Chemtrade Logistics Income Fund Reports Strong 2010 First Quarter Results

TORONTO, May 10 /CNW/ - Chemtrade Logistics Income Fund (TSX: CHE.UN) today announced results for the three months ended March 31, 2010. The Fund reported higher distributable cash after maintenance capital expenditures, EBITDA (earnings before interest, income taxes, depreciation and amortization) and net earnings than in the first quarter last year.

Mark Davis, President and Chief Executive Officer of Chemtrade, said, "Our first quarter results reflect a number of positive changes from a year ago. The economy has improved and our customers are operating at higher rates than last year. We also benefitted from the partial restart of production at Vale Inco, a key supplier of sulphur products and the return to normal production of our Beaumont plant that was still in its re-start phase last year. The supply/demand characteristics for sulphuric acid, our major product by volume continued to improve in the quarter which also had a positive impact."

Cash flow from operating activities for the first quarter was $29.3 million (2009: negative $9.9 million) and Distributable cash after maintenance capital expenditures for the period was $14.9 million, or $0.49 per unit (2009: $9.6 million, or $0.31 per unit), generated from revenue of $126.8 million (2009: $161.8 million). The revenue decline was attributable to lower prices for sulphuric acid than a year ago and to the negative impact of the stronger Canadian dollar on U.S. denominated revenue. EBITDA for the first quarter was $24.5 million (2009: $18.3 million) and net earnings were $13.8 million compared with $1.3 million in the same period in 2009.

Sulphur Products & Performance Chemicals (SPPC) generated revenue of $73.5 million in the first quarter compared with $99.7 million in the first quarter of 2009. The main reason for the decline in revenue was lower realized pricing for sulphuric acid and the negative impact of the stronger Canadian dollar on U.S. denominated revenue. However, the lower revenues were generally offset by reduced costs for most products. EBITDA for the first quarter was $16.5 million compared with $9.1 million in 2009. The higher EBITDA relative to the first quarter last year was due primarily to the extra costs incurred last year to ensure customer operations were not disrupted during the re-start of the Beaumont plant.

Pulp Chemicals reported first quarter revenue of $10.9 million compared with $11.9 million in 2009, reflecting reduced demand for sodium chlorate. EBITDA was steady at $4.8 million as lower costs offset the impact of lower volumes.

International reported revenue of $42.4 million for the first quarter, compared with $50.2 million in 2009. This reflected mainly the negative effect of the stronger Canadian dollar on U.S. dollar denominated revenue. Lower realized prices for sulphuric acid were offset by the impact of higher volumes. EBITDA for the quarter of $10.3 million was significantly higher than the $3.8 million reported last year. This was the result of certain contracts where customers who had delayed delivery from earlier periods honoured their commitments in the first quarter of 2010.

Corporate costs during the first quarter of 2010 were $7.6 million higher than the first quarter of 2009. Of this, $5.6 million was due to LTIP costs, as in the first quarter of 2010 LTIP accruals were $2.2 million, whereas in 2009 there was a net reversal of $3.4 million. This movement reflects the substantial appreciation of the unit price over this time period. Additionally, in the first quarter of 2009 realized foreign exchange gains of $1.2 million were reported whereas this year realized gains were $0.2 million.

During the first quarter the Fund completed a public issue of 6% convertible unsecured subordinated debentures due March 31, 2017, with gross proceeds of $80 million. Subsequent to the end of the quarter, the underwriters exercised their over-allotment option, resulting in additional gross proceeds of $10 million. Part of the net proceeds were used to repay $54.4 million of existing long-term debt.

Mr. Davis said, "It was a solid first quarter for Chemtrade that once again demonstrated the strength of our business and business model. The economy has improved and all our plants are operating smoothly. Demand for most of our products has strengthened and we expect this demand rate to continue or improve over the remainder of the year. Our first quarter results also reflect the benefit of favourable timing of International earnings and capital spending."

Mr. Davis noted that in addition to the strong operating results, Chemtrade also executed extensions to two important relationships during the quarter. The long-term agreement under which Chemtrade produces and exclusively supplies sodium chlorate to Canfor's Prince George, B.C. plants was extended for five years to 2018 and the sodium hydrosulphite supply and marketing agreement with Guangdong ZhongCheng Chemicals was extended for three years to 2016. Mr. Davis added, "The strengthening of our balance sheet and the extension of two of our important contractual relationships will provide long-term benefits for Chemtrade and our unitholders. All these factors continue to support our belief that the current distribution rate is sustainable."

Distributions

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

This news release contains certain statements which may constitute "forward-looking" statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario). The use of any of the words "anticipate", "continue", estimate", "expect", "expected", "intend", "may", "will", "project", "plan", "should", "believe" and similar expressions are intended to identify forward-looking statements. These statements are based on a number of material factors and assumptions and involve known and unknown risks and uncertainties that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. As a result, we cannot guarantee that any forward-looking statement will materialize. Forward-looking statements in this news release describe the expectations of Chemtrade as of the date of this news release. Forward-looking statements do not take into account the effect that transactions or non-recurring items announced or occurring after the statements are made may have on our business. We disclaim any intention or obligation to update any forward-looking statement even if new information becomes available, as a result of future events or for any other reason.

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

    
    -   the strength of demand for our products over the remainder of the
        year;

    -   the long-term benefits of a strengthened balance sheet and contracts
        with Canfor and Guangdong ZhongCheng Chemicals; and

    -   the sustainability of the Fund's distribution rate.
    

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

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

A conference call to review the first quarter 2010 results will be webcast live on www.chemtradelogistics.com and www.newswire.ca/webcast on Tuesday, May 11, 2010 at 8:30 a.m.

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

                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
                                                   (unaudited)
    ASSETS

    Current assets
      Cash and cash equivalents                    $    48,855   $    19,885
      Accounts receivable                               65,901        75,748
      Inventories                                       22,016        20,107
      Prepaid expenses and other assets (note 8(b))      2,059         2,284
    -------------------------------------------------------------------------
                                                       138,831       118,024

    Restricted cash                                      2,640         2,599
    Notes receivable                                     2,540         2,627
    Property, plant and equipment                      151,186       156,960
    Other assets                                         2,137         2,164
    Future tax asset                                    14,722        14,084
    Intangibles                                        101,831       108,389
    Goodwill                                            88,900        90,630

    -------------------------------------------------------------------------
                                                   $   502,787   $   495,477
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities
      Accounts payable                                  45,833        42,918
      Accrued and other liabilities (notes 5(f)
       and 8(b))                                        43,077        42,920
      Distributions payable                              3,067         3,067
      Income taxes payable                               1,572         2,855

    -------------------------------------------------------------------------
                                                        93,549        91,760

    Long-term bank debt (note 4)                       101,370       160,105
    Convertible unsecured subordinated debentures
     (note 4)                                           67,898             -
    Other long-term liabilities (notes 5(f) and 8(b))   10,408        19,075
    Post-employment benefits                             3,761         4,051
    Future tax liability                                16,910        20,082

    Unitholders' equity
      Units (note 5(b))                                377,144       377,144
      Contributed surplus                                9,720         9,720
      Equity component of convertible debentures
       (note 5(c))                                       8,395             -
      Deficit                                         (138,504)     (143,112)
      Accumulated other comprehensive (loss) (note 6)  (47,864)      (43,348)

    -------------------------------------------------------------------------
                                                       208,891       200,404

    Subsequent event (note 4)
    -------------------------------------------------------------------------
                                                   $   502,787   $   495,477
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements



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

                                                        Three Months Ended
                                                        ------------------
                                                      March 31,     March 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    Revenue                                        $   126,824   $   161,823

    Cost of sales and services (excluding
     depreciation disclosed below)                      89,658       137,522

    -------------------------------------------------------------------------
    Gross profit                                        37,166        24,301

    Selling, general, administrative and
     other costs                                        12,689         6,025

    -------------------------------------------------------------------------
    Earnings before the under-noted                     24,477        18,276

    Unrealized foreign exchange (gain) loss and
     ineffectiveness of cash flow hedges                  (414)        3,903
    Debt extinguishment costs (note 4)                     571             -
    Depreciation and amortization                       10,813        11,165
    Net interest and accretion expense                   2,264         2,103

    -------------------------------------------------------------------------
    Earnings before income taxes                        11,243         1,105

    Income taxes
      Current                                            1,055           708
      Future                                            (3,621)         (924)

    -------------------------------------------------------------------------
                                                        (2,566)         (216)
    -------------------------------------------------------------------------
    Net earnings                                   $    13,809    $    1,321
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per unit (note 5(d))
      Basic                                        $      0.45    $     0.04
      Diluted                                      $      0.45    $     0.04
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cost of sales and services for the three months ended March 31, 2010 does
    not include $5,423 (2009 - $5,537) of depreciation relating to plant
    buildings and equipment.

    See accompanying notes to consolidated financial statements.



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

                                                        Three Months Ended
                                                        ------------------
                                                      March 31,     March 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    Units
    Balance, beginning of period                   $   377,144   $   389,932
    Re-purchase of units                                     -       (12,788)
    -------------------------------------------------------------------------
    Balance, end of period                         $   377,144   $   377,144
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Contributed surplus
    Balance, beginning of period                   $     9,720   $     5,272
    Re-purchase of units                                     -         4,448
    -------------------------------------------------------------------------
    Balance, end of period                         $     9,720   $     9,720
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Equity component of convertible debentures
    Balance, beginning of period                   $         -   $         -
    Issuance of debentures (notes 4 and 5(c))            8,395             -
    -------------------------------------------------------------------------
    Balance, end of period                         $     8,395   $         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Deficit
    Balance, beginning of period                   $  (143,112)  $  (153,141)
    Net earnings                                        13,809         1,321
    Distributions                                       (9,201)       (9,288)
    -------------------------------------------------------------------------
    Balance, end of period                         $  (138,504)  $  (161,108)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive (loss) (note 6)
    Balance, beginning of period                   $   (43,348)  $   (24,127)
    Other comprehensive (loss) income                   (4,516)        3,808
    -------------------------------------------------------------------------
    Balance, end of period                         $   (47,864)  $   (20,319)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



    Consolidated Statements of Comprehensive Income
    (in thousands of dollars)
    (unaudited)

                                                        Three Months Ended
                                                        ------------------
                                                      March 31,     March 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    Net earnings                                   $    13,809   $     1,321

    Change in unrealized loss on translation of
     self-sustaining foreign operations                 (5,531)        5,480
    Change in unrealized loss on derivatives
     designated as cash flow hedges                       (116)       (1,672)
    Losses on derivatives designated as cash flow
     hedges in prior years transferred to net
     income in the current year                          1,131             -
    -------------------------------------------------------------------------
    Other comprehensive (loss) income                   (4,516)        3,808

    -------------------------------------------------------------------------
    Comprehensive income                           $     9,293   $     5,129
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



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

                                                       Three Months Ended
                                                        ------------------
                                                      March 31,     March 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
      Net earnings                                 $    13,809   $     1,321
      Items not affecting cash:
        Depreciation and amortization                   10,813        11,165
        Future income taxes                             (3,621)         (924)
        Accretion expense                                  168           153
        Change in fair value of derivatives and
         unrealized foreign exchange (gain) loss          (358)        3,753

    -------------------------------------------------------------------------
                                                        20,811        15,468

      Decrease (increase) in working capital             8,462       (25,358)

    -------------------------------------------------------------------------
                                                        29,273        (9,890)

    Financing activities:
      Distributions to unitholders                      (9,201)       (9,390)
      Re-purchase of units                                   -        (8,340)
      Re-payment of long-term debt                     (54,414)            -
      Issuance of convertible debentures                80,000             -
      Financing transaction costs                       (3,859)            -
      Debt extinguishment costs                         (2,303)            -
      (Decrease) increase in other long-term
       liabilities                                      (6,374)          873

    -------------------------------------------------------------------------
                                                         3,849       (16,857)

    Investing activities:
      Decrease in restricted cash                          (40)            -
      Additions to property, plant and equipment,
       net of insurance proceeds (note 3)               (4,055)       (6,087)

    -------------------------------------------------------------------------
                                                        (4,095)       (6,087)

    Effect of exchange rates on cash held in foreign
     currencies                                            (57)          (39)

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

    Increase (decrease) in cash and cash equivalents    28,970       (32,873)

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

    -------------------------------------------------------------------------
    Cash and cash equivalents - end of year        $    48,855   $    15,177
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information:
      Cash taxes paid                              $     2,339   $     3,269
      Cash interest paid                           $     2,161   $     2,285
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



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

    March 31, 2010
    -------------------------------------------------------------------------
    1.  ORGANIZATION AND DESCRIPTION OF THE BUSINESS:

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

        These interim consolidated financial statements of the Fund have been
        prepared by management in accordance with accounting principles
        generally accepted in Canada. These interim consolidated financial
        statements include the accounts of the Fund and its 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, 2009. 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.  RECENT ACCOUNTING PRONOUNCEMENTS:

        (a) 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 is continuing to assess the impact of
        the convergence of Canadian GAAP and IFRS, and will implement the new
        IFRS standards.

        (b) Business combinations

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

    3.  INSURANCE CLAIM:

        During the third quarter of 2008, an incident occurred at the Fund's
        Beaumont, Texas facility, which resulted in property damage and
        business interruption.

        During the first quarter of 2009, the Fund incurred capital
        expenditures of US$2,587 relating to the repair of damaged property
        at the Beaumont facility. Since these repairs were covered under the
        Fund's insurance policy, these expenditures were included in Accounts
        receivable as they had not been recovered at the end of the period.

    4.  LONG-TERM DEBT:

        During the three months ended March 31, 2010, the Fund entered into
        an agreement with a syndicate of underwriters to issue $80,000
        principal amount of convertible unsecured subordinated debentures
        ("the Debentures"). The Fund granted the underwriters of the issuance
        an over-allotment option to purchase up to an additional $12,000
        aggregate principal amount of Debentures, at the same price,
        exercisable in whole or in part at any time for a period of 30 days
        following the closing. The Fund incurred transaction costs of $3,859,
        which included the underwriters' fee and other expenses of the
        offering.

        The Debentures bear interest at a rate of 6% per annum, payable semi-
        annually in arrears on March 31 and September 30 in each year
        commencing September 30, 2010 and will mature on March 31, 2017. The
        Debentures are convertible, at the option of the holder, into units
        of the Fund at any time prior to the earlier of the maturity date and
        the date of redemption specified by the Fund at a conversion price of
        $16.00 per unit. The Debentures will not be redeemable before and
        including March 31, 2013. On or after April 1, 2013 and prior to
        April 1, 2015, the Fund may, at its option, redeem the Debentures in
        whole or in part provided that the volume weighted average trading
        price of the trust units of the Fund on the Toronto Stock Exchange
        during the 20 consecutive trading days ending on the fifth trading
        day preceding the date on which the notice of redemption is given is
        not less than 125% of the conversion price. On or after April 1, 2015
        and prior to the maturity date, Chemtrade may, at its option, redeem
        the Debentures, in whole or in part, from time to time at par plus
        accrued and unpaid interest.

        Subsequent to March 31, 2010, as allowed under provisions of the
        agreement to issue the Debentures, the underwriters purchased an
        additional $10,000 principal amount of the Debentures, increasing the
        aggregate gross proceeds of the public offering to $90,000.

        Upon issuance, the Debentures were separated into liability and
        equity components based on the respective estimated fair values at
        the date of issuance. The fair value of the liability component is
        estimated based on the present value of future interest and principal
        payments due under the terms of the Debentures using a discount rate
        for similar debt instruments without a conversion feature. The value
        assigned to the equity component is the estimated fair value ascribed
        to the holder's option to convert. Interest expense on the Debentures
        is determined by applying an effective interest rate to the
        outstanding liability component. The difference between actual cash
        interest accrued and interest expense is accreted to the liability
        component.

        The following table allocates the Debentures between debt and equity:

                          Cost of
                         Borrowing          Debt        Equity         Total
        ---------------------------------------------------------------------
        Convertible
         debentures           6.0%   $    71,310   $     8,690   $    80,000
        Transaction
         costs (1)(2)                     (3,439)         (295)       (3,734)
        ---------------------------------------------------------------------
        At issuance                       67,871         8,395        76,266
        Accretion expense                     27             -            27
        ---------------------------------------------------------------------
        As at March 31,
         2010                        $    67,898   $     8,395   $    76,293
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1)   Transaction costs are capitalized and offset with the debt and
              equity portions of the debentures and amortized over the life
              of the debentures using the effective interest rate.
        (2)   Transaction costs offset against the equity portion of the
              convertible debentures are net of income tax recovery of $125.

        For the three months ended March 31, 2010, the net interest expense
        was $133, comprised of accrued interest of $106 and accretion expense
        of $27.

        The Fund utilized a portion of the net proceeds of the offering to
        repay $54,414 (US$52,853) of its existing long-term debt. The Fund
        realized a foreign exchange loss of $215 and wrote off the remaining
        transaction costs related to the portion of the long-term debt repaid
        in the amount of $196, both of which are included in debt
        extinguishment costs on the Consolidated Statements of Earnings.

        The Fund also collapsed the interest rate swap arrangements related
        to the portion of its long-term debt that was repaid. As a result of
        collapsing these arrangements, the Fund had to pay $2,303 to settle
        the arrangements, however, recognized a loss of only $160 due to
        amounts previously recognized in net income. This loss has been
        recorded in debt extinguishment costs on the Consolidated Statements
        of Earnings.

    5.  UNITS:

        (a) Authorized:

            Unlimited number of units.

        (b) Outstanding:

                                                       Number
                                                      of Units        Amount
        ---------------------------------------------------------------------
        Units
          Balance - December 31, 2009 and
           March 31, 2010                           30,670,470   $   377,144
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (c) Equity component of convertible debentures:

            As described in Note 3, during the three months ended March 31,
            2010, the Fund entered into an agreement to issue $80,000
            principal amount of Debentures. The Debentures are convertible,
            at the option of the holder, into units of the Fund at any time
            prior to the earlier of the maturity date and the date of
            redemption specified by the Fund at a conversion price of $16.00
            per unit.

            For the three month period ended March 31, 2010, there were no
            debentures converted into units.

        (d) Net earnings per unit:

            Net earnings per unit has been calculated on the basis of the
            weighted average number of units outstanding.

            The following table provides a breakdown of the numerator and
            denominator used in the calculation of net earnings per unit and
            diluted net earnings per unit.

            Numerator
            -----------------------------------------------------------------
                                                        Three Months Ended
                                                        ------------------
                                                      March 31,     March 31,
                                                          2010          2009
            -----------------------------------------------------------------

            Net earnings                           $    13,809   $     1,321
            Net interest and accretion expense on
             convertible debentures                        133             -
            -----------------------------------------------------------------
            Diluted net earnings                   $    13,942   $     1,321
            -----------------------------------------------------------------
            -----------------------------------------------------------------


            Denominator
            -----------------------------------------------------------------
                                                        Three Months Ended
                                                        ------------------
                                                      March 31,     March 31,
                                                          2010          2009
            -----------------------------------------------------------------

            Weighted average number of units        30,670,470    31,267,886
            Weighted average convertible debenture
             dilutive units                            444,444             -
            -----------------------------------------------------------------
            Weighted average number of diluted
             units                                  31,114,914    31,267,886
            -----------------------------------------------------------------
            -----------------------------------------------------------------

        (e) Distributions:

            Distributions paid for the three month period ended March 31,
            2010 were $9,201 (2009 - $9,390). All of the Fund's distributions
            are discretionary.

        (f) Long-term incentive plan:

            The Fund operates a Total Return Long-Term Incentive Plan (TR
            LTIP) which grants cash awards based on achieving total
            Unitholder return over a performance period. Total Unitholder
            return consists of changes in unit price and distributions paid
            to Unitholders. The Fund treats these awards as liabilities with
            the value of these liabilities being re-measured at each
            reporting period, based upon changes in the intrinsic value of
            the awards. Any gains or losses on re-measurement are recorded in
            the Consolidated Statements of Earnings, provided that the
            aggregate compensation cost accrued during the performance period
            is not adjusted below zero. For the three month period ended
            March 31, 2010, the Fund recorded an expense of $2,174 (2009 -
            $3,433) related to the TR LTIP. As at March 31, 2010 a liability
            of $12,977 (December 31, 2009 - $15,979) has been recorded, of
            which $8,023 (December 31, 2009 - $5,177) is included in Accrued
            and other liabilities and $4,954 (December 31, 2009 - $10,802) is
            included in Other long-term liabilities.

    6.  ACCUMULATED OTHER COMPREHENSIVE (LOSS):

        The components of accumulated other comprehensive (loss) as at March
        31, 2010 and 2009 and other comprehensive (loss) for the three months
        then ended were as follows:

        Accumulated        Opening                                    Ending
         other comp-       balance                 Transferred       balance
         rehensive     December 31,                     to net      March 31,
         (loss)               2009    Net change        income          2010
        ---------------------------------------------------------------------
        Unrealized
         (loss) gain on
         translation of
         self- sustaining
         foreign
         operations    $   (40,935)  $    (5,531)  $         -   $(46,466)(1)
        (Loss) gain on
         derivatives
         designated as
         cash flow hedges   (2,413)         (116)      1,131(2)    (1,398)(3)
        ---------------------------------------------------------------------
        Accumulated other
         comprehensive
         (loss)        $   (43,348)  $    (5,647)  $     1,131   $   (47,864)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Accumulated        Opening                      Ending
         other comp-       balance                     balance
         rehensive     December 31,                   March 31,
         (loss)               2008    Net change          2009
        -------------------------------------------------------
        Unrealized
         (loss) gain on
         translation of
         self- sustaining
         foreign
         operations    $   (19,411)  $     5,480   $(13,931)(1)
        (Loss) gain on
         derivatives
         designated as
         cash flow hedges   (4,716)       (1,672)    (6,388)(3)
        -------------------------------------------------------
        Accumulated other
         comprehensive
         (loss)        $   (24,127)  $     3,808   $   (20,319)
        -------------------------------------------------------
        -------------------------------------------------------

        (1) Net of income tax expense of $nil (2009 - $nil).
        (2) Ineffectiveness of cash flow hedges and losses on derivatives
            designated as cash flow hedges in prior years transferred to net
            income in the current year.
        (3) Net of cumulative income tax recovery of $1,400 (2009 - $3,839).

    7.  BUSINESS SEGMENTS:

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

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

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

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

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


        Three Months Ended March 31, 2010
        ---------------------------------------------------------------------
                              SPPC      Pulp      Intl      Corp       Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers        $ 73,500  $ 10,911  $ 42,413  $      -    $126,824

        Earnings before the
         under-noted        16,507     4,782    10,285    (7,097)     24,477
        Unrealized foreign
         exchange (gain)
         loss and
         ineffectiveness
         of cash flow
         hedges                  -         -         -      (414)       (414)
        Debt extinguishment
         costs                                               571         571
        Depreciation and
         amortization        7,979     2,354       480         -      10,813
        Net interest and
         accretion expense   1,723       405         3       133       2,264
        Income taxes        (2,288)        -       817    (1,095)     (2,566)

        Net earnings (loss)  9,093     2,023     8,985    (6,292)     13,809

        Total assets       272,841    77,690   151,995       261     502,787

        Goodwill            58,667         -    30,233         -      88,900

        Intangibles         65,063    32,841     3,927         -     101,831

        Capital
         expenditures        3,849       199        13        (6)      4,055
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Three Months Ended March 31, 2009
        ---------------------------------------------------------------------
                              SPPC      Pulp      Intl      Corp       Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers        $ 99,695  $ 11,943  $ 50,185  $      -    $161,823

        Earnings before
         the under-
         noted               9,145     4,786     3,821       524      18,276
        Unrealized
         foreign exchange
         (gain) loss and
         ineffectiveness
         of cash flow
         hedges                  -         -         -     3,903       3,903
        Depreciation and
         amortization        8,293     2,272       600         -      11,165
        Net interest and
         accretion expense   1,655       496       (48)        -       2,103
        Income taxes          (866)        -       650         -        (216)

        Net earnings
         (loss)                 63     2,018     2,619    (3,379)      1,321

        Capital
         expenditures        5,758       100        40       189       6,087
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        December 31, 2009
        ---------------------------------------------------------------------
                              SPPC      Pulp      Intl      Corp       Total
        ---------------------------------------------------------------------

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

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

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


        Geographic segments:

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

        Revenue
        ---------------------------------------------------------------------
                                                         Three Months Ended
                                                         ------------------
                                                       March 31,    March 31,
                                                           2010         2009
        ---------------------------------------------------------------------

        Canada                                        $  26,842    $  31,523
        US and other                                     57,569       80,115
        Europe                                           42,413       50,185
        ---------------------------------------------------------------------
                                                      $ 126,824    $ 161,823
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Property, Plant and Equipment, Goodwill and Intangibles
        ---------------------------------------------------------------------
                                                       March 31, December 31,
                                                           2010         2009
        ---------------------------------------------------------------------
        Canada                                        $ 107,392    $ 110,876
        US and other                                    192,721      202,174
        Europe                                           41,804       42,929
        ---------------------------------------------------------------------
                                                      $ 341,917    $ 355,979
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        For the three months ended March 31, 2010, there were no producers
        from which the Fund obtained product that accounted for more than 10%
        of the Fund's total revenue. For the three months ended March 31,
        2009, the Fund obtained product from a producer that accounted for
        17.7% of the Fund's total revenue. For the three months ended
        March 31, 2010, revenue from a customer accounted for 10.3% (2009 -
        11.5%) of the Fund's total revenues.


    8.  FINANCIAL INSTRUMENTS:

        (a) Categories of financial assets and liabilities:

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

                                                       March 31, December 31,
                                                           2010         2009
            -----------------------------------------------------------------
            Held for trading:

              Cash and cash equivalents               $  48,855    $  19,885
              Restricted cash                             2,640        2,599
              Notes receivable                            2,540        2,627
              Derivatives designated as held for
               trading - gain/(loss)                       (583)       1,007

            Loans and receivables:
              Accounts receivable                        65,901       75,748

            Other financial liabilities:
              Accounts payable                           45,833       42,918
              Accrued and other liabilities              43,077       42,920
              Distributions payable                       3,067        3,067
              Derivatives designated as cash flow
               hedges - gain/(loss)                      (3,999)      (6,677)
              Long-term debt                            169,268      160,105
            -----------------------------------------------------------------
            -----------------------------------------------------------------

        (b) Derivatives and hedging:


    -------------------------------------------------------------------------
                                March 31, 2010             December 31, 2009
                                  Fair Value                   Fair Value
                    Notional                     Notional
                     Amount    Asset  Liability   Amount    Asset  Liability
    -------------------------------------------------------------------------

    Cash flow
     hedges:
      Interest
       rate
       swaps    US$100,284  $     -   $ 3,999  US$153,138  $     -   $ 6,677

    Derivatives
     not
     designated
     in a formal
     hedging
     relationship:

      Foreign
       exchange
       contracts(1)      -      261       844           -    1,166       159

      Commodity
       forward
       contracts(2)    N/A      119       119         N/A      148       148
    -------------------------------------------------------------------------
    Total                  $    380   $ 4,962              $ 1,314   $ 6,984
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Current                $    380   $   963              $ 1,314   $   307
    Non-current                   -     3,999                    -     6,677
    -------------------------------------------------------------------------
    Total                  $    380   $ 4,962              $ 1,314   $ 6,984
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1)  See below for notional amounts.
    (2)  Includes natural gas forward contracts, commitments to buy and sell
         commodities and commodity forward contracts related to those
         commitments.

            The Fund has entered into swap arrangements with its principal
            banker, which fix the LIBOR component of its interest rates on
            all of its outstanding term debt until August 2011. During the
            three months ended March 31, 2010, the Fund collapsed a portion
            of its swap arrangements. Losses are included in accrued and
            other liabilities and other long-term liabilities with the offset
            included in other comprehensive income, except for the
            amortization of the fair value liability of the interest rate
            swaps entered into during the first quarter of 2009 which is
            included in unrealized foreign exchange (gain) loss and
            ineffectiveness of cash flow hedges.

            The Fund has entered into foreign exchange contracts to manage
            its exposure to foreign currencies. The Fund buys and sells
            specific amounts of currencies at pre-determined dates and
            exchange rates, which are matched with the anticipated
            operational cash flows. Contracts in place at March 31, 2010
            include future contracts to sell US$7,829, C$7,602 and
            (euro) 2,729 at weighted average exchange rates of (euro)0.76,
            (euro) 0.65 and US$1.34, respectively, for periods through to
            January 2011.

            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 March 31, 2010 and December 31, 2009, the net unrealized value
            of these transactions is not significant.

        (c) Fair values of financial instruments:

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



                       CHEMTRADE LOGISTICS INCOME FUND
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2010
    

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 statements of the Fund for the three month period ended March 31, 2010 and the annual MD&A for the year ended December 31, 2009.

The Fund's financial statements are prepared in accordance with accounting principles generally accepted in Canada, or Canadian GAAP. The Fund's reporting currency is the Canadian dollar. In this MD&A per unit amounts are calculated using the weighted average number of units outstanding for the applicable period unless otherwise indicated.

This MD&A contains certain statements which may constitute "forward-looking" statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario). The use of any of the words "anticipate", "continue", "estimate", "expect", "expected", "intend", "may", "will", "project", "plan", "should", "believe" and similar expressions are intended to identify forward-looking statements. These statements are based on a number of material factors and assumptions and involve known and unknown risks and uncertainties that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. As a result, the Fund cannot guarantee that any forward-looking statement will materialize. Forward-looking statements in this MD&A describes the expectations of the Fund as of the date of this MD&A. Forward-looking statements do not take into account the effect that transactions or non-recurring items announced or occurring after the statements are made may have on the Fund's business. The Fund disclaims any intention or obligation to update any forward-looking statement even if new information becomes available, as a result of future events or for any other reason.

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

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

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

    -   the amount of any TR LTIP payouts and the amounts to be accrued under
        the TR LTIP;

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

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

    -   the anticipated tax characterization of planned distributions;

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

    -   the implementation of planned maintenance capital expenditures, as
        well as the cost and timing thereof;

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

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

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

FINANCIAL HIGHLIGHTS

    
                                                         Three Months Ended
                                                         ------------------
                                                        March 31,   March 31,
    ($'000 except per unit amounts)                         2010        2009
    -------------------------------------------------------------------------

    Revenue                                           $  126,824  $  161,823

    Net earnings                                      $   13,809  $    1,321

    Net earnings per unit  - Basic                    $     0.45  $     0.04
                           - Diluted                  $     0.45  $     0.04

    Total assets                                      $  502,787  $  574,336

    Long-term bank debt                               $  101,370  $  191,757

    Convertible unsecured subordinated debentures     $   67,898  $        -

    EBITDA(3)                                         $   24,477  $   18,276
    EBITDA per unit(1)                                $     0.80  $     0.58

    Cash flows from operating activities              $   29,273  $   (9,890)
    Cash flows from operating activities per unit(1)  $     0.95  $    (0.32)

    Adjusted cash flows from operating activities(3)  $   18,808  $   15,428
    Adjusted cash flows from operating activities per
     unit(1)(3)                                       $     0.61  $     0.49

    Distributable cash after maintenance capital
     expenditures(3)                                  $   14,935  $    9,634
    Distributable cash after maintenance capital
     expenditures per unit(1)(3)                      $     0.49  $     0.31

    Distributions declared                            $    9,201  $    9,288
    Distributions declared per unit(2)                $     0.30  $     0.30

    Distributions paid                                $    9,201  $    9,390
    Distributions paid per unit(2)                    $     0.30  $     0.30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Based on weighted average number of units
        outstanding for the period of:                30,670,470  31,267,886

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

    (3) See Non-GAAP Measures.
    

NON GAAP MEASURES

EBITDA -

Throughout this MD&A, the term EBITDA is used to describe earnings before any deduction for net interest and accretion expense, taxes, depreciation and amortization and other charges such as unrealized foreign exchange (gain) loss and ineffectiveness of cash flow hedges. EBITDA is a metric used by many investors and analysts to compare organizations on the basis of ability to generate cash from operations. Management considers EBITDA (as defined) to be an indirect measure of operating cash flow, which is a significant indicator of the success of any business. EBITDA is not intended to be representative of cash flow from operations or results of operations determined in accordance with Canadian generally accepted accounting principles (GAAP) or cash available for distribution.

EBITDA is not a recognized measure under Canadian GAAP. The Fund's method of calculating EBITDA may differ from methods used by other income trusts 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
                                                         ------------------
                                                        March 31,   March 31,
    ($'000)                                                 2010        2009
    ------------------------------------------------------------------------

    Net earnings                                      $   13,809  $    1,321
      Add:
        Unrealized foreign exchange (gain) loss and
         ineffectiveness of cash flow hedges                (414)      3,903
        Debt extinguishment costs                            571           -
        Depreciation and amortization                     10,813      11,165
        Net interest and accretion expense                 2,264       2,103
        Net taxes                                         (2,566)       (216)
    ------------------------------------------------------------------------
    EBITDA                                            $   24,477  $   18,276
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------
    

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
                                                         ------------------
                                                        March 31,   March 31,
    ($'000)                                                 2010        2009
    -------------------------------------------------------------------------

    Cash flows from operating activities              $   29,273  $   (9,890)

    Add (deduct):

    Changes in non-cash working capital and other
     items                                               (10,465)     25,318
    -------------------------------------------------------------------------
    Adjusted cash flows from operating activities         18,808      15,428

    Less:

    Maintenance capital expenditure                        3,873       5,794
    -------------------------------------------------------------------------
    Distributable cash after maintenance capital
     expenditure                                          14,935       9,634

    Less:

    Non-maintenance capital expenditure(1)                   182         293
    -------------------------------------------------------------------------
    Distributable cash after all capital expenditure  $   14,753  $    9,341

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

    (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 first quarter of 2010 was $126.8 million, compared with consolidated revenue of $161.8 million recorded in the first quarter of 2009. The main reason for the decline was lower prices for sulphuric acid in the International and SPPC segments. Additionally, the stronger Canadian dollar relative to the U.S. dollar, negatively impacted U.S. dollar denominated revenues.

The Fund's net earnings and EBITDA for the first quarter of 2010 were $13.8 million and $24.5 million respectively compared to net earnings and EBITDA for the first quarter of 2009 of $1.3 million and $18.3 million respectively. EBITDA and net earnings were higher due to significantly stronger results in SPPC and International segments, partially offset by an increase in Corporate costs. Net earnings were further positively impacted by the inclusion of unrealized foreign exchange gains in 2010, whereas in the first quarter of 2009 there were unrealized foreign exchange losses.

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

SPPC -

    
                                                         Three Months Ended
                                                         ------------------
                                                        March 31,   March 31,
    ($'000)                                                 2010        2009
    -------------------------------------------------------------------------

    Revenue                                           $   73,500  $   99,695

    Earnings before the under-noted (EBITDA)              16,507       9,145
    Depreciation and amortization                         (7,979)     (8,293)
    Net interest and accretion expense                    (1,723)     (1,655)
    Income tax recovery                                    2,288         866

    -------------------------------------------------------------------------
    Net earnings                                      $    9,093  $       63
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SPPC manufactures and distributes sulphuric acid and other sulphur-based products to an extensive customer base in Canada and the U.S., and provides acid regeneration services to the petroleum industry, primarily in the U.S. Gulf Coast area. SPPC also supplies liquid and powder sodium hydrosulphite, which is sold to the pulp and paper industry and to a lesser extent, to the textile industry.

For the first quarter of 2010, SPPC generated revenue of $73.5 million, compared with revenue of $99.7 million for the first quarter of 2009. The main reason for the decline in revenue was lower realized pricing for sulphuric acid and the negative impact of the stronger Canadian dollar on U.S. dollar denominated revenue. The negative impact of lower revenues realized during the first quarter of 2010 was generally offset by reduced costs for most products. The main reason for the improvement in net earnings and EBITDA during the first quarter of 2010 relative to the first quarter of 2009 was that during the first quarter of 2009, increased costs were incurred to ensure that customer operations were not disrupted as the Beaumont plant was being restarted after the incident at the Beaumont plant in 2008 (as described in the BEAUMONT INCIDENT section).

The higher income tax recovery during the first quarter of 2010 is due mainly to lower taxable income in certain Canadian and foreign corporate subsidiaries.

Pulp Chemicals -

    
                                                         Three Months Ended
                                                         ------------------
                                                        March 31,   March 31,
    ($'000)                                                 2010        2009
    -------------------------------------------------------------------------

    Revenue                                           $   10,911  $   11,943

    Earnings before the under-noted (EBITDA)               4,782       4,786
    Depreciation and amortization                         (2,354)     (2,272)
    Net interest and accretion expense                      (405)       (496)

    -------------------------------------------------------------------------
    Net earnings                                      $    2,023  $    2,018
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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.

First quarter 2010 Pulp Chemicals revenue was $1.0 million lower than the level achieved during the first quarter of 2009, mainly due to reduced demand for sodium chlorate. The negative impact of the reduced volume was offset by lower costs, resulting in a similar level of EBITDA and net earnings in both periods.

International -

    
                                                         Three Months Ended
                                                         ------------------
                                                        March 31,   March 31,
    ($'000)                                                 2010        2009
    -------------------------------------------------------------------------

    Revenue                                           $   42,413  $   50,185

    Earnings before the under-noted (EBITDA)              10,285       3,821
    Depreciation and amortization                           (480)       (600)
    Net interest (expense) income                             (3)         48
    Income tax (expense)                                    (817)       (650)

    -------------------------------------------------------------------------
    Net earnings                                      $    8,985  $    2,619
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

International operations provide removal and marketing services for elemental sulphur and sulphuric acid. These products are marketed to customers globally.

During the first quarter of 2010, International's revenue was $42.4 million compared with $50.2 million for the same period of 2009. The decline in revenues is mainly due to the impact of the stronger Canadian dollar on U.S. dollar denominated revenue. Lower realized pricing for sulphuric acid during the first quarter of 2010 relative to 2009 was offset by increased volume. Net earnings and EBITDA realized during the first quarter of 2010 were significantly higher than the first quarter of 2009 as a result of certain contracts where customers who had delayed delivery from earlier periods honoured their commitments in the first quarter of 2010.

Corporate -

    
                                                         Three Months Ended
                                                         ------------------
                                                        March 31,   March 31,
    ($'000)                                                 2010        2009
    -------------------------------------------------------------------------

    Cost of services (recoveries)                     $    7,097  $     (524)

    Recovery (loss) before the under-noted (EBITDA)       (7,097)        524
    Unrealized foreign exchange gain (loss) and
     ineffectiveness of cash flow hedges                     414      (3,903)
    Debt extinguishment costs                               (571)          -
    Net interest and accretion expense                      (133)          -
    Income tax recovery                                    1,095           -

    -------------------------------------------------------------------------
    Net earnings                                      $   (6,292) $   (3,379)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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

For the first quarter of 2010, corporate costs, excluding unrealized foreign exchange gains and losses, were $7.6 million higher than the first quarter of 2009. The main reason for the higher expense in 2010 was an accrual of $2.2 million with respect to the Fund's Total Return Long-Term Incentive Plan (TR LTIP) because of the increased unit price, compared with a net reversal of $3.4 million in the first quarter of 2009. Additionally, costs were lower in the first quarter of 2009 because they included realized foreign exchange gains of $1.2 million, whereas foreign exchange gains during the first quarter of 2010 were $0.2 million. Finally, during the first quarter of 2010, the Fund incurred expenditures of $0.8 million on diligence activities relating to a potential acquisition that did not result in a transaction.

The comments on TR LTIP expenses relate to the 2008-2010, 2009-2011 and 2010-2012 TR LTIPs. The 2008-2010, 2009-2011 and 2010-2012 TR LTIP payouts are payable at the beginning of 2011, 2012 and 2013 respectively and will be based upon Total Return, as described in the Fund's Management Information Circular, achieved over the three-year performance periods of each plan. The nature of this calculation makes it difficult to forecast the amount of TR LTIP expenses that will be recordable in any period as it is based upon future distributions and changes in unit value.

The Corporate segment includes unrealized foreign exchange gains on the translation of U.S. dollar denominated debt, which were a result of the appreciation in the Canadian dollar relative to the U.S. dollar during 2010. This exchange rate fluctuation also resulted in unrealized foreign exchange losses on the translation of U.S. dollar denominated assets in self-sustaining foreign operations. However, in accordance with accounting rules, those losses are required to be shown in the other comprehensive income rather than in earnings.

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

Debt extinguishment costs of $0.6 million relate to the repayment of a portion of the Fund's long-term debt which is more fully described in Liquidity and Capital Resources - Financing Activities. The impact on Distributable cash after maintenance capital expenditure was more significant, as the cash component of this cost was $2.3 million.

Net interest and accretion expense for the first quarter of 2010 in the amount of $0.1 million relates to the convertible debentures issued during the first quarter of 2010. See Liquidity and Capital Resources - Financing Activities.

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

BEAUMONT INCIDENT

During the third quarter of 2008, an explosion occurred at the Fund's Beaumont, Texas facility which resulted in property damage as well as business interruption. After a lengthy period of repairs, the plant was operational during the first quarter of 2009. During the first three months of 2009, the Fund incurred operational, legal and consulting costs relating to this incident.

During the fourth quarter of 2008 and the first quarter of 2009, the Fund incurred capital expenditures relating to the repair of damaged property at the Beaumont facility. During 2009, the Fund concluded its property damage claim and recovered US$9.8 million of its capital expenditures relating to the repair.

U.S. ENVIRONMENTAL PROTECTION AGENCY (EPA) SETTLEMENT

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

FOREIGN EXCHANGE

The Fund has operating subsidiaries that are based in the U.S. In addition, BCT Chemtrade Corporation, the Fund's international subsidiary, uses the U.S. dollar as its measurement currency. As the Fund reports in Canadian dollars, its reported earnings are exposed to fluctuations in the Canadian/U.S. dollar exchange rate. The Fund currently estimates that on an unhedged basis, a $0.01 increase in the Canadian/U.S. dollar exchange rate reduces Distributable cash after maintenance capital expenditures by less than $0.1 million on an annual basis and vice-versa.

To manage the volatility of foreign exchange rates, the Fund has entered into a series of foreign exchange contracts with its principal bankers. All foreign exchange contracts are under International Swap and Derivatives Association (ISDA) agreements. Contracts in place at March 31, 2010 include future contracts to sell US$7.8 million, C$7.6 million and (euro)2.7 million at weighted average exchange rates of (euro)0.76, (euro)0.65 and US$1.34, respectively, for periods through to January 2011. There are unrealized losses of $0.8 million and unrealized gains of $0.3 million from these contracts at March 31, 2010.

The purpose of these contracts is to hedge specific transactions in a foreign currency. The amount of the related derivative is recorded at fair market value at the period end and included with prepaid expenses and other assets or accrued and other liabilities on the balance sheet. The resultant non-cash charge or gain is reported as unrealized foreign exchange (gain) loss. The impact of this non-cash charge or gain is excluded from the computation of Distributable cash after maintenance capital expenditures. See NON-GAAP MEASURES - Cash Flow.

The Fund's International and U.S. based operations are considered to be self-sustaining, as they are financially independent. As a result, gains or losses arising from the translation of the assets and liabilities of self-sustaining operations are recorded in other comprehensive income. The changes recorded in the accumulated other comprehensive income account since December 31, 2009 were a result of changes in the Canadian/U.S. dollar exchange rate between December 31, 2009 and March 31, 2010. Until the first quarter of 2010, when it was repaid, the Fund's Canadian based operations had all its term debt denominated in U.S. dollars. The gains or losses arising from the translation of these loans were recorded on the Consolidated Statements of Earnings as unrealized foreign exchange (gain) loss. The rate of exchange used to translate U.S. denominated balances has changed from a rate of US$1.00 = $1.05 at December 31, 2009 to US$1.00 = $1.02 at March 31, 2010. See Risks and Uncertainties for additional comments on foreign exchange.

NET INTEREST AND ACCRETION EXPENSE

Net interest and accretion expense was $2.3 million in the first quarter of 2010 compared with $2.1 million in the first quarter of 2009.

Interest expense in 2010 was higher than 2009 mainly due to reversals of accruals in the first quarter of 2009, related to interest accruals from 2008 which were rolled into the fair value of the new interest rate swap arrangements entered into during the first quarter of 2009. See Liquidity and Capital Resources - Financing Activities - Financial Instruments.

The weighted average effective annual interest rate at March 31, 2010 was 4.78% (December 31, 2009 - 4.83%). See Liquidity and Capital Resources - Financing Activities - Financial Instruments for information concerning swap arrangements.

During the first quarters of 2010 and 2009, the Fund recorded accretion expense of $0.2 million. This accretion is due to the amortization of transaction costs related to the Fund's borrowings and accretion on the convertible debentures issued during the first quarter of 2010. See Liquidity and Capital Resources - Financing Activities.

INCOME TAXES

Current income tax expense was $1.1 million for the first quarter of 2010 compared with $0.7 million for the first quarter of 2009. The future income tax recovery was $3.6 million for the first quarter of 2010 compared to the future income tax recovery of $0.9 million for the first quarter of 2009. The effective tax rates for the first quarter of 2010 differ from the statutory tax rate of 30.6% primarily due to the operating losses in high tax rate jurisdictions and operating profits in low tax rate jurisdictions and flow-through entities.

The increase in future tax asset of $0.6 million at March 31, 2010 relative to December 31, 2009 is the result of increased tax loss carry forwards, net of valuation allowances, and other deductible temporary differences, net of valuation allowances, available in certain Canadian and foreign corporate subsidiaries.

The decrease in future tax liability of $3.2 million at March 31, 2010 relative to December 31, 2009 is the result of the decrease in the taxable temporary differences between the accounting carrying amount and the tax basis of assets associated with certain Canadian and foreign corporate subsidiaries.

At March 31, 2010, the Fund has $6.3 million of deductible temporary differences related to certain flow-through subsidiaries compared with $7.9 million at December 31, 2009. The Fund has recorded $2.2 million for future taxes related to the portion of these deductible temporary differences that are expected to reverse after 2011.

EXCESS CASH FLOWS AND NET INCOME OVER DISTRIBUTIONS PAID

The following table presents excess cash flows from operating activities and net income over distributions paid for the three month period ended March 31, 2010 and for the years ended December 31, 2009 and 2008.

    
                                       Three Months    Year         Year
                                           Ended       Ended        Ended
                                         March 31,  December 31, December 31,
    ($'000)                                 2010        2009         2008
    -------------------------------------------------------------------------

    Cash flows from operating
     activities                         $  29,273     $  41,133    $ 147,904
    Net earnings                           13,809        46,920       40,331
    Distributions paid during period        9,201        37,003       40,086
    Excess of cash flows from operating
     activities over cash distributions
     paid                                  20,072         4,130      107,818
    Excess of net income over cash
     distributions paid                 $   4,608     $   9,917    $     245

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

The Fund considers the amount of cash generated by the business in determining the amount of distributions payable to its Unitholders. In general, the Fund does not take into account quarterly working capital fluctuations as these tend to be temporary in nature. The Fund does not generally consider net income in setting the level of distributions as this is a non-cash metric and is not reflective of the level of cash flow that the Fund can generate. This divergence is particularly relevant for the Fund as it has a relatively high level of depreciation and amortization expenses and foreign exchange gains and losses.

Distributions -

Distributions to Unitholders for the three months ended March 31, 2010 were declared as follows:

    
                                                   Distribution        Total
    Record Date                    Payment Date        Per Unit       ($'000)
    -------------------------------------------------------------------------
    Three months ended March 31:
      January 29, 2010             February 26, 2010     $ 0.10      $ 3,067
      February 26, 2010            March 31, 2010          0.10        3,067
      March 31, 2010               April 30, 2010          0.10        3,067
    -------------------------------------------------------------------------
    Total for the three months
     ended March 31, 2010                                $ 0.30      $ 9,201
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Distributions declared in the three months ended March 31, 2009 were as follows:

    
                                                   Distribution        Total
    Record Date                    Payment Date        Per Unit       ($'000)
    -------------------------------------------------------------------------
    Three months ended March 31:
      January 30, 2009             February 27, 2009     $ 0.10      $ 3,124
      February 27, 2009            March 31, 2009          0.10        3,087
      March 31, 2009               April 30, 2009          0.10        3,077
    -------------------------------------------------------------------------
    Total for the three months
     ended March 31, 2009                                $ 0.30      $ 9,288
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Treatment of the Fund's distributions for Canadian Income Tax purposes for 2009 and 2010 is as follows:

    
                                                Foreign
                                             Non-Business
                       Other Income             Income               Total
    -------------------------------------------------------------------------
    2009                   74.8%                 25.2%               100.0%
    2010(1)                74.0%                 26.0%               100.0%
    -------------------------------------------------------------------------

    (1) Represents anticipated tax characterization of planned distributions.
        The actual tax treatment of 2010 distributions will be determined by
        February 28, 2011.
    

LIQUIDITY AND CAPITAL RESOURCES

The Fund's distributions to Unitholders are sourced entirely from its investments in operating subsidiary companies. The Fund's investments are financed by trust units held by Unitholders, long-term debt and operating lines of credit. The cash flow of the Fund is required to fund distributions to Unitholders, capital expenditures and payment of interest on long-term debt. The Fund intends to renew its long-term debt prior to maturity.

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

Cash flow from operating activities for the first quarter of 2010 was $29.3 million, an increase of $39.2 million from the level used during the first quarter of 2009. The main reason for this difference is the significant increase in working capital during the first quarter of 2009, when working capital increased by $25.4 million. The increase during the first quarter of 2009 was primarily due to a reduction in accounts payable and accruals relating to the timing of certain items. This reduction more than offset a reduction in inventory and accounts receivable.

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

During the first quarter of 2010, the Fund entered into an agreement with a syndicate of underwriters to issue $80.0 million principal amount of convertible unsecured subordinated debentures ("the Debentures"). The Fund granted the underwriters of the issuance an over-allotment option to purchase up to an additional $12.0 million aggregate principal amount of Debentures, at the same price. The Fund incurred transaction costs of $3.8 million, which included the underwriters' fee and other expenses of the offering.

Subsequent to March 31, 2010, as allowed under provisions of the agreement to issue the Debentures, the underwriters purchased an additional $10.0 million principal amount of the Debentures, increasing the aggregate gross proceeds of the public offering to $90.0 million.

The Fund utilized a portion of the net proceeds of the offering to repay $54.4 million (US$52.9 million) of its existing long-term debt. The Fund realized a foreign exchange loss of $0.2 million and wrote off the remaining transaction costs related to the portion of the long-term debt repaid in the amount of $0.2 million, both of which are included in debt extinguishment costs on the Consolidated Statements of Earnings.

The Fund also collapsed the interest rate swap arrangements related to the portion of its long-term debt that was repaid. As a result of collapsing these arrangements, the Fund had to pay $2.3 million to settle the arrangements, however, recognized a loss of only $0.2 million due to amounts previously recognized in net income. This loss has been recorded in debt extinguishment costs on the Consolidated Statements of Earnings.

Distributions to Unitholders during the first quarter of 2010 were $0.2 million lower than the first quarter of 2009. These decreased distributions were due to lower units outstanding as a result of the buy back and cancellation of units by the Fund pursuant to a normal course issuer bid commenced in September 2008 (as explained in the Normal Course Issuer Bid below).

Normal Course Issuer Bid -

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

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

For additional information on cash distributions, see NON-GAAP MEASURES - Cash Flow and EXCESS CASH FLOWS AND NET INCOME OVER DISTRIBUTIONS PAID.

Financial Instruments -

The Fund has entered into swap agreements with its principal bankers in order to fix the interest rates on its term debt. In the first quarter of 2009, the Fund entered into new swap arrangements which will fix interest rates on all of its term debt until August 2011. Previously the Fund had interest rate swaps related to its term debt and operating lines of credit which fixed interest rates until August 2010. The Fund collapsed all of these interest rate swaps upon entering into the new swap arrangements and rolled the related fair value liability of $9.8 million into its new interest rate swaps. This value will be amortized on a straight-line basis over the remaining term of the term debt in unrealized foreign exchange (gain) loss and ineffectiveness of cash flow hedges. As described above, during the first quarter of 2010, the Fund collapsed a portion of the swap arrangements. The weighted average effective interest rate under the remaining swap arrangements is 4.78%. At March 31, 2010, the fair value of the above noted agreements was a liability of $4.0 million (US$3.9 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.

    
    Investing Activities
    --------------------
    

Investment in capital expenditures was $4.1 million in the first quarter of 2010, compared with $6.1 million in the first quarter of 2009. These amounts include $3.9 million in the first quarter of 2010 and $5.8 million in the first quarter of 2009 for maintenance capital requirements. As previously disclosed, the Fund intends to continue upgrading its manufacturing assets and consequently maintenance capital expenditures for 2010 are expected to be approximately $21.0 million.

Investment in non-maintenance capital expenditures were $0.2 million during the first quarter of 2010 compared to approximately $0.3 million during the first quarter of 2009. 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.

Cash Balances -

At March 31, 2010 the Fund had net cash balances of $48.9 million and a working capital deficit of $0.5 million. Comparable numbers for December 31, 2009 were $19.9 million and working capital of $9.4 million, respectively. The Fund defines working capital to exclude cash, operating line of credit, distributions payable and current portion of long-term debt. Cash generated by the Fund will be used to fund cash distributions to Unitholders, capital requirements, interest, general corporate purposes and other legal obligations.

Future Liquidity -

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

Capital Resources -

At March 31, 2010, the Fund had senior credit facilities of $175.1 million, consisting of a term loan of $101.9 million and a revolving credit facility of $73.2 million. The term bank debt is not due or payable until August 2011. At March 31, 2010, the Fund had nothing drawn on its operating lines of credit, and had committed a total of $7.1 million of its revolving credit facility towards standby letter of credits. Subject to certain limits set out in the credit agreement, the credit facilities may be used to finance working capital, fund acquisitions, invest in capital assets, buy back units and pay distributions to Unitholders.

At March 31, 2010, the Fund had convertible debentures of $80.0 million outstanding which mature on March 31, 2017.

Debt Covenants -

As at March 31, 2010, the Fund was compliant with all debt covenants contained in its credit facility.

    
    SUMMARY OF QUARTERLY RESULTS

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

                          March 31,  December 31, September 30,      June 30,
    ($'000)                   2010          2009          2009          2009
    -------------------------------------------------------------------------
    Revenue            $   126,824   $   132,756   $   126,989   $   124,624
    Cost of sales and
     services               89,658        92,289        95,660        96,539
    -------------------------------------------------------------------------
    Gross profit            37,166        40,467        31,329        28,085
    Selling, general,
     administrative
     and other costs        12,689        16,410         9,803        10,625
    -------------------------------------------------------------------------
    Earnings before
     the under-noted        24,477        24,057        21,526        17,460
    Unrealized foreign
     exchange (gain)
     loss and
     ineffectiveness
     of cash flow hedges      (414)        1,109        (6,802)       (9,147)
    Debt extinguishment
     costs                     571             -             -             -
    -------------------------------------------------------------------------
    Depreciation and
     amortization           10,813        10,623        11,086        11,272
    Loss (gain) on
     disposal of
     property, plant
     and equipment               -           (15)           94             -
    Net interest and
     accretion expense       2,264         2,126         2,122         2,342
    Income taxes (net)      (2,566)       (2,277)       (4,509)         (580)
    -------------------------------------------------------------------------

    Net earnings       $    13,809   $    12,491   $    19,535   $    13,573
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

                          March 31,  December 31, September 30,      June 30,
    ($'000)                   2009          2008          2008          2008
    -------------------------------------------------------------------------
    Revenue            $   161,823   $   292,789   $   393,971   $   274,276
    Cost of sales and
     services              137,522       255,955       346,615       230,432
    -------------------------------------------------------------------------
    Gross profit            24,301        36,834        47,356        43,844
    Selling, general,
     administrative
     and other costs         6,025        12,630         5,662        13,558
    -------------------------------------------------------------------------
    Earnings before
     the under-noted        18,276        24,204        41,694        30,286
    Unrealized foreign
     exchange (gain)
     loss and
     ineffectiveness
     of cash flow hedges     3,903        12,195         3,520           446
    Depreciation and
     amortization           11,165        11,240         9,893        10,145
    Gain on disposal
     of property                 -             -          (250)            -
    Net interest and
     accretion expense       2,103         4,070         3,639         2,795
    Income taxes (net)        (216)         (841)        5,402         3,053
    -------------------------------------------------------------------------

    Net earnings
     (loss)            $     1,321   $    (2,460)  $    19,490   $    13,847
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Revenues for every quarter during 2008 were high due to exceptionally strong market conditions for sulphuric acid and sulphur. These were particularly noticeable in the International segment. Revenues during the fourth quarter of 2008 started to decline as prices for sulphuric acid and sulphur started to decline in the International markets. During 2009, in addition to these lower prices, revenue was also negatively impacted by generally weaker demand for most products and because the Beaumont plant was off-line for part of the first quarter resulting in lower sales volume. The lower prices for sulphuric acid in the International and SPPC segments continued into the first quarter of 2010. In 2010, the stronger Canadian dollar relative to the U.S. dollar also negatively impacted U.S. dollar denominated revenues.

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

Selling, general, administrative and other costs (S,G&A) during the second quarter of 2008 were high as they included unrealized mark-to-market losses of $1.5 million on natural gas forward contracts. S,G&A during the third quarter of 2008 were low as they included lower TR LTIP accruals. S,G&A for the fourth quarter of 2008 were high as they included an increase of $3.4 million in the allowance for doubtful accounts. The increase was mainly due to a provision for expected losses in connection with two customers, who then filed for re-organization under Chapter 11 of the U.S. Bankruptcy Code in January 2009. S,G&A during the first quarter of 2009 were low as they included a reversal of $3.4 million with respect to the TR LTIP owing to a reduction in the Fund's unit value. S,G&A during the fourth quarter of 2009 were high as they included an accrual of $10.0 million relating to the Fund's TR LTIP, caused by an appreciation in the Fund's unit value, and high unrealized natural gas losses and realized foreign exchange losses. These additional expenses were partially offset by business interruption insurance claim recoveries booked in the quarter. Finally, S,G&A during the first quarter of 2010 were high as they included an accrual of $2.2 million relating to the Fund's TR LTIP, also caused by an appreciation in the Fund's unit value.

Unrealized foreign exchange losses were higher commencing with the third quarter of 2008 up to and including the first quarter of 2009 due to the impact of the weaker Canadian dollar relative to the U.S. dollar on the Fund's long-term debt which is U.S. dollar denominated. There was a corresponding unrealized gain on the Fund's U.S. dollar denominated assets in self-sustaining foreign operations, but accounting rules require that those be recorded in other comprehensive income. During the second, third and fourth quarters of 2009 and the first quarter of 2010, the Canadian dollar strengthened relative to the U.S. dollar, thereby causing an unrealized foreign exchange gain on the Fund's long-term debt. However, the gain during the fourth quarter of 2009 was more than offset by ineffectiveness booked related to the initial fair value liability on the Fund's interest rate swap arrangements entered into during the first quarter of 2009.

OUTSTANDING SECURITIES OF THE FUND

At May 10, 2010, the Fund had 30,670,470 units outstanding (March 31, 2010 - 30,670,470) and 90,000 convertible unsecured subordinated debentures (March 31, 2010 - 80,000).

CONTRACTUAL OBLIGATIONS

Information concerning contractual obligations is shown below:

    
    Contractual
    Obligations                Less Than      1-3         4-5        After
    ($'000)           Total      1 Year      Years       Years      5 Years
    -------------------------------------------------------------------------
    Long-Term Debt $ 181,869   $       -   $ 101,869   $       -   $  80,000

    Operating
     Leases           53,752      14,690      25,041      11,624       2,397

    Interest on
     Long-Term
     Debt             40,098       9,673      11,225       9,600       9,600
    -------------------------------------------------------------------------

    Total
     Contractual
     Obligations   $ 275,719   $  24,363   $ 138,135   $  21,224   $  91,997
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

RISKS AND UNCERTAINTIES

The Fund is one of the world's largest suppliers of sulphuric acid (acid), liquid sulphur dioxide (SO(2)) and sodium hydrosulphite (SHS) and a leading processor of spent acid, particularly in the U.S. Gulf Coast region. The Fund is also a leading regional supplier of sulphur, sodium chlorate and phosphorus pentasulphide, and also produces zinc oxide at three North American locations. The Fund faces various risks associated with its business. These risks include, amongst others, a general reduction in demand for its products, the loss of a portion of its customer base, the interruption of the supply of sulphur-based products or raw materials, price fluctuations in the products sold and/or raw materials purchased, industry over-capacity, acquisition integration and operational and product hazard risks associated with the nature of its business. The Fund imports key raw materials and products from overseas and as such has additional risks associated with the sourcing activity. The Fund makes extensive use of the railway system to transport material within North America. Certain locations are serviced by a sole carrier and thus a disruption in service could have a significant negative impact on results. In addition, the Fund sells a significant portion of its major products to large customers. While many of these customers are under contract, there can be no assurance that these contracts will be renewed. As the Fund's business is international in nature, it is exposed to foreign exchange risks related to the payment of dividends and other transactions by its foreign subsidiaries. For a more detailed discussion of the Fund's risks, please refer to the RISK FACTORS section of the most recently filed Annual Information Form.

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.

Credit Risk -

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

Dependence on Vale Inco Relationship -

Vale Inco Limited (Vale Inco) is the Fund's largest sulphur products supplier. Effective January 1, 2008, the Fund renewed its agreement with Vale Inco for the marketing of all sulphur by-products produced by the Vale Inco smelter in Sudbury, Ontario. This 10-year contract contains similar terms to the prior agreements between the parties. For the three months ended March 31, 2010, this supply source accounted for approximately 5% of the Fund's revenues. Vale Inco had a significant collective bargaining agreement which expired on May 31, 2009. The Vale Inco union and management were unable to reach an agreement and a strike commenced on July 13, 2009. Although the strike continues, partial production commenced in January 2010. The Fund's ability to continue supplying its customers could be affected depending upon the duration of the labour disruption, the availability of other sources of product supply and demand levels. Currently the Fund does not expect any disruption to its customers.

Exchange Rates -

The Fund is exposed to fluctuations in the exchange rate of the U.S. dollar relative to the Canadian dollar, as a portion of the Fund's Distributable cash after maintenance capital expenditures is earned in U.S. dollars. On an unhedged basis, the Fund currently estimates that a one-cent change in the exchange rate would have an impact on Distributable cash after maintenance capital expenditures of less than $0.1 million per annum.

On an unhedged basis, the Fund also currently estimates that a one-cent change in the exchange rate would have an impact on the translation of the net earnings of its U.S. currency based subsidiaries of less than $0.2 million per annum.

Interest Rates -

The Fund has a credit facility with term debt and operating lines of credit which bear variable rates of interest. As at March 31, 2010, on an unhedged basis, a change in interest rates of 1% per annum would have an impact of approximately $1.0 million per annum. As at March 31, 2010, the Fund had fixed interest rates on its total term debt until August 2011.

Sulphuric Acid Pricing -

A change in sulphuric acid pricing, net of freight, of $1 per tonne, would have an impact on annual revenues in North America of approximately $1.4 million. However, given the risk-sharing aspect of a key supply contract, the impact on EBITDA would range from $1.0 million to $1.1 million. In any specific period, the exact impact would also depend upon the volume that is subject to sales contracts where pricing has been fixed for a period of time. The magnitude of realized price changes also depends upon regional market dynamics.

Sulphur Costs -

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

Sodium Chlorate Pricing -

Approximately 75% of the Fund's sodium chlorate sales are to Canfor on a long-term contract, whereby selling price is adjusted based on changes in virtually all variable costs. Thus, the Fund's exposure to changes in market prices of sodium chlorate is limited to the remainder of its output.

Other Input Costs -

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

Labour Relations -

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

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Significant judgements and estimates include provisions for non-performance of customer and supplier contracts, allowance for doubtful accounts and goodwill.

RECENT ACCOUNTING PRONOUNCEMENTS

Business Combinations -

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

Convergence to International Financial Reporting Standards -

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

The Fund's IFRS Changeover Plan: Assessment as of March 31, 2010:

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

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

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

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

                             Implementation of
                             appropriate changes:

                             - MD&A Disclosure
                               Requirements

                             - Key Performance
                               Indicators

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

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

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


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

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

IFRS1 - First Time Adoption of International Financial Reporting Standards

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

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

Borrowing Costs - IFRS1 allows an entity to choose the date to apply capitalization of borrowing costs relating to all qualifying assets. This date is either the later of January 1, 2009 or the date of transition to IFRS; or an earlier date. The Fund has elected to prospectively apply the capitalization of borrowing costs relating to all qualifying assets. Borrowing costs will be capitalized as of the date of January 1, 2011.

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

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

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

Impact of IFRS on the Balance Sheet

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

Ongoing IFRS to Canadian GAAP Differences

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

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

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

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

IAS38 explicitly restricts an intangible asset's useful life to the shorter of the economic factors and legal factors. The Fund is still in the process of assessing the amount of the impact.

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

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

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Fund maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that the Fund publicly files is recorded, processed, summarized and reported within a timely manner and that such information is accumulated and communicated to the Fund's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer have evaluated the Fund's disclosure controls procedures as of March 31, 2010 through inquiry and review. The Chief Executive Officer and the Chief Financial Officer have concluded that, as at March 31, 2010, the Fund's disclosure control procedures were effective.

The Fund also maintains a system of internal controls over financial reporting designed under the supervision of the Fund's Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. The Fund continues to retain an independent third party consultant to assist in the assessment of its internal control procedures.

The Fund's management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting and evaluating its effectiveness. Management has used The Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework to evaluate the effectiveness of the Fund's internal control over financial reporting as of March 31, 2010. Based on this evaluation, management has concluded that as at March 31, 2010, the Fund's internal controls over financial reporting were effective. There have been no changes to the design of internal controls over financial reporting that occurred during the most recent interim period ended March 31, 2010 that have materially affected or are measurably likely to materially affect the internal controls over financial reporting.

OUTLOOK

The stabilizing trend in demand for our products seen early in 2010 was apparent throughout the first quarter. Most of our products experienced higher demand levels than a year ago. We anticipate that this demand level will be sustained or improve during 2010 and we are well positioned to benefit from any increase in demand. Vale Inco, our largest supplier of acid, has resumed partial production which simplifies our supply chain logistics but does not provide us the same level of supply as if they were operating at full rates. It remains unclear when full production will return.

We continue to maintain a healthy balance sheet and ample liquidity and this was further strengthened by the recent issuance of $90 million of convertible debentures. The nature of our business model as demonstrated by the strength of our businesses even in times of low demand, coupled with our strong balance sheet are more than sufficient to sustain our current distribution rate.

OTHER

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

May 10, 2010



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


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