Exhibit
99.1




CONSOLIDATED
FINANCIAL STATEMENTS


AND
SUPPLEMENTARY CONSOLIDATING INFORMATION





IMTT
Holdings Inc.


Years
Ended December 31, 2008 and December 31, 2007











INDEPENDENT
AUDITORS’ REPORT
  The Board
of Directors
 IMTT
Holdings Inc.:
  We have
audited the accompanying consolidated balance sheets of IMTT Holdings Inc. (the
Company) as of December 31, 2008 and 2007, and the related consolidated
statements of income, shareholders’ equity, other comprehensive income, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
  We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes consideration of internal
control over financing reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of IMTT Holdings Inc. as of
December 31, 2008 and 2007, and results of its operations and its cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.
  As
discussed in Note 5 to the consolidated financial statements, in 2008 the
Company adopted the measurement date provisions of Financial Accounting
Standards Board No. 158 Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106, and 132(R).
  
 
 
  New
Orleans, Louisiana
 February
25, 2009











IMTT
      HOLDINGS INC.CONSOLIDATED
      BALANCE SHEETSDECEMBER
      31, 2008 AND 2007




ASSETS2008
            
            
            2007CURRENT
      ASSETS:Cash
            
            $
            4,602,000
            
            
            $
            4,951,000Accounts
      and accrued interest receivable, net ofallowance
      of $3,072,000 ($503,000 in 2007)
            
            
            42,952,000
            
            
            
            37,441,000Inventories
      (Note 2)
            
            
            6,764,000
            
            
            
            5,739,000Prepaid
      expenses and deposits (Notes 7 and 14)
            
            
            21,738,000
            
            
            
            10,991,000Other
            
            
            888,000
            
            
            
            —Total
      current assets
            
            $
            76,944,000
            
            
            $
            59,122,000Land
            
            $
            30,161,000
            
            
            $
            29,997,000Terminal
      and other facilities
            
            
            1,301,407,000
            
            
            
            1,078,908,000$
            1,331,568,000
            
            
            $
            1,108,905,000Less
      — Accumulated depreciation
            
            
            (418,681,000
            )
            
            
            (384,099,000
            )$
            912,887,000
            
            
            $
            724,806,000OTHER
      ASSETS:Debt
      issue costs, net  (Note 2)
            
            $
            3,048,000
            
            
            $
            3,509,000Receivable
      from related parties (Note 3)
            
            
            20,000
            
            
            
            14,000Investment
      in NTL venture (Note 2)
            
            
            9,138,000
            
            
            
            11,144,000Tax-exempt
      bond escrow investments (Notes 2, 4 and 13)
            
            
            —
            
            
            
            55,525,000Other
      (Notes 2, 5 and 14)
            
            
            4,252,000
            
            
            
            8,414,000$
            16,458,000
            
            
            $
            78,606,000TOTAL
      ASSETS
            
            $
            1,006,289,000
            
            
            $
            862,534,000


LIABILITIES
      AND SHAREHOLDERS' EQUITY2008
                
                
                2007CURRENT
      LIABILITIES:Accounts
      payable
                
                $
                33,892,000
                
                
                $
                24,943,000Accrued
      liabilities (Note 14)
                
                
                33,716,000
                
                
                
                26,622,000Dividends
      payable
                
                
                14,000,000
                
                
                
                14,000,000Current
      portion of swap fair market value (Notes 2 and 4)
                
                
                15,733,000
                
                
                
                —Current
      portion of long-term debt (Note 4)
                
                
                2,808,000
                
                
                
                2,787,000Total
      current liabilities
                
                $
                100,149,000
                
                
                $
                68,352,000OTHER
      LONG-TERM LIABILITIES (Notes 2, 4, 5 and 14)
                
                $
                117,130,000
                
                
                $
                78,212,000LONG-TERM
      DEBT (Notes 3, 4 and 8)
                
                $
                604,892,000
                
                
                $
                481,288,000DEFERRED
      INCOME TAXES (Notes 2 and 7)
                
                $
                103,077,000
                
                
                $
                95,442,000COMMITMENTS
      AND CONTINGENCIES (Note 6)MINORITY
      INTEREST
                
                $
                1,249,000
                
                
                $
                2,590,000SHAREHOLDERS'
      EQUITY (Notes 9, 10 and 11)
                
                $
                79,792,000
                
                
                $
                136,650,000TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                
                $
                1,006,289,000
                
                
                $
                862,534,000


The
      accompanying notes are an integral part of these balance
      sheets.








2







IMTT
      HOLDINGS INC.CONSOLIDATED
      STATEMENTS OF INCOMEFOR
      THE YEARS ENDED DECEMBER 31, 2008 and
2007




2008
            
            
            2007REVENUES:Tank
      storage and terminal charges (Note 12)
            
            $
            302,331,000
            
            
            $
            247,205,000Other
      rental income
            
            
            1,986,000
            
            
            
            2,068,000Railroad
      operations
            
            
            1,786,000
            
            
            
            1,460,000Other
      income (Notes 2, 3 and 6)
            
            
            2,141,000
            
            
            
            4,595,000Environmental
      response services
            
            
            46,480,000
            
            
            
            24,464,000Total
      revenues
            
            $
            354,724,000
            
            
            $
            279,792,000EXPENSES:Terminals
      -Labor
      costs (Note 5)
            
            $
            66,277,000
            
            
            $
            61,170,000Repairs
      and maintenance (Note 6)
            
            
            26,449,000
            
            
            
            21,363,000Real
      and personal property taxes
            
            
            10,392,000
            
            
            
            9,544,000Other
      operating
            
            
            51,882,000
            
            
            
            43,649,000Total
      terminal operating expenses
            
            $
            155,000,000
            
            
            $
            135,726,000Environmental
      response affiliate expenses
            
            
            34,658,000
            
            
            
            19,339,000General
      and administrative (Notes 3 and 5)
            
            
            30,076,000
            
            
            
            24,435,000Interest
      expense (Notes 2, 3 and 4)
            
            
            23,540,000
            
            
            
            14,349,000Make
      whole payment on early extinguishment of private placement debt (Note
      4)
            
            
            —
            
            
            
            12,337,000Depreciation
      and amortization (Notes 2 and 9)
            
            
            44,615,000
            
            
            
            36,025,000Mark-to-market
      loss (gain) of non-hedging derivatives (Notes 2 and 4)
            
            
            46,277,000
            
            
            
            21,022,000$
            334,166,000
            
            
            $
            263,233,000INCOME
      BEFORE INCOME TAXES
            
            $
            20,558,000
            
            
            $
            16,559,000(PROVISION)
      CREDIT FOR INCOME TAXES (Notes 2 and 7):Current
            
            $
            (4,053,000
            )
            
            $
            (1,434,000
            )Deferred
            
            
            (5,399,000
            )
            
            
            (5,642,000
            )$
            (9,452,000
            )
            
            $
            (7,076,000
            )MINORITY
      INTEREST
            
            $
            1,003,000
            
            
            $
            143,000NET
      INCOME
            
            $
            12,109,000
            
            
            $
            9,626,000The
      accompanying notes are an integral part of these
    statements.






3






IMTT
      HOLDINGS INC.CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOMEFOR
      THE YEARS ENDED DECEMBER 31, 2008 AND
2007




2008
            
            
            2007NET
      INCOME
            
            $
            12,109,000
            
            
            $
            9,626,000OTHER
      COMPREHENSIVE INCOME (LOSS):DERIVATIVES
      (Notes 2 and 4):Change
      in fair market value of hedging interest rate swap
    agreements
            
            
            (10,577,000
            )
            
            
            156,000Reclassification
      to interest expense of loss on $60 milliontreasury
      lock agreement
            
            
            —
            
            
            
            928,000NET
      DERIVATIVES
            
            
            (10,577,000
            )
            
            
            1,084,000PENSION
      AND POST—RETIREMENT BENEFIT PLANS
            
            
            (10,798,000
            )FOREIGN
      CURRENCY TRANSLATION ADJUSTMENT
            
            
            (3,874,000
            )
            
            
            2,087,000TAX
      EFFECTS OF ITEMS INCLUDED IN OTHERCOMPREHENSIVE
      INCOME
            
            
            9,503,000
            
            
            
            (1,290,000
            )OTHER
      COMPREHENSIVE INCOME (LOSS) (Note 10)
            
            
            (15,746,000
            )
            
            
            1,881,000COMPREHENSIVE
      INCOME (LOSS)
            
            $
            (3,637,000
            )
            
            $
            11,507,000


The
accompanying notes are an integral part of these statements.




4




IMTT
      HOLDINGS INC.CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITYFOR
      THE YEARS ENDED DECEMBER 31, 2008 AND
2007
  
 BALANCE,
      DECEMBER 31, 2006 (Note 10)
              
              $
              186,648,000NET
      INCOME
              
              
              9,626,000OTHER
      COMPREHENSIVE INCOME (Notes 2, 4, 5 and 10)
              
              
              1,881,000CASH
      CONTRIBUTIONS, NET OF RELATED COSTS
              
              
              —DISTRIBUTIONS
      (Note 11)
              
              
              (56,000,000
              )ADJUSTMENT
      TO ACCUMULATED OCI ON ADOPTION OF SFAS No. 158Pension
      plans
              
              
              (6,899,000
              )Post-retirement
      health/ life plans
              
              
              (2,336,000
              )Income
      taxes
              
              
              3,730,000Net
      SFAS No. 158 adjustment
              
              
              (5,505,000
              )BALANCE,
      DECEMBER 31, 2007 (Note 10)
              
              $
              136,650,000ADJUSTMENT
      DUE TO CHANGE IN PENSION PLAN MEASUREMENT DATE PURSUANT TO SFAS No.
      158Retained
      earnings
              
              
              (615,000
              )Income
      taxes
              
              
              252,000Net
              
              
              (363,000
              )Accumulated
      other comprehensive income
              
              
              5,242,000Income
      taxes
              
              
              (2,100,000
              )Net
              
              $
              3,142,000BALANCE,
      DECEMBER 31, 2007 AS ADJUSTED
              
              $
              139,429,000NET
      INCOME
              
              
              12,109,000OTHER
      COMPREHENSIVE INCOME (LOSS) (Notes 2, 4, 5 and 10)
              
              
              (15,746,000
              )CASH
      CONTRIBUTIONS, NET OF RELATED COSTS
              
              
              —DISTRIBUTIONS
      (Note 11)
              
              
              (56,000,000
              )BALANCE,
      DECEMBER 31, 2008 (Note 10)
              
              $
              79,792,000


The
accompanying notes are an integral part of these statements.






5






IMTT
      HOLDINGS INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWFOR
      THE YEARS ENDED DECEMBER 31, 2008 AND
2007
  2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
              
              $
              12,109,000
              
              
              $
              9,626,000Adjustments
      to reconcile net cashprovided
      by operating activitiesDepreciation
      and amortization
              
              
              44,615,000
              
              
              
              36,025,000Bad
      debt expense
              
              
              1,500,000
              
              
              
              65,000Debt
      cost amortization
              
              
              473,000
              
              
              
              —(Increase)
      in accounts andaccrued
      interest receivable
              
              
              (5,511,000
              )
              
              
              (8,432,000
              )(Increase)
      in inventories
              
              
              (1,029,000
              )
              
              
              (77,000
              )(Increase)
      in prepaid expenses and deposits
              
              
              (1,357,000
              )
              
              
              (2,846,000
              )(Increase)
      in other assets
              
              
              (1,213,000
              )
              
              
              (177,000
              )Increase
      in accounts payable
              
              
              885,000
              
              
              
              3,323,000Increase
      in accrued liabilities
              
              
              1,247,000
              
              
              
              2,349,000Increase
      in deferred income taxes
              
              
              5,399,000
              
              
              
              5,642,000Increase
      in other long-term liabilities
              
              
              37,868,000
              
              
              
              32,539,000(Decrease)
      in minority interest
              
              
              (1,003,000
              )
              
              
              (143,000
              )Amortization
      of treasury lock agreement
              
              
              —
              
              
              
              928,000Make
      whole interest payment on early extinguishment of private placement
      debt
              
              
              —
              
              
              
              12,337,000Loss
      on sale/retirement of assets
              
              
              104,000
              
              
              
              10,000Net
      operating cash flows
              
              $
              94,087,000
              
              
              $
              91,169,000CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of plant assets
              
              $
              (221,700,000
              )
              
              $
              (209,124,000
              )Increase
      in other assets
              
              
              (702,000
              )
              
              
              —Decrease
      (increase) in tax-exempt bond escrow investments
              
              
              55,525,000
              
              
              
              (55,525,000
              )Proceeds
      from sale of fixed assets
              
              
              237,000
              
              
              
              192,000Net
      investing cash flows
              
              $
              (166,640,000
              )
              
              $
              (264,457,000
              )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      borrowings (payments) under U.S. bank syndicate line of credit
      agreements
              
              $
              138,072,000
              
              
              $
              99,810,000Net
      (payments) under private placement debt agreements
              
              
              —
              
              
              
              (110,000,000
              )Net
      borowing under tax-exempt bond agreements
              
              
              —
              
              
              
              215,000,000Net
      other debt (payments)
              
              
              (13,211,000
              )
              
              
              (13,245,000
              )Make
      whole interest payment on early extinguishment of private placement
      debt
              
              
              —
              
              
              
              (12,337,000
              )Distributions
      to shareholders
              
              
              (56,000,000
              )
              
              
              (56,000,000
              )Net
      receipts (payments) of receivables/payables with related
      parties
              
              
              (6,000
              )
              
              
              (1,000
              )Loans
      from shareholders, net of repayments
              
              
              2,979,000
              
              
              
              22,344,000Debt
      issue cost incurred
              
              
              (19,000
              )
              
              
              (3,343,000
              )Net
      financing cash flows
              
              $
              71,815,000
              
              
              $
              142,228,000Net
      (decrease) in cash and temporary investments
              
              
              (738,000
              )
              
              
              (31,060,000
              )Net
      increase (decrease) in cash due to currency translation
              
              
              389,000
              
              
              
              (57,000
              )Cash
      and temporary investments at beginning of year
              
              
              4,951,000
              
              
              
              36,068,000Cash
      and temporary investments at end of year
              
              $
              4,602,000
              
              
              $
              4,951,000SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid during the year for:Interest
      (net of amount capitalized)
              
              $
              25,713,000
              
              
              $
              27,872,000Income
      taxes
              
              
              4,802,000
              
              
              
              3,238,000


The
accompanying notes are an integral part of these statements.






6




IMTT HOLDINGS
INC.




NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS




DECEMBER 31, 2008 AND
2007




(1) Nature of operations and
organization




IMTT
Holdings Inc. (“IHI”) formerly Loving Enterprises Inc., owns 100% of various
corporations and limited liability companies (International Tank Terminals,
L.L.C. and Affiliates, “ITT and Affiliates”) who in turn own 100% of various
operating entities, primarily partnerships (“IMTT
Combined”).   The following chart summarizes the relationship of
the various ITT and Affiliates and IMTT Combined entities.





Parent
      Entities (ITT and Affiliates)
            
            Subsidiary/Operating Entities (IMTT Combined)99% Ownership *
            
            1% Ownership *International
      Tank Terminals, L.L.C.
            
            ITT-Storage,
      Inc.
            
            International-Matex
      Tank TerminalsInternational
      Tank Bayonne, Inc. (100%)
            
            -
            
            Bayonne
      Industries, Inc.International
      Tank Bayonne, Inc.
            
            ITT-Bayonne
      Storage, Inc.
            
            IMTT-BayonneITT-BX,
      Inc.
            
            ITT-BX
      Storage, Inc.
            
            IMTT-BXITT-Pipeline,
      Inc.
            
            ITT-Pipeline
      Partner, Inc.
            
            IMTT-PipelineITT-BC,
      Inc. (50%)
            
            ITT-Interterminal
      Pipeline, Inc. (50%)
            
            IMTT-BCITT-Gretna,
      L.L.C.
            
            ITT-Gretna
      Storage, Inc.
            
            IMTT-GretnaITT-Virginia,
      Inc.
            
            ITT-Virginia
      Storage, Inc.
            
            IMTT-VirginiaITT-Richmond-CA,
      Inc.
            
            ITT-Richmond-CA
      Storage, Inc.
            
            IMTT-Richmond-CAITT-Illinois,
      Inc.
            
            ITT-Illinois
      Storage, Inc.
            
            IMTT-IllinoisITT-Petroleum
      Management, Inc.
            
            ITT-SPR
      Partner, Inc.
            
            IMTT-Petroleum
      ManagementITT-Geismar,
      L.L.C.
            
            ITT-Geismar
      Storage, Inc
            
            IMTT-GeismarInternational
      Environmental Services, Inc.
            
            ITT-IEP
      Partner, Inc.
            
            International
      Environmental PartnersITT-NTL,
      Inc. (100%)
            
            -
            
            IMTT-NTL,
      Ltd.*Unless
      noted otherwise below




The IMTT
Combined entities primarily provide bulk liquid storage and handling services in
North America through terminals located on the East, West and Gulf Coasts as
well as the Great Lakes region of the United States and in Quebec and
Newfoundland, Canada, with the predominant terminals located in New York harbor
and on the Mississippi River near the Gulf of Mexico. Petroleum products,
vegetable and tropical oils, renewable fuels, and various chemicals are stored
and handled.




7




International-Matex
Tank Terminals (IMTT) is a partnership formed in 1975 to own and operate bulk
liquid storage terminal facilities in St. Rose and Avondale, Louisiana. Bayonne
Industries, Inc. (BII) is a New Jersey corporation which owns terminal
facilities in Bayonne, New Jersey and was purchased in
1983.  IMTT-Bayonne is a partnership formed in 1983 to operate New
Jersey terminal assets.  The IMTT-BX partnership was formed in 1993 to
acquire the terminal facility adjacent to Bll's tank terminal on April 1, 1993.
IMTT-BC is a partnership organized in 1996 to purchase certain terminal assets
in 1997, 2003, and 2004 that are contiguous to the existing Bayonne
terminal.  IMTT-Pipeline is a partnership formed in 1996 to own a
pipeline utilized in the transfer of products by IMTT-Bayonne and other third
parties.  IMTT-Bayonne leases and operates tank terminal and warehouse
facilities owned by BII, IMTT-BX, and IMTT-BC in Bayonne, New Jersey/ New York
Harbor.  IMTT-Gretna is a partnership formed in 1990 to purchase and
operate a bulk liquid storage terminal in Gretna,
Louisiana.  IMTT-Virginia, formerly IMTT-Chesapeake and IMTT-Richmond,
is a partnership formed in 1991 to purchase and operate bulk liquid storage
terminals in Chesapeake and Richmond, Virginia.  IMTT-Petroleum
Management is a partnership formed in 1992 to own an interest in a joint venture
operating the United States Strategic Petroleum Reserve. IMTT-Richmond-CA is a
partnership formed in 1995 to purchase and operate a bulk liquid storage
terminal in Richmond, California. IMTT-Illinois (formerly IMTT-Lemont) is a
partnership formed in 1997 to purchase and operate terminal facilities in Lemont
and Joliet, Illinois.  IMTT-NTL, Ltd. is a Canadian corporation formed
in 1997 to own an interest in and manage a terminal in Newfoundland,
Canada.  IMTT-Quebec Inc., a 66 2/3% owned subsidiary of IMTT,
operates a bulk liquid storage terminal located in Quebec,
Canada.  IMTT-Geismar is a partnership formed in 2006 to construct and
operate a chemical logistics facility in Geismar,
Louisiana.  International Environmental Partners is a partnership
formed in 1999 to own an entity that provides environmental response and other
services to the IMTT terminals and third parties.






(2) Summary of significant
accounting policies




Consolidation:




The
accounts of IHI have been consolidated with those of ITT and Affiliates as well
as those of IMTT Combined after eliminating all intercompany account balances
and transactions (IHI Consolidated).  IMTT Combined consists of the
operating entities, primarily partnerships, previously described, consolidated
with their wholly-owned subsidiary, IMTT-Finco (The Partnerships) further
combined with the Canadian corporation, IMTT-NTL, Ltd. (IMTT
Combined).




8




Revenue
recognition:




Contracts
for the use of storage capacity at the various terminals predominantly have
non-cancelable terms of one to five years.  These contracts generally
provide for payments for providing storage capacity throughout their term based
on a fixed rate per barrel of capacity leased, as adjusted annually for
inflation indices.  Contracts are classified and accounted for as
operating leases in accordance with generally accepted accounting principals and
revenue is recognized over their term based on the rate specified in the
contract.  Revenue from the rendering of ancillary services (e.g.
product movement (thruput), heating, mixing, etc.) is recognized as the related
services are performed based on contract rates. Thruput revenues are not
recognized until the thruput quantity specified in the contract for the
applicable period is exceeded.  Payments received prior to the related
services being performed or as a reimbursement for specific fixed asset
additions or improvements related to a customer’s contract are recorded as
deferred revenue and ratably recognized as storage revenues over the contract
term; the non-current portion is included in other long-term liabilities in the
accompanying balance sheet.  Environmental response services revenues
are recognized as services are rendered.




Cash and temporary
investments:




Cash and
temporary investments at December 31, 2006 included highly liquid investment of
excess cash held in money market accounts earning market interest rates and
available for operating and other needs on a daily basis.  These
temporary investments were used to fund operations in 2007 and no temporary
investments remained thereafter.




Accounts receivable and
allowance for doubtful accounts:




Accounts
receivable are stated at the historical carrying amount net of an allowance for
doubtful accounts.  An allowance for doubtful accounts receivable is
established based on specific customer collection issues that have been
identified.  Accounts receivable are charged against the allowance for
doubtful accounts when it has been determined the balance will not be
collected.




Inventories:




Inventories
which consist primarily of back-up fuel supplies, chemicals and supplies used in
packaging anti-freeze for customers, spare parts used in maintenance activities,
and spill response materials are carried at cost which is equal to or less than
their fair market value.




Property, plant and
equipment:




Property,
plant and equipment is carried at cost including applicable construction period
interest. Construction period interest (including related letter of credit fees)
of $4,872,000 and $6,882,000 was capitalized in 2008 and 2007, respectively.
Depreciation is provided using the straight-line method over lives which range
from 15 to 30 years for the terminal facility and 3 to 8 years for furniture,
fixtures and equipment. Costs which are associated with capital additions and
improvements or that extend the useful lives or increase service capacity of
assets are capitalized; costs of maintenance and repairs are
expensed.  Terminal fixed assets with a net book value of $906,425,000
at December 31, 2008 are utilized to provide storage capacity and related
services to customers/ lessees.




9




Debt issue
costs:




Costs
incurred related to issuing tax-exempt bonds and entering into bank lines of
credit (See Note 4) are capitalized as debt issue costs in the accompanying
balance sheet and amortized over the term of the related debt as additional
interest expense.




Tax-exempt bond escrow
investments:




This
caption primarily consists of short-term corporate debt instruments which are
accounted for at cost and adjusted for accretion to their par amount at
maturity.  See Note 13 for further details.




Other
assets:




Costs
incurred to deepen vessel draft at the Partnerships' docks as well as those
incurred periodically to maintain draft depths for more than one year are
capitalized and amortized over their estimated useful lives (3 to 20 years) as a
planned major maintenance activity.  $702,000 of such costs were
capitalized in 2008; there were no dredging costs deferred in
2007.  Amortization of such costs was $1,524,000 and $1,865,000 in
2008 and 2007, respectively.




Investment in NTL
venture:




On July
21, 1997 IMTT-NTL, Ltd. acquired a 20% interest in Newfoundland Transshipment
Limited (NTL), a Canadian corporation which owns and operates a storage and
transshipment terminal located in Newfoundland. The investment is shown in the
accompanying balance sheet at cost ($9,138,000 at December 31, 2008). NTL
guarantees its shareholders a minimum 12% return on investment. This return on
investment ($1,311,000 and $1,251,000 for 2008 and 2007, respectively) has been
recorded as other income in the accompanying income statements as its ultimate
realization is reasonably assured based on the nature of its operations and the
involvement of major oil companies as customers and shareholders.




Income
taxes:




Income
tax expense includes federal and state taxes currently payable as well as
deferred taxes arising from temporary differences between income for financial
reporting and income tax reporting purposes.  Deferred income taxes
are accounted for in accordance with Statement of Financial Accounting Standards
No. 109.  These temporary differences consist primarily of fixed asset
basis differences as well as various expenses which affect the financial
statements and tax returns in different periods.  Differences in the
basis of the fixed assets for accounting and income tax reporting purposes exist
primarily as a result of different depreciation methods and lives used for
financial and income tax reporting purposes, involuntary conversion treatment,
for income tax purposes, of proceeds received from asset expropriations and
settlement of insurance coverage for property damage.  Operating loss
and tax credit carryforwards are recognized as reductions to net deferred income
tax liabilities if it is likely that their benefit will be
realized.




10




Derivatives:




IHI
Consolidated has entered into interest rate-related derivative instruments to
manage its interest rate exposure on certain debt instruments.  See
Note 4.  IHI does not enter into derivative instruments for any
purpose other than economic interest rate hedging.  That is, IHI does
not speculate using derivative instruments.
  By using
derivative financial instruments to hedge exposures to changing interest rates,
IHI exposes itself to credit risk and market risk.  Credit risk is the
failure of the counterparty to perform under the terms of the derivative
contract.  When the fair value of a derivative contract is positive,
the counterparty owes IHI, which creates credit risk for IHI.  When
the fair value of a derivative contract is negative, IHI owes the counterparty
and, therefore, it does not possess credit risk.  IHI minimizes the
credit risk in the derivative instruments by entering into transactions with
high quality counterparties.  Market risk is the adverse effect on the
value of a financial instrument that results from a change in interest
rates.
  IHI
Consolidated has in place variable-rate debt.  These debt obligations
expose IHI to variability in interest payments due to changes in interest
rates.  IHI believes that it is prudent to limit the variability of a
large portion of its interest payments.  To meet this objective, IHI
enters into interest rate swap agreements to manage fluctuations in cash flows
resulting from interest rate risk on a majority of its variable-rate
debt.  These swaps change the variable-rate cash flow exposure on the
debt obligations to fixed cash flows.  Under the terms of the interest
rate swaps, IHI receives variable interest rate payments and makes fixed
interest rate payments, thereby creating the equivalent of fixed-rate debt for
the portion of the debt that is swapped.
  In
accordance with SFAS No. 133, IHI has concluded that all of its interest rate
swaps qualify as cash flow hedges and IHI applies hedge accounting for these
instruments.  Changes in the fair value of interest rate derivatives
designated as hedging instruments that effectively offset the variability of
cash flows associated with variable-rate debt obligations are reported in other
comprehensive income or loss.  Any ineffective portion of the change
in valuation of derivatives is recorded through earnings, and reported in the
mark-to-market loss (gain) of non-hedging derivatives line in the consolidated
statements of income.  The long-term portion of these fair market
values are recorded in other long-term liabilities in the accompanying balance
sheet.  IHI anticipates the currently effective hedges to be effective
on an ongoing basis.  The term over which IHI is currently partially
hedging exposures relating to debt is through June, 2017.  (See Note
4)
  At
December 31, 2008, IHI had $607,700,000 of outstanding debt, $379,300,000 of
which was hedged with interest rate swaps.  At December 31, 2007, IHI
had $484,075,000 of outstanding debt, $322,300,000 of which was hedged with
interest rate swaps.
  For the
years ended December 31, 2008 and 2007, IHI recorded the following changes in
the value of its derivative instruments.
 
 December
      31, 2008
                      Interest
      Rate Swaps
                    
                    
                    December
      31, 2007
                      Interest
      Rate SwapsOpening
      balance (liability)/asset (includes current and non-current
      portions)
                    
                    $
                    (26,682,000
                    )
                    
                    $
                    (5,816,000
                    )Unrealized
      gain (loss) on derivative instruments in other comprehensive income (loss)
      for the year
                    
                    
                    (10,577,000
                    )
                    
                    
                    156,000Ineffective
      portion of the changes in the valuation of the derivatives instruments,
      representing unrealized gains (losses) included in loss on derivative
      instruments for the year
                    
                    
                    (54,174,000
                    )
                    
                    
                    (22,833,000
                    )Reclassification
      of realized losses (gains) on derivative instruments into interest expense
      for the year
                    
                    
                    7,897,000
                    
                    
                    
                    1,811,000Closing
      balance (liability)/asset (includes current and non-current
      portions)
                    
                    $
                    (83,536,000
                    )
                    
                    $
                    (26,682,000
                    )
  IHI
expects that it will reclassify losses of approximately $16,700,000 (pretax)
from other comprehensive (loss) income into earnings over the next twelve
months; however, this amount may change depending on movements in interest rates
over that period.
  11
 In
accordance with SFAS No. 133, IHI’s derivative instruments are recorded on the
balance sheet at fair value.  IHI measures derivative instruments at
fair value using the income approach which converts future amounts (being the
future net cash settlements expected under the derivative contracts) to a
discounted present value.  These valuations primarily utilize
observable (“level 2”) inputs including contractual terms, interest rates and
yield curves observable at commonly quoted intervals.
  IHI’s
fair value measurements of its derivative instruments at December 31, 2008, were
as follows:
  Fair
      Value Measurements at Reporting Date UsingDescription
                          
                          Total
      at December 31, 2008
                          
                          
                          Quoted
      Prices in Active Markets for Identical Assets
                            (Level
      1)
                          
                          
                          Significant
      Other Observable Inputs
                            (Level
      2)
                          
                          
                          Significant
      Unobservable
                            Inputs
                            (Level
      3)Derivative
      Instruments:Current
      liabilities
                          
                          $
                          (15,733,000
                          )
                          
                          $
                          —
                          
                          
                          $
                          (15,733,000
                          )
                          
                          $
                          —Non-current
      liabilities
                          
                          
                          (67,803,000
                          )
                          
                          
                          —
                          
                          
                          
                          (67,803,000
                          )
                          
                          
                          —Total
                          
                          $
                          (83,536,000
                          )
                          
                          $
                          —
                          
                          
                          $
                          (83,536,000
                          )
                          
                          $
                          —


Estimates:




The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and disclosures.  Some of the more important
estimates and assumptions concern depreciation methods and lives, future
environmental remediation costs and pension plan discount rates and rates of
return on plan assets.  Actual results may differ from those estimates
and assumptions.




Impairment of long-lived
assets:




Long-lived
assets, such as property, plant, and equipment are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.  Recoverability of assets is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset.  If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset.  No asset impairments
existed and none were recognized in the accompanying financial
statements.




Foreign currency
translation:




The
balance sheet accounts of IMTT-NTL, Ltd. and IMTT-Quebec Inc. are translated
from their foreign currency (Canadian dollars) to U.S. dollars at exchange rates
in effect at the end of the year and income statement accounts are translated at
average exchange rates for the year.  Translation gains or losses as a
result of changes in the exchange rate are recorded as a component of other
comprehensive income.




(3) Related party
transactions




During
2008 and 2007, IHI Consolidated paid or accrued $2,266,000 and $2,007,000,
respectively, to entities related to a group of shareholders for legal services
and office rent which are recorded as general and administrative expense in the
accompanying income statement.  Receivable from affiliates of $20,000
at December 31, 2008 and $14,000 at December 31, 2007 consists of receivables
from entities affiliated with one of the partners.  In accordance with
the terms of the shareholders’ agreement, IHI has loans outstanding to a group
of shareholders at December 31, 2008 and 2007 of $36,495,000 and $33,516,000,
respectively.  Interest accrued on these loans for 2008 and 2007 was
$2,108,000 and $1,317,000, respectively.




12




(4) Long-term debt and
related derivatives





Long-term
debt consists of the following:




2008
            
            
            2007Tax-exempt
      N.J.E.D.A. bonds, .80% at December 31, 2008 (3.60% at December 31,
      2007)
            
            $
            30,000,000
            
            
            $
            30,000,000Tax-exempt
      N.J.E.D.A. bonds of terminated El Dorado joint venture, .80% at December
      31, 2008 (3.60% at December 31, 2007)
            
            
            6,300,000
            
            
            
            6,300,000Tax-exempt
      Ascension Parish bonds, .85% at December 31, 2008 (3.44% at December 31,
      2007)
            
            
            165,000,000
            
            
            
            165,000,000Tax-exempt
      L.P.F.A. bonds, .85% at December 31, 2008 (3.44% at December 31,
      2007)
            
            
            50,000,000
            
            
            
            50,000,000Unsecured
      notes payable under U.S. revolving bank credit facility averaging 2.39% at
      December 31, 2008  (5.77% at December 31, 2007)
            
            
            221,000,000
            
            
            
            84,000,000Notes
      payable under revolving credit facilities with a Canadian bank, averaging
      3.52% at December 31, 2008 (5.58% at December 31, 2007)
            
            
            20,243,000
            
            
            
            23,379,000Capitalized
      land sublease due in monthly installments through October, 2011 with
      interest at 7%
            
            
            626,000
            
            
            
            806,000Loans
      from shareholders, 5.50%, due in quarterly installments over a 15 year
      period beginning March 31, 2008
            
            
            36,495,000
            
            
            
            33,516,000Notes
      payable to a bank, 1.461% at December 31, 2008 (5.845% at December 31,
      2007)
            
            
            78,000,000
            
            
            
            91,000,000Other
            
            
            36,000
            
            
            
            74,000$
            607,700,000
            
            
            $
            484,075,000Less
      – Current maturities
            
            
            (2,808,000
            )
            
            
            (2,787,000
            )$
            604,892,000
            
            
            $
            481,288,000







13







In 1993,
BII and IMTT-Bayonne received the proceed of and became obligated for
$30,000,000 of tax-exempt New Jersey Economic Development Authority (N.J.E.D.A.)
Dock Facility Revenue Refunding Bonds (the Bonds) to refinance and retire
previously issued tax-exempt industrial development revenue bonds.




In
accordance with the terms of the Bond indenture, BII and IMTT-Bayonne select
from four interest rate-setting frequency modes; daily, weekly, CP (from 30 to
269 days) and adjustable rate mode (at least six months). The interest rates for
these various alternatives are determined by the remarketing agent as the lowest
rate that will allow the Bonds to be sold at par based on the current market
conditions. For all of 2008 and 2007, the Bond interest rate was set under the
daily rate mode.




The Bonds
are secured by $30,473,000 of irrevocable letters of credit, which expire June,
2012 (if not extended), issued by the banks under the credit facility discussed
below.




The Bonds
mature on December 1, 2027 but are subject to optional and mandatory tender, as
well as various redemption provisions, at 100% of principal and accrued interest
(plus applicable premium if the Bonds are in the adjustable rate mode). When in
the daily or weekly rate mode, bond owners may, at their option, tender the
Bonds to the remarketing agent for payment of principal and accrued
interest.




The Bonds
are also subject to mandatory tender provisions in the following cases: 1) each
time the interest rate mode is converted, 2) if the related letters of credit
are released or allowed to terminate or expire without replacement or extension,
3) substitution of an alternate credit facility for an existing letter of
credit, if certain conditions are not met and 4) on each CP rate reset date.
After tender, if sufficient funds are not available from remarketing the Bonds,
the bond owners could be paid from the proceeds of a draw on the related letters
of credit, or, should sufficient funds not be available from letters of credit,
the Bonds could be purchased by BII and IMTT-Bayonne. The Bonds may be redeemed
at various times at the direction of BII and IMTT-Bayonne while in any rate mode
and are also subject to mandatory redemption if the Bonds are determined to be
taxable.




IMTT-BC
is responsible for the payment of principal (due December 1, 2021) and related
interest of a $6,300,000 New Jersey Economic Development Authority tax-exempt
bond issue of a terminated joint venture.  Interest terms on these
bonds are similar to those issued by BII and IMTT-Bayonne discussed previously.
These bonds are secured by a $6,404,000 irrevocable letter of credit issued by
the banks under the credit facility discussed below.




In July,
2007, IMTT-Geismar received the proceeds of and became obligated for
$165,000,000 of tax-exempt Industrial Development Board of the Parish of
Ascension, Louisiana, Inc. revenue bonds to finance construction of a chemical
liquid logistics facility in Geismar, Louisiana.   At the same
time, IMTT received the proceeds of and became obligated for $50,000,000 of
tax-exempt Louisiana Public Facilities Authority (L.P.F.A.) revenue bonds to
finance the expansion of liquid terminal facilities at its St. Rose, Louisiana
terminal.  Both of these tax-exempt financings mature on June 1, 2037
and are secured by irrevocable letters of credit ($167,170,000 and $50,658,000,
respectively) issued by the banks under the credit facility discussed
below.  These two tax-exempt financings have interest rate setting
modes, optional and mandatory tender and redemption provisions similar to the
NJEDA tax-exempt bonds.  For all of 2008 and 2007 the rate on these
bonds was set under the weekly rate mode.  At December 31, 2007,
$55,525,000 of the proceeds under these two tax-exempt financings remained in
escrow available to fund future construction costs.  All remaining
escrow funds were expended in 2008.  See note 12 for further
information.




14




In June,
2007 IMTT Combined replaced and increased its existing U.S. bank credit facility
with a new bank credit facility.  This $600,000,000 unsecured
revolving U.S. credit facility is with an eighteen bank syndicate and expires in
June, 2012.  IMTT and IMTT-Bayonne are the borrowers under this
agreement which is guaranteed by all the remaining entities comprising IMTT
Combined except IMTT-NTL, Ltd. and IMTT-Quebec Inc. Also, a majority of the
outstanding stock of IMTT-NTL, Ltd. and IMTT-Quebec Inc. is pledged in repayment
of this debt.




IMTT and
IMTT-Bayonne can borrow, at their option, for various periods under the
agreement at LIBOR plus .55% to 1.50%, with the percentage added to LIBOR
dependent upon the ratio of debt to earnings before interest, taxes and
depreciation and amortization, as defined.  Loans are also available
at the banks’ base rate.




The U.S.
bank credit facility includes the availability for the issuance of letters of
credit. Letters of credit outstanding under this facility at December 31, 2008
($256,433,000) primarily secure obligations under certain tax-exempt bonds
referred to previously. Loans of $221,000,000 were outstanding under this
facility at December 31, 2008, thus leaving $122,567,000 available under of this
credit facility at December 31, 2008.




IMTT
Combined is subject to various covenants under this credit facility. The primary
covenants require the maintenance of certain ratios, as defined, of combined 1)
debt to earnings before interest, income taxes and depreciation and
amortization, and 2) earnings before interest, income taxes and depreciation and
amortization to interest expense.  The loan agreement also restricts
liens on assets, additional investments and loans, sales or dispositions of
assets and change of control, as defined, among other requirements.




IMTT-Finco
entered into a $60,000,000 note purchase agreement in November, 2001 and a
$50,000,000 note purchase agreement in April, 2002 (private placement debt).
These agreements charged interest throughout their term at 7.15% and 8%,
respectively. Annually, beginning November 28, 2010, note principal installments
were due until the final principal payment on November 28, 2016.  In
June, 2007 these notes were paid and extinguished before their scheduled
maturity and a “make-whole amount” of $12,337,000 was paid and recorded as an
additional expense in the 2007 statement of income.




15




In 2007,
IMTT-NTL, Ltd. and IMTT-Quebec Inc. entered into a $25,000,000 (U.S. equivalent)
revolving credit facility with a Canadian bank. Loans under this facility are
available in Canadian dollars at bankers' acceptances rates plus spreads based
on the ratio of debt to earnings before interest, income taxes and depreciation
and amortization identical to those under the $600,000,000 U.S. bank syndicate
credit facility or at prime rates. This facility which terminates June, 2012 has
covenants, guarantees and stock pledges identical to the $600,000,000 U.S. bank
syndicate credit facility.




In
connection with the $60,000,000 note purchase agreement previously discussed, a
treasury lock agreement was entered into in an effort to limit the risk of
future interest rate increases and fix rates at current levels at the time the
agreement was committed to.  The treasury lock agreement of identical
notional amount was settled with a payment of $1,378,000 in 2001. This payment
was recorded as a component of other comprehensive income and was being
amortized to net income as additional interest expense such that the effective
rate of the $60,000,000 note purchase agreement was 7.44%.  Coincident
with the early retirement of the $60,000,000 note purchase agreement, the
remaining unamortized balance ($928,000) was reclassified to interest expense in
2007.





As
discussed in Note 9, on January 1, 2000 ITT and Affiliates purchased the
interest of a former partner in IMTT Combined.  The consideration for
the purchase was in the form of notes payable to the former partner totaling
$130,000,000.




In
December, 2005, these notes were refinanced with a bank.  Principal
payments were revised to $13,000,000 annually from December 31, 2005 to December
31, 2010 with the remaining $52,000,000 due December 23, 2012 and interest is
LIBOR plus one percent.  IMTT Combined has guaranteed principal
payments for the following amounts of this debt




Effective
      Date  – December 30, 2006
              
              $
              13,000,000December
      31, 2006 – December 30, 2007
              
              
              26,000,000December
      31, 2007 – December 30, 2008
              
              
              39,000,000December
      31, 2008 – December 30, 2009
              
              
              52,000,000December
      31, 2009 – December 30, 2010
              
              
              65,000,000December
      31, 2010 – December 23, 2012
              
              
              52,000,000


The
refinanced debt retains the clause in the original note that it is subordinate
to any current or future debt of IMTT Combined.  Additionally, after
December 31, 2009, if the ratio of debt to earnings before interest, taxes,
depreciation and amortization of IMTT Combined exceeds a prescribed ratio, the
outstanding debt balance is assumed by IMTT Combined from ITT and
Affiliates.  Further, the loan agreement restricts IMTT Combined and
ITT and Affiliates from pledging assets unless the bank receives an equal
security interest in such assets, consolidating or merging with another entity,
or incurring a change of control, as defined.  The guaranty of IMTT
Combined could be accelerated if IMTT Combined defaults under any of its debt
obligations.  Additionally, IHI is prohibited from selling or pledging
its ownership interests in ITT and Affiliates and IMTT Combined.




The
interest rate on the borrowings under the tax-exempt bonds, the revolving bank
credit facilities and the notes payable to a bank (refinanced notes payable to a
former partner) discussed previously adjusts periodically depending on their
individual terms as previously described. In an effort to achieve a more stable
interest cost and reduce the risk of rising interest rates and expense, five
interest rate swap agreements with three large banks were entered into whereby
floating rates were swapped for fixed rates. The primary terms and the
accounting treatment of these financial instruments are described
below.




16






Swap
      1
              
              
              Swap
      2
              
              
              Swap
      3
              
              
              Swap
      4
              
              
              Swap
      5
              
              TotalRelated
      debt
              
              Bank
      Line
              
              
              N.J.E.D.A.
      Bonds
              
              
              Tax-Exempt
      Bonds
              
              
              Bank
      Line
              
              
              Bank
      Note PayableNotional
      amount
              
              $50,000,000
              
              
              $36,300,000
              
              
              $175,000,000*
              
              
              $90,000,000**
              
              
              $78,000,000***Term
              
              10/97-10/07
              
              
              10/07-10/12
              
              
              7/07-6/17
              
              
              10/07-3/17
              
              
              5/06-12/12Fixed
      rate paid
              
              6.400%
              
              
              3.410%
              
              
              3.662%
              
              
              5.507%
              
              
              6.290%Floating
      rate received
              
              Quarterly
      Libor
              
              
              67%
      of monthly Libor
              
              
              67%
      of monthly Libor
              
              
              Quarterly
      Libor
              
              
              Monthly
      Libor2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007Floating
      rate at year end
              
              
              —
              
              
              
              —
              
              
              
              0.765
              %
              
              
              3.350
              %
              
              
              0.758
              %
              
              
              3.350
              %
              
              
              1.459
              %
              
              
              4.830
              %
              
              
              0.46125
              %
              
              
              4.845
              %Net
      interest expense (income) for year
              
              $
              —
              
              
              
              415,000
              
              
              $
              579,000
              
              
              $
              11,000
              
              
              $
              3,240,000
              
              
              $
              116,000
              
              
              $
              1,422,000
              
              
              $
              60,000
              
              
              $
              3,150,000
              
              
              $
              1,113,000
              
              
              $
              8,391,000
              
              
              $
              1,715,000Fair
      market value at year end (liability)****
              
              $
              —
              
              
              $
              —
              
              
              $
              (2,950,000
              )
              
              $
              (1,104,000
              )
              
              $
              (33,996,000
              )
              
              $
              (10,029,000
              )
              
              $
              (35,479,000
              )
              
              $
              (8,399,000
              )
              
              $
              (11,111,000
              )
              
              $
              (7,150,000
              )
              
              $
              (83,536,000
              )
              
              $
              (26,682,000
              )Change
      in fair market value for year gain/(loss)
              
              $
              —
              
              
              $
              546,000
              
              
              $
              (1,846,000
              )
              
              $
              (1,104,000
              )
              
              $
              (23,967,000
              )
              
              $
              (10,029,000
              )
              
              $
              (27,080,000
              )
              
              $
              (8,399,000
              )
              
              $
              (3,961,000
              )
              
              $
              (2,036,000
              )
              
              $
              (56,854,000
              )
              
              $
              (21,022,000
              )Change
      in fmv value recorded in-Other
      comprehensive income/(loss)
              
              $
              —
              
              
              $
              —
              
              
              $
              (1,576,000
              )
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              (4,585,000
              )
              
              $
              —
              
              
              $
              (4,416,000
              )
              
              $
              —
              
              
              $
              (10,577,000
              )
              
              $
              —Net
      income/(loss)
              
              $
              —
              
              
              $
              546,000
              
              
              $
              (270,000
              )
              
              $
              (1,104,000
              )
              
              $
              (23,967,000
              )
              
              $
              (10,029,000
              )
              
              $
              (22,495,000
              )
              
              $
              (8,399,000
              )
              
              $
              455,000
              
              
              $
              (2,036,000
              )
              
              $
              (46,277,000
              )
              
              $
              (21,022,000
              )Total
      gain/(loss)
              
              $
              —
              
              
              $
              546,000
              
              
              $
              (1,846,000
              )
              
              $
              (1,104,000
              )
              
              $
              (23,967,000
              )
              
              $
              (10,029,000
              )
              
              $
              (27,080,000
              )
              
              $
              (8,399,000
              )
              
              $
              (3,961,000
              )
              
              $
              (2,036,000
              )
              
              $
              (56,854,000
              )
              
              $
              (21,022,000
              )
 
 *
              Increases
      to $215 million at 1/1/09
 **
              Increases
      annually to $200 million at
12/31/12
 ***
              Decreases
      identically to outstanding principal balance of notes payable to a bank
      (refinanced note of a former partner). Payments guaranteed by
      IMTT.
 ****
              Included
      in current and other long-term liabilities in the accompanying balance
      sheets.


17




(5) Employee
benefits




Except
for a plan covering certain employees covered by a collective bargaining
agreement at the Lemont and Joliet, Illinois terminals, substantially all
employees of IMTT Combined are eligible to participate in a defined benefit
pension plan (the Plan). Benefits under the Plan are based on years of service
and the employees' highest average compensation for a consecutive five year
period. Coincident with the acquisition of terminal facilities in 1997 and 2007
by IMTT-Illinois, it became the sponsor of a defined benefit plan covering union
employees at these terminals (Union Plan). Monthly benefits under this plan are
computed based on a benefit rate in effect at the date of the participant's
termination ($48.50 at November 1, 2008) multiplied by the number of years of
service. The Partnerships' contributions to both plans are based on the
recommendations of its consulting actuary.





18





The
following table sets forth the obligations and assets (as well as changes
therein) of both plans, the resulting funded status and amounts recognized in
the accompanying financial statements.






2008
            
            
            2007The Plan
            
            
            Union Plan
            
            
            The Plan
            
            
            Union PlanChanges
      in benefit obligation:Benefit
      obligation at beginning of year
            
            $
            54,355,000
            
            
            $
            3,053,000
            
            
            $
            55,698,000
            
            
            $
            2,922,000FAS
      No. 158 measurement date change
            
            
            (5,443,000
            )
            
            
            (12,000
            )
            
            
            —
            
            
            
            —Service
      cost
            
            
            2,558,000
            
            
            
            166,000
            
            
            
            3,316,000
            
            
            
            150,000Interest
      cost
            
            
            3,071,000
            
            
            
            194,000
            
            
            
            3,304,000
            
            
            
            172,000Assumption
      changes (gain) loss
            
            
            —
            
            
            
            —
            
            
            
            (3,383,000
            )
            
            
            (87,000
            )Actuarial
      loss (gain)
            
            
            65,000
            
            
            
            1,000
            
            
            
            (691,000
            )
            
            
            (31,000
            )Benefits
      paid
            
            
            (1,345,000
            )
            
            
            (69,000
            )
            
            
            (3,889,000
            )
            
            
            (73,000
            )Benefit
      obligation at end of year
            
            $
            53,261,000
            
            
            $
            3,333,000
            
            
            $
            54,355,000
            
            
            $
            3,053,,000





Changes
      in plan assets:Fair
      value of plan assets atbeginning
      of year
            
            $
            35,772,000
            
            
            $
            2,941,000
            
            
            $
            30,125,000
            
            
            $
            2,393,000FAS
      No. 158 measurement date change
            
            
            (763,000
            )
            
            
            (66,000
            )
            
            
            —
            
            
            
            —Actual
      return on plan assets
            
            
            (6,982,000
            )
            
            
            (586,000
            )
            
            
            5,409,000
            
            
            
            340,000Employer
      contribution
            
            
            5,367,000
            
            
            
            628,000
            
            
            
            4,127,000
            
            
            
            281,000Benefits
      paid
            
            
            (1,345,000
            )
            
            
            (69,000
            )
            
            
            (3,889,000
            )
            
            
            (73,000
            )Fair
      value of plan assets at end of year
            
            $
            32,049,000
            
            
            $
            2,848,000
            
            
            $
            35,772,000
            
            
            $
            2,941,000Funded
      status – Pension (liability) recognized in balance sheet in other
      long-term liabilities
            
            $
            (21,212,000
            )
            
            $
            (485,000
            )
            
            $
            (18,583,000
            )
            
            $
            (112,000
            )Amounts
      recognized in accumulated other comprehensive income consist
      of:Net
      loss
            
            $
            10,441,000
            
            
            $
            997,000
            
            
            $
            5,808,000
            
            
            $
            407,000Prior
      service cost
            
            
            1,085,000
            
            
            
            349,000
            
            
            
            1,283,000
            
            
            
            107,000Total
            
            $
            11,526,000
            
            
            $
            1,346,000
            
            
            $
            7,091,000
            
            
            $
            514,000Accumulated
      benefit obligation at December 31:
            
            $
            40,374,000
            
            
            $
            3,333,000
            
            
            $
            36,107,000
            
            
            $
            3,053,000Components
      of net periodic benefit cost:Service
      cost
            
            $
            2,558,000
            
            
            $
            166,000
            
            
            $
            3,316,000
            
            
            $
            150,000Interest
      cost
            
            
            3,071,000
            
            
            
            194,000
            
            
            
            3,304,000
            
            
            
            172,000Expected
      return on plan assets
            
            
            (2,835,000
            )
            
            
            (240,000
            )
            
            
            (2,541,000
            )
            
            
            (201,000
            )Amortization
      of prior service cost
            
            
            170,000
            
            
            
            33,000
            
            
            
            170,000
            
            
            
            12,000Recognized
      net actuarial loss (gain)
            
            
            —
            
            
            
            —
            
            
            
            863,000
            
            
            
            42,000Net
      periodic benefit cost recognized in statement of income
            
            $
            2,964,000
            
            
            $
            153,000
            
            
            $
            5,112,000
            
            
            $
            175,000








19








2008
            
            
            2007The Plan
            
            
            Union Plan
            
            
            The Plan
            
            
            Union PlanOther
      changes in plan assets and benefit obligation recognized in other
      comprehensive income:Net
      actuarial (gain)/loss
            
            $
            9,882,000
            
            
            $
            828,000Prior
      service cost/(credit)
            
            
            —
            
            
            
            —Amortization
      of prior service cost/credit
            
            
            (170,000
            )
            
            
            (33,000
            )Total
      recognized in other comprehensive income
            
            $
            9,712,000
            
            
            $
            795,000Total
      recognized in net periodic benefit cost andother
      comprehensive income
            
            $
            12,676,000
            
            
            $
            948,000Weighted
      average assumptions used to determine benefit obligations as of
      December 31:Discount
      rate
            
            
            6.50
            %
            
            
            6.50
            %
            
            
            6.25
            %
            
            
            6.25
            %Rate
      of compensation increase
            
            
            5.47
            %
            
            
            —
            
            
            
            5.47
            %
            
            
            —Weighted
      average assumptions used to determine netbenefit cost:Discount
      rate
            
            
            6.50
            %
            
            
            6.50
            %
            
            
            5.60
            %
            
            
            5.60
            %Expected
      return on plan assets
            
            
            8.50
            %
            
            
            8.50
            %
            
            
            8.50
            %
            
            
            8.50
            %Rate
      of compensation increase
            
            
            5.47
            %
            
            
            —
            
            
            
            5.47
            %
            
            
            —





As of
December 31, 2007 and 2008, the discount rate assumption used in the computation
of benefit obligations was changed to 6.50% to better approximate returns
available on high quality fixed income investments.  The long-term
rate of return of pension assets is based on historical results adjusted as
necessary for future expectations.





2008
            
            
            2007The Plan
            
            
            Union Plan
            
            
            The Plan
            
            
            Union PlanWeighted
      average asset allocation:Domestic
      equity funds
            
            
            10.4
            %
            
            
            10.5
            %
            
            
            40.7
            %
            
            
            40.7
            %International
      equity funds
            
            
            4.8
            %
            
            
            4.8
            %
            
            
            20.8
            %
            
            
            20.7
            %Domestic
      fixed income funds
            
            
            77.5
            %
            
            
            77.2
            %
            
            
            —
            
            
            
            —Other
            
            
            7.3
            %
            
            
            7.5
            %
            
            
            38.5
            %
            
            
            38.6
            %Total
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %





Pension
asset investment decisions are made with assistance of an outside paid advisor
to achieve the multiple goals of high rate of return, diversification and
safety.





Expected
      benefit payments as of December 31, 2008:
            
            The Plan
            
            
            Union PlanYear
      2009
            
            $
            2,851,000
            
            
            $
            121,000Year
      2010
            
            
            2,235,000
            
            
            
            127,000Year
      2011
            
            
            2,713,000
            
            
            
            135,000Year
      2012
            
            
            3,076,000
            
            
            
            148,000Year
      2013
            
            
            3,120,000
            
            
            
            162,000Years
      2014 - 2018
            
            
            20,324,000
            
            
            
            1,117,000Anticipated
      contributions for 2009
            
            $
            5,011,000
            
            
            $
            148,000






20






The
Partnerships provide post-retirement life insurance (coverage equal to 25% of
final year compensation not to exceed $25,000) and health benefits (coverage for
early retirees at least 62 years old on early retirement to age 65,
reimbursement of Medicare premiums for the Bayonne terminal employees and some
smaller health benefits no longer offered) to retired employees.  The
Partnerships adopted the accounting treatment for post-retirement benefits other
than pensions as prescribed by SFAS No. 106 in 2006.  As allowed by
that accounting standard, the Partnerships elected to defer and amortize the
January 1, 2006 transition obligation over ten years.





The
following table sets forth the obligation and assets (as well as changes
therein) of these plans, the resulting funded status and amounts recognized in
the accompanying financial statements.




2008
            
            
            2007Changes
      in benefit obligation:Benefit
      obligation at beginning of year
            
            $
            3,071,000
            
            
            $
            2,632,000Service
      cost
            
            
            114,000
            
            
            
            108,000Interest
      cost
            
            
            175,000
            
            
            
            138,000Actuarial
      (gain) loss
            
            
            626,000
            
            
            
            484,000Benefits
      paid
            
            
            (485,000
            )
            
            
            (291,000
            )Benefit
      obligation at end of year
            
            $
            3,501,000
            
            
            $
            3,071,000Changes
      in plan assets:Fair
      value of plan assets at beginning of year
            
            $
            —
            
            
            $
            —Employee
      contribution
            
            
            485,000
            
            
            
            291,000Benefits
      paid
            
            
            (485,000
            )
            
            
            (291,000
            )Fair
      value of plan assets at end of year
            
            $
            —
            
            
            $
            —Funded
      status
            
            $
            (3,501,000
            )
            
            $
            (3,071,000
            )





Amounts
      recognized in combined balance sheets consist of:Current
      liabilities
            
            $
            (250,000
            )
            
            $
            (220,000
            )Other
      long-term liabilities
            
            
            (3,251,000
            )
            
            
            (2,851,000
            )$
            (3,501,000
            )
            
            $
            (3,071,000
            )Amounts
      recognized in accumulated other comprehensive income consist
      of:Transition
      obligation
            
            $
            2,459,000
            
            
            $
            2,810,000Net
      (gain) loss
            
            
            168,000
            
            
            
            (474,000
            )Total
            
            $
            2,627,000
            
            
            $
            2,336,000Components
      of net periodic benefit cost:Service
      cost
            
            $
            114,000
            
            
            $
            108,000Interest
      cost
            
            
            175,000
            
            
            
            138,000Amortization
      of transition obligation
            
            
            351,000
            
            
            
            351,000Experience
      (gain)
            
            
            (17,000
            )
            
            
            (76,000
            )Net
      periodic benefit cost of the plan
            
            $
            623,000
            
            
            $
            521,000Other
      changes in plan assets and benefit obligation recognized in other
      comprehensive income:
            
            2008Net
      actuarial loss
            
            $
            642,000Amortization
      of transition obligation
            
            
            (351,000
            )Total
      recognized in other comprehensive income
            
            $
            291,000Total
      recognized in net periodic benefit cost and other comprehensive
      income
            
            $
            914,000






21






Weighted
      average assumptions used to determine benefit obligations as of December
      31:
            
            2008
            
            
            2007Discount
      rate
            
            
            6.50
            %
            
            
            6.25
            %Rate
      of compensation increase
            
            
            3.00
            %
            
            
            3.00
            %Weighted
      average assumptions used to determine net benefit cost:Discount
      rate
            
            
            6.25
            %
            
            
            5.60
            %Rate
      of compensation increase
            
            
            3.00
            %
            
            
            3.00
            %




An 8.5%
annual rate of increase in health care costs for the years 2008 and 2007 was
assumed decreasing by .75% annually to a 5% annual level.




Expected
      benefit payments and contributions as of December 31,
2008:Year
      2009
            
            $
            250,000Year
      2010
            
            
            240,000Year
      2011
            
            
            240,000Year
      2012
            
            
            210,000Year
      2013
            
            
            210,000Year
      2014 – 2018
            
            
            1,230,000





Assumptions
concerning health care cost trend rates can have a significant impact on plan
costs and liabilities, as shown below as of year-end and for the year
2008.




Using
      stated
            
            
            One
      percentage pointassumptions
            
            
            Decrease
            
            
            IncreaseService
      cost
            
            $
            114,000
            
            
            $
            108,000
            
            
            $
            121,000Interest
      cost
            
            
            175,000
            
            
            
            168,000
            
            
            
            182,000Accumulated
      post retirement benefit obligation
            
            
            3,501,000
            
            
            
            3,354,000
            
            
            
            3,665,000





Accumulated
other comprehensive income at December 31, 2008 contains $518,000 of net
actuarial losses, $203,000 of prior service cost and $351,000 of net transition
obligation for the foregoing defined benefit pension and post retirement
health/life plans expected to be recognized as components of net periodic
benefit cost in 2009.




22





SFAS No.
158, “Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans” requires, among other things, the recognition of the funded status of
each defined benefit pension plan, retiree health care and other postretirement
benefit plans and postemployment benefit plans on the balance
sheet.  The initial impact of the standard due to unrecognized prior
service costs or credits, net actuarial gains or losses and net transition
obligations are recognized as a component of accumulated other comprehensive
income.  SFAS No. 158 requires initial application for private
companies for fiscal years ending after June 15, 2007.  IMTT Combined
adopted SFAS No. 158 as of December 31, 2007.  The following table
summarizes the impact of the initial adoption of SFAS No. 158 on the December
31, 2007 balance sheet:





Before
      Application of Statement No. 158
            
            
            Adjustments
            
            
            After
      Application of Statement No. 158Current
      liabilities
            
            $
            47,849,000
            
            
            $
            220,000
            
            
            $
            48,069,000Other
      long-term liabilities
            
            
            62,047,000
            
            
            
            9,015,000
            
            
            
            71,062,000Partners’
      capital
            
            
            377,327,000
            
            
            
            (9,235,000
            )
            
            
            368,092,000





IMTT
Combined adopted the measurement date provisions of SFAS No. 158 in 2008
(measurement date was changed from October 31, to December 31, 2007) for both
defined benefit pension plans.  This change resulted in a $4,627,000
decrease in pension liability composed of a $5,242,000 increase in accumulated
other comprehensive income and a $615,000 reduction in retained
earnings.





The
Partnerships have established a supplementary, non-qualified benefit plan for
certain management employees whose compensation exceeds the maximum eligible for
inclusion in the qualified defined benefit plan.  Under this plan, the
Partnerships fund additional compensation to the affected employees on a pre-tax
basis that will allow them to make a contribution to a separate investment
account which the employees own that will provide the actuarial equivalent of
the benefits available as if all of the employees’ compensation had been
included in the qualified defined benefit plan.  Expense related to
this plan is recorded as additional compensation and primarily included in
general and administrative expense in the accompanying financial statements
($825,000 in 2008 and $239,000 in 2007).





The
Partnerships have established defined contribution Section 401 (k) employee
benefit plans. Under the primary plan, employees who are eighteen years old and
have six months of service are eligible to participate. Employees may contribute
up to the maximum allowable for Federal income tax purposes and the
Partnerships' matching contribution is determined each year by management. In
both 2008 and 2007, the Partnerships elected to match 5% of employee
contributions. Total expense for the 401 (k) plans recognized for 2008 and 2007
was $186,000 and $169,000, respectively.




23




The
Partnerships purchase life insurance for certain management employees and
provide for the repayment of premiums paid through deferred compensation
arrangements.  Under this program, various amounts of life insurance
are purchased and paid for by the Partnerships and receivables are recorded from
each management employee, along with accrued interest.  At retirement
or termination of service, funds are provided to the plan participants under
deferred compensation agreements to provide for the repayment of premiums paid
and ownership of the policies is transferred at that time.  Expense
related to the deferred compensation arrangements is recorded annually as
employee service is rendered to the Partnerships.  Expense associated
with providing this benefit of $390,000 and $436,000 for 2008 and 2007,
respectively, is recorded in general and administrative expense in the
accompanying financial statements.




(6) Commitments and
contingencies




IMTT
Combined is involved in various lawsuits, claims and inquiries (including
environmental matters) which are routine to the nature of its
business.  Management believes that resolution of these matters will
not result in any material adverse effect on the financial
statements.




Many of
the entities comprising IMTT Combined are subject to compliance with federal and
state environmental regulations, some of which require environmental remediation
and ongoing monitoring activities.  Depending upon the nature and
circumstances of such activities, certain of the expenditures related thereto
have been recorded as operating expenses in the accompanying income statements
and others are capitalized as such expenditures are incurred.




A summary
of these environmental remediation matters follows.




The
Lemont terminal entered into a consent order with the state of Illinois to
remediate a contamination problem which existed at the time of the purchase of
this facility from its former owners.  Remediation is also required as
a result of the renewal of a lease with a government agency for a portion of the
terminal.  This remediation effort, consisting of among other things,
the implementation of extraction and monitoring wells and soil treatment, is
estimated to span a period of ten to twenty years or more at a cost of
$10,000,000 to $15,000,000.




The
Bayonne, New Jersey terminal which has been acquired and aggregated over a 25
year period, contains pervasive remediation requirements that were assumed at
the time of purchase from the various former owners.  One former owner
retained environmental remediation responsibilities for a purchased site as well
as sharing other remediation costs.  These remediation requirements
are documented in two memoranda of agreement and an administrative consent order
with the state of New Jersey.  Remediation efforts entail removal of
free product, soil treatment, repair/replacement of sewer systems, and the
implementation of containment and monitoring systems.  These
remediation activities are estimated to span a period of ten to twenty or more
years at a cost ranging from $39,700,000 to $60,100,000.




24




The
remediation activities described previously at the two terminals as well as some
other minor requirements at another terminal are estimated based on currently
available information, in undiscounted U.S. dollars and are inherently subject
to relatively large fluctuation.  Management believes that the cost of
the foregoing remediation activities ($49,800,000 to $75,600,000 in total) is
capitalizable in accordance with generally accepted accounting principles
(E.I.T.F. 90-8) as such costs are recoverable and improve the property as
compared with its condition when acquired and either 1) extend the life,
increase the capacity or improve the safety and/or efficiency of the property or
2) mitigate or prevent environmental contamination that has yet to occur that
may result from future operations or activities.  During 2008 and 2007
approximately $7,200,000 and $6,100,000, respectively, of such expenditures were
incurred and capitalized within property, plant and equipment.  For
the years ended December 31, 2008 and 2007 approximately $2,300,000 and
$3,600,000, respectively, of environmental related cost that did not meet the
capitalization criteria were charged to operations.




The New Jersey Department of
Environmental Protection (DEP) is promulgating a new regulation that will
require vapor control (collection and destruction) on some tanks during roof
landings and tank cleanings when degassing is required.  These new
requirements will apply to refineries and independent
terminals.  Emissions during these times are currently permitted by
IMTT with some restrictions on frequency and timing but no required collection
and destruction of the emissions.  A key factor will be over what
period of time the final rules will phase in limits that will require
control.  The potential costs of complying with this new regulation
are $10,000,000 to $20,000,000 with phased spending beginning as early as 2009
and extending over 5 to 10 years.  In accordance with the terms of
their contracts, these costs could be recouped through additional charges to
customers.  IMTT is working to mitigate impacts on New Jersey
operations with customers and the DEP, as well as designing the most cost
effective means of control when that is required.  The DEP is
considering industry and public comment and is expected to issue its final
ruling in the first quarter of 2009.




Hurricane Katrina struck the Gulf Coast
of the United States on August 29, 2005 and affected three of the terminals as
well as the environmental response operation owned by IMTT Combined located in
south Louisiana.  With the exception of deductibles under its property
and liability insurance coverages ($325,000, which were expensed in 2005) and
certain betterments which were undertaken in connection with the repair of storm
damage (and capitalized as additions to fixed assets), all expenditures incurred
in the repair and clean up of Hurricane Katrina related damages were reimbursed
by insurance coverage.  Other income in 2007 includes a $1,247,000
gain related to the final settlement of this insurance claim.




IMTT
Combined is in the process of expanding storage capacity and other customer
service capabilities at its St. Rose and Bayonne facilities to satisfy new
customer contract requirements.  Approximately $84,500,000 of
additional capital expenditures will be necessary, predominantly in 2009, to
complete these projects.




25




(7) Income
taxes




IHI
Consolidated provides for income taxes in accordance with the asset and
liability method as prescribed by SFAS No. 109. The components of the income tax
expense shown in the accompanying income statements are as follows:




2008
            
            
            2007Current
            
            
            Deferred
            
            
            Total
            
            
            Current
            
            
            Deferred
            
            
            TotalU.S.
      federal
            
            $
            963,000
            
            
            $
            5,366,000
            
            
            $
            6,329,000
            
            
            $
            680,000
            
            
            $
            4,825,000
            
            
            $
            5,505,000State
      and local
            
            
            3,240,000
            
            
            
            1,189,000
            
            
            
            4,429,000
            
            
            
            1,306,000
            
            
            
            680,000
            
            
            
            1,986,000Foreign
            
            
            (150,000
            )
            
            
            (1,156,000
            )
            
            
            (1,306,000
            )
            
            
            (552,000
            )
            
            
            137,000
            
            
            
            (415,000
            )Total
      income tax expense
            
            $
            4,053,000
            
            
            $
            5,399,000
            
            
            $
            9,452,000
            
            
            $
            1,434,000
            
            
            $
            5,642,000
            
            
            $
            7,076,000




Income
tax expense differs from income tax computed at the U.S. federal statutory rate
of 35% of income before income taxes as shown in the accompanying financial
statements, as follows:




2008
            
            
            2007Income
      tax expense based on U.S. federal statutory rate
            
            $
            7,195,000
            
            
            $
            5,796,000State
      income tax provisions, net of federal income tax benefit
            
            
            2,879,000
            
            
            
            1,686,000Non-deductible
      expenses
            
            
            756,000
            
            
            
            —Adjustments
      to actual tax returns
            
            
            (1,168,000
            )
            
            
            161,000Foreign
      income tax differences
            
            
            (545,000
            )
            
            
            (415,000
            )Others,
      net
            
            
            335,000
            
            
            
            (152,000
            )Total
      income tax expense recorded in accompanying financial
      statements
            
            $
            9,452,000
            
            
            $
            7,076,000






26




Deferred
income taxes have been recorded in the accompanying balance sheets for the tax
effects of temporary differences that impact the financial statements and income
tax returns in different periods, offset partially by carryforwards for federal
and state income tax purposes of unused net operating losses and tax
credits.  The primary components of deferred income tax liabilities
(assets) are as follows:




2008
            
            
            2007Fixed
      asset basis differences
            
            $
            154,054,000
            
            
            $
            133,473,000Pension
      liability in excess of contributions
            
            
            (7,602,000
            )
            
            
            (6,856,000
            )Interest
      rate swap agreement differences
            
            
            (33,880,000
            )
            
            
            (10,825,000
            )Non-deductible
      expense accruals
            
            
            (8,258,000
            )
            
            
            (7,239,000
            )Deferred
      revenue
            
            
            (6,058,000
            )
            
            
            (139,000
            )Currency
      translation gain (loss)
            
            
            (502,000
            )
            
            
            1,067,000Net
      operating loss and tax credit carryforwards
            
            
            (9,264,000
            )
            
            
            (19,870,000
            )Others,
      net
            
            
            443,000
            
            
            
            1,537,000Net
      deferred taxes as shown in accompanying balance sheets
            
            $
            88,933,000
            
            
            $
            91,148,000




Deferred
income taxes are classified as follows in the accompanying balance
sheets.


2008
            
            
            2007Current
      tax (asset)
            
            $
            (14,144,000
            )
            
            $
            (4,294,000
            )Deferred
      tax liability
            
            
            103,077,000
            
            
            
            95,442,000Net
      deferred tax liability
            
            $
            88,933,000
            
            
            $
            91,148,000




There is
no valuation allowance for deferred tax assets at December 31, 2008 or 2007 as
management believes deferred tax assets will be realized through future
operations and the reversal of taxable temporary differences.




Net
operating loss (N.O.L.) and tax credit carryforwards outstanding as of December
31, 2008 expire as follows:




Year
      of Expiration
            
            Federal
      N.O.L.
            
            
            State
      N.O.L.2009
            
            
            —
            
            
            $
            3,523,0002010
            
            
            —
            
            
            
            2,682,0002011
            
            
            —
            
            
            
            8,694,0002012
            
            
            —
            
            
            
            8,499,0002013
            
            
            —
            
            
            
            5,496,0002014
            
            
            —
            
            
            
            3,180,0002015
            
            
            —
            
            
            
            1,873,0002016
            
            
            —
            
            
            
            301,0002017
            
            
            —
            
            
            
            1,244,0002018
            
            
            —
            
            
            
            5,413,0002019
            
            
            —
            
            
            
            7,363,0002020
            
            
            —
            
            
            
            2,180,0002021
            
            
            —
            
            
            
            3,230,0002022
            
            
            —
            
            
            
            9,821,0002023
            
            
            —
            
            
            
            23,111,0002024
            
            
            87,000
            
            
            
            7,0002025
            
            
            19,000
            
            
            
            8,0002026
            
            
            70,000
            
            
            
            7,0002027
            
            
            393,000
            
            
            
            108,000$
            569,000
            
            
            $
            86,740,000






27




$5,589,000
of federal alternative minimum tax credits have unlimited carryforward
periods.




(8) Fair value of financial
instruments




The fair
value of financial instruments (as defined by SFAS Statement No. 107) contained
in the accompanying balance sheets approximates the carrying amount for all
assets and liabilities.




(9)
Changes in ownership




In
January, 2000 International Tank Terminals, L.L.C. and its affiliates acquired
the 50% interest of their former partner in each of the entities comprising IMTT
Combined. The consideration for the purchase was in the form of $130,000,000 of
notes payable.  As described more fully in Note 4, these notes were
refinanced with a bank in December, 2005.




On May 1,
2006, Loving Enterprises, Inc. (Loving) which was the 100% owner of
International Tank Terminals, L.L.C. and its affiliates (owners of 100% of IMTT
Combined), transferred a 50% interest to Macquarie Infrastructure Company Trust
for $250,000,000 and Loving changed its name to IMTT Holdings Inc.




28




(10) Accumulated other
comprehensive income




Partners’ capital includes accumulated
other comprehensive income.  Changes in the components of accumulated
other comprehensive income for 2008 and 2007 are as follows:




Derivatives
            
            
            Minimum
              Pension
              Liability
            
            
            Foreign
              Currency
              Translation
            
            
            Pension
      and
              Post
      Retirement
              Plans
            
            
            Accumulated
              Other
              Comprehensive
              Income/
      (Loss)Balance,December
      31,2006
            
            $
            (594,000
            )
            
            $
            (708,000
            )
            
            $
            548,000
            
            
            $
            —
            
            
            $
            (754,000
            )Other
      comprehensive income (loss) for the year, net of tax
    effects
            
            
            594,000
            
            
            
            —
            
            
            
            1,287,000
            
            
            
            —
            
            
            
            1,881,000Adjustment
      of Accumulated OCI on adoption of SFAS No. 158, net of tax
      effects
              (Note
      5)
            
            
            —
            
            
            
            708,000
            
            
            
            —
            
            
            
            (6,213,000
            )
            
            
            (5,505,000
            )Balance,  December
      31, 2007
            
            $
            —
            
            
            $
            —
            
            
            $
            1,835,000
            
            
            $
            (6,213,000
            )
            
            $
            (4,378,000
            )Adjustment
      of Accumulated OCI on adoption of SFAS No. 158 measurement date change,
      net of tax effects(Note
      5)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3,142,000
            
            
            
            3,142,000Other
      comprehensive income (loss) for the year, net of tax
    effects
            
            
            (6,596,000
            )
            
            
            —
            
            
            
            (2,416,000
            )
            
            
            (6,734,000
            )
            
            
            (15,746,000
            )Balance,  December
      31, 2008
            
            $
            (6,596,000
            )
            
            $
            —
            
            
            $
            (581,000
            )
            
            $
            (9,805,000
            )
            
            $
            (16,982,000
            )







29




(11) Subsequent
event




Subsequent to December 31, 2008 accrued
dividends to shareholders of $14,000,000 were paid.




(12) Future minimum rental
revenue




Future
minimum rental revenues for terminal storage capacity for the remaining
unexpired term of lease agreements in existence at December 31, 2008 are as
follows.




Year
            
            Amounts2009
            
            $
            208,841,0002010
            
            
            194,739,0002011
            
            
            125,937,0002012
            
            
            88,495,0002013
            
            
            44,269,0002014
      and thereafter
            
            
            116,524,000Total
            
            $
            778,805,000




(13) Tax-exempt bond escrow
investments




As
discussed in Note 4, tax-exempt bond proceeds totaling $55,525,000 at December
31, 2007 were held in escrow to fund future construction
costs.  $4,131,000 of these investments were composed of a highly
liquid money market fund which invested predominantly in U.S. Treasury
securities or other funds which invest in similar securities.  The
balance consisted of held-to-maturity debt securities as shown
below.




Carrying
              Amount
            
            
            Gross
      Unrealized
              Holding
      Gains
            
            
            Gross
      Unrealized
              Holding
      Losses
            
            
            Fair
      ValueHeld-to-maturity:Corporate
      debt securities
            
            $
            51,394,000
            
            
            $
            19,000
            
            
            $
            —
            
            
            $
            51,413,000




The fair
value of held-to-maturity corporate debt securities was based on quoted market
prices for these or similar investments.






30




Maturities
of debt securities classified as held-to-maturity were as follows at December
31, 2007:




Carrying
      Amount
            
            
            Fair
      ValueDue
      in less than one year
            
            $
            51,394,000
            
            
            $
            51,413,000




All
escrow investments were liquidated in 2008 and utilized to fund related
construction costs.





31




(14) Additional balance
sheet detail




Additional detail of the components of
certain balance sheet captions follows.




2008
                        
                        
                        2007Prepaid
      expenses and deposits:Prepaid
      insurance
                        
                        $
                        3,706,000
                        
                        
                        $
                        3,271,000Deferred
      income tax asset
                        
                        
                        14,144,000
                        
                        
                        
                        4,294,000Prepaid
      income taxes
                        
                        
                        2,992,000
                        
                        
                        
                        2,397,000Other
                        
                        
                        896,000
                        
                        
                        
                        1,029,000Total
                        
                        $
                        21,738,000
                        
                        
                        $
                        10,991,000Other
      assets:Deferred
      compensation plan receivables/ investments
                        
                        $
                        308,000
                        
                        
                        $
                        4,346,000Deferred
      dredging costs
                        
                        $
                        1,674,000
                        
                        
                        
                        2,496,000Deposits
                        
                        
                        1,422,000
                        
                        
                        
                        1,181,000Prepaid
      insurance
                        
                        
                        369,000
                        
                        
                        
                        —Other
                        
                        
                        479,000
                        
                        
                        
                        391,000Total
                        
                        $
                        4,252,000
                        
                        
                        $
                        8,414,000Accrued
      liabilities:Utilities
                        
                        $
                        1,480,000
                        
                        
                        $
                        1,972,000Damage
      claim settlement/fine accruals
                        
                        
                        3,675,000
                        
                        
                        
                        2,925,000Deferred
      compensation
                        
                        
                        5,966,000
                        
                        
                        
                        —Accrued
      payables
                        
                        
                        7,526,000
                        
                        
                        
                        4,661,000Health
      claims
                        
                        
                        711,000
                        
                        
                        
                        1,960,000Vacation
      pay
                        
                        
                        2,056,000
                        
                        
                        
                        1,657,000Workmen’s
      compensation claims
                        
                        
                        2,248,000
                        
                        
                        
                        2,288,000Deferred
      revenue – current portion
                        
                        
                        2,894,000
                        
                        
                        
                        2,494,000Interest
                        
                        
                        2,846,000
                        
                        
                        
                        4,661,000Other
                        
                        
                        4,314,000
                        
                        
                        
                        4,004,000Total
                        
                        $
                        33,716,000
                        
                        
                        $
                        26,622,000Other
      long-term liabilities:Swap
      mark-to-market liabilities
                        
                        $
                        67,803,000
                        
                        
                        $
                        26,682,000Deferred
      revenue
                        
                        
                        23,189,000
                        
                        
                        
                        22,656,000Pension
      benefits
                        
                        
                        21,697,000
                        
                        
                        
                        18,695,000Deferred
      compensation
                        
                        
                        526,000
                        
                        
                        
                        6,215,000Retiree
      health/life benefits
                        
                        
                        3,251,000
                        
                        
                        
                        2,851,000Other
                        
                        
                        664,000
                        
                        
                        
                        1,113,000Total
                        
                        $
                        117,130,000
                        
                        
                        $
                        78,212,000







32




(15) Accounting
pronouncements




In December 2007, the Financial
Accounting Standards Board issued its Statement of Financial Accounting
Standards No. 160 (SFAS No. 160), “Noncontrolling Interest in Consolidated
Financial Statements – an amendment of ARB No. 51.”  SFAS No. 160
amends ARB No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial
statements.  Additionally, this statement requires that consolidated
net income include the amounts attributable to both the parent and the
noncontrolling interest.  SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008.




FASB
Interpretation No. 48 clarifies the criteria for recognizing income tax benefits
under FASB Statement No. 109 and also requires additional disclosures concerning
uncertain income tax positions.  As a non-public entity this
interpretation is effective for IHI Consolidated beginning in 2009 and
compliance with its accounting provisions is not expected to be
material.




In March
2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and
Hedging Activities.”  SFAS No. 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity’s financial position, financial performance and cash
flows.  It is effective for financial statements issued for fiscal
years beginning after November 15, 2008, with early adoption
encouraged.




IHI
Consolidated does not expect the adoption of the foregoing accounting standards
to have a material impact on its results of operations or financial
position.




33