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Chemtrade Logistics Income Fund reports 2009 first quarter results

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^{Published in Business and Finance on Monday, May 11th 2009 at 14:22 GMT, Last Modified on 2009-05-11 14:47:23 by Market Wire}  

 TORONTO, May 11 /CNW/ - Chemtrade Logistics Income Fund (TSX: CHE.UN) today announced results for the three months ended March 31, 2009. The Fund reported declines in revenue, primarily as a result of lower volumes due to a general reduction of demand for most products and considerably lower prices for sulphur and sulphuric acid in the International segment. The quarter was also significantly impacted by the costs incurred for making alternative arrangements to ensure that customers' operations were not disrupted while Chemtrade's Beaumont, Texas was offline. Cash flow from operating activities for the first quarter was negative $9.9 million (2008: positive $6.0 million) and Distributable cash after maintenance capital expenditures for the period was $9.6 million, or $0.31 per unit (2008: $17.9 million, or $0.53 per unit), generated from revenue of $161.8 million (2008: $217.8 million) and earnings before interest, income taxes, depreciation and amortization (EBITDA) of $18.3 million (2008: $22.8 million). Net earnings for the first quarter were $1.3 million compared with $9.5 million in the same period in 2008. Mark Davis, President and Chief Executive Officer of Chemtrade, said, "As anticipated, the decline in demand that occurred at the end of 2008 continued into the first quarter of 2009 and resulted in reduced volumes for most of our products. The effect of these market conditions was exacerbated by our Beaumont plant not being back online at full rates until near the end of the quarter as we incurred additional costs in order to ensure that customers' operations were not disrupted as we brought the plant back to normal operations." Mr. Davis noted that if Beaumont had been operating for the full quarter Chemtrade would have avoided costs of approximately $6 million, or 19 cents per unit, in the first quarter. Sulphur Products & Performance Chemicals (SPPC) generated revenue of $99.7 million and EBITDA of $9.1 million compared with $98.9 million and $19.9 million, respectively, in 2008. Although weaker demand resulted in lower sales volumes for most products in 2009 compared with 2008, the impact on revenue was generally offset by higher pricing and the positive effect of the weaker Canadian dollar on U.S. denominated revenue. Results were also negatively impacted by the loss of production at the Beaumont plant as well as costs associated with ensuring that customers' operations were not disrupted during the time the plant was offline. In addition, the Tulsa plant turnaround was moved to the first quarter from later in the year. Pulp Chemicals reported first quarter revenue of $11.9 million compared with $14.8 million in 2008, reflecting reduced demand for sodium chlorate. The negative impact of the lower volume was partially offset by lower costs, primarily for electricity. EBITDA was $4.8 million compared with $5.2 million in 2008. International reported revenue of $50.2 million for the first quarter, compared with $104.1 million in 2008. This was a result of significantly reduced volume and prices for sulphur and sulphuric acid, reflecting much weaker global demand. The impact of the lower volume and prices was partially offset by the positive impact of the weaker Canadian dollar on U.S. denominated revenues. EBITDA for the quarter was $3.8 million compared with $6.2 million last year. The Corporate segment recorded recoveries of $0.5 million for the first quarter compared with costs of $8.7 million in 2008. The main reason for the reduction was a reversal of previously recorded accruals in the Fund's Total Return Long-Term Incentive Plan of $3.4 million compared with an expense of $4.1 million in 2008. Mr. Davis said, "The economic environment in the first quarter was difficult. Our business and business model are structured to generate sustainable distributable cash even in tough market conditions. However, this was not apparent in our first quarter results, due primarily to our largest plant not operating for most of the quarter. Now that the Beaumont plant is back to normal operations, we believe that over the next 12 months we will generate Distributable cash after maintenance capital expenditure above our current distribution rate. Regarding 2009, even with current levels of demand for our products, the second half of 2009 is expected to be stronger than the first half, since we incur the majority of our capital expenditure and plant turnarounds in the first half of the year." Distributions Distributions declared in the first quarter totalled $0.30 per unit, comprised of monthly distributions of $0.10 per unit. This news release contains certain statements which may constitute "forward-looking" statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario). The use of any of the words "anticipate", "continue", estimate", "expect", "expected", "intend", "may", "will", "project", "plan", "should", "believe" and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this news release describe the expectations of Chemtrade as of the date of this news release. Our actual results could be materially different from our expectations if known or unknown risks affect our business, or if our estimates or assumptions turn out to be inaccurate. As a result, we cannot guarantee that any forward-looking statement will materialize. Forward-looking statements do not take into account the effect that transactions or non-recurring items announced or occurring after the statements are made may have on our business. We disclaim any intention or obligation to update any forward-looking statement even if new information becomes available, as a result of future events or for any other reason. This news release contains forward-looking statements about the objectives, strategies, financial condition, results of operations and businesses of the Fund, including, but not limited to: - the Fund's ability to have achieved higher Distributable cash after maintenance capital expenditures had the Beaumont plant operated at full capacity during the first quarter; - the Fund's ability to achieve Distributable cash after maintenance capital expenditures above its current distribution rate over the next 12 months; and - the Fund's ability to achieve stronger financial results in the second half of 2009 than in the first half. Financial outlook information contained in this press release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this press release should not be used for purposes other than those for which it is disclosed herein. Further information can be found in the disclosure documents filed by Chemtrade Logistics Income Fund with the securities regulatory authorities, available at [ www.sedar.com ]. A conference call to review the first quarter 2009 results will be webcast live on [ www.chemtradelogistics.com ] and [ www.newswire.ca/webcast ] on Tuesday, May 12, 2009 at 8:30 a.m. CHEMTRADE LOGISTICS INCOME FUND Consolidated Balance Sheets (in thousands of dollars) March 31, December 31, 2009 2008 ------------------------------------------------------------------------- (unaudited) ASSETS Current assets Cash and cash equivalents $ 15,177 $ 48,050 Accounts receivable 96,280 138,640 Inventories 30,033 38,124 Prepaid expenses and other assets (note 7(b)) 4,510 6,259 ------------------------------------------------------------------------- 146,000 231,073 Notes receivable 3,153 3,045 Property, plant and equipment 173,880 169,174 Other assets 2,731 2,583 Future tax asset 13,123 13,283 Intangibles 134,485 137,227 Goodwill 100,964 98,840 ------------------------------------------------------------------------- $ 574,336 $ 655,225 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND UNITHOLDERS' EQUITY Current liabilities Accounts payable $ 69,407 $ 122,685 Accrued and other liabilities (note 7(b)) 51,165 71,024 Distributions payable 3,078 3,178 Income taxes payable 5,597 8,157 ------------------------------------------------------------------------- 129,247 205,044 Long-term debt (note 3) 191,757 185,023 Other long-term liabilities (note 7(b)) 13,589 12,706 Post-employment benefits 4,170 4,238 Future tax liability 30,136 30,278 Unitholders' equity Units (note 4(b)) 377,144 389,932 Contributed surplus (note 4(c)) 9,720 5,272 Deficit (161,108) (153,141) Accumulated other comprehensive (loss) (note 5) (20,319) (24,127) ------------------------------------------------------------------------- 205,437 217,936 ------------------------------------------------------------------------- $ 574,336 $ 655,225 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to consolidated financial statements CHEMTRADE LOGISTICS INCOME FUND Consolidated Statements of Earnings (in thousands of dollars, except per unit amounts) (unaudited) Three Months Ended ------------------ March 31, March 31, 2009 2008 ------------------------------------------------------------------------- Revenue $ 161,823 $ 217,790 Cost of sales and services (excluding depreciation disclosed below) 137,522 182,943 ------------------------------------------------------------------------- Gross profit 24,301 34,847 Selling, general, administrative and other costs 6,025 13,333 Restructuring costs - (1,238) ------------------------------------------------------------------------- Earnings before the under-noted 18,276 22,752 Unrealized foreign exchange loss 3,903 551 Depreciation and amortization 11,165 9,845 Net interest and accretion expense (note 3) 2,103 3,031 ------------------------------------------------------------------------- Earnings before income taxes 1,105 9,325 Income taxes Current 708 1,370 Future (924) (1,499) ------------------------------------------------------------------------- (216) (129) ------------------------------------------------------------------------- Net earnings $ 1,321 $ 9,454 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net earnings per unit (note 4(d)) Basic $ 0.04 $ 0.28 Diluted $ 0.04 $ 0.28 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cost of sales and services for the three months ended March 31, 2009 does not include $5,537 (2008 - $4,623) of depreciation relating to plant buildings and equipment. See accompanying notes to consolidated financial statements CHEMTRADE LOGISTICS INCOME FUND Consolidated Statements of Changes in Unitholders' Equity (in thousands of dollars) (unaudited) Three Months Ended ------------------ March 31, March 31, 2009 2008 ------------------------------------------------------------------------- Units Balance, beginning of period $ 389,932 $ 412,957 Repurchase of units (note 4(c)) (12,788) - ------------------------------------------------------------------------- Balance, end of period $ 377,144 $ 412,957 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Contributed surplus Balance, beginning of period $ 5,272 $ - Repurchase of units (note 4(c)) 4,448 - ------------------------------------------------------------------------- Balance, end of period $ 9,720 $ - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Deficit Balance, beginning of period $ (153,141) $ (154,040) Changes in accounting policies - 474 ------------------------------------------------------------------------- Balance, beginning of period, as adjusted (153,141) (153,566) Net earnings 1,321 9,454 Distributions (9,288) (10,075) ------------------------------------------------------------------------- Balance, end of period $ (161,108) $ (154,187) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Accumulated other comprehensive (loss) (note 5) Balance, beginning of period $ (24,127) $ (53,305) Other comprehensive income 3,808 2,605 ------------------------------------------------------------------------- Balance, end of period $ (20,319) $ (50,700) ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to consolidated financial statements Consolidated Statements of Comprehensive Income (in thousands of dollars) (unaudited) Three Months Ended ------------------ March 31, March 31, 2009 2008 ------------------------------------------------------------------------- Net earnings $ 1,321 $ 9,454 Change in unrealized loss on translation of self-sustaining foreign operations 5,480 4,714 Change in unrealized loss on derivatives designated as cash flow hedges (1,672) (2,109) ------------------------------------------------------------------------- Other comprehensive income 3,808 2,605 ------------------------------------------------------------------------- Comprehensive income $ 5,129 $ 12,059 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to consolidated financial statements CHEMTRADE LOGISTICS INCOME FUND Consolidated Statements of Cash Flows (in thousands of dollars) (unaudited) Three Months Ended ------------------ March 31, March 31, 2009 2008 ------------------------------------------------------------------------- Cash provided by (used in): Operating activities: Net earnings $ 1,321 $ 9,454 Items not affecting cash: Depreciation and amortization 11,165 9,845 Future income taxes (924) (1,499) Accretion expense 153 205 Change in fair value of derivatives and unrealized foreign exchange loss 3,753 1,897 ------------------------------------------------------------------------- 15,468 19,902 Increase in working capital (25,358) (13,893) ------------------------------------------------------------------------- (9,890) 6,009 Financing activities: Distributions to unitholders (9,390) (10,075) Repurchase of units (note 4(c)) (8,340) - Increase in operating line of credit - 684 Increase in other long-term liabilities 873 3,085 ------------------------------------------------------------------------- (16,857) (6,306) Investing activities: Additions to property, plant and equipment (6,087) (2,254) ------------------------------------------------------------------------- (6,087) (2,254) Effect of exchange rates on cash held in foreign currencies (39) 91 ------------------------------------------------------------------------- Decrease in cash and cash equivalents (32,873) (2,460) Cash and cash equivalents - beginning of year 48,050 11,804 ------------------------------------------------------------------------- Cash and cash equivalents - end of year $ 15,177 $ 9,344 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental information: Cash taxes paid $ 3,269 $ 734 Cash interest paid $ 2,285 $ 2,835 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to consolidated financial statements CHEMTRADE LOGISTICS INCOME FUND Notes to Consolidated Financial Statements (in thousands of dollars) (unaudited) March 31, 2009 ------------------------------------------------------------------------- 1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS: Chemtrade Logistics Income Fund (the "Fund") commenced operations on July 18, 2001 when it completed an Initial Public Offering and purchased various assets and related businesses from Marsulex Inc. The Fund operates in four business segments: Sulphur Products & Performance Chemicals (SPPC), Pulp Chemicals, International and Corporate. For additional information regarding the Fund's business segments see note 6. These interim consolidated financial statements of the Fund have been prepared by management in accordance with accounting principles generally accepted in Canada. These interim consolidated financial statements include the accounts of the Fund and its wholly-owned subsidiaries. Inter-company transactions and balances have been eliminated. These interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the annual consolidated financial statements of the Fund for the year ended December 31, 2008, except as disclosed in note 2. These interim consolidated financial statements do not contain all disclosures required by generally accepted accounting principles and accordingly should be read in conjunction with the annual consolidated financial statements and the notes thereto. 2. CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS: (a) Changes in Accounting Policies: (i) Goodwill and intangible assets Effective January 1, 2009, the Fund adopted the recommendations of the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3064, Goodwill and Intangible Assets. Section 3064 states that upon their initial identification, intangible assets are to be recognized as assets if they meet the definition of an intangible asset and if they satisfy the recognition criteria contained in the Handbook section. This section also provides further information on the recognition of internally generated intangible assets (including research and development costs). Section 3064 carries forward the requirements of the old Section 3062, Goodwill and Other Intangible Assets with regards to the subsequent measurement of intangible assets, goodwill, and disclosure. The adoption of this section did not have an impact on the Fund's consolidated financial statements. (ii) Fair value of financial assets and financial liabilities Effective January 1, 2009, the Fund adopted the recommendations of EIC-173, entitled Credit Risk and the Fair Value of Financial Assets and Financial Liabilities, which provides further information on the determination of the fair value of financial assets and financial liabilities under Section 3855, entitled Financial Instruments - Recognition and Measurement. This EIC states that an entity's own credit and the credit risk of the counter-party should be taken into account in determining the fair value of financial assets and financial liabilities, including derivative instruments. The adoption of this EIC did not have an impact on the Fund's consolidated financial statements. (b) Recent Accounting Pronouncements: (i) Convergence to International Financial Reporting Standards (IFRS) In January 2006, the CICA Accounting Standards Board (AcSB) adopted a strategic plan for the direction of accounting standards in Canada. The AcSB has recently confirmed that accounting standards in Canada for public companies are to converge with IFRS effective for fiscal periods beginning on or after January 1, 2011. The Fund has assembled an IFRS transition team which has started to assess the impact of the convergence of Canadian GAAP and IFRS, and will implement the new IFRS standards. (ii) Business combinations In January 2009, the CICA issued Handbook Sections 1582, Business Combinations; 1601, Consolidated Financial Statements; and 1602, Non- Controlling Interests. These sections replace Handbook Sections 1581, Business Combinations; and 1600, Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under IFRS. Section 1582 is applicable for the Fund's business combinations with acquisition dates on or after January 1, 2011. Early adoption of this section is permitted. Sections 1601 and 1602 establish standards for the preparation of consolidated financial statements and for accounting for a non- controlling interest in a subsidiary in the consolidated financial statements subsequent to a business combination. Sections 1601 and 1602 are applicable for the Fund's interim and annual consolidated financial statements for its fiscal year beginning January 1, 2011. Early adoption of these sections is also permitted. If the Fund chooses to early adopt any one of these sections, the other two sections must also be adopted at the same time. The Fund is currently evaluating the effect of these new sections on the consolidated financial statements. 3. LONG-TERM DEBT: During the first quarter of 2009, the Fund entered into new interest rate swap arrangements, which fix interest rates on all of its outstanding long-term debt, at a weighted average effective interest rate of 4.58% until August 2011. Previously the Fund had interest rate swaps related to its long-term debt and operating lines of credit, which fixed interest rates until August 2010. The Fund collapsed all of these interest rate swaps upon entering into the new interest rate swap arrangements and rolled the related fair value liability of $9,790 into its new interest rate swaps. This value will be amortized on a straight-line basis over the remaining term of the long-term debt in net interest and accretion expense. 4. UNITS: (a) Authorized: Unlimited number of units. (b) Outstanding: Number of Units Amount --------------------------------------------------------------------- Units Balance - December 31, 2008 31,710,410 $ 389,932 Units repurchased for cancellation (note 4(c)) (1,039,940) (12,788) --------------------------------------------------------------------- Balance - March 31, 2009 30,670,470 $ 377,144 --------------------------------------------------------------------- --------------------------------------------------------------------- (c) Normal course issuer bid: On September 19, 2008, the Fund announced that it intends to purchase up to 10% of the public float of its units by way of a normal course issuer bid (the "Bid") through the facilities of the Toronto Stock Exchange (TSX"). The purchases commenced on September 23, 2008 and will terminate by September 22, 2009. The purchases will be made in accordance with the policies and rules of the TSX and units will be purchased for cancellation. The prices that Chemtrade will pay for any units will be the market price of such units at the time of acquisition. During 2009, the Fund purchased 1,039,940 units at an average per unit price of $8.02 for an aggregate purchase amount of $8,340. This resulted in $12,788 being recorded as a reduction to the value of units and $4,448 being recorded as contributed surplus. During 2008, the Fund purchased 1,872,526 units at an average per unit price of $9.48 for an aggregate purchase amount of $17,753. This resulted in $23,025 being recorded as a reduction to the value of units and $5,272 being recorded as contributed surplus. (d) Net earnings per unit: Net earnings per unit has been calculated on the basis of the weighted average number of units outstanding for the three months ended March 31, 2009 which amounted to 31,267,886 units (2008 - 33,582,936 units). (e) Distributions: Distributions paid for the three month period ended March 31, 2009 were $9,390 (2008 - $10,075). All of the Fund's distributions are discretionary. (f) Long-term incentive plan: The Fund operates a Total Return Long-Term Incentive Plan (TR LTIP) which grants cash awards based on achieving total Unitholder return over a performance period. Total Unitholder return consists of: changes in unit price and distributions paid to Unitholders. The Fund treats these awards as liabilities with the value of these liabilities being re-measured at each reporting period, based upon changes in the intrinsic value of the awards. Any gains or losses on re-measurement are recorded in the Consolidated Statements of Earnings, provided that the aggregate compensation cost accrued during the performance period is not adjusted below zero. For the three month period ended March 31, 2009, the Fund recorded a total recovery of $3,433 (2008 - expense of $4,087) related to the TR LTIP. As at March 31, 2009 there are no amounts outstanding related to the TR LTIP. As at December 31, 2008, there was $1,661 included in Accrued and other liabilities, and $3,500 included in Other long-term liabilities. 5. OTHER COMPREHENSIVE INCOME (LOSS): The components of accumulated other comprehensive income (loss) as at March 31, 2009 and other comprehensive income (loss) for the three months then ended were as follows: Opening balance Ending balance Accumulated other December 31, March 31, comprehensive (loss) 2008 Net change 2009 --------------------------------------------------------------------- Unrealized (loss) gain on translation of self- sustaining foreign operations $(19,411) $ 5,480 $(13,931)(1) Loss on derivatives designated as cash flow hedges (4,716) (1,672) (6,388)(2) --------------------------------------------------------------------- Accumulated other comprehensive (loss) $(24,127) $ 3,808 $(20,319) --------------------------------------------------------------------- --------------------------------------------------------------------- Opening balance Ending balance Accumulated other December 31, March 31, comprehensive (loss) 2007 Net change 2008 --------------------------------------------------------------------- Unrealized (loss) gain on translation of self- sustaining foreign operations $(52,867) $ 4,714 $(48,153)(1) Loss on derivatives designated as cash flow hedges (438) (2,109) (2,547)(2) --------------------------------------------------------------------- Accumulated other comprehensive (loss) $(53,305) $ 2,605 $(50,700) --------------------------------------------------------------------- --------------------------------------------------------------------- (1) Net of income tax expense of $nil (2008 - $nil). (2) Net of cumulative income tax recovery of $3,839 (2008 - $1,312). 6. BUSINESS SEGMENTS: The Fund operates in four business segments: Sulphur Products & Performance Chemicals (SPPC), Pulp Chemicals (Pulp), International (Intl) and Corporate (Corp). SPPC markets, removes and/or produces merchant and regenerated sulphuric acid, liquid sulphur dioxide, sodium hydrosulphite, elemental sulphur and phosphorous pentasulphide. These products are marketed primarily to North American customers. Pulp produces sodium chlorate and crude tall oil. These products are marketed primarily to Canadian customers. International provides removal and marketing services for elemental sulphur and sulphuric acid. These products are marketed to customers in Europe, the Mediterranean, North Africa, Central and South America, North America, as well as in the Pacific region. Corporate is a non-operating segment that provides centralized services such as treasury, finance, information systems, human resources, legal and risk management. Three Months Ended March 31, 2009 --------------------------------------------------------------------- SPPC Pulp Intl Corp Total --------------------------------------------------------------------- Revenue from external customers $ 99,695 $ 11,943 $ 50,185 $ - $161,823 Earnings before the under-noted 9,145 4,786 3,821 524 18,276 Unrealized foreign exchange gain - - - 3,903 3,903 Depreciation and amortization 8,293 2,272 600 - 11,165 Net interest and accretion expense 1,655 496 (48) - 2,103 Income tax (recovery) expense (866) - 650 - (216) Net earnings 63 2,018 2,619 (3,379) 1,321 Total assets 306,164 101,494 166,562 116 574,336 Goodwill 68,641 - 32,323 - 100,964 Intangibles 90,403 38,246 5,836 - 134,485 Capital expenditures 5,758 100 40 189 6,087 --------------------------------------------------------------------- --------------------------------------------------------------------- Three Months Ended March 31, 2008 --------------------------------------------------------------------- SPPC Pulp Intl Corp Total --------------------------------------------------------------------- Revenue from external customers $ 98,856 $ 14,839 $104,095 $ - $217,790 Earnings before the under-noted 19,938 5,241 6,226 (8,653) 22,752 Unrealized foreign exchange gain - - - 551 551 Depreciation and amortization 7,154 2,329 362 - 9,845 Net interest and accretion expense 2,589 524 (82) - 3,031 Income tax (recovery) expense (1,176) - 1,047 - (129) Net earnings (loss) 11,371 2,388 4,899 (9,204) 9,454 Capital expenditures 1,573 25 596 60 2,254 --------------------------------------------------------------------- --------------------------------------------------------------------- December 31, 2008 --------------------------------------------------------------------- SPPC Pulp Intl Corp Total --------------------------------------------------------------------- Total assets $367,677 $ 91,687 $195,128 $ 733 $655,225 Goodwill 66,883 - 31,957 - 98,840 Intangibles 91,762 39,597 5,868 - 137,227 --------------------------------------------------------------------- --------------------------------------------------------------------- Geographic segments: The Fund operates primarily in Canada, the United States and Europe. Revenue is attributed to customers based on location of customer. Revenue --------------------------------------------------------------------- Three Months Ended --------------------------------------------------------------------- March 31, March 31, 2009 2008 --------------------------------------------------------------------- Canada $ 31,523 $ 32,255 US and other 80,115 81,440 Europe 50,185 104,095 --------------------------------------------------------------------- $ 161,823 $ 217,790 --------------------------------------------------------------------- --------------------------------------------------------------------- Property, Plant and Equipment, Goodwill and Intangibles --------------------------------------------------------------------- March 31, December 31, 2009 2008 --------------------------------------------------------------------- Canada $ 119,297 $ 122,318 US and other 241,295 234,540 Europe 48,737 48,383 --------------------------------------------------------------------- $ 409,329 $ 405,241 --------------------------------------------------------------------- --------------------------------------------------------------------- For the three months ended March 31, 2009, the Fund obtained product from a producer that accounted for 17.7% (2008 - 12.9%) of the Fund's total revenue. For the three months ended March 31, 2009, revenue from a customer accounted for 11.5% (2008 - 11.7%) of the Fund's total revenues. 7. FINANCIAL INSTRUMENTS: (a) Fair values of financial instruments: Fair value is the value that would be agreed upon in an arm's length transaction between willing and knowledgeable counter-parties. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued and other liabilities and distributions payable approximate their fair values because of the short-term maturity of these financial instruments. The carrying amount of long- term debt, excluding transaction costs, approximates fair value as the debt accrues interest at prevailing market rates. (b) Derivatives and hedging: The Fund has entered into swap arrangements with its principal banker, which fix interest rates on all of its outstanding long-term debt. In the first quarter of 2009, the Fund entered into new swap arrangements which will fix interest rates on all of its long-term debt until August 2011. Previously the Fund had interest rate swaps related to its long-term debt and operating lines of credit, which fixed interest rates until August 2010. The Fund collapsed all of these interest rate swaps upon entering into the new swap arrangements. Losses are included in accrued and other liabilities and other long-term liabilities with the offset included in other comprehensive income, except for the amortization of the fair value liability of the interest rate swaps entered into during the first quarter of 2009 as discussed in note 3 which is included in net interest and accretion expense. Summarized information related to the interest rate swaps is as follows: Weighted Average Fair Value Fair Value Effective Loss Loss Interest March 31, December 31, Hedged Item Maturity Date Rate 2009 2008 --------------------------------------------------------------------- U.S. dollar $11,315 $ 7,861 long-term debt August 2011 4.58% (US$8,971) (US$6,454) --------------------------------------------------------------------- U.S. dollar operating lines $ 1,247 of credit N/A N/A $ - (US$1,024) --------------------------------------------------------------------- The Fund has entered into foreign exchange contracts to manage its exposure to foreign currencies. The Fund buys and sells specific amounts of currencies at pre-determined dates and exchange rates, which are matched with the anticipated operational cash flows. Contracts in place at March 31, 2009 include future contracts to sell US$4,500, US$14,475, C$8,233, (euro) 16,465, CHF 2,250 and SEK 2,000 at weighted average exchange rates of C$1.1805, (euro) 0.769, (euro) 0.601, US$1.31, US$0.84 and US$0.13 respectively, for periods through to May 2010. There are unrealized losses of $753 (December 31, 2008 - $215) and unrealized gains of $969 (December 31, 2008 - $1,029) from these contracts at March 31, 2009. Gains are included in prepaid expenses and other assets, and losses are included in accrued and other liabilities with the offset included in unrealized foreign exchange loss relating to the fair value of the derivatives. To manage its exposure to changes in the price of natural gas, the Fund has entered into natural gas forward contracts. The Fund sells specific quantities of natural gas at pre-determined dates on indices, which are matched with the anticipated operational cash flows. There is a net unrealized gain of $1,458 (December 31, 2008 - $1,175) from these forward contracts at March 31, 2009. Losses are included in accrued and other liabilities and gains are included in prepaid expenses and other assets with the offset included in selling, general, administrative and other costs. The Fund's International business segment has commitments to buy and sell commodities and has entered into commodity forward contracts to manage its exposure to commodity price changes. The commitments to buy and sell commodities and the commodity forward contracts are treated as derivatives and are measured at fair value. At March 31, 2009 and December 31, 2008, the net unrealized value of these transactions is not significant. 8. COMPARATIVE FIGURES: Certain comparative figures have been re-classified in order to comply with the current period's presentation. CHEMTRADE LOGISTICS INCOME FUND MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2009 The information in this Management's Discussion and Analysis, or MD&A, is intended to assist the reader in the understanding and assessment of the trends and significant changes in the results of operations and financial condition of Chemtrade Logistics Income Fund. Throughout this MD&A, the term the "Fund" refers to Chemtrade Logistics Income Fund and its consolidated subsidiaries. The terms "we", "us" or "our" similarly refers to the Fund. This MD&A should be read in conjunction with the unaudited consolidated statements of the Fund for the three month period ended March 31, 2009 and the annual MD&A for the year ended December 31, 2008. The Fund's financial statements are prepared in accordance with accounting principles generally accepted in Canada, or Canadian GAAP. The Fund's reporting currency is the Canadian dollar. In this MD&A per unit amounts are calculated using the weighted average number of units outstanding for the applicable period unless otherwise indicated. This MD&A contains certain statements which may constitute "forward-looking" statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario). The use of any of the words "anticipate", "continue", "estimate", "expect", "expected", "intend", "may", "will", "project", "plan", "should", "believe" and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this MD&A describes the expectations of the Fund as of the date of this MD&A. The Fund's actual results could be materially different from its expectations if known or unknown risks affect its business, or if its estimates or assumptions turn out to be inaccurate. As a result, the Fund cannot guarantee that any forward-looking statement will materialize. Forward-looking statements do not take into account the effect that transactions or non-recurring items announced or occurring after the statements are made may have on the Fund's business. The Fund disclaims any intention or obligation to update any forward-looking statement even if new information becomes available, as a result of future events or for any other reason. This MD&A contains forward-looking statements about the objectives, strategies, financial condition, results of operations and businesses of the Fund including, but not limited to (capitalized terms are as defined in the MD&A): - all of the risks identified in "RISKS AND UNCERTAINTIES" section; - all of the forward-looking statements in the "OUTLOOK" section; - the amount of any TR LTIP expenses; - the ability to recover amounts from the Fund's insurers in respect of the Beaumont Incident and the quantum of any such recovery; - the ability to comply with the new emission limits imposed by the EPA and the expected cost of compliance; - the estimated impact of the Canadian/U.S. dollar exchange rate on the Fund's business; - the anticipated tax characterization of planned distributions; - the Fund's ability to renew its long-term debt at maturity; - the implementation of planned maintenance capital expenditures, as well as the cost and timing thereof; - the use and sufficiency of cash flows from operating activities; and - the potential impact of recent accounting pronouncements, including the timing of the implementation of various steps in connection with the transition to IFRS. Financial outlook information contained in the MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A should not be used for purposes other than those for which it is disclosed herein. FINANCIAL HIGHLIGHTS Three Months Ended ------------------ March 31, March 31, ($'000 except per unit amounts) 2009 2008 ------------------------------------------------------------------------- Revenue $ 161,823 $ 217,790 Net earnings $ 1,321 $ 9,454 Net earnings per unit - Basic $ 0.04 $ 0.28 - Diluted $ 0.04 $ 0.28 Total assets $ 574,336 $ 573,378 Long-term debt $ 191,757 $ 158,899 EBITDA(3) $ 18,276 $ 22,752 EBITDA per unit(1) $ 0.58 $ 0.68 Cash flows from operating activities $ (9,890) $ 6,009 Cash flows from operating activities per unit(1) $ (0.32) $ 0.18 Adjusted cash flows from operating activities(3) $ 15,428 $ 19,993 Adjusted cash flows from operating activities per unit(1),(3) $ 0.49 $ 0.60 Distributable cash after maintenance capital expenditures(3) $ 9,634 $ 17,937 Distributable cash after maintenance capital expenditures per unit(1),(3) $ 0.31 $ 0.53 Distributions declared $ 9,288 $ 10,075 Distributions declared per unit(2) $ 0.30 $ 0.30 Distributions paid $ 9,390 $ 10,075 Distributions paid per unit(2) $ 0.30 $ 0.30 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Based on weighted average number of units outstanding for the period of: 31,267,886 33,582,936 (2) Based on actual number of units outstanding on record date. (3) See NON-GAAP MEASURES. NON-GAAP MEASURES EBITDA - Throughout this MD&A, the term EBITDA is used to describe earnings before any deduction for net interest and accretion expense, taxes, depreciation and amortization and other non-cash charges such as minority interest. EBITDA is a metric used by many investors and analysts to compare organizations on the basis of ability to generate cash from operations. Management considers EBITDA (as defined) to be an indirect measure of operating cash flow, which is a significant indicator of the success of any business. It is not intended to be representative of cash flow from operations or results of operations determined in accordance with Canadian generally accepted accounting principles ("GAAP") or cash available for distribution. EBITDA is not a recognized measure under Canadian GAAP. The Fund's method of calculating EBITDA may differ from methods used by other income funds or companies, and accordingly may not be comparable to similar measures presented by other organizations. A reconciliation of EBITDA to net earnings follows: Three Months Ended ------------------ March 31, March 31, ($'000) 2009 2008 ------------------------------------------------------------------------- Net earnings $ 1,321 $ 9,454 Add: Unrealized foreign exchange loss 3,903 551 Depreciation and amortization 11,165 9,845 Net interest and accretion expense 2,103 3,031 Net taxes (216) (129) ------------------------------------------------------------------------- EBITDA(1) $ 18,276 $ 22,752 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) EBITDA for the three months ended March 31, 2009 includes recoveries of $nil (2008 - $1,238) for restructuring. Cash Flow - The following table is derived from, and should be read in conjunction with, the consolidated statement of cash flows. Management believes this supplementary disclosure provides useful additional information related to the cash flows of the Fund including the amount of cash available for distribution to Unitholders, repayment of debt and other investing activities. Certain sub-totals presented within the cash flows table below, such as "Adjusted cash flows from operating activities", "Distributable cash after maintenance capital expenditure" and "Distributable cash after all capital expenditure", are not defined terms under Canadian GAAP. These sub-totals are used by management as measures of internal performance and as a supplement to the consolidated statement of cash flows. Investors are cautioned that these measures should not be construed as an alternative to using net income as a measure of profitability or as an alternative to the GAAP consolidated statement of cash flows. Further, the Fund's method of calculating each measure may not be comparable to calculations used by other income trusts bearing the same description. Three Months Ended ------------------ March 31, March 31, ($'000) 2009 2008 ------------------------------------------------------------------------- Cash flows from operating activities $ (9,890) $ 6,009 Add (deduct): Changes in non-cash working capital and other items 25,318 13,984 ------------------------------------------------------------------------- Adjusted cash flows from operating activities 15,428 19,993 Less: Maintenance capital expenditure 5,794 2,056 ------------------------------------------------------------------------- Distributable cash after maintenance capital expenditure 9,634 17,937 Less: Non-maintenance capital expenditure(1) 293 198 ------------------------------------------------------------------------- Distributable cash after all capital expenditure $ 9,341 $ 17,739 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Non-maintenance capital expenditures are either pre-funded, usually as part of a significant acquisition and related financing or are considered to expand the capacity of the Fund's operations. CONSOLIDATED OPERATING RESULTS Consolidated revenue for the first quarter of 2009 was $161.8 million, compared with consolidated revenue of $217.8 million recorded in the first quarter of 2008. The main reason for the decline was lower prices for acid and sulphur in the International segment. Additionally, there were lower volumes owing to a general reduction in demand experienced for most product lines. The Fund's net earnings and EBITDA for the first quarter of 2009 were $1.3 million and $18.3 million respectively compared to net earnings and EBITDA for the first quarter of 2008 of $9.5 million and $22.8 million respectively. EBITDA was lower due to significantly lower results in SPPC and this was partially offset by lower Corporate costs. Net earnings were further negatively impacted by unrealized foreign exchange losses of $3.9 million. Also, 2008 included a recovery of $1.2 million relating to restructuring activities (as described in the RESTRUCTURING section below). RESULTS OF OPERATIONS BY BUSINESS SEGMENT SPPC - Three Months Ended ------------------ March 31, March 31, ($'000) 2009 2008 ------------------------------------------------------------------------- Revenue $ 99,695 $ 98,856 Earnings before the under-noted (EBITDA) 9,145 19,938 Depreciation and amortization 8,293 7,154 Net interest and accretion expense 1,655 2,589 Income tax recovery (866) (1,176) ------------------------------------------------------------------------- Net earnings $ 63 $ 11,371 ------------------------------------------------------------------------- ------------------------------------------------------------------------- SPPC manufactures and distributes sulphuric acid and other sulphur-based products to an extensive customer base in Canada and the U.S., and provides acid regeneration services to the petroleum industry, primarily in the U.S. Gulf Coast area. SPPC also supplies liquid and powder sodium hydrosulphite, which is sold to the pulp and paper industry and to a lesser extent, to the textile industry. For the first quarter of 2009, SPPC generated revenue of $99.7 million, which was similar to the revenue recorded during the first quarter of 2008. In general, sales volumes for most products in 2009 were lower than 2008, reflecting weaker demand, however, the impact on revenue was generally offset by higher pricing and the impact of the weaker Canadian dollar on U.S. dollar denominated revenue. Results during the first quarter were also negatively impacted by reduced production at the Beaumont plant (as described in the BEAUMONT INCIDENT section). The Beaumont plant was successfully brought back on-line in the first quarter and was running smoothly late in the quarter after remedying a number of issues that arose after its lengthy period of downtime. In addition to the loss of production, these issues also resulted in increased costs incurred to ensure that customer operations were not disrupted. Additionally, a plant turnaround was moved to the first quarter in order to prepare for an anticipated reduction in the supply of sulphuric acid in the second quarter owing to scheduled downtime for SPPC's largest supplier. These factors adversely affected EBITDA and net income for the first quarter of 2009 by approximately $7.0 million relative to 2008. The decline in net earnings during the first quarter of 2009, relative to the first quarter of 2008 was higher than the EBITDA decline, due to increased depreciation and amortization, partially offset by lower net interest and accretion expenses. Depreciation and amortization for the first quarter of 2009 were higher than the first quarter of 2008 due to capital additions. Net interest expenses were lower in the first quarter of 2009 due mainly to lower usage of operating lines of credit, partially offset by the impact of the weaker Canadian dollar relative to the U.S. dollar on U.S. dollar denominated interest expense. Also, results for 2008 were positively impacted by the recording of a recovery of $1.2 million, related to the cessation of production of powder SHS (as described in the RESTRUCTURING section below). Pulp Chemicals - Three Months Ended ------------------ March 31, March 31, ($'000) 2009 2008 ------------------------------------------------------------------------- Revenue $ 11,943 $ 14,839 Earnings before the under-noted (EBITDA) 4,786 5,241 Depreciation and amortization 2,272 2,329 Net interest and accretion expense 496 524 ------------------------------------------------------------------------- Net earnings $ 2,018 $ 2,388 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Pulp Chemicals produces sodium chlorate and crude tall oil (CTO), both of which are chemicals used in the pulp and paper industry. Sodium chlorate is used to bleach pulp and CTO is used as a less expensive alternative energy source to natural gas. First quarter 2009 Pulp Chemicals revenue was $2.9 million lower than the level achieved during the first quarter of 2008, mainly due to reduced demand for sodium chlorate. The negative impact of the reduced volume was partially offset by lower costs, resulting in a reduction in EBITDA and net earnings of approximately $0.4 million. International - Three Months Ended ------------------ March 31, March 31, ($'000) 2009 2008 ------------------------------------------------------------------------- Revenue $ 50,185 $ 104,095 Earnings before the under-noted (EBITDA) 3,821 6,226 Depreciation and amortization 600 362 Net interest income (48) (82) Income tax expense 650 1,047 ------------------------------------------------------------------------- Net earnings $ 2,619 $ 4,899 ------------------------------------------------------------------------- ------------------------------------------------------------------------- International provides removal and marketing services for elemental sulphur and sulphuric acid. These products are marketed to customers globally. During the first quarter of 2009, International's revenue was $50.2 million compared with $104.1 million for the same period of 2008. The decline in revenues is due to reduced volume and prices for acid and sulphur, reflecting reduced global demand for these commodities. This decline resulted in lower net earnings and EBITDA during the first quarter of 2009 relative to 2008. The impact of the lower volume and prices was partially offset by the positive impact of the weaker Canadian dollar on U.S. dollar denominated revenue and earnings. Also, during the first quarter of 2008, a relatively low volume of product that was not committed to specific customers resulted in extremely high margins due to the high market prices then prevailing. Corporate - Three Months Ended ------------------ March 31, March 31, ($'000) 2009 2008 ------------------------------------------------------------------------- Cost of services (recoveries) $ (524) $ 8,653 Recovery (loss) before the under-noted (EBITDA) 524 (8,653) Unrealized foreign exchange loss 3,903 551 ------------------------------------------------------------------------- Net earnings $ (3,379) $ (9,204) ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 first quarter corporate costs, excluding unrealized foreign exchange losses were recoveries of $0.5 million compared with costs of $8.7 million for the first quarter in 2008. The main reason for the $9.2 million reduction in corporate costs was the Fund's Total Return Long-Term Incentive Plan (TR LTIP). During the first quarter of 2008, due to an increase in the Fund's unit price, compensation expense of $4.1 million was recorded with respect to the TR LTIP, whereas during the first quarter of 2009 due to a decline in the unit price, previously recorded accruals were reversed, resulting in a negative expense of $3.4 million. Relative to the first quarter of 2008, corporate costs during the first quarter of 2009 also benefited by $1.7 million from higher unrealized gains on natural gas swaps and $0.4 million with respect to higher realized foreign exchange gains. Finally, during the first quarter of 2009, the allowance for doubtful accounts was increased by $0.2 million. The comments on TR LTIP expenses relate to the 2007, 2008 and 2009 TR LTIP. The 2007, 2008 and 2009 TR LTIPs are payable at the beginning of 2010, 2011 and 2012 respectively. Although at the end of the first quarter of 2009, no accrual with respect to these plans has been recorded, the payouts will be based upon Total Return, as described in the Fund's Management Information Circular, achieved over the three-year performance periods of each plan. The nature of this calculation makes it difficult to forecast the amount of TR LTIP expenses that will be recordable in any period as it is based upon future distributions and changes in unit value. The Corporate segment includes large unrealized foreign exchange losses on the translation of U.S. dollar denominated debt, which were a result of the sharp decline in the Canadian dollar relative to the U.S. dollar towards the end of the first quarter in 2009. This exchange rate fluctuation also resulted in large unrealized foreign exchange gains on the translation of U.S. dollar denominated assets. However, in accordance with accounting rules, those gains are required to be shown in other comprehensive income rather than in the Consolidated Statements of Earnings. RESTRUCTURING During the fourth quarter of 2006, the Fund decided to discontinue production of powder SHS and costs of $2.7 million related to that decision were recorded in that quarter. These costs included a provision for a penalty on a long-term supply agreement. During 2008, the penalty was waived. As a result, the Fund reversed the penalty provision previously recorded of $1.2 million. BEAUMONT INCIDENT During the third quarter of 2008, an explosion occurred at the Fund's Beaumont, Texas facility. Currently, it is not possible to estimate the amount of income the Fund has lost or the expected amount of recovery the Fund will receive under its business interruption insurance policies and therefore as at March 31, 2009, no insurance recovery has been recorded. An insurance recovery will be recorded when the amount of the recovery is determined. The Beaumont plant commenced operations in January 2009. During the first quarter of 2009, the Fund incurred legal and consulting costs relating to this incident. During the fourth quarter of 2008 and the first quarter of 2009, the Fund incurred capital expenditures relating to the repair of damaged property at the Beaumont facility. These costs are recoverable under the Fund's property insurance policy and to the extent payment had not been received prior to March 31, 2009 an amount has been included in Accounts receivable. U.S. ENVIRONMENTAL PROTECTION AGENCY (EPA) SETTLEMENT In January 2009, the Fund reached a settlement with the EPA and certain States, whereby new emission limitations will be established at each of its five sulphuric acid manufacturing facilities. The agreement with Chemtrade arose from a broader EPA initiative regarding the domestic sulphuric acid manufacturing industry. Chemtrade's plants will meet these stricter limits by various agreed dates ranging from December 2009 to December 2012. Chemtrade anticipates that these compliance actions will cost it approximately US$6.0 million in respect of four facilities, most of which will be spent to bring its Riverton, Wyoming facility into compliance with the new limits by December 2012. Because of Chemtrade's existing overall levels of control, the civil penalty to be paid by Chemtrade is not material and it was recorded in 2008. Certain additional funds and penalties will be expended in respect of Chemtrade's Cairo facility, but those costs will be paid for by Marsulex Inc., pursuant to an indemnity agreement between the two companies. FOREIGN EXCHANGE The Fund has operating subsidiaries that are based in the U.S. BCT Chemtrade Corporation, 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 currently estimates that on an unhedged basis, a $0.01 increase in the Canadian/U.S. dollar exchange rate reduces Distributable cash after maintenance capital expenditures by less than $0.1 million on an annual basis and vice-versa. To manage the volatility of foreign exchange rates, the Fund has entered into a series of foreign exchange contracts with its principal bankers. All foreign exchange contracts are under International Swap and Derivatives Association (ISDA) agreements. As of March 31, 2009, approximately all planned transfers for 2009 have been effectively hedged at $0.8471. Contracts in place at March 31, 2009 include future contracts to sell US$4,500, US$14,475, C$8,233, (euro) 16,465, CHF 2,250 and SEK 2,000 at weighted average exchange rates of C$1.1805, (euro) 0.769, (euro) 0.601, US$1.31, US$0.84 and US$0.13 respectively, for periods through to May 2010. There are unrealized losses of $0.8 million and unrealized gains of $1.0 million from these contracts at March 31, 2009. The purpose of these contracts is to hedge the value of the funds which are used to pay dividends and interest by subsidiary companies to the Fund and to meet other commitments. The amount of the related derivative is recorded at fair market value at the period end and included with prepaid expenses and other assets or accrued and other liabilities on the balance sheet. The resultant non-cash charge or gain is reported as unrealized foreign exchange loss. The impact of this non-cash charge or gain is excluded from the computation of Distributable cash after maintenance capital expenditures. See NON-GAAP MEASURES - Cash Flow. The Fund's International and U.S. based operations are considered to be self-sustaining, as they are financially independent. As a result, gains or losses arising from the translation of the assets and liabilities of self-sustaining operations are recorded in other comprehensive income. The changes recorded in the accumulated other comprehensive income account since December 31, 2008 were a result of changes in the Canadian/U.S. dollar exchange rate between December 31, 2008 and March 31, 2009. The rate of exchange used to translate U.S. denominated balances has changed from a rate of US$1.00=$1.22 at December 31, 2008 to US$1.00=$1.26 at March 31, 2009. See RISKS AND UNCERTAINTIES for additional comments on foreign exchange. NET INTEREST AND ACCRETION EXPENSE Net interest and accretion expense was $2.1 million in the first quarter of 2009 compared with $3.0 million in the first quarter of 2008. Interest on the Canadian dollar denominated debt amounted to $nil in the first quarter of 2009 and $1.3 million in the first quarter of 2008. Interest expense during 2009 was lower than interest expense for 2008 due to the conversion of the Canadian dollar denominated long-term debt into U.S. dollar denominated long-term debt. The interest on the U.S. dollar denominated debt was $1.9 million for the first quarter of 2009, compared with $1.6 million for the first quarter of 2008. Interest expense was higher during the first quarter of 2009 due to the conversion of Canadian dollar denominated long-term debt into U.S. dollar denominated long-term debt and the weaker Canadian dollar relative to the U.S. dollar. The weighted average effective annual interest rate at March 31, 2009 was 4.58% (December 31, 2008 - 5.19%). See LIQUIDITY AND CAPITAL RESOURCES - Financing Activities - Financial Instruments for information concerning swap arrangements. During the first quarters of 2009 and 2008, the Fund recorded accretion expense of $0.2 million. This accretion is due to the amortization of transaction costs related to the Fund's borrowings. INCOME TAXES Current income tax expense was $0.7 million and the future income tax recovery was $0.9 million for the first quarter of 2009, compared to $1.4 million and $1.5 million respectively for the first quarter of 2008. The effective tax rate for the first quarter of 2009 was 19.5% compared to the statutory tax rate of 32.2%. This difference is primarily the result of the lower tax rates in certain international business operations and distribution of trust income to the Unitholders, offset by the increase in the valuation allowance. The decrease in future tax asset of $0.2 million at March 31, 2009 relative to December 31, 2008 is the result of decreased tax loss carry forwards, net of valuation allowances, and other deductible temporary differences available in certain Canadian and foreign corporate subsidiaries. The decrease in future tax liability of $0.1 million at March 31, 2009 relative to December 31, 2008 is the result of the decrease in the taxable temporary differences between the accounting carrying amount and the tax basis of assets associated with certain Canadian and foreign corporate subsidiaries. EXCESS CASH FLOWS AND NET INCOME OVER DISTRIBUTIONS PAID The following table presents excess cash flows from operating activities and net income over distributions paid for the three month period ended March 31, 2009 and for the years ended December 31, 2008 and 2007. Three Months Ended Year Ended Year Ended March 31, December 31, December 31, ($'000) 2009 2008 2007(1) ------------------------------------------------------------------------- Cash flows from operating activities $ (9,890) $ 147,905 $ 47,742 Net earnings 1,321 40,331 20,596 Distributions paid during period 9,390 40,086 40,971 Excess (shortfall) of cash flows from operating activities over cash distributions paid (19,280) 107,819 6,771 Excess (shortfall) of net income over cash distributions paid (8,069) $ 245 $ (20,375) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) For the year ended December 31, 2007 net earnings has been adjusted as a result of adopting CICA Handbook Section 3031, Inventories on a retrospective basis. The Fund considers the amount of cash generated by the business in determining the amount of distributions payable to its Unitholders. In general, the Fund does not take into account quarterly working capital fluctuations as these tend to be temporary in nature. The Fund does not generally consider net income in setting the level of distributions as this is a non-cash metric and is not reflective of the level of cash flow that the Fund can generate. This divergence is particularly relevant for the Fund as it has a relatively high level of depreciation and amortization expenses and foreign exchange gains and losses. For the three months ended March 31, 2009 distributions to Unitholders exceeded cash flows from operating activities mainly due to an increase in working capital. The additional distribution was funded by cash being held by the Fund. Distributions - Distributions to Unitholders for the three months ended March 31, 2009 were declared as follows: Distribution Total Record Date Payment Date Per Unit ($'000) ------------------------------------------------------------------------- Three months ended March 31: January 30, 2009 February 27, 2009 $ 0.10 $ 3,124 February 27, 2009 March 31, 2009 0.10 3,087 March 31, 2009 April 30, 2009 0.10 3,077 ------------------------------------------------------------------------- Total for the quarter ended March 31, 2009 $ 0.30 $ 9,288 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions declared in the three months ended March 31, 2008 were as follows: Distribution Total Record Date Payment Date Per Unit ($'000) ------------------------------------------------------------------------- Three months ended March 31: January 31, 2008 February 29, 2008 $ 0.10 $ 3,358 February 29, 2008 March 31, 2008 0.10 3,358 March 31, 2008 April 30, 2008 0.10 3,359 ------------------------------------------------------------------------- Total for the quarter ended March 31, 2008 $ 0.30 $ 10,075 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Treatment of the Fund's distributions for Canadian Income Tax purposes for 2008 and 2009 is as follows: Foreign Non-Business Other Income Income Total ------------------------------------------------------------------------- 2008 76.6% 23.4% 100.0% 2009(1) 74.0% 26.0% 100.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Represents anticipated tax characterization of planned distributions. The actual tax treatment of 2009 distributions will be determined by February 28, 2010. LIQUIDITY AND CAPITAL RESOURCES The Fund's distributions to Unitholders are sourced entirely from its investments in operating subsidiary companies. The Fund's investments are financed by trust units held by Unitholders, long-term debt and operating lines of credit. The cash flow of the Fund is required to fund distributions to Unitholders, capital expenditures and payment of interest on long-term debt as well as the repurchase of units under the Normal Course Issuer Bid as discussed below. The Fund intends to renew its long-term debt at maturity. Cash Flow from Operating Activities ----------------------------------- Cash flow from operating activities for the first quarter of 2009 was an outflow of $9.9 million, a decrease of $15.9 million from the level generated during the first quarter of 2008. The decrease in cash flow is due to a larger increase in working capital relative to 2008 and due to reduced earnings related to the Beaumont plant's downtime. The increase in working capital is caused primarily by a reduction in accounts payable and accruals relating to the timing of certain items. This reduction more than offset a reduction in inventory and accounts receivable. Financing Activities -------------------- Distributions to Unitholders during the first quarter were $0.7 million lower than the first quarter of 2008. These decreased distributions were due to lower units outstanding as a result of the buy back and cancellation of units by the Fund pursuant to a normal course issuer bid commenced in September 2008 (as explained in the Normal Course Issuer Bid below). Normal Course Issuer Bid - On September 19, 2008, the Fund announced that it intends to purchase up to 10% of the public float of its units by way of a normal course issuer bid (the "Bid") through the facilities of the Toronto Stock Exchange (TSX). The purchases commenced on September 23, 2008 and will terminate by September 22, 2009. The purchases will be made in accordance with the policies and rules of the TSX and units will be purchased for cancellation. The prices that Chemtrade will pay for any units will be the market price of such units at the time of acquisition. During 2009, the Fund purchased 1,039,940 units at an average per unit price of $8.02 for an aggregate purchase amount of $8.3 million. This resulted in $12.8 million being recorded as a reduction to the value of units and $4.4 million being recorded as contributed surplus. During 2008, the Fund purchased 1,872,526 units at an average per unit price of $9.48 for an aggregate purchase amount of $17.8 million. This resulted in $23.0 million being recorded as a reduction to the value of units and $5.3 million being recorded as contributed surplus. For additional information on cash distributions, see NON-GAAP MEASURES - Cash Flow and EXCESS CASH FLOWS AND NET INCOME OVER DISTRIBUTIONS PAID. Financial Instruments - The Fund has entered into swap agreements with its principal bankers in order to fix the interest rates on its long-term debt. In the first quarter of 2009, the Fund entered into new swap arrangements which will fix interest rates on all of its long-term debt until August 2011. Previously the Fund had interest rate swaps related to its long-term debt and operating lines of credit, which fixed interest rates until August 2010. The Fund collapsed all of these interest rate swaps upon entering into the new swap arrangements and rolled the related fair value liability of $9.8 million into its new interest rate swaps. This value will be amortized on a straight-line basis over the remaining term of the long-term debt in net interest and accretion expense. The weighted average effective interest rate under the new swap arrangements is 4.58%. At March 31, 2009, the fair values of the above noted agreements were liabilities of $11.3 million (US$9.0 million). See comments under NET INTEREST AND ACCRETION EXPENSE for comments on these rates. See RESULTS OF OPERATIONS BY BUSINESS SEGMENT - Foreign Exchange for additional comments on hedging. To manage its exposure to changes in the price of natural gas, the Fund has entered into natural gas forward contracts. The Fund buys and sells specific quantities of natural gas at pre-determined dates on indices which are matched with the anticipated operational cash flows. At March 31, 2009, the fair value of these agreements is $1.5 million in favour of the Fund. These contracts are accounted for as derivatives with gains or losses recorded in selling, general, administrative and other costs. Investing Activities -------------------- Investment in capital expenditures was $6.1 million in the first quarter of 2009, compared with $2.3 million in the first quarter of 2008. These amounts include $5.8 million in the first quarter of 2009 and $2.1 million in the first quarter of 2008 for maintenance capital requirements. As previously disclosed, the Fund intends to continue upgrading its manufacturing assets and consequently maintenance capital expenditures for 2009 are expected to be higher than total capital expenditure recorded in 2008. Investment in non-maintenance capital expenditures were $0.3 million during the first quarter of 2009 compared to approximately $0.2 during the first quarter of 2008. Non-maintenance capital expenditures are either pre-funded, usually as part of a significant acquisition and related financing or are considered to expand or improve the capacity of the Fund's operations. Cash Balances - At March 31, 2009 the Fund had net cash balances of $15.2 million and working capital of $4.7 million. Comparable numbers for December 31, 2008 were $48.1 million and working capital deficit of $18.8 million, respectively. The Fund defines working capital to exclude cash, operating line of credit, distributions payable and current portion of long-term debt. Cash generated by the Fund will be used to fund cash distributions to Unitholders, capital requirements, interest, general corporate purposes and other legal obligations. Future Liquidity - The future liquidity of the Fund will be primarily dependant on cash flows of its operating subsidiaries. These cash flows will be used to finance ongoing expenditures, including maintenance capital, distributions to Unitholders and normal course financial commitments. Cash flows are sensitive to changes in volume, sales prices and input costs and any changes in these may impact future liquidity. Management believes that cash flows from operating activities will be sufficient for the Fund to meet future obligations and commitments that arise in the normal course of business activities. Capital Resources - At March 31, 2009, the Fund had senior credit facilities of $283.6 million, consisting of a term loan of $193.2 million and a revolving credit facility of $90.4 million. The term bank debt is not due or payable until August 2011. At March 31, 2009, in addition to the entire term loan, the Fund had nothing drawn on its operating lines of credit, however, it had committed a total of $8.8 million of its revolving credit facility towards standby letter of credits. Subject to certain limits set out in the credit agreement, the credit facilities may be used to finance working capital, fund acquisitions, invest in capital assets, buy back units and pay distributions to Unitholders. Debt Covenants - As at March 31, 2009, the Fund was compliant with all debt covenants contained in its credit facility. SUMMARY OF QUARTERLY RESULTS Three Months Ended ------------------ March 31, December 31, September 30, June 30, ($'000) 2009 2008 2008 2008 ------------------------------------------------------------------------- Revenue $ 161,823 $ 292,789 $ 393,971 $ 274,276 Cost of sales and services 137,522 255,955 346,615 230,432 ------------------------------------------------------------------------- Gross profit 24,301 36,834 47,356 43,844 Selling, general, administrative and other costs 6,025 12,630 5,662 13,558 ------------------------------------------------------------------------- Earnings before the under-noted 18,276 24,204 41,694 30,286 Unrealized foreign exchange loss 3,903 12,195 3,520 446 Depreciation and amortization 11,165 11,240 9,893 10,145 Gain on disposal of property - - (250) - Net interest and accretion expense 2,103 4,070 3,639 2,795 Income taxes (net) (924) (841) 5,402 3,053 ------------------------------------------------------------------------- Net earnings (loss) $ 1,321 $ (2,460) $ 19,490 $ 13,847 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended ------------------ March 31, December 31, September 30, June 30, ($'000) 2008 2007(1) 2007(1) 2007(1) ------------------------------------------------------------------------- Revenue $ 217,790 $ 144,580 $ 143,232 $ 130,163 Cost of sales and services 182,943 110,772 114,546 103,291 ------------------------------------------------------------------------- Gross profit 34,847 33,808 28,686 26,872 Selling, general, administrative and other costs 13,333 10,766 9,549 10,893 Restructuring costs (1,238) - - 490 ------------------------------------------------------------------------- Earnings before the under-noted 22,752 23,042 19,137 15,489 Unrealized foreign exchange loss (gain) 551 296 (244) (800) Depreciation and amortization 9,845 9,051 9,645 9,792 Net interest and accretion expense 3,031 3,050 3,361 3,162 Income taxes (net) (129) 1,552 (647) (1,671) Minority interest - (15) (3) (2) ------------------------------------------------------------------------- Net earnings $ 9,454 $ 9,108 $ 7,025 $ 5,008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Depreciation and amortization and net earnings have been adjusted as a result of adopting CICA Handbook Section 3031, Inventories on a retrospective basis. Revenues for every quarter during 2008 were high due to exceptionally strong market conditions for acid and sulphur. These were particularly noticeable in the International segment. Revenues during the fourth quarter of 2008 started to decline as prices for acid and sulphur started to decline in the International markets. During the first quarter of 2009, revenue was also negatively impacted by generally weaker demand for most products and because the Beaumont plant was off-line for part of the period resulting in lower sales volume. The strong conditions during 2008 resulted in higher earnings. The effect was less pronounced in the fourth quarter of 2008 when the Fund's largest plant located in Beaumont was off-line for the entire quarter (as described in the BEAUMONT INCIDENT section). Selling, general, administrative and other costs (S,G&A) during the first quarter of 2008 were high as they included an accrual of $4.1 million relating to the Fund's TR LTIP, caused by an appreciation in the Fund's unit value. S,G&A for the second quarter of 2008 were high as they included unrealized mark-to-market losses of $1.5 million on natural gas forward contracts and of $0.4 million on foreign exchange forward contracts. S,G&A during the third quarter of 2008 were low as they included lower TR LTIP accruals. S,G&A for the fourth quarter of 2008 were high as they include an increase of $3.4 million in the allowance for doubtful accounts. The increase was mainly due to a provision for losses expected as a result of two customers filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code in January 2009. Finally, S,G&A during the first quarter of 2009 was low as they included a reversal of $3.4 million with respect to the TR LTIP owing to a reduction in the Fund's unit value. Unrealized foreign exchange losses are higher commencing with the third quarter of 2008 due to the impact of the weaker Canadian dollar relative to the U.S. dollar on the Fund's long-term debt which is U.S. dollar denominated. There is a corresponding unrealized gain on the Fund's U.S. dollar denominated assets, but accounting rules require that those be recorded in other comprehensive income. CONTRACTUAL OBLIGATIONS Information concerning contractual obligations is shown below: Contractual Less Than 1-3 4-5 After Obligations ($'000) Total 1 Year Years Years 5 Years ------------------------------------------------------------------------- Long-Term Debt $ 193,153 $ - $ 193,153 $ - $ - Operating Leases 61,506 17,500 25,955 14,682 3,369 Interest on Long- Term Debt 20,630 6,631 13,999 - - ------------------------------------------------------------------------- Total Contractual Obligations $ 275,289 $ 24,131 $ 233,107 $ 14,682 $ 3,369 ------------------------------------------------------------------------- ------------------------------------------------------------------------- RISKS AND UNCERTAINTIES The Fund is one of the world's largest suppliers of sulphuric acid (acid), liquid sulphur dioxide (SO2) and sodium hydrosulphite (SHS) and a leading processor of spent acid, particularly in the U.S. Gulf Coast region. The Fund is also a leading regional supplier of sulphur, sodium chlorate and phosphorus pentasulphide, and also produces zinc oxide at three North American locations. The Fund faces various risks associated with its business. These risks include, amongst others, a general reduction in demand for its products, the loss of a portion of its customer base, the interruption of the supply of sulphur-based products or raw materials, price fluctuations in the products sold and/or raw materials purchased, industry over-capacity, acquisition integration and operational and product hazard risks associated with the nature of its business. The Fund imports key raw materials and products from overseas and as such has additional risks associated with the sourcing activity. The Fund makes extensive use of the railway system to transport material within North America. Certain locations are serviced by a sole carrier and thus a disruption in service could have a significant negative impact on results. In addition, the Fund sells a significant portion of its major products to large customers. While many of these customers are under contract, there can be no assurance that these contracts will be renewed. As the Fund's business is international in nature, it is exposed to foreign exchange risks related to the payment of dividends and other transactions by its foreign subsidiaries. The Fund manages the risks associated with its customer base and sales price by seeking to obtain contractual protection to mitigate these risks. The Fund also seeks to differentiate its products and services with customers to mitigate price fluctuations and uses its scale to obtain beneficial raw material contracts. All members of the Fund's senior management team were involved in an enterprise-wide business risk assessment, which included a review of the North American and international operations. Key risks were identified and prioritized for review and the development of action plans. This enterprise-wide risk review process is an ongoing aspect of the Fund's risk management program. In addition, the Fund maintains an extensive insurance program which includes general liability and environmental coverage. Credit Risk - Credit risk arises from the non-performance by counter-parties of contractual financial obligations. The Fund manages credit risk for trade and other receivables through established credit monitoring activities. The Fund does not have a significant concentration of credit risk with any single counter-party or group of counter-parties. The primary counter-parties related to the foreign exchange forward contracts, commodity price contracts and interest rate swaps carry investment grade ratings. The Fund's maximum exposure to credit risk at the reporting date is the carrying value of its receivables and derivative assets. Dependence on Vale Inco Relationship - Vale Inco Limited (Vale Inco) is the Fund's largest sulphur products supplier. During the first quarter of 2008, the Fund renewed its agreement with Vale Inco for the marketing of all sulphur by-products produced by the Vale Inco smelter in Sudbury, Ontario. The new 10-year contract, which contains similar terms to the prior agreements between the parties, was effective as of January 1, 2008. For the three months ended March 31, 2009, this supply source accounted for approximately 18% of the Fund's revenues. Vale Inco has a significant collective bargaining agreement which expires on May 31, 2009, which could result in a disruption of supply. Vale Inco has also announced eight weeks of market related downtime in 2009 and if this is extended beyond the period announced, it could adversely affect results. Exchange Rates - The Fund is exposed to fluctuations in the exchange rate of the U.S. dollar relative to the Canadian dollar, as a portion of the Fund's Distributable cash after maintenance capital expenditures is earned in U.S. dollars. On an unhedged basis, the Fund currently estimates that a one-cent change in the exchange rate will have an impact on Distributable cash after maintenance capital expenditures of less than $0.1 million per annum. The Fund has forward exchange contracts in place for 2009 at a rate of US$0.85 per Canadian dollar. Since certain Canadian entities within the group have U.S. dollar denominated debt, unrealized gains and losses on the periodic translation of this debt will be recorded in the Consolidated Statements of Earnings. However, because these are unrealized they will not affect Distributable cash after maintenance capital expenditures. Interest Rates - The Fund has a credit facility with term debt and operating lines of credit which bear variable rates of interest. As at March 31, 2009, on an unhedged basis, a change in interest rates of 1% per annum would have an impact of approximately $1.9 million per annum. As at March 31, 2009, the Fund had fixed interest rates on its total debt until August 2011. Sulphuric Acid Pricing - A change in sulphuric acid pricing, net of freight, of $1 per tonne, would have an impact on annual revenues in North America of approximately $1.0 million. However, given the risk-sharing aspect of a key supply contract, the impact on EBITDA would range from $0.5 million to $0.6 million. In any specific period, the exact impact would also depend upon the volume that is subject to sales contracts where pricing has been fixed for a period of time. The magnitude of realized price changes also depends upon regional market dynamics. Sulphur Costs - The Fund uses sulphur in the manufacturing of several of its products, including sulphuric acid. At current operating levels, an increase of $1 per tonne would have an impact of approximately $0.1 million per annum. It is important to note that a change in the cost of sulphur may lead to a change in the price for sulphuric acid as this is a key input cost in the manufacturing of sulphuric acid. Thus, the net impact of changes in sulphur costs would depend upon changes in sulphuric acid pricing. Sodium Chlorate Pricing - Approximately 65% of the Fund's sodium chlorate sales are to Canfor on a long-term contract, whereby selling price is adjusted based on changes in virtually all variable costs. Thus, the Fund's exposure to changes in market prices of sodium chlorate is limited to the remainder of its output. Other Input Costs - There are several other large input costs, such as natural gas, zinc, salt and electricity, but in most cases there are contractual arrangements with customers, or other offsets within the business, which mitigate the exposure to changes in these costs. Labour Relations - As indicated in our Annual Information Form, the contract term of the collective bargaining agreement with the Teamsters Union for the Fund's Niagara Falls location will end on May 31, 2009. Although management believes the parties will enter into a mutually acceptable agreement, there can be no assurance as to the terms of the new agreement or that such agreement will be reached without interruption of work. All other union agreements are in effect through 2009, with expiry dates ranging from 2010 to 2013. CRITICAL ACCOUNTING POLICIES The Fund's accounting policies are described in Note 3 to the consolidated financial statements for the year ended December 31, 2008. Use of Estimates - The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The extreme pricing volatility currently being experienced in the Fund's International business could result in future results being affected by the non-performance of suppliers or customers. To the extent that such non-performance is likely, the Fund has made adequate provisions. Goodwill and Intangible Assets - Effective January 1, 2009, the Fund adopted the recommendations of the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3064, Goodwill and Intangible Assets. Section 3064 states that upon their initial identification, intangible assets are to be recognized as assets if they meet the definition of an intangible asset and if they satisfy the recognition criteria contained in the Handbook section. This section also provides further information on the recognition of internally generated intangible assets (including research and development costs). Section 3064 carries forward the requirements of the old Section 3062, Goodwill and Other Intangible Assets with regards to the subsequent measurement of intangible assets, goodwill, and disclosure. The adoption of this section did not have an impact on the Fund's consolidated financial statements. Fair Value of Financial Assets and Financial Liabilities - Effective January 1, 2009, the Fund adopted the recommendations of EIC-173, entitled Credit Risk and the Fair Value of Financial Assets and Financial Liabilities, which provides further information on the determination of the fair value of financial assets and financial liabilities under Section 3855, entitled Financial Instruments - Recognition and Measurement. This EIC states that an entity's own credit and the credit risk of the counter-party should be taken into account in determining the fair value of financial assets and financial liabilities, including derivative instruments. The adoption of this EIC did not have an impact on the Fund's consolidated financial statements. RECENT ACCOUNTING PRONOUNCEMENTS Convergence to International Financial Reporting Standards (IFRS) - In 2006, the Canadian Accounting Standards Board (AcSB) published a new strategic plan that will significantly affect financial reporting requirements for Canadian publicly accountable entities. The AcSB strategic plan outlines the convergence of Canadian GAAP with International Financial Reporting Standards (IFRS) over an expected five year transitional period. In February 2008 the AcSB announced that 2011 is the changeover date for publicly accountable companies to use IFRS, replacing Canada's own GAAP. The changeover date applies to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. For the Fund, the transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Fund for the year ended December 31, 2010. The following outlines the Fund's IFRS conversion plan. The Fund's IFRS Changeover Plan: Assessment as of March 31, 2009: ------------------------------------------------------------------------- Key Activity Milestones Status/Deadlines ------------------------------------------------------------------------- IFRS Conversion Review of current standards The review is complete Scoping Phase vs. IFRS. Identification of and the determination significant differences. of financial impact is in progress. Assessment of available resources. Assignment and training of cross-functional and core team. ------------------------------------------------------------------------- Decisions on Formal review of Some review sessions Accounting Policies differences in each area have been completed. and IFRS1 with the core team and members of cross-functional The Fund will continue team as required. review sessions through 2009. Assessment of differences between IFRS and the Fund's current practices. Decision on accounting policy choices and IFRS1 for each assessed area. ------------------------------------------------------------------------- Information Identification of IT Completed - The Fund Technology requirements, both hardware has determined that an Evaluation and software, for IFRS upgrade of its ERP conversion. software is required. Development of A transition plan has implementation plan for new been rolled out for or upgraded software and the ERP software any additional hardware upgrade. The upgrade required. is scheduled to be implemented during Monitoring of transition 2009. plan. ------------------------------------------------------------------------- Control Environment: Review and assessment of As the Fund completes Internal Control impact of accounting policy reviews and Over Financial choices and changes assessments of Reporting and relating to IFRS conversion. accounting sections Disclosure Controls and makes decisions on and Procedures Update of internal control accounting policies testing procedures and and IFRS1 choices, documentation for all appropriate changes to accounting policy choices ensure the integrity and changes. of internal control over financial Implementation of reporting and appropriate changes: disclosure controls - MD&A Disclosure and procedures are Requirements being made. - Key Performance Indicators - Investor Relations Communication Process ------------------------------------------------------------------------- Financial Statement Identification of Sign-off of skeleton Preparation transactions impacted by financial statements IFRS conversion. from Senior Management to be received by the An assessment of these end of 2009. transactions, appropriate changes and re-mapping will be completed. The assessment and re- mapping will form the skeleton of the IFRS compliant financial statements. ------------------------------------------------------------------------- Financial Impact Analysis of differences Quantification of Analysis for between Canadian GAAP and differences between Transactional Areas IFRS that was completed Canadian GAAP and IFRS will be quantified. Senior will be completed Management and external during 2010. auditors to review and sign-off. ------------------------------------------------------------------------- Business Activities Identification of impacts Assessments and Impact on business activities to identifications of be completed. impacts of the conversion to IFRS are Completion of any re- underway. negotiations. Identification of impacts is to be completed during 2010 and any necessary re- negotiations are to be completed during that period. ------------------------------------------------------------------------- Business Combinations - In January 2009, the CICA issued Handbook Sections 1582, Business Combinations; 1601, Consolidated Financial Statements; and 1602, Non- Controlling Interests. These sections replace Handbook Sections 1581, Business Combinations; and 1600, Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under IFRS. Section 1582 is applicable for the Fund's business combinations with acquisition dates on or after January 1, 2011. Early adoption of this section is permitted. Sections 1601 and 1602 establish standards for the preparation of consolidated financial statements and for accounting for a non-controlling interest in a subsidiary in the consolidated financial statements subsequent to a business combination. Sections 1601 and 1602 are applicable for the Fund's interim and annual consolidated financial statements for its fiscal year beginning January 1, 2011. Early adoption of these sections is also permitted. If the Fund chooses to early adopt any one of these sections, the other two sections must also be adopted at the same time. The Fund is currently evaluating the effect of these new sections on the consolidated financial statements. DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING The Fund maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that the Fund publicly files is recorded, processed, summarized and reported within a timely manner and that such information is accumulated and communicated to the Fund's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer have evaluated the Fund's disclosure controls procedures as of March 31, 2009 through inquiry, review and testing. The Chief Executive Officer and the Chief Financial Officer have concluded that, as at March 31, 2009, the Fund's disclosure control procedures were effective. The Fund also maintains a system of internal controls over financial reporting designed under the supervision of the Fund's Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. There have been no changes in the Fund's systems of internal controls over financial reporting that would materially affect, or is reasonably likely to materially affect, the Fund's internal controls over financial reporting. OUTLOOK During the first quarter of 2009, the reduction of demand we saw at the end of 2008 continued. It remains difficult to forecast demand for our products in the current economic environment. We do, however, expect that our financial performance for the second half of 2009 will be better than the first half. This is because our major plant turnarounds and the start-up of Beaumont were completed in the first half of the year. We believe that over the next 12 months we will generate per unit Distributable cash after maintenance capital expenditures, at least equal to our current distribution rate. We remain committed to pursuing the initiatives to improve our business and to position ourselves for the long-term that we commenced a few years ago. We will maintain our focus on generating cash, enhancing reliability through improvements to our capital assets and processes and protecting our balance sheet to retain our financial flexibility. Given the current climate of economic uncertainty, we will be closely monitoring the demand for our products and will continue to maintain a healthy balance between short-term and long-term initiatives. OTHER Additional information concerning the Fund, including the Annual Information Form, is filed on SEDAR and can be accessed at [ www.sedar.com ]. May 11, 2009 

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