Chemtrade Logistics Income Fund announces 2007 second quarter results



    TORONTO, Aug. 1 /CNW/ - Chemtrade Logistics Income Fund (TSX: CHE.UN)
today announced results for the three months ended June 30, 2007. Chemtrade
reported solid operating results as demand for most of the Fund's products
remained strong in the second quarter. During the second quarter of 2007, the
operating businesses generated EBITDA of $21.1 million, which is $0.9 million
higher than the level generated in the second quarter of 2006. The improvement
would have been even higher but for the restructuring costs of $0.5 million
recorded during the second quarter of 2007. The strong operating results were
offset by higher corporate costs, in particular, accruals relating to the
Fund's Long Term Incentive Plans ("LTIP").
    Cash available for distribution for the period was $10.5 million, or
$0.31 per unit (2006: $12.6 million, or $0.37 per unit), generated from
revenue of $130.2 million (2006: $134.6 million) and earnings before interest,
income taxes, depreciation and amortization ("EBITDA") of $16.3 million
(2006: $19.0 million). Net earnings for the second quarter were $5.1 million
compared with $4.9 million in the same period in 2006. The results for the
second quarter of 2007 include accruals of $3.1 million related to payments
the Fund's 2006 transitional LTIP and accruals for the 2006 and 2007 LTIPs
payable in future years, as well as costs of $0.5 million relating to the
cessation of SHS powder production at the Leeds plant.
    For the six months ended June 30, 2007 cash available for distribution
was $17.2 million (2006: $24.2 million), or $0.51 per unit (2006: $0.72 per
unit). EBITDA was $27.3 million (2006: $34.7 million), revenue was
$258.8 million (2006: $256.5 million) and net earnings were $4.5 million
(2006: $8.7 million). Both the cash available for distribution and the EBITDA
numbers include $2.5 million relating to the cessation of powder SHS
production at the Leeds plant.
    Mark Davis, Chief Executive Officer of Chemtrade, said, "The demand for
our products and services, particularly sulphuric acid, continues to
strengthen as the year progresses. The initiatives we have taken recently to
improve our operating reliability, optimize our supply chain and stabilize and
improve our SHS business are having positive impacts."
    Sulphur Products & Performance Chemicals ("SPPC") generated revenue of
$78.0 million (2006: $70.9 million) in the second quarter, reflecting higher
volumes and prices for merchant acid and higher volumes of SHS. EBITDA was
$14.9 million compared with $13.1 million in 2006. The 2007 second quarter
EDITDA includes final restructuring costs of $0.5 million related to the
closing of the Leeds liquid SHS plant in December 2006. The strong pricing for
merchant acid, together with a full quarter's production from Chemtrade's two
key regen plants were the main drivers for the improved results. The results
include two months contribution from the liquid SHS business acquired from
Olin Corporation on April 30, 2007. However, compared to the same period last
year, the benefits of the acquisition were more than offset by comparatively
higher net zinc costs, as these costs were unusually low in 2006.
    Pulp Chemicals reported second quarter revenue of $14.6 million compared
with $12.9 million in 2006, and EBITDA was $4.4 million, compared with
$5.3 million in 2006. Higher volumes and improved pricing were offset by
higher salt costs, which were anticipated following a change of supplier at
the end of 2006. International reported revenue of $37.5 million for the
second quarter compared with $50.7 million reported in 2006. The decrease is
due primarily to the Fund's adopting recommendations of the Canadian Institute
of Chartered Accountants ("CICA") Handbook Section 3855, which required
certain sales transactions to be recorded on a net margin basis. EBITDA for
the second quarter was steady at $1.8 million.
    Mr. Davis said, "Our operations are running well and are benefiting from
our constant attention to improving efficiencies and strengthening customer
relationships. The strengthening of demand for some of our products and the
completion of our major plant turnarounds should more than offset the high
costs for some inputs we had previously mentioned. We continue to expect that
earnings in the second half of this year will be stronger than the first half
and that the next twelve months earnings will be stronger than the twelve
months just ended."

    Distributions

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

    Review of Strategic Alternatives

    On February 28, 2007, the Fund announced that the Board of Trustees had
initiated a process and engaged BMO Capital Markets and Scotia Capital as
financial advisors to identify and evaluate strategic alternatives available
to Chemtrade. Chemtrade continues to evaluate the strategic alternatives
available to maximize Unitholder value. There can be no assurance that the
review will result in any specific strategic or financial transaction.
    Chemtrade operates a diversified business providing industrial chemicals
and services to customers in North America and around the world. Chemtrade is
one of the world's largest suppliers of sulphuric acid, liquid sulphur dioxide
and sodium hydrosulphite, and a leading processor of spent acid. Chemtrade is
also a leading regional supplier of sulphur, sodium chlorate, phosphorous
pentasulphide, and zinc oxide.

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

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

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

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

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

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

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

    A conference call to review the second quarter 2007 results will be
webcast live on www.chemtradelogistics.com and www.newswire.ca/webcast on
Thursday, August 2, 2007 at 10:00 a.m.


    CHEMTRADE LOGISTICS INCOME FUND
    Consolidated Balance Sheets
    (in thousands of dollars)
                                                      June 30,   December 31,
                                                        2007         2006
    -------------------------------------------------------------------------
                                                    (unaudited)
    ASSETS

    Current assets
      Cash and cash equivalents                      $   5,040     $   6,147
      Accounts receivable                               74,294        71,909
      Inventories                                       25,986        26,900
      Prepaid expenses and other assets (note 2)         5,727         6,380
    -------------------------------------------------------------------------
                                                       111,047       111,336

    Property, plant and equipment                      161,222       180,909
    Other assets (note 2)                                4,350         3,370
    Future tax asset                                    10,285         8,829
    Intangibles (note 3)                               158,258       167,412
    Goodwill                                            91,341        96,255
    -------------------------------------------------------------------------
                                                     $ 536,503     $ 568,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities
      Operating line of credit (note 5)              $  42,439     $  13,191
      Accounts payable                                  44,190        49,074
      Accrued liabilities                               24,961        24,013
      Distributions payable                              3,358         4,030
      Income taxes payable                                 573         1,447
      Current portion of long-term debt                      -        16,359
      Derivatives (note 2)                                   3             -
    -------------------------------------------------------------------------
                                                       115,524       108,114

    Long-term debt (notes 2 & 5)                       162,162       173,932
    Other long-term liabilities
     (notes 3 & 4)                                       4,417         1,874
    Post-employment benefits                             3,969         4,143
    Future tax liability                                29,428        32,924
    Minority interest                                       19            25

    Unitholders' equity
      Units (note 6)                                   412,957       412,944
      Equity component of convertible
       debentures (note 6)                                   -           160
      Deficit                                         (150,036)     (134,579)
      Accumulated other comprehensive
       income (loss) (note 2)                          (41,937)      (31,426)
    -------------------------------------------------------------------------
                                                       220,984       247,099
    -------------------------------------------------------------------------
                                                     $ 536,503     $ 568,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements



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

                                 Three Months Ended       Six Months Ended

                                June 30,    June 30,    June 30,    June 30,
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenue                    $ 130,163   $ 134,581   $ 258,824   $ 256,506

    Cost of sales and services   103,291     110,075     211,945     209,001
    -------------------------------------------------------------------------
    Gross profit                  26,872      24,506      46,879      47,505

    Selling, general,
     administrative and
     other costs                  10,093       5,496      17,595      12,812
    Restructuring costs (note 4)     490           -       1,971           -
    -------------------------------------------------------------------------
    Earnings before the
     under-noted                  16,289      19,010      27,313      34,693

    Depreciation and
     amortization                  9,729      11,858      19,947      23,120
    Net interest and
     accretion expense             3,162       2,763       6,222       5,428
    -------------------------------------------------------------------------
    Earnings before income
     taxes and minority
     interest                      3,398       4,389       1,144       6,145

    Income taxes
      Current                        350         398         494         739
      Future                      (2,021)       (876)     (3,879)     (3,247)
    -------------------------------------------------------------------------
                                  (1,671)       (478)     (3,385)     (2,508)
    -------------------------------------------------------------------------
    Earnings before minority
     interest                      5,069       4,867       4,529       8,653

    Minority interest                 (2)         (1)         (4)          -
    -------------------------------------------------------------------------
    Net earnings               $   5,071   $   4,868   $   4,533   $   8,653
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per unit
     (note 6)
      Basic                    $    0.15   $    0.14   $    0.13   $    0.26
      Diluted                  $    0.15   $    0.14   $    0.13   $    0.26
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements



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

                                 Three Months Ended       Six Months Ended

                                June 30,    June 30,    June 30,    June 30,
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------

    Units
    Balance, beginning of
     period                    $ 412,957   $ 412,944   $ 412,944   $ 412,944
    Issued on conversion of
     debentures (note 6)               -           -          13           -
    -------------------------------------------------------------------------
    Balance, end of period     $ 412,957   $ 412,944   $ 412,957   $ 412,944
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Equity component of
     convertible debentures
    Balance, beginning of
     period                    $       -   $     160   $     160   $     160
    Redemption of debentures
     (note 6)                          -           -        (160)          -
    -------------------------------------------------------------------------
    Balance, end of period     $       -   $     160   $       -   $     160
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Deficit
    Balance, beginning of
     period                    $(145,032)  $ (98,346)  $(134,579)  $ (90,266)
    Redemption of debentures
     (note 6)                          -           -         160           -
    Net earnings                   5,071       4,868       4,533       8,653
    Distributions                (10,075)    (12,089)    (20,150)    (23,954)
    -------------------------------------------------------------------------
    Balance, end of period     $(150,036)  $(105,567)  $(150,036)  $(105,567)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive income
     (loss)
    Balance, beginning of
     period                    $ (31,342)  $ (29,687)  $ (31,426)  $ (29,775)
    Changes in accounting
     policies (note 2)                 -           -       1,783           -
    -------------------------------------------------------------------------
    Balance, beginning of
     period, as adjusted         (31,342)    (29,687)    (29,643)    (29,775)
    Other comprehensive (loss)   (10,595)     (8,399)    (12,294)     (8,311)
    -------------------------------------------------------------------------
    Balance, end of period     $ (41,937)  $ (38,086)  $ (41,937)  $ (38,086)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements



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

                                 Three Months Ended       Six Months Ended

                                June 30,    June 30,    June 30,    June 30,
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------

    Net earnings               $   5,071   $   4,868   $   4,533   $   8,653

    Change in unrealized (loss)
     on translation of
     self-sustaining foreign
     operations                  (11,129)     (8,399)    (12,443)     (8,311)
    Change in unrealized gain
     on derivatives designated
     as cash flow hedges             534           -         149           -
    -------------------------------------------------------------------------
    Other comprehensive (loss)   (10,595)     (8,399)    (12,294)     (8,311)
    -------------------------------------------------------------------------
    Comprehensive (loss)
     income                    $  (5,524)  $  (3,531)  $  (7,761)  $     342
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements



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

                                 Three Months Ended       Six Months Ended

                                June 30,    June 30,    June 30,    June 30,
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
      Net earnings             $   5,071   $   4,868   $   4,533   $   8,653
      Items not affecting cash:
        Depreciation and
         amortization              9,729      11,858      19,947      23,120
        Future income taxes       (2,021)       (876)     (3,879)     (3,247)
        Minority interest             (2)         (1)         (4)          -
        Debt accretion expense       167           8         363          16
        (Gain) on sale of
         property, plant and
         equipment                  (160)          -        (160)          -
        Early settlement of
         debt (note 6)                 -           -          29           -
        Change in fair value
         of derivatives             (123)          -         (77)          -
        Non-cash restructuring
         costs                        23           -          48           -
        Unrealized foreign
         exchange (gain) loss       (827)     (1,814)       (873)     (1,502)
    -------------------------------------------------------------------------
                                  11,857      14,043      19,927      27,040

      (Increase) decrease in
       working capital            (3,338)        682      (5,672)     (5,774)
    -------------------------------------------------------------------------
                                   8,519      14,725      14,255      21,266

    Financing activities:
      Redemption of convertible
       debentures                      -           -     (16,378)          -
      Increase in operating
       line of credit              4,420       4,482      29,248       6,478
      Distributions to
       unitholders               (10,075)    (12,089)    (20,821)    (23,729)
      Increase in other
       long-term liabilities       2,528           -       2,543           -
      Financing transaction
       costs                           -           -        (317)          -
    -------------------------------------------------------------------------
                                  (3,127)     (7,607)     (5,725)    (17,251)

    Investing activities:
      Additions to property,
       plant and equipment        (1,514)     (1,571)     (2,993)     (3,439)
      Acquisitions                (6,909)          -      (6,909)          -
      Proceeds from disposal
       of property, plant
       and equipment                 220           -         220           -
    -------------------------------------------------------------------------
                                  (8,203)     (1,571)     (9,682)     (3,439)

    Effect of exchange rates
     on cash held in foreign
     currencies                       28          19          45          38
    -------------------------------------------------------------------------

    (Decrease) increase in cash
     and cash equivalents         (2,783)      5,566      (1,107)        614

    Cash and cash equivalents
     - beginning of period         7,823       5,443       6,147      10,395
    -------------------------------------------------------------------------
    Cash and cash equivalents
     - end of period           $   5,040   $  11,009   $   5,040   $  11,009
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information:
      Cash taxes paid          $     207   $     498   $   1,368   $     931
      Cash interest paid       $   2,920   $   3,213   $   6,764   $   6,371

    See accompanying notes to consolidated financial statements



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

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

    1.  ORGANIZATION AND DESCRIPTION OF THE BUSINESS:

        Chemtrade Logistics Income Fund ("the Fund") commenced operations on
        July 18, 2001 when it completed an Initial Public Offering and the
        acquisition of certain sulphur related assets and operations. 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 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, 2006, except as disclosed in note 2. These interim
        consolidated financial statements do not contain all disclosures
        required by generally accepted accounting principles and accordingly
        should be read in conjunction with the 2006 annual consolidated
        financial statements and the notes thereto.

    2.  CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

        (a)   Changes in Accounting Policies

        (i)   Accounting Changes

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

        (ii)  Financial Instruments

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

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

        The Fund has classified its cash and cash equivalents as held-for-
        trading, which are measured at fair value. Accounts receivable are
        classified as loans and receivables, which are measured at amortized
        cost. Operating line of credit, accounts payable, accrued
        liabilities, distributions payable and long-term debt, are classified
        as other financial liabilities, which are measured at amortized cost,
        using the effective interest method. The Fund had neither available
        for sale, nor held to maturity instruments during the six months
        ended June 30, 2007.

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

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

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

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

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

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

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

        The components of accumulated other comprehensive income (loss) as at
        June 30, 2007 and other comprehensive income (loss) for the six
        months then ended were as follows:


                             Opening                                Ending
        Accumulated Other    Balance     Change in                 Balance
         Comprehensive     December 31,  Accounting       Net      June 30,
         Income (loss)         2006       Policies      change       2007
        ---------------------------------------------------------------------

        Unrealized (loss)
         on translation of
         self-sustaining
         foreign
         operations       $   (31,426) $         -  $   (12,443) $(43,869)(1)
        Unrealized gain
         on derivatives
         designated as
         cash flow hedges           -        1,783          149      1,932(2)
        ---------------------------------------------------------------------
        Accumulated other
         comprehensive
         income (loss)    $   (31,426) $     1,783  $   (12,294) $   (41,937)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                             Opening                   Ending
        Accumulated Other    Balance                  Balance
         Comprehensive     December 31,      Net      June 30,
         Income (loss)         2006        Change       2006
        --------------------------------------------------------

        Unrealized (loss)
         on translation of
         self-sustaining
         foreign
         operations       $   (29,775) $    (8,311) $(38,086)(1)
        Unrealized gain
         on derivatives
         designated as
         cash flow hedges           -            -            -
        --------------------------------------------------------
        Accumulated other
         comprehensive
         income (loss)    $   (29,775) $    (8,311) $   (38,086)
        --------------------------------------------------------
        --------------------------------------------------------
        (1) Net of income tax expense of $nil.
        (2) Net of income tax expense of $995.


        (b)   Recent Accounting Pronouncements

        (i)   Capital Disclosures

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

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

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

        (iii) Inventories

        In March 2007, the CICA issued Handbook Section 3031, Inventories,
        which replaces Section 3030, Inventories. Under the new section,
        inventories are required to be measured at the "lower of cost and net
        realizable value", which is different from the existing guidance of
        the "lower of cost and market". The new section contains guidance on
        the determination of cost and also requires the reversal of any
        write-downs previously recognized. Certain minimum disclosures are
        required, including the accounting policies used, carrying amounts,
        amounts recognized as an expense, write-downs, and the amount of any
        reversal of any write-downs recognized as a reduction in expenses.
        The new standard will become effective on January 1, 2008 for the
        Fund. The Fund is currently evaluating the impact of the adoption of
        this new section on the consolidated financial statements.

    3.  PURCHASE OF OLIN CUSTOMER CONTRACTS:

        On May 1, 2007, the Fund completed the purchase of Olin Corporation's
        liquid sodium hydrosulphite ("SHS") customer contracts for $6,744
        (US$6,043), a portion of which is subject to certain earn out
        provisions. A total of US$2,014 has been accrued with respect to
        these earn-out provisions, with US$1,343 classified as Other
        long-term liabilities and the balance as Accrued liabilities. The
        acquisition does not include Olin's manufacturing assets. The Fund
        incurred transaction related costs of $164.

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

    4.  RESTRUCTURING COSTS:

        During the fourth quarter of 2006, the Fund decided to discontinue
        production of powder SHS and costs of $2,706 related to this decision
        were recorded in that quarter. Accounting rules prescribe when costs
        are to be recorded in such situations and certain costs can only be
        recorded when they are incurred. Consequently, the Fund recorded an
        additional $1,971 ($490 in the second quarter) with respect to this
        decision during the first six months of 2007. The Fund estimates that
        substantially all costs related to this decision have now been
        recognized.

        The following table provides a summary of the costs recognized and
        cash payments made in respect of these restructuring initiatives in
        2006 and 2007, as well as the corresponding liability as at June 30,
        2007.

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

        Balance - January 1, 2006   $        -     $        -     $        -
          Charges during 2006              890          1,816          2,706
          Cash draw downs                    -            501            501
        ---------------------------------------------------------------------
        Balance - December 31, 2006 $      890     $    1,315     $    2,205
          Charges during 2007              563          1,408          1,971
          Cash draw downs                1,305          1,476          2,781
        ---------------------------------------------------------------------
        Balance - June 30, 2007     $      148     $    1,247     $    1,395
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        At June 30, 2007, the outstanding amount of site closing and other
        costs has been shown as Other long-term liabilities on the Balance
        Sheet, as it is unlikely to be paid out within the next twelve
        months.

    5.  OPERATING LINE OF CREDIT AND LONG-TERM DEBT:

        During the first quarter of 2007, the Fund increased the aggregate
        amount that can be borrowed under the Fund's senior credit facilities
        with its principal bankers by $50,000 in the form of operating lines
        of credit. The Fund incurred transaction costs of $317 with respect
        to this amendment. These costs have been included in long-term debt
        and are being expensed in net interest and accretion expense using
        the effective interest method.

    6.  UNITS:

        (a)   Units outstanding:
                                                   Number of
                                                     Units          Amount
               --------------------------------------------------------------
               Units
                 Balance - January 1, 2007         33,582,040     $  412,944
                 Issued on conversion of
                  debentures                              896             13
               --------------------------------------------------------------
                 Balance - June 30, 2007           33,582,936     $  412,957
               --------------------------------------------------------------
               --------------------------------------------------------------

        (b)   Net earnings per unit:

        Net earnings per unit has been calculated on the basis of the
        weighted average number of units outstanding for the three months and
        the six months ended June 30, 2007 which amounted to 33,582,936 units
        and 33,582,758 units respectively (2006 - 33,582,040 units and
        33,582,040 units respectively). For 2006, the effect of conversion of
        the convertible debentures into trust units was not included in the
        computation of diluted net earnings per unit as the effect of
        conversion was anti-dilutive.

        (c)   Equity component of convertible debentures:

        There were no convertible debentures converted into units during the
        three months ended June 30, 2007 and June 30, 2006. During the six
        months ended June 30, 2007, 13 (2006 - nil) convertible debentures
        were converted into 896 (2006 - nil) units, which resulted in an
        increase in the book value of units of $13 (2006 - $nil), and a
        decrease in the debt and equity components of convertible debentures
        of $13 and nil, respectively (2006 - $nil).

        In the first quarter of 2007, the Fund redeemed the remaining 16,378
        convertible debentures, which resulted in a decrease in the debt and
        equity components of convertible debentures of $16,349 and $160,
        respectively. The Fund recorded a gain of $29 related to the
        repayment of the debt component of the debentures in selling,
        general, administrative and other costs. The Fund also recorded a
        capital transaction on the equity component of $160 in retained
        earnings.

        (d)   Distributions:

        Distributions paid for the three months and the six months ended
        June 30, 2007 were $10,075 and $20,821 respectively (2006 - $12,089
        and $23,729 respectively). All of the Fund's distributions are
        discretionary.

    7.  BUSINESS SEGMENTS:

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

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

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

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

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


        Three Months Ended June 30, 2007
        ---------------------------------------------------------------------
                              SPPC      Pulp      Intl      Corp     Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers          $ 78,013  $ 14,625  $ 37,525  $      -  $130,163

        Earnings before
         the under-noted      14,859     4,439     1,843    (4,852)   16,289
        Depreciation and
         amortization          6,969     2,341       419         -     9,729
        Net interest and
         debt accretion
         expense               2,712       511      (103)       42     3,162
        Income tax expense    (1,751)        -        94       (14)   (1,671)
        Minority interest          -         -        (2)        -        (2)

        Net earnings           6,929     1,587     1,435    (4,880)    5,071

        Total assets         334,917   119,586    77,022     4,978   536,503

        Goodwill              60,683         -    30,658         -    91,341

        Intangibles          104,206    47,704     6,348         -   158,258

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


        Three Months Ended June 30, 2006
        ---------------------------------------------------------------------
                              SPPC      Pulp      Intl      Corp     Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers          $ 70,923  $ 12,909  $ 50,749  $      -  $134,581

        Inter-segment
         revenues                  -         -       432         -       432

        Earnings before
         the under-noted      13,073     5,302     1,830    (1,195)   19,010
        Depreciation and
         amortization          9,105     2,322       431         -    11,858
        Net interest and
        debt accretion
        expense                1,912       493       (56)      414     2,763
        Income tax expense      (678)        -       200         -      (478)
        Minority interest          -         -        (1)        -        (1)

        Net earnings           2,734     2,487     1,256    (1,609)    4,868

        Total assets         376,337   118,508    73,517     3,238   571,600

        Goodwill              62,066         -    31,090         -    93,156

        Intangibles          112,186    53,109     7,499         -   172,794

        Capital
         expenditures          1,183       354         6        28     1,571
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Six Months Ended June 30, 2007
        ---------------------------------------------------------------------
                              SPPC      Pulp      Intl      Corp     Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers          $150,938  $ 28,640  $ 79,246  $      -  $258,824

        Earnings before
         the under-noted      22,325     9,188     3,252    (7,452)   27,313
        Depreciation and
         amortization         14,186     4,677     1,084         -    19,947
        Net interest and
         debt accretion
         expense               5,244     1,005      (196)      169     6,222
        Income tax expense    (3,498)        -       113         -    (3,385)
        Minority interest          -         -        (4)        -        (4)

        Net earnings           6,393     3,506     2,255    (7,621)    4,533

        Total assets         334,917   119,586    77,022     4,978   536,503

        Goodwill              60,683         -    30,658         -    91,341

        Intangibles          104,206    47,704     6,348         -   158,258

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


        Six Months Ended June 30, 2006
        ---------------------------------------------------------------------
                              SPPC      Pulp      Intl      Corp     Total
        ---------------------------------------------------------------------

        Revenue from
         external
         customers          $139,208  $ 26,180  $ 91,118  $      -  $256,506

        Inter-segment
         revenues                  -         -       432         -       432

        Earnings before
         the under-noted      24,568    10,793     3,549    (4,217)   34,693
        Depreciation and
         amortization         17,625     4,641       854         -    23,120
        Net interest and
         debt accretion
         expense               3,737       965      (100)      826     5,428
        Income tax expense    (2,904)        -       396         -    (2,508)

        Net earnings           6,110     5,187     2,399    (5,043)    8,653

        Total assets         376,337   118,508    73,517     3,238   571,600

        Goodwill              62,066         -    31,090         -    93,156

        Intangibles          112,186    53,109     7,499         -   172,794

        Capital
         expenditures          2,485       507       370        77     3,439
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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       Six Months Ended
        ---------------------------------------------------------------------
                                June 30,    June 30,    June 30,    June 30,
                                  2007        2006        2007        2006
        ---------------------------------------------------------------------

        North America          $  92,638   $  83,832   $ 179,578   $ 165,388
        Europe                    37,525      50,749      79,246      91,118
        ---------------------------------------------------------------------
                               $ 130,163   $ 134,581   $ 258,824   $ 256,506
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Property, Plant and Equipment, Goodwill and Intangibles
        ---------------------------------------------------------------------
                                                        June 30,   December
                                                          2007     31, 2006
        ---------------------------------------------------------------------

        North America                                  $ 370,351   $ 401,246
        Europe                                            40,470      43,330
        ---------------------------------------------------------------------
                                                       $ 410,821   $ 444,576
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        For the six months ended June 30, 2007, the Fund obtained product
        from a producer that accounted for 13.35% (2006 - 11.6%) of the
        Fund's total revenue.  There were no customers that accounted for
        more than 10% of the Fund's total revenue in 2006 or 2007.

    8.  FAIR VALUES OF FINANCIAL INSTRUMENTS:

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

        In 2005, the Fund entered into swap arrangements with its principal
        bankers, which fix interest rates on all of its outstanding term
        debt. Under the swap arrangements the effective interest rate on the
        outstanding U.S. dollar debt is 6.225% and on the outstanding
        Canadian dollar debt is 5.595%. As at June 30, 2007 the fair values
        of the swap arrangements are US$1,676 and $1,141 respectively. These
        amounts have been included in other assets.

        The Fund has entered into forward foreign exchange contracts to
        manage its exposure to foreign currencies. The Fund buys and sells
        specific amounts of currencies at pre-determined dates and exchange
        rates, which are matched with the anticipated operational cash flows.
        Contracts in place at June 30, 2007 include future contracts of
        US$14,116, SEK 2,800 and (euro)2,308 at weighted average exchange
        rates of $1.206, US$0.14 and US$1.34, respectively. There is a net
        unrealized gain of $2,000 (December 31, 2006 - $1,162) from these
        hedge contracts at June 30, 2007.  This amount has been included in
        prepaid expenses and other assets.

        To manage its exposure to changes in the price of natural gas, the
        Fund has entered into natural gas forward contracts. The Fund buys
        and sells specific quantities of natural gas at pre-determined dates
        on indices, which are matched with the anticipated operational cash
        flows. There is a net unrealized gain of $76, (December 31, 2006 -
        nil) from these forward contracts at June 30, 2007. This amount has
        been included in prepaid expenses and other assets.

        The Fund's International business segment has commitments to buy and
        sell commodities and has entered into commodity forward contracts to
        manage its exposure to commodity price changes. Under the change in
        accounting policies, the commitments to buy and sell commodities are
        treated as derivatives and are measured at fair value. The commodity
        forward contracts are derivatives and are measured at fair value. At
        June 30, 2007, the net unrealized value of these transactions is
        immaterial.

    9.  INCOME TAXES:

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

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

        The Fund is a SIFT as defined in the Legislation. Accordingly, the
        Fund will be subject to taxes on distributions of certain income
        earned from investments in its subsidiaries made after 2010. The Fund
        is also required to recognize future income tax assets and
        liabilities with respect to the temporary differences between the
        carrying amount and tax bases of its assets and liabilities and those
        of its flow-through subsidiaries that are expected to reverse in or
        after 2011. The Fund expects that its aggregate temporary differences
        and those of its flow-through subsidiaries will reverse prior to
        2011. Accordingly, there is no impact in the current period as a
        result of the Legislation. The Fund expects that its distributions
        will not be subject to tax prior to 2011 and accordingly has not
        provided for future income taxes on the temporary differences
        expected to reverse prior to then.

        The Legislation does not affect the current and future tax amounts of
        the Fund's corporate subsidiaries.

    10. COMPARATIVE FIGURES:

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



                       CHEMTRADE LOGISTICS INCOME FUND

                     MANAGEMENT'S DISCUSSION AND ANALYSIS

                 FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2007
    

    The information in this Management's Discussion and Analysis, or MD&A, is
intended to assist the reader in the understanding and assessment of the
trends and significant changes in the results of operations and financial
condition of Chemtrade Logistics Income Fund. Throughout this MD&A, the term
the "Fund" refers to Chemtrade Logistics Income Fund and its consolidated
subsidiaries. The terms "we", "us" or "our" similarly refers to the Fund. This
MD&A should be read in conjunction with the unaudited consolidated financial
statements of the Fund for the three and six-month periods ended June 30, 2007
and the annual MD&A for the year ended December 31, 2006.
    The Fund's financial statements are prepared in accordance with
accounting principles generally accepted in Canada, or Canadian GAAP. The
Fund's reporting currency is the Canadian dollar. In this MD&A per unit
amounts are calculated using the weighted average number of units outstanding
for the applicable period unless otherwise indicated.
    This MD&A contains certain statements which may constitute
"forward-looking" statements within the meaning of certain securities laws,
including the "safe harbour" provisions of the Securities Act (Ontario). The
use of any of the words "anticipate", "continue", estimate", "expect", "may",
"will", "project", "should", "believe" and similar expressions are intended to
identify forward-looking statements.
    This MD&A contains forward-looking statements about the objectives,
strategies, financial condition, results of operations and businesses of the
Fund. These statements are "forward-looking" as they are based on current
expectations about our business and the markets we operate in, and on various
estimates and assumptions.

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

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

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

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

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


    FINANCIAL HIGHLIGHTS

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

    ($'000 except per           June 30,    June 30,    June 30,    June 30,
     unit amounts)                2007        2006        2007        2006
    -------------------------------------------------------------------------
    Revenue                    $ 130,163   $ 134,581   $ 258,824   $ 256,506

    Gross profit               $  26,872   $  24,506   $  46,879   $  47,505

    Net earnings               $   5,071   $   4,868   $   4,533   $   8,653

    Net earnings per unit
      - Basic                  $    0.15   $    0.14   $    0.13   $    0.26
      - Diluted                $    0.15   $    0.14   $    0.13   $    0.26

    Total assets               $ 536,503   $ 571,600   $ 536,503   $ 571,600

    Long-term debt             $ 162,162   $ 185,341   $ 162,162   $ 185,341

    EBITDA(3)                  $  16,289   $  19,010   $  27,313   $  34,693
    EBITDA per unit(1)         $    0.49   $    0.57   $    0.81   $    1.03

    Distributable cash(3)      $  10,540   $  12,565   $  17,161   $  24,157
    Distributable cash
     per unit(1)               $    0.31   $    0.37   $    0.51   $    0.72

    Distributions declared     $  10,075   $  12,089   $  20,150   $  23,954
    Distributions declared
     per unit(2)               $    0.30   $    0.36   $    0.60   $    0.71

    Distributions paid         $  10,075   $  12,089   $  20,821   $  23,729
    Distributions paid
     per unit(2)               $    0.30   $    0.36   $    0.62   $    0.71
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Based on weighted
        average number of
        units outstanding
        for the period of:    33,582,936  33,582,040  33,582,758  33,582,040

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

    (3) See NON-GAAP MEASURES.
    

    NON-GAAP MEASURES

    EBITDA -

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

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

                                June 30,    June 30,    June 30,    June 30,
    ($'000)                       2007        2006        2007        2006
    -------------------------------------------------------------------------

    Net earnings               $   5,071   $   4,868   $   4,533   $   8,653
      Add:
        Depreciation and
         amortization              9,729      11,858      19,947      23,120
        Net interest and debt
         accretion expense         3,162       2,763       6,222       5,428
        Net taxes                 (1,671)       (478)     (3,385)     (2,508)
        Minority interest             (2)         (1)         (4)          -
    -------------------------------------------------------------------------
    EBITDA(1)                  $  16,289   $  19,010   $  27,313   $  34,693
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) EBITDA for the three and six months ended June 30, 2007 includes
        charges for restructuring of $490 and $1,971 respectively.
    

    Distributable Cash -

    The Fund defines distributable cash as cash from operating activities
adjusted for changes in working capital, less expenditures on maintenance
capital items and the minority shareholders' share of income of an operating
subsidiary plus the effect of exchange rates on cash held in foreign
currencies. Maintenance capital expenditures are those cash outlays required
to maintain the Fund's plants and other equipment at normal operating and
efficiency levels.
    Management views distributable cash as an operating performance measure,
as it is a measure generally used by Canadian income funds as an indicator of
financial performance.
    Distributable cash is not a recognized measure under Canadian GAAP, and
therefore the Fund's method of calculating distributable cash may differ from
methods used by other organizations. See DISTRIBUTABLE CASH AND CASH
DISTRIBUTIONS.

    CONSOLIDATED OPERATING RESULTS

    Consolidated revenue for the second quarter of 2007 was $130.2 million, a
decrease of $4.4 million from consolidated revenue of $134.6 million recorded
in the second quarter of 2006. Consolidated revenue for the first six months
of 2007 and 2006 were $258.8 million and $256.5 million respectively. The
principal reason for the decrease in consolidated revenue was a result of the
change in accounting policy implemented by the Fund in recording its revenue
related to the International segment. The change in policy is due to the
adoption of the Canadian Institute of Chartered Accountants ("CICA") Handbook
section 3855, Financial Instruments. This decrease was partially offset by the
increase in revenue in the SPPC and Pulp Chemicals segments for the second
quarter and more than offset by the increase in revenue of SPPC and Pulp
Chemicals for the first six months.
    The Fund's net earnings and EBITDA for the second quarter of 2007 were
$5.1 million and $16.3 million respectively compared to $4.9 million and
$19.0 million respectively for the second quarter of 2006. Net earnings and
EBITDA for the first six months of 2007 were $4.5 million and $27.3 million
respectively. Comparable net earnings and EBITDA for the first six months of
2006 were $8.7 million and $34.7 million respectively. The decrease in EBITDA
during the second quarter is primarily due to higher costs in the Corporate
Segment. This was partially offset by strong results in the SPPC segment. On a
year-to-date basis, EBITDA was also negatively impacted by restructuring costs
(as described in the RESTRUCTURING section below) and reduced earnings from
SHS in the first quarter.

    RESULTS OF OPERATIONS BY BUSINESS SEGMENT

    SPPC -

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

                                June 30,    June 30,    June 30,    June 30,
    ($'000)                       2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenue                    $  78,013   $  70,923   $ 150,938   $ 139,208

    Earnings before the
     under-noted                  14,859      13,073      22,325      24,568
    Depreciation and
     amortization                  6,969       9,105      14,186      17,625
    Net interest and debt
     accretion expense             2,712       1,912       5,244       3,737
    Income tax (recovery)         (1,751)       (678)     (3,498)     (2,904)
    -------------------------------------------------------------------------
    Net earnings               $   6,929   $   2,734   $   6,393   $   6,110
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    SPPC manufactures and distributes sulphuric acid and other sulphur based
products to an extensive customer base in Canada and the U.S., and provides
acid regeneration services to the petroleum industry, primarily in the U.S.
Gulf Coast area. SPPC also supplies liquid and powder sodium hydrosulphite,
which is sold to the pulp and paper industry and to a lesser extent, to the
textile industry.
    Results for 2007 were negatively impacted by the recording of
$2.0 million (second quarter - $0.5 million) related to the cessation of
production of powder SHS (as described in the RESTRUCTURING section below).
    For the second quarter of 2007, SPPC generated revenue of $78.0 million,
which compares to $70.9 million for the second quarter of 2006. The increase
in 2007 revenue is primarily the result of higher volumes of SHS and higher
volumes and prices for merchant acid. SHS volumes were higher, because they
include two months of sales to customers acquired as the result of the Olin
asset acquisition (as described in the Liquidity and Capital Resources -
Investing Activities - Acquisitions section). During the second quarter of
2007, SPPC's EBITDA increased to $14.9 million, up from the level of
$13.1 million achieved during the second quarter of 2006. SPPC generated net
earnings of $6.9 million in the second quarter of 2007, which is $4.2 million
higher than the level of earnings achieved during the second quarter of 2006.
The improvement in results in the second quarter of 2007 is mainly due to
higher volumes and prices for merchant acid and stronger results from refinery
services as there was one less maintenance turnaround during the second
quarter of 2007. As previously disclosed, we scheduled maintenance turnarounds
at our two largest regen plants in the first quarter of 2007, whereas in 2006
one of these turnarounds was in the second quarter. SHS results were
positively affected by the inclusion of two months sales pursuant to the Olin
asset acquisition, but this was more than offset by comparatively higher net
zinc costs. During the second quarter of 2006, net zinc costs were lower due
to an unusually high recovery from zinc oxide sales.
    For the first six months of 2007, SPPC generated revenues of
$150.9 million, a significant increase over the level achieved during the
first six months of 2006. The increase in 2007 revenue is the result of higher
merchant acid volumes and prices and higher SHS volumes. During the first six
months of 2007, SPPC's EBITDA decreased from $24.6 million to $22.3 million.
This decrease is mainly due to the recording of $2.0 million related to the
cessation of production of powder SHS (as described in the RESTRUCTURING
section below). Despite the lower level of EBITDA, SPPC generated higher net
earnings in the first six months of 2007, compared with the level achieved
during the first six months of 2006 due to a reduction in the level of
depreciation and amortization.
    The second quarter and first six-month 2007 income tax recovery relates
to increased future tax loss benefits and reduced temporary differences
between the accounting and tax basis of certain future tax liabilities.

    Pulp Chemicals -

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

                                June 30,    June 30,    June 30,    June 30,
    ($'000)                       2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenue                    $  14,625   $  12,909   $  28,640   $  26,180

    Earnings before the
     under-noted                   4,439       5,302       9,188      10,793
    Depreciation and
     amortization                  2,341       2,322       4,677       4,641
    Net interest expense             511         493       1,005         965
    -------------------------------------------------------------------------
    Net earnings               $   1,587   $   2,487   $   3,506   $   5,187
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Pulp Chemicals produces sodium chlorate and crude tall oil ("CTO"), both
of which are chemicals used in the pulp and paper industry. Sodium chlorate is
used to bleach pulp and CTO is used as a less expensive alternative energy
source to natural gas.
    Second quarter 2007 Pulp Chemicals revenue was $14.6 million compared to
$12.9 million for the second quarter of 2006. The main reason for this
increase was higher selling prices for sodium chlorate. In 2007, Pulp
Chemicals generated second quarter net earnings and EBITDA of $1.6 million and
$4.4 million respectively. In 2006, second quarter net earnings and EBITDA
were $2.5 million and $5.3 million respectively. For the first six months of
2007 Pulp Chemicals revenue was $28.6 million compared to $26.2 million for
the first six months of 2006. In the first six months of 2007, Pulp Chemicals
generated net earnings and EBITDA of $3.5 million and $9.2 million
respectively. In the first six months of 2006, net earnings and EBITDA were
$5.2 million and $10.8 million respectively. The decrease in net earnings and
EBITDA in 2007 is primarily the result of an increase in costs for salt, a key
raw material, both for product cost and transition related costs, not all of
which could be recovered from customers.

    International -

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

                                June 30,    June 30,    June 30,    June 30,
    ($'000)                       2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenue                    $  37,525   $  50,749   $  79,246   $  91,118

    Earnings before the
     under-noted                   1,843       1,830       3,252       3,549
    Depreciation and
     amortization                    419         431       1,084         854
    Net interest income             (103)        (56)       (196)       (100)
    Income tax expense                94         200         113         396
    Minority interest                 (2)         (1)         (4)          -
    -------------------------------------------------------------------------
    Net earnings               $   1,435   $   1,256   $   2,255   $   2,399
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Although the business model that International follows is consistent with
the Fund, there are some differences. A significant portion of International's
sales of sulphuric acid is derived from contracts that effectively adjust
product cost to changes in revenue. As a result, an increase in revenue from
one period to the next is not necessarily accompanied by a similar growth in
EBITDA.
    During the second quarter of 2007, International's revenue was
$37.5 million compared to $50.7 million for the same period of 2006. For the
first six months of 2007, International's revenue was $79.2 million compared
to $91.1 million for the first six months of 2006. The decrease in 2007
revenue is primarily due to a change in accounting policy implemented by the
Fund as a result of the adoption of the recommendations of the CICA Handbook
section 3855. This resulted in certain transactions being recorded on a net
margin basis.
    International net earnings and EBITDA during the three and six month
periods ended June 30, 2007 were similar to the comparable periods of 2006.

    Corporate -

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

                                June 30,    June 30,    June 30,    June 30,
    ($'000)                       2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cost of services           $   4,852   $   1,195   $   7,452   $   4,217

    Loss before the
     under-noted                  (4,852)     (1,195)     (7,452)     (4,217)
    Net Interest and debt
     accretion expense                42         414         169         826
    Income tax expense               (14)          -           -           -
    -------------------------------------------------------------------------
    Net earnings               $  (4,880)  $  (1,609)  $  (7,621)  $  (5,043)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The Corporate segment includes the administrative costs of corporate
activities which are not directly allocable to an operating segment, such as
information technology, finance and human resources. For the second quarter
and first six months of 2007 corporate costs were $4.9 million and
$7.5 million respectively compared to $1.2 million and $4.2 million
respectively for the second quarter and first six months of 2006.
    The increase in corporate costs during the second quarter of 2007 is
mainly due to the accrual of $3.1 million in connection with the Fund's long
term incentive plan ("LTIP"). These accruals relate to the 2006 transitional
LTIP and the 2006 and 2007 LTIP. The 2006 transitional LTIP was paid out in
July 2007 and the 2006 and 2007 LTIP's are payable at the beginning of 2009
and 2010 respectively. Although an accrual with respect to these two plans has
been recorded, the payouts will be based upon total shareholder return
("TSR"), 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 LTIP expenses that
will be recordable in any period as it is based upon future distributions and
changes in unit value. The total level of corporate costs were also affected
by the recording of foreign exchange gains, as during the second quarter of
2007, a net foreign exchange gain of $2.2 million was recorded, whereas during
the same quarter of 2006, there was a net foreign exchange gain of
$2.6 million. These foreign exchange amounts for the second quarter of 2007
and 2006 include an unrealized gain of $0.8 million and $1.8 million,
respectively.
    The increase in corporate costs during the first six months of 2007 is
mainly due to the recording of $3.4 million associated with the Fund's long
term incentive plan ("LTIP") and a decrease in foreign exchange gains
recorded. This was partially offset by the recognition of US$0.8 million
related to the Rita insurance claim. During the first six months of 2007, a
net foreign exchange gain of $2.3 million was recorded, whereas during the
same period of 2006, there was a net foreign exchange gain of $2.9 million.
These foreign exchange amounts for the 2007 and 2006 include an unrealized
gain of $0.8 million and $1.5 million, respectively.
    Net interest and debt accretion expense in the second quarter and first
six months of 2007 was $0.1 million and $0.2 million respectively compared to
$0.4 million and $0.8 million for the second quarter and first six months of
2006. The decrease in the expense in the second quarter of 2007 from 2006 was
due to the redemption of all the remaining outstanding convertible debentures
in the first quarter of 2007.

    RESTRUCTURING

    During the fourth quarter of 2006, the Fund decided to discontinue
production of powder SHS and costs of $2.7 million related to that decision
were recorded in that quarter. Accounting rules prescribe when costs are to be
recorded in such situations and certain costs can only be recorded when they
are incurred. Consequently, the Fund has recorded an additional $2.0 million
of costs with respect to this decision during the first six months of 2007
(second quarter - $0.5 million). These costs consist of severances and other
costs required to effect the cessation of production. The Fund estimates that
substantially all costs related to this decision have now been recorded.

    FOREIGN EXCHANGE

    The Fund has operating subsidiaries that are U.S. based. BCT, the Fund's
international subsidiary, uses the U.S. dollar as its reporting currency. As
the Fund reports in Canadian dollars, its reported earnings are exposed to
fluctuations in the Canadian/U.S. dollar exchange rate. The Fund estimates
that, on an unhedged basis, a $0.01 change in the Canadian/U.S. dollar
exchange rate impacts distributable cash by approximately $0.01 per unit on an
annual basis.
    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. These exchange contracts hedge that portion
of the Fund's U.S. dollar funds that are expected to be converted into
Canadian dollars. As of June 30, 2007, approximately all planned transfers for
the remainder of 2007 and 50% of 2008 planned transfers have been effectively
hedged at $0.8292.
    The purpose of these contracts is to hedge the value of the funds which
are used to pay dividends and interest by subsidiary companies to the Fund and
to meet other commitments. The amount of the related derivative must be
recorded at fair market value at the period end. The resultant non-cash charge
or gain is grouped with Selling, General and Administrative expense and is
also included with Prepaid expenses and other assets on the balance sheet. The
impact of this non-cash charge or gain is excluded from the computation of
distributable cash.
    The counter party to certain derivative contracts has the right to
exercise an option which would require the Fund to hedge US$31.1 million for
an additional two year period ending July 2010 at a rate of $0.8292.
    The rate of exchange used to translate U.S. denominated balances has
changed from $0.8581 at December 31, 2006 to $0.9386 at June 30, 2007.
    The Fund's International and U.S. based operations are considered to be
self-sustaining, as they are financially independent. As a result, gains or
losses arising from the translation of the assets and liabilities of
self-sustaining operations are recorded in other comprehensive income. The
changes recorded in the accumulated other comprehensive income account since
December 31, 2006 were a result of changes in the Canadian/U.S. dollar
exchange rate between December 31, 2006 and June 30, 2007. See RISKS AND
UNCERTAINTIES for additional comments on foreign exchange.

    NET INTEREST AND DEBT ACCRETION EXPENSE

    Net interest and debt accretion expense was $3.1 million in the second
quarter of 2007 compared to $2.8 million in the second quarter of 2006. Net
interest and debt accretion expense was $6.2 million for the first six months
of 2007 compared to $5.4 million for the first six months of 2006. Interest
expenses were higher as the Fund recorded additional accretion expenses
pursuant to the adoption of the new CICA handbook section on Financial
Instruments and due to increased usage of the operating lines of credit.
    Interest on the Canadian dollar denominated term debt amounted to
$1.0 million and $2.0 million in the second quarter and first six months of
2007 respectively and $0.8 million and $1.4 million in the second quarter and
first six months of 2006 respectively. The increase in interest expense was a
result of increased usage of the operating lines of credit, primarily due to
the redemption of all of the outstanding convertible debentures and an
increase in the effective annual interest rate. These loans have an effective
annual interest rate of 5.595% at June 30, 2007 (December 31, 2006 - 4.97%).
    The interest on the U.S. dollar denominated term debt was $1.9 million
and $3.6 million for the second quarter and first six months of 2007
respectively, compared to $1.6 million and $3.2 million for the second quarter
and first six months of 2006 respectively. The increase in interest is due to
increased usage of the operating lines of credit and an increase in the
effective annual interest rate. The effective annual interest rate at June 30,
2007 was 6.225% (December 31, 2006 - 5.60%). See LIQUIDITY AND CAPITAL
RE

SOURCES - Financing Activities - Financial Instruments for information concerning swap arrangements. Interest on the outstanding 10% convertible debentures was $nil for the second quarter of 2007 and $0.2 million in the first six months of 2007, compared to $0.4 million for the second quarter of 2006 and $0.8 million in the first six months of 2006. The expense in the second quarter and first six months of 2007 was lower than 2006 due to the redemption of all of the outstanding convertible debentures in the first quarter of 2007. At June 30, 2007, there were no debentures outstanding compared to 16,391 debentures outstanding at June 30, 2006. During the second quarter and first six months of 2007, the Fund recorded $0.2 million and $0.4 million of accretion expense respectively, which was due to the adoption of the new Canadian Institute of Chartered Accountants recommendations with respect to Financial Instruments. This accretion is due to the amortization of transaction costs related to the Fund's borrowings, which were previously recorded in depreciation and amortization. At June 30, 2007, $7.1 million ((euro)5.0 million) and US$2.7 million of the total facility have been utilized in the form of standby Letters of Credit (December 31, 2006 - $7.6 million ((euro)5.0 million) and US$2.7 million) and another $22.3 million and US$19.0 million has been utilized under the operating lines of credit (December 31, 2006 - $2.7 million and US$9.0 million). During the first quarter of 2007, the Fund increased the aggregate amount that can be borrowed under the Fund's senior credit facilities with its principal bankers by $50.0 million. The term bank debt facility and the operating lines are secured by a fixed and floating charge on the assets of the Fund and certain of its subsidiaries. The facility is subject to certain financial and reporting covenants, all of which have been met at June 30, 2007. INCOME TAXES Current income tax expense was $0.4 million for the second quarter of 2007 and $0.5 million for the first six months of 2007, compared to $0.4 million and $0.8 million for the second quarter and first six months of 2006 respectively. The decrease in current tax expense for the first six months of 2007 reflects decreased earnings in certain International business operations. The increase in future tax asset of $1.5 million at June 30, 2007 compared to December 31, 2006 is the result of increased tax loss carry forwards and other tax benefits reported by certain operating subsidiaries. The decrease in future tax liability of $3.5 million at June 30, 2007 compared to December 31, 2006 is the result of reduced timing differences between the accounting basis and the tax basis of assets associated with certain operating subsidiaries and due to the change in accounting policy. CONTINGENT LIABILITIES See RISKS AND UNCERTAINTIES - Marsulex Claim for a discussion of this issue, in the context of CONTINGENT LIABILITIES. DISTRIBUTABLE CASH AND CASH DISTRIBUTIONS A reconciliation of distributable cash to cash from operations for the three months and the six months ended June 30, 2007 with comparative numbers for 2006, is as follows: Three Months Ended Six Months Ended ------------------ ---------------- ($'000 except per June 30, June 30, June 30, June 30, unit amounts) 2007 2006 2007 2006 ------------------------------------------------------------------------- Cash from operating activities(1) $ 8,519 $ 14,725 $ 14,255 $ 21,266 Less: (Increase) decrease in working capital (3,338) 682 (5,672) (5,774) Capital expenditures(2) 1,507 1,498 2,975 2,921 Minority interest (2) (1) (4) - Plus: Gain on sale of property, plant and equipment 160 - 160 - Effect of exchange rates on cash held in foreign currencies 28 19 45 38 ------------------------------------------------------------------------- Distributable cash $ 10,540 $ 12,565 $ 17,161 $ 24,157 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributable cash per unit $ 0.31 $ 0.37 $ 0.51 $ 0.72 Based on weighted average number of units outstanding for the period of: 33,582,936 33,582,040 33,582,758 33,582,040 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) As disclosed in the Company's Consolidated Statement of Cash Flows for the three months and six months ended June 30, 2007 and 2006, cash from operating activities excludes non-cash items. (2) Excludes non-maintenance capital of $7 and $18 for the quarter and the six months ended June 30, 2007 respectively (2006 - $73 and $518 respectively). Distributions - On February 15, 2006, the Fund announced a change in the monthly distribution rate to $0.12 per unit, effective with the February 2006 distribution. On January 4, 2007, the Fund announced a change in the monthly distribution rate to $0.10 per unit, effective with the January 2007 distribution. Since inception, the Fund has generated distributable cash of $217.9 million and distributed $220.7 million. Excluding the impact of restructuring costs recorded in 2006 and 2007 (as described in the Restructuring section), the Fund has generated distributable cash of $222.6 million and distributed $220.7 million. For the six-month period ended June 30, 2007, distributable cash was $0.51 per unit and distributions declared were $0.60 per unit. Excluding the impact of restructuring costs recorded in 2007 (as described in the RESTRUCTURING section), for the six months ended June 30, 2007, distributable cash was $0.57 per unit and distributions declared were $0.60 per unit. Comparable numbers for 2006 were $0.72 per unit and $0.71 per unit respectively. Distributions to Unitholders for the three and six months ended June 30, 2007 were declared as follows: Distribution Total Record Date Payment Date Per Unit ($'000) ------------------------------------------------------------------------- Three months ended June 30: April 30, 2007 May 31, 2007 $ 0.10 $ 3,358 May 31, 2007 June 29, 2007 0.10 3,358 June 29, 2007 July 31, 2007 0.10 3,359 ------------------------------------------------------------------------- Sub-Total $ 0.30 $ 10,075 Three months ended March 31 $ 0.30 $ 10,075 ------------------------------------------------------------------------- Total for six months ended June 30 $ 0.60 $ 20,150 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions declared in the three and six months ended June 30, 2006 were as follows: Distribution Total Record Date Payment Date Per Unit ($'000) ------------------------------------------------------------------------- Three months ended June 30: April 28, 2006 May 31, 2006 $0.1200 $ 4,029 May 31, 2006 June 30, 2006 0.1200 4,030 June 30, 2006 July 31, 2006 0.1200 4,030 ------------------------------------------------------------------------- Sub-Total $0.3600 $ 12,089 Three months ended March 31 $0.3533 $ 11,865 ------------------------------------------------------------------------- Total for six months ended June 30 $0.7133 $ 23,954 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Treatment of the Fund's distributions for Canadian Income Tax purposes for 2006 and 2007 is as follows: Foreign Non- Other Eligible Business Return of Income Dividends Income Capital Total ------------------------------------------------------------------------- 2006 53.7% 25.8% 20.5% 0.0% 100.0% 2007(1) 60% 15% 25% 0% 100% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Represents planned distributions treatment. The final treatment of 2007 distributions will be determined by February 28, 2008. LIQUIDITY AND CAPITAL RE

SOURCES The Fund's distributions to Unitholders are sourced entirely from its investments in operating subsidiary companies. The Fund's investments are financed by trust units held by Unitholders, long-term debt and operating line of credit. The cash flow of the Fund is required to fund distributions to Unitholders, capital expenditures and third party interests. Cash from Operating Activities ------------------------------ Cash flow from operating activities for the second quarter of 2007 was $8.5 million, a decrease of $6.2 million from the level generated during the second quarter of 2006. The decrease in cash flow is due to the lower level of EBITDA generated in the second quarter of 2007 relative to the second quarter of 2006 and an increase in the level of working capital during the second quarter of 2007. For the first six months of 2007, cash flow from operating activities was $14.3 million, a decrease of approximately $7.0 million from the level achieved in 2006. The decrease in cash flow is primarily due to the lower level of EBITDA generated in the first six months of 2007 relative to the first six months of 2006. Financing Activities -------------------- Distributions to Unitholders during the second quarter and first six months of 2007 were $2.0 million and $2.9 million lower respectively than the second quarter and first six months of 2006. These decreased distributions were due to the lower distribution rates in 2007. During the first quarter of 2007, the Fund increased the aggregate amount that can be borrowed under the Fund's senior credit facilities with its principal bankers by $50.0 million. During the first quarter of 2007, the Fund used part of this increased credit facility to redeem the 16,378 convertible debentures outstanding for the principal amount plus accrued and unpaid interest. For additional information on cash distributions, see DISTRIBUTABLE CASH AND CASH DISTRIBUTIONS. Financial Instruments - The Fund has entered into swap agreements with its principal bankers in order to fix the interest rates on its long-term debt. Under the swap agreements, which are treated as a hedge for accounting purposes, the interest rate on the outstanding U.S. long-term debt is 6.225% and on the Canadian dollar long-term debt is 5.595%. At June 30, 2007, the fair value of these agreements is $2.9 million in favour of the Fund. See comments under NET INTEREST AND DEBT ACCRETION EXPENSE for comments on these rates. See Results of Operations by Business Segment - Foreign Exchange for additional comments on hedging. To manage its exposure to changes in the price of natural gas, the Fund has entered into natural gas forward contracts. The Fund buys and sells specific quantities of natural gas at pre-determined dates on indices which are matched with the anticipated operational cash flows. At June 30, 2007, the fair value of these agreements is $0.1 million in favour of the Fund. These contracts are accounted for as non-financial derivatives. Investing Activities -------------------- Investment in capital expenditures was $1.5 million in the second quarter of 2007, compared to $1.6 million in the second quarter of 2006. This amount includes $1.5 million in the second quarter of 2007 and $1.4 million in the second quarter of 2006 for maintenance capital requirements. Investment in capital expenditures for the first six months of 2007 was $3.0 million compared to $3.4 million for the first six months of 2006. The maintenance capital expenditure components were $3.0 million for the first six months of 2007 and $2.9 million for the first six months of 2006. Total maintenance capital expenditures for the balance of 2007 are estimated at $4.4 million. Of this total, $3.7 million is planned for SPPC, $0.3 million for International and $0.4 million for Pulp Chemicals. Substantially all capital expenditures in 2007 have been for maintenance capital, whereas $0.1 million and $0.5 million were invested during the second quarter and first six months of 2006 respectively. Non-maintenance capital expenditures, which are not deducted in the determination of distributable cash, 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. Acquisitions - On May 1, 2007, the Fund completed the purchase of Olin Corporation's liquid sodium hydrosulphite ("SHS") customer contracts for $6.7 million (US$6.0 million), a portion of which is subject to certain earn out provisions. The acquisition does not include Olin's manufacturing assets. The Fund incurred transaction related costs of $0.2 million. Cash Balances - At June 30, 2007 the Fund had net cash balances of $5.0 million and working capital of $36.2 million. Comparable numbers for December 31, 2006 were $6.1 million and $30.7 million, respectively. The Fund defines working capital to exclude cash, operating line of credit, distributions payable and current portion of long-term debt. Cash generated by the Fund will be used to fund cash distributions to Unitholders, capital requirements, interest and other legal obligations. The Fund expects that its liquidity will be sufficient to fund its expected requirements for the balance of 2007. SUMMARY OF QUARTERLY RESULTS Three Months Ended ------------------ September December March 31, June 30, ($'000) 30, 2006 31, 2006 2007 2007 ------------------------------------------------------------------------- Revenue $ 148,692 $ 146,930 $ 128,661 $ 130,163 Cost of sales and services 124,833 122,026 108,654 103,291 ------------------------------------------------------------------------- Gross profit 23,859 24,904 20,007 26,872 Selling, general, administrative and other costs 7,112 8,281 7,502 10,093 Restructuring costs - 2,706 1,481 490 ------------------------------------------------------------------------- Earnings before the under-noted 16,747 13,917 11,024 16,289 Depreciation and amortization 11,277 9,970 10,218 9,729 Impairment of property, plant and equipment 15,596 (3,320) - - Net interest and accretion expense 3,018 2,992 3,060 3,162 Income taxes (net) (2,926) (1,110) (1,714) (1,671) Minority interest - - (2) (2) ------------------------------------------------------------------------- Net earnings (loss) $ (10,218) $ 5,385 $ (538) $ 5,071 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended ------------------ September December March 31, June 30, ($'000) 30, 2005(1) 31, 2005 2006 2006 ------------------------------------------------------------------------- Revenue $ 125,779 $ 114,068 $ 121,925 $ 134,581 Cost of sales and services 99,787 92,569 98,926 110,075 ------------------------------------------------------------------------- Gross profit 25,992 21,499 22,999 24,506 Selling, general, administrative and other costs 7,635 6,465 7,316 5,496 ------------------------------------------------------------------------- Earnings before the under-noted 18,357 15,034 15,683 19,010 Depreciation and amortization 9,752 11,853 11,262 11,858 Early settlement of debt 2,878 - - - Write-down of fixed assets 586 - - - Net interest and accretion expense 2,917 2,532 2,665 2,763 Income taxes (net) (975) (2,429) (2,030) (478) Minority interest - 1 1 (1) ------------------------------------------------------------------------- Net earnings $ 3,199 $ 3,077 $ 3,785 $ 4,868 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Includes the results of Refinery Services and Phosphorous Specialties for the period from August 2, 2005 to September 30, 2005. 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 $ 163,903 $ - $ 163,903 $ - $ - Operating Leases 41,746 15,722 18,554 5,114 2,356 Interest on Long-Term Debt 20,508 9,844 10,664 - - ------------------------------------------------------------------------- Total Contractual Obligations $ 226,157 $ 25,566 $ 193,121 $ 5,114 $ 2,356 ------------------------------------------------------------------------- ------------------------------------------------------------------------- RISKS AND UNCERTAINTIES The Fund is one of the world's largest suppliers of sulphuric acid ("acid"), liquid sulphur dioxide ("SO(2)") and sodium hydrosulphite ("SHS") and a leading processor of spent acid, particularly in the U.S. Gulf Coast region. The Fund is also a leading regional supplier of sulphur, sodium chlorate and phosphorus pentasulphide, and also produces zinc oxide at three North American locations. As such the Fund faces various risks associated with its business. These risks include, amongst others, the loss of a portion of its customer base, the interruption of the supply of sulphur-based products or raw materials, price fluctuations in the products sold and/or raw materials purchased, industry over-capacity, acquisition integration and operational and product hazard risks associated with the nature of its business. The Fund imports key raw materials and products from overseas and as such has additional risks associated with the sourcing activity. The Fund makes extensive use of the railway system to transport material within North America. Certain locations are serviced by a sole carrier and thus a disruption in service could have a significant negative impact on results. In addition, the Fund sells a significant portion of its major products to large customers. While many of these customers are under contract, there can be no assurance that these contracts will be renewed. As the Fund's business is international in nature, it is exposed to foreign exchange risks related to the payment of dividends and other transactions by its foreign subsidiaries. The Fund manages the risks associated with its customer base and sales price by seeking to obtain contractual protection to mitigate these risks. The Fund also seeks to differentiate its products and services with customers to mitigate price fluctuations and uses its scale to obtain beneficial raw material contracts. In 2005 the Fund completed an enterprise-wide business risk assessment review. The objectives of this review were to: - Develop a structured approach to identify, assess and prioritize key business risks; - Create the foundation for common business risk language; - Enhance risk management awareness, and associate the risks with the Fund's goals and objectives; - Analyze the Fund's risk tolerance; - Assign ownership of the key risks, and - Develop high level action plans to mitigate the key risks. All members of the Fund's senior management team were involved with the process, which included a review of our North American and international operations. Key risks were identified and prioritized for review and the development of action plans. This enterprise-wide risk review process will be an on-going aspect of the Fund's risk management program. In addition, the Fund maintains an extensive insurance program which includes general liability and environmental coverage. As noted in the Fund's IPO Prospectus dated July 12, 2001, the Fund is aware of proceedings having been undertaken by the Department of Justice in the United States relating to the sulphuric acid market. The Fund has received assurances from the Department of Justice that an arrangement currently in place with Marsulex Inc. will be extended to the Fund, and will ensure that the Fund has no criminal liability in this matter as long as the Fund complies with the requirements of the Department of Justice. The Fund intends to comply with this requirement. Marsulex Inc., which formerly owned certain operations of the Fund, has agreed to indemnify the Fund in respect of (i) any criminal liability relating to the proceedings, and (ii) any civil claims of industry participants claiming damages as a result of conduct being investigated in these proceedings, and (iii) any costs relating to defending against such liability or claims, provided that the Fund complies with the requirements of the arrangement with the Department of Justice. Marsulex Claim - During the third quarter of 2005, the Fund received and responded to a claim from Marsulex Inc. ("Marsulex") against the Fund alleging that the acquisition of Peak Sulfur, Inc. and Peak Chemical LLC is a breach of a non-competition agreement in favour of Marsulex. Marsulex is seeking damages in the amount of $72.8 million, as well as other relief. The Fund has received advice from its legal advisors that the non-competition covenants contained in such agreement are likely unenforceable. The Fund has filed a statement of defence and a counter-claim in the amount of $87.8 million in respect of this action and intends to vigorously defend the claim brought against it by Marsulex and pursue its counter-claim. Dependence on Inco Relationship - Inco is the Fund's largest sulphur products supplier. While the Fund's relationship with Inco has been in place for more than 70 years, there is no assurance that the Fund will be able to maintain this relationship beyond the current agreement term. If this agreement is not renewed, it will expire at the end of 2009. There is also no assurance that any subsequent agreement with Inco will have terms as favourable as those contained in the current agreement. The Fund has recorded an intangible asset with respect to this relationship. Income Taxes - On June 22, 2007, legislation (the "SIFT Rules") relating to the federal income taxation of publicly-listed or traded trusts (such as income trusts and real estate investment trusts) and partnerships received royal assent. The SIFT Rules apply to a publicly-traded trust that is a specified investment flow-through entity (a "SIFT") which existed before November 1, 2006 ("Existing Trust") commencing with taxation years ending in 2011. Certain distributions attributable to a SIFT will not be deductible in computing the SIFT's taxable income, and the SIFT will be subject to tax on such distributions at a rate that is substantially equivalent to the general tax rate applicable to Canadian corporations. Distributions paid by a SIFT as returns of capital will not be subject to this tax. There will be circumstances where an Existing Trust may lose its transitional relief where its equity capital grows beyond certain dollar limits measured by reference to the Existing Trust's market capitalization at the close of trading on October 31, 2006. The Fund is a SIFT as defined in the Legislation. Accordingly, the Fund will be subject to taxes on distributions of certain income earned from investments in its subsidiaries made after 2010. The Fund is also required to recognize future income tax assets and liabilities with respect to the temporary differences between the carrying amount and tax bases of its assets and liabilities and those of its flow-through subsidiaries that are expected to reverse in or after 2011. The Fund expects that its aggregate temporary differences and those of its flow-through subsidiaries will reverse prior to 2011. Accordingly, there is no impact in the current period as a result of the Legislation. The Fund expects that its distributions will not be subject to tax prior to 2011 and accordingly has not provided for future income taxes on the temporary differences expected to reverse prior to then. The Legislation does not affect the current and future tax amounts of the Fund's corporate subsidiaries. CRITICAL ACCOUNTING POLICIES The Fund's accounting policies are described in Note 2 to the consolidated financial statements for the year ended December 31, 2006 except as disclosed in Note 2 to the consolidated financial statements for the period ended June 30, 2007. There have been no changes to the critical accounting policies as disclosed in the Fund's annual MD&A for the year ended December 31, 2006, except as discussed below under Financial Instruments. Financial Instruments - Effective January 1, 2007, the Fund adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income; Section 3251, Equity; Section 3855, Financial Instruments - Recognition and Measurement; Section 3861, Financial Instruments - Disclosure and Presentation; and Section 3865, Hedges. These sections apply to fiscal years beginning on or after October 1, 2006 and provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities, non-financial derivatives and embedded derivatives, and describe when and how hedge accounting may be applied. Section 1530 establishes standards for reporting and presenting comprehensive income, which is defined as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income that are excluded from net income calculated in accordance with generally accepted accounting principles. Under the new standards, policies followed for periods prior to the effective date generally are not reversed and therefore, the comparative figures have not been restated. Under the new standards, financial instruments must be classified into one of these five categories: held-for-trading, held-to-maturity, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments are initially recorded on the balance sheet at fair value. After initial recognition, the financial instruments should be measured at their fair values, except for held-to-maturity investments, loans and receivables and other financial liabilities, which should be measured at amortized cost. The effective interest related to the financial liabilities and the gain or loss arising from the change in the fair value of a financial asset or liability classified as held-for-trading is included in net income for the period in which it arises. RECENT ACCOUNTING PRONOUNCEMENTS Capital Disclosures - In December 2006, the CICA issued Handbook Section 1535, Capital Disclosures, which establishes standards for disclosing information about an entity's capital and how it is managed. The entity's disclosure should include information about its objectives, policies and processes for managing capital and disclose whether or not it has complied and the consequences of non-compliance with any capital requirements to which it is subject. The new standard will become effective on January 1, 2008 for the Fund. The Fund is currently evaluating the impact of the adoption of this new section on the consolidated financial statements. Financial Instruments - Disclosures and Financial Instruments - Presentation - In December 2006, the CICA issued Handbook Sections 3862, Financial Instruments - Disclosures, and 3863, Financial Instruments - Presentation. Section 3862 modifies the disclosure requirements of Section 3861, Financial Instruments - Disclosure and Presentation, including required disclosure for the assessment of the significance of financial instruments for an entity's financial position and performance and of the extent of risks arising from financial instruments to which the Fund is exposed and how the Fund manages those risks, whereas Section 3863 carries forward the presentation related requirements of Section 3861. The new standards will become effective on January 1, 2008 for the Fund. The Fund is currently evaluating the impact of the adoption of Section 3862 while the Fund does not expect the adoption of 3863 to have a significant effect on the consolidated financial statements. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES In accordance with the requirements of Canadian securities regulators, the CEO and CFO of the Fund are required to certify that they have designed the Fund's disclosure controls and have evaluated their effectiveness for the applicable period. Disclosure controls are those controls and procedures which ensure that information that is required to be disclosed is recorded, processed and reported within the time frames specified by the regulators. The effectiveness of the Fund's Disclosure Policies and Procedures was reviewed by the CEO and CFO, primarily by the completion of questionnaires which were reviewed with the Trustees. The CEO and CFO of the Fund have concluded that the Disclosure Policies and Procedures of the Fund will provide reasonable assurance that the Fund's policy of providing timely, consistent, fair and accurate public disclosure of material information will be achieved. INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. Management has evaluated whether there were changes to internal control over financial reporting during the period ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. Management's evaluation did not identify any such changes. OUTLOOK We anticipate strong demand for some of our products, particularly, acid and sodium chlorate and generally stable demand for our other products. These factors along with improved pricing especially in merchant and regen acid should be sufficient to more than offset the cost pressures we have previously mentioned. We therefore expect to generate higher levels of distributable cash in the second half of this year compared with the first half of this year and over the next twelve months, relative to the previous twelve months. OTHER Additional information concerning the Fund, including the Annual Information Form, is filed on SEDAR and can be accessed at www.sedar.com. August 1, 2007 %SEDAR: 00016317E

For further information:

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


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