital expenditures was $4.7 million in the fourth quarter of 2007, compared to $3.3 million in the fourth quarter of 2006. These amounts include $2.8 million in the fourth quarter of 2007 and $3.3 million in the fourth quarter of 2006 for maintenance capital requirements. Investment in capital expenditures for 2007 was $9.1 million compared to $7.5 million for 2006. The maintenance capital expenditure components were $6.9 million for 2007 and $6.6 million for 2006. Owing to the high demand for skilled labour and materials, there has been an escalation in the cost of capital projects. Accordingly, maintenance capital expenditures for 2008 are expected to be approximately $11.0 million. Investment in non-maintenance capital expenditures were $1.9 million and $2.2 million during the fourth quarter and 2007 respectively compared to $nil and $0.9 million during the fourth quarter and 2006 respectively. Most of the non-maintenance capital expenses during the fourth quarter were related to the expansion of the Rotterdam terminal. The project is expected to be completed by the fall of 2008. Non-maintenance capital expenditures are either pre-funded, usually as part of a significant acquisition and related financing or are considered to expand or improve the capacity of the Fund's operations. Acquisitions - On May 1, 2007, the Fund completed the purchase of Olin Corporation's liquid sodium hydrosulphite ("SHS") customer contracts for $6.4 million (US$5.7 million), a portion of which is subject to certain earn out provisions. The acquisition does not include Olin's manufacturing assets. The Fund incurred transaction related costs of $0.2 million. Cash Balances - At December 31, 2007 the Fund had net cash balances of $11.8 million and working capital of $35.5 million. Comparable numbers for December 31, 2006 were $6.1 million and $30.7 million, respectively. The Fund defines working capital to exclude cash, operating line of credit, distributions payable and current portion of long-term debt. Cash generated by the Fund will be used to fund cash distributions to Unitholders, capital requirements, interest and other legal obligations. Future Liquidity - The future liquidity of the Fund will be primarily dependant on cash flows of its operating subsidiaries. These cash flows will be used to finance ongoing expenditures, including maintenance capital, distributions to Unitholders and normal course financial commitments. Cash flows are sensitive to changes in volume, sales prices and input costs and any changes in these may impact future liquidity. Management believes that cash flows from operating activities will be sufficient for the Fund to meet future obligations and commitments that arise in the normal course of business activities. Capital Resources - During the first quarter of 2007, the Fund increased the aggregate amount that can be borrowed under the Fund's senior credit facilities with its principal bankers by $50.0 million. The term bank debt facility and the operating lines are secured by a fixed and floating charge on the assets of the Fund and certain of its subsidiaries. At December 31, 2007, the Fund had senior credit facilities of $232.1 million, consisting of a term loan of $156.5 million and a revolving credit facility of $75.7 million. The term bank debt is not due or payable until August 2009. At December 31, 2007, in addition to the entire term loan, the Fund had used a total of $50.7 million (including US$12.7 million) of its revolving credit facility. Subject to certain limits set out in the credit agreement, the credit facilities may be used to finance working capital, fund acquisitions, invest in capital assets, buy back units and pay distributions to Unitholders. Debt Covenants - As at December 31, 2007, the Fund was compliant with all debt covenants contained in its credit facility. SUMMARY OF QUARTERLY RESULTS Three Months Ended ------------------ March June September December ($'000) 31, 2007 30, 2007 30, 2007 31, 2007 ------------------------------------------------------------------------- Revenue $ 128,661 $ 130,163 $ 143,232 $ 144,580 Cost of sales and services 108,654 103,291 114,546 110,772 ------------------------------------------------------------------------- Gross profit 20,007 26,872 28,686 33,808 Selling, general, administrative and other costs 7,502 10,093 9,305 11,062 Restructuring costs 1,481 490 - - ------------------------------------------------------------------------- Earnings before the under-noted 11,024 16,289 19,381 22,746 Depreciation and amortization 10,218 9,729 9,596 9,088 Net interest and accretion expense 3,060 3,162 3,361 3,050 Income taxes (net) (1,714) (1,671) (647) 1,552 Minority interest (2) (2) (3) (15) ------------------------------------------------------------------------- Net earnings (loss) $ (538) $ 5,071 $ 7,074 $ 9,071 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended ------------------ March June September December ($'000) 31, 2006 30, 2006 30, 2006 31, 2006 ------------------------------------------------------------------------- Revenue $ 121,925 $ 134,581 $ 148,692 $ 146,930 Cost of sales and services 98,926 110,075 124,833 122,026 ------------------------------------------------------------------------- Gross profit 22,999 24,506 23,859 24,904 Selling, general, administrative and other costs 7,316 5,496 7,112 8,281 Restructuring costs - - - 2,706 ------------------------------------------------------------------------- Earnings before the under-noted 15,683 19,010 16,747 13,917 Depreciation and amortization 11,262 11,858 11,277 9,970 Impairment of property, plant and equipment - - 15,596 (3,320) Net interest and accretion expense 2,665 2,763 3,018 2,992 Income taxes (net) (2,030) (478) (2,926) (1,110) Minority interest 1 (1) - - ------------------------------------------------------------------------- Net earnings $ 3,785 $ 4,868 $ (10,218) $ 5,385 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The Fund generally has higher earnings in the second half of the year than the first half. This is because demand for SHS and Refinery Services is typically highest in the summer months. The effect is exacerbated because owing to the demand pattern, the Fund generally schedules maintenance turnarounds at its major plants in the first half of the year. In 2006, the earnings pattern described above was not readily apparent as the third and fourth quarters of 2006 included asset impairment and restructuring costs (as described in the ASSET IMPAIRMENT AND RESTRUCTURING section above) of $12.3 million and $2.7 million respectively. The first half of 2006 also benefited from the inclusion of foreign exchange gains of $2.6 million. In 2007, earnings were even more weighted to the second half of the year, as the first half of the year included restructuring costs of $2.0 million. Additionally, to match the timing of a key customer's major maintenance turnaround, the Fund decided to schedule turnarounds at two of its largest regen plants during the first quarter. These factors resulted in the first quarter of 2007 having an inordinately low level of earnings. Selling, general, administrative and other costs ("S,G&A") during the second quarter of 2007 were unusually high mainly due to the accrual of $3.1 million in connection with the Fund's LTIP. The accrual related to the 2006 transitional LTIP and the 2006 and 2007 LTIP. The 2006 transitional LTIP was paid out in July 2007 and the 2006 and 2007 LTIP's are payable at the beginning of 2009 and 2010 respectively. S,G&A was also high in the third quarter of 2007 mainly due to the recording of expenses related to the departure of a senior executive at the end of the third quarter (approximately $0.9 million) and certain activities related to the Fund's review of strategic alternatives that was announced in February 2007 (approximately $0.5 million). Finally, S,G&A in the fourth quarter of 2007 was high due to accruals for the LTIP and for annual incentive compensation. CONTRACTUAL OBLIGATIONS Information concerning contractual obligations is shown below: Contractual Obligations Less Than After ($'000) Total 1 Year 1-3 Years 4-5 Years 5 Years ------------------------------------------------------------------------- Long Term Debt $ 156,473 $ - $ 156,473 $ - $ - Operating Leases 39,153 16,208 17,211 3,940 1,795 Interest on Long-Term Debt 13,924 8,794 5,130 - - ------------------------------------------------------------------------- Total Contractual Obligations $ 209,550 $ 25,002 $ 178,814 $ 3,940 $ 1,795 ------------------------------------------------------------------------- ------------------------------------------------------------------------- RISKS AND UNCERTAINTIES The Fund is one of the world's largest suppliers of sulphuric acid ("acid"), liquid sulphur dioxide ("SO2") and sodium hydrosulphite ("SHS") and a leading processor of spent acid, particularly in the U.S. Gulf Coast region. The Fund is also a leading regional supplier of sulphur, sodium chlorate and phosphorus pentasulphide, and also produces zinc oxide at three North American locations. As such the Fund faces various risks associated with its business. These risks include, amongst others, the loss of a portion of its customer base, the interruption of the supply of sulphur-based products or raw materials, price fluctuations in the products sold and/or raw materials purchased, industry over-capacity, acquisition integration and operational and product hazard risks associated with the nature of its business. The Fund imports key raw materials and products from overseas and as such has additional risks associated with the sourcing activity. The Fund makes extensive use of the railway system to transport material within North America. Certain locations are serviced by a sole carrier and thus a disruption in service could have a significant negative impact on results. In addition, the Fund sells a significant portion of its major products to large customers. While many of these customers are under contract, there can be no assurance that these contracts will be renewed. As the Fund's business is international in nature, it is exposed to foreign exchange risks related to the payment of dividends and other transactions by its foreign subsidiaries. The Fund manages the risks associated with its customer base and sales price by seeking to obtain contractual protection to mitigate these risks. The Fund also seeks to differentiate its products and services with customers to mitigate price fluctuations and uses its scale to obtain beneficial raw material contracts. All members of the Fund's senior management team were involved in an enterprise-wide business risk assessment, which included a review of the North American and international operations. Key risks were identified and prioritized for review and the development of action plans. This enterprise-wide risk review process will be an ongoing aspect of the Fund's risk management program. In addition, the Fund maintains an extensive insurance program which includes general liability and environmental coverage. Marsulex Claim - During the fourth quarter of 2005, the Fund received and responded to a claim from Marsulex Inc. ("Marsulex") against the Fund alleging that the acquisition of Peak Sulfur, Inc. and Peak Chemical LLC is a breach of a non-competition agreement in favour of Marsulex. Marsulex is seeking damages in the amount of $72.8 million, as well as other relief. The Fund has received advice from its legal advisors that the non-competition covenants contained in such agreement are likely unenforceable. The Fund has filed a statement of defence and a counter-claim in the amount of $87.8 million in respect of this action and intends to defend the claim brought against it by Marsulex and pursue its counter-claim. In February 2008, the Fund announced that it has reached an agreement with Marsulex on this matter and that the resolution did not have a material impact on the Fund. Dependence on Inco Relationship - Inco is the Fund's largest sulphur products supplier. While the Fund's relationship with Inco has been in place for more than 75 years, there is no assurance that the Fund will be able to maintain this relationship beyond the current agreement term. If this agreement is not renewed, it will expire at the end of 2010. There is also no assurance that any subsequent agreement with Inco will have terms as favourable as those contained in the current agreement. The Fund has recorded an intangible asset with respect to this relationship. In 2007, this supply source accounted for approximately 11% of the Fund's revenues. Income Taxes - The Fund is a mutual fund trust for income tax purposes. As such, the Fund is subject to current income taxes on taxable income not distributed to its Unitholders. For 2007 the Fund has distributed all current taxable income to its Unitholders and plans to continue to distribute all future current taxable income to its Unitholders. Accordingly, no provision for current income taxes or for future income taxes on temporary differences reversing prior to 2011 has been made in these consolidated financial statements with respect to the income earned directly by the Fund and its flow-through subsidiaries. On June 22, 2007, legislation (the "SIFT Rules") relating to the federal income taxation of publicly-listed or traded trusts (such as income trusts and real estate investment trusts) and partnerships received royal assent. The SIFT Rules apply to a publicly-traded trust that is a specified investment flow-through entity (a "SIFT") which existed before November 1, 2006 ("Existing Trust") commencing with taxation years ending in 2011. Certain distributions of a SIFT will not be deductible in computing the SIFT's taxable income, and the SIFT will be subject to tax on such distributions at a rate that is substantially equivalent to the general tax rate applicable to Canadian corporations. Distributions paid by a SIFT as returns of capital will not be subject to this tax. There will be circumstances where an Existing Trust may lose its transitional relief where its equity capital grows beyond certain dollar limits measured by reference to the Existing Trust's market capitalization at the close of trading on October 31, 2006. As at December 31, 2007, the Fund has not exceeded these growth limits. The Fund is a SIFT as defined in the SIFT Rules. Accordingly, commencing January 1, 2011, the Fund will be subject to taxes on distributions of certain income earned from investments in its subsidiaries. The Fund is also required to recognize future income tax assets and liabilities with respect to the temporary differences between the carrying amount and tax bases of its assets and liabilities and those of its flow-through subsidiaries that are expected to reverse in or after 2011. The Fund expects that its aggregate temporary differences and those of its flow-through subsidiaries will reverse prior to 2011. Accordingly, the Fund has not provided for future taxes on these temporary differences. The Fund expects that its distributions will not be subject to tax prior to 2011 and accordingly has not provided for future income taxes on the temporary differences expected to reverse prior to then. Under the existing SIFT Rules, although not entirely clear, certain flow-through subsidiaries of the Fund may also meet the definition of a SIFT. If it is determined that these flow-through subsidiaries of the Fund meet the definition of a SIFT, there would be no impact on the future tax assets and liabilities of the Fund. On December 20, 2007, the Minister of Finance announced proposed technical amendments to the SIFT Rules which clarify that, in certain circumstances, flow-through subsidiaries of a SIFT will not meet the definition of a SIFT. The flow-through subsidiaries of the Fund will not be SIFTs under the proposed technical amendments. The SIFT Rules do not affect the current and future tax amounts of the Fund's corporate subsidiaries. The Fund quantified certain of its risks and uncertainties which could have a material impact. 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 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 of less that $0.15 million per annum. The Fund is fully hedged for 2008 at a rate of US$0.83 per Canadian dollar. 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, 2007, on an unhedged basis, a change in interest rates of 1% per annum would have an impact of approximately $2 million per annum. As at December 31, 2007, the Fund had fixed interest rates on approximately 80% of its total debt, for the remainder of its current credit agreement. 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, this would have an impact of approximately $0.6 million on EBITDA. The supply contract does have a lag and therefore changes in net pricing are shared six months in arrears. 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. 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 $0.15 million per annum. It is important to note that a change in the cost of sulphur may lead to a change in the price for sulphuric acid as this is a key input cost in the manufacturing of sulphuric acid. Thus, the net impact of changes in sulphur costs would depend upon changes in sulphuric acid pricing. Sodium Chlorate Pricing - Approximately 65% of the Fund's sodium chlorate sales are to Canfor on a long-term contract, whereby selling price is adjusted based on changes in virtually all variable costs. Thus, the Fund's exposure to changes in market prices of sodium chlorate is limited to the remainder of its output. Other Input Costs - There are several other large input costs, such as natural gas, zinc, salt and electricity, but in most cases there are contractual arrangements with customers, or other offsets within the business, which mitigate the exposure to changes in these costs. CRITICAL ACCOUNTING POLICIES The Fund's accounting policies are described in Note 3 to the consolidated financial statements for the year ended December 31, 2007. Financial Instruments - Effective January 1, 2007, the Fund adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income; Section 3251, Equity; Section 3855, Financial Instruments - Recognition and Measurement; Section 3861, Financial Instruments - Disclosure and Presentation; and Section 3865, Hedges. These sections apply to fiscal years beginning on or after October 1, 2006 and provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities, non-financial derivatives and embedded derivatives, and describe when and how hedge accounting may be applied. Section 1530 establishes standards for reporting and presenting comprehensive income, which is defined as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income that are excluded from net income calculated in accordance with generally accepted accounting principles. Under the new standards, policies followed for periods prior to the effective date generally are not reversed and therefore, the comparative figures have not been restated. Under the new standards, financial instruments must be classified into one of these five categories: held-for-trading, held-to-maturity, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments are initially recorded on the balance sheet at fair value. After initial recognition, the financial instruments should be measured at their fair values, except for held-to-maturity investments, loans and receivables and other financial liabilities, which should be measured at amortized cost. The effective interest related to the financial liabilities and the gain or loss arising from the change in the fair value of a financial asset or liability classified as held-for-trading is included in net income for the period in which it arises. RECENT ACCOUNTING PRONOUNCEMENTS Capital Disclosures - In December 2006, the CICA issued Handbook Section 1535, Capital Disclosures, which establishes standards for disclosing information about an entity's capital and how it is managed. The entity's disclosure should include information about its objectives, policies and processes for managing capital and disclose whether or not it has complied and the consequences of non-compliance with any capital requirements to which it is subject. The new standard will become effective on January 1, 2008 for the Fund. The Fund is currently evaluating the impact of the adoption of this new section on the consolidated financial statements. Financial Instruments - Disclosures and Financial Instruments - Presentation - In December 2006, the CICA issued Handbook Sections 3862, Financial Instruments - Disclosures, and 3863, Financial Instruments - Presentation. Section 3862 modifies the disclosure requirements of Section 3861, Financial Instruments - Disclosure and Presentation, including required disclosure for the assessment of the significance of financial instruments for an entity's financial position and performance and of the extent of risks arising from financial instruments to which the Fund is exposed and how the Fund manages those risks, whereas Section 3863 carries forward the presentation related requirements of Section 3861. The new standards will become effective on January 1, 2008 for the Fund. The Fund is currently evaluating the impact of the adoption of Section 3862 while the Fund does not expect the adoption of 3863 to have a significant effect on the consolidated financial statements. Inventories - In March 2007, the CICA issued Handbook Section 3031, Inventories, which replaces Section 3030, Inventories. Under the new section, inventories are required to be measured at the "lower of cost and net realizable value", which is different from the existing guidance of the "lower of cost and market". The new section contains guidance on the determination of cost and also requires the reversal of any write-downs previously recognized, if applicable. Certain minimum disclosures are required, including the accounting policies used, carrying amounts, amounts recognized as an expense, write-downs, and the amount of any reversal of any write-downs recognized as a reduction in expenses. The new standard will become effective on January 1, 2008 for the Fund. The Fund evaluated the impact of the adoption of this new section on the consolidated financial statements and concluded the effect will not be material. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES In accordance with the requirements of Canadian securities regulators, the CEO and CFO of the Fund are required to certify that they have designed the Fund's disclosure controls and have evaluated their effectiveness for the applicable period. Disclosure controls are those controls and procedures which ensure that information that is required to be disclosed is recorded, processed and reported within the time frames specified by the regulators. The effectiveness of the Fund's Disclosure Policies and Procedures is reviewed by the CEO and CFO. The CEO and CFO of the Fund have concluded that the Disclosure Policies and Procedures of the Fund will provide reasonable assurance that the Fund's policy of providing timely, consistent, fair and accurate public disclosure of material information will be achieved. OUTLOOK We anticipate generally stable demand for most of our products and robust demand for sulphuric acid. We agree with industry experts' opinions that strong demand and limited supply will result in a continuation of the current elevated price environment for sulphuric acid throughout the remainder of 2008. Strong demand for sulphur, a raw material used to produce sulphuric acid, has also resulted in a dramatic increase in its cost. Despite this increase we anticipate that the sulphuric acid price increases will be sufficient to more than offset this cost pressure. Accordingly, we expect to generate higher earnings in 2008 than in 2007. As previously indicated, in 2008 we expect to invest at a higher level in our plants with a view to improving reliability. The increased investment coupled with rapidly escalating material and labour costs associated with our capital program mean that we expect 2008 capital expenditures to be significantly higher than 2007. We expect the increased capital program to largely offset the higher level of earnings. Thus we expect to generate similar levels of Distributable Cash after Maintenance Capital Expenditures over the next 12 months, relative to the previous 12 months. Finally, similar to 2007, we expect to generate higher Distributable Cash after Maintenance Capital Expenditures in the second half of the year than the first. OTHER Additional information concerning the Fund, including the Annual Information Form, is filed on SEDAR and can be accessed at www.sedar.com.

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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