Management's Responsibility for Financial Reporting

2007 Annual Report / Marsulex Inc. 1

Management’s Responsibility for Financial Reporting The management of Marsulex Inc. is responsible for the integrity of the accompanying Consolidated Financial Statements and all other information in the annual report including information determined by specialists. The financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles applied on a consistent basis and which recognize the necessity of relying on best estimates and informed judgements. The most significant of these accounting principles have been set out in Note 1 to the Consolidated Financial Statements. To discharge its responsibilities for financial reporting and safeguarding of assets, management depends on the Company’s systems of internal accounting control. These systems are designed to provide reasonable and cost-effective assurance that the financial records are reliable and form a proper basis for the timely and accurate preparation of financial statements. The Board of Directors oversees management’s responsibilities for financial statements primarily through the activities of its Audit Committee, which is composed solely of Directors who are neither officers nor employees of the Company. This Committee meets regularly with financial management and the independent auditors to discuss internal controls, auditing matters and financial reporting issues. The Audit Committee reviews the Consolidated Financial Statements and Management’s Discussion and Analysis prior to the Board of Directors’ approving them for inclusion in the Annual Report. The Audit Committee also meets with the auditors without the presence of management, to discuss the results of their audit and the quality of financial reporting. The financial statements have been audited by KPMG LLP, Chartered Accountants. Their report outlines the scope of their examinations and opinion on the Consolidated Financial Statements.

Laurie Tugman President and Chief Executive Officer

William Martin Chief Financial Officer

Toronto, Canada February 15, 2008

2 2007 Annual Report / Marsulex Inc.

Auditors’ Report to the Shareholders We have audited the consolidated balance sheets of Marsulex Inc. as at December 31, 2007 and 2006 and the consolidated statements of operations and comprehensive income, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Chartered Accountants, Licensed Public Accountants Toronto, Canada February 15, 2008


Consolidated Balance Sheets (In thousands of dollars) December 31, 2007 and 2006 2007 2006 Assets

Current assets: Cash and cash equivalents (note 4) $ 9,022 $ 40,039 Cash held in trust (note 4) 687 2,151 Accounts receivable 43,337 41,438 Inventories (note 6) 1,446 1,198 Future tax asset (note 17) 491 206 Prepaid expenses and other assets 5,340 5,204 60,323 90,236 Long-term investments held in trust (note 7) 900 -- Property, plant and equipment (note 8) 208,929 226,339 Deferred charges and other assets (note 10) 9,531 5,634 Intangible assets (notes 11 and 23) 27,053 36,322 Goodwill (note 23) 73,410 81,325 $ 380,146 $ 439,856 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 22,267 $ 22,143 Accrued liabilities 28,342 20,153 Income taxes payable 1,642 4,244 Dividends payable to shareholders (note 14) 5,297 -- Interest payable 515 169 Current portion of deferred revenue 6,352 15,759 Current portion of long-term debt (note 12) 1,898 1,765 66,313 64,233 Long-term debt (note 12) 155,941 206,815 Deferred revenue 13,329 13,111 Employee future benefits (note 15) 2,009 2,239 Other liabilities 7,855 9,879 Future tax liability (note 17) 25,442 30,657 Shareholders' equity: Capital stock (note 13) 63,144 61,084 Retained earnings 49,701 51,691 Accumulated other comprehensive income (loss) (3,588) 147 109,257 112,922 $ 380,146 $ 439,856 Commitments and contingencies (note 16)

See accompanying notes to consolidated financial statements.

On behalf of the Board:

John A. Rogers Lee C. Stewart Director Director


Consolidated Statements of Operations and Comprehensive Income (In thousands of dollars, except per share amounts) Years ended December 31, 2007 and 2006 2007 2006 Revenue $ 287,460 $ 249,595 Cost of sales and services 189,054 160,610 Gross profit 98,406 88,985 Selling, general, administrative and other 40,122 30,115 Depreciation and amortization (notes 8, 10 and 11) 32,939 34,144 Foreign exchange gains on monetary items (2,514) (27) Foreign exchange gains on Long-term debt (1,748) (9) Gain realized on redemption of Senior Subordinated Notes (note 3(a)) (177) -- Cost of refinancing (note 12(a)) 1,000 -- Charges for asset impairment (note 23) 3,404 2,784 Interest expense, net (note 12(d)) 10,583 12,413 Earnings before income taxes 14,797 9,565 Income taxes (recovery) (note 17): Current 1,104 4,342 Future (5,980) (1,857) (4,876) 2,485 Net earnings 19,673 7,080 Other comprehensive income Effect of change in foreign exchange on the translation of net assets

of self-sustaining operations, net of tax

(3,735)

(2,040) Total comprehensive income $ 15,938 $ 5,040 Earnings per share (note 18): Basic $ 0.60 $ 0.22 Diluted 0.59 0.21 See accompanying notes to consolidated financial statements.


Consolidated Statements of Shareholders’ Equity (In thousands of dollars, except share amounts)

Number of Common

Shares

Capital Stock

Retained Earnings

Accumulated Other

Comprehensive Income/(Loss)

(“AOCI”)

Total Shareholders’

Equity

Balance, December 31, 2005 32,409,898 $ 60,093 $ 44,611 $ 2,187 $ 106,891

Exercise of stock options 225,000 991 -- -- 991

Net income for the period -- -- 7,080 -- 7,080 Effect of change in foreign exchange on

the translation of net assets of self-sustaining foreign operations, net of tax -- -- -- (2,040) (2,040)

Balance, December 31, 2006

32,634,898 $ 61,084 $ 51,691 $ 147 $ 112,922

Exercise of stock options (note 13) 470,600 2,060 -- -- 2,060 Adjustment to opening retained

earnings, relating to changes in accounting policies, net of tax (note 3(a)) -- -- (1,496) -- (1,496)

Dividends (note 14) -- -- (20,167) -- (20,167)

Net income for the period -- -- 19,673 -- 19,673 Effect of change in foreign exchange on

the translation of net assets of self-sustaining foreign operations, net of tax -- -- -- (3,735) (3,735)

Balance, December 31, 2007 33,105,498 $ 63,144 $ 49,701 $ (3,588) $ 109,257

See accompanying notes to consolidated financial statements.


Consolidated Statements of Cash Flows (In thousands of dollars) Years ended December 31, 2007 and 2006 2007 2006 Cash provided by (used in): Operating activities: Net earnings $ 19,673 $ 7,080 Items not affecting cash: Depreciation and amortization 32,939 34,144 Charges for asset impairment 3,404 2,784 Gain realized on redemption of Senior Subordinated Notes (177) -- Foreign exchange gain on long-term debt (1,748) (9) Future income taxes (5,980) (1,857) Accretion of asset retirement obligations (note 9) 91 79 Other non-cash items (1,279) (114) Change in non-cash operating working capital (note 20) (6,384) 19,809 Cash provided by operations 40,539 61,916 Financing activities: Increase in long-term debt 34,494 31,500 Repayment of long-term debt (72,861) (1,641) Issuance of common shares (note 13) 2,060 991 Dividends paid (14,870) -- (51,177) 30,850 Investing activities: Additions to property, plant and equipment (15,395) (40,948) Increase in deferred charges (4,054) (3,947) Acquisitions, net of cash acquired (note 5) -- (29,076) Decrease in cash held in trust 363 9,216 (19,086) (64,755) Foreign exchange (gain) loss on cash held in foreign currency (1,293) 378 Increase (decrease) in cash and cash equivalents (31,017) 28,389 Cash and cash equivalents, beginning of year 40,039 11,650 Cash and cash equivalents, end of year $ 9,022 $ 40,039 Supplemental cash flow information: Interest paid $ 10,872 $ 16,158 Income taxes paid, net of refunds 3,860 1,086 See accompanying notes to consolidated financial statements.


Notes to Consolidated Financial Statements (Tabular amounts in thousands of dollars except per share amounts) Years ended December 31, 2007 and 2006 1. Significant accounting policies: (a) Basis of presentation:

These consolidated financial statements include the accounts of Marsulex Inc. (the Company) and its subsidiaries from their respective dates of acquisition. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and are prepared in Canadian dollars. All intercompany balances and transactions have been eliminated.

(b) Use of estimates:

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the year. On an ongoing basis, the Company evaluates its estimates, including those related to amounts recognized for or carrying values of revenues, bad debts, long-lived assets including intangible assets and goodwill, income taxes, contingencies and litigation. The Company basis its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances at the time they are made. Actual results could differ from those estimates.

(c) Revenue recognition:

The Company provides industrial services, including the processing, removal, treatment and disposal of inorganic hazardous waste; the distribution and sale of the by-products resulting from the customers’ environmental compliance services; and selling of industrial and water treatment chemicals. Generally, revenue is recognized when a contract has been executed by a customer, delivery has occurred, the consideration is fixed and determinable, the collection of the receivable is deemed reasonably assured and the Company has no remaining performance obligations. Where the Company enters into a multi-element contract, such as the provision of licenses bundled with project management activities, the fees are allocated to each element based on the relative fair value of each element. When the fair value of the undelivered element has not been established, revenue for the delivered element is deferred until the earlier of when fair value is established or when all elements have been delivered. Any billings or cash received in advance of services rendered under the contracts are recorded as deferred revenue and recognized once the services are provided. Revenue from processing activities, including the treatment and disposal of inorganic hazardous waste, is recognized as the services are rendered and upon the completion of the Company’s obligation stipulated under its contractual agreements or upon the transfer of title to the Company. Revenue from the sale of industrial chemicals and other by-product chemicals is recognized at the time of shipment and title having been transferred to the customer. The revenue associated with the design and procurement of equipment is recognized on a percentage of completion method using engineering estimates for costs to complete the project in order to determine the percent complete. The effect of changes in total estimated income for each contract is recognized in the year in which the determination is made. Revenue from fees earned for the provision of licenses is recognized upon completion of the Company’s obligations and when reasonable certainty of collection of the fees exists and is amortized over the term of the agreement. Revenue from engineering and project management activities is recognized when the services are rendered.


(d) Foreign currency translation:

The accounts of the Company's foreign operations that are considered to be self-sustaining are translated into Canadian dollars using the current rate method. Under the current rate method assets and liabilities are translated at the rates in effect at the balance sheet date and revenue and expenses are translated at average exchange rates for the year. Gains or losses arising from the translation of the financial statements of self-sustaining foreign operations are recorded in the Accumulated Other Comprehensive Income account in shareholders' equity until there is a realized reduction in the net investment.

Gains and losses on the translation of the U.S. $60,000,000 of Senior Secured Term Loan and the U.S. dollar denominated Senior Subordinated Notes (until their redemption – see note 10) are designated as a hedge of the net investment in self-sustaining operations and are recorded in Comprehensive Income (loss).

Monetary assets and liabilities denominated in U.S. dollars of non self-sustaining operations are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. All revenue and expenses denominated in U.S. dollars are translated at average rates in effect during the year. Translation gains and losses are included in the consolidated statements of operations.

(e) Income taxes: Future tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded against any future tax asset if it is more likely than not that the asset will not be realized.

(f) Stock-based compensation:

The Company currently provides compensation to certain employees and directors in the form of Deferred Share Units (DSUs) and Performance Share Units (PSUs). Upon settlement at the end of the vesting period, PSUs automatically convert to DSUs, unless at the option of the holder, the units are converted to cash. DSUs may be settled at retirement, termination, resignation or death, in cash. These awards are accounted for using the intrinsic value method such that the value of the share units at vesting date, including a dividend credit, together with subsequent changes in the common share price in relation to the share unit prices, are recorded as compensation expense over the vesting period.

(g) Employee future benefit plans:

The Company accrues its obligations under employee benefit plans and the related costs net of plan assets and has adopted the following policies:

i) The cost of pensions and other retirement benefits earned by employees is actuarially determined using the

projected benefit method prorated on service and management’s discount rate and best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs.

ii) For the purpose of calculating the expected return on plan assets, those assets are valued at fair value. iii) The excess of the net actuarial gain (loss) over 10% of the greater of the accrued benefit obligation and the

fair value of plan assets at the beginning of the year is amortized over the average remaining service period of active employees. The average remaining service period of the active employees covered by the pension plans is between 10 and 17 years. The average remaining service period of the active employees covered by the other retirement benefit plans is between 10 and 12 years.

(h) Earnings per share (EPS):

Basic EPS is calculated by dividing the net earnings available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted EPS is calculated using the treasury stock method, which assumes that all outstanding stock options with an exercise price below the average market price are exercised and the assumed proceeds are used to purchase common shares at the average market price during the year.


(i) Cash and cash equivalents:

Cash equivalents are comprised of highly liquid investments having remaining terms of maturity of 90 days or less when acquired. They are valued at cost plus accrued interest, which approximates fair market value.

(j) Inventories:

Inventories are valued at the lower of average cost and net realizable value, with cost including the purchase cost of raw materials and the cost of production for work in process and finished goods.

(k) Property, plant and equipment:

Property, plant and equipment is stated at cost. Depreciation is charged on a straight-line basis over the economic useful lives of the related assets or, where applicable, the lower of the economic useful lives of the related assets and the duration of the related customer contracts, which range from 2 to 25 years. Costs related to facilities and equipment under construction are not depreciated until the facilities and equipment are substantially completed and ready for commercial use.

The Company includes, as part of the cost of its plant and equipment, all interest costs incurred prior to the asset becoming ready for operation.

(l) Asset retirement obligations:

The Company recognizes the fair value of a future asset retirement as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that results from the acquisition, construction, development, and/or normal use of the assets. The Company concurrently recognizes a corresponding increase in the carrying amount of the related long-lived asset that is depreciated over the life of the asset. The fair value of the asset retirement obligation is estimated using the expected cash flow approach that reflects a range of possible outcomes discounted at a credit-adjusted risk-free interest rate. Subsequent to the initial measurement, the asset retirement obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. Changes in the obligation due to the passage of time are recognized in income as an operating expense using the interest method. Changes in the obligation due to changes in estimated cash flows are recognized as an adjustment of the carrying amount of the related long-lived asset that is depreciated over the remaining economic useful life of the asset.

(m) Intangible assets:

Intangibles include the fair value at the date of acquisition of long-term contractual customer relationships, technology, certificates and permits, a trade name and other intangible assets. These assets are amortized over a period of 3 years to 12 years.

(n) Impairment of long-lived assets: Long-lived assets, including property, plant and equipment and intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

(o) Goodwill:

Goodwill is initially recorded as the excess of the Company's cost over the fair value of the net identifiable assets acquired in a business combination. The amount of the goodwill is assigned to the respective reporting unit. On an annual basis, the Company assesses the carrying value of goodwill based upon the fair value of the related reporting unit. If any impairment in the value of the reporting unit exists, the implied fair value of goodwill allocated to that reporting unit is determined and compared to the carrying value of the goodwill. Any impairment that exists following the assessment is recorded as a charge to the statement of operations as part of earnings from operations at the time the impairment occurs.


(p) Deferred charges:

Deferred charges primarily include placement cells and expenditures relating to projects, the costs of which are to be funded by customers. Placement cells include expenditures relating to the excavation and related infrastructure costs of placement cells. These costs are amortized based upon the volume of industrial waste processed for disposal, as these relate to the remaining capacity of the placement cells.

(q) Environmental obligations:

Liabilities are recorded when environmental claims or remedial efforts are probable and the costs can be reasonably estimated. Environmental expenditures that relate to current operations are expensed or capitalized as appropriate.

(r) Comparative figures:

Certain of the 2006 comparative figures have been reclassified to conform to the financial statement presentation adopted in 2007.

2. Recently issued but not adopted accounting pronouncements: (a) Financial instruments, disclosure and presentation

In October 2007, the CICA revised Handbook Section 3862, Financial Instruments, Disclosures and Section 3863, Financial Instruments, Presentation, effective for annual and interim periods beginning on or after October 1, 2007 although early adoption is permitted. These standards revise the current standards on financial instruments disclosures requiring entities to disclose, by class of financial instrument, information regarding the fair value of the instruments, qualitative and quantitative information about exposure, about credit risk, liquidity risk, and market risk. The quantitative disclosures must also include a sensitivity analysis for each type of market risk to which an entity is exposed, showing how net income and other comprehensive income would be affected by reasonably possible changes in the market risk.

(b) Capital disclosures

In December 2006, the CICA published section 1535 of the Handbook, Capital disclosures, which requires disclosure of (i) an entity’s objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance. This information will enable financial statements' users to evaluate the entity's objectives, policies and processes for managing capital. The adoption of this standard is effective for fiscal years beginning on or after October 1, 2007.

(c) Inventories

In January 2007, the CICA published section 3031 of the Handbook, Inventories, which prescribes the accounting treatment for inventories. Section 3031 provides guidance on the determination of costs and its subsequent recognition as an expense, and provides guidance on the cost formulas used to assign costs to inventories. These standards must be adopted by the Company for the fiscal year beginning on January 1, 2008. While the Company is currently assessing the impact of these new recommendations on its financial statements, it does not expect the recommendations to have a significant impact on its financial position, earnings or cash flows.

3. Changes in accounting policies:

Effective January 1, 2007, the Company adopted the new CICA Handbook Standards relating to financial instruments. These new standards have been adopted on a prospective basis with no restatement of prior period financial statements.

(a) Section 3855, “Financial Instruments – Recognition and Measurement” provides guidance on the recognition and measurement of financial assets, financial liabilities and derivative financial instruments. This new standard requires that all financial assets and liabilities be classified as either: held-to-maturity, held-for-trading, loans


and receivables, available-for-sale, or other financial liabilities. The initial and subsequent recognition depends on their initial classification.

Held-to-maturity financial assets are initially recognized at their fair values and subsequently measured at amortized cost using the effective interest method. Impairment losses are charged to net earnings in the period in which they arise.

Held-for-trading financial instruments are carried at fair value with changes in the fair value charged or

credited to net earnings in the period in which they arise. Loans and receivables are initially recognized at their fair values, with any resulting premium or discount from

the face value being amortized to income or expense using the effective interest method. Impairment losses are charged to net earnings in the period in which they arise.

Available-for-sale financial instruments are carried at fair value with changes in the fair value charged or

credited to other comprehensive income. Impairment losses are charged to net earnings in the period in which they arise.

Other financial liabilities are initially measured at cost or at amortized cost depending upon the nature of the

instrument with any resulting premium or discount from the face value being amortized to income or expense using the effective interest method.

All derivative financial instruments meeting certain recognition criteria are carried at fair value with changes in

fair value charged or credited to income or expense in the period in which they arise.

The standard requires the Company to make certain elections, upon initial adoption of the new rules, regarding the accounting model to be used to account for each financial instrument. This new section also requires that transaction costs incurred in connection with the issuance of financial instruments either be capitalized and presented as a reduction of the carrying value of the related financial instrument or expensed as incurred. If capitalized, transaction costs must be amortized to income using the effective interest method. This section does not permit the restatement of financial statements of prior periods.

The following is a summary of the accounting model the Company has elected to apply to each of its significant categories of financial instruments outstanding as of January 1, 2007: Cash and cash equivalents, including cash held in trust Held-for-trading Accounts receivable Loans and receivables Long-term investment held in trust Held-for-trading Accounts payable and accrued liabilities Other liabilities Long-term debt Senior Secured Term Loan and revolvers Held-for-trading Long-term Loan – Fort McMurray Facility Other liabilities Senior Subordinated Notes Held-for-trading

In addition, the Company has elected to account for transaction costs related to the issuance of financial instruments that are held for trading as a charge to the statement of operations in the period in which they arise. With respect to embedded derivatives, the Company has elected to recognize only those derivatives embedded in contracts issued, acquired or substantively modified on or after January 1, 2003 as permitted by the transitional provisions set out in section 3855. As a result of the adoption of this section, the Company recorded a $1,496,000 decrease, net of taxes, to opening retained earnings for the recognition of a $177,000 loss associated with the fair value of the Senior Subordinated Notes and a $1,319,000 charge relating to the financing costs for the Senior Secured Term Loan and the Senior Subordinated Notes that were previously deferred and amortized. The value of embedded derivative financial instruments as at January 1, 2007 was insignificant.

(b) Section 3865, “Hedges” allows optional treatment providing that hedges be designated as either fair value hedges, cash flow hedges or hedges of a self-sustaining foreign operation. The Company has designated U.S. $60,000,000 of the Senior Secured Term Loan that was amended on February 28, 2007 as a hedge of the net investment in the self-sustaining operations. Until its redemption on March 1, 2007, the Senior Subordinated Notes were designated as a hedge of the net investment in the self-sustaining operations.


(c) Section 1530, “Comprehensive Income”, along with Section 3251, “Equity”, which amends Section 3250, “Surplus”, require enterprises to separately disclose comprehensive income and its components in the financial statements. Further, enterprises are required to present changes in equity during the period as well as components of equity at the end of the period, including comprehensive income. Major components of Other Comprehensive Income include changes in fair value of financial assets classified as available-for-sale, the changes in fair value of effective cash flow hedging items, and exchange gains and losses arising from the translation of the financial statements of self-sustaining foreign operations. The effect of exchange rate variations on the translation of the Company’s net assets of self-sustaining foreign operations has been recorded as Accumulated Other Comprehensive Income, net of tax.

4. Cash and cash equivalents, including cash held in trust:

2007

2006

Bank deposits $ 8,557 $ 19,455 Government treasury bills 1,152 11,495 Commercial paper -- 11,240 $ 9,709 $ 42,190

5. Acquisition of Oxbow Industrial Services, LLC:

On April 1, 2006 the Company completed the acquisition of Oxbow Industrial Services, LLC, a leading provider of in-refinery petcoke cutting and bulk handling services to major oil refineries in the U.S. Gulf Coast and West Coast and Venezuela, from Oxbow Carbon & Minerals LLC. The purchase price of the acquisition was U.S. $27,000,000 (approximately $31,100,000 Canadian), excluding transaction costs of approximately $700,000. The results of operations have been consolidated from April 1, 2006, the effective date of acquisition. The acquisition has been accounted for using the purchase method of accounting. The final purchase price allocation, including acquisition costs, is as follows:

Net working capital $ 5,974 Property, plant and equipment 8,263 Intangibles 12,757 Goodwill 5,776 Other long-term liabilities (10) Future tax liability (960) Total Purchase Price $ 31,800 Less: Cash assumed on acquisition (2,710) Total purchase price less cash assumed on acquisition $ 29,090

The value assigned to the intangible assets related to customer relationships having estimated useful lives of 10 years. The Company has claims or possible claims of approximately $1,700,000 that have been presented to the vendors and has recorded a provision of approximately $500,000 to the purchase equation.

6. Inventories:

2007 2006

Raw materials and work in process $ 762 $ 530 Finished goods 684 668 $ 1,446 $ 1,198


7. Long-term investments held in trust:

The Company holds investments in the amount of $1,100,000 ($900,000 net of provision), which were invested in Canadian third party Asset-Backed Commercial Paper (“ABCP”). At the time of the investment, these certificates were rated by Dominion Bond Rating Service (“DBRS”) as R1-High, which met the criteria of the Company’s investment guidelines. The Company has classified these investments as held-for-trading and has presented them on the consolidated balance sheet as long-term since it is expected these assets will not be realized within a 365-day period. The ultimate fair value of the assets underlying the ABCP is uncertain and the final outcome of any restructuring proposal is not presently determinable, however, based on the information available to date, the Company has taken a $200,000 provision to reflect its estimate of the fair market value of the investments. The ultimate amount recovered from the investment in ABCP will not be material to the Company’s consolidated financial statements. The Company has sufficient credit facilities to satisfy its financial obligations as they come due, and there will not be a material adverse impact on its business as a result of this current ABCP liquidity issue.

8. Property, plant and equipment:

2007

Cost Accumulated depreciation

Net book Value

Land $ 3,124 $ -- $ 3,124 Plant and Building 38,687 16,009 22,678 Equipment 319,231 139,373 179,858 Facilities and equipment under construction 3,269 -- 3,269 $ 364,311 $ 155,382 $ 208,929

2006

Cost Accumulated depreciation

Net book Value

Land $ 3,124 $ -- $ 3,124 Plant and Building 57,090 28,493 28,597 Equipment 300,961 111,864 189,097 Facilities and equipment under construction 5,521 -- 5,521 $ 366,696 $ 140,357 $ 226,339 Depreciation expense amounted to $25,969,000 and $25,834,000 for the years ended December 31, 2007 and 2006 respectively. During the year ended December 31, 2007, the Company capitalized nil (2006 - $2,513,000) of interest costs as part of the cost of facilities and equipment under construction for the Montreal expansion.

9. Asset retirement obligations:

The Company has recorded asset retirement costs and the corresponding obligation where it has determined legal obligations exist, including properties that are on leased land which revert back to the lessor and where the Company has a non-assignable legal obligation under the land lease agreement to remove improvements and structures from the properties. The following is a reconciliation of the changes in the asset retirement obligations during the year, which is included in other liabilities on the consolidated balance sheets:


2007 2006 Balance, beginning of year $ 1,603 $ 1,524 Accretion expense 91 79 Balance, end of year $ 1,694 $ 1,603

The accretion expense is included in cost of sales and services. The estimated undiscounted cash flows required to settle the obligations amount to $3,828,000 and are expected to be settled in the next 1 to 20 years. The cash flows are discounted using a credit-adjusted risk-free rate of 8.4% (2006 – 8.4%). Other assumptions used by management to determine the carrying amount of the asset retirement obligation are: labour costs based on current marketplace wages required to hire contractors to dismantle and remove the leasehold improvements, and the rate of inflation over the expected years to settlement.

10. Deferred charges and other assets:

2007 2006 Deferred financing costs (note 3 (a)) $ -- $ 2,022 Placement cells 4,095 3,049 Other 5,436 563 $ 9,531 $ 5,634

Accumulated amortization amounted to $3,040,000 and $7,451,000 at December 31, 2007 and 2006, respectively. Amortization expense amounted to $980,000 and $2,393,000 for the years ended December 31, 2007 and 2006, respectively. Other deferred charges include costs incurred in connection with a design study for additional sulphur processing capacity at the Montreal facility, the costs to be funded by the Company’s customers.

11. Intangible assets:

December 31,

2007

Cost Accumulated amortization

Net book value

Technology $ 4,600 $ 1,456 $ 3,144 Customer relationships 20,643 5,772 14,871 Certificates and permits 13,400 5,301 8,099 Trade name 1,100 522 578 Other 1,728 1,367 361 $ 41,471 $ 14,418 $ 27,053


December 31,

2006

Cost Accumulated amortization

Net book value

Technology $ 4,600 $ 843 $ 3,757 Customer relationships 24,458 3,961 20,497 Certificates and permits 13,400 3,067 10,333 Trade name 1,100 302 798 Other 1,728 791 937 $ 45,286 $ 8,964 $ 36,322 Amortization expense amounted to $5,990,000 and $5,917,000 for the years ended December 31, 2007 and 2006, respectively (see note 23 for the asset impairment charge relating to intangible assets).

12. Long-term debt:

December 31,

2007 December 31,

2006 Senior Secured Credit Facility, maturing February 2012 (note 12(a)) $ 122,770 $ 100,935 Long-term Loan – Fort McMurray Facility 7.3%, maturing 2019 (note 12(b)) 35,069 36,834 Senior Subordinated Notes 9-5/8% U.S. $60,766,000 (note 12(c)) -- 70,811 Total debt 157,839 208,580 Less current portion 1,898 1,765 $ 155,941 $ 206,815

(a) Senior Secured Credit Facility:

On February 28, 2007 the Company obtained a $205,000,000 amended credit facility with its existing syndicate of banks over a new 5-year term, maturing on February 28, 2012 and incurred approximately $1,000,000 in costs which were expensed during 2007. The agreement provides for a $115,000,000 Senior Secured Term Loan, ($70,000,000 denominated in U.S. dollars), a $70,000,000 Revolving Term Facility, and a $20,000,000 Revolving Operating Facility with the facilities carrying variable rates of interest and secured by the assets of Marsulex Inc. and its subsidiaries (excluding the assets associated with the Fort McMurray facility). The facilities under the amended agreement can be drawn as LIBOR or bankers’ acceptance loans with margins ranging from 100 to 225 basis points or prime rate loans with margins ranging from nil to 125 basis points. Under the terms of the amended facility, interest is paid monthly with quarterly mandatory principal repayments for the Senior Secured Term Loan beginning on March 31, 2010, with any drawn amounts due as follows: 2010 $ 18,400 2011 20,700 Upon maturing, February 28, 2012 83,670 On March 1, 2007, the Company drew $139,000,000 from the amended credit facility, and together with available cash redeemed the US$60,800,000 of outstanding 9-5/8% Senior Subordinated Notes and refinanced $101,000,000 of the existing Senior Secured Term loans.


At December 31, 2007, $53,000,000 of the Revolving Term Loan and $17,000,000 of the Revolving Operating Facility were undrawn and available for general corporate purposes.

(b) Long-term loan – Fort McMurray Facility:

On June 5, 2003, a wholly owned subsidiary of the Company entered into a Long-term Loan agreement to finance its portion of the construction of the environmental compliance facilities at Syncrude’s Mildred Lake oil sands facility in Alberta. The loan is secured by the assets in this subsidiary’s, the Company’s Fort McMurray facility. If at any time the subsidiary fails to perform its operating obligations, the Company will become responsible for the operation of the facility and as a result the servicing of the debt. The loan bears interest at a fixed rate of 7.3% per annum with monthly principal repayments due over the next 13 years as follows:

2008 $ 1,898 2009 2,041 2010 2,195 2011 2,361 2012 2,540 Thereafter 24,034

The fair value of the outstanding balance of this debt at December 31, 2007 is equal to its carrying value. (c) Senior Subordinated Notes:

The Senior Subordinated Notes were redeemed at par with accrued interest of US$942,000 on March 1, 2007.

(d) Interest expense - net:

2007

2006 Interest expense $ 11,644 $ 15,944 Interest capitalized -- (2,513) Interest income (1,061) (1,018) Net interest expense $ 10,583 $ 12,413

13. Capital stock: Authorized: The Company is authorized to issue an unlimited number of common shares, convertible shares and preferred shares at no par value. No convertible shares or preferred shares have been issued. Directors' Deferred Share Unit Plan:

Effective March 1, 2002, the Company established a Directors' Deferred Share Unit Plan (DSUs) whereby directors of the Company may elect to have a portion or all of their remuneration paid in DSUs. The number of DSUs issued is calculated by dividing the director's remuneration by the fair market value of the Company's common shares on the vesting date and upon settlement are converted into cash. These awards are accounted for using the intrinsic value method such that the value of the share units at vesting date, including a dividend credit, together with subsequent changes in the common share price in relation to the DSUs issue price is recorded as compensation expense and included in selling, general, administrative and other expenses. In 2007, the Company granted a total of 12,003 DSUs (2006 – 13,235) and recorded an expense of $986,000 (2006 - $547,000).


Performance Share Unit Plan: On March 1, 2002, the Company established a Performance Share Unit Plan (PSUs) for certain employees as part of their long-term incentive compensation package. The number of PSUs to be granted each year is at the discretion of the Board of Directors who also determine the criteria for vesting of the PSUs. At the end of the vesting period, typically three years, the PSUs are automatically converted to DSUs or, at the holder’s election, into cash. DSUs may be settled at retirement, termination, resignation or death, in cash. These awards are accounted for using the intrinsic value method such that the value of the share units at the vesting date, including a dividend credit, together with the subsequent changes in the common share price in relation to the PSU issue price are recorded as compensation expense and included in selling, general, administrative and other expenses. During the current year, the Company granted 163,931 PSUs (2006 – 176,121) and recorded an expense in the amount of $4,981,000 (2006 – $1,672,000). 2007 2006

Number of Units

Outstanding

Liability valued at

$14.49

Number of Units

Outstanding

Liability valued at

$8.75

PSUs 308,824 $ 4,475 369,614 $ 3,234 DSUs 423,090 6,131 331,747 2,903

Stock option plan: Prior to March 1, 2002 the Company awarded stock options to certain directors, officers and employees. Under the terms of the plan, 4,095,160 common shares have been reserved for issuance to holders of options granted. Options held by any participant in the option plan may not exceed 5% of the common shares outstanding from time to time. Options (now fully vested) are exercisable for 10 years from the date of grant.

Details of the changes in options outstanding are as follows: Number of

options Weighted average

exercise price Outstanding, December 31, 2005 1,338,265 $ 4.30 Exercised (225,000) 4.40 Outstanding, December 31, 2006 1,113,265 4.28 Exercised (470,600) 4.38 Outstanding, December 31, 2007 642,665 $ 4.20 The following table summarizes information about stock options outstanding and exercisable at December 31, 2007:

Range of exercise

prices

Number outstanding

Weighted average

remaining contractual life

Weighted average

exercise price $2.23 178,166 3.22 years $ 2.23

$3.40-$4.65 351,999 2.83 years $ 3.75 $8.80 112,500 0.39 years $ 8.80 642,665

14. Dividend

On November 29, 2007 the Company announced the payment of a cash dividend of 16 cents per share on February 15, 2008 to common shareholders of record at the close of business on January 15, 2008.


15. Employee future benefits:

The Company has non-contributory defined benefit pension plans and provides post-retirement benefits other than pensions that include such items as medical benefits for pensioners and survivors to a portion of its employees. The Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as at December 31st of each year. The most recent actuarial valuations of the pension plans for funding purposes were as of December 2004 and January 2007. The Company is in the process of updating the valuations prepared at December 2004.

The change in the funded status of post-retirement defined benefit plans was as follows:

Pension benefits

Post-retirement benefits other than pensions

2007 2006 2007 2006 Change in post-retirement obligations: Obligation at beginning of year $ 14,733 $ 13,401 $ 832 $ 643 Service cost 895 755 28 23 Interest cost 810 750 44 39 Benefits paid (445) (1,403) -- -- Curtailment (450) -- -- -- Actuarial (gain) loss (640) 1,230 -- 22 Obligations at end of year $ 14,903 $ 14,733 $ 904 $ 727

Change in plan assets: Fair value of plan assets at beginning of year $ 12,015 $ 11,652 $ -- $ -- Actual return on plan assets 808 1,003 -- -- Employer contributions 806 729 -- -- Benefits paid (445) (1,403) -- -- Actuarial (gain) loss (429) 34 -- -- Fair value of plan assets at end of year $12,755 $ 12,015 $ -- $ --

Funding status of plans: Plan deficit $ (2,148) $ (2,718) $ (904) $(727) Unrecognized net transitional obligations (assets) (420) (485) 5 12 Unrecognized prior service costs 1,338 1,660 120 19

Net post-retirement liabilities at end of year $ (1,230) $ (1,543) $ (779) $(696)

Included in the above accrued benefit obligation and fair value of plan assets at year-end are the following amounts in respect of benefit plans that are not fully funded:

Pension benefits Post-retirement benefits

other than pensions 2007 2006 2007 2006 Accrued benefit obligation $ 14,903 $ 14,733 $ 904 $ 727 Fair value of plan assets 12,755 12,015 -- -- Funded status – plan deficit $ 2,148 $ 2,718 $ 904 $ 727


Percentage of plan assets Asset category 2007 2006 Equity securities 59% 62% Debt securities 38% 38% Other 3% -- Total 100% 100%

Post-retirement benefits expense included the following components:

Pension benefits Post-retirement benefits

other than pensions 2007 2006 2007 2006 Service cost $ 895 $ 755 $ 28 $ 23 Interest cost 810 750 44 39 Expected return on plan assets (808) (735) -- -- Amortization of transitional obligations (assets) (64) (64) 7 3 Amortization of actuarial and investment gain (loss) 56 8 4 -- Post-retirement benefits expense $ 889 $ 714 $ 83 $ 65

The weighted average assumptions used in the determination of the post-retirement benefits expense and obligation were as follows:

Pension benefits

Post-retirement benefits other than pensions

2007 2006 2007 2006

Discount rate 5.5% 5.3% 5.5% 5.3%Expected return on plan assets 6.5% 6.5% 6.5% 6.5%Rate of compensation increase 4.0% 4.0% 4.0% 4.0%

The composite health care cost trend rate used in measuring post-retirement benefits other than pensions was assumed to begin at 10%, declining one percent per year until it reaches 8% and remaining at that level thereafter. A one percent change in the assumed composite health care cost trend rate would have the following effects:

Post-retirement benefits 1% Increase 1% Decrease (Increase) decrease on accumulated benefits obligation $ (135) $ 117 Increase (decrease) on net periodic expense 4 (4)

The Company’s contribution to the defined contribution pension plans is as follows:

2007

2006

Cost of defined contribution plan

$ 1,141

$ 927


16. Commitments and contingencies:

(a) Letters of Guarantee: Letters of Guarantee in the amount of nil (2006 – $1,095,196) have been issued to Marsulex Inc.’s customers in the forms of Irrevocable Performance Guarantees and nil (2006 – $751,316) are included as part of cash held in trust.

(b) Operating leases:

Under the terms of operating leases for property and equipment, the Company is committed to rental payments as follows: 2008 $ 3,705 2009 2,260 2010 1,442 2011 928 2012 432 Thereafter 452

$ 9,219

(c) Purchase agreements:

A substantial portion all of the Company's service contracts with customers have a minimum fixed duration and provide for the guaranteed removal and processing of contracted by-products and waste streams, which are produced in the customer's manufacturing process.

(d) Environmental remediation costs:

The Company's operations are subject to numerous laws, regulations and guidelines relating to air emissions, water discharges, solid and hazardous wastes, transportation and handling of hazardous substances, and employee health and safety in Canada and the United States where it operates. These environmental regulations are continually changing and generally becoming more restrictive. The Company has purchased a number of sites as a result of the acquisitions of certain businesses and has retained environmental obligations as a result of the disposition of certain businesses and properties. Subject to certain limitations, the Company will be indemnified by the vendors for any remediation costs or environmental actions that may arise as a result of conditions existing at the time of acquisition. Environmental assessments were conducted prior to the purchase of the sites as a basis to, among other things, evaluate indemnity protections and, where applicable, to verify the appropriateness of existing accruals and estimates for remediation costs. In recent years, the Company engaged third party consultants to review the environmental status of certain Company's sites. Accruals have been made in specific instances where it is probable that liabilities will be incurred and where such liabilities can be reasonably estimated. Such estimates are, however, subject to change based on negotiation with regulatory authorities, changes in laws and regulations and as new information becomes available. Although it is possible that liabilities may arise in other instances for which no accruals have been made, the Company does not believe that such an outcome will significantly impact its operations or have a material adverse effect on its financial position. As part of the sale of sulphur removal assets and BCT Chemtrade Corporation to Chemtrade Logistics Income Fund on July 18, 2001, the Company indemnified Chemtrade Logistics Inc. for Notices and Findings of Violation relating to a facility.

(e) Litigation:

On February 13, 2008, Chemtrade and the Company reached an out-of-court settlement of their respective claims. The settlement included minor revisions to their existing commercial arrangements.

In August of 2006 the Company’s Prince George facility experienced an SO2 gas emission while starting up the facility after a routine maintenance shutdown. Meteorological conditions (atmospheric inversion) at the time minimized customary stack dispersion affects, resulting in the emission impacting employees of an adjacent plant. Nineteen persons sought medical attention at the local hospital, all of whom were released shortly thereafter. The Ministry and other regulatory agencies were promptly notified and investigations were commenced. On December


11, 2007 upon completion of these investigations, Ministry officials asserted charges against the Company alleging offences under the Environmental Management Act. The ultimate resolution of this matter is not determinable at this time.

(f) Other claims:

The Company is involved in certain claims arising out of the ordinary course and conduct of its business, which in the opinion of management will not have a material impact upon the financial position of the Company.

17. Income taxes:

The income tax rate varies from the basic federal and provincial income tax rate as follows: 2007 2006 Statutory federal and provincial income tax rate applied to income before

taxes 36.1% 36.1%

Income taxed at different rates in foreign jurisdictions (4.5) (2.7) Increase in reserves -- 24.5 Losses received upon reorganization (note 19) (30.0) -- 0.4 Valuation allowance on future tax assets -- 0.4 Recognition of previously unrecognized tax losses (18.3) (0.6) Impact of changes in substantively enacted future tax rates (19.3) (30.9) Amounts not deductible for income tax purposes and other 3.3 (0.8) Combined effective income tax rate (33.0)% 26.0%

The tax effects of temporary differences that give rise to significant portions of the future tax assets and future tax liabilities at December 31, 2007 and 2006 are presented below:

2007 2006 Future tax assets: Loss carryforwards $ 12,796 $ 13,840 Accrued and other liabilities 5,931 5,619 Tax credits 257 314 Other 288 358 Total gross future tax assets 19,272 20,131 Less valuation allowance (4,205) (7,483) Net future tax assets 15,067 12,648 Future tax liabilities: Property, plant and equipment (22,487) (20,191) Goodwill (6,272) (6,886) Deferred charges (554) (931) Intangible assets (8,916) (11,953) Long-term debt (1,789) (3,138) Total gross future tax liabilities (40,018) (43,099) Net future tax liability $ (24,951) $ (30,451)


This is presented on the balance sheet as follows:

2007 2006 Future tax asset (current) $ 491 $ 206 Future tax liability (25,442) (30,657) $ (24,951) $ (30,451)

As at December 31, 2007, the Company has unused tax losses, alternative minimum tax credit carryforwards and deductible temporary differences for which no future income tax assets have been recognized. The carryforward amounts are as follows:

Operating losses $ 9,177 Alternative minimum tax credit 38 Deductible temporary differences for which no future income tax assets have been recognized 1,729

The Company's US losses are net of the amount subject to expiry of USD $22,358,000 and are restricted as to the amount that can be used in a year.

Non-capital loss carryforwards by year of expiry are as follows at December 31, 2007:

2009 $ 1,191 2010 1,893 2011 439 Thereafter 33,636 $ 37,159

18. Earnings per share:

The following table sets forth the computation of diluted earnings per share: 2007 2006 Numerator: Net earnings available to common shareholders $ 19,673 $ 7,080 Denominator (shares in thousands): Weighted average common shares outstanding 32,969 32,618 Effect of dilutive securities: Employee stock options 519 566 Adjusted weighted average shares and assumed conversions 33,488 33,184 Basic earnings per share $ 0.60 $ 0.22 Dilutive effect of stock options (0.01) (0.01) Diluted earnings per share $ 0.59 $ 0.21

19. Related party transactions: (a) The Company has entered into a management services contract with its major shareholder for the supply of

management and financial services and certain of the Company’s Directors hold senior positions with firms that provide services to the Company.


2007 2006 Fees to Birch Hill Equity Partners $ 444 $ 414 Fees to firms of certain Directors 4,631 4,450

The above related-party transactions are in the normal course of operations and have been recorded at the exchange amounts agreed to between the parties.

(b) On December 31, 2007, the Company completed a reorganization which allows it to use certain tax losses

accumulated by Harrowston Holdings Limited (“HHL”), an investment holding company and Marsulex’s majority shareholder. Approximately $15,000,000 in certain Canadian non-capital tax losses were transferred as part of the reorganization. The reorganization did not involve any change in the beneficial ownership or control of Marsulex nor, ultimately, any change in Marsulex’s issued and outstanding capital. The reorganization was approved by the independent directors of Marsulex and the Toronto Stock Exchange. The shareholders of HHL have agreed to indemnify Marsulex pursuant to the terms of an indemnity agreement, and have paid for all costs incurred as a result of the reorganization.

20. Change in non-cash operating working capital:

2007 2006 Accounts receivable $ (626) $ (8,260) Inventories (248) 1,646 Prepaid expenses and other assets (269) 1,077 Accounts payable and accrued liabilities 6,453 2,051 Income taxes payable (2,506) 2,107 Deferred revenue (9,188) 21,188 $ (6,384) $ 19,809

21. Business segments:

The Company's activities are divided into four reportable segments. The three operating segments are: Industrial Services, Western Markets and Power Generation. The fourth non-operating segment is Corporate Support, which provides centralized services, such as finance, information systems, human resources and risk management to the operating segments. Industrial Services provides services, including environmental compliance solutions, to oil refiners and other industrial customers, primarily in the U.S. and Canada. Services include the regeneration of spent sulphuric acid produced during the octane enhancement of gasoline; the extraction and recovery of sulphur from hydrogen sulphide gas created during the refining process; the recovery of sulphur dioxide to ensure air quality compliance; cutting and handling of petroleum coke; and the safe handling, treatment, and disposal of industrial hazardous waste streams. Western Markets produces and provides sulphur-enhanced chemicals to industrial customers and supplies alum, a water treatment chemical used by municipalities and other industrial companies, for water and wastewater treatment. The primary market is Western Canada. Power Generation provides environmental systems and services for air quality compliance, primarily to electric utilities, and also to petrochemical and general industrial customers worldwide.


2007

Industrial Services

Western Markets

Power

Generation

Corporate

Support

Total Revenue from external customers $174,537 $ 65,349 $ 47,574 $ -- $ 287,460 Gross Profit $ 66,745 $ 22,698 $ 8,963 $ -- $ 98,406 SGA1and foreign exchange 11,585 2,731 4,214 17,330 35,860 Earnings before the undernoted 55,160 19,967 4,749 (17,330) 62,546 Depreciation and amortization 29,923 2,630 103 283 32,939 Gain realized on redemption of Senior

Subordinated Notes

--

--

--

(177)

(177) Cost of refinancing -- -- -- 1,000 1,000 Charges for asset impairment 3,204 -- -- 200 3,404 Interest expense - net -- -- -- 10,583 10,583 Earnings before income taxes $ 22,033 $ 17,337 $ 4,646 $ (29,219) $ 14,797 Total assets before goodwill and intangible

assets

$ 226,884

$ 32,372

$ 7,064

$ 13,363

$279,683 Goodwill and intangible assets, net of

amortization

91,037

4,468

4,958

--

100,463 Total assets $ 317,921 $ 36,840 $ 12,022 $ 13,363 $380,146 Capital expenditures $ 12,090 $ 2,635 $ 84 $ 586 $ 15,395

2006

Industrial Services

Western Markets

Power

Generation

Corporate

Support

Total Revenue from external customers $165,423 $ 62,113 $ 22,115 $ (56) $ 249,595 Gross Profit $ 55,972 $ 24,840 $ 8,173 $ -- $ 88,985 SGA1and foreign exchange 10,570 2,078 4,235 13,196 30,079 Earnings before the undernoted 45,402 22,762 3,938 (13,196) 58,906 Depreciation and amortization 30,087 2,391 99 1,567 34,144 Charges for asset impairment 2,784 -- -- -- 2,784 Interest expense - net -- -- -- 12,413 12,413 Earnings before income taxes $ 12,531 $ 20,371 $ 3,839 $ (27,176) $ 9,565 Total assets before goodwill and intangible

assets

$243,188

$ 31,274

$ 919

$ 46,828

$322,209 Goodwill and intangible assets, net of

amortization

107,332

4,468

5,847

--

117,647 Total assets $350,520 $ 35,742 $ 6,766 $ 46,828 $439,856 Capital expenditures $ 38,691 $ 1,411 $ 9 $ 837 $ 40,948 Additions to goodwill $ 5,916 $ -- $ -- $ -- $ 5,916

Acquisitions, excluding goodwill $ 25,884 $ -- $ -- $ -- $ 25,884 1. Selling, general, adminstrative, and other costs


22. Geographic segments:

The Company operates primarily in Canada and the United States with sales outside North America denominated in U.S. dollars. Revenue is attributed to customers based on location of customer.

Revenue

Property, plant andequipment, goodwill and

intangible assets 2007 2006 2007 2006

Canada $ 132,123 $ 115,238 $ 212,458 $ 240,438United States 144,408 121,533 96,925 100,562Other 10,929 12,824 9 2,986 $ 287,460 $ 249,595 $ 309,392 $ 343,986

In 2007, services provided to and products handled from the Company's major customer accounted for 14.2% (2006 – 5.5%) of the Company's total revenue.

23. Charges for asset impairment: 2007 2006 Write-down in value of Long Beach facility $ -- $ 2,784Impairment charge relating to long term investments (note 7) 200 --Impairment charge relating to goodwill and intangible assets 3,204 -- $ 3,404 $ 2,784

In December 2007, the Company was informed that certain Petcoke contracts of its 50/50 joint venture in Venezuelan were not to be renewed. As a result, management reviewed the value of the goodwill and the intangibles assets associated with the acquisition and recorded an impairment charge of $1,371,000 relating to goodwill and $1,833,000 relating to intangible assets.

Management's Responsibility for Financial Reporting

Business

Transcript of Management's Responsibility for Financial Reporting