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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):
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- 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.
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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.
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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
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(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.
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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:
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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)
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EBITDA(1) $ 18,276 $ 22,752
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-------------------------------------------------------------------------
(1) EBITDA for the three months ended March 31, 2009 includes recoveries
of $nil (2008 - $1,238) for restructuring.
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Cash Flow -
The following table is derived from, and should be read in conjunction with, the consolidated statement of cash flows. Management believes this supplementary disclosure provides useful additional information related to the cash flows of the Fund including the amount of cash available for distribution to Unitholders, repayment of debt and other investing activities. Certain sub-totals presented within the cash flows table below, such as "Adjusted cash flows from operating activities", "Distributable cash after maintenance capital expenditure" and "Distributable cash after all capital expenditure", are not defined terms under Canadian GAAP. These sub-totals are used by management as measures of internal performance and as a supplement to the consolidated statement of cash flows. Investors are cautioned that these measures should not be construed as an alternative to using net income as a measure of profitability or as an alternative to the GAAP consolidated statement of cash flows. Further, the Fund's method of calculating each measure may not be comparable to calculations used by other income trusts bearing the same description.
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Three Months Ended
------------------
March 31, March 31,
($'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
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Adjusted cash flows from operating activities 15,428 19,993
Less:
Maintenance capital expenditure 5,794 2,056
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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
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(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.
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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 $1.2 million relating to restructuring activities (as described in the RESTRUCTURING section below).
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RESULTS OF OPERATIONS BY BUSINESS SEGMENT
SPPC -
Three Months Ended
------------------
March 31, March 31,
($'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)
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Net earnings $ 63 $ 11,371
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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 m
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