Newalta Corporation
TSX : NAL

Newalta Corporation

August 09, 2007 06:00 ET

Newalta Income Fund Announces 2007 Second Quarter Results


CALGARY, ALBERTA--(Marketwire – August 9, 2007) - Newalta Income Fund ("Newalta" or the "Fund")
today announced financial results for the three and six months ended June 30, 2007.
"In the second quarter, results for Newalta's Western division were
impacted by abnormally wet weather which restricted well workovers, as well as
continued weak natural gas drilling activity," said Al Cadotte, President and
Chief Executive Officer of Newalta. "The Eastern division delivered solid
results consistent with expectations.
"In the Western division, wet weather reduced service rig operations,
resulting in fewer well workovers on a year-over-year basis. This in turn,
resulted in reduced waste receipts, and lower volumes of crude oil recovered
at our conventional oilfield facilities. Substantially reduced natural gas
drilling in the quarter resulted in lower equipment utilization in our Drill
Site business unit. Except for the Drill Site business unit, the Western
division operations were not materially affected by the dramatic decline in
natural gas drilling in the second quarter. Based on the current price of
crude oil, service rig utilization and well workovers are expected to return
to historical levels and consequently our oilfield waste volumes and crude oil
sales are also expected to recover. The outlook for the Drill Site business
unit is guarded as current natural gas prices will restrain any significant
improvement in natural gas drilling activity until late this year at the
earliest.
"In the Eastern division, our outlook remains very positive as growth
capital investments and acquisitions are achieving returns in line with
investment expectations, and we continue to develop organic growth and
acquisition opportunities.
"The short-term impact of unfavourable weather and weak natural gas
drilling activity in western Canada has not altered our strategy to continue
to aggressively grow our business across Canada."

FINANCIAL RESULTS AND HIGHLIGHTS FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2007:

- For the three and six months ended June 30, 2007, revenue improved
16% to $111.6 million and $229.4 million respectively, compared to
2006. Lower recovered crude oil revenue and reduced utilization of
our Drill Site assets were partially offset by contributions from
acquisitions in the Eastern division completed in the second half of
2006.

- Net earnings of $6.7 million and EBITDA(1) of $15.5 million decreased
70% and 37%, respectively for the second quarter, compared to 2006.
Net earnings and EBITDA for the first six months of 2007, were down
51% and 28%, respectively, to $19.7 million and $40.8 million. On a
trailing twelve month basis, EBITDA from continuing operations
remained unchanged at $104.3 million from the prior year comparative
period.

- In Western, abnormally wet weather in the quarter reduced well
workovers which, in turn, resulted in reduced waste receipts and
recovered crude oil volumes at the conventional oilfield facilities.
Continued weak natural gas drilling activity in western Canada
dramatically reduced the utilization of Western's drill site
equipment. The overall performance of Western's other operations were
at or above 2006 levels. Revenue for Western was relatively flat for
both the three and six months ended June 30, 2007 compared to last
year; however, net margin declined by $8.1 million in the quarter.

- Eastern's second quarter revenue and net margin(1) increased 97% to
$36.3 million and 72% to $4.5 million respectively, compared with the
same period last year. For the six months ended June 30, 2007,
revenue and net margin increased 90% and 63% to $64.9 million and
$7.3 million, respectively, compared to 2006. The improved quarterly
performance for the division was mainly attributable to the
acquisitions in Québec and Atlantic Canada that were completed in the
second half of 2006. These operations have been successfully
integrated and results are consistent with management's investment
expectations. Performance in Ontario was higher compared to the
second quarter of last year despite continued softening in the
automotive and other manufacturing sectors. Eastern's performance in
the second half of 2007 is expected to reflect traditionally strong
seasonal markets.

- SG&A expenses in the second quarter were 11.7% of revenue at
$13.0 million, compared to 11.0% last year. On an annual basis SG&A
expenses are expected to remain consistent with management's
objective to maintain these costs at 10%, or less, of revenue. The
increase in SG&A expenses was the result of staff additions to
strengthen the organization across Canada to manage growth.

- Maintenance capital expenditures in the quarter were $5.0 million or
21% lower than the second quarter in 2006. Consistent with lower
equipment utilization rates, the previously announced 2007
maintenance capital expenditures budget of $28.0 million has been
reduced by $8.0 million to $20.0 million. Growth capital expenditures
in the quarter were $19.4 million compared to $12.8 million in 2006.
The previously announced growth capital budget of $120.0 million for
2007 has also been reduced by $15.0 million to $105.0 million,
eliminating additional Drill Site growth capital investments at this
time.

- Newalta is continuing to pursue acquisitions to establish a greater
presence in its core markets. With experienced management in place,
Newalta is evaluating acquisition opportunities and has targeted the
most attractive businesses consistent with this strategy. Newalta
executed four acquisitions during the quarter and one subsequent to
the quarter. The combined transaction value was $35.7 million. On a
trailing twelve month basis the total acquired revenue was
approximately $33.0 million with EBITDA of approximately
$9.4 million.

- Funds from operations(1) decreased 47% in the second quarter and 34%
on a year-to-date basis to $12.2 million and $34.7 million. Unusually
wet weather and reduced natural gas drilling activity levels in the
Western division were the primary drivers of the decline.

- Cash available for growth and distributions(1) in the second quarter
declined 56% to $8.5 million compared to $19.3 million for the same
period in 2006. For the first six months of 2007, cash available for
growth and distributions decreased 35% to $30.2 million.

- Cash distributed(1) to unitholders increased 16% to $19.0 million in
the quarter. The increase in cash distributed was a result of the
increase in the number of units outstanding when compared to the
second quarter of 2006. For the first six months of 2007, cash
distributed increased by 36% to $37.7 million driven by the increase
in the number of trust units outstanding and higher monthly
distributions from January to April compared to 2006. Distributions
were increased in May of 2006 to $0.185 per unit per month and have
been maintained at this level.

- Newalta completed an equity financing on January 26, 2007 through the
issuance of 3.0 million trust units at $26.10 per unit for total
gross proceeds of $78.3 million ($74.1 million net).

- Newalta's balance sheet remains strong with a funded debt to EBITDA
ratio of 1.69:1, working capital of 2.04:1 and unused capacity on the
credit facilities of $43.8 million, net of outstanding letters of
credit.

- In the second quarter of 2007, the implementation of a new SAP
information system in the Western division was substantially
complete. The implementation of the system in eastern Canada has been
initiated and is proceeding on schedule.

- In June 2007, the legislation from the Minister of Finance (Canada)
relating to the taxation of income trusts was enacted. This
legislation will result in an income tax on distributions paid by
publicly traded Canadian mutual fund trusts and will result in less
after-tax cash being available for payment to all holders of trust
units. As an existing Canadian mutual fund trust, the Fund
anticipates it will not be subject to these proposed measures until
January 2011. Management has determined that there is no immediate
impact on the Fund's results. Under the legislation, the existing tax
treatment of distributions will remain in effect during the four-year
grace period to 2011, provided Newalta is not in breach of the
related "undue growth" rules discussed later in this MD&A. Management
has withdrawn its advance tax ruling request in respect of the
previously announced internal reorganization. The investment in
growth capital in 2006 has eliminated all estimated cash taxes
payable for 2007 and substantially all in 2008. Management continues
to review new information as it becomes available. As such, the Board
of Trustees' current strategy is to maintain distributions at current
levels, with any excess cash to be directed to growth capital
investments.


FINANCIAL RESULTS AND HIGHLIGHTS

-------------------------------------------------------------------------
($000s except % %
per unit data) Q2 Q2 Increase YTD YTD Increase
(unaudited) 2007 2006 (Decrease) 2007 2006 (Decrease)
-------------------------------------------------------------------------
Revenue 111,594 96,082 16 229,431 198,246 16
Operating income -
continuing
operations 3,788 14,363 (74) 17,453 35,836 (51)
Net earnings 6,716 22,685 (70) 19,682 40,073 (51)
per unit ($),
basic 0.17 0.62 (73) 0.50 1.19 (58)
per unit ($),
diluted 0.16 0.61 (74) 0.49 1.17 (58)
per unit ($) -
continuing
operations 0.17 0.58 (71) 0.50 1.14 (56)
per unit ($) -
discontinued
operations - 0.04 (100) - 0.05 (100)
EBITDA(1) 15,511 24,725 (37) 40,791 56,823 (28)
Trailing 12 month
EBITDA n/a n/a n/a 104,328 108,335 (4)
Trailing 12 month
EBITDA -
continuing ops. n/a n/a n/a 104,328 103,973 -
Funds from
operations(1) 12,184 23,076 (47) 34,685 52,265 (34)
per unit ($) 0.30 0.63 (52) 0.87 1.54 (44)
per unit ($) -
continuing
operations 0.30 0.62 (52) 0.87 1.52 (43)
per unit ($) -
discontinued
operations - 0.01 (100) - 0.02 (100)
Maintenance capital
expenditures 5,019 6,329 (21) 5,750 8,173 (30)
Cash available for
growth and
distributions(1) 8,520 19,259 (56) 30,153 46,464 (35)
per unit ($) 0.21 0.53 (60) 0.75 1.37 (45)
per unit ($) -
continuing
operations 0.21 0.46 (54) 0.75 1.30 (42)
Distributions
declared 22,413 19,482 15 44,662 35,058 27
per unit - ($) 0.56 0.54 4 1.11 1.03 8
Cash distributed(1) 18,983 16,386 16 37,707 27,729 36
Growth and
acquisition capital
expenditures 45,355 31,609 43 59,485 164,009 (64)
Weighted average
units outstanding
(000s) 40,361 36,381 11 39,790 33,794 18
Total units
outstanding (000s) 40,485 36,646 10 40,485 36,646 10
Trading price - high 27.50 33.80 (19) 28.25 33.80 (16)
Trading price - low 23.39 27.87 (16) 23.39 26.25 (11)
Average daily
trading volume 178,429 112,701 58 154,141 107,530 43
-------------------------------------------------------------------------
(1) These financial measures do not have any standardized meaning
prescribed by Canadian generally accepted accounting principles
("GAAP"). Non-GAAP financial measures are identified and defined in
the attached Management's Discussion and Analysis.

Management's Discussion and Analysis and Newalta's unaudited consolidated
financial statements and notes thereto are attached.

Management will hold a conference call on Thursday, August 9, 2007 at
4:00 p.m. (EST) to discuss the Fund's performance for the three and six months
ended June 30, 2007. To participate in the teleconference, please call
416-644- 3423 or 1-800-733-7560. To access the simultaneous webcast, please
visit www.newalta.com. For those unable to listen to the live call, a taped
broadcast will be available at www.newalta.com and, until midnight on
Thursday, August 16, 2007, by dialing 1-877-289-8525 and using the pass code
21243054.
Newalta Income Fund is one of Canada's leading industrial waste
management and environmental services companies focusing on maximizing the
value inherent in industrial waste through the recovery of saleable products
and recycling. It also provides environmentally sound disposal of solid, non-
hazardous industrial waste. With talented people and a national network of
facilities, Newalta serves customers in the automotive, forestry,
manufacturing, mining, oil and gas, petrochemical, pulp and paper, steel and
transportation service industries. Providing solid investor returns,
exceptional customer service, safe operations and environmental stewardship
has enabled Newalta to expand into new service sectors and geographic markets.
Newalta Income Fund's units trade on the TSX as NAL.UN. For more information,
visit www.newalta.com.



MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007

Certain statements contained in this document constitute "forward-looking
statements". When used in this document, the words "may", "would", "could",
"will", "intend", "plan", "anticipate", "believe", "estimate", "expect", and
similar expressions, as they relate to Newalta Income Fund (the "Fund") and
Newalta Corporation (the "Corporation" and together with the Fund and its
other subsidiaries, "Newalta"), or their management, are intended to identify
forward-looking statements. Such statements reflect the current views of
Newalta with respect to future events and are subject to certain risks,
uncertainties and assumptions, including, without limitation, general market
conditions, commodity prices, interest rates, exchange rates, seasonality of
operations, growth, acquisition strategy, integration of businesses into
Newalta's operations, potential liabilities from acquisitions, dependence on
senior management, regulation, landfill operations, competition, risk of
pending and future legal proceedings, employees, labour unions, fuel costs,
access to industry and technology, possible volatility of trust unit price,
insurance, future capital needs, debt service, sales of additional trust
units, dependence on the Corporation, the nature of the trust units, unlimited
liability of unitholders, Canadian federal income tax, redemption of trust
units, loss of mutual fund trust status, the effect of Canadian federal
government proposals regarding non-resident ownership, and such other risks or
factors described from time to time in the reports filed with securities
regulatory authorities by Newalta.
By their nature, forward-looking statements involve numerous assumptions,
known and unknown risks and uncertainties, both general and specific, that
contribute to the possibility that the predictions, forecasts, projections and
other forward-looking statements will not occur. Many other factors could also
cause actual results, performance or achievements to be materially different
from any future results, performance or achievements that may be expressed or
implied by such forward-looking statements and readers are cautioned that the
foregoing list of factors is not exhaustive. Should one or more of these risks
or uncertainties materialize, or should assumptions underlying the forward-
looking statements prove incorrect, actual results may vary materially from
those described herein as intended, planned, anticipated, believed, estimated
or expected. Furthermore, the forward-looking statements contained in this
document are made as of the date of this document and the forward-looking
statements in this document are expressly qualified by this cautionary
statement. Unless otherwise required by law, Newalta does not intend, or
assume any obligation, to update these forward-looking statements.

This Management's Discussion and Analysis contains references to certain
financial measures that do not have any standardized meaning prescribed by
Canadian generally accepted accounting principles ("GAAP") and may not be
comparable to similar measures presented by other funds or entities. These
financial measures are identified and defined below:

"EBITDA" is a measure of the Fund's operating profitability. EBITDA
provides an indication of the results generated by the Fund's principal
business activities prior to how these activities are financed, assets are
amortized or how the results are taxed in various jurisdictions. EBITDA is
derived from the consolidated statements of operations, accumulated other
comprehensive income and retained earnings and is calculated as follows:

Three months ended Six months ended
June 30, June 30,
-------------------------------------------------------------------------
($000s) 2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings(1) 6,716 22,685 19,682 40,073
Add back (deduct):
Current income taxes 461 (150) 663 216
Future income taxes(1) (3,389) (6,700) (2,892) (2,796)
Interest expense 2,632 1,005 4,938 3,863
Interest revenue (89) - (613) -
Amortization and accretion(1) 9,180 7,885 19,013 15,467
-------------------------------------------------------------------------
EBITDA 15,511 24,725 40,791 56,823
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes related amounts from discontinued operations. See note 4 to
the consolidated interim financial statements for the breakdown for
the three and six months ended June 30, 2006.

"Funds from operations" is used to assist management and investors in
analyzing cash flow and leverage. Funds from operations as presented is not
intended to represent operating funds from continuing operations or operating
profits for the period nor should it be viewed as an alternative to cash flow
from operating activities, net earnings or other measures of financial
performance calculated in accordance with Canadian GAAP. Funds from operations
is derived from the consolidated statements of cash flows and is calculated as
follows:

Three months ended Six months ended
June 30, June 30,
-------------------------------------------------------------------------
($000s) 2007 2006 2007 2006
-------------------------------------------------------------------------
Cash from operating activities 17,324 30,045 12,054 58,633
Add back (deduct):
Changes in working capital (5,439) (7,333) 22,134 (6,934)
Asset retirement costs
incurred 299 364 497 566
-------------------------------------------------------------------------
Funds from operations 12,184 23,076 34,685 52,265
-------------------------------------------------------------------------
-------------------------------------------------------------------------

"Cash available for growth and distributions" is used by management to
supplement funds from operations as a measure of cash flow and leverage. The
objective of this measure is to calculate the amount which is available for
distribution to unitholders. Cash available for growth and distributions is
defined as funds from operations less maintenance capital expenditures,
principal repayments, asset retirement costs and deferred costs incurred plus
net proceeds on sales of fixed assets. Maintenance capital expenditures are
not incurred evenly throughout the year. The reconciliation of cash available
for growth and distributions is included in the Liquidity and Capital
Resources section of the Management's Discussion and Analysis.

"Cash distributed" is provided to assist management and investors in
determining the actual cash outflow to unitholders in each period and is used
to assist in analyzing liquidity. Cash distributed is defined as distributions
declared during the period plus opening distributions payable, less ending
distributions payable and distributions reinvested by unitholders under the
Distribution Reinvestment Plan of the Fund (the "DRIP") during the period.

"Net margin" is used by management to analyze divisional operating
performance. Net margin as presented is not intended to represent operating
income nor should it be viewed as an alternative to net earnings or other
measures of financial performance calculated in accordance with Canadian GAAP.
Net margin is calculated from the segmented information contained in the notes
to the consolidated financial statements and is defined as revenue less
operating and amortization and accretion expenses.

"Return on capital" is used by management to analyze the operating
performance of investments in capital assets, intangibles and goodwill. Return
on capital is calculated by dividing EBITDA, excluding reorganization costs,
by the average net book value of capital assets, intangibles and goodwill.

References to EBITDA, funds from operations, cash available for growth
and distributions, cash distributed, net margin and return on capital
throughout this document have the meanings set out above.
The following discussion and analysis should be read in conjunction with
(i) the consolidated financial statements of the Fund and the notes thereto
for the three and six months ended June 30, 2007, (ii) the consolidated
financial statements of the Fund and notes thereto and Management's Discussion
and Analysis of the Fund for the year ended December 31, 2006, (iii) the most
recently filed Annual Information Form of the Fund, and (iv) the consolidated
interim financial statements of the Fund and the notes thereto and
Management's Discussion and Analysis for the three and six months ended
June 30, 2006.
Information for the three and six months ended June 30, 2007, along with
comparative information for 2006, is provided.
In December 2006, Newalta reorganized its operations into the Western
division ("Western") and the Eastern division ("Eastern"). In western Canada,
Newalta combined the previously reported Industrial and Oilfield divisions to
form Western. Services offered to customers in Western are similar and are
sold to a similar customer base. Newalta has merged or eliminated some senior
management and sales positions, resulting in improved efficiencies as well as
reductions to overhead costs. Western now comprises three business units:
Oilfield, Drill Site and Industrial; while Eastern comprises two business
units: Ontario and Québec/Atlantic Canada. The business units within Western
share a common customer base and Drill Site utilizes both Oilfield and
Industrial facilities for residual waste processing and disposal. Acquisition
and growth initiatives in the last year increased overlap between the three
business units. This overlap necessitated the integration of services into one
operating division to provide a seamless service package to customers and
enhance both productivity and consistency of operations. The following
Management's Discussion and Analysis provides management's interpretation of
the results of the business for the Western and Eastern divisions and overall.
This Management's Discussion and Analysis is dated August 8, 2007 and
takes into consideration information available up to that date.

OVERALL PERFORMANCE

Results in the Western division in the second quarter were mixed. The
Industrial oil recycling operations sold more product at higher prices than
last year and, as a result, margins improved. The performance of Industrial's
B.C. facilities was modestly above 2006 while the Alberta facilities were down
due to wet weather in the second quarter. In the Oilfield business unit, most
operations delivered performance comparable to last year. Wet weather reduced
service rig activities and therefore well workovers which resulted in reduced
waste volumes and lower recovered crude at the conventional oilfield
facilities. The decrease in crude oil sales compared to 2006 was $3.4 million,
of which $2.1 million was related to the drop in volume with the balance from
lower net realized prices. The balance of the decline in Western's performance
was due to the steep decline in natural gas drilling which resulted in
substantially reduced equipment utilization in our Drill Site business unit,
which fell from 43% last year to 16% in 2007.
The performance of Eastern in the second quarter was positive, delivering
strong revenue and net margin growth. Revenue was almost double last year and
net margin increased 72% compared to the same period in 2006. The increase in
Eastern's year-over-year revenue and net margin for both the quarter and the
first half of 2007 was attributable to the contributions of the acquisitions
completed in the second half of 2006 in Québec and Atlantic Canada and organic
growth in Ontario. Eastern's revenue is derived approximately 60% from the
Ontario business unit and 40% from the Québec/Atlantic Canada business unit.
The results in Eastern in the second quarter were consistent with the
seasonality of the business.
Consistent with lower equipment utilization rates, the 2007 maintenance
capital expenditures have been reduced to $20.0 million compared to the
previously announced budget of $28.0 million. Growth capital expenditures in
the quarter were $19.4 million compared to $12.8 million in 2006. The
previously announced growth capital budget of $120.0 million for 2007 has been
reduced by $15.0 million to $105.0 million, eliminating additional Drill Site
growth capital investments at this time.
The unfavourable weather and temporary market weakness in Q2 in western
Canada have not altered Newalta's strategy to continue to deliver strong
growth across its national facility network. Management continues to see
organic and acquisition based growth opportunities in all of its markets, and
remains committed to make quality investments in its people and infrastructure
to build long-term value for investors.
Newalta is continuing to pursue acquisitions to establish a greater
presence in its core markets, executing four acquisitions during the quarter
and one subsequent to the quarter. The combined transaction value was
$35.7 million. On a trailing twelve month basis the total revenue for the
acquired businesses was approximately $33.0 million with EBITDA of
approximately $9.4 million.
Newalta's credit facility was renewed at June 30, 2007 with no changes to
the facility. Newalta is within its covenant requirements with a funded debt
to EBITDA ratio of 1.69:1, working capital of 2.04:1 and unused capacity on
the credit facilities of $43.8 million, net of outstanding letters of credit.
In June 2007, the legislation from the Minister of Finance (Canada)
relating to the taxation of income trusts was enacted. This legislation will
result in an income tax on distributions paid by publicly traded Canadian
mutual fund trusts and will result in less after-tax cash being available for
payment to all holders of trust units. As an existing Canadian mutual fund
trust, the Fund anticipates it will not be subject to these proposed measures
until January 2011. Management has determined that there is no immediate
impact on the Fund's results. Under the legislation, the existing tax
treatment of distributions will remain in effect during the four-year grace
period to 2011, provided Newalta is not in breach of the related "undue
growth" rules discussed later in this MD&A. Management has withdrawn its
advance tax ruling request in respect of the previously announced internal
reorganization. The investment in growth capital in 2006 has eliminated all
estimated cash taxes payable for 2007 and substantially all in 2008.
Management continues to review new information as it becomes available. As
such, the Board of Trustees' current strategy is to maintain distributions at
current levels, with any excess cash to be directed to growth capital
investments.

RESULTS OF OPERATIONS

Second quarter revenue increased $15.5 million, or 16%, to $111.6 million
compared to $96.1 million in 2006. On a year-to-date basis revenue increased
$31.2 million, or 16%, to $229.4 million compared to $198.2 million for the
same period in 2006. The majority of both the current quarter and year-to-date
revenue growth relates to acquisitions completed in Québec and Atlantic Canada
in the second half of 2006. EBITDA on a trailing twelve month basis from
continuing operations is consistent year-over-year. Operating expenses, as a
percentage of revenue, increased to 74% in the three months ended June 30,
2007 and averaged 71% of year-to-date revenue. These ratios increased compared
to the second quarter of 2006 in which operating expenses were 65% and 62% of
last year's year-to-date revenue. Consistent with the increase in operating
costs, funds from operations decreased 48% to $12.0 million for the three
months ended June 30, 2007 and 34% to $34.6 million for the six months ended
June 30, 2007.
Cash available for growth and distributions for the second quarter
decreased 56% to $8.5 million, or $0.21 per unit, compared to $19.3 million,
or $0.53 per unit, in 2006. The decrease in cash available for growth and
distributions was a direct result of the weakened natural gas drilling and a
wetter spring breakup season. On a year-to-date basis, cash available for
distribution has decreased 35% to $30.2 million compared with $46.5 million in
2006. Maintenance capital expenditures are not incurred evenly throughout the
year and are dependent on factors which include seasonality and activity
levels. Maintenance capital expenditures in the second quarter were
$5.0 million compared to $6.3 million last year. For the year, management has
reduced its maintenance capital forecast from the previously announced budget
of $28.0 million to $20.0 million for 2007, reflecting lower equipment
utilization rates. For the three months ended June 30, 2007, cash distributed
increased 16% to $19.0 million compared to $16.4 million in 2006. Cash
distributed for the first half of the year in 2007 increased 36% over the
first half of 2006 to $37.7 million, due to an increase in monthly
distributions effective in May of 2006 and a higher number of trust units
outstanding. Cash distributed as a percentage of cash available for growth and
distributions for the second quarter was 223% compared with 85% in the same
period of 2006. Due to the seasonality of the business, unitholders should
expect the ratio of cash distributed to cash available for distribution to
vary significantly on a quarterly basis. Typically the second quarter
represents the highest ratio of cash distributed to cash available for
distribution, as cash generated from operations is weakest in the second
quarter due to seasonal variations in the operations. On a trailing twelve
month basis, the ratio of cash distributed to cash available for distributions
is 98%, which is consistent with management's expectations given the weak
market conditions during this period.
The Board of Trustees has historically targeted declared distributions to
be 80% of cash available for growth and distributions. This policy is intended
to maintain a level of distributions that are reliable and sustainable for the
longer term. This target was set in order to provide flexibility in
circumstances when there is a downturn in overall performance. Declared
distributions and cash distributed levels are monitored and assessed through
internal forecasts which incorporate the most recent operating and financial
results, maintenance and growth capital requirements as well as market
activity and conditions. Notwithstanding the current ratios of 263% and 111%
for the second quarter of 2007 and the trailing twelve month period, the Board
of Trustees has maintained the monthly distribution of $0.185 per unit in
anticipation of a return to historical levels of oilfield waste volumes
received by Newalta and recovered crude oil sales for Newalta's account.

WESTERN

Western operates 50 facilities with over 900 people in British Columbia,
Alberta and Saskatchewan and comprises three business units: Oilfield, Drill
Site and Industrial. The division is operated and managed as an integrated set
of assets to provide a broad range of seamless waste management and recycling
services to customers. For the second quarter Western accounted for 62% of
Newalta's total assets, generated 67% of Newalta's revenue and 78% of
Newalta's combined net margin in the second quarter of 2007 compared with 71%,
81% and 90% respectively for the same period in 2006.
Below is a chart of key services provided by each business unit within
Western:

-------------------------------------------------------------------------
Oilfield Drill Site Industrial
-------------------------------------------------------------------------
Waste processing at Operates 2 facilities Waste processing at
31 facilities Pre-drilling 17 facilities
Crude oil recovery assessments Mobile onsite services
Water recycling Drilling waste Product recovery from
Custom treating management wastes
Clean oil terminalling Solids control unit Sale of recovered
Water disposal rentals products as:
Landfills Cuttings management - base oils
Onsite services unit rentals - refinery feedstock
Drilling fluid sales - industrial fuels
and service - carrier fluids
Post-drilling (e.g. drilling oil)
remediation
Well abandonment
-------------------------------------------------------------------------

Western's performance is affected by the state of the economy in western
Canada, the amount of waste generated by crude oil producers, natural gas
drilling activity as well as the strength of the oil and gas, mining, forestry
and transportation industries. In addition, seasonality and the contributions
from investments in growth capital and acquisitions can cause fluctuations in
quarter-to-quarter results. The Oilfield business unit contributes
approximately 50% of Western's total revenue with Drill Site and Industrial
each contributing approximately 25%.
The second quarter is seasonally the Western division's weakest quarter
due to spring breakup conditions which bring about road bans, reducing the
ability to access well sites for both producing well workovers and to perform
natural gas drilling activities. This in turn leads to less waste being
transported and delivered to the division's fixed facility network. Western's
overall performance was down significantly compared to the second quarter of
last year. However, in 2006, the period from January through to September
reflected a record year of activity in the western Canadian sedimentary basin.
Natural gas drilling activity declined in the second half of 2006 and remained
weak throughout the first six months of 2007. Current natural gas pricing is
expected to result in drilling rig utilization and market activity being at
depressed levels for the remainder of 2007. The following table compares the
Q2 2007 and YTD 2007 results to Q2 2006 and YTD 2006:

-------------------------------------------------------------------------
Q2 Q2 % YTD YTD %
($000s) 2007 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Revenue - external 75,201 77,686 (3) 163,906 164,106 -
Revenue - internal 433 - 100 433 - 100
Operating costs 55,593 48,764 14 112,780 97,672 15
Amortization and
accretion 4,292 5,089 (16) 9,425 10,109 (7)
-------------------------------------------------------------------------
Net margin 15,749 23,833 (34) 42,134 56,325 (25)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net margin as %
of revenue 21 31 (32) 26 34 (24)
-------------------------------------------------------------------------
Maintenance capital 3,171 4,231 (25) 3,661 5,678 (36)
-------------------------------------------------------------------------
Growth capital 7,829 7,673 2 13,499 15,912 (15)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

In the Oilfield business unit, clean oil treating and terminalling,
satellites, partnerships, heavy oil and landfill performance was comparable to
2006, while on-site services improved. The $8.1 million decrease in Western's
net margin was attributable to reduced recovered crude oil revenue at
Newalta's conventional oilfield facilities combined with the reduced demand in
services in the Drill Site business unit. Wastes generated from well workovers
are a significant source of volumes to Newalta's conventional oilfield
facility network. These wastes also contain a relatively high proportion of
crude oil recoverable by centrifugation. Wet weather in the quarter reduced
service rig activity and, therefore, resulted in reduced well workovers. This
in turn, resulted in reduced waste volumes at our facilities. In the second
quarter, waste volumes were down approximately 17%. This decline was partially
offset by an average waste price improvement of approximately 7%. The
reduction in waste volumes resulted in a decline in the volume of crude oil
recovered to Newalta's account of 21% from 110,943 barrels last year to 87,236
barrels this year. In addition, the price received for oil sold in the quarter
was down 17% from $66.24 per barrel in 2006 to $54.83 per barrel in 2007. On a
year-to-date basis, compared to last year, recovered crude oil volumes are
down 19% (213,615 barrels in 2006 to 172,953 barrels in 2007) and average oil
prices received were down 7% ($60.59/barrel to $56.33/barrel). The decline in
crude oil sales compared to last year on a three and six month basis is $3.4
million and $5.0 million, respectively. In the first half of 2007,
approximately 33,000 barrels recovered were sold under a storage agreement
with a customer resulting in the deferral of approximately $1.8 million in
revenue and net margin of $1.0 million to the third quarter of 2007. In July,
service rig utilization rates have returned to normal levels.
The table below reflects the changes in the Drill Site business unit's
fleet sizes and utilization rates for the current quarter and the first half
of 2007 compared to their respective prior year periods:

-------------------------------------------------------------------------
Q2 Q2 % YTD YTD %
2007 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Fleet Size
Equipment in
Canada 118 122 (3) 118 118 -
Equipment in
the U.S. 19 2 850 14 2 600
-------------------------------------------------------------------------
Total Drill Site
rental equipment 137 124 10 132 120 10
-------------------------------------------------------------------------
Utilization rates
Total Drill Site
rental equipment 16% 43% (63) 22% 58% (65)
-------------------------------------------------------------------------

In the fourth quarter of 2005 and the first half of 2006, investments
were made to expand the fleet. The performance of the Drill Site business unit
was down substantially compared to last year as equipment utilization rates
declined from 43% in 2006 to only 16% in 2007. In the quarter, the Drill Site
business unit operated below breakeven levels. Current natural gas pricing is
expected to result in drilling rig utilization and market activity being at
depressed levels for the remainder of 2007. By the second quarter Newalta had
a total of 19 units in the mid-western United States and Texas and 118 units
in Canada. Equipment utilization rates of approximately 75% were achieved in
the U.S. markets. In Canada, utilization rates were approximately 10% in the
second quarter. Management will continue to optimize utilization of its Drill
Site rental equipment fleet while still maintaining a solid base of assets in
Canadian markets poised to capitalize on improvements in natural gas drilling
activity in western Canada.
The Industrial business unit's oil recycling operations delivered strong
growth in the quarter with product sales volumes up 23% and product prices
increasing 4%, resulting in an overall 28% revenue improvement. The
performance of the service centres in British Columbia improved modestly year-
over-year. The performance at the Alberta facilities was significantly
impacted, year-over-year, by lower waste volumes as a result of wet weather.
Compared to the first quarter of 2007, activity levels and performance in the
Industrial business unit increased consistent with the normal seasonality of
the business where the first quarter is typically the weakest quarter.
During the quarter, Western added to its filtration services through the
acquisition of the operating assets of Panaco Fluid Filtration Systems Ltd.
effective April 1, 2007. Subsequent to the second quarter, the operating
assets of New West Fluid Management Inc. were acquired which will extend
Newalta's ability to expand abandonment and site restoration services to its
drilling waste customers. The details of these acquisitions are outlined
below:

-------------------------------------------------------------------------
Acquisition Business Location Purchase Description of
Date Assets Price ($) Acquired Assets
Acquired
-------------------------------------------------------------------------
April 1, Panaco Fluid Rocky 5.9 million - 15 people
2007 Filtration Mountain - Deliver onsite fluid
Systems Ltd. House, filtration services
Alberta to refineries and
gas plants as well
as oil and gas
exploration drilling
locations

July 5, New West Fluid Medicine 9.7 million - 30 people and 12
2007 Management Inc. Hat, technical field
Alberta consultants
- Site remediation and
abandonment
- Fleet of 15 vacuum
trucks
-------------------------------------------------------------------------
Total Western Acquisitions 15.6 million
-------------------------------------------------------------------------

Maintenance capital expenditures decreased by $1.1 million when compared
with the second quarter of 2006 and by $2.0 million for the first half of
2007. The lower maintenance capital required is a reflection of the lower
utilization of the assets in 2007 compared to record rates in 2006. Growth
capital expenditures of $7.8 million in the quarter consisted primarily of
productivity improvements at Oilfield facilities. Year-to-date growth capital
spending for Western was $13.5 million.
Newalta's strategy remains unchanged in the face of seasonal and market
weakness in western Canada. The outlook for Western's Oilfield and Industrial
business units is positive heading into the seasonally stronger third and
fourth quarters, while the Drill Site business unit will continue to be
impacted by the weak natural gas drilling market. Newalta's management will
continue to exploit opportunities to improve the utilization of assets by
moving additional units into areas with the highest demand levels.

EASTERN

Eastern was created upon the acquisition of PSC Industrial Services
Canada Inc. ("PSC Canada") in January 2006 with operations in Ontario and the
subsequent expansion into Québec and Atlantic Canada in the second half of
2006. Eastern provides industrial waste management and other environmental
services to markets located in eastern Canada through its integrated network
of high quality facilities. This network features an engineered non-hazardous
solid waste landfill that handles approximately 600,000 tonnes of waste per
year and, based on current volumes, has an estimated remaining life of
13 years at June 30, 2007. The division's network also includes industrial
solid waste pre-treatment facilities; industrial waste transfer and processing
facilities; a fleet of specialized vehicles and equipment for waste transport
and onsite processing; and an emergency response service. Eastern's
performance is impacted by the general state of the economy in eastern Canada,
and the bordering U.S. states, fluctuations in the U.S./Canadian dollar
exchange rate, and specific market conditions in the manufacturing and
automotive sectors. Several favourable industry trends provide potential
growth opportunities for Eastern including enhanced government regulations
with respect to the treatment of industrial waste ("LDR"), scarce landfill
capacity in the Province of Ontario and the growing trend towards outsourcing
of waste management activities. The addition of Eastern has diversified
Newalta's services and reduced exposure to commodity prices and natural gas
drilling activity, thereby promoting greater stability of funds from
operations and, therefore distributions to unitholders. In the second quarter,
Eastern accounted for approximately 32% of Newalta's total assets, generated
33% of Newalta's total revenue and 22% of Newalta's combined net margin
compared with 25%, 19% and 10% respectively, in the same period in 2006.
The performance of Eastern in the second quarter was consistent with
expectations. Revenue was almost double last year and net margin increased 72%
compared to the same period in 2006. The decrease in net margin as a
percentage of revenue is due to the change in the business mix from
acquisitions completed in the second half of 2006. The increase in Eastern's
year-over-year revenue and net margin for both the quarter and the first half
of 2007 was attributable to the contributions of the acquisitions completed in
the second half of 2006 and to organic growth in Ontario. Eastern's revenue is
derived approximately 60% from the Ontario business unit and 40% from the
Québec/Atlantic Canada business unit. The results in Eastern in the second
quarter are consistent with the seasonality of the business. The division
enters the third quarter, its seasonally strongest quarter, well positioned in
its markets.
The table below compares the second quarter and first half of 2007
results to the same periods in 2006:

-------------------------------------------------------------------------
Q2 Q2 % YTD YTD %
($000s) 2007 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Revenue - external 36,304 18,396 97 64,912 34,140 90
Revenue - internal - - - - - -
Operating costs 27,828 13,481 106 50,155 25,210 99
Amortization and
accretion 4,016 2,316 73 7,463 4,447 68
-------------------------------------------------------------------------
Net margin -
continuing
operations 4,460 2,599 72 7,294 4,483 63
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net margin as %
of revenue 12 14 (14) 11 13 (15)
-------------------------------------------------------------------------
Net margin -
discontinued
operations - 1,472 (100) - 1,657 (100)
-------------------------------------------------------------------------
Maintenance capital 1,586 1,821 (13) 1,785 2,082 (14)
-------------------------------------------------------------------------
Growth capital 5,821 1,502 288 11,014 2,570 329
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The Ontario business unit delivered higher revenues for both the quarter
and the six months ended June 30, 2007. In the second quarter, landfill
volumes improved 36% which were partially offset with a modest average price
decrease, due to special pricing on two large projects. The performance of the
service centers reflected lower waste receipts due to continued weakness in
the automotive and other manufacturing industries, which were mostly offset by
price increases. Overall, the Ontario business unit revenue was up 10%
compared to the prior year.
The Québec/Atlantic Canada business unit was established in the second
half of 2006 through five acquisitions. The integration has proceeded smoothly
and operating results are consistent with management's expectations for the
trailing twelve months. In 2007, Newalta has added top calibre talent to
complement the core management group. The 2007 capital program was finalized
in the first quarter and construction is underway to position the business
unit for growth in 2008.
During the quarter, management identified and executed three asset
acquisitions to increase geographic reach and market penetration in Ontario,
Québec and New Brunswick. The results of operations of the acquisitions
outlined in the table below have only been reflected in Newalta's results from
the acquisition dates. As such, management anticipates continued growth for
these business units in the second half of 2007 as these assets are integrated
into operations:

-------------------------------------------------------------------------
Acquisition Business Location Purchase Description of
Date Assets Price ($) Acquired Assets
Acquired
-------------------------------------------------------------------------
May 1, 3 private firms Québec 7.9 million - Four centrifuges
2007 collectively servicing the Québec
referred to as refinery and
Groupe Envirex petrochemical market
- Eight vacuum trucks
and pressure washers
- Household waste,
small industrial
waste generator and
soil treatment
business

May 1, EcoloSite Inc. Ontario 3.0 million - One facility
2007 - 13 people
- Mobile onsite
treatment services

June 1, Eastern New 9.2 million - Transfer station and
2007 Environmental Brunswick processing facility
Inc. in Sussex, New
Brunswick
- 30 people
- Satellite office in
Bedford, Nova Scotia
-------------------------------------------------------------------------
Total Eastern Acquisitions 20.1 million
-------------------------------------------------------------------------

The outlook for the remainder of the year for Eastern remains positive as
the third and fourth quarters are the seasonally strongest for this division.
Management's priorities for Ontario are capturing growth through market
penetration and improving returns through pricing improvements at all
facilities as well as the timely execution of capital projects for internal
growth.

CORPORATE AND OTHER

-------------------------------------------------------------------------
Q2 Q2 % YTD YTD %
($000s) 2007 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Selling, general
and administrative
expenses 13,006 10,584 23 25,525 20,198 26
as a % of revenue 11.7 11.0 6 11.1 10.2 9
-------------------------------------------------------------------------
Amortization and
accretion 9,180 7,885 16 19,013 15,467 23
as a % of revenue 8.2 8.2 - 8.3 7.8 6
-------------------------------------------------------------------------
Interest expense 2,632 1,005 162 4,938 3,863 28
-------------------------------------------------------------------------

The increase in selling, general and administrative ("SG&A") expenses was
due primarily to staff additions to strengthen the organization to manage
growth. SG&A is also affected by operating costs associated with the
maintenance of the new financial information system implemented in 2007.
Management's objective for SG&A is to maintain these expenses at 10%, or less,
of revenue for the year.
The increase in amortization was attributable to recent acquisitions and
growth capital expenditures. As a percentage of revenue, amortization and
accretion have remained consistent year-over-year. Going forward, this ratio
should increase modestly as the second quarter amortization and accretion
expense included a $1.1 million gain on the sale of the business of certain
non-core assets in Western.
The increase in interest expense for both the three and six months ended
June 30, 2007 compared to the same periods in 2006 is due to an increase in
the average debt level. At June 30, 2007, long term debt was $196.1 million
compared with $166.3 million at December 31, 2006. The average debt level
increase is the result of current year acquisitions totalling $26.0 million,
growth capital initiatives totalling $33.5 million year-to-date as well as the
funding of working capital outstanding at year end and distributions in excess
of current period cash flow. These were offset in part by the proceeds from
the equity financing that was completed in January 2007 pursuant to which the
Fund issued 3.0 million trust units at $26.10 per unit for net proceeds of
$74.1 million. Newalta's working capital ratio remained healthy at 2.04:1 at
June 30, 2007 compared with 2.24:1 at March 31, 2007 and 1.37:1 at
December 31, 2006.
A current tax expense of $0.5 million was recorded in the quarter
compared to current income tax recovery of $0.2 million in 2006. The increased
expense is due to Newalta's higher capitalization in 2007 compared to 2006 and
increased size of operations in eastern Canada, resulting in higher provincial
capital taxes. Based on projected levels of capital spending and anticipated
earnings, Newalta is not expected to pay cash taxes until 2008 at the
earliest, with the exception of U.S. federal, state and Canadian provincial
capital taxes. Future income tax recoveries year-to-date were flat at
$2.9 million. In the quarter, future income tax recoveries were lower than
2006, because the second quarter of 2006 reflected the impact of future tax
rate reductions substantively enacted in that quarter.
On October 31, 2006, the Minister of Finance (Canada) announced certain
proposals which, if enacted, would result in an income tax on distributions
paid by publicly traded Canadian mutual fund trusts and limited partnerships,
and will result in less after-tax cash being available for payment to all
holders of trust units. The legislation was enacted on June 22, 2007. There
was no immediate impact on the Fund's interim consolidated financial
statements. For further information about the impact on future income taxes
please refer to CRITICAL ACCOUNTING ESTIMATES - FUTURE INCOME TAXES in this
MD&A.
Management uses operating income as an indicator of the net investment
performance of the Fund. For the second quarter of 2007, operating income
decreased by 74% to $3.8 million from $14.4 million in the second quarter of
last year. For the second quarter of 2007, operating income, as a percentage
of revenue, was 3% compared to 15% of the same period in 2006. On a year-to-
date basis operating income was $17.5 million, down 51% from $35.8 million in
2006. As a percentage of revenue, operating income in the first half of 2007
was 8% compared to 18% for the same period in 2006. The decrease was
attributable to lower revenue for the Western division and changes in the
business mix due to acquisitions completed in the second half of 2006 in
eastern Canada, with lower net margins but more stable revenue streams than
oil and gas related services.
As at August 8, 2007, the Fund had 40,532,153 trust units outstanding and
outstanding rights to acquire up to 2,321,925 trust units.

SUMMARY OF QUARTERLY RESULTS

(unaudited) 2007 2006
-------------------------------------------------------------------------
($000s except per unit data) Q2 Q1 Q4 Q3
-------------------------------------------------------------------------
Revenue 111,594 117,837 122,498 120,297
-------------------------------------------------------------------------
Operating income 3,799 13,665 16,209 24,846
-------------------------------------------------------------------------
Net earnings 6,716 12,966 15,356 20,136
Continuing Operations 6,716 12,966 15,528 20,136
Discontinued Operations - - (172) -
-------------------------------------------------------------------------
Earnings per unit ($) 0.17 0.33 0.42 0.55
Continuing Operations 0.17 0.33 0.42 0.55
Discontinued Operations - - (0.00) -
-------------------------------------------------------------------------
Diluted earnings per unit ($) 0.16 0.33 0.41 0.54
Continuing Operations 0.16 0.33 0.41 0.54
Discontinued Operations - - (0.00) -
-------------------------------------------------------------------------
Weighted average units - basic 40,361 39,209 36,860 36,734
-------------------------------------------------------------------------
Weighted average units - diluted 40,562 39,445 37,282 37,279
-------------------------------------------------------------------------


(unaudited) 2006 2005
-------------------------------------------------------------------------
($000s except per unit data) Q2 Q1(1) Q4 Q3
-------------------------------------------------------------------------
Revenue 96,082 102,162 86,663 65,900
-------------------------------------------------------------------------
Operating income 14,363 21,445 18,862 17,894
-------------------------------------------------------------------------
Net earnings 22,685 17,388 14,445 14,394
Continuing Operations 21,213 17,175 14,445 14,394
Discontinued Operations 1,472 213 - -
-------------------------------------------------------------------------
Earnings per unit ($) 0.62 0.56 0.51 0.52
Continuing Operations 0.58 0.55 0.51 0.52
Discontinued Operations 0.04 0.01 - -
-------------------------------------------------------------------------
Diluted earnings per unit ($) 0.61 0.54 0.50 0.51
Continuing Operations 0.57 0.54 0.50 0.51
Discontinued Operations 0.04 0.00 - -
-------------------------------------------------------------------------
Weighted average units - basic 36,381 31,291 28,597 27,716
-------------------------------------------------------------------------
Weighted average units - diluted 37,000 31,917 29,066 28,190
-------------------------------------------------------------------------

(1) The Q1 2006 results have been restated from the disclosure in the
first quarter 2006 report to reflect the reclassification of the in-
plant industrial cleaning service operation as discontinued
operations.

Quarterly performance is affected by seasonal variation as described
below. However, in the past eight quarters this is difficult to assess due to
the aggressive acquisition and internal growth capital program pursued by
Newalta during that time. The increases in revenue, operating income and net
earnings in Q3 and Q4 of 2005 were driven primarily by growth in the Western
division. Two-thirds of the revenue growth in Western was attributable to
Drill Site related acquisitions and growth in onsite services, satellites and
partnerships consistent with the investments in these services in 2004 and
2005. Additional revenue growth was attributable to strong activity levels and
demand for services which led to increases in waste processing volumes and
higher crude oil sales. In the latter portion of 2005, operating income
declined as a percentage of revenue mostly due to changes in the business mix
from the expansion of Drill Site services.
In 2006, the first and second quarter performance increased mainly as a
result of continued high demand in the Western division as well as the
acquisition of PSC Canada forming the Eastern division. The PSC Canada
acquisition added approximately $20 million in revenue each quarter in 2006.
The net decrease in revenue and operating income from Q1 to Q2 in 2006
predominantly reflects the seasonality of the natural gas drilling services
market and industry activity levels. Net earnings in Q2 of 2006 were
positively impacted by an $8.7 million recovery of future income taxes due to
the reduction in future federal and provincial income tax rates. Revenue in
the third and fourth quarters of 2006 increased as a result of acquisitions
completed in Québec and Atlantic Canada in both quarters. Net earnings for the
third quarter were improved over the second quarter once the effect of the
future income tax recovery is removed from the second quarter results. The
fourth quarter saw a decrease in net earnings due to the decrease in the
demand for Drill Site services consistent with the 40% drop in overall
drilling activity when compared to the same period in 2005. The increase in
the weighted average number of trust units in the second quarter was mainly
attributable to the 7.0 million trust units issued as a result of the equity
financing completed in March 2006.
In 2007, Western has endured a weak natural gas drilling environment
during the first quarter which was followed by continued weakness in the
second quarter further compounded by the spring breakup road bans and an
extended wet season preventing the transportation of waste from well workovers
and therefore reducing processing volumes. This resulted in lower revenue,
earnings and operating income. In January of 2007, the Fund issued 3.0 million
trust units for net proceeds of $74.1 million, which accounts for the majority
of the increase in trust units outstanding from Q4 2006 to Q1 2007.

Seasonality of Operations

Quarterly performance is affected by, among other things, weather
conditions, commodity prices, market demand and capital investments as well as
acquisitions. Each of the Western and Eastern divisions are affected
differently based on the types of services that are provided. The following
seasonality descriptions provide the typical quarterly fluctuations in
operational results in the absence of growth and acquisition capital.
For Western's Drill Site services, the frozen ground during the winter
months provides an optimal environment for drilling activities and
consequently, the first quarter is typically strong. As warm weather returns
in the spring, the winter's frost comes out of the ground rendering many
secondary roads incapable of supporting the weight of heavy equipment until
they have thoroughly dried out. Road bans, which are generally imposed in the
spring, restrict waste transportation which reduces demand for the Western
division's services and therefore, the second quarter is generally the weakest
quarter of the year for Western. The third quarter is typically the strongest
quarter for Western due to favourable weather conditions and market
cyclicality. Acquisitions and growth capital investments completed in the
first half of the year will tend to strengthen second half financial
performance. For Western, first quarter revenue has ranged from 17% to 25% of
annual revenue, second quarter revenue has ranged from 19% to 25%, revenue
from the third quarter has ranged from 26% to 30% and finally fourth quarter
revenue has ranged from 26% to 35%.
Eastern's services are curtailed by colder weather in the first quarter,
which is typically its weakest quarter. Aqueous wastes and onsite work are
restricted by colder temperatures. The third quarter is typically the
strongest for Eastern due to the more favourable weather conditions and market
cyclicality. Similar to Western, growth capital investments made in the first
half will tend to strengthen the second half performance. Based on historical
information that management obtained for the recent acquisitions, it is
estimated that first quarter revenue is typically 16 to 18% of annual revenue,
second quarter revenue is estimated to be approximately 20 to 25%, the revenue
for the third quarter is estimated to be between 28% to 32% and, finally,
fourth quarter revenue is estimated to be approximately 24% to 29% of annual
revenue.
Cash available for growth and distributions is directly impacted by
maintenance capital expenditures, which are not incurred evenly throughout the
year. For 2007, maintenance capital expenditures incurred as a percentage of
the expected annual expenditures were approximately 4% in the first quarter,
25% in the second quarter and are expected to be approximately 49% in the
third quarter and 22% in the fourth quarter.
Quarterly financial results have been prepared by management in
accordance with Canadian GAAP as set out in the notes to the annual audited
consolidated financial statements of the Fund for the year ended December 31,
2006.

LIQUIDITY AND CAPITAL RESOURCES

The term liquidity refers to the speed with which a company's assets can
be converted into cash as well as cash on hand. Liquidity risk for the Fund
may arise from its general day-to-day cash requirements, and in the management
of its assets, liabilities and capital resources. Liquidity risk is managed
against Newalta's financial leverage to meet its obligations and commitments
in a balanced manner.
The Fund's net working capital was $78.8 million at June 30, 2007
compared with $81.0 at March 31, 2007 and $36.1 million at December 31, 2006.
At current activity levels, working capital of $78.8 million is expected to be
sufficient to meet the ongoing commitments and operational requirements of the
business. The credit risks associated with accounts receivable are viewed as
normal for the industry. Despite the current natural gas drilling industry
conditions, management views the credit risk to be normal. A measure used by
the Fund as an indication of liquidity is the Current Ratio, which is defined
as the ratio of total current assets to total current liabilities. The Current
Ratio at June 30, 2007 reflected that Newalta has sufficient assets to cover
its current liabilities by 2.04 times (at December 31, 2006 and March 31, 2007
the ratio was 1.37 times and 2.24 times respectively). This ratio exceeds
Newalta's bank covenant minimum requirement of 1.20:1.
The Fund's liquidity needs can be sourced in several ways including:
funds from operations, short and long-term borrowings against Newalta's credit
facilities and the issuance of trust units from treasury. Newalta's primary
uses of funds are operational and administrative expenses, maintenance and
growth capital spending, distributions and acquisitions.
The following table reflects that the Fund uses funds from operations to
source financing for its maintenance capital and asset retirement
expenditures. The residual of this is considered by management to be the
amount of cash available for growth and distributions.

-------------------------------------------------------------------------
Trailing
($000s) Q2 2007 Q2 2006 YTD 2007 YTD 2006 12 months
-------------------------------------------------------------------------
Cash from (used in)
operations 17,324 30,045 12,054 58,633 66,128
Add back (deduct):
Increase (decrease) in
working capital (5,439) (7,333) 22,134 (6,934) 27,417
Asset retirement costs
incurred 299 364 497 566 1,250
-------------------------------------------------------------------------
Funds from operations (A) 12,184 23,076 34,685 52,265 94,795
Maintenance capital (5,019) (6,329) (5,750) (8,173) (18,655)
Asset retirement costs
incurred (299) (364) (497) (566) (1,250)
Proceeds on sale of capital
assets 1,654 204 1,715 266 1,901
Proceeds on sale of
discontinued operations - 2,672 - 2,672 2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash available for growth
and distributions (B) 8,520 19,259 30,153 46,464 76,793
Cash distributed (C) (18,983) (16,386) (37,707) (27,729) (75,333)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Used) Unused cash (10,463) 2,873 (7,554) 18,735 1,460
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(C)/(A) equals 156% 71% 109% 53% 79%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(C)/(B) equals 223% 85% 125% 60% 98%
-------------------------------------------------------------------------
-------------------------------------------------------------------------

On a per unit basis Newalta declared monthly distributions of $0.185 to
unitholders from January through June 2007 or $2.22 annually. In 2006, monthly
distributions declared were $0.165 per month from January to April and $0.185
for the remainder of the year. The Board of Trustees is maintaining
distributions at current levels.
The ratio of cash distributed as a percentage of cash available for
growth and distributions in the second quarter was 223% compared with 85% in
the same period last year. The increase in this ratio is mainly attributable
to lower cash generated from operations in 2007 than in 2006. In addition, the
increase in the number of units compounded this decrease in funds through the
issuance of 7.0 million trust units pursuant to the March 2006 equity
financing and the 3.0 million trust units issued in the January 2007 equity
financing. The second quarter is typically Newalta's weakest quarter and
therefore this ratio is expected to be higher than other quarters. Year-to-
date the ratio was 125%. On a trailing twelve month basis, the ratio of cash
distributed to cash available for distributions is 98%, which is consistent
with management's expectations given the weak market conditions during this
period, and the long-term objective of the Fund's distribution policy to
maintain distributions levels through commodity price and market cyclicality.
Maintenance capital expenditures in the second quarter of 2007 decreased
compared to the prior year reflecting reduced maintenance required mainly due
to lower equipment utilization rates in 2007. Consistent with the lower
equipment utilization levels, management has revised its estimate of total
annual maintenance capital expenditures down to $20.0 million from the
previously announced $28.0 million.
The following table is recommended by the Canadian Securities
Administrators as additional information to users of income fund and mutual
fund trust financial statements. It provides another perspective on the
sourcing of cash to fund distributions:

Three months
ended June 30, Year Ended December 31
($000s) 2007 2006 2006 2005 2004
-------------------------------------------------------------------------
Cash flow generated from
operating activities 17,324 30,045 111,963 71,732 49,718
Distributions declared (22,413) (19,482) (75,923) (49,602) (39,659)
-------------------------------------------------------------------------
Cash excess (shortfall) (5,089) 10,563 36,040 22,130 10,059
-------------------------------------------------------------------------

Net earnings 6,716 22,685 75,565 46,978 36,205
Distributions declared (22,413) (19,482) (75,923) (49,602) (39,659)
-------------------------------------------------------------------------
Net earnings (shortfall)
excess (15,697) 3,203 (358) (2,624) (3,454)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cash flow generated from operating activities for the three months ended
June 30, 2007 was significantly reduced due to a weaker than normal second
quarter in the Western division compared to the same period in 2006. The lower
service rig activity impact is anticipated to be short term as service rig
activity has returned to normal levels in July of 2007. Weak natural gas
drilling activity seen in the first half of 2006 will continue to impact
results. In the interim period, Newalta has funded the shortfall of cash and
net earnings over distributions through financing obtained through
$3.4 million in distributions declared which were reinvested by unitholders
through the DRIP program and funds raised through an equity financing
completed at the end of January pursuant to which the Fund issued 3.0 million
trust units for net proceeds of $74.1 million. As previously discussed, the
Fund's cash flow and net income are subject to seasonal variations. The second
quarter of the year tends to be the weakest quarter for the company as a whole
and especially for the Western division. For a discussion of the annual trends
please refer to page 14 of the Fund's Management's Discussion and Analysis for
the year ended December 31, 2006.
Total capital expenditures for the current year and comparative periods
are summarized as follows:

-------------------------------------------------------------------------
($000s) Q2 2007 Q2 2006 YTD 2007 YTD 2006
-------------------------------------------------------------------------
Growth capital 19,358 12,805 33,488 24,800
Acquisitions 25,997 18,804 25,997 139,209
-------------------------------------------------------------------------
Total growth capital and
acquisitions 45,355 31,609 59,485 164,009
Maintenance capital 5,019 6,329 5,750 8,173
-------------------------------------------------------------------------
Total acquisitions and
capital expenditures 50,374 37,938 65,235 172,182
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Growth capital expenditures consisted primarily of productivity
improvements at several facilities, additional centrifuges and investments in
information technology and infrastructure. A total of $120.0 million in growth
capital investments was originally budgeted for 2007. Management has revised
this amount to $105.0 million, eliminating additional Drill Site growth
capital investments at this time. The 2007 growth capital program includes
$26.0 million in corporate investments that primarily relate to the
implementation of a new information technology system throughout Canada and
approximately $10.0 million in leasehold improvements (before tenant
improvement recoveries) for the new corporate head office which is expected to
be completed in the fourth quarter of 2007. The remaining $79.0 million will
be invested in facilities and equipment to expand services, improve
productivity and enhance market coverage in Western and Eastern. Growth
expenditures will be funded from retained cash, if any, and the credit
facility of the Corporation.
Newalta's credit facility agreement was extended to June 28, 2008, with
the same limits and terms, pursuant to the annual review completed as of
June 30, 2007. The credit facilities comprise a $35.0 million operating
facility for working capital requirements and a $245.0 million extendible term
credit facility to fund growth capital, acquisition expenditures and letters
of credit. The operating and term credit facilities are subject to an annual
review and extension. An extension is anticipated, however, if an extension is
not granted, principal repayments would not begin until May 2009 on the
operating facility and August 2009 on the extendible term facility.
As at June 30, 2007, the Fund had drawn $196.1 on its credit facilities
compared to $166.3 million outstanding at December 31, 2006, an increase of
$29.8 million. The reason for the increase was due to recent acquisitions
completed for a total of $26.0 million, growth capital to date of
$33.5 million as well as the financing of working capital and distributions in
excess of cash flow for the period. These were offset by an equity financing
completed in January 2007 pursuant to which the Fund issued 3.0 million trust
units for net proceeds of $74.1 million.
Newalta is required to post either a letter of credit or a bond with
various environmental regulatory authorities to ensure that the eventual asset
retirement obligations for facilities are fulfilled. These letters of credit
or bonds will not be utilized unless Newalta were to default on its obligation
to restore the lands to a condition acceptable by these authorities. At
June 30, 2007, letters of credit and bonds provided as financial security to
third parties totalled $51.8 million. Of this amount, $40.1 million is
committed on the Corporation's credit facility which provides for
$55.0 million in letters of credit. Bonds are not required to be offset
against the borrowing amount available under the credit facility.
Newalta is restricted from declaring distributions and distributing cash
if the Corporation is in breach of the covenants under its credit facility.
Current financial performance is within the financial ratio covenants under
the credit facility as reflected in the table below:

-------------------------------------------------------------------------
Ratio June 30, 2007 Threshold
-------------------------------------------------------------------------
Current Ratio(1) 2.04:1 1.20:1 minimum
Funded Debt to EBITDA(2) 1.69:1 2.25:1 maximum
Total Debt Service Coverage Ratio(3) 1.47:1 1.00:1 minimum
-------------------------------------------------------------------------

(1) Current Ratio means, the ratio of consolidated current assets to
consolidated net current liabilities (excluding the current portion
of long term debt and capital leases outstanding, if any).
(2) Funded Debt to EBITDA means the ratio of consolidated Funded Debt to
the aggregate EBITDA for the trailing twelve-months. Funded Debt is
defined as long term debt and capital leases including any current
portion thereof but excluding future income taxes and future site
restoration costs. EBITDA is defined as the trailing twelve-months of
EBITDA for the Fund which is normalized for any acquisitions
completed during that time frame and excluding any dispositions
incurred as if they had occurred at the beginning of the trailing
twelve-months.
(3) Total Debt Service Coverage Ratio means, on a consolidated basis for
the six most recently completed quarters, the ratio of (i) EBITDA
minus capital expenditures which exceed the net proceeds of trust
units issued for the period, distributions paid to unitholders of the
Fund and cash taxes paid to (ii) the aggregate of all scheduled
principal payments, all payments required under capital leases and
interest expense for such period.

In addition, the Fund is restricted from making distributions if the
aggregate of all distributions made in the preceding six fiscal quarters
exceeds the Distributable Cash Flow of the Fund for such six quarters.
Distributable Cash Flow is defined by the credit facility agreement as net
income plus future income taxes plus amortization and accretion less all debt
service (other than debt service deducted in calculating net income for the
period) and all unfunded capital expenditures for the period. Debt service is
defined as all amounts required to be paid during the period in respect of
debt, including without limitation, repayments of principal, interest expense
and fees.
During the three and six months ended June 30, 2007, there have been no
material changes to the specified contractual obligations as set forth in the
Management's Discussion and Analysis for the year ended December 31, 2006.

OFF-BALANCE SHEET ARRANGEMENTS

Newalta currently has no off-balance sheet arrangements.

TRANSACTIONS WITH RELATED PARTIES

Bennett Jones LLP provides legal services to Newalta. Mr. Vance Milligan,
a Trustee of the Fund, is a partner in the law firm of Bennett Jones LLP and
is involved in providing and managing the legal services provided by Bennett
Jones LLP to Newalta. The total cost of these legal services during the three
and six months ended June 30, 2007 was $0.1 million and $0.3 ($0.2 million and
$0.6 million for the same period in 2006).
Newalta provides oilfield services to Paramount Resources Ltd., an oil
and gas company. Mr. Clayton Riddell, a Trustee and Chairman of the Board of
the Fund, is Chairman and Chief Executive Officer of Paramount Resources Ltd.
The total revenue for services provided by Newalta to this entity for the
quarter and six months ended June 30, 2007 was $0.2 million and $1.0 million,
respectively ($0.4 million and $0.9 million for the same period in 2006).
These transactions were in the normal course of operations on similar
terms and conditions to those entered into with unrelated parties. These
transactions are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the financial statements in accordance with Canadian
GAAP requires management to make estimates with regard to the reported amounts
of revenue and expenses and the carrying values of assets and liabilities.
These estimates are based on historical experience and other factors
determined by management. Because this involves varying degrees of judgment
and uncertainty, the amounts currently reported in the financial statements
could, in the future, prove to be inaccurate.

ASSET RETIREMENT OBLIGATIONS

Asset retirement obligations are estimated by management based on the
anticipated costs to abandon and reclaim all Newalta facilities, landfills and
the projected timing of the costs to be incurred in future periods.
Management, in consultation with Newalta's engineers, estimates these costs
based on current regulations, costs, technology and industry standards. The
fair value estimate is capitalized as part of the cost of the related asset
and amortized to expense over the asset's useful life. There have been no
significant changes in the estimates used to prepare the asset retirement
obligation in the first half of 2007 compared to those provided in the Fund's
annual consolidated financial statements for the year ended December 31, 2006.

GOODWILL

Management performs a test for goodwill impairment annually and whenever
events or circumstances make it more likely than not that an impairment may
have occurred. Determining whether an impairment has occurred requires a
valuation of the respective reporting unit, which is estimated using a
discounted cash flow method. In applying this methodology, management relies
on a number of factors, including actual operating results, future business
plans, economic projections and market data. Management does not see any
impairment in the goodwill balance recorded.

FUTURE INCOME TAXES

Future income taxes are estimated based upon temporary differences
between the book value and the tax value of assets and liabilities using the
applicable future income tax rates under current law. The change in these
temporary differences results in a future income tax expense or recovery. The
most significant risk in this estimate is the future income tax rates used for
each entity. On October 31, 2006, the Minister of Finance (Canada) ("Finance")
announced proposed changes (the "2006 Proposed Changes") to the Tax Act, which
modified the taxation of certain flow-through entities including mutual fund
trusts such as Newalta and its unitholders. On June 22, 2007, the draft
legislation implementing the 2006 Proposed Changes received royal assent and
was enacted (the "New Tax Legislation"). The New Tax legislation will apply a
tax at the trust level on distributions of certain income from the Fund at a
rate of tax of 31.5%. Such distributions will be treated as dividends to the
unitholders. There was no impact on the Fund at June 30, 2007 as a result of
the enactment of the New Tax Legislation.
It is expected that the new distribution tax (subject to any undue
expansion) will apply to the Fund commencing in 2011.
The New Tax Legislation permits "normal growth" for Newalta through the
transitional period between October 31, 2006 and December 31, 2010. However,
"undue expansion" could cause the transitional relief to be revisited, and the
New Tax Legislation to be effective at a date earlier than January 1, 2011. On
December 15, 2006, Finance released guidelines on normal growth for income
trusts and other flow-through entities (the "Guidelines"). Under the
Guidelines, a trust will be able to increase its equity capital each year
during the transitional period by an amount equal to the greater of
$50 million and a safe harbour amount. The safe harbour amount will be
measured by reference to the trust's market capitalization as of the end of
trading on October 31, 2006. Newalta's market capitalization at the close of
trading on October 31, 2006 was $1.218 billion. The safe harbour for the
intervening years up to 2011 will be as follows:

-------------------------------------------------------------------------
Safe Harbour Limit
(% of October 31, Newalta's
2006 Market Newalta's Market Safe Harbour
Time Period Capitalization) Capitalization ($) Limit ($)
-------------------------------------------------------------------------
November 1, 2006 to
December 31, 2007 40% 1.218 billion 487.2 million
2008 20% 1.218 billion 243.6 million
2009 20% 1.218 billion 243.6 million
2010 20% 1.218 billion 243.6 million
-------------------------------------------------------------------------
Total 1.218 billion
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The safe harbour limits reflected above are subject to some restrictions:

- The annual safe harbour amounts are cumulative.

- New equity for these purposes includes units and debt that is
convertible into units.

- Replacing debt of the Fund itself that was outstanding as of
October 31, 2006 with new equity whether through a debenture
conversion or otherwise, will not be considered growth for these
purposes. New, non-convertible debt can also be issued without
affecting the safe harbour; however, the replacement of that new debt
with equity will be counted as growth. As of October 31, 2006, the
Fund had no outstanding debt.

- An issuance by a trust of new equity will not be considered growth to
the extent that the issuance is made in satisfaction of the exercise
by another person or partnership of a right in place on October 31,
2006 to exchange an interest in a partnership, or a share of a
corporation, into that new equity.

- The merger of two or more trusts each of which was publicly-traded on
October 31, 2006, or a reorganization of such a trust, will not be
considered growth to the extent that there is no net addition to
equity as a result of the merger or reorganization.

In addition, the 2006 Proposed Changes states that the New Tax
Legislation may be modified at any time with immediate effect to counter any
structures which frustrate the policy objectives of the New Tax Legislation.

AMORTIZATION AND ACCRETION

Amortization of the Fund's capital assets and intangible assets
incorporates estimates of useful lives and residual values. These estimates
may change as more experience is obtained or as general market conditions
change impacting the operation of the Fund's plant and equipment. Estimates
for the first six months of 2007 are consistent with those disclosed in the
Management's Discussion and Analysis for the year ended December 31, 2006.

ADOPTION OF NEW ACCOUNTING STANDARDS IN 2007

Effective January 1, 2007, the Fund adopted the new accounting
recommendation of the Canadian Institute of Chartered Accountants ("CICA")
under CICA Handbook section 1506, Accounting Changes. The impact of this
section is to provide disclosure of when an entity has not applied a new
source of GAAP that has been issued but is not yet effective. This is the case
with CICA Handbook section 3862, Financial Instruments Disclosures and
section 3863, Financial Instruments Presentations which are required to be
adopted for fiscal years beginning on or after October 1, 2007. The Fund will
adopt these standards on January 1, 2008 and it is expected the only effect on
the Fund will be incremental disclosures regarding the significance of
financial instruments for the entity's financial position and performance; and
the nature, extent and management of risks arising from financial instruments
to which the entity is exposed.
Effective January 1, 2007, the Fund also adopted the new recommendations
under CICA Handbook section 1530, Comprehensive Income, section 3251, Equity,
section 3855, Financial Instruments - Recognition and Measurement, section
3861, Financial Instruments - Disclosure and Presentation and section 3865,
Hedges. These new Handbook sections provide requirements for the recognition
and measurement of financial instruments and on the use of hedge accounting.
Section 1530 establishes standards for reporting and presenting comprehensive
income which is defined as the change in equity from transactions and other
events from non-owners sources. Other comprehensive income refers to items
recognized in comprehensive income but that are excluded from net earnings
calculated in accordance with generally accepted accounting principles.
Section 1530 requires the Fund to present a new statement entitled
Comprehensive Income. The new statement is included in the Fund's accompanying
interim consolidated financial statements for the three and six months ended
June 30, 2007 and 2006.

BUSINESS RISKS

The business of Newalta is subject to certain risks and uncertainties.
Prior to making any investment decision regarding Newalta investors should
carefully consider, among other things, the risks described herein (including
the risks and uncertainties listed in the first paragraph of this Management's
Discussion and Analysis) and the risk factors set forth in the most recently
filed Annual Information Form of the Fund. These risk factors are incorporated
by reference herein.
The Annual Information Form is available through the Internet on the
Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which
can be accessed at www.sedar.com. Copies of the Annual Information Form may be
obtained, on request without charge, from Newalta Corporation at Suite 1200,
333 - 11th Avenue S.W., Calgary, Alberta T2R 1L9, or at www.newalta.com, or by
facsimile at (403) 806-7348.

FINANCIAL AND OTHER INSTRUMENTS

The carrying values of accounts receivable and accounts payable
approximate the fair value of these financial instruments due to their short
term maturities. Newalta's credit risk from Canadian customers is minimized by
its broad customer base and diverse product lines. In the normal course of
operations, Newalta is exposed to movements in the U.S. dollar exchange rates,
relative to the Canadian dollar. Newalta sells and purchases some product in
U.S. dollars. Newalta does not utilize hedging instruments, but rather chooses
to be exposed to current U.S. exchange rates as increases or decreases in
exchange rates are not considered to be significant over the period of the
outstanding receivables and payables. The floating interest rate profile of
Newalta's long-term debt exposes Newalta to interest rate risk. Newalta does
not use hedging instruments to mitigate this risk. The carrying value of the
long-term debt approximates fair value due to its floating interest rates.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL
REPORTING

During the quarter and six months ended June 30, 2007, the Fund did not
make any changes to its internal controls over financial reporting that would
have materially affected, or would likely materially affect, the effectiveness
of such controls.

ADDITIONAL INFORMATION

Additional information relating to the Fund, including the Annual
Information Form, is available through the Internet on the Canadian System for
Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at
www.sedar.com. Copies of the Annual Information Form of the Fund may be
obtained from Newalta Corporation at Suite 1200, 333 - 11th Avenue S.W.,
Calgary, Alberta T2R 1L9, or at www.newalta.com, or by facsimile at (403) 806-
7348.

CONSOLIDATED BALANCE SHEETS

June 30, December 31,
($000s) (unaudited) 2007 2006
-------------------------------------------------------------------------
Assets
Current assets
Accounts receivable 135,293 120,621
Inventories 12,666 9,238
Prepaid expenses and other 6,872 3,729
-------------------------------------------------------------------------
154,831 133,588
Notes receivable 1,517 1,031
Capital assets 562,935 528,085
Intangible assets (Note 3) 51,105 50,062
Goodwill (Note 3) 98,978 90,078
-------------------------------------------------------------------------
869,366 802,844
-------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable 68,587 90,650
Distributions payable 7,490 6,834
-------------------------------------------------------------------------
76,077 97,484
Long-term debt (Note 5) 196,071 166,271
Future income taxes (Note 6) 70,018 72,910
Asset retirement obligations (Note 11) 20,715 18,484
-------------------------------------------------------------------------
362,881 355,149
-------------------------------------------------------------------------
Unitholders' Equity
Unitholders' capital (Note 7) 478,564 394,601
Contributed surplus 1,033 1,226
Retained earnings 26,888 51,868
-------------------------------------------------------------------------
506,485 447,695
-------------------------------------------------------------------------
869,366 802,844
-------------------------------------------------------------------------
-------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME AND
RETAINED EARNINGS


For the For the
Three Months Ended Six Months Ended
($000s except per unit data) June 30, June 30,
(unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue 111,594 96,082 229,431 198,246
Expenses
Operating 82,988 62,245 162,502 122,882
Selling, general and
administrative 13,006 10,584 25,525 20,198
Interest 2,632 1,005 4,938 3,863
Amortization and accretion 9,180 7,885 19,013 15,467
-------------------------------------------------------------------------
107,806 81,719 211,978 162,410
-------------------------------------------------------------------------
Earnings before taxes 3,788 14,363 17,453 35,836
Provision for (recovery
of) income taxes
Current 461 (150) 663 216
Future (3,389) (6,700) (2,892) (2,796)
-------------------------------------------------------------------------
(2,928) (6,850) (2,229) (2,580)
-------------------------------------------------------------------------
Net earnings from continuing
operations 6,716 21,213 19,682 38,416
Earnings from discontinued
operations (Note 4) - 1,472 - 1,657
-------------------------------------------------------------------------
Net earnings and comprehensive
income 6,716 22,685 19,682 40,073
Retained earnings, beginning
of period 42,585 54,038 51,868 52,226
Distributions (Note 10) (22,413) (19,482) (44,662) (35,058)
-------------------------------------------------------------------------
Retained earnings,
end of period 26,888 57,241 26,888 57,241
-------------------------------------------------------------------------
Earnings per unit from
continuing operations (Note 9) 0.17 0.58 0.50 1.14
Earnings per unit from
discontinued operations
(Note 9) - 0.04 - 0.05
-------------------------------------------------------------------------
Earnings per unit 0.17 0.62 0.50 1.19
-------------------------------------------------------------------------
Diluted earnings per unit
from continuing operations
(Note 9) 0.16 0.57 0.49 1.12
Diluted earnings per unit from
discontinued operations (Note 9) - 0.04 - 0.05
-------------------------------------------------------------------------
Diluted earnings per unit 0.16 0.61 0.49 1.17
-------------------------------------------------------------------------
-------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF CASH FLOWS

For the For the
Three Months Ended Six Months Ended
June 30, June 30,
($000s) (unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
Net inflow (outflow) of cash
related to the following
activities:

OPERATING ACTIVITIES
Net earnings from
continuing operations 6,716 21,213 19,682 38,416
Items not requiring cash:
Amortization and accretion 9,180 7,885 19,013 15,467
Future income taxes (3,389) (6,700) (2,892) (2,796)
Funds from discontinued
operations (Note 4) - 512 - 811
Other (323) 166 (1,118) 367
-------------------------------------------------------------------------
12,184 23,076 34,685 52,265
Decrease (increase) in
non-cash working capital 5,439 7,333 (22,134) 6,934
Asset retirement costs incurred (299) (364) (497) (566)
-------------------------------------------------------------------------
17,324 30,045 12,054 58,633
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to capital assets (24,954) (18,476) (57,323) (34,868)
Net proceeds on sale of
capital assets 1,654 204 1,715 266
Acquisitions (Note 3) (25,260) (13,804) (25,260) (127,034)
Proceeds on disposal of
discontinued operations - 2,672 - 2,672
-------------------------------------------------------------------------
(48,560) (29,404) (80,868) (158,964)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of units 956 2,748 77,332 188,651
(Increase) decrease in debt 49,921 21,629 29,799 (52,024)
Settlement of acquired
debt (Note 3) (737) (8,700) (737) (8,700)
Decrease in notes receivable 79 68 127 133
Distributions to unitholders
(Note 10) (18,983) (16,386) (37,707) (27,729)
-------------------------------------------------------------------------
31,236 (641) 68,814 100,331
-------------------------------------------------------------------------
Net cash inflow - - - -
Cash - beginning of period - - - -
-------------------------------------------------------------------------
Cash - end of period - - - -
-------------------------------------------------------------------------
Supplementary information:
Interest paid 2,501 1,105 4,717 3,570
Income taxes paid 216 203 507 4,100
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

($000s except per unit data) (unaudited)

Newalta Income Fund (the "Fund") is a Canadian mutual fund trust engaged,
through its wholly-owned operating subsidiaries Newalta Corporation (the
"Corporation") and Newalta Industrial Services Inc. ("NISI" and together with
the Fund and the Corporation, "Newalta"), in adapting technologies to maximize
the value inherent in industrial waste through the recovery of saleable
products and recycling. Newalta also provides environmentally sound disposal
of solid, non-hazardous industrial waste. With an integrated network of
facilities, Newalta provides waste management solutions to a broad customer
base of national and international corporations in a range of industries,
including automotive, forestry, manufacturing, mining, oil and gas,
petrochemical, pulp and paper, steel and transportation services.

NOTE 1. BASIS OF PRESENTATION

The interim consolidated financial statements include the accounts of
Newalta. The interim consolidated financial statements have been prepared
by management in accordance with Canadian generally accepted accounting
principles ("GAAP"). Certain information and disclosures normally
required to be included in the notes to the audited annual financial
statements have been omitted or condensed. These interim financial
statements and the notes thereto should be read in conjunction with the
consolidated financial statements of the Fund for the year ended
December 31, 2006 as contained in the Annual Report for fiscal 2006.

The accounting principles applied are consistent with those as set out in
the Fund's annual financial statements for the year ended December 31,
2006 except as noted in the following paragraphs.

Accounting Changes

Effective January 1, 2007, the Fund adopted the new accounting
recommendation of the Canadian Institute of Chartered Accountants
("CICA") under CICA Handbook section 1506, Accounting Changes. The impact
of this section is to provide disclosure of when an entity has not
applied a new source of GAAP that has been issued but is not yet
effective. This is the case with CICA Handbook section 3862, Financial
Instruments - Disclosures and section 3863, Financial Instruments -
Presentation which are required to be adopted for fiscal years beginning
on or after October 1, 2007. The Fund will adopt these standards on
January 1, 2008 and it is expected the only effect on the Fund will be
incremental disclosures regarding the significance of financial
instruments for the entity's financial position and performance, and the
nature, extent and management of risks arising from financial instruments
to which the entity is exposed.

Financial instruments

Effective January 1, 2007, the Fund also adopted the new recommendations
under CICA Handbook section 1530, Comprehensive Income, section 3251,
Equity, Section 3855, Financial Instruments - Recognition and
Measurement, section 3861, Financial Instruments - Disclosure and
Presentation and Section 3865, Hedges. These new Handbook sections
provide requirements for the recognition and measurement of financial
instruments and on the use of hedge accounting. Section 1530 establishes
standards for reporting and presenting comprehensive income which is
defined as the change in equity from transactions and other events from
non-owners' sources. Other comprehensive income refers to items
recognized in comprehensive income but that are excluded from net
earnings calculated in accordance with generally accepted accounting
principles.

Under Section 3855, all financial instruments are classified into one of
five categories and measured as follows:

-------------------------------------------------------------------------
Category Measurement
-------------------------------------------------------------------------
Held-for-trading Fair value and changes in fair value are
recognized in net income
Held-to-maturity investments Amortized cost
Loans and receivables Amortized cost
Available-for-sale Fair value and changes in fair value are
financial assets recorded in other comprehensive income
until the instrument is derecognized or
impaired
Other financial liabilities Amortized cost
-------------------------------------------------------------------------

As a result of the adoption of these new standards, the Fund has
classified its cash and cash equivalents as held-for-trading. Accounts
receivable and notes receivable are classified as loans and receivables.
Long-term debt, accounts payable and distributions payable are classified
as other liabilities, all of which are measured at amortized cost. The
Fund does not have any derivatives or embedded derivatives to report.

Section 3855 also provides guidance on accounting for transaction costs
incurred upon the issuance of debt instruments or modification of a
financial liability. Transaction costs associated with Other Liabilities
have been expensed as incurred. The adoption of these new standards had
no impact on the Fund's retained earnings or accumulated other
comprehensive income as at January 1, 2007. The carrying values of
financial assets and liabilities approximate their fair values.

Use of estimates and assumptions

Accounting measurements at interim dates inherently involve reliance on
estimates and the results of operations for the interim periods shown in
these financial statements are not necessarily indicative of results to
be expected for the fiscal year. In the opinion of management, the
accompanying unaudited interim consolidated financial statements include
all adjustments necessary to present fairly the consolidated results of
the Fund's operations and cash flows for the periods ended June 30, 2007
and 2006.

NOTE 2. SEASONALITY OF OPERATIONS

Quarterly performance is affected by, among other things, weather
conditions, commodity prices, market demand and capital investments as
well as acquisitions. Each of the Western and Eastern division is
affected differently based on the types of services that are provided.
The following seasonality descriptions provide the typical quarterly
fluctuations in operational results in the absence of growth and
acquisition capital investments.

For the Western division's ("Western") Drill Site services, the frozen
ground during the winter months provides an optimal environment for
drilling activities and consequently, the first quarter is typically
strong. As warm weather returns in the spring, the winter's frost comes
out of the ground rendering many secondary roads incapable of supporting
the weight of heavy equipment until they have thoroughly dried out. Road
bans, which are generally imposed in the spring, restrict waste
transportation which reduces demand for Western's services and,
therefore, the second quarter is generally the weakest quarter of the
year for Western. The third quarter is typically the strongest quarter
for Western due to favourable weather conditions and market cyclicality.
Acquisitions and growth capital investments completed in the first half
of the year will tend to strengthen second half financial performance.
For Western, first quarter revenue has ranged from 17% to 25% of annual
revenue, second quarter revenue has ranged from 19% to 25%, revenue from
the third quarter has ranged from 26% to 30% and finally fourth quarter
revenue has ranged from 26% to 35%.

The Eastern division's ("Eastern") services are curtailed by colder
weather in the first quarter, which is typically its weakest quarter.
Aqueous wastes and onsite work are restricted by colder temperatures. The
third quarter is typically the strongest for Eastern due to the more
favourable weather conditions and market cyclicality. Similar to Western,
growth capital investments made in the first half will tend to strengthen
the second half performance. Based on historical information that
management obtained for the recent acquisitions, it is estimated that
first quarter revenue is typically approximately 16 to 18% of annual
revenue, second quarter revenue is approximately 20 to 25%, the revenue
for the third quarter is between 28% to 32% and, finally, fourth quarter
revenue is approximately 24% to 29% of annual revenue.

NOTE 3. ACQUISITIONS

a) On April 1, 2007, Western acquired all of the assets of Panaco Fluid
Filtration Systems Ltd. ("Panaco") for a total purchase price of
$5.9 million in cash. Panaco and its 15 people based out of Rocky
Mountain House, Alberta, deliver onsite fluid filtration services to
refineries and gas plants as well as oil and gas exploration drilling
locations. Panaco provides services to western Canada and the United
States.

Effective May 1, 2007, Eastern acquired the operating assets of three
private entities (collectively referred to as Groupe Envirex,
"Envirex") based out of Québec for a collective purchase price of
$7.9 million in cash. This acquisition adds four centrifuges to
Eastern servicing the Québec refinery and petrochemical market. The
acquired operations include a fleet of eight vacuum trucks and
pressure washers and a household waste, small industrial waste
generator and soil treatment business.

Effective May 1, 2007, Eastern acquired a portion of the operating
assets of EcoloSite Inc. ("EcoloSite"), based in London, Ontario, for
a total purchase price of $3.0 million, comprised of $2.3 million in
cash and the assumption of $0.7 million in debt. EcoloSite operates
one facility with 13 people servicing customers across Ontario and
the Maritimes, in mobile onsite treatment and the management of
industrial and municipal waste.

The assets of Eastern Environmental Inc. were acquired by the Eastern
division effective June 1, 2007 for a total purchase price of
$9.2 million in cash. The acquired operations include 30 experienced
people, a fleet of mobile services, a transfer station and processing
facility located in Sussex, New Brunswick and a satellite office in
Bedford, Nova Scotia.

The amount of the consideration paid and the fair value of the assets
acquired and liabilities assumed were:


April 1, May 1, May 1, June 1,
2007 2007 2007 2007 Total
---------------------------------------------------------------------
Cash consideration 5,909 7,948 2,240 9,163 25,260
Debt assumed - - 737 - 737
---------------------------------------------------------------------
Total Purchase Price 5,909 7,948 2,977 9,163 25,997
---------------------------------------------------------------------
Net working capital 412 (52) - 224 584
Capital assets:
Land 45 800 - 202 1,047
Plant & equipment 2,252 4,600 2,413 3,757 13,022
Intangibles 500 1,000 - 1,000 2,500
Goodwill 2,700 1,600 580 4,020 8,900
Asset retirement
obligations - - (16) (40) (56)
---------------------------------------------------------------------
5,909 7,948 2,977 9,163 25,997
---------------------------------------------------------------------
---------------------------------------------------------------------

The operating results of the businesses acquired are consolidated
from the respective closing dates of the transactions. The allocation
of the purchase prices are subject to changes, as management obtains
further information.

b) On January 6, 2006 the Fund, through a wholly-owned subsidiary,
acquired all the shares of PSC Industrial Services Canada Inc. ("PSC
Canada"). PSC Canada is engaged in the business of collecting and
disposing of industrial waste material in southern Ontario. The
acquired operations were set up as a separate division of Newalta, as
described in Note 14. The amount of the consideration paid and the
fair value of the assets acquired and liabilities assumed is shown
below.

On June 1, 2006, Western acquired all the issued and outstanding
shares of Treeline Environmental Projects Corp. and Treeline Well
Abandonment and Reclamation Ltd. (collectively "Treeline"). The
consideration for this acquisition was comprised of $13,804 in cash
and the issuance of 156,260 trust units at a value of $5,000. The two
companies manage waste handling and abandonment operations for oil
producers and drillers. Results are included from the closing date of
June 1, 2006.

The amount of the consideration paid and the fair value of the assets
acquired and liabilities assumed were:

January 6, June 1,
2006 2006 Total
---------------------------------------------------------------------
Deferred costs - paid in 2005 7,175 - 7,175
Cash paid in 2006 113,230 13,804 127,034
Equity issued - 5,000 5,000
---------------------------------------------------------------------
Total consideration 120,405 18,804 139,209
---------------------------------------------------------------------
Net working capital 9,164 8,239 17,403
Debt acquired - (8,700) (8,700)
Capital assets:
Land 3,643 - 3,643
Plant & equipment 22,337 167 22,504
Landfill 71,187 - 71,187
Intangibles 34,600 - 34,600
Goodwill 15,239 18,956 34,195
Future income tax (23,274) 142 (23,132)
Asset retirement obligations (12,491) - (12,491)
---------------------------------------------------------------------
120,405 18,804 139,209
---------------------------------------------------------------------
---------------------------------------------------------------------

NOTE 4. DISCONTINUED OPERATIONS

On May 31, 2006, the Corporation disposed of a non-core industrial onsite
cleaning services operation that was sold for total proceeds of $3,472
consisting of $2,672 in cash and an $800 non-interest bearing promissory
note. The note receivable was valued on the balance sheet at its net
present value of $748. The note was repayable in equal quarterly
instalments of $135 until May 31, 2007 and the balance of the note was
due on June 30, 2007. The full balance of the note receivable outstanding
at June 30, 2007 was received in early July. The gain in the table below
is reflected net of a disposition of the proportionate goodwill of
$1.5 million. The following table sets forth the results of operations
(excluding selling, general and administration costs and divisional
administration costs), associated with the operations sold, for the three
and six months ended June 30, 2006 that have been reclassified from the
following accounts to earnings from discontinued operations:

June 30, 2006
-------------------------------------------------------------------------
Three Months Six Months
Ended Ended
-------------------------------------------------------------------------
Revenue 2,349 5,408
Operating expenses 1,837 4,597
-------------------------------------------------------------------------
512 811
Amortization and accretion 11 21
Future income tax 180 284
Gain on disposition (net of tax) (1,151) (1,151)
-------------------------------------------------------------------------
Earnings from discontinued operations 1,472 1,657
-------------------------------------------------------------------------
-------------------------------------------------------------------------


NOTE 5. LONG-TERM DEBT
June 30, December 31,
2007 2006
-------------------------------------------------------------------------
Extendible operating term facility 5,071 6,271
Extendible term facility 191,000 160,000
-------------------------------------------------------------------------
196,071 166,271
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Effective June 29, 2007, the Corporation's credit facilities which
provide for a $35,000 extendible operating term facility and a $245,000
extendible term facility were extended for an additional year. The credit
facility is secured principally by a general security agreement over the
assets of the Corporation and its subsidiary NISI. Interest on the
facilities is subject to certain conditions, and may be charged at a
prime based or a Bankers' Acceptance ("BA") based rate, at the option of
the Corporation. The operating facility bears interest at the lenders'
prime rate plus 0% to 1.0% depending on certain criteria, or at the BA
rate plus 1.0% to 1.75%. Both facilities bear interest at the lenders'
prime rate plus 0.0% to 1.2%, or at the BA rate plus 1.1% to 2.0%
depending on certain criteria. Both facilities are subject to an annual
review and extension, at the option of the lenders. The next review is
scheduled on June 28, 2008. If an extension is not granted, principal
repayment of the extendible term facility would commence 15 months after
the annual review at the quarterly rate of one-twelfth of the outstanding
indebtedness for three quarters and a balloon payment for the balance at
the end of the fourth quarter. The operating facility, subject to certain
conditions, would be due in full 12 months after the annual review if an
extension is not granted.

The Fund is restricted from declaring distributions and distributing cash
if the Corporation is in breach of its covenants. Newalta was not in
breach of any of its covenants at June 30, 2007. In addition, the Fund is
restricted from making distributions if the aggregate of all
distributions made in preceding six fiscal quarters exceeds the
Distributable Cash Flow of the Fund for such six quarters. Distributable
Cash Flow is defined by the credit facility agreement as net income plus
future income taxes plus amortization and accretion less all debt service
(other than debt service deducted in calculating net income for the
period) and all unfunded capital expenditures for the period. Debt
service is defined as all amounts required to be paid during the period
in respect of debt, including without limitation, repayments of
principal, interest expense and fees.

NOTE 6. FUTURE INCOME TAXES

As disclosed in the Fund's annual consolidated financial statements for
December 31, 2006, the Minister of Finance (Canada) issued draft
legislation in December 2006, which would require income trusts such as
Newalta to pay a 31.5% tax on distributions. In June 2007, Bill C-52
Budget Implementation Act, 2007 (the "New Tax Legislation") was enacted.
As an existing income trust at the time of the announcement, the new
distribution tax will apply to the Fund commencing in 2011. As a result
of the New Tax Legislation, Newalta is required to reflect any previously
unrecognized temporary differences in the consolidated financial
statements of the Fund. Newalta has determined that there are no
unrecognized temporary differences resulting from the new tax
legislation.

NOTE 7. UNITHOLDERS' CAPITAL

Authorized capital of the Fund consists of a single class of an unlimited
number of trust units. The following table is a summary of the changes in
Unitholders' capital during the period:

(000s) Units (No.) Amount ($)
-------------------------------------------------------------------------
Units outstanding as at December 31, 2005 29,055 188,761
Units issued 7,000 185,718
Units issued for acquisitions 215 6,900
Contributed surplus on rights exercised - 500
Rights exercised 365 4,194
Units issued under the DRIP 307 8,528
-------------------------------------------------------------------------
Units outstanding as at December 31, 2006 36,942 394,601
Units issued 3,000 74,133
Contributed surplus on rights exercised - 331
Rights exercised 286 3,199
Units issued under the DRIP 257 6,300
-------------------------------------------------------------------------
Units outstanding as at June 30, 2007 40,485 478,564
-------------------------------------------------------------------------
-------------------------------------------------------------------------

On January 26, 2007, the Fund issued 3,000,000 units through a bought
deal equity financing at a price of $26.10 per unit for net proceeds of
$74,133 after share issuance costs of $4,167.

On March 3, 2006, the Fund issued 7,000,000 units pursuant to a bought
deal equity financing at a price of $28.00 per unit. Proceeds, net of
issuance costs, were $185,718.

NOTE 8. RIGHTS TO ACQUIRE TRUST UNITS

On March 19, 2007, a total of 860,000 rights were granted to certain
directors, officers, and employees of the Corporation. The rights were
granted at the market price of $25.50 per unit. On May 17, 2007, a total
of 110,000 rights were granted to certain officers and employees of the
Corporation, at a market price of $25.19 per unit. Each tranche of the
rights vest over a four year period (with a five year life), and the
holder of the right has the option to exercise the right for either a
unit of the Fund or an amount of cash equal to the difference between the
exercise price and the market price at the time of exercise. The rights
granted under the 2006 Trust Unit Rights Incentive Plan have therefore
been accounted for as stock appreciation rights and the total
compensation expense for these rights was $15 for the three and six
months ended June 30, 2007 ($3 for the same periods in 2006).

NOTE 9. EARNINGS PER UNIT

Basic per unit calculations for the three and six months ended June 30,
2007 and 2006 were based on the weighted average number of units
outstanding for the periods. Diluted earnings per unit include the
potential dilution of the outstanding rights to acquire trust units.

The calculation of dilutive earnings per unit does not include
anti-dilutive rights, if any. These rights would not be exercised during
the period because their exercise price is higher than the average market
price for the period. The inclusion of these rights would cause the
diluted earnings per unit to be overstated. The number of excluded rights
for the three and six months ended June 30, 2007 was 1,535,000 and
704,375 (652,250 for both the three and six months periods ended in June
2006).

Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Weighted average number of units 40,361 36,381 39,790 33,794
Net additional units if rights
exercised 201 619 190 548
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted weighted average number
of units 40,562 37,000 39,980 34,342
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 10. UNITHOLDER DISTRIBUTIONS DECLARED AND PAID

The Fund makes monthly distributions to its holders of trust units.
Determination of the amount of cash distributions for any period is at
the sole discretion of the Board of Trustees of the Fund and is based on
certain criteria including financial performance as well as the projected
liquidity and capital resource position of the Fund. Distributions are
declared to holders of trust units of record on the last business day of
each month, and paid on the 15th day of the month following (or if such
day is not a business day, the next following business day).

Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Unitholder distributions declared 22,413 19,482 44,662 35,058
per unit - $ 0.555 0.535 1.110 1.03
Unitholder distributions -
paid in cash 18,983 16,386 37,707 27,729
Unitholder distributions -
value paid in units 3,388 2,287 6,300 5,343
paid in cash - per unit $ 0.470 0.452 0.948 0.847
issued units - per unit $ 0.084 0.063 0.158 0.163
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 11. RECONCILIATION OF ASSET RETIREMENT OBLIGATIONS

The total future asset retirement obligations were estimated by
management based on the anticipated costs to abandon and reclaim
facilities and wells, and the projected timing of these expenditures. The
reconciliation of estimated and actual expenditures for the period is
provided below:

Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Asset retirement obligations,
beginning of period 18,694 18,089 18,484 5,468

Additional retirement obligations
added through acquisitions 56 - 56 12,490
Additional retirement obligations
added through development activities 664 - 664 -
Additional retirement obligations
added through a change of estimate 1,182 - 1,182 -
Costs incurred to fulfill obligations (299) (364) (497) (566)
Accretion 418 422 826 753
-------------------------------------------------------------------------
Asset retirement obligations,
end of period 20,715 18,147 20,715 18,147
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 12. TRANSACTIONS WITH RELATED PARTIES

Bennett Jones LLP provides legal services to the Fund. Mr. Vance
Milligan, a Trustee and Corporate Secretary of the Fund, is a partner in
the law firm of Bennett Jones LLP and is involved in providing and
managing the legal services provided by Bennett Jones LLP to the Fund.
The total cost of these legal services during the three and six month
periods ended June 30, 2007 were $101 and $282 respectively ($197 and
$588 for the same periods in 2006).

Newalta provides oilfield services to Paramount Resources Ltd., an oil
and gas company. Mr. Clayton Riddell, a Trustee and Chairman of the Board
of the Fund, is Chairman and Chief Executive Officer of Paramount
Resources Ltd. The total revenue for services provided by Newalta to this
entity during the three and six months ended June 30, 2007 were $170 and
$988 respectively ($408 and $860 for the same periods in 2006).

These transactions were incurred during the normal course of operations
on similar terms and conditions to those entered into with unrelated
parties. These transactions are measured at the exchange amount, which is
the amount of consideration established and agreed to by the related
parties.

NOTE 13. COMMITMENTS

Letters of Guarantee and Surety Bonds

At June 30, 2007, the Corporation had issued Letters of Guarantee and
Bonds with respect to compliance with environmental licenses and
contracts with third parties in the amounts of $40,105 and $11,725
respectively.

NOTE 14. SEGMENTED INFORMATION

The Western division's 2006 comparative information in this note has been
restated to reflect the organizational change in the Fund's operations.
In December 2006, Newalta reorganized its operations into the Western
division ("Western") and the Eastern division ("Eastern"). In western
Canada, Newalta has combined the previously reported Industrial and
Oilfield divisions to form Western as services offered to customers in
Oilfield and Industrial are similar and are sold to a similar customer
base. Newalta has also merged or eliminated some senior management and
sales positions. As such, the 2006 comparative information has been
restated to combine the previously reported Oilfield and Industrial
reportable segments.

The Fund has two reportable segments. The reportable segments are
distinct strategic business units whose operating results are regularly
reviewed by the Corporation's executive officers in order to assess
financial performance and make resource allocation decisions. The
reportable segments have separate operating management and operate in
distinct competitive and regulatory environments. The Western segment
recovers and resells crude oil from oilfield waste, rents drill cuttings
management and solids control equipment, provides abandonment and
remediation services, collects liquid and semi-solid industrial wastes as
well as automotive wastes, including waste lubricating oil, and provides
mobile site services in western Canada. Recovered materials are processed
into resalable products. The Eastern segment, which was established
following the acquisition of PSC Canada in 2006, provides Industrial
waste collection, pre-treating, transfer, processing and disposal
services and operates a fleet of specialized vehicles and equipment for
waste transport and onsite processing and an emergency response service
in central and eastern Canada. The accounting policies of the segments
are the same as those of the Fund.


For the Three Months Ended June 30, 2007
Consol-
Inter- Unalloc- idated
Western Eastern segment ated(3) Total
-------------------------------------------------------------------------
External revenue 75,201 36,304 - 89 111,594
Inter segment revenue(1) 433 - (433) - -
Operating expense 55,593 27,828 (433) - 82,988
Amortization and
accretion expense 4,292 4,016 - 872 9,180
-------------------------------------------------------------------------
Net margin 15,749 4,460 - (783) 19,426
Selling, general
and administrative - - - 13,006 13,006
Interest expense - - - 2,632 2,632
-------------------------------------------------------------------------
Operating income 15,749 4,460 - (16,421) 3,788
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 16,911 27,496 - 5,970 50,377
-------------------------------------------------------------------------
Goodwill 57,661 41,317 - - 98,978
-------------------------------------------------------------------------
Total assets 541,300 278,590 - 49,476 869,366
-------------------------------------------------------------------------
-------------------------------------------------------------------------


For the Three Months Ended June 30, 2006
Consol-
Inter- Unalloc- idated
Western Eastern segment ated(3) Total
-------------------------------------------------------------------------
External revenue 77,686 18,396 - - 96,082
Inter segment revenue(1) - - - - -
Operating expense 48,764 13,481 - - 62,245
Amortization and accretion
expense 5,089 2,316 - 480 7,885
-------------------------------------------------------------------------
Net margin 23,833 2,599 - (480) 25,952
Selling, general
and administrative - - - 10,584 10,584
Interest expense - - - 1,005 1,005
-------------------------------------------------------------------------
Operating income -
continuing operations 23,833 2,599 - (12,069) 14,363
-------------------------------------------------------------------------
Operating income -
discontinued operations - 1,472 - - 1,472
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 30,706 3,323 - 3,909 37,938
-------------------------------------------------------------------------
Goodwill 56,621 13,748 - - 70,369
-------------------------------------------------------------------------
Total assets 469,563 167,017 - 27,201 663,781
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Inter-segment revenue is recorded at market, less the costs of
serving external customers.
(2) Includes capital asset additions and the purchase price of
acquisitions.
(3) Management does not allocate selling, general and administrative,
taxes, and interest costs in the segment analysis.


For the Six Months Ended June 30, 2007
Consol-
Inter- Unalloc- idated
Western Eastern segment ated(3) Total
-------------------------------------------------------------------------
External revenue 163,906 64,912 - 613 229,431
Inter segment revenue(1) 433 - (433) - -
Operating expense 112,780 50,155 (433) - 162,502
Amortization and
accretion expense 9,425 7,463 - 2,125 19,013
-------------------------------------------------------------------------
Net margin 42,134 7,294 - (1,512) 47,916
Selling, general
and administrative - - - 25,525 25,525
Interest expense - - - 4,938 4,938
-------------------------------------------------------------------------
Operating income 42,134 7,294 - (31,975) 17,453
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 23,072 32,887 - 9,279 65,238
-------------------------------------------------------------------------
Goodwill 57,661 41,317 - - 98,978
-------------------------------------------------------------------------
Total assets 541,300 278,590 - 49,476 869,366
-------------------------------------------------------------------------
-------------------------------------------------------------------------


For the Six Months Ended June 30, 2006
Consol-
Inter- Unalloc- idated
Western Eastern segment ated(3) Total
-------------------------------------------------------------------------
External revenue 164,106 34,140 - - 198,246
Inter segment revenue(1) - - - - -
Operating expense 97,672 25,210 - - 122,882
Amortization and
accretion expense 10,109 4,447 - 911 15,467
-------------------------------------------------------------------------
Net margin 56,325 4,483 - (911) 59,897
Selling, general
and administrative - - - 20,198 20,198
Interest expense - - - 3,863 3,863
-------------------------------------------------------------------------
Operating income -
continuing operations 56,325 4,483 - (24,972) 35,836
-------------------------------------------------------------------------
Operating income -
discontinued operations - 1,657 - - 1,657
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 40,393 125,057 - 6,732 172,182
-------------------------------------------------------------------------
Goodwill 56,621 13,748 - - 70,369
-------------------------------------------------------------------------
Total assets 469,563 167,017 - 27,201 663,781
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) Inter-segment revenue is recorded at market, less the costs of
serving external customers.
(2) Includes capital asset additions and the purchase price of
acquisitions.
(3) Management does not allocate selling, general and administrative,
taxes, and interest costs in the segment analysis.

Contact Information

  • Ronald L. Sifton
    Executive Vice President & CFO
    Phone: (403) 806-7020;

    Anne M. MacMicken,
    Director, Investor Relations
    Phone: (403) 806-7019