Newalta Corporation
TSX : NAL

Newalta Corporation

March 05, 2008 01:05 ET

Newalta Income Fund announces results for the fourth quarter and year-ended 2007


CALGARY, ALBERTA--(Marketwire – March 5, 2008) - Newalta Income Fund ("Newalta" or the "Fund")
today announced financial results for the three months and year ended December 31, 2007.

"Our performance in 2007 was consistent with weaker natural gas drilling
activity in western Canada and the successful diversification of our business
in the east," said Al Cadotte, President and Chief Executive Officer of
Newalta. "Combined divisional net margin(1) for the year was down $14.2
million, or 11%. Although revenue was up by 13%, SG&A costs increased
$11.3 million, or 26%. Staff additions to support both the anticipated growth
of the business and the implementation of our new information system surpassed
actual revenue growth, and as a result, SG&A costs as a percentage of revenue
increased to 10.9% compared to 9.7% in 2006. The decrease in combined
divisional net margin and the increase in overheads resulted in a decline in
EBITDA(1) of $25.0 million, or 21%, compared to last year.
"Overall, our outlook for 2008 is positive with both divisions positioned
for strong results. Acquisitions in Québec and Atlantic Canada, including Nova
Pb, are anticipated to drive strong growth and the new Landfill Disposal
Restrictions ("LDR") in Ontario are anticipated to result in increased volumes
of waste requiring treatment. Our continued success in developing our onsite
Steam Assisted Gravity Drainage ("SAGD") centrifugation services is
anticipated to drive revenue and net margin in Oilfield. The restructuring of
our Canadian drill site business combined with the increased transfer of
assets to the U.S. are expected to result in improved performance in the Drill
Site business unit. Improvements in natural gas drilling activity in the
second half of the year are anticipated to drive additional growth in 2008.
"Newalta intends to maintain distributions at $0.185 per trust unit
during 2008. We have the capital resources to fund our growth opportunities
while remaining a mutual fund trust through 2008.
"Newalta is uniquely positioned with a diversified business model and
organic growth opportunities which will provide returns to our unitholders
consistent with our historical performance. In addition, Newalta will act
opportunistically in the event of new projects or acquisitions that can
deliver high returns. Accordingly, we will structure Newalta to execute this
strategic plan. We will provide an update to our unitholders on any conversion
plans later in 2008 based on our financial performance, the development of our
organic growth and acquisition opportunities and the enactment of legislation
regarding the conversion to a corporation on a tax-efficient basis. In any
event, we expect to convert to a growth oriented dividend yielding company
providing a balance for disciplined management, good governance and returns to
unitholders.
"Over the past 15 years, we have made responsible investments and have
successfully adapted to changing market conditions. With high quality assets
and an exceptional organization, we remain well-positioned to deliver superior
returns to our investors in 2008 and beyond."

Financial results and highlights for the three months ended December 31,
2007:

- Revenue increased 12% to $137.1 million compared to the same period
in 2006. Net earnings increased 54% to $23.6 million due to a future
income tax recovery as a result of the decrease in the estimated
future income tax rate.

- In the quarter, combined divisional net margin was up $1.4 million,
or 5%, and SG&A costs were $3.6 million higher which resulted in a
reduction of EBITDA of $2.0 million, or 7%, compared to the same
period in 2006.

- Western's revenue and net margin(1) remained flat year-over-year
despite a weaker natural gas drilling environment. The Drill Site
business unit ("Drill Site") performance was slightly better than
breakeven levels in the quarter, as we absorbed the cost associated
with restructuring completed in the quarter. The full benefits of
this restructuring will be seen in the first quarter of 2008. The
amount of Drill Site equipment in use(1) remained flat compared to
the fourth quarter of 2006, at 38 units, notwithstanding the
industry's drilling rigs in use(1) decrease of 27%. Oilfield's
revenue increased 16% driven by onsite SAGD waste management projects
which was offset by lower water disposal revenue at fixed facilities.
Industrial's performance was down modestly in the fourth quarter of
2007 compared to the same period in 2006 due to mainly lower product
sales.

- Eastern's performance in the fourth quarter was strong with revenue
and net margin up 45% and 40%, respectively, due to the contribution
of acquisitions completed in Québec and Atlantic Canada in the second
half of 2006 and throughout 2007. Eastern's acquisition of the lead-
acid battery recycling facility in Ville Ste. Catherine, Québec was
completed for a total purchase price of $58.8 million. The facility
has two kilns which are capable of producing recycled lead, one of
which is currently idle creating a future growth opportunity for
Newalta. Since certain inventory relating to operations prior to
November 1, 2007 was sold for the account of the previous owners
after November 1, 2007, we did not begin to see contribution from
these operations until December 2007.

- Cash distributed(1) to unitholders in the fourth quarter was
consistent with the same period in 2006 at $18.4 million. In 2007,
growth and acquisition investments of almost $200.0 million were made
to provide a platform for growth in 2008. In 2007, monthly
distributions per unit were $0.185 per unit for a total of $2.22 per
unit for the year.

- SG&A costs increased by $3.6 million to $15.2 million, and were 11%
of revenue compared to 9.5% in the fourth quarter of 2006. The
increase in costs is related to salaries and costs associated with
acquisitions and increased support costs associated with our new
information management software system, SAP. In 2008, the information
technology department was downsized significantly as we move into the
maintenance phase of SAP. In addition, we carried the incremental
cost of unoccupied office building leases as we moved into our new
corporate office space in December 2007. Management's objective
continues to be to maintain SG&A costs at 10% or less of revenue.

- Maintenance capital expenditures for the quarter were $6.2 million
compared to $4.9 million in 2006. Growth capital expenditures were
$40.4 million. Growth capital of $13.1 million was invested in
Eastern focusing on facility improvements, productivity and
efficiency improvements and service growth. In Western, $10.9 million
in growth capital was spent to expand process facilities, develop
satellite facilities, purchase onsite equipment as well as efficiency
improvements across the oilfield network. The remainder of the growth
capital was directed towards leasehold improvements at our new
corporate office and investments in SAP.

Financial results and highlights for the year ended December 31, 2007:

- Revenue increased 13% to $499.9 million from $441.0 million in 2006.
Net earnings and EBITDA decreased 19% and 21% to $61.2 million and
$96.2 million, respectively. The decrease in net earnings was a
combination of lower combined divisional net margin of $14.2 million
or 11%, increased SG&A costs of $11.3 million and higher borrowing
costs offset by a future income tax recovery due to lower future tax
rates.

- Western's revenue was flat and net margin was down $21.0 million or
18%, compared to 2006. Drill Site was severely impacted by the
decline in natural gas drilling activity. Oilfield's results were
lower due to reduced crude oil recoveries despite a 4% increase in
the crude oil selling price year-over-year and lower waste receipts
at fixed facilities. Industrial's performance was down marginally
mainly due to lower product sales.

- Eastern's revenue and net margin were up 66% and 44%, respectively.
The increases were related to the full year contribution of
acquisitions completed in the second half of 2006 and acquisitions
completed in 2007. As a percentage of revenue, net margin was down
compared to 2006, as a result of some duplication of expenses in the
initial integration of newly acquired businesses. With a full year's
contribution from the lead-acid battery recycling facility in Québec,
Eastern's contribution as a percentage of total revenue is
anticipated to grow to approximately 40% in 2008 compared with 30% in
2007.

- Cash distributed to unitholders increased 15% to $75.4 million.

- SG&A costs increased by $11.3 million to $54.3 million compared with
$43.0 million in 2006. Staff additions to support both the
anticipated growth of the business and the implementation of our new
SAP information system surpassed actual revenue growth and, as a
result, SG&A costs as a percentage of revenue increased to 10.9%
compared to 9.7% in 2006. Management's objective for SG&A continues
to be to maintain these expenses at 10% or less of revenue.

- Maintenance capital expenditures in the year were $17.2 million, an
18% decrease over 2006. Lower Drill Site rental equipment utilization
required lower maintenance capital expenditures and accounted for
most of the decrease.

- Growth and acquisition capital expenditures in the year were
$193.0 million. Newalta successfully completed seven acquisitions in
2007, predominantly in eastern Canada, for a total combined purchase
price of approximately $97.0 million. On a trailing twelve month
basis, the total acquired revenue was approximately $128.0 million
with EBITDA of approximately $46.0 million. The internal growth
spending of approximately $96.0 million related to facilities and
equipment to expand services, improve productivity and enhance market
coverage across the company, the implementation of the new SAP
information technology system and leasehold improvements for our new
corporate offices.

- For 2008 we have planned a total of $135.0 million in capital
spending. Of this amount, $90.0 million will be directed towards
operations growth projects and $20.0 million is planned for corporate
investments in corporate innovation projects, information technology
and office space. Our $25.0 million maintenance capital budget is
directed to landfill replacement to meet ongoing business demands and
a large number of small projects to maintain our assets in good
operating condition. Approximately 70% of our 2008 growth capital
expenditures are planned for the second half of 2008 as we focus on
productivity improvements in our current operations in the first half
of the year.

Other highlights for the three months and year ended December 31, 2007:

- Newalta's balance sheet remains strong with a senior funded debt to
EBITDA ratio of 1.89:1 and working capital of 1.65:1.

- Newalta's corporate three-year average return on capital(1) at
December 31, 2007 was 18% compared to a 23% corporate three-year
average in 2006. The decrease is due to the decline in the natural
gas drilling market and the impact of acquisitions which have not
contributed to EBITDA over the full three years.

- Newalta entered into an amended credit agreement on October 12, 2007
which provides for a $425.0 million extendible revolving credit
facility which is used to fund growth capital expenditures, for
general corporate purposes and for the issuance of financial security
to third parties. As at December 31, 2007, Newalta's unused capacity
on its credit facility was approximately $177.5 million, net of
outstanding letters of credit in the amount of $40.1 million.

- In November 2007, Newalta completed the offering of $115.0 million of
convertible unsecured subordinated debentures. The debentures have a
maturity date of November 30, 2012 and bear interest at a rate of
7.0% payable semi-annually in arrears on May 31 and November 30 each
year beginning May 31, 2008. Each $1,000 debenture is convertible
into 43.4783 trust units (or a conversion price of $23.00 per trust
unit) at any time at the option of the holder of the debentures. The
net proceeds of the offering were used to repay outstanding
indebtedness borrowed to fund acquisitions and growth capital and
does not reduce the total amount of funds available under the new
amended credit facility.

- 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 ($73.9 million net of issue costs)
the proceeds of which were used to repay outstanding indebtedness
incurred to fund acquisitions and growth capital completed in 2006.

- In the third quarter of 2007, the implementation of the new SAP
information system in the Western division was successfully
completed. The implementation of the system in eastern Canada has
been initiated and will continue to be rolled out as we integrate
acquisitions. The implementation of the SAP system across Canada will
provide Newalta with a solid platform to help manage future growth of
the business.

- The specified investment flow-through ("SIFT") legislation, first
announced on October 31, 2006, was enacted in 2007. These rules will
impose a tax at the trust level on distributions of certain income
from a SIFT trust at a rate of tax comparable to the combined federal
and provincial corporate tax rate. Such distributions will be treated
as dividends to holders of trust units of a SIFT. The new
distribution tax will apply to Newalta commencing in 2011 assuming
Newalta does not exceed "normal growth" prior to that date and
distributions subject to the new distribution tax will be
characterized as dividends received from a taxable Canadian
corporation for holders of trust units of a SIFT. There was no
immediate impact on the Fund's consolidated financial statements.



FINANCIAL RESULTS AND HIGHLIGHTS

-------------------------------------------------------------------------
Three Months Ended Year Ended
December 31 December 31
(unaudited) (unaudited)
----------------------------------------------------------
% %
($000s except per Increase Increase
unit data) 2007 2006 (Decrease) 2007 2006 (Decrease)
-------------------------------------------------------------------------
Revenue 137,075 122,498 12 499,864 441,041 13
Operating
income(1) 7,784 16,209 (52) 39,762 76,891 (48)
Net earnings 23,613 15,356 54 61,189 75,565 (19)
- per unit
($) - basic 0.57 0.42 36 1.52 2.14 (29)
- per unit
($) - diluted 0.53 0.41 29 1.51 2.11 (28)
- per unit
($) -
continuing
operations 0.57 0.42 36 1.52 2.10 (28)
- per unit
($) -
discontinued
operations - (0.00) - - 0.04 (100)
EBITDA(1) 26,456 28,438 (7) 96,228 121,222 (21)
Funds from
operations(1) 20,528 26,487 (23) 79,970 112,510 (29)
- per unit
($) 0.50 0.72 (31) 1.98 3.18 (38)
- per unit
($) -
continuing
operations 0.50 0.72 (31) 1.98 3.16 (37)
- per unit
($) -
discontinued
operations - (0.00) - - 0.02 (100)
Maintenance
capital
expendi-
tures(1) 6,227 4,936 26 17,235 21,078 (18)
Distributions
declared 22,929 20,460 12 90,117 75,923 19
- per unit
- ($) 0.56 0.56 - 2.22 2.14 4
Cash
distri-
buted(1) 18,438 18,546 (1) 75,356 65,355 15
Growth and
acquisition
capital
expenditures 99,478 83,929 19 193,046 286,310 (33)
Weighted
average units
outstanding 41,191 36,860 12 40,342 35,332 14
Units
outstanding,
December
31,(2) 41,417 36,942 12 41,417 36,942 12
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) These financial measures do not have any standardized meaning
prescribed by Canadian generally accepted accounting principles
("GAAP") and are therefore unlikely to be comparable to similar
measures presented by other issuers. Non-GAAP financial measures are
identified and defined in the attached Management's Discussion and
Analysis.
(2) Newalta currently has 41,579,978 units outstanding.

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, March 6, 2008 at
11:00 a.m. (EST) to discuss the Fund's performance for the fourth quarter and
year ended December 31, 2007. To participate in the teleconference, please
call 416-644-3431 or 1-800-814-4861. 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, March 13, 2008, by dialling 416-640-1917 or 1-877-289-8525 and using
the pass code 21264923 followed by the pound sign.

Newalta Income Fund is Canada's largest industrial waste management and
environmental services provider and focuses 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, lead, manufacturing,
mining, oil and gas, petrochemical, pulp and paper, refining, 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.

NEWALTA INCOME FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS

Years ended December 31, 2007 and 2006

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, nature of the debentures issued by the Fund,
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:
"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 calculated as follows:

-------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
($000s) 2007 2006 2007 2006
-------------------------------------------------------------------------
Distributions declared 22,929 20,460 90,117 75,923
Add:
Opening distributions payable 7,519 6,808 6,834 4,794
Less:
Ending distributions payable (7,662) (6,834) (7,662) (6,834)
Distributions reinvested
through DRIP (4,348) (1,888) (13,933) (8,528)
-------------------------------------------------------------------------
Cash distributed 18,438 18,546 75,356 65,355
-------------------------------------------------------------------------

"Combined divisional net margin" is used by management to analyze
combined divisional operating performance. Combined divisional 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 GAAP. Combined divisional 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 for both the Western and Eastern division.
For further clarity combined divisional net margin excludes inter-segment
eliminations and unallocated revenue and expenses.
"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 Year ended
December 31, December 31,
($000s) 2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings(1) 23,613 15,356 61,189 75,565
Add back (deduct):
Current income taxes 479 (229) 1,351 90
Future income taxes(1) (16,308) 910 (22,778) 3,562
Finance charges 5,309 2,424 13,879 7,665
Interest revenue (42) - (697) -
Amortization and accretion(1) 13,405 9,977 43,284 34,319
-------------------------------------------------------------------------
EBITDA 26,456 28,438 96,228 121,222
-------------------------------------------------------------------------

(1) Includes related amounts from discontinued operations for the 2006
periods. See note 4 to the consolidated financial statements for the
breakdown for the year ended December 31, 2006.

"Equipment in use" and "Rigs in use" are calculated by taking the product
of the total amount of equipment or rigs available and the utilization rate
for the period. Drilling and service rig information is derived from the
Canadian Association of Oilwell Drilling Contractors posted information on its
website. Equipment in use refers to Newalta's equipment and management uses
this measure to assess the allocation and use of its equipment. Rigs in use is
an indicator of drilling activity which drives the demand for Drill Site
equipment and serves as an independent source to compare the trend of
Newalta's equipment usage against the industry in western Canada.
"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 GAAP. Funds from operations is
derived from the consolidated statements of cash flows and is calculated as
follows:

-------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
($000s) 2007 2006 2007 2006
-------------------------------------------------------------------------
Cash from operating activities 21,675 29,827 54,058 111,963
Add back (deduct):
Changes in working capital (2,028) (3,900) 24,201 (772)
Asset retirement costs incurred 881 560 1,711 1,319
-------------------------------------------------------------------------
Funds from operations 20,528 26,487 79,970 112,510
-------------------------------------------------------------------------

"Maintenance capital expenditures" are reported separately from growth
activity by management because these types of expenditures are not
discretionary and are required to maintain current operating levels.
Maintenance capital expenditures are capital expenditures to replace and
maintain depreciable assets at current service levels.
"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 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.
"Operating income" is used by management to analyze corporate operating
performance before taxes. Operating income is not intended to represent net
earnings nor should it be viewed as an alternative to other measures of
financial performance calculated in accordance with GAAP. Operating income is
calculated from the statement of operations and comprehensive income and is
defined as revenue less operating, SG&A, finance 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 cash distributed, combined divisional net margin, EBITDA,
equipment in use, rigs in use, funds from operations, net margin, maintenance
capital expenditures, operating income and return on capital throughout this
document have the meanings set out above.
The Fund historically used cash available for growth and distributions, a
non-GAAP measure and often also referred to by other issuers and regulators as
distributable cash, to calculate the amount of funds which were available for
distribution to unitholders. Cash available for growth and distributions was
used by management to supplement funds from operations as a measure of cash
flow and leverage, and was 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. In July
2007, the Canadian Securities Administrators provided guidance to standardize
the calculation of distributable cash which would require the inclusion of any
decrease (increase) in non-cash working capital and a different definition of
maintenance capital than that used by Newalta. Management is of the view that
calculating cash available for growth and distributions consistent with the
guidance provided by the CSA would not provide an accurate reflection of
available cash due to the variability in short term cash management.
Accordingly, the Fund has determined to cease calculating and reporting on
cash available for growth and distributions in its disclosure documents.
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 year ended December 31, 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 quarters ended March 31, 2007,
June 30, 2007 and September 30, 2007. Information for the year ended
December 31, 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 reduced costs and improved
operating efficiencies. 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. Western now comprises three
business units: Oilfield, Drill Site and Industrial; while Eastern comprises
two business units: Ontario and Québec/Atlantic Canada. The following
Management's Discussion and Analysis provides management's interpretation of
the results of the business, the Western and Eastern divisions and overall.
This Management's Discussion and Analysis is dated March 4, 2008 and
takes into consideration information available up to that date.

Selected Annual Information
-------------------------------------------------------------------------
($000s except per unit data) 2007 2006 2005
-------------------------------------------------------------------------
Revenue(1) 499,864 441,041 248,086
Operating income(1) 39,762 76,891 56,445
Net earnings 61,189 75,565 46,978
- per unit ($), basic 1.52 2.14 1.69
- per unit ($), diluted 1.51 2.11 1.66
Net earnings from continuing operations 61,189 74,080 46,978
- per unit ($), continuing operations 1.52 2.10 1.69
- per unit ($), discontinued operations - 0.04 -
Funds from operations 79,970 112,510 75,312
- per unit ($), basic 1.98 3.18 2.71
- per unit ($), diluted 1.98 3.14 2.66
- per unit ($), continuing operations 1.98 3.16 2.71
- per unit ($), discontinued operations - 0.02 -
Total assets 1,023,481 802,844 457,646
Senior long-term debt - net of issue
costs 206,940 166,271 107,369
Convertible debentures - face value 115,000 - -
Distributions declared 90,117 75,923 49,602
Distributions declared per unit 2.22 2.14 1.78
-------------------------------------------------------------------------
(1) Amounts reflected exclude 2006 discontinued operations.

The factors that impacted revenue and profitability are outlined under
the heading entitled "Results of Operations". Total assets increased by
$220.6 million or 27% in 2007 primarily due to acquisitions and growth capital
spending. Total growth and acquisition capital expenditures in 2007 were
$193.0 million compared to $286.3 million in 2006 and $107.8 million in 2005.
Growth capital and acquisitions for 2007 were funded by drawing on our credit
facility and proceeds from the issuance of $115.0 million in convertible
debentures (the "Debentures"). In 2006, growth capital and acquisitions were
funded through the issuance of 3.0 million trust units in January 2007 and
excess cash from operations in 2006.
Segmented information is discussed in further detail under "Results of
Operations".

Results of Operations

Our focus throughout the last two years has been to diversify Newalta's
business. An important component of our growth strategy was to establish
Newalta as a national service provider by expanding geographically into the
eastern Canadian markets for waste management, product recovery and recycling
services. Eleven acquisitions with a combined transaction value of
approximately $260.0 million over the last two years formed the foundation for
the eastern Canadian expansion. These acquisitions resulted in a national
network of operations which includes a lead-acid battery recycling facility
south of Montréal, Québec, an engineered non-hazardous waste landfill in
Stoney Creek, Ontario and a network of waste transfer and processing
facilities in Ontario, Québec, New Brunswick, Nova Scotia, and Newfoundland.
The lower performance of the Western division in 2007 as natural gas drilling
rates dropped to 10-year lows were partially offset by the effects of
diversifying our business in 2006 and 2007. Going forward, we anticipate the
shift in contribution between the Eastern and Western divisions will continue
to change. The following charts reflect Eastern's increasing contribution to
total revenue over the last three years and the significant shift anticipated
in 2008 (based on the relative spending between the two divisions of
acquisition and growth capital expenditures in 2006 and 2007):

To view the Revenue Contribution by Division chart, please visit:
http://files.newswire.ca/689/RevContributionChart.doc

Revenue Contribution by Division for the years ended December 31,

2008
2005 2006 2007 (estimate)
Western 100% 79% 70% 60%
Eastern - 21% 30% 40%

2007 was a challenging year as a result of the dramatic curtailment in
natural gas drilling in western Canada. Net margin in Western decreased by
$21.0 million, or 18%, while net margin in Eastern grew by $6.8 million, or
44%. The overall result was a decrease of combined divisional net margin of
$14.2 million, or 11%. Consolidated revenue increased to $499.9 million or 13%
from $441.0 million in 2006 due to the contribution of acquisitions completed
in eastern Canada in 2007 and late 2006. Operating income overall decreased in
2007 by 48% to $39.8 million due to higher operating expenses in Western and
higher selling, general and administrative costs ("SG&A") in advance of
acquisitions completed in 2007. In addition, the impact of the decrease in
natural gas drilling activity on revenue in western Canada drove the increase
of SG&A as a percentage of revenue. The difference between net earnings of
$61.2 million and operating income in 2007 of $39.8 million is accounted for
by a future income tax recovery resulting from reduced future income tax
rates.
Trends in 2007 which are anticipated to continue to affect results in
2008 are depressed natural gas drilling and completion activity in western
Canada and the Alberta government's announcement to increase royalties.
Natural gas drilling activity decreased due to relative decreases in the
selling price of natural gas, which was caused by cheaper imports of liquefied
natural gas ("LNG"). The Drill Site business unit is impacted directly by the
number of wells drilled (rigs released), which decreased by 21% in 2007
compared to 2006. A 14% decrease in well completions in 2007 contributed to
lower waste receipts and financial results in the Oilfield business unit as
well. The second event that impacted the Western division was the announcement
by the Alberta government to increase royalties which put drilling projects on
hold for some of our customers until the new royalty plan was announced by the
Alberta government.

WESTERN DIVISION

Western operates more than 50 facilities with more than 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. In 2006, Newalta began
investing in eastern Canada with the goal of diversifying the Fund's sources
of revenue and reducing its reliance on crude oil and natural gas commodity
price-driven services. In 2007, Western accounted for 55% of Newalta's total
assets, generated 70% of Newalta's revenue and 81% of Newalta's combined
divisional net margin compared with 63%, 79% and 88% 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 Waste processing at 17
over 31 facilities facilities facilities
Crude oil recovery Pre-drilling
assessments Mobile onsite services
Water recycling Drilling waste Product recovery from
management wastes
Custom treating Solids control unit Sale of recovered products
rentals as:
Clean oil terminalling Cuttings management
unit rentals - base oils
Water disposal Post-drilling
remediation - refinery feedstock
Landfills Well abandonment - industrial fuels
Onsite services Site reclamations - carrier fluids
(e.g. drilling oil)
-------------------------------------------------------------------------

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 contributed
approximately 53% of Western's total year-to-date revenue with Drill Site and
Industrial contributing approximately 17% and 30%, respectively.
The following table compares 2007 results to 2006:

-------------------------------------------------------------------------
Year Ended December 31,
Change
($000s) 2007 2006 (%)
-------------------------------------------------------------------------
Revenue - external 348,424 350,295 (1)
Revenue - internal 652 (69) nm
Operating costs 234,896 215,058 9
Amortization and accretion 20,852 20,886 -
-------------------------------------------------------------------------
Net Margin 93,328 114,282 (18)
-------------------------------------------------------------------------
Net margin as % of revenue (%) 27% 33% (18)

Maintenance capital 11,373 13,967 (19)
Growth capital 30,510 48,273 (37)
-------------------------------------------------------------------------

Overall, compared to 2006, revenue was flat and net margin was down
$21.0 million or 18%. Drill Site revenue was severely impacted by natural gas
drilling activity. The total number of wells drilled in western Canada was
down 21% year-over-year and well completions were down 14% compared to 2006.
Oilfield's results were lower due to reduced crude oil recoveries and the
subsequent sale of crude oil to Newalta's account. Industrial's performance
was down marginally due to lower product sales.
Drill Site revenue comes from four main sources: equipment rentals;
drilling waste; site reclamation services; and well abandonment services.
Drilling waste, site reclamation services and well abandonments revenue
increased 17% year-over-year; however, equipment rental revenue decreased
having a significant impact on both net margin and revenue. In October, we
initiated cost reduction measures in response to the continued depressed
drilling market which consisted mainly of a restructuring of the Drill Site
Canadian operations. The full benefit of this restructuring program will be
realized in the first quarter of 2008. Early in 2007, we capitalized on the
opportunity to move some of the idle Canadian solids control equipment into
the United States where drilling activity remained strong. As a result, Drill
Site equipment in use was consistent with the industry's decrease in drilling
rig equipment in use for western Canada as demonstrated by the table below:

-------------------------------------------------------------------------
Year Ended December 31,
%
2007 2006 Change
-------------------------------------------------------------------------
CAODC Drilling rigs in use(1)
Drilling rigs 308 504 (39)
-------------------------------------------------------------------------
Newalta Drill Site equipment in use
Equipment in Canada 16 49 (67)
Equipment in the U.S. 18 4 350
-------------------------------------------------------------------------
Total Drill Site rental equipment 34 53 (36)
-------------------------------------------------------------------------
(1) CAODC is the Canadian Association of Oilwell Drilling Contractors and
the drilling rigs in use is calculated by taking the product of the
average total number of rigs and the average utilization rate for the
period.

We continue to be proactive in seeking out better ways to serve our
customers. In the first quarter of 2008, we increased the number of Drill Site
rental equipment units in the U.S. to 44 from 23 in the fourth quarter of
2007.
Oilfield's performance year-over-year was affected by a 12% decrease in
service rigs in use which resulted in waste receipts approximately 3% lower
than last year. Crude oil recovered to Newalta's account decreased 9% to
369,000 barrels in 2007 combined with an overall price increase of 4% resulted
in a net decrease in both revenue and margin of $1.4 million.
Industrial's used oil collection business was relatively flat
year-over-year, with increases in volumes processed offset mainly by lower
product sales. Onsite and waste water services generated some revenue growth
but the overall costs associated with a larger transportation fleet kept
Industrial's performance modestly lower than 2006.
During the year we added to our onsite services through the acquisition
of the operating assets of Panaco Fluid Filtration Systems Ltd. effective
April 1, 2007. Effective July 5, 2007 the operating assets of New West Fluid
Management Inc. were acquired which extended Newalta's ability to provide
fresh water drilling waste management and site restoration services. 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 6.0 million - 15 people
2007 Filtration Mountain - 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 9.8 million - 30 people and 12
2007 Management Inc. Hat, technical field
Alberta consultants
- Drilling waste
management and site
remediation
- Fleet of 15 vacuum
trucks
-------------------------------------------------------------------------
Total Western Acquisitions 15.8 million
-------------------------------------------------------------------------

Maintenance capital spending decreased for the division by 19% in 2007
consistent with the lower utilization of equipment. In July 2007, we
re-evaluated our growth capital investment plans for Western and eliminated
any further Drill Site equipment investments. Growth capital projects in 2007
were comprised mainly of oilfield fixed facility improvements and the
investment in onsite waste treating equipment for Steam Assisted Gravity
Drainage ("SAGD") projects, a significant developing market for our Oilfield
business unit. Customers with SAGD production create a slop oil waste stream
which historically was re-injected back into the formation. We have provided
customers with solutions to recover the oil in the waste stream through our
centrifugation technology.

EASTERN DIVISION

Eastern was established through acquisitions with operations in Ontario
in 2006 and the subsequent expansion into Québec and Atlantic Canada in the
second half of 2006. Eastern provides industrial waste management, recycling
and other environmental services to markets located in eastern Canada and the
United States through its integrated network of over 30 facilities. This
network features an engineered non-hazardous solid waste landfill that
receives approximately 700,000 metric tonnes of waste per year and, based on
current volumes, has an estimated remaining life of 10 years. The division's
network also includes a lead-acid battery recycling facility; 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, fluctuations in the price of lead, and specific market
conditions in the automotive, construction, forestry, manufacturing, mining,
oil and gas, petrochemical, pulp and paper, steel and transportation service
industries. In addition, seasonality and the contributions from investments in
growth capital and acquisitions can cause fluctuations in quarter-to-quarter
results. Several favourable industry trends provide potential growth
opportunities for Eastern including enhanced government regulations with
respect to the treatment of industrial waste, the Land Disposal Regulations
("LDR"), limited 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 crude oil
and natural gas prices and natural gas drilling activity, thereby promoting
greater stability of funds from operations and, therefore distributions to
unitholders. In 2007, Eastern accounted for approximately 39% of Newalta's
total assets, generated 30% of Newalta's total revenue and 19% of Newalta's
combined divisional net margin compared with 32%, 21% and 12% respectively, in
the same period in 2006.
The table below compares the year ended 2007 results to 2006:

-------------------------------------------------------------------------
Year Ended December 31,
($000s) 2007 2006 Change
-------------------------------------------------------------------------
Revenue - external 150,743 90,746 66
Revenue - internal - 69 -
Operating costs 114,416 64,131 78
Amortization and accretion 14,160 11,319 25
-------------------------------------------------------------------------
Net Margin 22,167 15,365 44
-------------------------------------------------------------------------
Net margin as % of revenue (%) 15 17 (12)

Maintenance capital 4,412 6,286 (30)
Growth capital 32,555 20,994 55
-------------------------------------------------------------------------

Overall, revenue and net margin were up 66% and 44%, respectively. The
increases were related to acquisitions completed in the second half of 2006
and in 2007. As a percentage of revenue, net margin was down compared to 2006,
which is due to some duplication of expenses in the initial integration of
newly acquired businesses. Based on our 2008 budget, with a full year's
contribution from the lead-acid battery recycling facility in Québec,
Eastern's contribution to total revenue is expected to grow to approximately
40% in 2008 compared with 30% in 2007.
The Ontario business unit was our initial investment in the eastern
Canadian market and continues to perform in line with management's
expectations. Year-over-year the Ontario business unit benefited from
increased waste receipts which were up 8% at the landfill while service centre
waste receipts were down by 14%. Prices at the landfill and services centres
were flat compared with 2006. Vehicle utilization increased to 53% from 51% in
2007.
The Québec/Atlantic Canada business unit was established in the second
half of 2006 through five acquisitions. The integration of these operations
has proceeded smoothly and operating results are consistent with our
expectations. During the year, we added top caliber talent to complement the
core management group and support the lead-acid battery recycling acquisition
discussed below.
In 2007, we completed five asset acquisitions to further diversify our
services as well as increase geographic reach and market penetration in
Ontario, Québec and New Brunswick. Effective November 1, 2007, Newalta
acquired the lead-acid battery recycling assets of Nova Pb which operates
Canada's largest integrated lead-acid battery recycling facility located on a
20 hectare (50 acre) site just outside Montréal. The Nova Pb facility has two
kilns that can be used to produce recycled lead, one of which is currently
idle creating a future growth opportunity for Newalta. Since certain inventory
relating to operations prior to November 1, 2007 was sold for the account of
Nova Pb after November 1, 2007, we did not begin to see contribution from
these operations until December 2007.
The Nova Pb acquisition is consistent with our strategy to diversify the
Fund's sources of revenue. The lead-acid battery recycling business has a
steady demand throughout the year and therefore reduces seasonal variability
in cash from operating activities. However, the cash from operating activities
is now sensitive to the fluctuation in the price of lead (traded on the London
Metals Exchange, "LME"). There are two main sources of lead; primary lead from
mining or secondary lead produced by a recycling plant, such as our facility.
Secondary lead is virtually identical in every respect to primary lead and
supplies approximately 60% of the total worldwide lead production. Lead is
primarily used in the production of automobile and industrial batteries. The
principal raw materials in producing recycled lead are waste lead-acid
automobile and industrial batteries supplemented with scrap lead and plant
residues. Waste batteries are purchased from a diversified network of scrap
dealers and battery manufacturers, the cost of which is tied to the average
price of lead over the prior six months. Historical information provided by
the previous owner indicates that finished product inventory turns over
approximately 1.5 times per month. The facility generates two types of
revenue: direct lead sales and tolling, historically evenly weighted to
revenue contribution. Direct lead sales occur where we purchase the feedstock
and take on the price risk of lead and the recycled finished product is sold
at current market prices adjusted for quality. Tolling is a processing fee
charged to customers for recycling the lead-acid batteries into recycled lead
where the customer provides and retains ownership of the battery feedstock and
the processing fees are fixed.
The results of operations of the acquisitions outlined in the table below
have only been reflected in Newalta's results from the acquisition dates.
Management anticipates improved results from these operations in 2008 as these
assets are integrated into operations:

-------------------------------------------------------------------------
Acquisition Business Assets Purchase Description of
Date Acquired Location Price ($) Acquired Assets
-------------------------------------------------------------------------
May 1, 2007 3 private firms Québec 8.1 million - Four centrifuges
collectively servicing the
referred to as Québec refinery
Groupe Envirex and
petrochemical
market
- Eight vacuum
trucks and
pressure washers
- Household waste,
small industrial
waste generator
and soil
treatment
business

May 1, 2007 EcoloSite Inc. Ontario 3.1 million - One facility
- 13 people
- Mobile onsite
treatment
services

June 1, 2007 Eastern New 9.4 million - Transfer station
Environmental Brunswick and processing
Services Ltd. facility in
Sussex, New
Brunswick
- 30 people
- Satellite office
in Bedford, Nova
Scotia

July 6, 2007 Bucke Ontario 1.4 million - 4 vacuum trucks
Environmental and related
Services & assets
Transportation
Inc.

November 1, Nova Pb Inc. Québec 58.8 million - Canada's largest
2007 integrated lead
battery
recycling
facility in
Ville
Ste-Catherine,
Québec
- Capacity to
process up to
200,000 tonnes
of lead
batteries and
produce up to
100,000 tonnes
of recycled
lead
- 115 full-time
people
-------------------------------------------------------------------------
Total Eastern Acquisitions 80.8 million
-------------------------------------------------------------------------

To support future growth in these acquired businesses, an additional
$32.6 million in growth capital was invested in 2007. These investments were
directed at new facilities and preparing existing facilities to treat waste
streams in accordance with the new LDR regulations.

OUTLOOK

Future growth is expected to be driven by a combination of investments in
existing operations as well as acquisitions of complementary businesses
consistent with Newalta's growth over the past 15 years. The acquisitions and
capital investments completed in 2007 expanded Newalta's geographic reach
across Canada and reduced exposure to oil and gas commodity prices and
drilling activity. Since the beginning of 2006, we have invested approximately
$475.0 million in growing our existing operations and acquiring businesses to
increase our market reach. We have substantially strengthened our organization
and over the next six months our priority is to focus on driving bottom-line
performance from our current operations. As a result approximately 70% of our
planned growth capital investments will be delayed to the second half of 2008.
The outlook is positive heading into 2008 for both divisions. For
Western, natural gas drilling activity in western Canada is anticipated to be
similar to 2007; however, SAGD production projects are a developing market in
which we have already established a strong base of customers. With our
experience and innovation in bringing flexible onsite solutions for treating
and disposing of waste, we anticipate that the SAGD market will provide strong
growth for the Western division. We entered the SAGD service market three
years ago and by the end of 2007 this business had grown to approximately
$20.0 million in revenue, with a revenue exit rate of approximately
$40.0 million (based on annualized December revenue). The industry outlook
indicates that most of the future growth in the oil and gas industry in
western Canada will be in SAGD and in situ oil sands related projects. In
management's view, there are few competitors with the technical expertise to
provide customized solutions to SAGD producers. In addition, Drill Site
started off the new year with 44 units in the U.S. (at the time of writing
this MD&A) compared to 23 units in the fourth quarter of 2007. With a full
year's contribution of the growth capital and acquisitions completed in 2007,
we anticipate Eastern's results to contribute approximately one third of the
combined divisional net margin in 2008.

Corporate and Other

-------------------------------------------------------------------------
Year Ended December 31,
Change
($000s) 2007 2006 (%)
-------------------------------------------------------------------------
Selling, general and administrative
expenses 54,279 42,977 26
- as a % of revenue 10.9% 9.7% 12
-------------------------------------------------------------------------
Amortization and accretion 43,284 34,319 26
- as a % of revenue 8.7% 7.8% 12
-------------------------------------------------------------------------

The increase in SG&A was due primarily to staff additions to strengthen
the organization and prepare for growth as well as the SG&A associated with
the acquisitions completed over the past year. Management's objective for SG&A
is to maintain these expenses at 10% or less, of revenue. The 2007 costs are
slightly higher than this objective, however, with a full year of contribution
of the Nova Pb operations in 2008, we expect SG&A costs to be less than 10% of
revenue.
Increased amortization was attributable to recent acquisitions, growth
capital expenditures and net losses on the disposal of assets. The net loss on
the disposal of assets for the year was $1.0 million which was mainly a result
of the leasehold improvements for corporate office leases which were
terminated in December 2007 and early 2008 when we moved into the new head
office. This loss is presented net of a $1.1 million gain on a non-core
laboratory business sold in the second quarter of 2007.
The increase in finance charges was mainly the result of higher average
debt levels compared to 2006 coupled with higher interest rates. In addition,
we issued $115.0 million in Debentures in November 2007. The finance charges
associated with the Debentures include an annual coupon rate of 7%, the
accretion of the issue costs and the discount on the debt portion of the
debentures. The table below reflects the breakdown of Newalta's finance
charges. See "Liquidity and Capital Resources" in this MD&A for discussion of
Newalta's long term borrowings.

-------------------------------------------------------------------------
Change
Finance charges ($000s): 2007 2006 (%)
-------------------------------------------------------------------------
Bank fees and interest 12,768 7,665 67
Convertible debenture interest and
accretion of issue costs 1,111 - n/a
-------------------------------------------------------------------------
Total finance charges 13,879 7,665 81
-------------------------------------------------------------------------

A current tax expense for the year of $1.4 million was recorded compared
to current tax of $0.1 million in 2006. The increase in current tax expense
was due to higher provincial capital tax in eastern Canada. Under Newalta's
existing structure, based on projected levels of capital spending and
anticipated earnings, Newalta is not expected to pay cash taxes in 2008, with
the exception of provincial capital taxes and U.S. state and federal income
taxes. The Fund currently has a cash Canadian income tax horizon of
approximately two years based on current performance and investment levels. In
2007, Newalta had a future income tax recovery of $22.8 million compared to a
future income tax expense of $2.7 million in 2006. The change was attributable
to the reduction in future provincial and federal income tax rates as well as
lower taxable earnings compared to 2006. See "Critical Accounting Estimates -
Future Income Taxes" in this MD&A for further discussion on the risks
associated with recently enacted tax legislation which imposes an income tax
on distributions.
As at March 4, 2008, the Fund had 41,579,978 trust units outstanding,
outstanding rights to issue up to 2,211,550 trust units and a number of trust
units that may be issuable pursuant to the $115.0 million in Debentures (see
LIQUIDITY AND CAPITAL RESOURCES - Sources of Cash - Convertible Debentures).

Summary of Quarterly Results

-------------------------------------------------------------------------
($000s except per unit data) 2007
(unaudited) Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Revenue 137,075 133,358 111,594 117,837
-------------------------------------------------------------------------
Operating income 7,784 14,524 3,799 13,665
-------------------------------------------------------------------------
Net earnings 23,613 17,893 6,716 12,966
- continuing operations 23,613 17,893 6,716 12,966
- discontinued operations - - - -
-------------------------------------------------------------------------
Earnings per unit ($) 0.57 0.44 0.17 0.33
- continuing operations 0.57 0.44 0.17 0.33
- discontinued operations - - - -
-------------------------------------------------------------------------
Diluted earnings per unit ($) 0.53 0.43 0.16 0.33
- continuing operations 0.53 0.43 0.16 0.33
- discontinued operations - - - -
-------------------------------------------------------------------------
Weighted average units - basic 41,191 40,579 40,361 39,209
-------------------------------------------------------------------------
Weighted average units - diluted 43,779 40,725 40,562 39,445
-------------------------------------------------------------------------


-------------------------------------------------------------------------
($000s except per unit data) 2006
(unaudited) Q4 Q3 Q2 Q1(1)
-------------------------------------------------------------------------
Revenue 122,498 120,297 96,082 102,162
-------------------------------------------------------------------------
Operating income 16,209 24,846 14,363 21,445
-------------------------------------------------------------------------
Net earnings 15,356 20,136 22,685 17,388
- continuing operations 15,528 20,136 21,213 17,175
- discontinued operations (172) - 1,472 213
-------------------------------------------------------------------------
Earnings per unit ($) 0.42 0.55 0.62 0.56
- continuing operations 0.42 0.55 0.58 0.55
- discontinued operations (0.00) - 0.04 0.01
-------------------------------------------------------------------------
Diluted earnings per unit ($) 0.41 0.54 0.61 0.54
- continuing operations 0.41 0.54 0.57 0.54
- discontinued operations (0.00) - 0.04 0.00
-------------------------------------------------------------------------
Weighted average units - basic 36,860 36,734 36,381 31,291
-------------------------------------------------------------------------
Weighted average units - diluted 37,282 37,279 37,000 31,917
-------------------------------------------------------------------------
(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. The year-over-year increases in revenue are due to the aggressive
acquisition and internal growth capital program pursued by Newalta over the
last two years, while the variability in net earnings is mainly attributable
to changes in the estimated future income tax rates applicable to Newalta.
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
establishment of the Eastern division by way of acquisition. The Eastern
division added approximately $20.0 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, acquisitions completed in eastern Canada in the second half of
2006 helped to partially offset the weak natural gas drilling environment in
western Canada. Western endured a weak natural gas drilling environment during
the first quarter which was followed by continued weakness in the second
quarter. This was 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 the third quarter operations returned to
seasonal levels but operating income remained lower when compared to the same
period in 2006, consistent with the continued weakness in the western Canadian
natural gas drilling market. In the fourth quarter, operating income was
affected by a loss on the disposition of office leasehold improvements of
$2.0 million, higher borrowing costs and SG&A expenses. The increase in Q4
2007 net earnings over Q3 2007 is due to a future income tax recovery as a
result of reduced future income tax rates. In January 2007, the Fund issued
3.0 million trust units for net proceeds of $73.9 million, which accounts for
the majority of the increase in trust units outstanding from Q4 2006 to Q1
2007. The proceeds from this issuance were used to repay indebtedness incurred
to fund the acquisitions and growth capital completed in the second half of
2006. The increase in the number of diluted units in Q4 2007 is due to the
convertible debentures issued in November.

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.
For Western, 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,
over the past two years quarterly revenue as a percentage of annual Western
revenue was: 25% for the first quarter, 22% for the second quarter, 27% for
the third quarter and finally fourth quarter revenue was 26%.
Eastern's services are curtailed by colder weather in the first quarter,
which is typically its weakest quarter as 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, it is estimated that first quarter revenue has ranged from 19 to
35% 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 26% to
27% and, finally, fourth quarter revenue is estimated to be approximately 31%
to 35% of annual Eastern revenue.
Quarterly financial results were prepared by management in accordance
with GAAP as set out in the notes to the annual audited consolidated financial
statements of the Fund for the year ended December 31, 2007.

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.

Our debt capital structure is as follows:

-------------------------------------------------------------------------
($000s) December December
31, 2007 31, 2006
-------------------------------------------------------------------------

Working capital 74,529 36,104
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Use of credit facility:
-----------------------
Senior long term debt (before related costs) 207,417 166,271
Letters of credit 40,095 38,377
-------------------------------------------------------------------------
Funded senior debt A 247,512 204,648
Unused credit facility capacity 177,488 75,352
-------------------------------------------------------------------------
Debentures B 115,000 -
-------------------------------------------------------------------------
Total Debt equals A+B 362,512 204,648
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The increase in working capital year-over-year is due to higher accounts
receivable and inventory. At current activity levels, working capital of
$74.5 million (which includes ongoing requirements of approximately
$18.0 million of working capital related to the Nova Pb acquisition) 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. We have not purchased any
asset-backed commercial paper investments and have had no direct impact from
the collapse of the sub-prime mortgage markets in the United States. 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 December 31, 2007
reflected that Newalta has sufficient assets to cover its current liabilities
by 1.65 times (at December 31, 2006 the ratio was 1.37 times). This ratio
exceeds Newalta's bank covenant minimum requirement of 1.20:1.

SOURCES OF CASH

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 securities from treasury. In January 2007,
3.0 million trust units were issued for net proceeds of $73.9 million and
Newalta issued $115.0 million of Debentures in November 2007. The proceeds
from the issuance of the trust units and the Debentures were used to repay
outstanding indebtedness on Newalta's credit facility.

Credit Facility

On October 12, 2007, we took steps to diversify Newalta's capital
structure by extending its debt maturities through the arrangement of a new
amended credit facility with a two-year term. The Credit Facility's maturity
date is October 11, 2009. An extension of the Credit Facility may be granted
at the option of the lenders. If an extension is not granted, the entire
amount of the outstanding indebtedness would be due in full at the maturity
date. We replaced our previous credit facilities (comprised of a $35.0 million
dollar operating facility and a $245.0 million extendible term credit
facility) with a $425.0 million extendible revolving credit facility (the
"Credit Facility"). The Credit Facility is used to fund growth capital
expenditures and for general corporate purposes as well as to issue letters of
credit to third parties up to a maximum amount of $60.0 million. The aggregate
dollar amount of letters of credit that were issued and are outstanding under
the Credit Facility are not categorized in the financial statements as long
term debt of Newalta; however, the amount of funds that can be drawn on the
Credit Facility by Newalta is reduced by the amount of the outstanding letters
of credit. Newalta is required to issue 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 defaults on its obligation
to restore the lands to a condition acceptable by these authorities. At
December 31, 2007, letters of credit and bonds issued as financial security to
third parties totalled $51.6 million. Of this amount, $40.1 million is
committed on the Credit Facility which provides for $60.0 million in letters
of credit. Bonds less than $25.0 million are not required to be offset against
the borrowing amount available under the credit facility.
As at December 31, 2007, Newalta had funded senior debt of $247.5 million
compared to $204.6 million at December 31, 2006, an increase of $42.9 million.
The increase was due to recent acquisitions completed with total cash funding
requirements of $83.7 million, working capital requirements for the lead-acid
battery recycling business of approximately $18.0 million, growth and
maintenance capital of $113.6 million and cash distributions in excess of cash
flow generated from operating activities (which includes net changes in
working capital) of $21.3 million. 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 $73.9 million and the issuance of $115.0 million in
Debentures in November 2007. At December 31, 2007, we had $177.5 million in
unused credit facility capacity after giving effect to letters of credit
outstanding.
Newalta is restricted from declaring distributions and distributing cash
if the Corporation is in breach of a covenant under its credit facility.
Financial performance relative to the financial ratio covenants under the
current Credit Facility is reflected in the table below:

-------------------------------------------------------------------------
Ratio December 31, 2007 Threshold
-------------------------------------------------------------------------
Current Ratio(1) 1.65:1 1.20:1 minimum
Funded Debt to EBITDA(2) 1.89:1 3.00:1 maximum(3)
Fixed Charge Coverage Ratio(4) 1.07:1 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) In the third quarter of 2008, the threshold amount will decrease to
2.75:1.00 and in the first quarter of 2009 this threshold will
decrease to 2.50:1.00.

(4) Fixed Charge Coverage Ratio means, based on the trailing 12-month
EBITDA less unfinanced capital expenditures and cash taxes to the sum
of the aggregate of principal payments (include amounts under capital
leases), interest, dividends and cash distribution paid by the Fund
for such period, other than cash payments in respect of the DRIP
program of the Fund. Unlike the funded debt to EBITDA ratio, the
Fixed Charge Coverage ratio trailing twelve month EBITDA is not
normalized for acquisitions.

Debentures

The second part of the capital structure diversification strategy
included the issuance of the Debentures in November 2007. The Debentures have
a maturity date of November 30, 2012 and bear interest at a rate of 7.0%
payable semi-annually in arrears on May 31 and November 30 each year beginning
May 31, 2008. Each $1,000 debenture is convertible into 43.4783 trust units
(or a conversion price of $23.00 per trust unit (the "Conversion Price") at
any time at the option of the holders of the Debentures. The net proceeds of
the offering were used to repay outstanding indebtedness borrowed to fund
acquisitions and growth capital and will not reduce the total amount available
under the Credit Facility. The Debentures are not included in the definition
of funded debt for the purposes of calculating financial covenants in the
Credit Facility.
Upon maturity or redemption of the Debentures, the Fund may pay the
outstanding principal of the Debentures in cash or may, elect to satisfy its
obligations to repay all or a portion of the principal amount of the
Debentures which have matured or been redeemed by issuing and delivering that
number of trust units obtained by dividing the aggregate amount of principal
of the Debentures which have matured or redeemed by 95% of the weighted
average trading price of the trust units on the Toronto Stock Exchange for the
20 consecutive trading days ending five trading days preceding the date fixed
for redemption or the maturity date, as the case may be. The Fund may also
elect, subject to regulatory approval, from time to time, to satisfy its
obligation to pay all or any part of the interest on the Debenture (the
"Interest Obligation"), on the date it is payable under the Debenture
Indenture, by delivering a sufficient number of trust units to the debenture
trustee to satisfy all or any part, as the case may be, of the Interest
Obligation.

Senior Notes

During the fourth quarter management entered into a letter agreement with
J.P. Morgan Securities Inc. and CIBC World Markets Inc. (collectively, the
"Agents") pursuant to which the Agents agreed to act as placement agents, on a
best efforts basis, in connection with a possible offering by the Corporation
of approximately $150.0 million of debt securities (the "Debt Securities") on
a private placement basis. Due to the instability of the U.S. credit markets,
we were unable to conclude a transaction on terms that were acceptable to
Newalta and therefore this private placement is no longer being pursued.

USES OF CASH

Newalta's primary uses of funds are operational and administrative
expenses, distributions, maintenance and growth capital spending, and
acquisitions.

Capital Expenditures

Total planned capital expenditures for 2008 and actual capital
expenditures for 2007 and 2006 are summarized as follows:

-------------------------------------------------------------------------
($000s) Budget 2008 2007 2006
-------------------------------------------------------------------------
Growth capital 110,000 96,380 87,567
Acquisitions(1) - 96,666 198,743
-------------------------------------------------------------------------
Total growth and acquisition capital 110,000 193,046 286,310
Maintenance capital 25,000 17,235 21,078
-------------------------------------------------------------------------
Total Capital Expenditures 135,000 210,281 307,388
Proceeds from disposal of capital assets - (2,120) (454)
Proceeds from disposal of discontinued
operations - - (2,674)
-------------------------------------------------------------------------
Net capital expenditure funding requirement 135,000 208,161 304,260
-------------------------------------------------------------------------
(1) Newalta does not budget for acquisitions.

Growth capital and acquisitions in 2007 were funded by drawing on the
Credit Facility. 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 revised this amount to $100.0 million, eliminating additional Drill
Site growth capital investments. The 2007 growth capital program included
$33.3 million in corporate investments that primarily relate to the
implementation of a new information technology system throughout Canada and
approximately $15.3 million in leasehold improvements and furniture (before
$5.7 million in tenant improvement recoveries) for the new corporate head
office which was completed in the fourth quarter of 2007. The remaining
$63.1 million was invested in facilities and equipment to expand services,
improve productivity and enhance market coverage in Western and Eastern. We
completed 7 acquisitions during the year mainly in eastern Canada. On a
trailing twelve month basis, the total acquired revenue (as of the date of
each acquisition) was approximately $128.0 million with EBITDA of
approximately $46.0 million.
For 2008, we have planned a total of $135.0 million in capital spending.
Of this amount, $90.0 million will be directed towards operations growth
projects and $20.0 million is planned for corporate investments in innovation
projects, information technology and office space (before tenant improvement
recoveries). Approximately 70% of the growth capital investments are planned
for the second half of 2008. Our $25.0 million maintenance capital budget is
directed to landfill and a large number of small projects to maintain our
assets in good operating condition. The average investment per facility is
approximately $0.2 million. These projects will be funded out of excess cash
from operating activities, if any, and bank borrowings. The operations growth
projects are planned as follows:

-------------------------------------------------------------------------
Approximate
% of growth
Division capital(1) Use of funds
-------------------------------------------------------------------------

Western 10% Average project is $0.5 million and targets high
Eastern 25% return/low risk projects which improve
productivity or expand capacity in our existing
operations
Western 15% Investment in infrastructure and productivity
improvements in the facility network.
Eastern 20% Continued expansion and upgrading of facilities
to meet the waste handling requirements of LDR
in Ontario and expanding the recently acquired
lead-acid battery recycling facility.
Western 30% Investments in mobile equipment to support
onsite services for SAGD customers and U.S.
markets.
-------------------------------------------------------------------------
(1) Newalta regularly assesses the allocation of growth capital
expenditures and, as such, the dollar amounts allocated to each
operating division may be re-allocated between the divisions and
specific projects.

Maintenance capital expenditures are capital expenditures to replace and
maintain depreciable assets at current service levels. These expenditures will
vary from quarter-to-quarter and year-to-year depending on the utilization of
the assets. The decrease of $3.8 million from 2006 is due to lower maintenance
expenditures on Drill Site rental equipment. For fixed facilities maintenance
capital expenditures tend to be relatively consistent year-over-year, while
equipment that is rented out to customers will fluctuate based on its usage.
Maintenance capital expenditures are budgeted annually and revised throughout
the year to reflect the impact of actual utilization rates. These expenditures
are funded out of cash flow generated from operating activities.

Distributions

On a per unit basis Newalta declared monthly distributions of $0.185 to
unitholders in 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 for a total distribution of $2.14 per unit. Newalta intends to
maintain distributions at $0.185 per trust unit during 2008. We have the
capital resources to fund our growth opportunities while remaining a mutual
fund trust through 2008.
Newalta is uniquely positioned with a diversified business model and
organic growth opportunities which will provide returns to our unitholders
consistent with our historical performance. In addition, Newalta will act
opportunistically in the event of new projects or acquisitions that can
deliver high returns. Accordingly, we will structure Newalta to execute this
strategic plan. We will provide an update to our unitholders on any conversion
plans later in 2008 based on our financial performance, the development of our
organic growth and acquisition opportunities and the enactment of legislation
regarding the conversion to a corporation on a tax-efficient basis. In any
event, we expect to convert to a growth oriented dividend yielding company
providing a balance for disciplined management, good governance and returns to
unitholders.
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 Year Ended
Ended December 31 December 31
($000s) 2007 2006 2007 2006 2005
-------------------------------------------------------------------------
Cash flows
generated from operating
activities 21,675 29,827 54,058 111,963 71,732
Distributions declared (22,929) (20,460) (90,117) (75,923) (49,602)
-------------------------------------------------------------------------
Cash (shortfall) excess (1,254) 9,367 (36,059) 36,040 22,130
-------------------------------------------------------------------------

Net earnings 23,613 15,356 61,189 75,565 46,978
Distributions declared (22,929) (20,460) (90,117) (75,923) (49,602)
-------------------------------------------------------------------------
Net earnings (shortfall)
excess 684 (5,104) (28,928) (358) (2,624)
-------------------------------------------------------------------------

For both the fourth quarter and the year, cash flow generated from
operating activities and net earnings were less than distributions declared.
Distributions declared 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. Based on this analysis, management does not
believe that the shortfalls in the table above have resulted in an economic
return of capital to investors. In 2006 and 2005, cash in excess of
distributions was used to fund capital expenditure programs.
Distributions declared in excess of cash flow generated from operating
activities in the short term were funded by drawing on the Credit Facility,
the Fund's DRIP program which reinvested $13.9 million in distributions that
were reinvested by unitholders year-to-date and cash received through the
exercise of rights by employees and directors of $3.2 million. The net
earnings shortfall is mainly attributable to amortization and accretion
expense, a non-cash expense, of $43.3 million. The majority of the assets
related to this expense are funded by drawing on the Credit Facility in the
absence of excess cash from operations. Therefore, Management expects that
there will continue to be a net earnings shortfall which will decrease as cash
flow generated from operating activities increases.

Contractual Obligations

The Fund's contractual obligations and payments, as at December 31, 2007,
are outlined in the following table:

-------------------------------------------------------------------------
Less than 1-3 4-5
($000s) Total one year years years Thereafter
-------------------------------------------------------------------------
Building leases 79,356 7,494 14,540 12,666 44,656
Operating leases 28,789 7,655 13,091 8,043 -
Surface leases 5,295 1,019 2,097 2,179 -
Convertible debentures 155,585 8,385 24,150 123,050
Senior long term debt(1) 207,417 - 207,417 - -
-------------------------------------------------------------------------
Total commitments 476,442 24,553 261,295 145,938 44,656
-------------------------------------------------------------------------
(1) Repayment is the principal amount outstanding at December 31, 2007,
assuming no extension. Future interest expense related to the senior
long term debt is not reflected.

The most significant near term portion of the Fund's long-term obligation
are its office building leases which range from 5 to 17 years. The total
estimated future cost for asset retirement obligations at December 31, 2007
was $9.8 billion. The net present value of this amount, $21.0 million (using a
discount rate of 8%), has been accrued on the consolidated balance sheet at
December 31, 2007. The majority of the undiscounted future asset retirement
obligations relates to the Stoney Creek landfill in Ontario, which are
expected to be incurred over the next 300 years. Excluding the Stoney Creek
landfill, the total future costs are $36.0 million.

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 amount of these legal services was
$0.8 million for the year ended December 31, 2007 ($0.8 million 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 Paramount Resources Ltd.
for the year ended December 31, 2007 was $1.5 million ($1.7 million 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.

FOURTH QUARTER

-------------------------------------------------------------------------
Consol-
Inter- Unallo- idated
2007 ($000s) Western Eastern segment cated(2) Total
-------------------------------------------------------------------------
External revenue 91,025 46,008 - 42 137,075
Inter segment
revenue(1) 114 - (114) - -
Operating expense 60,499 34,983 (114) - 95,368
Amortization and
accretion 5,823 3,513 - 4,069 13,405
-------------------------------------------------------------------------
Net margin 24,817 7,512 - (4,027) 28,302
Selling, general and
administrative - - - 15,209 15,209
Interest expense - - - 5,309 5,309
-------------------------------------------------------------------------
Operating income -
continuing
operations 24,817 7,512 - (24,545) 7,784
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital
expenditures(3) 14,843 73,418 - 17,446 105,707
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill 62,280 41,317 - - 103,597
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets 565,534 396,589 - 61,358 1,023,481
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Consol-
Inter- Unallo- idated
2006 ($000s) Western Eastern segment cated(2) Total
-------------------------------------------------------------------------
External revenue 90,686 31,812 - - 122,498
Inter segment
revenue(1) (69) 69 - - -
Operating expense 59,388 22,903 - - 82,291
Amortization and
accretion 5,703 3,598 - 676 9,977
-------------------------------------------------------------------------
Net margin 25,526 5,380 - (676) 30,230
Selling, general and
administrative - - - 11,597 11,597
Interest expense - - - 2,424 2,424
-------------------------------------------------------------------------
Operating income -
continuing
operations 25,526 5,380 - (14,697) 16,209
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating income -
discontinued
operations - (172) - - 172
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital
expenditures(3) 23,781 56,577 - 8,520 88,878
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill 54,961 35,117 - - 90,078
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets 509,329 255,449 - 38,066 802,844
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Inter-segment revenue is recorded at market, less the costs of
serving external customers.
(2) Management does not allocate selling, general and administrative,
taxes, and interest costs in the segment analysis.
(3) Includes capital asset additions and the purchase price of
acquisitions.

OVERALL PERFORMANCE

Revenue in the fourth quarter was up 12% to $137.1 million compared to
the same period in 2006. The operating segments generated, on a combined
basis, divisional net margin of $32.3 million, an increase of 5% over the
prior year's $30.9 million. This is the first quarter in 2007 where the
current year results have surpassed the prior year on an operational basis.
Eastern contributed $2.1 million in net margin growth while Western was down
$0.7 million over the same period in 2006. Operating income of the Fund
decreased 52% to $7.8 million mainly due to a $2.1 million loss on the
disposal of leasehold improvements associated with the early termination of
office space leases as well as increased SG&A and interest expense incurred in
anticipation of revenue gains. Net earnings increased 54% to $23.6 million due
to a future income tax recovery as a result of the decrease in the estimated
future income tax rate. Corporate initiatives undertaken during the year,
including growth capital investments, acquisitions and improved utilization of
operational assets, have contributed significantly to these results.
SG&A costs increased by $3.6 million to $15.2 million, and were 11% of
revenue compared to 9.5% in the fourth quarter of 2006. The increase in costs
is related to salaries and costs associated with acquisitions and some costs
to support the initial implementation of our new accounting software system.
In 2008, the information technology department was downsized significantly to
match the reduced support requirements. In addition, we carried the
incremental cost of unoccupied office building leases as we transitioned into
our new building in December 2007. Management's objective is still to maintain
SG&A costs at 10% or less of revenue.
Maintenance capital expenditures for the quarter were $6.2 million
compared to $4.9 million in 2006. Growth capital expenditures were
$40.4 million. Growth capital of $13.1 million was invested in Eastern
focusing on facility improvements, productivity and efficiency improvements
and service growth. In Western, $10.9 million in growth capital was spent to
expand process facilities, develop satellite facilities, expand onsite
equipment as well as efficiency improvements across the oilfield network.
We also completed the acquisition of a lead-acid battery recycling
facility in Ste. Catherine, Québec. The facility has two kilns which are used
to produce recycled lead, one of which is currently idle creating a future
growth opportunity for Newalta. Since certain inventory relating to operations
prior to November 1, 2007 was sold for the account of the previous owners
after November 1, 2007, we did not begin to see contribution from these
operations until December 2007.

WESTERN DIVISION

Overall, Western's revenue and net margin remained flat year-over-year
despite a weaker natural gas drilling environment. In the fourth quarter of
2007 the number of wells drilled decreased 5% and wells completed decreased by
26% compared to the same period in 2006.
Drill Site's performance was at breakeven levels in the quarter, as we
absorbed the cost associated with restructuring completed in the fourth
quarter. The full benefits of this restructuring will be seen in the first
quarter of 2008. During the year we have increased the redeployed Drill Site
equipment to the U.S. mid-west market where drilling activity is stronger. In
the fourth quarter 2007, we increased the number of Drill Site equipment units
in the U.S. to 23 units compared to 4 units in the same period in 2006. As a
result, Drill Site equipment in use remained flat at 38 units compared to Q4
2006 notwithstanding the industry's overall 27% decrease drilling rigs in use.
Oilfield's revenue increased 16% driven by onsite SAGD waste management
projects which was offset by lower water disposal revenue at fixed facilities.
Oil prices were up 44% in the fourth quarter and crude oil recovered to
Newalta's account decreased by 4% to 95,400 barrels resulting in a net
increase in crude oil sales of $2.0 million.
Industrial's performance was down modestly in the fourth quarter of 2007
compared to the same period in 2006. Used oil collected volumes were flat
year-over-year. Product sales were down 15% and inventory increased due to a
shift in the timing of customer purchases.

EASTERN DIVISION

Eastern contributed to all of Newalta's growth in the fourth quarter in
both revenue and net margin which were up 45% and 40% respectively. The
geographic diversification strategy is becoming evident as the Eastern
division's contribution to total revenue increased to 34% of Newalta's total
revenue compared with only 26% in the fourth quarter of 2006. Furthermore,
Eastern's net margin contributed to 23% of Newalta's combined divisional net
margin in 2007 compared with only 17% in 2006. Most of the benefit in 2007 was
derived from acquisitions completed in Québec and Atlantic Canada in the
second half of 2006 and throughout 2007.
Approximately 45% of the waste receipts at the Stoney Creek landfill come
from project work which will vary from quarter-to-quarter, depending on the
effects of weather and the timing of projects. Over the course of the year,
waste receipts were up overall. Ontario's performance was slightly weaker in
the fourth quarter as landfill waste receipts were down by 14%. However,
pricing remained strong and partially offset the decrease in volumes. Price
increases at service centres offset decreases in waste receipts compared to
the fourth quarter of 2006.
Québec/Atlantic Canada contributed to all of Eastern's growth in the
fourth quarter of 2007. This growth came from acquisitions which are
performing in line with management's expectations and we anticipate that the
integration of these operations are expected to be completed by mid 2008.

SENSITIVITIES

Our revenue is sensitive to changes in commodity prices for crude oil,
natural gas, base oils, and lead. Cash from operating activities is also
sensitive to changes in interest rates as well as the exchange rate between
the Canadian and U.S. dollars. These factors have both a direct and indirect
impact on our business. The direct impact of the commodity prices is reflected
in the revenue received from the sale of products such as crude oil, base oils
and lead. The indirect impact is the effect that the variation of these
factors has on activity levels of our customers and therefore the demand for
services. The indirect impact of fluctuations in the commodity prices and
other factors previously discussed are not quantifiable.
With the acquisition of the lead-acid battery recycling facility in the
fourth quarter of 2007, Newalta's revenue is now exposed to the variability of
lead prices. The revenue contribution between direct lead sales and tolling
services is approximately even. The variability of lead prices is partially
offset because our feedstock to produce recycled lead for direct lead sales is
obtained through the procurement of waste batteries, the cost of which also
fluctuates with the price of lead but historically the adjustment to feedstock
has lagged the change in the price of lead by up to six months. Therefore the
impact of an increase in lead prices will not have the same dollar for dollar
impact of a decrease in lead prices. Tolling revenue is not subject to the
same variation in lead prices because the fees are fixed.
The following table provides management's estimates of fluctuations in
key inputs and prices and the direct impact on revenue from product sales:

-------------------------------------------------------------------------
Change in benchmark Impact on Revenue ($)
-------------------------------------------------------------------------
LME lead price (Cdn$/lb)(1) $0.10 6.4 million
WTI oil price (Cdn$/bbl)(2) $1.00 0.4 million
Gulf Coast Base oil ($Cdn/litre) (3) $0.05 0.8 million
-------------------------------------------------------------------------
(1) Based on approximately 29,000 tonnes of direct lead sales and the
Canadian dollar at par with the U.S. dollar.
(2) The impact on cash flow is estimated for oil sales only using 2007
volumes sold to Newalta's account of approximately 369,000 barrels.
(3) Based on approximately 51.0 million litres of finished product sold.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the financial statements in accordance with 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 were no
significant changes in the estimates used to prepare the asset retirement
obligation in 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. The increase of $13.5 million
since December 31, 2006 relates entirely to acquisitions completed in 2007.
Management tests the valuation of goodwill at each September 30 and did not
see any impairment in the goodwill balance recorded. In addition, management
assesses the reasonableness of assumptions used for the September 30 valuation
to determine if further impairment testing is required at December 31. We
determined that no further impairment testing was necessary at December 31,
2007.

Stock based compensation

Newalta has a Trust Unit Rights Incentive Plan adopted in 2003 (the "2003
Plan") and a Trust Unit Rights Incentive Plan adopted in 2006 (the "2006
Plan"). The 2003 Plan and 2006 Plan differ in the manner in which they may be
settled by the grantee. The rights granted under the 2003 Plan may only be
settled in Trust Units, while the rights granted under the 2006 Plan may be
settled net in cash by the grantee. As such, rights granted under the 2003
Plan are accounted for in accordance with the fair value recognition
provisions of GAAP. Accordingly, stock-based compensation expense is measured
at the grant date based on the fair value of the award and is recognized as an
expense over the vesting period. Determining the fair value of stock-based
awards at the grant date requires judgment, including estimating the expected
term of the rights (including the number of stock-based awards that are
expected to be forfeited), the expected volatility of the Fund's units and the
expected distributions.
The rights granted under the 2006 Plan are accounted for as stock
appreciation rights since they may be subject to a net cash settlement
provision. Accordingly, they are re-measured at each balance sheet date to
reflect the net cash liability at that date.

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 June 22, 2007, new tax legislation modifying the taxation of
specified investment flow-through entities including mutual fund trusts such
as the Fund and its unitholders 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 29.5% (the provincial tax
rate included in this rate was 13%, however, the federal budget released on
February 26, 2008 proposed to replace that rate with the applicable provincial
tax rate in which the Fund has permanent establishments). Such distributions
will be treated as dividends to the unitholders. There was no impact on the
Fund at December 31, 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 the Fund 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, the Department of Finance released guidelines on normal
growth for income trusts and other flow-through entities (the "Guidelines").
Under the Guidelines, the Fund will be able to increase its equity capital
each year during the transitional period by an amount equal to 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 years up to 2011 will be as follows:

-------------------------------------------------------------------------
Remaining
Safe Harbour Safe
Limit Used Harbour
During the Limit
Newalta's Safe Applicable Available
Time Period Harbour Limit ($) Period ($) ($)
-------------------------------------------------------------------------
November 1, 2006 to
December 31, 2007 487,200 221,942(1) 265,258
2008 243,600 - 243,600
2009 243,600 - 243,600
2010 243,600 - 243,600
-------------------------------------------------------------------------
Total 1,218,000 221,942 996,058
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Comprised of gross proceeds issued from the issuance of trust units
issued from treasury as a result of equity financings in January
2007, gross proceeds from the issue of Debentures, proceeds from the
exercise of right granted pursuant to the Trust Unit Rights Incentive
Plans and the reinvestment by unitholders of distributions pursuant
to the DRIP. Canada's Finance department ("Finance") has not provided
guidance on how units issued as a result of the exercise of TURIPs
are to be handled for the purpose of determining the safe harbour
limit. Therefore, the amount calculated above may be subject to
adjustment upon further clarification from Finance.

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. As of
October 31, 2006, the Fund had no outstanding debt. 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.
- 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 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 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 plant and equipment. Accretion expense is the increase in the
asset retirement obligation over time. The asset retirement obligation is
based on estimates that may change as more experience is obtained or as
general market conditions change impacting the future cost of abandoning the
Fund's facilities. Amortization of 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 operating of plant and equipment.

ADOPTION OF NEW ACCOUNTING STANDARDS IN 2007 AND 2008

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 Section requires
that voluntary changes in accounting policy are only to be made if they result
in the financial statements providing reliable and more relevant information
and includes new disclosure requirements in respect of changes in accounting
policies, changes in accounting estimates and correction of errors. 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.
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
consolidated financial statements for the years ended December 31, 2007 and
2006.

New Accounting Standards in 2008 and 2009

Sections that will be effective January 1, 2008 for the Fund are:

CICA Handbook Section 1535, Capital Disclosures, will require the
disclosure of both qualitative and quantitative information that
provides users of financial statements with information to evaluate
the entity's objectives, policies and processes for managing capital.

CICA Handbook Section 3031, Inventories, which replaces the existing
standard for inventories, Section 3030. The main features of the new
section are as follows and are not expected to have a material effect
on the financial statements of the Fund:
- Measurement of inventories at the lower of cost and net realizable
value
- Consistent use of either first-in, first-out or a weighted average
cost formula to measure cost
- Reversal of previous write-downs to net realizable value when a
subsequent increase to the value of inventories occurs

In February 2008, the CICA issued Section 3064, Goodwill and intangible
assets, replacing Section 3062, Goodwill and other intangible assets and
Section 3450, Research and development costs. Various changes have been made
to other sections of the CICA Handbook for consistency purposes. The new
Section will be applicable to financial statements relating to fiscal years
beginning on or after October 1, 2008. Accordingly, the new standards will be
adopted for fiscal year beginning January 1, 2009. It establishes standards
for the recognition, measurement, presentation and disclosure of goodwill
subsequent to its initial recognition and of intangible assets by profit-
oriented enterprises. Standards concerning goodwill are unchanged from the
standards included in the previous Section 3062. We are currently evaluating
the impact of the adoption of this new Section on the Fund's consolidated
financial statements. We do not expect that the adoption of this new Section
will have a material impact on the consolidated financial statements.

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 which 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 211 - 11th
Avenue S.W., Calgary, Alberta T2R 0C6 or by facsimile at (403) 806-7032.

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 its customers is mitigated by its
broad customer base and diverse product lines. In the normal course of
operations, Newalta is exposed to movements in U.S. dollar exchange rates
relative to the Canadian dollar. Newalta sells and purchases some products 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

The Chief Executive Officer and the Chief Financial Officer (collectively
the "Certifying Officers") have evaluated the effectiveness of Newalta's
disclosure controls and procedures as of December 31, 2007 and have concluded
that such disclosure controls and procedures were effective. In addition, the
Certifying Officers have designed, or caused it to be designed under their
supervision, internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes. There have not been any changes
in the internal control over financial reporting in the fourth quarter of 2007
that have materially affected, or are reasonably likely to materially affect
the internal control over the financial reporting.

ADDITIONAL INFORMATION

Additional information relating to the Fund, including the Annual
Information Form, is available through the internet on the Canadian 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 211 - 11th Avenue
S.W., Calgary, Alberta T2R 0C6 or by facsimile at (403) 806-7032.

-------------------------------------------------------------------------
Newalta Income Fund
Consolidated Balance Sheets (unaudited)
-------------------------------------------------------------------------
($000s) December December
31, 2007 31, 2006
-------------------------------------------------------------------------
Assets
Current assets
Accounts receivable 159,749 120,621
Inventories (Note 5) 24,122 9,238
Prepaid expenses and other assets 6,129 3,729
-------------------------------------------------------------------------
190,000 133,588
Notes receivable (Note 6) 1,424 1,031
Capital assets (Note 7) 661,605 528,085
Intangible assets (Note 8) 66,855 50,062
Goodwill (Note 3) 103,597 90,078
-------------------------------------------------------------------------
1,023,481 802,844
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable 107,809 90,650
Distributions payable (Note 16) 7,662 6,834
-------------------------------------------------------------------------
115,471 97,484
Senior long-term debt (Note 9) 206,940 166,271
Convertible debentures - debt portion (Note 10) 108,336 -
Future income taxes (Note 11) 49,840 72,910
Asset retirement obligations (Note 12) 20,985 18,484
-------------------------------------------------------------------------
501,572 355,149
-------------------------------------------------------------------------
Unitholders' Equity (Notes 13 and 10)
Unitholders' capital 496,027 394,601
Convertible debentures - equity portion 1,850 -
Contributed surplus 1,092 1,226
Retained earnings 22,940 51,868
-------------------------------------------------------------------------
521,909 447,695
-------------------------------------------------------------------------
1,023,481 802,844
-------------------------------------------------------------------------
-------------------------------------------------------------------------


-------------------------------------------------------------------------
Newalta Income Fund
Consolidated Statements of Operations,
Comprehensive Income and Retained Earnings (unaudited)
-------------------------------------------------------------------------
For the three months For the year ended
($000s except per unit data) ended December 31 December 31
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue 137,075 122,498 499,864 441,041
Expenses
Operating 95,368 82,291 348,660 279,189
Selling, general and
administrative 15,209 11,597 54,279 42,977
Finance charges 5,309 2,424 13,879 7,665
Amortization and accretion 13,405 9,977 43,284 34,319
-------------------------------------------------------------------------
129,291 106,289 460,102 364,150
-------------------------------------------------------------------------
7,784 16,209 39,762 76,891
Provision for (recovery of)
income taxes (Note 11)
Current 479 (229) 1,351 90
Future (16,308) 910 (22,778) 2,721
-------------------------------------------------------------------------
(15,829) 681 (21,427) 2,811
-------------------------------------------------------------------------
Net earnings from continuing
operations 23,613 15,528 61,189 74,080
Earnings from discontinued
operations (Note 4) - (172) - 1,485
-------------------------------------------------------------------------
Net earnings and comprehensive
income 23,613 15,356 61,189 75,565
Retained earnings, beginning
of period 22,256 56,972 51,868 52,226
Distributions (22,929) (20,460) (90,117) (75,923)
-------------------------------------------------------------------------
Retained earnings, end of
period 22,940 51,868 22,940 51,868
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings per unit from
continuing operations (Note 15) 0.57 0.42 1.52 2.10
Earnings per unit from
discontinued operations (Note 15) - (0.00) - 0.04
-------------------------------------------------------------------------
Earnings per unit 0.57 0.42 1.52 2.14
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Diluted earnings per unit,
continuing operations (Note 15) 0.53 0.41 1.51 2.07
Diluted earnings per unit,
discontinued operations (Note 15) - (0.00) - 0.04
-------------------------------------------------------------------------
Diluted earnings per unit 0.53 0.41 1.51 2.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------



-------------------------------------------------------------------------
Newalta Income Fund
Consolidated Statements of Cash Flows (unaudited)
-------------------------------------------------------------------------
For the three months For the year ended
($000s) ended December 31, December 31,
2007 2006 2007 2006
-------------------------------------------------------------------------

Net inflow (outflow) of cash
related to the following
activities:
OPERATING ACTIVITIES
Net earnings from continuing
operations 23,613 15,528 61,189 74,080
Items not requiring cash:
Amortization and accretion 13,405 9,977 43,284 34,319
Future income taxes
(recovery) (16,308) 910 (22,778) 2,721
Funds provided by discontinued
operations (Note 4) - - - 811
Other (182) 72 (1,725) 579
-------------------------------------------------------------------------
20,528 26,487 79,970 112,510
Decrease (increase) in non-cash
operating net assets (Note 20) 2,028 3,900 (24,201) 772
Asset retirement costs incurred (881) (560) (1,711) (1,319)
-------------------------------------------------------------------------
21,675 29,827 54,058 111,963
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Additions to capital assets
(Note 20) (43,474) (46,037) (125,335) (105,507)
Net proceeds on sale of
capital assets 272 66 2,120 454
Acquisitions (Note 3) (46,074) (35,295) (82,882) (184,668)
Proceeds on disposal of
discontinued operations - (133) - 2,674
-------------------------------------------------------------------------
(89,276) (81,399) (206,097) (287,047)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of units (170) 787 77,158 189,912
Issuance of convertible
debentures 110,050 - 110,050 -
Increase (decrease) in debt (23,910) 69,258 40,669 50,203
Settlement of acquired debt - - (784) -
Decrease in notes receivable 69 73 302 324
Distributions to unitholders (18,438) (18,546) (75,356) (65,355)
-------------------------------------------------------------------------
67,601 51,572 152,039 175,084
-------------------------------------------------------------------------
Net cash inflow - - - -
Cash - beginning of period - - - -
-------------------------------------------------------------------------
Cash - end of period - - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information:
Interest paid 4,077 2,116 12,260 7,168
Income taxes paid 172 290 889 4,690
-------------------------------------------------------------------------
-------------------------------------------------------------------------



NEWALTA INCOME FUND

Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2007 and 2006
(all tables are in $000s except per unit data) (unaudited)
-------------------------------------------------------------------------

Newalta Income Fund (the "Fund") was established by Deed of Trust dated
January 16, 2003. The Fund is a Canadian income trust engaged, through
its wholly owned operating subsidiaries Newalta Corporation (the
"Corporation") and Newalta Industrial Services Inc. ("NISI",and together
with the Corporation and the Fund, "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.

1. Basis of Presentation and Summary of Significant Accounting Policies

The consolidated financial statements include the accounts of the
Fund and its wholly-owned subsidiaries. The consolidated financial
statements have been prepared by management in accordance with
Canadian generally accepted accounting principles and include the
following significant accounting policies:

Cash and cash equivalents

Cash is defined as cash and short-term deposits with maturities of
three months or less, when purchased.

Inventory

Inventory is comprised of oil, recycled products, spare parts and
supplies, and is recorded at the lower of cost and net realizable
value (see Note 5). Cost of finished goods includes the laid down
cost of materials plus the cost of direct labor applied to the
product and the applicable share of overhead expense. Cost of other
items of inventory comprises the laid down cost.

Capital and intangible assets

Capital and intangible assets are stated at cost, less accumulated
amortization. The carrying values of capital assets and intangible
assets are reviewed at least annually to determine if the value of
any asset is impaired. Any amounts so determined would be written off
in the year of impairment. Amortization rates are calculated to
amortize the costs, net of salvage value, over the assets' estimated
useful lives. Plant and equipment includes buildings, site
improvements, tanks and mobile equipment and is principally
depreciated at rates of 5-10% of the declining balance or from
5-14 years straight line, depending on the expected life of the
asset. Some equipment is depreciated based on utilization rates. The
utilization rate is determined by dividing the cost of the asset (net
of estimated salvage value) by the estimated future hours of service.

Intangible assets consist of certain production processes,
trademarks, permits and agreements, which are amortized over the
period of the contractual benefit of 3-20 years, straight line.
Certain permits are deemed to have indefinite lives and therefore are
not amortized. These permits were acquired as a part of acquisitions.
There are no costs to renew these permits provided that Newalta
remains in good standing with regulatory authorities. As such,
management reviews any changes in the regulatory environment that
could cause impairment in the value ascribed to these permits. As at
December 31, 2007, there was no impairment in the value of these
permits.

Landfill assets

Landfill assets represent the costs of landfill airspace, including
original acquisition cost, incurred landfill construction and
development costs, including gas collection systems installed during
the operating life of the site, and capitalized landfill closure and
post-closure costs.

The cost of landfill assets, together with projected landfill
construction and development costs for permitted capacity, is
amortized on a per unit basis as landfill airspace is consumed.
Management annually updates landfill capacity estimates, based on
survey information provided by independent engineers, and projected
landfill construction and development costs. The impact on annual
amortization expense of changes in estimated capacity and
construction costs is accounted for prospectively.

Goodwill

Goodwill represents the excess of the purchase price over the fair
value of the net identifiable assets of acquired businesses. The
Fund, at least annually, on September 30, assesses goodwill, and its
potential impairment, on a reporting unit basis by determining
whether the balance of goodwill can be recovered through the
estimated discounted operating cash flows of each reporting unit over
their estimated remaining lives. Management's determination at
September 30, 2007 and December 31, 2007 was that goodwill was not
impaired.

Asset retirement obligations

The Fund provides for estimated future asset retirement costs for all
of the facilities of the Corporation and NISI based on the useful
lives of the assets and the long term commitments of certain sites
(20 to 300 years). Over this period, the Fund recognizes the
liability for the future retirement obligations associated with
property, plant and equipment. These obligations are initially
measured at fair value, which is the discounted future value of the
liability. This fair value is capitalized as part of the cost of the
related asset and amortized to expense over the asset's useful life.
The balance of the liability accretes until the date of expected
settlement of the retirement obligations. The accretion expense has
been included in amortization and accretion expense. Asset retirement
costs are estimated by management, in consultation with the
Corporation's engineers, on the basis of current regulations, costs,
technology and industry standards. Actual asset retirement costs are
charged against the provision as incurred.

Revenue recognition

The major sources of revenue relate to the processing of waste
material and the sale of recycled products recovered from the waste.
Revenue is recognized when waste material is received and a liability
is assumed for the waste. Revenue on recycled products is recognized
when products are delivered to customers or pipelines. For
construction projects and well abandonment work, revenue is
recognized on a percentage of completion basis.

Income taxes

The Fund is a trust for income tax purposes and is taxable on taxable
income not allocated to the unitholders until 2011. During the year,
the Fund allocated all of its taxable income to the unitholders, and
accordingly, no provision for income taxes is required at the Fund
level. The Corporation and NISI are taxable on taxable income less a
deduction for interest paid on notes held by the Fund.

Both the Fund and its wholly owned subsidiaries follow the liability
method of accounting for income taxes. Future income tax assets and
liabilities are measured based upon temporary differences between the
carrying values of assets and liabilities and their tax basis. Future
income tax expense is computed based on the change during the year in
the future income tax assets and liabilities. Effects of changes in
tax laws and tax rates are recognized when substantively enacted.

Earnings per unit

Basic earnings per unit are calculated using the weighted average
number of units outstanding during the year. Diluted earnings per
unit is calculated by adding the weighted average number of units
outstanding during the year to the additional units that would have
been outstanding if potentially dilutive units had been issued, using
the "treasury stock" method for the trust unit rights and the "if
converted" method for the convertible debentures.

Trust Unit Rights Incentive Plan

The Fund has two unit-based compensation plans, the 2003 Trust Unit
Rights Incentive Plan (the "2003 Plan") and the 2006 Trust Unit
Rights Incentive Plan (the "2006 Plan", and together with the 2003
Plan, the "Rights Incentive Plans"), (see Note 14). Under the Rights
Incentive Plans the Fund may grant to directors, officers, employees
and consultants of the Fund, the Corporation, NISI or any affiliate
of the Fund rights to acquire up to 10% of the issued and outstanding
trust units. The Fund uses the fair value method to account for the
rights granted pursuant to the 2003 Plan and recognizes the unit
based compensation expense over the vesting period of the rights,
with a corresponding increase to contributed surplus. When rights are
exercised, the proceeds, together with the amount recorded in
contributed surplus, are recorded to unitholders' capital.
Forfeitures are accounted for as incurred.

The 2006 Plan allows for individuals to settle their rights in cash.
Accordingly, the Fund uses the intrinsic value method to account for
these rights. The intrinsic value reflects the net cash liability
calculated as the difference between the market value of the trust
units and the exercise price of the right. This is re-measured at
each reporting date.

Financial Instruments

Classification

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 earnings
Held-to-maturity investments Amortized cost
Loans and receivables Amortized cost
Available-for-sale Fair value and changes in fair value
financial assets are recorded in other comprehensive
income until the instrument is
derecognized or impaired
Other 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. Senior long-term debt, convertible debentures, 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.

These standards were applied retrospectively as of January 1, 2007
without restatement of prior year's figures.

Convertible Debentures

Newalta presents outstanding convertible debentures in their debt and
equity component parts on the consolidated balance sheet. The debt
component represents the total discounted present value of the semi-
annual interest obligations to be satisfied by cash and the principal
payment due at maturity, using the rate of interest that would have
been applicable to a non-convertible debt instrument of comparable
term and risk at the date of issue. Typically, this results in an
accounting value assigned to the debt component of the convertible
debentures which is less than the principal amount due at maturity.
The debt component presented on the consolidated balance sheet
increases over the term of the relevant debenture to the full face
value of the outstanding debentures at maturity. The difference is
reflected as increased interest expense with the result that adjusted
interest expense reflects the effective yield of the debt component
of the convertible debentures. The equity component of the
convertible debentures is presented under "Unitholders' Equity" in
the consolidated balance sheet. The equity component represents the
value ascribed to the conversion right granted to the holder, which
remains a fixed amount over the term of the related debentures. Upon
conversion of the debentures into trust units by the holders, a
proportionate amount of both the debt and equity components are
transferred to Unitholders' capital. Accretion and interest expense
for the convertible debentures are reflected as finance charges in
the consolidated statement of operations.

Transaction Costs

Section 3855 also provides guidance on accounting for transaction
costs incurred upon the issuance of debt instruments or modification
of a financial liability. Other Liabilities are presented net of the
related transaction costs. 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.

Measurement uncertainty

The preparation of the Fund's financial statements in a timely manner
and in accordance with Canadian generally accepted accounting
principles requires the use of estimates, assumptions, and judgment
regarding assets, liabilities, revenue and expenses. Such estimates
relate to unsettled transactions and events as of the date of the
financial statements. Accordingly, actual results may differ from
estimated amounts as transactions are settled in the future. Amounts
recorded for amortization, accretion, future asset retirement
obligations, the equity component of convertible debentures and
impairment calculations are based on estimates. By their nature,
these estimates are subject to measurement uncertainty, and the
impact of the difference between the actual and the estimated costs
on the financial statements of future periods could be material.

2. 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.

Effective January 1, 2007, the Fund 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 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.

The CICA issued 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.

Effective January 1, 2008, the new accounting standard, CICA Handbook
section 1535, Capital Disclosures, will require the disclosure of
both qualitative and quantitative information that provides users of
financial statements with information to evaluate the entity's
objectives, policies and processes for managing capital.

Effective January 1, 2008, Newalta will adopt the new accounting
standard, CICA Handbook section 3031, Inventories, which replaces the
existing standard for inventories, section 3030. The main features of
the new section are as follows:

- Measurement of inventories at the lower of cost and net
realizable value;
- Consistent use of either first-in, first-out or a weighted
average cost formula to measure cost; and
- Reversal of previous write-downs to net realizable value
when there is a subsequent increase to the value of
inventories.

Application of the new section is not expected to have a significant
impact on the financial statements.

In February 2008, CICA issued section 3064, Goodwill and intangible
assets, replacing section 3062, Goodwill and other intangible assets
and section 3450, Research and development costs. Various changes
have been made to other sections of the CICA Handbook for consistency
purposes. The new section will be applicable to financial statements
relating to fiscal years beginning on or after October 1, 2008.
Accordingly, the Fund will adopt the new standards for its fiscal
year beginning January 1, 2009. It establishes standards for the
recognition, measurement, presentation and disclosure of goodwill
subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill are
unchanged from the standards included in the previous section 3062.
Management is currently evaluating the impact of the adoption of this
new section on its consolidated financial statements and does not
expect that the adoption of this new section will have a material
impact on its financial statements.

3. Acquisitions

a) On April 1, 2007, the Western division acquired all of the assets
of Panaco Fluid Filtration Systems Ltd. ("Panaco") for a total
purchase price of $6.0 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, the Eastern division acquired the operating
assets of three private entities (collectively referred to as
"Envirex"), based out of Québec for a collective purchase price of
$8.1 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, the Eastern division acquired a portion of
the operating assets of EcoloSite Inc. ("EcoloSite"), based in
London, Ontario, for a total purchase price of $3.1 million,
comprised of $2.4 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 Services Ltd. ("Eastern
Environmental") were acquired by the Eastern division effective
June 1, 2007 for a total purchase price of $9.4 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 assets of New West Fluid Management Inc. ("New West") were
acquired by the Western division effective July 5, 2007 for a
total purchase price of $9.8 million in cash. The acquired
operations include a fleet of 15 vacuum trucks, 30 people and
12 technical field consultants that provide site remediation and
abandonment services.

The Eastern division acquired the assets of Bucke Environmental
Services & Transportation Inc. ("BEST") effective July 6, 2007 for
a total purchase price of $1.4 million, comprised of $1.4 million
in cash and the assumption of $48 thousand in debt. The acquired
assets include four vacuum trucks and related assets in the
Windsor, Ontario area.

On October 16, 2007, the Eastern division completed the
acquisition of Nova Pb Inc.'s ("Nova Pb") lead recycling facility
business for total consideration of $58.8 million comprised of
$45.8 million in cash paid at closing, $0.5 million in cash
payable in 2008, $2.5 million in post-closing adjustments and the
balance was funded through the issuance of 510,690 trust units
valued at $10.0 million. Although the effective date of the
transaction was November 1, 2007, since certain inventory relating
to the operation of the business prior to November 1, 2007 were
sold for the account of Nova Pb after November 1, 2007, Newalta
received nominal revenue related to this operation prior to
December 1, 2007.

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

---------------------------------------------------------------------
Eastern
Eco- Environ-
Panaco Envirex loSite mental
---------------------------------------------------------------------
Cash consideration 5,963 8,090 2,409 9,393
Debt assumed - - 737 -
Equity issued - - - -
Deferred payments - - - -
---------------------------------------------------------------------
Total Purchase Price 5,963 8,090 3,146 9,393
---------------------------------------------------------------------
Net working capital 294 (52) - 225
Capital assets:
Land 45 400 - 202
Plant & equipment 2,305 5,142 2,572 3,986
Intangibles 500 1,000 10 1,000
Goodwill 2,819 1,600 580 4,020
Asset retirement obligations - - (16) (40)
Future income tax liability - - - -
---------------------------------------------------------------------
5,963 8,090 3,146 9,393
---------------------------------------------------------------------


---------------------------------------------------------------------
New
West BEST Nova Total
---------------------------------------------------------------------
Cash consideration 9,806 1,401 45,820 82,882
Debt assumed - 47 - 784
Equity issued - - 10,000 10,000
Deferred payments - - 3,000 3,000
---------------------------------------------------------------------
Total Purchase Price 9,806 1,448 58,820 96,666
---------------------------------------------------------------------
Net working capital 20 - 2,676 3,163
Capital assets:
Land - - 1,115 1,762
Plant & equipment 4,286 1,098 39,354 58,743
Intangibles 1,000 350 16,000 19,860
Goodwill 4,500 - - 13,519
Asset retirement obligations - - (617) (673)
Future income tax liability - - 292 292
---------------------------------------------------------------------
9,806 1,448 58,820 96,666
---------------------------------------------------------------------

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 established as a separate
division of Newalta, which is now the Eastern division.

On June 1, 2006, the Fund acquired all the issued and outstanding
shares of Treeline Environmental Projects Corp. and Treeline Well
Abandonment and Reclamation Ltd. (collectively "Treeline"). The
two companies manage waste handling and abandonment operations for
oil producers and drillers. The business activities are
complementary to the Western division and the consolidated results
are included from the closing date, June 1, 2006.

The operating assets of Quebec-based Norama Industries Inc.
("Norama") were acquired by NISI on August 1, 2006 for cash
consideration of $10.8 million. Norama added to the Eastern
division, a network of three facilities with 100 people and
provides industrial cleaning and environmental services to
refinery, petrochemical, industrial and manufacturing companies.

On August 31, 2006, the Eastern division acquired all of the
operating assets of Island Waste Management Inc. ("Island Waste")
for $5.8 million. Island Waste and its 17 people operate a waste
transfer facility in St. John's, Newfoundland that provides
services to various industries in Newfoundland and Labrador,
including offshore oil and gas companies.

On October 6, 2006, the Eastern division acquired the operating
assets of the hazardous waste and industrial cleaning division of
Services Matrec Inc. ("Matrec") for $30.5 million in cash. These
operations have a network of facilities throughout Quebec with
130 people and provide collection, treatment and disposal of
industrial wastes, soil and water treatment services and on-site
industrial cleaning services.

On November 1, 2006 the operating assets of Solutions
Environnementales MPM ("MPM") were acquired by the Eastern
division for $3.9 million in cash. MPM provides environmental
solutions and industrial waste management services to automotive
and other industrial companies in Quebec.

On December 7, 2006 the Eastern division acquired the assets of
Dartmouth, Nova Scotia-based Matrix Environmental Inc. ("Matrix")
for $8.6 million in cash. Matrix's 50 employees operate a network
of facilities in Fredericton, New Brunswick and Dartmouth, Nova
Scotia which provide oil recovery and industrial waste management
to offshore oil and gas producers, refiners and municipal waste
generators.

The amount of the consideration paid and the fair value of the
assets acquired and liabilities assumed in 2006 by acquisition are
as follows:

---------------------------------------------------------------------
PSC Island
Canada Treeline Norama Waste
---------------------------------------------------------------------
Equity issued - 5,000 - 1,900
Deferred costs - paid
in 2005 7,175 - - -
Cash paid in 2006 113,230 13,804 10,842 3,897
---------------------------------------------------------------------
Total Consideration 120,405 18,804 10,842 5,797
---------------------------------------------------------------------
---------------------------------------------------------------------
Net working capital 9,164 8,239 (50) (20)
Debt acquired - (8,700) - -
Capital Assets:
Land 3,643 - 74 116
Plant & equipment 22,337 167 4,497 547
Landfill 71,187 - - -
Intangibles 34,600 - 720 1,367
Goodwill 15,239 18,956 5,690 3,648
Future income tax (23,274) 142 - 177
Asset retirement obligation (12,491) - (89) (38)
---------------------------------------------------------------------
120,405 18,804 10,842 5,797
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
Matrec MPM Matrix Total
---------------------------------------------------------------------
Equity issued - - - 6,900
Deferred costs - paid
in 2005 - - - 7,175
Cash paid in 2006 30,470 3,871 8,554 184,668
---------------------------------------------------------------------
Total Consideration 30,470 3,871 8,554 198,743
---------------------------------------------------------------------
---------------------------------------------------------------------
Net working capital (2,011) (4) 154 15,472
Debt acquired - - - (8,700)
Capital Assets:
Land 1,177 223 8 5,241
Plant & equipment 15,950 1,609 4,768 49,875
Landfill - - - 71,187
Intangibles 8,000 1,000 600 46,287
Goodwill 8,114 1,059 2,857 55,563
Future income tax (586) - 175 (23,366)
Asset retirement obligation (174) (16) (8) (12,816)
---------------------------------------------------------------------
30,470 3,871 8,554 198,743
---------------------------------------------------------------------
---------------------------------------------------------------------
The operating results of the businesses acquired are consolidated
from the respective closing dates of the transactions.

4. Discontinued Operations

On May 31, 2006, the Eastern division disposed of an industrial on-
site cleaning services operation. This business unit was sold for
total proceeds of $3.2 million (net of disposal costs of
$0.3 million) consisting of $2.4 million in cash and a $0.8 million
non-interest bearing promissory note. The note receivable was repaid
in full in July 2007. 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 business unit for the year
ended December 31, 2006.

---------------------------------------------------------------------
Year ended
December 31, 2006
---------------------------------------------------------------------
Revenue 5,408
Operating expenses 4,597
---------------------------------------------------------------------
811
Amortization and accretion 21
Future income tax 284
Gain on disposition (net of tax) (979)
---------------------------------------------------------------------
Earnings from discontinued operations 1,485
---------------------------------------------------------------------
---------------------------------------------------------------------

5. Inventories

Inventories consist of the following:

---------------------------------------------------------------------
2007 2006
---------------------------------------------------------------------
Lead 7,322 -
Recycled and processed products 4,598 5,308
Recovered oil 3,366 1,912
Parts and supplies 7,080 1,107
Burner fuel 1,756 911
---------------------------------------------------------------------
Total inventory 24,122 9,238
---------------------------------------------------------------------
---------------------------------------------------------------------

6. Notes receivable

Included in an acquisition in 2005 were certain capital costs
relating to landfill construction that are recoverable from a third
party based on usage of the landfill. These unsecured amounts are
shown as notes receivable.

7. Capital Assets

---------------------------------------------------------------------
2007 2006
---------------------------------------------------------------------
Net Net
Accumulated Book Accumulated Book
Cost Amortization Value Cost Amortization Value
---------------------------------------------------------------------
Land 14,513 - 14,513 10,938 - 10,938
Plant and
equipment 718,390 (144,546) 573,844 562,556 (118,809) 443,747
Landfill 94,721 (21,473) 73,248 85,337 (11,937) 73,400
---------------------------------------------------------------------
Total 827,624 (166,019) 661,605 658,831 (130,746) 528,085
---------------------------------------------------------------------
---------------------------------------------------------------------


8. Intangible Assets

---------------------------------------------------------------------
2007 2006
---------------------------------------------------------------------
Net Net
Accumulated Book Accumulated Book
Cost Amortization Value Cost Amortization Value
---------------------------------------------------------------------
Non-
competition
contracts 9,070 (4,583) 4,487 6,370 (2,369) 4,001
Expiring
permits/
rights 11,602 (1,881) 9,721 11,602 (1,028) 10,574
Indefinite
permits 52,647 - 52,647 35,487 - 35,487
---------------------------------------------------------------------
Total 73,319 (6,464) 66,855 53,459 (3,397) 50,062
---------------------------------------------------------------------
---------------------------------------------------------------------

9. Senior long-term debt

On October 12, 2007 Newalta replaced its previous credit facilities
(comprised of a $35.0 million operating facility and a $245.0 million
extendible term credit facility) with a $425.0 million extendible
revolving credit facility (the "Credit Facility"). The Credit
Facility is used to fund growth capital expenditures and for general
corporate purposes as well as to provide letters of credit to third
parties up to a maximum amount of $60.0 million. The amount of funds
that can be drawn on the Credit Facility by Newalta is reduced by the
amount of the outstanding letters of credit. Interest on the
facilities is subject to certain conditions, and may be charged at a
prime, U.S. base rate, Bankers' Acceptance ("BA") or LIBOR based
rate, at the option of the Corporation. The facility bears interest
at a base rate plus an increment (depending on certain criteria) as
follows:

---------------------------------------------------------------------
Base Rate Type Range of increment
---------------------------------------------------------------------
Prime Rate 0.0% to 1.0%
U.S. Base Rate 0.0% to 1.0%
BA Rate 0.9% to 2.0%
LIBO Rate 0.9% to 2.0%
---------------------------------------------------------------------

The Credit Facility is secured by a fixed and floating charge
debenture on the assets of the Corporation and material subsidiaries,
an unlimited subsidiary guarantee from each material subsidiary of
the Corporation, a limited recourse guarantee from the Fund, an
assignment of insurance naming the lenders as first loss payee in
relation to business interruption, property and inventory insurance
and a subordination agreement.

The Credit Facility's maturity date is October 11, 2009. An extension
of the Credit Facility may be granted at the option of the lenders.
If an extension is not granted, the entire amount of the outstanding
indebtedness would be due in full at the maturity date. The facility
also requires Newalta to be in compliance with certain covenants. At
December 31, 2007, Newalta was in compliance with all covenants.

10. Convertible debentures

In November 2007, the Fund issued $115.0 million of convertible
unsecured subordinated debentures (the "Debentures"). The Debentures
have a maturity date of November 30, 2012 and bear interest at a rate
of 7.0% payable semi-annually in arrears on May 31 and November 30
each year beginning May 31, 2008. Each $1,000 debenture is
convertible into 43.4783 trust units (or a conversion price of
$23.00 per trust unit) at any time at the option of the holders of
the Debentures. The net proceeds of the offering were used to repay
outstanding indebtedness of Newalta incurred to fund acquisitions and
growth capital. As subordinated debt, the issuance of the Debentures
does not affect the borrowing capacity on the Credit Facility. On the
balance sheet, the Debentures are presented net of the costs to
issue. The equity portion of the Debentures will be reclassified into
Unitholders' capital as the Debentures are converted into trust
units.

The Debentures are redeemable by the Fund after November 30, 2010 and
on or before November 30, 2011 if the current market price of the
trust units on the notice date is greater than $28.75 (the Redemption
Price) and may be redeemed after November 30, 2011 for a redemption
price of $1,000 per debenture with 30-60 days notice. The obligation
may be settled in cash or Trust Units at the discretion of the Fund.

The following table compares the face and fair values of the
Debentures to the carrying value.

---------------------------------------------------------------------
Carrying value
Face Fair Equity Debt
value value portion portion
---------------------------------------------------------------------
7% Debentures due 2012 115,000 115,000 1,850 108,336
---------------------------------------------------------------------

11. Income tax

Future income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Fund's future income tax
liabilities and assets are as follows:

---------------------------------------------------------------------
2007 2006
---------------------------------------------------------------------
Future income tax liabilities:
Capital assets and intangible assets 73,600 74,150
Goodwill 3,188 6,172
Deferred costs 202 150
---------------------------------------------------------------------
76,990 80,472
---------------------------------------------------------------------
---------------------------------------------------------------------
Future income tax assets:
Non-capital loss carry forwards 20,729 1,454
Asset retirement obligation 5,754 5,909
Equity issuance costs 677 199
---------------------------------------------------------------------
27,150 7,562
---------------------------------------------------------------------
Net future income tax liability 49,840 72,910
---------------------------------------------------------------------
---------------------------------------------------------------------

The Fund itself is not subject to income tax provided it distributes
all of its taxable income to unitholders. Therefore no future income
taxes have been recorded. As at December 31, 2007, the Fund had
$13.9 million of equity issuance costs to shelter future income.
There were no other temporary differences for the Fund. Realization
of future income tax assets is dependent on generating sufficient
taxable income during the period in which the temporary differences
are deductible. Although realization is not assured, management
believes it is more likely than not that all future income tax assets
will be realized based on reversals of temporary timing differences,
projections of operating results and tax planning strategies
available to the Fund and its subsidiaries.

The income tax expense differs from the amount computed by applying
Canadian statutory rates to operating income for the following
reasons:

---------------------------------------------------------------------
2007 2006
---------------------------------------------------------------------
Consolidated earnings of the Fund before
taxes and distributions to unitholders 39,762 76,891

Current statutory income tax rate 33.6% 33.8%
---------------------------------------------------------------------
Computed tax expense at statutory rate 13,360 25,989
Increase (decrease) in taxes resulting from:
Reduction resulting from distributions
to unitholders (25,729) (19,935)
Capital taxes 1,126 506
Non-deductible costs 1,099 3,251
Other (944) 1,650
Effect of substantively enacted tax rate change (10,339) (8,650)
---------------------------------------------------------------------
Reported income tax (recovery) expense (21,427) 2,811
---------------------------------------------------------------------
---------------------------------------------------------------------

During the fourth quarter of 2007 the Federal income tax rate for
future years was reduced. The effect of the reduction in the federal
income tax rate was a decrease to both future income tax expense and
future income tax liability of $10.3 million.

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, a new distribution tax of 29.5% will apply to the
Fund commencing in 2011 provided the Fund does not exceed the "normal
growth" restrictions as defined by the Department of Finance. As at
December 31, 2007, Newalta is in compliance with the "normal growth"
restrictions. 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.

12. 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 net present value of this amount, $21.0 million ($18.4 million at
December 31, 2006) has been accrued on the consolidated balance sheet
at December 31, 2007. The total estimated future cost for asset
retirement at December 31, 2007 was $9,769.2 million. The majority of
the undiscounted future asset retirement obligations relate to the
Stoney Creek landfill in Ontario, which are expected to be incurred
over the next 300 years. Excluding the landfill, the total future
costs are $36.0 million. The Fund uses a discount rate of 8% and an
inflation rate of 2% to calculate the present value of the asset
retirement obligations.

---------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
2007 2006 2007 2006
---------------------------------------------------------------------
Asset retirement obligations,
beginning of period 20,816 18,458 18,484 5,468
Additional retirement
obligations added through
acquisitions 617 198 673 12,816
Additional retirement
obligations added through
a change of estimate - - 1,182 -
Expenditures incurred to
fulfill obligations (881) (560) (1,711) (1,319)
Accretion 433 388 1,693 1,519
---------------------------------------------------------------------
Asset retirement obligations,
end of year 20,985 18,484 20,985 18,484
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
2008 2009 2010 2011 2012
---------------------------------------------------------------------
Estimated
settlement of
obligations 1,734 548 583 504 514
---------------------------------------------------------------------


13. Unitholders' equity

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

------------------------------------------------------------------
(000s) Units (No.) Amount ($)
------------------------------------------------------------------
Outstanding as at December 31, 2005 29,055 188,761
Units issued, March 3, 2006 at $28.00
per unit, net of issue costs 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
------------------------------------------------------------------
Outstanding as at December 31, 2006 36,942 394,601
Units issued, January 26 at $26.10
per unit, net of issue costs 3,000 73,936
Units issued as consideration for Nova Pb
assets 511 10,000
Contributed surplus on rights exercised - 335
Rights exercised 289 3,222
Units issued under the DRIP 675 13,933
------------------------------------------------------------------
Outstanding as at December 31, 2007 41,417 496,027
------------------------------------------------------------------
------------------------------------------------------------------

On August 31, 2006, the Fund issued 59,273 trust units to fund the
acquisition of assets from Island Waste. On June 1, 2006, the Fund
issued 156,250 trust units to fund the Treeline acquisition
(Note 3(b)).

b) The following table provides a breakdown of the components of
retained earnings:

------------------------------------------------------------------
2007 2006
------------------------------------------------------------------
Accumulated earnings 301,199 240,010
Accumulated cash distributions (278,259) (188,142)
------------------------------------------------------------------
Retained Earnings 22,940 51,868
------------------------------------------------------------------
------------------------------------------------------------------

c) The following table provides a summary of the changes to
contributed surplus during the period:

------------------------------------------------------------------
Amount ($)
------------------------------------------------------------------
Contributed surplus as at December 31, 2005 1,117
Stock based compensation expense 609
Amounts transferred to equity on exercise of rights (500)
------------------------------------------------------------------
Contributed surplus as at December 31, 2006 1,226
Stock based compensation expense 201
Amounts transferred to equity on exercise of rights (335)
------------------------------------------------------------------
Contributed surplus as at December 31, 2007 1,092
------------------------------------------------------------------
------------------------------------------------------------------

d) The equity portion of the Debentures was recorded on the initial
recognition of the Debentures issued in November 2007. The equity
portion will be reclassified to Unitholder's capital on a pro-rata
basis as the Debentures are exercised.

14. Rights to acquire Trust Units

a) The 2006 Trust Unit Rights Incentive Plan (the"2006 Plan")

On May 19, 2006, a new Trust Unit Rights Incentive Plan was
approved by the Unitholders. All rights granted after May 19, 2006
are granted under the 2006 Plan. Each tranche of 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 Plan have therefore been accounted
for as stock appreciation rights and the total compensation
expense for these rights was nil for the year ended December 31,
2007 (nil in 2006).

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. 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. On
October 12, 2007, 105,000 rights were granted to certain employees
of the Corporation at a market price of $19.46.

---------------------------------------------------------------------
Weighted Weighted
Average Average
2006 Exercise 2003 Exercise
Plan Price Plan Price
(000s) ($/unit) (000s) ($/unit)
---------------------------------------------------------------------
At December 31, 2005 - - 1,502 15.43
---------------------------------------------------------------------
Granted 720 32.34 110 29.51
Exercised - - (365) 11.49
Forfeited (55) 32.21 (31) 21.51
---------------------------------------------------------------------
At December 31, 2006 665 32.35 1,216 17.69
---------------------------------------------------------------------
Granted 1,075 24.88 - -
Exercised - - (289) 11.10
Forfeited (300) 28.97 (104) 23.24
---------------------------------------------------------------------
At December 31, 2007 1,440 27.47 823 19.29
---------------------------------------------------------------------
---------------------------------------------------------------------
Exercisable at December 31,
2007 128 32.34 231 21.25
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
Rights Weighted Weighted Rights Weighted
Range of Outstanding Average Average exercisable Average
Exercise December Remaining Exercise December exercise
Prices 31, 2007 Life Price 31, 2007 Price
($/unit) (000s) (years) ($/unit) (000s) ($/unit)
---------------------------------------------------------------------
9.08 - 9.30 227 2.2 9.24 23 9.16
15.60 - 19.46 242 4.0 18.49 58 17.85
22.75 - 32.38 1,794 4.2 27.23 279 28.04
---------------------------------------------------------------------
2,263 4.0 24.50 359 25.21
---------------------------------------------------------------------
---------------------------------------------------------------------


15. Earnings per Unit

Basic earnings per unit calculations for the three months and years
ended December 31, 2007 and 2006 were based on the weighted average
number of trust units outstanding for the periods. Diluted earnings
per unit include the potential dilution of the outstanding rights to
acquire trust units and Debentures.

The calculation of dilutive earnings per unit does not include anti-
dilutive rights. 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 2007 was 1,794,500 (775,000 in 2006).

The dilutive earnings per unit calculation does not include the
impact of anti-dilutive Debentures. The number of trust units
issuable on conversion of the Debentures excluded for 2007 was
5.0 million (nil in 2006).

---------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
2007 2006 2007 2006
---------------------------------------------------------------------
Weighted average number
of units 41,191 36,860 40,342 35,332
Net additional units if
debentures converted 2,500 - - -
Net additional units if
rights exercised 88 422 131 457
---------------------------------------------------------------------
Diluted weighted average
number of units 43,779 37,282 40,473 35,789
---------------------------------------------------------------------
---------------------------------------------------------------------

16. Unitholder Distributions Declared and Paid

The Fund makes monthly distributions to its holders of trust units.
Determination of the amount of cash and 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 the 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 following
business day). Unitholders may receive their distribution in cash or
units at their election. If a Unitholder chooses to receive their
distribution in units they are electing to participate in the Fund's
Distribution Reinvestment Plan (the "DRIP"). The DRIP provides
eligible holders of trust units of the Fund with the opportunity to
reinvest their monthly cash distributions to acquire additional trust
units at a net purchase price equal to 95% of the average market
price as defined in the DRIP. The table below breaks out the
distributions paid in cash and those paid in trust units. The
distributions declared differ from the sum of the distributions paid
in cash with those paid in units due to the change in the year end
payable balances.

---------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
2007 2006 2007 2006
---------------------------------------------------------------------
Unitholder distributions
declared 22,930 20,460 90,117 75,923
- $ per unit 0.56 0.56 2.22 2.14
Unitholder distributions -
paid in cash 18,438 18,546 75,356 65,355
- $ per unit 0.45 0.51 1.87 1.88
Unitholder distributions -
units issued 4,348 1,888 13,933 8,528
- $ per unit 0.11 0.05 0.35 0.24
---------------------------------------------------------------------
---------------------------------------------------------------------

17. Transactions with Related Parties

Bennett Jones LLP provides legal services to the Fund. 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 the Fund. The total cost of
these legal services during the three month period and year ended
December 31, 2007 were $0.4 million and $0.8 million respectively
(2006 - $0.1 million and $0.8 million respectively).

The Corporation 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 twelve months
ended December 31, 2007 was $0.3 million and $ 1.5 million
respectively (2006 - $0.6 million and $1.7 million respectively).

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.

18. Commitments

a) Debt and Lease Commitments

The Fund has annual commitments for senior long term debt,
convertible debentures, lease property and equipment as follows:

-------------------------------------------------------------------------
There-
2008 2009 2010 2011 2012 after Total
-------------------------------------------------------------------------
Office
leases 7,494 7,598 6,942 6,432 6,235 44,656 79,357
Operating
leases 7,655 7,006 6,085 5,098 2,945 - 28,789
Surface
leases 1,019 1,038 1,059 1,079 1,100 - 5,295
Senior long
term debt(1)
(note 9) - 207,417 - - - - 207,417
Convertible
debentures(1)
(note 10) - - - - 115,000 - 115,000
-------------------------------------------------------------------------
16,168 223,059 14,086 12,609 125,280 44,656 435,858
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Senior long term debt and convertible debenture interest payments are
not reflected.


b) Letters of Credit and Surety Bonds

As at December 31, 2007, the Fund had issued letters of credit and
surety bonds in respect of compliance with environmental licenses
in the amount of $40.1 million and $11.5 million respectively.

19. Financial Instruments


a) Interest rate risk

Senior long-term debt bears interest at rates that vary in
relation to the prime rate of the lenders to the Corporation. The
Fund is therefore exposed to fluctuations in interest rates. The
Debentures have a fixed interest rate.

b) Fair value

The carrying values of accounts receivable, accounts payable and
distributions payable approximate the fair value of these
financial instruments due to their short term maturity. The
determination of the fair value of long-term debt is based on the
net present value of the future principal and interest payments,
discounted at current market rates of interest for debt of similar
conditions and maturities. The carrying amount of the senior long
term debt approximates, in all material respects, its fair value
as a result of variable interest rates. The fair value of the
Debentures is disclosed in Note 10.

c) Credit risk

Accounts receivable includes balances from a large and diverse
customer base. The Fund views the credit risks on these amounts as
normal for the industry. Credit risk is minimized by the Fund's
broad customer base and diverse product lines and is mitigated by
the ongoing assessment of the credit worthiness of its customers
as well as monitoring the amount and age of balances outstanding.

d) Foreign currency risk

In the normal course of operations of the Corporation and NISI,
the Fund is exposed to movements in the U.S. dollar exchange
rates, relative to the Canadian dollar. The Corporation and NISI
sell and purchase some product in U.S. dollars. The Fund 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 significant over the period of the outstanding
accounts receivable and accounts payable.

20. Cash flow statement information

The following tables provide supplemental information.

---------------------------------------------------------------------
Change in non-cash operating net assets 2007 2006
---------------------------------------------------------------------
Changes in current assets (56,412) (50,760)
Changes in current liabilities 17,987 41,958
Distributions payable (828) (2,040)
Remove non-cash working capital 498 (323)
Working capital acquired 3,163 15,472
Changes in capital asset accruals 11,391 (3,535)
---------------------------------------------------------------------
Decrease (increase) in non-cash working capital (24,201) 772
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
Net additions to capital assets 2007 2006
---------------------------------------------------------------------
Cash additions to capital assets (136,726) (109,042)
Changes in capital asset accruals 11,391 3,535
---------------------------------------------------------------------
Additions to capital assets (125,335) (105,507)
---------------------------------------------------------------------
---------------------------------------------------------------------


21. 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, a lead recycling facility 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 December 31, 2007
---------------------------------------------------------------------
Consoli-
Inter- Un- dated
Western Eastern segment allocated(3) Total
---------------------------------------------------------------------
External revenue 91,025 46,008 - 42 137,075
Inter segment
revenue(1) 114 (114) - -
Operating
expense 60,499 34,983 (114) - 95,368
Amortization
and accretion
expense 5,823 3,513 4,069 13,405
---------------------------------------------------------------------
Net margin 24,817 7,512 - (4,027) 28,302
Selling, general
and
administrative - - 15,209 15,209
Interest expense - - - 5,309 5,309
---------------------------------------------------------------------
Operating income 24,817 7,512 - (24,545) 7,784
---------------------------------------------------------------------
Capital
expenditures
and
acquisitions(2) 14,843 73,418 - 17,446 105,707
---------------------------------------------------------------------
Goodwill 62,280 41,317 - - 103,597
---------------------------------------------------------------------
Total assets 565,534 396,589 - 61,358 1,023,481
---------------------------------------------------------------------
---------------------------------------------------------------------


For the Three Months Ended December 31, 2006
---------------------------------------------------------------------
Consoli-
Inter- Un- dated
Western Eastern segment allocated(3) Total
---------------------------------------------------------------------
External revenue 90,686 31,812 - - 122,498
Inter segment
revenue(1) (69) 69 - - -
Operating
expense 59,388 22,903 - - 82,291
Amortization
and accretion
expense 5,703 3,598 - 676 9,977
---------------------------------------------------------------------
Net margin 25,526 5,380 - (676) 30,230
Selling, general
and
administrative - - - 11,597 11,597
Interest expense - - - 2,424 2,424
---------------------------------------------------------------------
Operating income
- continuing
operations 25,526 5,380 - (14,697) 16,209
---------------------------------------------------------------------
Operating income
- discontinued
operations - (172) - - 172
---------------------------------------------------------------------
Capital
expenditures and
acquisitions(2) 23,781 56,577 - 8,520 88,878
---------------------------------------------------------------------
Goodwill 54,961 35,117 - - 90,078
---------------------------------------------------------------------
Total assets 509,329 255,449 - 38,066 802,844
---------------------------------------------------------------------
(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 Year Ended December 31, 2007
---------------------------------------------------------------------
Consoli-
Inter- Un- dated
Western Eastern segment allocated(3) Total
---------------------------------------------------------------------
External revenue 348,424 150,743 - 697 499,864

Inter segment
revenue(1) 652 - (652) - -
Operating
expense 234,896 114,416 (652) - 348,660
Amortization
and accretion
expense 20,852 14,160 - 8,272 43,284
---------------------------------------------------------------------
Net margin 93,328 22,167 - (7,575) 107,920
Selling, general
and
administrative - - - 54,279 54,279
Interest expense - - - 13,879 13,879
---------------------------------------------------------------------
Operating income 93,328 22,167 - (75,733) 39,762
---------------------------------------------------------------------
Capital
expenditures and
acquisitions(2) 57,653 117,865 - 34,764 210,282
---------------------------------------------------------------------
Goodwill 62,280 41,317 - - 103,597
---------------------------------------------------------------------
Total assets 565,534 396,589 - 61,358 1,023,481
---------------------------------------------------------------------
---------------------------------------------------------------------


For the Year Ended December 31, 2006
---------------------------------------------------------------------
Consoli-
Inter- Un- dated
Western Eastern segment allocated(3) Total
---------------------------------------------------------------------
External revenue 350,295 90,746 - - 441,041
Inter segment
revenue(1) (69) 69 - - -
Operating
expense 215,058 64,131 - - 279,189
Amortization
and accretion
expense 20,886 11,319 - 2,114 34,319
---------------------------------------------------------------------
Net margin 114,282 15,365 - (2,114) 127,533
Selling, general
and
administrative - - - 42,977 42,977
Interest expense - - - 7,665 7,665
---------------------------------------------------------------------
Operating income
- continuing
operations 114,282 15,365 - (52,756) 76,891
---------------------------------------------------------------------
Operating income
- discontinued
operations - 1,485 - - 1,485
---------------------------------------------------------------------
Capital
expenditures and
acquisitions(2) 81,044 207,219 - 19,125 307,388
---------------------------------------------------------------------
Goodwill 54,961 35,117 - - 90,078
---------------------------------------------------------------------
Total assets 509,329 255,449 - 38,066 802,844
---------------------------------------------------------------------
(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