CONSOLIDATED
      FINANCIAL STATEMENTS





IMTT
      Holdings Inc.


Years
      Ended December 31, 2007 and December 31, 2006







**Independent
        Auditors’ Report**
  The Board of Directors
 IMTT Holdings Inc.:
  We
          have
          audited the accompanying consolidated balance sheet of IMTT Holdings Inc.
          as of
          December 31, 2007 and 2006, and the related consolidated statements of
          income,
          shareholders’ equity and 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, 2007 and 2006, 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, effective
          December
          31, 2007 the Company adopted 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)* .
 
 /s/
          KPMG
          LLP
 
 
 New
          Orleans, LouisianaFebruary 27, 2008
   
  **IMTT
                          HOLDINGS INC.****CONSOLIDATED
                          BALANCE SHEETS****DECEMBER
                          31, 2007 AND
                          2006**
 ASSETS
                
                
                LIABILITIES
                    AND SHAREHOLDERS'
                    EQUITY2007
                
                
                2006
                
                
                
                
                
                2007
                
                
                2006*CURRENT
                    ASSETS:*
                
                
                
                
                
                
                
                
                *CURRENT
                    LIABILITIES:*Cash
                    and temporary investments (Note 2)
                
                $
                4,951,000
                
                $
                36,068,000
                
                
                Accounts
                    payable
                
                $
                24,943,000
                
                $
                12,690,000Accounts
                    and accrued interest receivable, net of
                
                
                
                
                
                
                
                
                Accrued
                    liabilities (Note 14)
                
                
                26,622,000
                
                
                21,453,000allowance
                    of $503,000 ($352,000 in 2006)
                
                
                37,441,000
                
                
                28,915,000
                
                
                Dividends
                    payable
                
                
                14,000,000
                
                
                14,000,000Inventories
                    (Note 2)
                
                
                5,739,000
                
                
                5,647,000
                
                
                Current
                    portion of long-term debt (Note 4)
                
                
                2,787,000
                
                
                40,369,000Prepaid
                    expenses and deposits (Notes 7 and 14)
                
                
                10,991,000
                
                
                7,444,000Total
                    current liabilities
                
                $
                68,352,000
                
                $
                88,512,000Total
                    current assets
                
                $
                59,122,000
                
                $
                78,074,000PROPERTY,
                    PLANT AND EQUIPMENT (Notes 2, 6 and 9):Land
                
                $
                29,997,000
                
                $
                28,368,000
                
                
                OTHER
                    LONG-TERM LIABILITIES (Notes 2, 4, 5, and 14)
                
                $
                78,212,000
                
                $
                38,054,000Terminal
                    and other facilities
                
                
                1,078,908,000
                
                
                839,631,000$
                1,108,905,000
                
                $
                867,999,000
                
                
                LONG-TERM
                    DEBT (Notes 3, 4 and 8)
                
                $
                481,288,000
                
                $
                226,014,000Less
                    - Accumulated depreciation
                
                
                (384,099,000
                )
                
                (340,948,000
                )$
                724,806,000
                
                $
                527,051,000
                
                
                DEFERRED
                    INCOME TAXES (Notes 2 and 7)
                
                $
                95,442,000
                
                $
                91,207,000OTHER
                    ASSETS:Debt
                    issue costs, net (Note 2)
                
                $
                3,509,000
                
                $
                1,093,000
                
                
                COMMITMENTS
                    AND CONTINGENCIES (Note 6)Investment
                    in foreign terminal
                
                
                -
                
                
                4,432,000Receivable
                    from related parties, net (Note 3)
                
                
                14,000
                
                
                65,000Investment
                    in NTL venture (Note 2)
                
                
                11,144,000
                
                
                9,473,000Tax-exempt
                    bond escrow investments (Notes 2, 4 and 13)
                
                
                55,525,000
                
                
                -
                
                
                MINORITY
                    INTEREST
                
                $
                2,590,000
                
                $
                -Other
                    (Notes 2, 5 and 14)
                
                
                8,414,000
                
                
                10,247,000$
                78,606,000
                
                $
                25,310,000
                
                
                SHAREHOLDERS'
                    EQUITY (Notes 9, 10 and 11)
                
                $
                136,650,000
                
                $
                186,648,000$
                862,534,000
                
                $
                630,435,000
                
                
                
                
                $
                862,534,000
                
                $
                630,435,000The
                    accompanying notes are an integral part of these balance sheets.




2


**IMTT
                          HOLDINGS INC.****CONSOLIDATED
                          STATEMENTS
                          OF INCOME****FOR
                            THE YEARS ENDED DECEMBER 31, 2007 and
                            2006**


2007
              
              
              2006REVENUES:Tank
                  storage and terminal charges (Note 12)
              
              $
              247,205,000
              
              $
              203,882,000Other
                  rental income
              
              
              2,068,000
              
              
              1,634,000Railroad
                  operations
              
              
              1,460,000
              
              
              1,350,000Other
                  income (Notes 2, 3 and 6)
              
              
              4,595,000
              
              
              2,977,000Environmental
                  response services
              
              
              24,464,000
              
              
              18,599,000Total
                  revenues
              
              $
              279,792,000
              
              $
              228,442,000EXPENSES:Terminals
                  -Labor
                  costs (Note 5)
              
              $
              61,170,000
              
              $
              53,677,000Repairs
                  and maintenance (Note 6)
              
              
              21,363,000
              
              
              17,886,000Real
                  and personal property taxes
              
              
              9,544,000
              
              
              8,287,000Other
                  operating
              
              
              43,649,000
              
              
              32,243,000Total
                  terminal operating expenses
              
              $
              135,726,000
              
              $
              112,093,000Environmental
                  response affiliate expenses
              
              
              19,339,000
              
              
              11,941,000General
                  and administrative (Notes 3 and 5)
              
              
              24,435,000
              
              
              22,350,000Interest
                  expense (Notes 2, 3 and 4)
              
              
              14,349,000
              
              
              15,759,000Make
                  whole payment on early extinguishment of private placement debt
                  (Note 4)
              
              
              12,337,000
              
              
              -Depreciation
                  and amortization (Notes 2 and 9)
              
              
              36,025,000
              
              
              31,056,000Mark-to-market
                  loss (gain) of non-hedging derivatives (Notes 2 and 4)
              
              
              21,022,000
              
              
              (1,930,000
              )$
              263,233,000
              
              $
              191,269,000INCOME
                  BEFORE INCOME TAXES
              
              $
              16,559,000
              
              $
              37,173,000(PROVISION)
                  CREDIT FOR INCOME TAXES (Notes 2 and 7):Current
              
              $
              (1,434,000
              )
              $
              (1,766,000
              )Deferred
              
              
              (5,642,000
              )
              
              (14,793,000
              )$
              (7,076,000
              )
              $
              (16,559,000
              )MINORITY
                  INTEREST
              
              $
              143,000
              
              $
              -NET
                  INCOME
              
              $
              9,626,000
              
              $
              20,614,000The
                  accompanying notes are an integral part of these statements.




3


**IMTT
                            HOLDINGS INC.****CONSOLIDATED
                              STATEMENTS OF COMPREHENSIVE INCOME****FOR
                                THE YEARS ENDED DECEMBER 31, 2007 AND
                                2006**


2007
              
              
              2006NET
                  INCOME
              
              $
              9,626,000
              
              $
              20,614,000OTHER
                  COMPREHENSIVE INCOME (LOSS)DERIVATIVES
                  (Notes 2 and 4):Mark-to-market
                  adjustment of $36.3 million interest rate swap agreement
              
              
              156,000
              
              
              (156,000
              )Reclassification
                  to interest expense of loss on $60 milliontreasury
                  lock agreement
              
              
              928,000
              
              
              102,000NET
                  DERIVATIVES
              
              
              1,084,000
              
              
              (54,000
              )MINIMUM
                  PENSION LIABILITY ADJUSTMENTLemont
                  union plan (Note 5)
              
              
              -
              
              
              (179,000
              )FOREIGN
                  CURRENCY TRANSLATION ADJUSTMENT
              
              
              2,087,000
              
              
              -TAX
                  EFFECTS OF ITEMS INCLUDED IN OTHERCOMPREHENSIVE
                  INCOME
              
              
              (1,290,000
              )
              
              83,000OTHER
                  COMPREHENSIVE INCOME (LOSS) (Note 10)
              
              
              1,881,000
              
              
              (150,000
              )COMPREHENSIVE
                  INCOME
              
              $
              11,507,000
              
              $
              20,464,000The
                  accompanying notes are an integral part of these statements.




4


**IMTT
                              HOLDINGS INC.****CONSOLIDATED
                              STATEMENTS OF SHAREHOLDERS' EQUITY****FOR
                                  THE YEARS ENDED DECEMBER 31, 2007 AND
                                  2006**


BALANCE,
                  DECEMBER 31, 2005 (Note 10)
              
              $
              81,121,000NET
                  INCOME
              
              
              20,614,000OTHER
                  COMPREHENSIVE INCOME (LOSS) (Notes 2, 4, 5 and 10)
              
              
              (150,000
              )CASH
                  CONTRIBUTIONS, NET OF RELATED COSTS (Note 9)
              
              
              241,892,000DISTRIBUTIONS
                  (Note 11)
              
              
              (156,829,000
              )BALANCE,
                  DECEMBER 31, 2006 (Note 10)
              
              $
              186,648,000NET
                  INCOME
              
              
              9,626,000OTHER
                  COMPREHENSIVE INCOME (LOSS) (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 # 158Pension
                  plans
              
              
              (6,899,000
              )Post-retirement
                  health/life plans
              
              
              (2,336,000
              )Tax
                  effects of adjustment to Accumulated OCI on adoption of SFAS #158
              
              
              3,730,000Net
                  SFAS # 158 adjustment
              
              
              (5,505,000
              )BALANCE,
                  DECEMBER 31, 2007 (Note 10)
              
              $
              136,650,000The
                  accompanying notes are an integral part of these statements.




5


**IMTT
                              HOLDINGS INC.****CONSOLIDATED
                              STATEMENTS OF CASH FLOW****FOR
                                    THE YEARS ENDED DECEMBER 31, 2007 AND
                                    2006**


2007
              
              
              2006*CASH
                  FLOWS FROM OPERATING ACTIVITIES*Net
                  income
              
              $
              9,626,000
              
              $
              20,614,000Adjustments
                  to reconcile net cashprovided
                  by operating activitiesDepreciation
                  and amortization
              
              
              36,025,000
              
              
              31,056,000Bad
                  debt expense
              
              
              65,000
              
              
              -(Increase)
                  decrease in accounts and accrued interest receivable
              
              
              (8,432,000
              )
              
              15,950,000(Increase)
                  in inventories
              
              
              (77,000
              )
              
              (251,000
              )(Increase)
                  decrease in prepaid expenses and deposits
              
              
              (2,846,000
              )
              
              592,000(Increase)
                  in investment in foreign terminal
              
              
              -
              
              
              (283,000
              )(Increase)
                  in other assets
              
              
              (177,000
              )
              
              (620,000
              )Increase
                  (decrease) in accounts payable
              
              
              3,323,000
              
              
              (8,991,000
              )Increase
                  (decrease) in accrued liabilities
              
              
              2,349,000
              
              
              (6,126,000
              )Increase
                  in deferred income taxes
              
              
              5,642,000
              
              
              14,793,000Increase
                  (decrease) in other long-term liabilities
              
              
              32,539,000
              
              
              (1,312,000
              )(Decrease)
                  in minority interest
              
              
              (143,000
              )
              
              -Amortization
                  of treasury lock agreement
              
              
              928,000
              
              
              102,000Make-whole
                  interest payment on early extinguishment of private placement debt
              
              
              12,337,000
              
              
              -Loss
                  on sale/retirement of assets
              
              
              10,000
              
              
              1,277,000(Gain)
                  on sale of investment in joint venture
              
              
              -
              
              
              (10,000
              )Net
                  operating cash flows
              
              $
              91,169,000
              
              $
              66,791,000*CASH
                  FLOWS FROM INVESTING ACTIVITIES*Purchase
                  of plant assets
              
              $
              (209,124,000
              )
              $
              (88,784,000
              )(Increase)
                  in other assets
              
              
              -
              
              
              (3,791,000
              )Tax-exempt
                  bond escrow investments
              
              
              (55,525,000
              )
              
              -Sale
                  of investment in joint venture
              
              
              -
              
              
              130,000Proceeds
                  from sale of fixed assets
              
              
              192,000
              
              
              1,905,000Net
                  investing cash flows
              
              $
              (264,457,000
              )
              $
              (90,540,000
              )*CASH
                  FLOWS FROM FINANCING ACTIVITIES*Net
                  borrowings (payments) under U.S. bank syndicate line of credit
                  agreements
              
              $
              99,810,000
              
              $
              (34,800,000
              )Net
                  (payments) under private placement debt agreements
              
              
              (110,000,000
              )
              
              -Net
                  borowing under tax-exempt bond agreements
              
              
              215,000,000
              
              
              -Net
                  other debt (payments)
              
              
              (13,245,000
              )
              
              (26,640,000
              )Make-whole
                  interest payment on early extinguishment of private placement debt
              
              
              (12,337,000
              )
              
              -Distributions
                  to shareholders
              
              
              (56,000,000
              )
              
              (142,829,000
              )Contributions
                  from shareholders, net of related costs
              
              
              -
              
              
              241,892,000Net
                  receipts (payments) of receivables/payables with related parties
              
              
              (1,000
              )
              
              8,988,000Loans
                  from shareholders
              
              
              22,344,000
              
              
              11,172,000Debt
                  issue cost incurred
              
              
              (3,343,000
              )
              
              (257,000
              )Net
                  financing cash flows
              
              $
              142,228,000
              
              $
              57,526,000Net
                  increase (decrease) in cash and temporary investments
              
              $
              (31,060,000
              )
              $
              33,777,000Net
                  (decrease) in cash due to currency translation
              
              $
              (57,000
              )
              $
              -Cash
                  and temporary investments at beginning of year
              
              
              36,068,000
              
              
              2,291,000Cash
                  and temporary investments at end of year
              
              $
              4,951,000
              
              $
              36,068,000*SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION*Cash
                  paid during the year for:Interest
                  (net of amount capitalized)
              
              $
              27,872,000
              
              $
              14,478,000Income
                  taxes
              
              
              3,238,000
              
              
              2,905,000The
                  accompanying notes are an integral part of these statements.




6





IMTT
      HOLDINGS INC.




NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS




DECEMBER
      31, 2007 AND 2006




**(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-Chesapeake,
                Inc.
            ITT-Chesapeake
                Storage, Inc.
            IMTT-ChesapeakeITT-Richmond,
                Inc.
            ITT-Richmond
                Storage, Inc.
            IMTT-RichmondITT-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
      BII’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-Chesapeake and
      IMTT-Richmond are partnerships formed in 1991 to purchase and operate bulk
      liquid storage terminals in Chesapeake and Richmond, Virginia, respectively.
      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 (see Note 6). In 2006 and
      2007
      it derived revenue from providing dock operation services to third parties.
      International Environmental Partners is a partnership formed in 1999 to own
      an
      entity that provides environmental response and other services to the terminals
      and others.




**(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 from 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 ratably over their term. Revenue from the rendering of ancillary
      services (e.g. product movement (thruput), heating, mixing, etc.) is recognized
      as the related services are performed. 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 included in other
      long-term liabilities in the accompanying balance sheet and ratably recognized
      as storage revenues over the contract term. Environmental response services
      revenues are recognized as services are rendered.




Cash
      and temporary investments:




Cash
      and
      temporary investments at December 31, 2007 and 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.




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 $6,882,000 and $2,369,000 was capitalized in 2007 and 2006, 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 $718,165,000 at December 31, 2007 are
      utilized to provide storage capacity and related services to customers/lessees.
      Terminal assets with a cost of approximately $18.6 million were purchased in
      2007 in connection with the acquisition of a chemical terminal in Joliet,
      Illinois and recorded in land and terminal facilities based on their fair market
      value.




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.




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. $3,791,000 of such costs were capitalized
      in
      2006. Amortization of such costs was $1,865,000 and $1,356,000 in 2007 and
      2006,
      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 adjusted for the push down accounting method
      ($11,144,000 at December 31, 2007). NTL guarantees its shareholders a minimum
      12% return on investment. This return on investment ($1,251,000 and $1,307,000
      for 2007 and 2006, 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, as well as the application of the push down
      accounting method to the purchase of Van Ommeren's partnership interest (see
      Note 9). 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 certain derivative instruments to hedge or fix
      the
      interest cost of certain borrowings. See Note 4. These derivative instruments
      are accounted for at fair market value in accordance with SFAS No. 133
“Accounting for Derivative Instruments and Hedging Activities.” To the extent
      they meet the criteria as an effective cash flow hedge in accordance with that
      accounting standard, changes in the fair market value of these derivatives
      are
      recorded as components of other comprehensive income. Derivative instruments
      which are determined to be ineffective in meeting hedge criteria are recognized
      at fair value in the accompanying balance sheet (losses are included in other
      long-term liabilities) and changes therein are recognized in earnings as a
      component of periodic net income.




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.




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.




Reclassifications:




Certain
      balances in the accompanying 2006 financial statements have been reclassified
      to
      conform to their presentation in 2007.




11


**(3)
      Related party transactions**




During
      2007 and 2006, IHI Consolidated paid or accrued $2,007,000 and $2,203,000,
      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. IHI Consolidated charged a fee to another entity
      owned by a group of shareholders of $160,000 in 2006 which is recorded as other
      income in the accompanying income statement. In 2003 through 2005, employees
      of
      entities related to one of the partners were participants in the Partnerships’
pension plan and were allocated a portion of the annual benefit cost based
      on
      information supplied by the Plan’s actuary. In 2006, these employees became
      participants of benefit plans of entities related to one of the partners and
      the
      Partnerships’ pension plan recognized the settlement of its liability to this
      group of employees. See Note 5 for further details. Receivable from affiliates
      of $14,000 at December 31, 2007 and $65,000 at December 31, 2006 consists of
      receivables from entities affiliated with one of the partners. Interest income
      recorded on these balances and recognized in the accompanying financial
      statements is $150,000 for 2006. In accordance with the terms of the
      shareholders’ agreement, IHI has loans outstanding to a group of shareholders at
      December 31, 2007 and 2006 of $33,516,000 and $11,172,000, respectively.
      Interest accrued on these loans for 2007 and 2006 was $1,317,000 and $210,000,
      respectively.





12




**(4)
      Long-term debt and related derivatives** ****





Long-term
      debt consists of the following:


2007
            
            
            2006Tax-exempt
                N.J.E.D.A. bonds, 3.60% at December 31, 2007 (3.95% at December 31,
                2006)
            
            $
            30,000,000
            
            $
            30,000,000Tax-exempt
                N.J.E.D.A. bonds of terminated El Dorado joint venture, 3.60% at
                December
                31, 2007 (3.95% at December 31, 2006)
            
            
            6,300,000
            
            
            6,300,000Tax-exempt
                Ascension Parish bonds, 3.44% at December 31, 2007
            
            
            165,000,000
            
            
            -Tax-exempt
                L.P.F.A. bonds, 3.44% at December 31, 2007
            
            
            50,000,000
            
            
            -Unsecured
                notes payable under revolving bank U.S. credit facility (averaging
                5.77%
                at December 31, 2007)
            
            
            84,000,000
            
            
            -Notes
                payable under revolving credit facilities with a Canadian Bank, averaging
                5.58% at December 31, 2007 (5.55% at December 31, 2006)
            
            
            23,379,000
            
            
            3,907,0007.15%
                note purchase agreement with final maturity of November 28,
                2016
            
            
            -
            
            
            60,000,0008%
                note purchase agreement with final maturity of November 28,
                2016
            
            
            -
            
            
            50,000,000Capitalized
                land sublease due in monthly installments through October, 2011 with
                interest at 7%
            
            
            806,000
            
            
            968,000Loans
                from shareholders, 5.50%, due in quarterly installments over a 15
                year
                period beginning March 31, 2008
            
            
            33,516,000
            
            
            11,172,000Notes
                payable to a bank, 5.845% at December 31, 2007 (6.35% at December
                31,
                2006)
            
            
            91,000,000
            
            
            104,000,000Other
            
            
            74,000
            
            
            36,000$
            484,075,000
            
            $
            266,383,000Less
                - Current maturities
            
            
            (2,787,000
            )
            
            (40,369,000
            )$
            481,288,000
            
            $
            226,014,000




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 2007 and 2006, 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 $6.3 million 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
      million 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 million 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 financing 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 2007 the rate
      on
      these bonds was set under the weekly rate mode. At December 31, 2007,
      $55,525,000 of proceeds under these two tax-exempt financings remain in escrow
      available to fund future construction costs.




14


In
      June,
      2007 IMTT Combined replaced and increased its existing U.S. bank credit facility
      with a new bank credit facility. This $600 million 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, 2007
      ($256,223,000) primarily secure obligations under certain tax-exempt bonds
      referred to previously. Loans of $84 million were outstanding under this
      facility at December 31, 2007, thus leaving $259,777,000 available under of
      this
      credit facility at December 31, 2007.




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.




At
      December 31, 2006 the prior bank facility was scheduled to terminate at
      November, 2007, therefore the outstanding bank debt balance of $3,907,000 as
      well as the $36,300,000 of New Jersey tax-exempt bonds which were secured by
      letters of credit issued under this bank credit facility were classified as
      current liabilities in the accompanying December 31, 2006 balance
      sheet.




15


IMTT-Finco
      entered into a $60 million note purchase agreement in November, 2001 and a
      $50
      million 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 of $8,571,500
      and $7,142,850, respectively, 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.




In
      2007,
      IMTT-NTL, Ltd. and IMTT-Quebec Inc. entered into a $25 million (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 million bank syndicate U.S.
      credit facility or at prime rates. This facility which terminates June, 2012
      has
      covenants, guarantees and stock pledges identical to the $600 million bank
      syndicate U.S. credit facility.




16




The
      interest rate on the borrowings under the tax-exempt bonds and the revolving
      bank credit facilities 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,
      four interest rate swap agreements with three large banks were entered into
      whereby IMTT Combined swapped floating rates for fixed rates. The primary terms
      and the accounting treatment of these financial instruments are described below.





Swap
                1
            Swap
                2
            Swap
                3
            Swap
                4Notional
                amount
            $50,000,000
            $36,300,000
            $125,000,000
                *
            $70,000,000
                **Term
            10/97-10/07
            10/07-10/12
            7/07-6/17
            10/07-3/17Fixed
                rate paid
            6.4%
            3.41%
            3.662%
            5.507%Floating
                rate received
            Quarterly
                Libor
            67%
                of monthly Libor
            67%
                of monthly Libor
            Quarterly
                Libor2007
            2006
            2007
            2006
            2007
            2006
            2007
            2006Floating
                rate at year end
            -
            5.37%
            3.35%
            -
            3.35%
            -
            4.83%
            -Net
                interest expense (income ) for year
            $415,000
            $665,000
            $11,000
            -
            $116,000
            -
            $60,000
            -Fair
                market value at year end (liability) ****
            -
            $(546,000)
            $(1,104,000)
            $(156,000)
            $(10,029,000)
            -
            $(8,399,000)
            -Change
                in fair market value for year (gain)/loss
            $(546,000)
            $(1,136,000)
            $1,104,000
            $156,000***
            $10,029,000
            -
            $8,399,000
            -





*
            Increases
                to $175 million at 1/1/08 and $215 million at 1/1/09**
            Increases
                annually to $200 million at 12/31/12***
            Other
                comprehensive income****
            Included
                in other long-term liabilities in the accompanying balance
                sheets.




17


In
      connection with the $60 million 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. A 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 million note purchase agreement was 7.44% ($102,000 of amortization was
      recorded in 2006). Coincident with the early retirement of the $60 million
      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
      remaining 49.5% interest in the subsidiaries discussed in Note 1. The
      consideration for the purchase was in the form of notes payable to the former
      partner totaling $130,000,000. These notes bore interest at LIBOR plus one
      percent and contained payment terms of interest only for the first five years
      with equal annual principal payments over the remaining five-year term of the
      notes beginning December 31, 2005. These notes also contained terms that
      subordinated them to any current or future debt of IMTT Combined.




In
      December, 2005, the $130 million of notes of ITT and Affiliates payable to
      a
      former partner (see Note 9) 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 million due December 23, 2012. Interest rates are the same
      as
      under the original notes payable to a former partner. 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. IHI is prohibited from selling
      or
      pledging its ownership interests in ITT and Affiliates and IMTT
      Combined.




18


With
      the
      objective of achieving a stable interest cost and reducing the risk of rising
      interest rates and expense related to this debt, interest rate swap agreements
      with two banks were entered into in 2001 with notional amounts and scheduled
      maturity terms exactly equal to that of the original notes to the former
      partner. Under these agreements, ITT and Affiliates were the fixed rate payers
      (7.1475%) and the banks were the floating rate payers. The floating rate was
      based on LIBOR (5.35% at December 31, 2006) determined monthly. Net interest
      expense incurred under these agreements for the year ended December 31, 2006
      was
      $1,068,000 and is included in interest expense in the accompanying statement
      of
      income. The ITT and Affiliates obligations under these agreements were
      guaranteed by their wholly-owned subsidiary International-Matex Tank Terminals.
      On May 31, 2006, these interest rate swap agreements were amended (and the
      agreement of one of the banks was assigned to and assumed by the other bank
      that
      was a party to these agreements). The amendments resulted in an increase in
      the
      notional amount of the swap agreement to exactly match the terms of the
      December, 2005 refinancing of the notes payable to a former partner with a
      bank
      and a reduction in the fixed rate paid by ITT and Affiliates to 6.29%. No
      payments were made to settle the fair market value loss of the original
      agreements, but the fixed rate of the amended agreement was designed to repay
      this loss over the term of the amended agreement. As with the original
      agreements, payments thereunder are guaranteed by International-Matex Tank
      Terminals. Net interest expense incurred under this agreement for the years
      2007
      and 2006 was $1,113,000 and $686,000, respectively, and is included in interest
      expense in the accompanying income statements. The fair market value loss of
      the
      amended swap agreement of $7,150,000 at December 31, 2007 and $5,114,000 at
      December 31, 2006 has been included in other long-term liabilities in the
      accompanying balance sheets and the change in the fair market value for the
      year
      2007 ($2,036,000 loss) and year 2006 ($794,000 gain) have been recorded in
      the
      accompanying statements of income in accordance with accounting for cash flow
      derivatives under SFAS No. 133.




**(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 ($47.50 at November 1, 2007) multiplied by the number of years
      of
      service. The Partnerships' contributions to both plans are based on the
      recommendations of its consulting actuary.




19




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. (The measurement date is October
      31).




***2007***
            
            ***2006******The
                Plan***
            
            
            ***Union
                Plan***
            
            
            ***The
                Plan***
            
            
            ***Union
                Plan*****Changes
                in benefit obligation:**Benefit
                obligation at beginning of year
            
            $
            55,698,000
            
            $
            2,922,000
            
            $
            46,678,000
            
            $
            2,416,000Service
                cost
            
            
            3,316,000
            
            
            150,000
            
            
            2,965,000
            
            
            151,000Interest
                cost
            
            
            3,304,000
            
            
            172,000
            
            
            2,966,000
            
            
            148,000Amendments
            
            
            -
            
            
            -
            
            
            -
            
            
            -Assumption
                changes (gain) loss
            
            
            (3,383,000
            )
            
            (87,000
            )
            
            6,607,000
            
            
            266,000Actuarial
                loss (gain)
            
            
            (691,000
            )
            
            (31,000
            )
            
            418,000
            
            
            (11,000
            )Benefits
                paid
            
            
            (3,889,000
            )
            
            (73,000
            )
            
            (1,728,000
            )
            
            (48,000
            )Settlement
                (Note 3)
            
            
            -
            
            
            -
            
            
            (2,208,000
            )
            
            -Benefit
                obligation at end of year
            
            $
            54,355,000
            
            $
            3,053,000
            
            $
            55,698,000
            
            $
            2,922,000**Changes
                in plan assets:**Fair
                value of plan assets at
              beginning
                of year
            
            $
            30,125,000
            
            $
            2,393,000
            
            $
            24,206,000
            
            $
            1,939,000Actual
                return on plan assets
            
            
            5,433,000
            
            
            342,000
            
            
            2,591,000
            
            
            210,000Employer
                contribution
            
            
            4,127,000
            
            
            281,000
            
            
            6,679,000
            
            
            292,000Benefits
                paid
            
            
            (3,889,000
            )
            
            (73,000
            )
            
            (1,728,000
            )
            
            (48,000
            )Expenses
                paid
            
            
            (24,000
            )
            
            (2,000
            )
            
            -
            
            
            -Settlement
                (Note 3)
            
            
            -
            
            
            -
            
            
            (1,623,000
            )
            
            -Fair
                value of plan assets at end of year
            
            $
            35,772,000
            
            $
            2,941,000
            
            $
            30,125,000
            
            $
            2,393,000**Funded
                status**
            
            $
            (18,583,000
            )
            $
            (112,000
            )
            $
            (25,573,000
            )
            $
            (529,000
            )Unrecognized
                net transition obligation
            
            
            -
            
            
            -
            
            
            -
            
            
            -Unrecognized
                net actuarial loss(gain)
            
            
            -
            
            
            -
            
            
            13,613,000
            
            
            707,000Unrecognized
                prior service cost
            
            
            -
            
            
            -
            
            
            1,454,000
            
            
            119,000Prepaid
                (accrued) benefit cost
            
            
            -
            
            
            -
            
            
            (10,506,000
            )
            
            297,000Adjustment
                for minimum pension
              liability
                (Note 10)
            
            
            -
            
            
            -
            
            
            -
            
            
            (826,000
            )Recognized
                pension (liability)
            
            $
            (18,583,000
            )
            $
            (112,000
            )
            $
            (10,506,000
            )
            $
            (529,000
            )Less
                amount attributable to related entities (Note 3)
            
            
            -
            
            
            -
            
            
            (256,000
            )
            
            -Pension
                (liability) recognized in balance sheet in other long-term
                liabilities
            
            $
            (18,583,000
            )
            $
            (112,000
            )
            $
            (10,250,000
            )
            $
            (529,000
            )**Minimum
                pension liability:**Accumulated
                benefit obligation
            
            
            
            
            
            
            
            $
            38,128,000
            
            $
            2,922,000Less:
                Fair value of plan assets
            
            
            
            
            
            
            
            
            30,125,000
            
            
            2,393,000Less:
                Accrued (prepaid) benefit cost
            
            
            
            
            
            
            
            
            10,506,000
            
            
            (297,000
            )Minimum
                pension liability recognized
            
            
            
            
            
            
            
            $
            -
            
            $
            826,000




20




***2007***
            
            ***2006******The
                Plan***
            
            
            ***Union
                Plan***
            
            
            ***The
                Plan***
            
            
            ***Union
                Plan*****Components
                of minimum pension liability:**Accumulated
                other comprehensive income
              (Note
                10)
            
            
            
            
            
            
            
            $
            -
            
            $
            707,000Intangible
                asset
            
            
            
            
            
            
            
            
            -
            
            $
            119,000Minimum
                pension liability
            
            
            
            
            
            
            
            $
            -
            
            $
            826,000**Amounts
                recognized in accumulated other comprehensive income consist
                of:**Net
                loss
            
            $
            5,808,000
            
            $
            407,000Prior
                service cost
            
            
            1,283,000
            
            
            107,000Total
            
            $
            7,091,000
            
            $
            514,000**Components
                of net periodic benefit cost:**Service
                cost
            
            $
            3,316,000
            
            $
            150,000
            
            $
            2,965,000
            
            $
            151,000Interest
                cost
            
            
            3,304,000
            
            
            172,000
            
            
            2,966,000
            
            
            148,000Expected
                return on plan assets
            
            
            (2,541,000
            )
            
            (201,000
            )
            
            (2,343,000
            )
            
            (171,000
            )Amortization
                of prior service cost
            
            
            170,000
            
            
            12,000
            
            
            170,000
            
            
            12,000Amortization
                of transition obligation
            
            
            -
            
            
            -
            
            
            -
            
            
            -Recognized
                net actuarial loss (gain)
            
            
            863,000
            
            
            42,000
            
            
            585,000
            
            
            37,000Settlement
                (Note 3)
            
            
            -
            
            
            -
            
            
            579,000
            
            
            -Net
                periodic benefit cost recognized in statement of income
            
            $
            5,112,000
            
            $
            175,000
            
            $
            4,922,000
            
            $
            177,000




**Weighted
                average assumptions as of December 31:**Discount
                rate
            
            
            6.25
            %
            
            6.25
            %
            
            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, the discount rate assumption used in the computation of
      benefit obligations was changed to 6.25% 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.





**Weighted
                average asset allocation:**Domestic
                equity funds
            
            40.7%
            
            40.7%
            
            41.1%
            
            40.7%International
                equity funds
            
            20.8%
            
            20.7%
            
            15.4%
            
            15.3%Domestic
                fixed income funds
            
            -
            
            -
            
            38.8%
            
            39.3%Other
            
            38.5%
            
            38.6%
            
            4.7%
            
            4.7%Total
            
            100.0%
            
            100.0%
            
            100.0%
            
            100.0%




21


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, 2007:**
            
            ***The
                Plan***
            
            ***Union
                Plan***Year
                2008
            
            $
            795,000
            
            $
            106,000Year
                2009
            
            
            1,023,000
            
            
            115,000Year
                2010
            
            
            1,120,000
            
            
            118,000Year
                2011
            
            
            1,372,000
            
            
            122,000Year
                2012
            
            
            1,672,000
            
            
            131,000Years
                2013 - 2017
            
            
            12,792,000
            
            
            870,000**Anticipated
                contributions for 2008**
            
            $
            1,860,000
            
            $
            -




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. The measurement date for plan assets
      and
      liabilities is December 31.





2007
            
            2006**Changes
                in benefit obligation:**Benefit
                obligation at beginning of year
            
            $
            2,632,000
            
            $
            3,512,000Service
                cost
            
            
            108,000
            
            
            110,000Interest
                cost
            
            
            138,000
            
            
            192,000Actuarial
                (gain) loss
            
            
            484,000
            
            
            (1,025,000
            )Benefits
                paid
            
            
            (291,000
            )
            
            (157,000
            )Benefit
                obligation at end of year
            
            $
            3,071,000
            
            $
            2,632,000**Changes
                in plan assets:**Fair
                value of plan assets at beginning of year
            
            $
            -
            
            $
            -Employee
                contribution
            
            
            291,000
            
            
            157,000Benefits
                paid
            
            
            (291,000
            )
            
            (157,000
            )Fair
                value of plan assets at end of year
            
            $
            -
            
            $
            -**Funded
                status**
            
            $
            (3,071,000
            )
            $
            (2,632,000
            )Unrecognized
                net transition obligation
            
            
            -
            
            
            3,161,000Unrecognized
                net (gain)
            
            
            -
            
            
            (1,025,000
            )Prepaid
                (accrued) benefit cost
            
            $
            (3,071,000
            )
            $
            (496,000
            )




22





2007
            
            
            2006**Amounts
                recognized in combined balance sheets consist of:**Current
                liabilities
            
            $
            (220,000
            )
            $
            (496,000
            )Other
                long-term liabilities
            
            
            (2,851,000
            )
            
            -$
            (3,071,000
            )
            $
            (496,000
            )**Amounts
                recognized in accumulated other comprehensive income consist
                of:**Transition
                obligation
            
            $
            2,810,000Net
                (gain)
            
            
            (474,000
            )Total
            
            $
            2,336,000**Components
                of net periodic benefit cost:**Service
                cost
            
            $
            108,000
            
            $
            110,000Interest
                cost
            
            
            138,000
            
            
            192,000Amortization
                of transition obligation
            
            
            351,000
            
            
            351,000Experience
                (gain)
            
            
            (76,000
            )
            
            -Net
                periodic benefit cost of the plan
            
            $
            521,000
            
            $
            653,000**Weighted
                average assumptions as of December 31:**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 2006 and 2007 was
      assumed decreasing by .75% annually to a 5% annual level.




**Expected
                benefit payments and contributions as of December 31,
                2007:**Year
                2008
            
            $
            220,000Year
                2009
            
            
            210,000Year
                2010
            
            
            200,000Year
                2011
            
            
            180,000Year
                2012
            
            
            170,000Year
                2013 - 2017
            
            
            980,000





Assumptions
      concerning health care cost trend rates can have a significant impact on plan
      costs and liabilities, as shown below as of and for the year 2007.




Using
                stated
            
            One
                percentage pointassumptions
            
            
            Decrease
            
            
            IncreaseService
                cost
            
            $
            108,000
            
            $
            103,000
            
            $
            115,000Interest
                cost
            
            
            138,000
            
            
            133,000
            
            
            143,000Accumulated
                post retirement benefit obligation
            
            
            3,071,000
            
            
            2,950,000
            
            
            3,178,000





Accumulated
      other comprehensive income at December 31, 2007 contains $20,000 of net
      actuarial losses, $182,000 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 2008.




23


SFAS
      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 post employment 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 158
      requires initial application for private companies for fiscal years ending
      after
      June 15, 2007. IMTT Combined adopted SFAS 158 as of December 31, 2007. The
      following table summarizes the impact of the initial adoption of SFAS 158 on
      the
      December 31, 2007 balance sheet:





Before
                Application of Statement 158
            
            Adjustments
            
            After
                Application of Statement 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





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 ($239,000 in
      2007 and $664,000 in 2006).





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 2007 and 2006, the Partnerships elected to match 5% of employee
      contributions. Total expense for the 401 (k) plans recognized for 2007 and
      2006
      was $169,000 and $157,000, respectively.





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 $436,000 and $398,000 for 2007 and 2006, respectively, is recorded in general
      and administrative expense in the accompanying financial
      statements.





24




**(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.




As
      a
      result of an equipment failure and subsequent product release and clean-up
      in
      2003 in Richmond, California, a consent order was entered into requiring the
      California terminal to implement enhanced containment systems to mitigate the
      effect of future accidental releases. This containment system was completed
      in
      2007.




An
      accidental product release and subsequent clean-up at the Lemont, Illinois
      terminal revealed a more extensive contamination problem which existed at the
      time of the purchase of this facility from its former owners. The Lemont
      terminal entered into a consent order with the state of Illinois to remediate
      the contamination. 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 million to $15 million.




The
      Bayonne, New Jersey terminal which has been acquired and aggregated over a
      23
      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 $40.3
      to
      $61.6 million.




25


The
      remediation activities described previously at the three terminals 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 ($50.3 million to $76.6 million
      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 2007 and
      2006
      approximately $6.1 million and $3.7 million, respectively, of such expenditures
      were incurred and capitalized within property, plant and equipment. For the
      years ended December 31, 2007 and 2006 approximately $3.6 million and $3.4
      million, respectively, of environmental related cost that did not meet the
      capitalization criteria were charged to operations.




In
      2005,
      IMTT Combined entered into a commitment to construct and operate a chemical
      liquid logistics facility in Geismar, Louisiana with an estimated total cost
      of
      $179,000,000. At December 31, 2007, $122.3 million of costs related to this
      project has been incurred and included in property, plant and equipment in
      the
      accompanying balance sheet. Completion of construction is estimated by mid
      2008.




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. All of the
      affected facilities returned to operation shortly after the storm with
      relatively insignificant loss of revenue, some of which was recovered from
      business interruption insurance and certain costs incurred in the temporary
      relocation of the headquarters office which were expensed in 2005 were also
      reimbursed by insurance. 2007 other income includes a $1,247,000 gain related
      to
      the final settlement of this insurance claim.




26




**(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:




**2007**
            
            **2006**Current
            
            
            Deferred
            
            
            Total
            
            
            Current
            
            
            Deferred
            
            
            TotalU.S.
                federal
            
            $
            680,000
            
            $
            4,825,000
            
            $
            5,505,000
            
            $
            726,000
            
            $
            12,161,000
            
            $
            12,887,000State
                and local
            
            
            1,306,000
            
            
            680,000
            
            
            1,986,000
            
            
            1,040,000
            
            
            2,632,000
            
            
            3,672,000Foreign
            
            
            (552,000
            )
            
            137,000
            
            
            (415,000
            )
            
            -
            
            
            -
            
            
            -Total
                income tax expense
            
            $
            1,434,000
            
            $
            5,642,000
            
            $
            7,076,000
            
            $
            1,766,000
            
            $
            14,793,000
            
            $
            16,559,000




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:




**2007**
            
            
            **2006**Income
                tax expense based on U.S. federal statutory rate
            
            $
            5,796,000
            
            $
            13,011,000State
                income tax provisions, net of federal income tax benefit
            
            
            1,686,000
            
            
            2,802,000Adjustments
                to actual tax returns
            
            
            161,000
            
            
            842,000Foreign
                income tax provisions
            
            
            (415,000
            )
            
            -Others,
                net
            
            
            (152,000
            )
            
            (96,000
            )Total
                income tax expense recorded in accompanying financial
                statements
            
            $
            7,076,000
            
            $
            16,559,000




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:




27




**2007**
            
            
            **2006**Fixed
                asset basis differences
            
            $
            133,473,000
            
            $
            125,571,000Pension
                expense in excess of contributions
            
            
            (4,062,000
            )
            
            (4,365,000
            )Interest
                rate swap agreement differences
            
            
            (10,825,000
            )
            
            (2,357,000
            )Other
                comprehensive income items
            
            
            (2,930,000
            )
            
            (503,000
            )Net
                operating loss and tax credit carryforwards
            
            
            (19,870,000
            )
            
            (26,978,000
            )Others,
                net
            
            
            (4,638,000
            )
            
            (4,038,000
            )Net
                deferred taxes as shown in accompanying balance sheets
            
            $
            91,148,000
            
            $
            87,330,000




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




**2007**
            
            
            **2006**Current
                tax (asset)
            
            $
            (4,294,000
            )
            $
            (3,877,000
            )Deferred
                tax liability
            
            
            95,442,000
            
            
            91,207,000Net
                deferred tax liability
            
            $
            91,148,000
            
            $
            87,330,000







There
      is
      no valuation allowance for deferred tax assets at December 31, 2007 or 2006
      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, 2007 expire as follows:




Year
                of Expiration
            
            Federal
                N.O.L.
            
            State
                N.O.L.2008
            
            -
            
            2,511,0002009
            
            -
            
            4,101,0002010
            
            -
            
            3,649,0002011
            
            -
            
            8,817,0002012
            
            -
            
            8,514,0002013
            
            -
            
            5,527,0002014
            
            -
            
            3,661,0002015
            
            -
            
            470,0002016
            
            -
            
            2,660,0002017
            
            78,000
            
            15,602,0002018
            
            -
            
            12,382,0002019
            
            -
            
            7,363,0002020
            
            3,000
            
            2,180,0002021
            
            49,000
            
            3,342,0002022
            
            -
            
            9,102,0002023
            
            5,200,000
            
            7,0002024
            
            21,751,000
            
            7,0002025
            
            499,000
            
            8,0002026
            
            347,000
            
            7,0002027
            
            420,000
            
            55,000$28,347,000
            
            $89,965,000




28




$5,735,000
      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 except for the two note purchase agreements totaling
      $110
      million included in long-term debt in the accompanying balance sheets at
      December 31, 2006, whose estimated fair market value was approximately $119 million.




( **9)
      Change in ownership**




In
      January, 2000 International Tank Terminals, L.L.C. and its affiliates acquired
      Van Ommeren Tank Terminals Gulf Coast, Inc. and affiliates' interest in each
      of
      the entities comprising IMTT Combined. The consideration for the purchase was
      in
      the form of $130 million of notes payable to the Van Ommeren affiliates by
      International Tank Terminals, L.L.C. and its affiliates. These notes bore
      interest at LIBOR plus one percent and contained payment terms of interest
      only
      for the first five years with equal annual principal payments over the remaining
      five year term of the notes. Although International Tank Terminals, L.L.C.
      and
      its affiliates were the makers of these notes, they contained additional terms
      that subordinated them to any current or future debt of IMTT Combined. As a
      result of the application of the push down accounting method to this transaction
      in 2000, total equity and assets (primarily fixed assets) were increased by
      approximately $42,209,000 and depreciation and amortization expense related
      thereto increased $3,490,000 annually. 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 million and Loving changed its name to IMTT Holdings Inc. Certain
      costs
      related to this transaction totaling approximately $8.1 million have been
      charged against the proceeds and the net amount of $241.9 million was recognized
      in shareholders’ equity.




29




**(10)
      Accumulated other comprehensive income**




Partners’
      capital includes accumulated other comprehensive income. Changes in the
      components of accumulated other comprehensive income for 2007 and 2006 are
      as
      follows:




**Derivatives**
            
            **Minimum**
              **Pension**
              **Liability**
            
            **Foreign**
              **Currency**
              **Translation**
            
            **Pension
                and Post Retirement**
              **Plans**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Income/
                (Loss)**Balance,
                December 31, 2005
            
            $
            (623,000
            )
            $
            (529,000
            )
            $
            548,000
            
            $
            -
            
            $
            (604,000
            )Other
                comprehensive income
              (loss)
                for the year
            
            
            29,000
            
            
            (179,000
            )
            
            -
            
            
            -
            
            
            (150,000
            )Balance,
                December 31, 2006
            
            $
            (594,000
            )
            $
            (708,000
            )
            $
            548,000
            
            $
            -
            
            $
            (754,000
            )Other
                comprehensive income (loss) for the year
            
            
            594,000
            
            
            -
            
            
            1,287,000
            
            
            -
            
            
            1,881,000Adjustment
                of Accumulated OCI on adoption of SFAS #158
              (Note
                5), net of tax effects
            
            
            -
            
            
            708,000
            
            
            -
            
            
            (6,213,000
            )
            
            (5,505,000
            )Balance,
                December 31, 2007
            
            $
            -
            
            $
            -
            
            $
            1,835,000
            
            $
            (6,213,000
            )
            $
            (4,378,000
            )




**(11)
      Subsequent event**




Subsequent
      to December 31, 2007 accrued dividends to shareholders of $14,000,000 were
      paid.




30




**(12)
      Future minimum rental revenue**




Future
      minimum rental revenues for the remaining unexpired term of lease agreements
      in
      existence at December 31, 2007 for terminal storage capacity are as
      follows.




**Year**
            
            **Amounts**2008
            
            $188,291,0002009
            
            162,137,0002010
            
            131,791,0002011
            
            80,310,0002012
            
            52,000,0002013
                and thereafter
            
            42,228,000Total
            
            $656,757,000




**(13)
      Tax-exempt bond escrow investments**




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





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




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




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




**Carrying
                Amount**
            
            **Fair
                Value**Due
                in less than one year
            
            $
            51,394,000
            
            $
            51,413,000




31




**(14)
      Additional balance sheet detail**




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




2007
            
            
            2006Prepaid
                expenses and deposits:Prepaid
                insurance
            
            $
            3,271,000
            
            $
            3,333,000Deferred
                income tax asset
            
            
            4,294,000
            
            
            3,877,000Prepaid
                income taxes
            
            
            2,397,000
            
            
            -Other
            
            
            1,029,000
            
            
            234,000Total
            
            $
            10,991,000
            
            $
            7,444,000Other
                assets:Deferred
                compensation plan receivables/investments
            
            $
            4,346,000
            
            $
            4,198,000Deferred
                dredging costs
            
            
            2,496,000
            
            
            4,361,000Deposits
            
            
            1,181,000
            
            
            1,154,000Other
            
            
            391,000
            
            
            534,000Total
            
            $
            8,414,000
            
            $
            10,247,000Accrued
                liabilities:Utilities
            
            $
            1,972,000
            
            $
            1,645,000Damage
                claim settlement accrual
            
            
            2,925,000
            
            
            3,175,000Accrued
                payables
            
            
            4,661,000
            
            
            2,135,000Health
                claims
            
            
            1,960,000
            
            
            1,838,000Vacation
                pay
            
            
            1,657,000
            
            
            1,514,000Workmen’s
                compensation claims
            
            
            2,288,000
            
            
            1,252,000Deferred
                revenue - current portion
            
            
            2,494,000
            
            
            486,000Interest
            
            
            4,661,000
            
            
            5,527,000Other
            
            
            4,004,000
            
            
            3,881,000Total
            
            $
            26,622,000
            
            $
            21,453,000Other
                long-term liabilities:Swap
                mark-to-market liabilities
            
            $
            26,682,000
            
            $
            5,815,000Deferred
                revenue
            
            
            22,656,000
            
            
            15,350,000Pension
                benefits
            
            
            18,695,000
            
            
            10,779,000Deferred
                compensation
            
            
            6,215,000
            
            
            5,600,000Retiree
                health/life benefits
            
            
            2,851,000
            
            
            -Other
            
            
            1,113,000
            
            
            510,000Total
            
            $
            78,212,000
            
            $
            38,054,000




32




**(15)
      Accounting pronouncements**




In
      September 2006, the Financial Accounting Standards Board issued its Statement
      of
      Financial Accounting Standards No. 157 (SFAS No. 157), “Fair Value
      Measurements.” SFAS No. 157 establishes a framework for measuring fair value in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. SFAS No. 157 applies under other accounting pronouncements
      that require or permit fair value measurements. SFAS No. 157 is effective for
      financial statements issued for fiscal years beginning after November 15, 2007.




In
      February 2007, the Financial Accounting Standards Board issued its Statement
      of
      Financial Accounting Standards No. 159 (SFAS No. 159), “The Fair Value Option
      for Financial Assets and Financial Liabilities - Including an Amendment of
      FASB
      Statement No. 115,” which is effective for fiscal years beginning after November
      15, 2007. This statement permits an entity to choose to measure many financial
      instruments and certain other items at fair value at specified election dates.
      Subsequent unrealized gains and losses on items for which the fair value option
      has been elected will be reported in earnings.




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.





Emerging
      Issues Task Force Issues No. 06-4 and 06-10 affect the accounting for deferred
      compensation and split-dollar life insurance arrangements for periods beginning
      after December 15, 2007.




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 2008.




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