Chemtrade Logistics Income Fund reports significant increases in revenue, cash flows and earnings for 2008 second quarter



    TORONTO, July 29 /CNW/ - Chemtrade Logistics Income Fund (TSX: CHE.UN)
today announced results for the three months ended June 30, 2008. The
continuing high price for sulphuric acid was the main driver of significant
increases in revenue and earnings for Chemtrade's Sulphur Products &
Performance Chemicals and International segments, which were the primary
contributors to the second quarter's strong results.
    Cash flows from operating activities for the second quarter were
$33.7 million (2007: $8.5 million) and Distributable cash after maintenance
capital expenditures for the period was $24.1 million, or $0.72 per unit
(2007: $10.5 million, or $0.31 per unit), generated from revenue of $274.3
million (2007: $130.2 million) and earnings before interest, income taxes,
depreciation and amortization ("EBITDA") of $29.8 million (2007: $16.3
million). Net earnings for the second quarter were $13.8 million compared with
$5.0 million in the same period in 2007. The results for the second quarter of
2008 include higher unrealized losses on natural gas and foreign exchange
hedges and lower realized foreign exchange gains, partially offset by lower
accruals related to the Fund's long-term incentive program.
    For the six months ended June 30, 2008 cash flows from operating
activities were $39.8 million (2007: $14.3 million), and Distributable cash
after maintenance capital expenditures was $42.0 million (2007: $17.2
million), or $1.25 per unit (2007: $0.51). EBITDA was $52.0 million (2007:
$27.3 million), and revenue was $492.1 million (2007: $258.8 million). Net
earnings for the first six months of 2008 were $23.3 million (2007: $4.5
million). The numbers for the year-to-date include a recovery of restructuring
costs of $1.2 million in 2008 whereas there was an expense of $2.0 million
recorded in 2007 relating to the cessation of powder SHS production at the
Leeds plant.
    Mark Davis, President and Chief Executive Officer of Chemtrade, said,
"All of our businesses reported higher earnings in the second quarter,
although, as with the first quarter of this year, it was the continuing high
margins for sulphuric acid in our Sulphur Products & Performance Chemicals and
International segments that were the primary contributors to the improved
results."
    Sulphur Products & Performance Chemicals ("SPPC") generated revenue of
$127.0 million and EBITDA of $23.9 million compared with $78.0 million and
$14.9 million, respectively, in 2007. The higher revenue reflected
substantially higher prices for merchant acid and sulphur. These were
partially offset by the effect of the stronger Canadian dollar. The higher
EBITDA was due primarily to improved margins on sulphuric acid. Higher acid
prices more than offset higher sulphur costs and foreign exchange impact. As
well, Chemtrade's two major regen plants took maintenance turnarounds in the
first quarter last year, whereas in 2008 part of the turnaround of Chemtrade's
largest plant took place in the second quarter.
    Pulp Chemicals reported second quarter revenue of $14.4 million compared
with $14.6 million in 2007. EBITDA was $5.0 million compared with $4.4 million
reflecting lower costs for salt which last year were high due to the
transition to a new supplier.
    International reported revenue of $132.9 million for the second quarter,
compared with $37.5 million in 2007. This was a result of significantly higher
prices and volume for sulphuric acid, and significantly higher prices for
sulphur. Spot sales of uncommitted small volumes of sulphuric acid and sulphur
resulted in high margins due to the continuing tightness in global markets.
Also, during the volatile market conditions prevalent in 2008, this segment
was able to leverage its market knowledge and infrastructure to significantly
add value to suppliers and customers and thereby earn incremental margin.
International generated EBITDA for the quarter of $8.8 million compared with
$1.8 million last year.
    Mr. Davis said, "Our ongoing initiatives to strengthen our business and
improve our operations have enabled us to take advantage of the robust market
for sulphur products and expand our margins in each of the last three
quarters. We expect the sulphuric acid market to remain buoyant through at
least 2008 and 2009 and that our margins will continue to expand. Although we
anticipate increased maintenance capital spending, we expect to generate
substantially similar Distributable cash after maintenance capital expenditure
over the next 12 months relative to the 12 month period ended June 30, 2008."

    Distributions

    Distributions declared in the second quarter totalled $0.30 per unit,
comprised of monthly distributions of $0.10 per unit.
    Chemtrade operates a diversified business providing industrial chemicals
and services to customers in North America and around the world. Chemtrade is
one of the world's largest suppliers of sulphuric acid, liquid sulphur dioxide
and sodium hydrosulphite, and a leading processor of spent acid. Chemtrade is
also a leading regional supplier of sulphur, sodium chlorate, phosphorous
pentasulphide, and zinc oxide.

    This news release contains certain statements which may constitute
"forward-looking" statements within the meaning of certain securities laws,
including the "safe harbour" provisions of the Securities Act (Ontario). The
use of any of the words "anticipate", "continue", estimate", "expect", "may",
"will", "project", "should", "believe" and similar expressions are intended to
identify forward-looking statements.
    This news release contains forward-looking statements about the
objectives, strategies, financial condition, results of operations and
businesses of the Fund. These statements are "forward-looking" as they are
based on current expectations about our business and the markets we operate
in, and on various estimates and assumptions.

    
    -   Forward-looking statements in this news release describe our
        expectations as of the date of this news release.
    -   Our actual results could be materially different from our
        expectations if known or unknown risks affect our business, or if our
        estimates or assumptions turn out to be inaccurate. As a result, we
        cannot guarantee that any forward-looking statement will materialize.
    -   Forward-looking statements do not take into account the effect that
        transactions or non-recurring items announced or occurring after the
        statements are made may have on our business.
    -   We disclaim any intention or obligation to update any forward-looking
        statement even if new information becomes available, as a result of
        future events or for any other reason.
    -   Risks that could cause our actual results to differ materially from
        our current expectations are discussed in the RISKS AND Uncertainties
        section of our MD&A.

    Further information can be found in the disclosure documents filed by
Chemtrade Logistics Income Fund with the securities regulatory authorities,
available at www.sedar.com.
    A conference call to review the second quarter 2008 results will be
webcast live on www.chemtradelogistics.com and www.newswire.ca/webcast on
Wednesday, July 30, 2008 at 10:00 a.m.



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

                                                        June 30, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------
                                                     (unaudited)
    ASSETS

    Current assets
      Cash and cash equivalents                       $  17,432    $  11,804
      Accounts receivable                               125,441       76,203
      Inventories (note 2)                               33,190       24,331
      Prepaid expenses and other assets (note 10)         9,729        5,942
    -------------------------------------------------------------------------
                                                        185,792      118,280

    Notes receivable (note 3)                             2,523            -
    Property, plant and equipment                       148,701      148,942
    Other assets                                          1,544        1,413
    Future tax asset                                     10,979       10,272
    Intangibles (note 4)                                135,831      143,968
    Goodwill                                             89,095       87,700

    -------------------------------------------------------------------------
                                                      $ 574,465    $ 510,575
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities
      Operating line of credit                        $  34,066    $  41,113
      Accounts payable                                   72,983       42,509
      Accrued and other liabilities (note 10)            52,685       26,496
      Distributions payable                               3,358        3,358
      Income taxes payable                                3,520        1,563

    -------------------------------------------------------------------------
                                                        166,612      115,039

    Long-term debt (note 6)                             157,764      155,206
    Other long-term liabilities (note 10)                 7,709        5,081
    Post-employment benefits                              4,164        3,767
    Future tax liability                                 26,206       25,396

    Unitholders' equity
      Units (note 7)                                    412,957      412,957
      Deficit                                          (150,415)    (153,566)
      Accumulated other comprehensive income (loss)     (50,532)     (53,305)

    -------------------------------------------------------------------------
                                                        212,010      206,086

    -------------------------------------------------------------------------
                                                      $ 574,465    $ 510,575
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements



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

                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Revenue                    $ 274,276   $ 130,163   $ 492,066   $ 258,824

    Cost of sales and services
     (excluding depreciation
     disclosed below)            230,432     103,291     413,375     211,945

    -------------------------------------------------------------------------
    Gross profit                  43,844      26,872      78,691      46,879

    Selling, general,
     administrative and other
     costs                        14,004      10,093      27,888      17,595
    Restructuring costs
     (note 5)                          -         490      (1,238)      1,971

    -------------------------------------------------------------------------
    Earnings before the
     under-noted                  29,840      16,289      52,041      27,313

    Depreciation and
     amortization (note 2)        10,145       9,792      19,990      20,017
    Net interest and accretion
     expense                       2,795       3,162       5,826       6,222

    -------------------------------------------------------------------------
    Earnings before income
     taxes and minority
     interest                     16,900       3,335      26,225       1,074

    Income taxes
      Current                      1,961         350       3,331         494
      Future                       1,092      (2,021)       (407)     (3,879)

    -------------------------------------------------------------------------
                                   3,053      (1,671)      2,924      (3,385)

    -------------------------------------------------------------------------
    Earnings before minority
     interest                     13,847       5,006      23,301       4,459

    Minority interest                  -          (2)          -          (4)

    -------------------------------------------------------------------------
    Net earnings               $  13,847   $   5,008   $  23,301   $   4,463
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per unit
     (note 7)
      Basic                    $    0.41   $    0.15   $    0.69   $    0.13
      Diluted                  $    0.41   $    0.15   $    0.69   $    0.13
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cost of sales and services for the three months and the six months ended
    June 30, 2008 does not include $4,874 and $9,497 respectively (2007 -
    $5,086 and $10,391 respectively) of depreciation relating to plant
    buildings and equipment (note 2).

    See accompanying notes to consolidated financial statements



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

                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

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

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

    Deficit
    Balance, beginning of
     period                    $(154,187)  $(145,032)  $(154,040)  $(134,579)
    Changes in accounting
     policies (note 2)                 -         549         474         556
    -------------------------------------------------------------------------
    Balance, beginning of
     period, as adjusted        (154,187)   (144,483)   (153,566)   (134,023)
    Redemption of debentures           -           -           -         160
    Net earnings                  13,847       5,008      23,301       4,463
    Distributions                (10,075)    (10,075)    (20,150)    (20,150)
    -------------------------------------------------------------------------
    Balance, end of period     $(150,415)  $(149,550)  $(150,415)  $(149,550)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive income
     (loss) (note 8)
    Balance, beginning of
     period                    $ (50,700)  $ (31,342)  $ (53,305)  $ (31,426)
    Changes in accounting
     policies                          -           -           -       1,783
    -------------------------------------------------------------------------
    Balance, beginning of
     period, as adjusted         (50,700)    (31,342)    (53,305)    (29,643)
    Other comprehensive
     income (loss)                   168     (10,595)      2,773     (12,294)
    -------------------------------------------------------------------------
    Balance, end of period     $ (50,532)  $ (41,937)  $ (50,532)  $ (41,937)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements



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

                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Net earnings               $  13,847   $   5,008   $  23,301   $   4,463

    Change in unrealized loss
     on translation of self-
     sustaining foreign
     operations                   (1,110)    (11,129)      3,604     (12,443)
    Change in unrealized gain
     (loss) on derivatives
     designated as cash flow
     hedges                        1,278         534        (831)        149
    -------------------------------------------------------------------------
    Other comprehensive (loss)       168     (10,595)      2,773     (12,294)

    -------------------------------------------------------------------------
    Comprehensive income
     (loss)                    $  14,015   $  (5,587)  $  26,074   $  (7,831)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements



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

                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
      Net earnings             $  13,847   $   5,008   $  23,301   $   4,463
      Items not affecting cash:
        Depreciation and
         amortization (note 2)    10,145       9,792      19,990      20,017
        Future income taxes        1,092      (2,021)       (407)     (3,879)
        Minority interest              -          (2)          -          (4)
        Accretion expense            182         167         387         363
        (Gain) on sale of
         property, plant and
         equipment                   (60)       (160)        (60)       (160)
        Early settlement of
         debt                          -           -           -          29
        Change in fair value
         of derivatives and
         unrealized foreign
         exchange loss (gains)     1,896        (950)      3,793        (950)
        Non-cash restructuring
         costs                         -          23           -          48

    -------------------------------------------------------------------------
                                  27,102      11,857      47,004      19,927

      Decrease (increase) in
       working capital             6,643      (3,338)     (7,250)     (5,672)

    -------------------------------------------------------------------------
                                  33,745       8,519      39,754      14,255

    Financing activities:
      Distributions to
       unitholders               (10,075)    (10,075)    (20,150)    (20,821)
      Redemption of convertible
       debentures                      -           -           -     (16,378)
      (Decrease) increase in
       operating line of credit   (7,731)      4,420      (7,047)     29,248
      Financing transaction
       costs                        (628)          -        (628)       (317)
      (Decrease) increase in
       other long-term
       liabilities                  (473)      2,528       2,612       2,543

    -------------------------------------------------------------------------
                                 (18,907)     (3,127)    (25,213)     (5,725)

    Investing activities:
      Additions to property,
       plant and equipment        (4,396)     (1,514)     (6,650)     (2,993)
      Acquisitions                     -      (6,909)          -      (6,909)
      Proceed from disposal
       of assets                      79         220          79         220
      Notes receivable            (2,523)          -      (2,523)          -

    -------------------------------------------------------------------------
                                  (6,840)     (8,203)     (9,094)     (9,682)
    Effect of exchange rates
     on cash held in foreign
     currencies                       90          28         181          45

    -------------------------------------------------------------------------
    Increase (decrease) in cash
     and cash equivalents          8,088      (2,783)      5,628      (1,107)

    Cash and cash equivalents -
     beginning of period           9,344       7,823      11,804       6,147

    -------------------------------------------------------------------------
    Cash and cash equivalents -
     end of period             $  17,432   $   5,040   $  17,432   $   5,040
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information:
      Cash taxes paid          $     640   $     207   $   1,374   $   1,368
      Cash interest paid       $   2,841   $   2,920   $   5,676   $   6,764

    See accompanying notes to consolidated financial statements



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

    June 30, 2008
    -------------------------------------------------------------------------

    1.  ORGANIZATION AND DESCRIPTION OF THE BUSINESS:

        Chemtrade Logistics Income Fund ("the Fund") commenced operations on
        July 18, 2001 when it completed an Initial Public Offering and the
        acquisition of certain sulphur related assets and operations. The
        Fund operates in four business segments: Sulphur Products and
        Performance Chemicals, Pulp Chemicals, International and Corporate.
        For additional information regarding the Fund's business segments see
        note 9.

        These interim consolidated financial statements of the Fund have been
        prepared by management in accordance with accounting principles
        generally accepted in Canada. These interim consolidated financial
        statements include the accounts of the Fund and its wholly-owned
        subsidiaries. Inter-company transactions and balances have been
        eliminated. These interim consolidated financial statements have been
        prepared following the same accounting policies and methods of
        computation as the annual consolidated financial statements of the
        Fund for the year ended December 31, 2007, except as disclosed in
        note 2. These interim consolidated financial statements do not
        contain all disclosures required by generally accepted accounting
        principles and accordingly should be read in conjunction with the
        annual consolidated financial statements and the notes thereto.

    2.  CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

        (a) Changes in accounting policies:

        (i)   Capital disclosures

        Effective January 1, 2008, the Fund adopted the recommendations of
        the Canadian Institute of Chartered Accountants ("CICA") Handbook
        Section 1535, Capital Disclosures. This section establishes standards
        for disclosing information about an entity's capital and how it is
        managed. The entity's disclosure should include information about its
        objectives, policies and processes for managing capital and disclose
        whether or not it has complied and the consequences of non-compliance
        with any capital requirements to which it is subject. This new
        section relates to disclosure and did not have an impact on the
        Fund's financial results. These disclosures are contained in note 11.

        (ii)  Inventories

        Effective January 1, 2008, the Fund adopted the recommendations of
        CICA Handbook Section 3031, Inventories. Under the new section,
        inventories are required to be measured at the "lower of cost and net
        realizable value", which is different from the previous guidance of
        the "lower of cost and market". The new section requires the reversal
        of any write-downs previously recognized, if applicable. Certain
        minimum disclosures are also required, including the accounting
        policies used, carrying amounts, amounts recognized as an expense,
        write-downs, and the amount of any reversal of any write-downs
        recognized as a reduction in expenses.

        The new section also clarifies the definition of cost to include all
        costs of purchase, costs of conversion and other costs incurred to
        bring inventories to their present location and condition. Costs of
        conversion include a systematic allocation of fixed and variable
        production overheads that are incurred in converting materials into
        finished goods. The allocation of fixed production overheads is based
        on normal production capacity of the production facilities.

        The new section requires that depreciation be included in the fixed
        costs of conversion when costing inventories. Previously, the Fund
        had excluded depreciation from its cost of inventory. The Fund has
        elected to apply this section retrospectively and has adjusted the
        comparative figures to comply with the new section. As a result, the
        opening deficit balances as of January 1, 2008 and 2007 have been
        decreased by $474 and $556 respectively and as of April 1, 2008 and
        2007 have decreased by $469 and $548 respectively. The closing
        inventory and deficit balances as at December 31, 2007 have also been
        adjusted by $474 to comply with the new section. Depreciation and
        amortization expense for the three months and the six months ended
        June 30, 2008, includes the depreciation expense related to cost of
        sales and services of $4,874 and $9,497 respectively (2007 - $5,086
        and $10,391 respectively).

        (iii) Financial instruments

        Effective January 1, 2008, the Fund adopted the recommendations of
        CICA Handbook Sections 3862, Financial Instruments - Disclosures, and
        3863, Financial Instruments - Presentation. Section 3862 modifies the
        disclosure requirements of Section 3861, Financial Instruments -
        Disclosure and Presentation, including required disclosure of the
        assessment of the significance of financial instruments for an
        entity's financial position and performance and of the extent of
        risks arising from financial instruments to which the Fund is exposed
        and how the Fund manages those risks, whereas Section 3863 carries
        forward the presentation related requirements of Section 3861. These
        new sections relate to disclosure and presentation only and did not
        have an impact on the Fund's financial results. These disclosures are
        contained in note 10.

        (b) Recent accounting pronouncements:

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

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

        (ii)  Goodwill and intangible assets

        In February 2008, the CICA issued Handbook Section 3064, Goodwill and
        Intangible Assets. Section 3064 states that upon their initial
        identification, intangible assets are to be recognized as assets only
        if they meet the definition of an intangible asset and the
        recognition criteria. This section also provides further information
        on the recognition of internally generated intangible assets
        (including research and development costs). As for subsequent
        measurement of intangible assets, goodwill, and disclosure, Section
        3064 carries forward the requirements of the old Section 3062,
        Goodwill and Other Intangible Assets. The new section will become
        effective on January 1, 2009 for the Fund. The Fund is currently
        evaluating the effect of the adoption of this new section on the
        consolidated financial statements.

    3.  NOTES RECEIVABLE:

        During the second quarter, the Fund invested US$2.5 million in
        Meranol S.A.C.I. ("Meranol"). Meranol is based in Buenos Aires,
        Argentina and is a leading Argentine producer of sulphuric acid and
        other sulphur products. The investment was made in the form of
        convertible notes, convertible into 10% of the equity of Meranol. The
        notes bear an interest rate of 10% per annum. The Fund also has
        options over a specified period of time, to increase its investment
        to up to 45% of Meranol's common stock at a pre-determined price.

    4.  INTANGIBLES:

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

        At the time of the Fund's IPO, it had recorded intangibles of $29,157
        related to the Vale Inco Limited agreement and these intangibles were
        considered to have an indefinite life. Management has revised its
        estimate of the useful life of this relationship to 10 years in line
        with the current agreement term. As a result, the Fund has begun
        amortizing these intangibles on a straight-line basis over 10 years
        beginning January 1, 2008. Consequently, for the three months and the
        six months ended June 30, 2008, the Fund recorded amortization of
        $729 and $1,458 respectively.

    5.  RESTRUCTURING COSTS:

        During the fourth quarter of 2006, the Fund decided to discontinue
        production of powder SHS and costs of $2,706 related to that decision
        were recorded in that quarter. These costs included a provision for a
        penalty on a long-term supply agreement. During the first quarter of
        2008, the Fund had substantially concluded negotiations with the
        supplier and the penalty was waived. As a result, the Fund reversed
        the penalty provision previously recorded.

    6.  LONG-TERM DEBT:

        During the second quarter of 2008, the Fund extended its senior
        credit facilities with its principal bankers to August 2, 2011. This
        is a two year extension to the current term, on substantially the
        same terms as the existing agreement. The Fund incurred transaction
        costs of $628 related to this extension. As the Fund is treating this
        extension as a modification of the debt, rather than an
        extinguishment, these transaction costs have been added to the
        remaining unamortized transaction costs from the pre-existing
        agreements. These transaction costs will be recorded as net interest
        and accretion expense using the effective interest method over the
        life of the extended debt.

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

    7.  UNITS:

        (a) Units outstanding:
                                                         Number
                                                       of Units       Amount
        ---------------------------------------------------------------------
        Units
         Balance - December 31, 2007 and
          June 30, 2008                              33,582,936   $  412,957
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (b) Net earnings per unit:

        Net earnings per unit has been calculated on the basis of the
        weighted average number of units outstanding for the three months and
        the six months ended June 30, 2008 which amounted to 33,582,936 units
        and 33,582,936 units respectively (2007 - 33,582,936 units and
        33,582,758 units respectively).

        (c) Distributions:

        Distributions paid for the three months and the six months ended
        June 30, 2008 were $10,075 and $20,150 respectively (2007 - $10,075
        and $20,821 respectively). All of the Fund's distributions are
        discretionary.

    8.  OTHER COMPREHENSIVE INCOME (LOSS):

        The components of accumulated other comprehensive income (loss) as at
        June 30, 2008 and other comprehensive income (loss) for the six
        months then ended were as follows:


                           Opening                      Ending       Opening
    Accumulated other      balance                     balance       balance
     comprehensive     December 31,                    June 30,  December 31,
     income (loss)            2007    Net change          2008          2006
    -------------------------------------------------------------------------
    Unrealized (loss)
     gain on
     translation of
     self-sustaining
     foreign
     operations        $   (52,867)  $     3,604   $(49,263)(1)  $   (31,426)
    Unrealized (loss)
     gain on
     derivatives
     designated as
     cash flow hedges         (438)         (831)    (1,269)(2)            -
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive
     income (loss)     $   (53,305)  $     2,773   $   (50,532)  $   (31,426)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                        Ending
    Accumulated other    Change in                     balance
     comprehensive      accounting                     June 30,
     income (loss)        policies    Net change          2007
    -----------------------------------------------------------
    Unrealized (loss)
     gain on
     translation of
     self-sustaining
     foreign
     operations        $         -   $   (12,443)  $(43,869)(1)
    Unrealized (loss)
     gain on
     derivatives
     designated as
     cash flow hedges        1,783           149       1,932(2)
    -----------------------------------------------------------
    Accumulated other
     comprehensive
     income (loss)     $     1,783   $   (12,294)  $   (41,937)
    -----------------------------------------------------------
    -----------------------------------------------------------
    (1) Net of income tax expense of $nil (2007 - $nil).
    (2) Net of cumulative income tax recovery of $798 (2007 - expense $995).


    9.  BUSINESS SEGMENTS:

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

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

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

        International operations provide removal and marketing services for
        two products - elemental sulphur and sulphuric acid. These products
        are marketed to customers in Europe, the Mediterranean, North Africa,
        Central and South America, North America, as well as in the Pacific
        region.

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


        Three Months Ended June 30, 2008
        ---------------------------------------------------------------------
                                SPPC      Pulp      Intl      Corp     Total
        ---------------------------------------------------------------------
        Revenue from
         external
         customers          $127,019  $ 14,368  $132,889  $      -  $274,276

        Earnings before the
         under-noted          23,851     5,021     8,840    (7,872)   29,840
        Depreciation and
         amortization          7,422     2,350       373         -    10,145
        Net interest and
         accretion expense     2,390       522      (117)        -     2,795
        Income taxes           1,371         -     1,682         -     3,053

        Net earnings (loss)   12,668     2,149     6,902    (7,872)   13,847

        Total assets         318,696   115,340   139,403     1,026   574,465

        Goodwill              58,826         -    30,269         -    89,095

        Intangibles           88,321    42,300     5,300         -   135,831

        Capital
         expenditures          2,691        93     1,502       110     4,396
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Three Months Ended June 30, 2007
        ---------------------------------------------------------------------
                                SPPC      Pulp      Intl      Corp     Total
        ---------------------------------------------------------------------
        Revenue from
         external
         customers          $ 78,013  $ 14,625  $ 37,525  $      -  $130,163

        Earnings before
         the under-noted      14,859     4,439     1,843    (4,852)   16,289
        Depreciation and
         amortization          7,014     2,359       419         -     9,792
        Net interest and
         accretion expense     2,712       511      (103)       42     3,162
        Income taxes          (1,751)        -        94       (14)   (1,671)
        Minority interest          -         -        (2)        -        (2)

        Net (loss) earnings    6,884     1,569     1,435    (4,880)    5,008

        Capital expenditures   1,279       126        26        83     1,514
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Six Months Ended June 30, 2008
        ---------------------------------------------------------------------
                                SPPC      Pulp      Intl      Corp     Total
        ---------------------------------------------------------------------
        Revenue from
         external
         customers          $225,875  $ 29,207  $236,984  $      -  $492,066

        Earnings before
         the under-noted      43,789    10,262    15,066   (17,076)   52,041
        Depreciation and
         amortization         14,576     4,679       735         -    19,990
        Net interest and
         debt accretion
         expense               4,979     1,046      (199)        -     5,826
        Income tax expense       195         -     2,729         -     2,924

        Net earnings          24,039     4,537    11,801   (17,076)   23,301

        Total assets         318,696   115,340   139,403     1,026   574,465

        Goodwill              58,826         -    30,269         -    89,095

        Intangibles           88,321    42,300     5,300         -   135,831

        Capital expenditures   4,264       118     2,098       170     6,650
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Six Months Ended June 30, 2007
        ---------------------------------------------------------------------
                                SPPC      Pulp      Intl      Corp     Total
        ---------------------------------------------------------------------
        Revenue from
         external
         customers          $150,938  $ 28,640  $ 79,246  $      -  $258,824

        Earnings before the
         under-noted          22,325     9,188     3,252    (7,452)   27,313
        Depreciation and
         amortization         14,259     4,674     1,084         -    20,017
        Net interest and
         debt accretion
         expense               5,244     1,005      (196)      169     6,222
        Income tax expense    (3,498)        -       113         -    (3,385)
        Minority interest          -         -        (4)        -        (4)

        Net earnings           6,320     3,509     2,255    (7,621)    4,463

        Capital expenditures   2,650       231        28        84     2,993
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        December 31, 2007
        ---------------------------------------------------------------------
                                SPPC      Pulp      Intl      Corp     Total
        ---------------------------------------------------------------------
        Total assets        $302,611  $117,940  $ 87,983  $  2,041  $510,575

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

        Intangibles           93,436    45,002     5,530         -   143,968
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Geographic segments:

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


        Revenue
        ---------------------------------------------------------------------
                                 Three Months Ended      Six Months Ended
        ---------------------------------------------------------------------
                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
        ---------------------------------------------------------------------
        Canada                 $  35,869   $  32,937   $  68,124   $  64,689
        US and other             105,518      59,701     186,958     114,889
        Europe                   132,889      37,525     236,984      79,246

        ---------------------------------------------------------------------
                               $ 274,276   $ 130,163   $ 492,066   $ 258,824
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Property, Plant and Equipment, Goodwill and Intangibles
        ---------------------------------------------------------------------
                                                        June 30, December 31,
                                                           2008         2007
        ---------------------------------------------------------------------
        Canada                                        $ 127,535    $ 133,900
        US and other                                    203,472      206,000
        Europe                                           42,620       40,710

        ---------------------------------------------------------------------
                                                      $ 373,627    $ 380,610
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        For the six months ended June 30, 2008, the Fund obtained product
        from a producer that accounted for 12.8% (2007 - 13.4%) of the Fund's
        total revenue. For the six months ended June 30, 2008, revenue from a
        customer accounted for 10.8% (2007 - 9.6%) of the Fund's total
        revenues.

    10. FINANCIAL INSTRUMENTS:

        (a) Fair values of financial instruments:

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

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

        (b) Derivatives and hedging:

        The Fund has entered into swap arrangements with its principal
        banker, which fix interest rates on all of its outstanding long-term
        debt. Under the swap arrangements the effective interest rate on the
        outstanding U.S. dollar long-term debt is 5.60% and on the
        outstanding Canadian dollar long-term debt is 4.97%. In the second
        quarter of 2008, the Fund entered into new swap arrangements with its
        principal banker which will fix interest rates on all of its U.S.
        dollar term debt and Canadian dollar denominated term debt from
        August 2009, the previous maturity date of the Fund's credit
        facility, until August 2010. In 2007, the Fund entered into a swap
        arrangement with its principal banker, which fixed the interest rate
        on US$10,000 of its operating lines of credit. The effective interest
        rate under this swap arrangement is 5.48%. As at June 30, 2008 the
        fair value losses of the U.S. and Canadian swap arrangements are
        $1,705 (US$1,672) and $363, respectively. As at December 31, 2007 the
        fair value loss of the U.S. swap arrangements was $1,011 (US$1,020)
        and the fair value gain of the Canadian swap arrangements was $347.
        Gains are included in other assets and losses are included in other
        long-term liabilities with the offset included in other comprehensive
        income.

        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 June 30, 2008 include future contracts of US
        $5,190 at a weighted average exchange rate of C$1.206. There are
        unrealized gains of $950 (December 31, 2007 - $1,960) and unrealized
        losses of $nil (December 31, 2007 - $26) from these contracts at
        June 30, 2008. Gains are included in prepaid expenses and other
        assets, and losses are included in accrued and other liabilities with
        the offset included in selling, general, administrative and other
        costs.

        To manage its exposure to changes in the price of natural gas, the
        Fund has entered into natural gas forward contracts. The Fund 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 loss of $2,640 (December 31, 2007 -
        gain of $367) from these forward contracts at June 30, 2008. Losses
        are included in accrued and other liabilities and gains are included
        in prepaid expenses and other assets with the offset included in
        selling, general, administrative and other costs.

        The Fund's International business segment has commitments to buy and
        sell commodities and has entered into commodity forward contracts to
        manage its exposure to commodity price changes.

        The commitments to buy and sell commodities are treated as
        derivatives and are measured at fair value. The commodity forward
        contracts are derivatives and are measured at fair value. At June 30,
        2008 and December 31, 2007, the net unrealized value of these
        transactions is not significant.

        (c) Risks associated with financial instruments:

        (i)   Credit risk

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

        (ii)  Liquidity risk

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

        The undiscounted cash flow requirements for non-current financial
        liabilities as at June 30, 2008 are as follows:

                                          Less
        Contractual                       Than       1-3       4-5   After 5
         Obligations           Total    1 Year     Years     Years     Years
        ---------------------------------------------------------------------
        Long-Term Debt      $159,320  $      -  $      -  $159,320  $      -
        Operating Line of
         Credit               34,066         -         -    34,066         -
        Interest on Long-
         Term Debt            26,799     8,604    17,465       730         -
        ---------------------------------------------------------------------
        Total Contractual
         Obligations        $220,185  $  8,604  $ 17,465  $194,116  $      -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        (iii) Market risk

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

        (a) Currency risk

        The Fund is exposed to fluctuations in the exchange rate of the U.S.
        dollar relative to the Canadian dollar, as a portion of the Fund's
        Distributable cash after maintenance capital expenditures is earned
        in U.S. dollars. On an unhedged basis, the Fund currently estimates
        that a one-cent change in the exchange rate will have an impact on
        Distributable cash after maintenance capital expenditures of less
        than $150 per annum. The Fund is fully hedged for 2008 at a rate of
        US$0.83 per Canadian dollar.

        (b) Interest rate risk

        The Fund has a credit facility with long-term debt and operating
        lines of credit which bear variable rates of interest. As at June 30,
        2008, on an unhedged basis, a change in interest rates of 1% per
        annum would have an impact of approximately $2,000 per annum. As at
        June 30, 2008, the Fund had fixed interest rates on approximately 80%
        of its total debt, until August 2010.

        (c) Other price risks

        Sulphuric acid pricing -

        A change in realized sulphuric acid pricing, net of freight, of $1
        per tonne, would have an impact in the quarter on revenues in North
        America of approximately $285. However, given the risk-sharing aspect
        of a key supply contract, the impact of price changes on earnings
        would have ranged from $130 to $150. In any specific period, the
        exact impact would also depend upon the volume that is subject to
        sales contracts where pricing has been fixed for a period of time.
        The magnitude of realized price changes also depends upon regional
        market dynamics.

        Sulphur costs -

        The Fund uses sulphur in the manufacturing of several of its
        products, including sulphuric acid. At current operating levels, an
        increase of $1 per tonne would have an impact of approximately $30
        for the quarter, with approximately 80% of this related to the
        production of sulphuric acid. It is important to note that a change
        in the cost of sulphur is likely to lead to a change in the price for
        sulphuric acid as this is a key input cost in the manufacturing of
        sulphuric acid. Thus, the net impact on earnings of changes in
        sulphur costs would depend upon changes in sulphuric acid pricing.
        Increasingly, the pricing of sulphuric acid is being adjusted for
        changes in sulphur costs and consequently future changes in the cost
        of sulphur are expected to be offset by changes in sulphuric acid
        pricing.

    11. CAPITAL MANAGEMENT:

        The Fund's objective when managing its capital is to safeguard the
        Fund's assets and its ability to continue as a going concern, to meet
        external capital requirements related to its credit facilities, and
        to maximize the growth of its business and the returns to its
        Unitholders. The Fund's capital structure is comprised of units and
        long-term debt.

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

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

        The Fund is subject to certain covenants on its credit facilities,
        which include a debt to EBITDA ratio (as both terms are defined in
        the credit agreement) and an interest coverage ratio. The Fund
        monitors these ratios and reports them to its lenders on a quarterly
        basis. As at June 30, 2008 and December 31, 2007, the Fund was in
        compliance with the above restrictions.

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


                       CHEMTRADE LOGISTICS INCOME FUND
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
                 FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2008
    

    The information in this Management's Discussion and Analysis, or MD&A, is
intended to assist the reader in the understanding and assessment of the
trends and significant changes in the results of operations and financial
condition of Chemtrade Logistics Income Fund. Throughout this MD&A, the term
the "Fund" refers to Chemtrade Logistics Income Fund and its consolidated
subsidiaries. The terms "we", "us" or "our" similarly refers to the Fund. This
MD&A should be read in conjunction with the unaudited consolidated financial
statements of the Fund for the six month period ended June 30, 2008 and the
annual MD&A 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      Six Months Ended
                                 ------------------      ----------------
    ($'000 except per unit       June 30,    June 30,    June 30,    June 30,
     amounts)                       2008        2007        2008        2007
    -------------------------------------------------------------------------
    Revenue                    $ 274,276   $ 130,163   $ 492,066   $ 258,824

    Gross profit               $  43,844   $  26,872   $  78,691   $  46,879

    Net earnings(4)            $  13,847   $   5,008   $  23,301   $   4,463

    Net earnings per unit
      -  Basic(4)              $    0.41   $    0.15   $    0.69   $    0.13
      -  Diluted(4)            $    0.41   $    0.15   $    0.69   $    0.13

    Total assets(4)            $ 574,465   $ 536,988   $ 574,465   $ 536,988

    Long-term debt             $ 157,764   $ 162,162   $ 157,764   $ 162,162

    EBITDA(3)                  $  29,840   $  16,289   $  52,041   $  27,313
    EBITDA per unit(1)(3)      $    0.89   $    0.49   $    1.55   $    0.81

    Cash flows from operating
     activities                $  33,745   $   8,519   $  39,754   $  14,255
    Cash flows from operating
     activities per unit(1)    $    1.00   $    0.25   $    1.18   $    0.42

    Adjusted cash flows from
     operating activities(3)   $  27,252   $  12,047   $  47,245   $  20,136
    Adjusted cash flows from
     operating activities per
     unit(1)(3)                $    0.81   $    0.36   $    1.41   $    0.60

    Distributable cash after
     maintenance capital
     expenditures(3)           $  24,066   $  10,540   $  42,003   $  17,161
    Distributable cash after
     maintenance capital
     expenditures per
     unit(1)(3)                $    0.72   $    0.31   $    1.25   $    0.51

    Distributions declared     $  10,075   $  10,075   $  20,150   $  20,150
    Distributions declared per
     unit(2)                   $    0.30   $    0.30   $    0.60   $    0.60

    Distributions paid         $  10,075   $  10,075   $  20,150   $  20,821
    Distributions paid per
     unit(2)                   $    0.30   $    0.30   $    0.60   $    0.62
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Based on weighted
        average number of
        units outstanding for
        the period of:        33,582,936  33,582,936  33,582,936  33,582,758

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

    (3) See NON-GAAP MEASURES.

    (4) For the three and six months ended June 30, 2007, net earnings and
        total assets have been adjusted as a result of adopting CICA Handbook
        Section 3031 - Inventories on a retrospective basis.  The adjustment
        did not have a material impact on net earnings per unit (basic and
        diluted).


    NON-GAAP MEASURES

    EBITDA -

    Throughout this MD&A, the term EBITDA is used to describe earnings before
any deduction for net interest and 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      Six Months Ended
                                 ------------------      ----------------

                                 June 30,    June 30,    June 30,    June 30,
    ($'000)                         2008      2007(1)       2008      2007(1)
    -------------------------------------------------------------------------

    Net earnings               $  13,847   $   5,008   $  23,301   $   4,463
      Add:
        Depreciation and
         amortization             10,145       9,792      19,990      20,017
        Net interest and debt
         accretion expense         2,795       3,162       5,826       6,222
        Net taxes                  3,053      (1,671)      2,924      (3,385)
        Minority interest              -          (2)          -          (4)
    -------------------------------------------------------------------------
    EBITDA(2)                  $  29,840   $  16,289   $  52,041   $  27,313
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Net earnings and depreciation and amortization have been adjusted as
        a result of adopting CICA Handbook Section 3031 - Inventories on a
        retrospective basis.
    (2) EBITDA for the three and six months ended June 30, 2008 includes
        recoveries of $nil and $1,238 respectively (2007 - charges of $490
        and $1,971 respectively) 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       Six Months Ended
                                  ------------------      ------------------
                                 June 30,    June 30,    June 30,    June 30,
    ($'000)                         2008        2007        2008        2007
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                $  33,745   $   8,519   $  39,754   $  14,255

    Add (deduct):
    Changes in non-cash working
     capital and other items      (6,493)      3,528       7,491       5,881
    -------------------------------------------------------------------------
    Adjusted cash flows from
     operating activities         27,252      12,047      47,245      20,136

    Less:

    Maintenance capital
     expenditure                   3,186       1,507       5,242       2,975
    -------------------------------------------------------------------------
    Distributable cash after
     maintenance capital
     expenditure                  24,066      10,540      42,003      17,161

    Less:

    Non-maintenance capital
     expenditure(1)                1,210           7       1,408          18
    -------------------------------------------------------------------------
    Distributable cash after
     all capital expenditure      22,856      10,533      40,595      17,143
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 second quarter of 2008 was $274.3 million,
an increase of $144.1 million from consolidated revenue of $130.2 million
recorded in the second quarter of 2007. Consolidated revenue for the first six
months of 2008 and 2007 were $492.1 million and $258.9 million  respectively.
Virtually all of the Fund's products achieved higher revenues however, the
principal reason for the increase in revenues is the significantly higher
price for sulphuric acid and sulphur. The higher prices more than offset the
negative effect of the stronger Canadian dollar relative to the U.S. dollar,
on U.S. dollar denominated revenues.
    The Fund's net earnings and EBITDA for the second quarter of 2008 were
$13.8 million and $29.8 million respectively compared with $5.0 million and
$16.3 million for the second quarter of 2007. Net earnings and EBITDA for the
first six months of 2008 were $23.3 million and $52.0 million respectively.
Comparable net earnings and EBITDA for the first six months of 2007 were
$4.5 million and $27.3 million respectively. The main reasons for the
improvement in EBITDA were the considerably stronger results in the SPPC and
International segments, although these were slightly offset by higher costs in
the Corporate segment. These factors also resulted in an improvement in net
earnings on a year-to-date basis. Additionally, there was a recovery of
restructuring costs of $1.2 million during 2008, whereas there was an expense
of $2.0 million recorded during the comparable period of 2007 (as described in
the RESTRUCTURING section below).

    RESULTS OF OPERATIONS BY BUSINESS SEGMENT

    
    SPPC -

                                  Three Months Ended       Six Months Ended
                                  ------------------      ------------------
                                 June 30,    June 30,    June 30,    June 30,
    ($'000)                         2008      2007(1)       2008      2007(1)
    -------------------------------------------------------------------------
    Revenue                    $ 127,019   $  78,013   $ 225,875   $ 150,938

    Earnings before the
     under-noted                  23,851      14,859      43,789      22,325
    Depreciation and
     amortization                  7,422       7,014      14,576      14,259
    Net interest and accretion
     expense                       2,390       2,712       4,979       5,244
    Income tax (recovery)          1,371      (1,751)        195      (3,498)

    -------------------------------------------------------------------------
    Net earnings               $  12,668   $   6,884   $  24,039   $   6,320
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Depreciation and amortization and net earnings have been adjusted as
        a result of adopting CICA Handbook Section 3031 - Inventories on a
        retrospective basis.
    

    SPPC manufactures and distributes sulphuric acid and other sulphur based
products to an extensive customer base in Canada and the U.S., and provides
acid regeneration services to the petroleum industry, primarily in the U.S.
Gulf Coast area. SPPC also supplies liquid and powder sodium hydrosulphite
("Liquid SHS" and "Powder SHS"), which is sold to the pulp and paper industry
and to a lesser extent, to the textile industry.
    Results for the six months ended June 30, 2008 were positively impacted
by the recording of a recovery of $1.2 million and comparative 2007 results
were negatively impacted by the recording of a charge of $2.0 million, both
related to the cessation of production of powder SHS (as described in the
RESTRUCTURING section below).
    For the second quarter of 2008, SPPC generated revenue of $127.0 million,
which compares with $78.0 million for the second quarter of 2007. The increase
in revenues is mainly due to higher prices for sulphuric acid and sulphur. 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 a result of the Olin asset acquisition (as described in
the LIQUIDITY AND CAPITAL RE

SOURCES - Investing Activities - Acquisitions section). During the second quarter of 2008, SPPC's EBITDA and net earnings were higher than the levels achieved in 2007 by $9.0 million and $5.8 million respectively. The higher EBITDA was mainly due to improved margins on sulphuric acid. Higher pricing for sulphuric acid more than offset the negative impact of rising sulphur costs and the impact of the stronger Canadian dollar relative to the U.S. dollar. Also, during the second quarter of 2007, the Fund took maintenance turnarounds at two of its largest regen plants, whereas in 2008, one turnaround was completed in the first quarter and the second turnaround commenced late in the first quarter and was completed early in the second quarter. For the first six months of 2008, SPPC generated revenues of $225.9 million, a significant increase over the level achieved during the first six months of 2007. The increase in 2008 revenue is principally the result of higher prices for sulphuric acid and sulphur. During the first six months of 2008, SPPC's EBITDA and net earnings increased by $21.5 million and $17.7 million. While most products showed improved results, the primary reason for the improvement in results was the strength in sulphuric acid. The second quarter and first six months income tax expense primarily relates to future taxes, driven by decreases in certain future tax assets. Pulp Chemicals - Three Months Ended Six Months Ended ------------------ ------------------ June 30, June 30, June 30, June 30, ($'000) 2008 2007(1) 2008 2007(1) ------------------------------------------------------------------------- Revenue $ 14,368 $ 14,625 $ 29,207 $ 28,640 Earnings before the under-noted 5,021 4,439 10,262 9,188 Depreciation and amortization 2,350 2,359 4,679 4,674 Net interest and accretion expense 522 511 1,046 1,005 ------------------------------------------------------------------------- Net earnings $ 2,149 $ 1,569 $ 4,537 $ 3,509 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Depreciation and amortization and net earnings have been adjusted as a result of adopting CICA Handbook Section 3031 - Inventories on a retrospective basis. Pulp Chemicals produces sodium chlorate and crude tall oil ("CTO"), both of which are chemicals used in the pulp and paper industry. Sodium chlorate is used to bleach pulp and CTO is used as a less expensive alternative energy source to natural gas. Second quarter 2008 Pulp Chemicals revenue was similar to the level achieved during the second quarter of 2007. On a year-to-date basis, the improvement in revenue during 2008 was $0.6 million, which was primarily due to higher volumes of sodium chlorate. Net earnings and EBITDA for the three and six month periods ended June 30, 2008 were higher than the levels achieved during the comparable periods of 2007. The improvement in net earnings and EBITDA during 2008 was mainly due to higher sales volume and lower costs. Costs during 2007 were high due to the transition to a new salt supply, whereas in 2008 certain logistics initiatives were implemented which resulted in lower costs. International - Three Months Ended Six Months Ended ------------------ ------------------ June 30, June 30, June 30, June 30, ($'000) 2008 2007 2008 2007 ------------------------------------------------------------------------- Revenue $ 132,889 $ 37,525 $ 236,984 $ 79,246 Earnings before the under-noted 8,840 1,843 15,066 3,252 Depreciation and amortization 373 419 735 1,084 Net interest income (117) (103) (199) (196) Income tax expense 1,682 94 2,729 113 Minority interest - (2) - (4) ------------------------------------------------------------------------- Net earnings $ 6,902 $ 1,435 $ 11,801 $ 2,255 ------------------------------------------------------------------------- ------------------------------------------------------------------------- International operations provide removal and marketing services for elemental sulphur and sulphuric acid. These products are marketed to customers in Europe, the Mediterranean, North Africa, Central and South America, North America, as well as the Pacific region. During the second quarter of 2008, International's revenue was $132.9 million compared with $37.5 million for the same period of 2007. For the first six months of 2008, International's revenue was $237.0 million compared with $79.2 million for the first six months of 2007. The increase in 2008 revenue is primarily due to the significantly higher prices and higher volume for sulphuric acid and significantly higher prices for sulphur. International net earnings and EBITDA during the second quarter and first six months of 2008 were considerably higher than the comparable periods of 2007. Small volumes of uncommitted acid resulted in high margins. Further, during the volatile market conditions prevalent in 2008, this segment was able to leverage its market knowledge and infrastructure to significantly add value to suppliers and customers and thereby earn incremental margin. Corporate - Three Months Ended Six Months Ended ------------------ ------------------ June 30, June 30, June 30, June 30, ($'000) 2008 2007 2008 2007 ------------------------------------------------------------------------- Cost of services $ 7,872 $ 4,852 $ 17,076 $ 7,452 Loss before the under-noted (7,872) (4,852) (17,076) (7,452) Net Interest and accretion expense - 42 - 169 Income tax expense - (14) - - ------------------------------------------------------------------------- Net loss $ (7,872) $ (4,880) $ (17,076) $ (7,621) ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 second quarter and first six months of 2008, Corporate costs were higher than the second quarter and first six months of 2007 by $3.0 million and $9.6 million respectively. There were a few reasons for the higher Corporate costs in the second quarter of 2008, with the principal ones being unrealized mark-to-market losses of $1.5 million on natural gas forward contracts and of $0.4 million on foreign exchange forward contracts (compared with an unrealized foreign exchange gain of $0.8 million during the second quarter of 2007). Additionally, realized foreign exchange gains during the second quarter of 2008 were lower than the same quarter of 2007 by $0.8 million. Finally, during the second quarter of 2008, accruals with respect to the Total Shareholder Return Long-Term Incentive Plan ("TSR LTIP") and annual incentive compensation were $1.2 million lower than the same period of 2007, when accruals were also made with respect to the 2006 Transitional TSR LTIP. The TSR LTIP accruals relate to the 2006, 2007 and 2008 TSR LTIP. The 2006, 2007 and 2008 TSR LTIP's are payable at the beginning of 2009, 2010 and 2011, respectively. Although an accrual with respect to these plans has been recorded, the payouts will be based upon Total 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 precisely 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. Based on the current unit price, it is anticipated that additional TSR LTIP accruals for the remainder of 2008 will be approximately $4.0 million. During the first six months of 2008, Corporate costs were higher due to unrealized losses on natural gas forward contracts of $2.3 million and higher unrealized foreign exchange losses of $1.8 million. Additionally, accruals for TSR LTIP and incentive compensation were $2.9 million higher in 2008 than in 2007. Finally, 2007 included a recovery of $0.9 million with respect to the Hurricane Rita related insurance claim. Net interest and accretion expense for both the second quarter and the first six months of 2008 decreased from 2007 due to the redemption of all the remaining outstanding convertible debentures in the first quarter of 2007. RESTRUCTURING During the fourth quarter of 2006, the Fund decided to discontinue production of powder SHS and costs of $2.7 million related to that decision were recorded in that quarter. These costs included a provision for a penalty on a long-term supply agreement. During the first quarter of 2008, the Fund had substantially concluded negotiations with the supplier and the penalty was waived. As a result, the Fund reversed the penalty provision previously recorded. FOREIGN EXCHANGE The Fund's U.S. based operating subsidiaries and its International segment report in U.S. dollars. As the Fund reports in Canadian dollars, its reported earnings are exposed to fluctuations in the Canadian/U.S. dollar exchange rate. The Fund currently estimates that on an unhedged basis, a $0.01 increase in the Canadian/U.S. dollar exchange rate reduces Distributable cash after maintenance capital expenditures by less than $0.15 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 June 30, 2008, approximately all planned transfers for 2008 have been effectively hedged at $0.8292. Contracts in place at June 30, 2008 include foreign exchange contracts of US$5.2 million at a weighted average exchange rate of $1.206. There are unrealized gains of $1.0 million from these contracts at June 30, 2008. The purpose of these contracts is to hedge the value of the funds which are used to pay dividends and interest by subsidiary companies to the Fund and to meet other commitments. The amount of the related derivative 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 after maintenance capital expenditures. See NON-GAAP MEASURES - Cash Flow. The rate of exchange used to translate U.S. denominated balances has changed from a rate of US$1.00 (equals) $0.98 at December 31, 2007 to US$1.00 (equals) $1.01 at June 30, 2008. The Fund's International and U.S. based operations are considered to be self-sustaining, as they are financially independent. As a result, gains or losses arising from the translation of the assets and liabilities of self-sustaining operations are recorded in other comprehensive income. The changes recorded in the accumulated other comprehensive income account since December 31, 2007 were a result of changes in the Canadian/U.S. dollar exchange rate between December 31, 2007 and June 30, 2008. See RISKS AND UNCERTAINTIES for additional comments on foreign exchange. NET INTEREST AND ACCRETION EXPENSE Net interest and accretion expense was $2.8 million in the second quarter of 2008, compared with $3.2 million in the second quarter of 2007. Net interest and accretion expense was $5.8 million for the first six months of 2008, compared with $6.2 million for the first six months of 2007. Interest on the Canadian dollar denominated debt amounted to $1.0 million and $2.3 million in the second quarter and first six months of 2008 respectively and $1.0 million and $2.0 million in the second quarter and first six months of 2007 respectively. Interest expense for the second quarter of 2008 and 2007 was approximately the same, as the increased usage of operating lines of credit was offset by lower effective annual interest rates during the second quarter of 2008. The increase in interest expense for the first six months was a result of increased usage of the operating lines of credit, primarily due to the redemption of all of the outstanding convertible debentures part way through the first quarter of 2007 and a higher effective annual interest rate in the first quarter of 2008 compared with the first quarter of 2007. These loans have an effective annual interest rate of 4.97% at June 30, 2008 (December 31, 2007 - 5.22%). The interest on the U.S. dollar denominated debt was $1.5 million and $3.1 million for the second quarter and the first six months of 2008 respectively, compared with $1.9 million and $3.6 million for the second quarter and the first six months of 2007 respectively. The interest expense was lower during the second quarter and the first six months of 2008 primarily because of lower usage of operating lines of credit and lower effective annual interest rates. The effective annual interest rate at June 30, 2008 was 5.60% (December 31, 2007 - 5.85%). 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 both the second quarter and first six months of 2008, compared with $nil and $0.2 million for the second quarter and first six months of 2007 respectively. The expense of 2008 was lower than 2007 due to the redemption of all of the outstanding convertible debentures in the first quarter of 2007. During the second quarters and first six months of both 2008 and 2007, the Fund recorded accretion expenses of $0.2 million and $0.4 million respectively. This accretion is due to the amortization of transaction costs related to the Fund's borrowings. INCOME TAXES Current income tax expense was $2.0 million for the second quarter of 2008 and $3.3 million for the first six months of 2008, compared with $0.4 million and $0.5 million for the second quarter and first six months of 2007 respectively. The increase in current tax expense for 2008 reflects increased earnings in certain International and U.S. business operations. The increase in future tax asset of $0.7 million at June 30, 2008 relative to December 31, 2007 is the result of increased timing differences between the accounting basis and the tax basis of assets associated with certain operating subsidiaries and other tax benefits reported by certain operating subsidiaries, partially offset by decreased tax loss carry forwards, net of valuation allowances, reported by certain operating subsidiaries. The increase in future tax liability of $0.8 million at June 30, 2008 relative to December 31, 2007 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 There were no significant contingent liabilities at June 30, 2008. EXCESS CASH FLOWS AND NET INCOME OVER DISTRIBUTIONS PAID The following table presents excess cash flows from operating activities and net income over distributions paid for the three and six month periods ended June 30, 2008 and for the years ended December 31, 2007 and 2006. Three Months Six Months Year Ended Year Ended Ended June Ended June December December $'000) 30, 2008 30, 2008 31, 2007 31, 2006 ------------------------------------------------------------------------- Cash flows from operating activities $ 33,745 $ 39,754 $ 47,742 $ 41,950 Net earnings(1) 13,847 23,301 20,596 3,820 Distributions paid during period 10,075 20,150 40,971 47,908 Excess (shortfall) of cash flows from operating activities over cash distributions paid 23,670 19,604 6,771 (5,958) Excess (shortfall) of net income over cash distributions paid $ 3,772 $ 3,151 $ (20,293) $ (44,088) ------------------------------------------------------------------------- (1) For the year ended December 31, 2007 net earnings has been adjusted as a result of adopting CICA Handbook Section 3031 - Inventories on a retrospective basis. The Fund considers the amount of cash generated by the business in determining the amount of distributions payable to its Unitholders. In general, the Fund does not take into account quarterly working capital fluctuations as these tend to be temporary in nature. The Fund does not generally consider net income in setting the level of distributions as this is a non-cash metric and is not reflective of the level of cash flow that the Fund can generate. This divergence is particularly relevant for the Fund as it has a relatively high level of depreciation and amortization expenses. For the year ended December 31, 2006 distributions to Unitholders exceeded cash flows from operating activities mainly due to an increase in working capital. The additional distribution was funded by an increase in bank debt. Distributions - On January 4, 2007, the Fund announced a change in the monthly distribution rate to $0.10 per unit, effective with the January 2007 declaration. Distributions to Unitholders for the three months ended June 30, 2008 were declared as follows: Distribution Total Record Date Payment Date Per Unit ($'000) ------------------------------------------------------------------------- Three months ended June 30: April 30, 2008 May 30, 2008 $ 0.10 $ 3,358 May 30, 2008 June 30, 2008 0.10 3,358 June 30, 2008 July 31, 2008 0.10 3,359 ------------------------------------------------------------------------- Sub-Total $ 0.30 $ 10,075 Three months ended March 31 $ 0.30 $ 10,075 ------------------------------------------------------------------------- Total for six months ended June 30 $ 0.60 $ 20,150 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions declared in the three months ended June 30, 2007 were as follows: Distribution Total Record Date Payment Date Per Unit ($'000) ------------------------------------------------------------------------- Three months ended June 30: April 30, 2007 May 31, 2007 $ 0.10 $ 3,358 May 31, 2007 June 29, 2007 0.10 3,358 June 29, 2007 July 31, 2007 0.10 3,359 ------------------------------------------------------------------------- Sub-Total $ 0.30 $ 10,075 Three months ended March 31 $ 0.30 $ 10,075 ------------------------------------------------------------------------- Total for six months ended June 30 $ 0.60 $ 20,150 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Treatment of the Fund's distributions for Canadian income tax purposes for 2007 and 2008 is as follows: Foreign Non-Business Other Income Income Total ------------------------------------------------------------------------- 2007 77.0% 23.0% 100.0% 2008(1) 75.0% 25.0% 100.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Represents anticipated tax characterization of planned distributions. The actual tax treatment of 2008 distributions will be determined by February 28, 2009. LIQUIDITY AND CAPITAL RE

SOURCES The Fund's distributions to Unitholders are sourced entirely from its cash flows from 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 repayment of interest on long-term debt. Cash Flow from Operating Activities ----------------------------------- Cash flow from operating activities for the second quarter of 2008 was $33.7 million, an increase of $25.2 million from the level generated during the second quarter of 2007. The increase in cash flow is primarily due to the improvement in earnings and a decrease in working capital. Working capital was lower due to faster collections of accounts receivable and an increase in the level of accounts payable which reflects the higher prices for key raw materials such as sulphur. The improvement in working capital was moderated by an increase in the level of inventory, which again reflected higher prices for key raw materials. For the first six months of 2008, cash flow from operating activities was $39.8 million, an increase of approximately $25.5 million from the level achieved in 2007. The increase in cash flow is primarily due to the higher level of EBITDA generated in the first six months of 2008 relative to the first six months of 2007. This improvement was partially offset by higher working capital, caused primarily by higher levels of inventory. Financing Activities -------------------- Distributions to Unitholders during the second quarter of 2008 were similar to those during the second quarter of 2007. Distributions paid to Unitholders during the first six months of 2008 were $0.7 million lower than the same period in 2007 due to a reduction in the distribution rate beginning with the January 2007 distribution. During the second quarter of 2008, the Fund extended its senior credit facilities with its principal bankers to August 2, 2011. This is a two year extension to the current term, on substantially the same terms as the existing agreement. The Fund incurred transaction costs of $0.6 million related to this extension. As the Fund is treating this extension as a modification of the debt, rather than an extinguishment, these transaction costs have been added to the remaining unamortized transaction costs from the pre-existing agreements. These transaction costs will be recorded as net interest and accretion expense using the effective interest method over the life of the extended debt. During the first quarter of 2007, the Fund increased the aggregate amount that can be borrowed under the Fund's senior credit facilities with its principal bankers by $50.0 million. The Fund then used part of this increased credit facility to redeem the 16,378 convertible debentures outstanding for the principal amount plus accrued an unpaid interest. For additional information on cash distributions, see NON-GAAP MEASURES - Cash Flow and EXCESS CASH FLOWS AND NET INCOME OVER DISTRIBUTIONS PAID. Financial Instruments - The Fund has entered into swap agreements with its principal bankers in order to fix the interest rates on its long-term debt. 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 5.60% and on the Canadian dollar long-term debt is 4.97%. In the second quarter of 2008, the Fund entered into new swap arrangements with its principal banker, which will fix interest rates on all of its U.S. dollar long-term debt and Canadian dollar denominated long-term debt from August 2009, the previous maturity date of the Fund's credit facility, until August 2010. In the fourth quarter of 2007, the Fund entered into a new swap arrangement to fix the interest rate on US$10 million of its operating lines of credit. The effective interest rate under the swap arrangement is 5.48%. At June 30, 2008, the fair values of the above noted agreements were losses of $1.7 million (US$1.7 million) and $0.4 million. See comments under NET INTEREST AND 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 June 30, 2008, the fair value of these agreements is a loss of $2.6 million. These contracts are accounted for as derivatives with gains or losses recorded in selling, general, administrative and other costs. Investing Activities -------------------- Investment in capital expenditures was $4.4 million in the second quarter of 2008, compared with $1.5 million in the second quarter of 2007. These amounts include $3.2 million in the second quarter of 2008 and $1.5 million in the second quarter of 2007 for maintenance capital requirements. Investment in capital expenditures for the first six months of 2008 was $6.7 million compared with $3.0 million for the first six months of 2007. The maintenance capital expenditure components were $5.2 million for the first six months of 2008 and $3.0 million for the first six months of 2007. Owing to the high demand for skilled labour and materials, there has been an escalation in the cost of capital projects. The Fund has also identified additional capital expenditure projects that will upgrade its plants for the long term. Accordingly, maintenance capital expenditures for the remainder of 2008 are expected to be significantly higher than previously indicated and are expected to be approximately $10.0 million. Maintenance capital expenditures for the year ended December 31, 2007 were $6.9 million. Investment in non-maintenance capital expenditures were $1.2 million and $1.4 million during the second quarter and first six months of 2008 respectively. There were no non-maintenance capital expenditures during the first six months of 2007. Most of the non-maintenance capital expenses during the second quarter and first six months of 2008 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. During the second quarter, the Fund invested US$2.5 million in Meranol S.A.C.I. ("Meranol"). Meranol is based in Buenos Aires, Argentina and is a leading Argentine producer of sulphuric acid and other sulphur products. The investment was made in the form of convertible notes, convertible into 10% of the equity of Meranol. The notes bear an interest rate of 10% per annum. The Fund also has options over a specified period of time, to increase its investment to up to 45% of Meranol's common stock at a pre-determined price. On May 1, 2007, the Fund completed the purchase of Olin Corporation's liquid sodium hydrosulphite ("SHS") customer contracts for $6.4 million (US$5.7 million), a portion of which is subject to certain earn out provisions. During the fourth quarter of 2007, the Fund refined its earn out provision accrual and reduced the original accrual recognized upon acquisition. The acquisition does not include Olin's manufacturing assets. The Fund incurred transaction related costs of $0.2 million. Cash Balances - At June 30, 2008 the Fund had net cash balances of $17.4 million and working capital of $39.2 million. Comparable numbers for December 31, 2007 were $11.8 million and $35.9 million, respectively. The Fund defines working capital to exclude cash, operating line of credit, distributions payable and the current portion of long-term debt. Cash generated by the Fund will be used to fund cash distributions to Unitholders, capital requirements, interest, general corporate purposes and other legal obligations. Future Liquidity - The future liquidity of the Fund will be primarily dependant on cash flows of its operating subsidiaries. These cash flows will be used to finance ongoing expenditures, including maintenance capital, distributions to Unitholders and normal course financial commitments. Cash flows are sensitive to changes in volume, sales prices and input costs and any changes in these may impact future liquidity. Management believes that cash flows from operating activities will be sufficient for the Fund to meet future obligations and commitments that arise in the normal course of business activities. Capital Resources - At June 30, 2008, the Fund had senior credit facilities of $235.6 million, consisting of a term loan of $159.3 million and a revolving credit facility of $76.3 million. The term bank debt is not due or payable until August 2011. At June 30, 2008, in addition to the entire term loan, the Fund had used a total of $43.8 million (including US$9.4 million) of its revolving credit facility. Subject to certain limits set out in the credit agreement, the credit facilities may be used to finance working capital, fund acquisitions, invest in capital assets, buy back units and pay distributions to Unitholders. Debt Covenants - As at June 30, 2008, the Fund was compliant with all debt covenants contained in its credit facility. SUMMARY OF QUARTERLY RESULTS Three Months Ended ------------------ June March December September ($'000) 30, 2008 31, 2008 31, 2007(1) 30, 2007(1) ------------------------------------------------------------------------- Revenue $ 274,276 $ 217,790 $ 144,580 $ 143,232 Cost of sales and services 230,432 182,943 110,772 114,546 ------------------------------------------------------------------------- Gross profit 43,844 34,847 33,808 28,686 Selling, general, administrative and other costs 14,004 13,884 11,062 9,305 Restructuring costs - (1,238) - - ------------------------------------------------------------------------- Earnings before the under-noted 29,840 22,201 22,746 19,381 Depreciation and amortization 10,145 9,845 9,050 9,645 Net interest and accretion expense 2,795 3,031 3,050 3,361 Income taxes (net) 3,053 (129) 1,552 (647) Minority interest - - (15) (3) ------------------------------------------------------------------------- Net earnings $ 13,847 $ 9,454 $ 9,109 $ 7,025 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Depreciation and amortization and net earnings have been adjusted as a result of adopting CICA Handbook Section 3031 - Inventories on a retrospective basis. Three Months Ended ------------------ June March December September ($'000) 30, 2007(1) 31, 2007(1) 31, 2006 30, 2006 ------------------------------------------------------------------------- Revenue $ 130,163 $ 128,661 $ 146,930 $ 148,692 Cost of sales and services 103,291 108,654 122,026 124,833 ------------------------------------------------------------------------- Gross profit 26,872 20,007 24,904 23,859 Selling, general, administrative and other costs 10,093 7,502 8,281 7,112 Restructuring costs 490 1,481 2,706 - ------------------------------------------------------------------------- Earnings before the under-noted 16,289 11,024 13,917 16,747 Depreciation and amortization 9,792 10,225 9,970 11,277 Impairment of property, plant and equipment - - (3,320) 15,596 Net interest and accretion expense 3,162 3,060 2,992 3,018 Income taxes (net) (1,671) (1,714) (1,110) (2,926) Minority interest (2) (2) - - ------------------------------------------------------------------------- Net earnings (loss) $ 5,008 $ (545) $ 5,385 $ (10,218) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Depreciation and amortization and net earnings (loss) have been adjusted as a result of adopting CICA Handbook Section 3031 - Inventories on a retrospective basis. The Fund generally has higher earnings in the second half of the year than the first half. This is because demand for SHS and Refinery Services is typically highest during this period. 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 of $12.3 million and $2.7 million respectively related to the discontinuance of powder SHS production. 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 second quarter. These factors resulted in the second quarter of 2007 having an inordinately low level of earnings. Despite the typical maintenance turnarounds during the first two quarters of 2008, revenues and earnings were relatively high, mainly due to higher prices for sulphuric acid and sulphur, which led to strong results in SPPC and International segments. 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 TSR LTIP. The accrual related 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. 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 $0.5 million). Finally, S,G&A in the fourth quarter of 2007 and the first half of 2008 was high due to accruals for the TSR LTIP and for annual incentive compensation. CONTRACTUAL OBLIGATIONS Information concerning contractual obligations is shown below: Contractual Obligations Less Than After ($'000) Total 1 Year 1-3 Years 4-5 Years 5 Years ------------------------------------------------------------------------- Long Term Debt $ 159,320 $ - $ - $ 159,320 $ - Operating Leases 43,110 15,802 18,666 6,671 1,971 Interest on Long-Term Debt 26,799 8,604 17,465 730 - ------------------------------------------------------------------------- Total Contractual Obligations $ 229,229 $ 24,406 $ 36,131 $ 166,721 $ 1,971 ------------------------------------------------------------------------- ------------------------------------------------------------------------- RISKS AND UNCERTAINTIES The Fund is one of the world's largest suppliers of sulphuric acid ("acid"), liquid sulphur dioxide ("SO(2)") and sodium hydrosulphite ("SHS") and a leading processor of spent acid, particularly in the U.S. Gulf Coast region. The Fund is also a leading regional supplier of sulphur, sodium chlorate and phosphorus pentasulphide, and also produces zinc oxide at three North American locations. As such the Fund faces various risks associated with its business. These risks include, amongst others, the loss of a portion of its customer base, the interruption of the supply of sulphur-based products or raw materials, price fluctuations in the products sold and/or raw materials purchased, industry over-capacity, acquisition integration and operational and product hazard risks associated with the nature of its business. The Fund imports key raw materials and products from overseas and as such has additional risks associated with the sourcing activity. The Fund makes extensive use of the railway system to transport material within North America. Certain locations are serviced by a sole carrier and thus a disruption in service could have a significant negative impact on results. In addition, the Fund sells a significant portion of its major products to large customers. While many of these customers are under contract, there can be no assurance that these contracts will be renewed. As the Fund's business is international in nature, it is exposed to foreign exchange risks related to the payment of dividends and other transactions by its foreign subsidiaries. The Fund manages the risks associated with its customer base and sales price by seeking to obtain contractual protection to mitigate these risks. The Fund also seeks to differentiate its products and services with customers to mitigate price fluctuations and uses its scale to obtain beneficial raw material contracts. All members of the Fund's senior management team were involved 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 is 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. Dependence on Vale Inco Relationship - Vale Inco Limited ("Vale Inco") is the Fund's largest sulphur products supplier. During the second quarter of 2008, the Fund renewed its agreement with Vale Inco for the marketing of all sulphur by-products produced by the Vale Inco smelter in Sudbury, Ontario. The new 10-year contract, which contains similar terms to the prior agreements between the parties, was effective as of January 1, 2008. For the six months ended June 30, 2008, this supply source accounted for approximately 13% of the Fund's revenues. Exchange Rates - The Fund is exposed to fluctuations in the exchange rate of the U.S. dollar relative to the Canadian dollar, as a portion of the Fund's Distributable cash after maintenance capital expenditures is earned in U.S. dollars. On an unhedged basis, the Fund currently estimates that a one-cent change in the exchange rate will have an impact on Distributable cash after maintenance capital expenditures of less than $0.15 million per annum. The Fund has forward exchange contracts in place 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 June 30, 2008, 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 June 30, 2008, the Fund had fixed interest rates on approximately 80% of its total debt, until August 2010. Sulphuric Acid Pricing - A change in realized sulphuric acid pricing, net of freight, of $1 per tonne, would have an impact on annual revenues in North America of approximately $1.1 million. However, given the risk-sharing aspect of a key supply contract, the impact of price changes on EBITDA would range from $0.5 million to $0.6 million. In any specific period, the exact impact would also depend upon the volume that is subject to sales contracts where pricing has been fixed for a period of time. The magnitude of realized price changes also depends upon regional market dynamics. Sulphur Costs - The Fund uses sulphur in the manufacturing of several of its products, including sulphuric acid. At current operating levels, an increase of $1 per tonne would have an impact of approximately $0.15 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 Pulp Limited Partnership on a long-term contract, whereby selling price is adjusted based on changes in virtually all variable costs. Thus, the Fund's exposure to changes in market prices of sodium chlorate is limited to the remainder of its output. Other Input Costs - There are several other large input costs, such as natural gas, zinc, salt and electricity, but in most cases there are contractual arrangements with customers, or other offsets within the business, which mitigate the exposure to changes in these costs. Labour Relations - As indicated in our Annual Information Form, the contract term of the collective bargaining agreement with the Pulp, Paper and Woodworkers of Canada ended on April 30, 2008 and negotiations have yet to begin. Although management believes the parties will enter into a mutually acceptable agreement, there can be no assurance as to the terms of the new agreement or that such agreement will be reached without interruption of work. 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. Capital Disclosures - Effective January 1, 2008, the Fund adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1535, Capital Disclosures. This section establishes standards for disclosing information about an entity's capital and how it is managed. The entity's disclosure should include information about its objectives, policies and processes for managing capital and disclose whether or not it has complied and the consequences of non-compliance with any capital requirements to which it is subject. This new section relates to disclosure and does not have an impact on the Fund's financial results. Inventories - Effective January 1, 2008, the Fund adopted the recommendations of CICA Handbook Section 3031, Inventories. Under the new section, inventories are required to be measured at the "lower of cost and net realizable value", which is different from the previous guidance of the "lower of cost and market". The new section requires the reversal of any write-downs previously recognized, if applicable. Certain minimum disclosures are also required, including the accounting policies used, carrying amounts, amounts recognized as an expense, write-downs, and the amount of any reversal of any write-downs recognized as a reduction in expenses. The new section also clarifies the definition of cost to include all costs of purchase, costs of conversion and other costs incurred to bring inventories to their present location and condition. Costs of conversion include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. The allocation of fixed production overheads is based on normal production capacity of the production facilities. The new section requires that depreciation be included in the fixed costs of conversion when costing inventories. Previously, the Fund had excluded depreciation from its cost of inventory. The Fund has elected to apply this section retrospectively and has adjusted the comparative figures to comply with the new section. Financial Instruments - Effective January 1, 2008, the Fund adopted the recommendations of CICA Handbook Sections 3862, Financial Instruments - Disclosures, and 3863, Financial Instruments - Presentation. Section 3862 modifies the disclosure requirements of Section 3861, Financial Instruments - Disclosure and Presentation, including required disclosure of the assessment of the significance of financial instruments for an entity's financial position and performance and of the extent of risks arising from financial instruments to which the Fund is exposed and how the Fund manages those risks, whereas Section 3863 carries forward the presentation related requirements of Section 3861. These new sections relate to disclosure and presentation only and do not have an impact on the Fund's financial results. RECENT ACCOUNTING PRONOUNCEMENTS Convergence to International Financial Reporting Standards ("IFRS") - In January 2006, the CICA Accounting Standards Board ("AcSB") adopted a strategic plan for the direction of accounting standards in Canada. The AcSB has recently confirmed that accounting standards in Canada for public companies are to converge with IFRS effective for fiscal periods beginning on or after January 1, 2011. The Fund has assembled an IFRS transition team which has started to assess the impact of the convergence of Canadian GAAP and IFRS, and will implement the new IFRS standards. Goodwill and Intangible Assets - In February 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible Assets. Section 3064 states that upon their initial identification, intangible assets are to be recognized as assets only if they meet the definition of an intangible asset and the recognition criteria. This section also provides further information on the recognition of internally generated intangible assets (including research and development costs). As for subsequent measurement of intangible assets, goodwill, and disclosure, Section 3064 carries forward the requirements of the old Section 3062, Goodwill and Other Intangible Assets. The new section will become effective on January 1, 2009 for the Fund. The Fund is currently evaluating the effect of the adoption of this new section on the consolidated financial statements. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES In accordance with the requirements of Canadian securities regulators, the CEO and CFO of the Fund are required to certify that they have designed the Fund's disclosure controls and have evaluated their effectiveness for the applicable period. Disclosure controls are those controls and procedures which ensure that information that is required to be disclosed is recorded, processed and reported within the time frames specified by the regulators. The effectiveness of the Fund's Disclosure Policies and Procedures 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 continue to 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 for at least the remainder of 2008 and for 2009. 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 continue to be sufficient to more than offset the increased cost of producing sulphuric acid. As previously indicated, during 2008 we expect to invest at a higher than historical level in our plants. 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 now also expect to spend additional capital for the next two years in order to upgrade our plants for the long term. Despite the increased capital program and the possibility that the recent run rate of the International segment may revert to a lower level, we expect to generate similar levels of Distributable cash after maintenance capital expenditures during the next twelve months as we generated during the twelve months ended June 30, 2008. We continue seeking opportunities to grow and strengthen our businesses. 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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