Newalta Corporation
TSX : NAL

Newalta Corporation

November 07, 2007 23:26 ET

Newalta's Third Quarter Results Demonstrate Continued Momentum


CALGARY, ALBERTA--(Marketwire – November 7, 2007) - Newalta Income Fund
("Newalta" or the "Fund") today announced financial results for the three
and nine months ended September 30, 2007.
"Results for the third quarter were consistent with our expectations
given market conditions in the areas in which we operate across Canada," said
Al Cadotte, President and CEO of Newalta. "Overall, our operations showed
strengthened performance over both the first and second quarters of this year.
Compared to the first quarter, revenue increased 13% and net margin was up by
11%. We expect this momentum of improvement to continue through the fourth
quarter.
"The outlook for the remainder of 2007 and for 2008 is positive in spite
of the challenging environment for our drill site services in western Canada.
By the end of 2007, we will have invested approximately $200 million to grow
our existing operations and acquire complementary businesses. We expect these
investments to drive growth in the months ahead.
"We will continue to grow our business, strengthen our organization and
diversify our cash flow through balanced investments in organic growth and
acquisitions."

Financial Results and Highlights for the three and nine months ended
September 30, 2007:

- For the three and nine months ended September 30, 2007, revenue
improved 11% and 14% to $133.4 million and $362.8 million
respectively, compared to 2006.

- Net earnings of $17.9 million and EBITDA(1) of $29.0 million decreased
11% and 17%, respectively for the third quarter, compared to 2006.
Year-to-date, net earnings and EBITDA, were down 38% and 24%,
respectively, to $37.6 million and $69.8 million. Compared to Q2 of
2007, EBITDA increased 87%, and when compared to Q1 2007, EBITDA
improved by 15%.

- In the Western division ("Western"), compared to the third quarter of
last year, revenue was flat and net margin(1) was down 19%. Revenue
increased over the first quarter of 2007 by 5% while net margin
remained flat. Drilling rig and service rig utilization rates for the
third quarter of 2007 remained at 10 year lows at 38% and 55%,
respectively. Management has carried out a cost reduction program in
the Drill Site business consistent with expected lower activity levels
in western Canada into 2008.

- The performance of the Eastern division ("Eastern") in the third
quarter continued to be consistent with management's expectations.
Revenue was up 61% and net margin increased 34% compared to the same
period in 2006. For the first nine months of 2007, revenue and net
margin increased 78% and 47%, respectively. The increase in Eastern's
year-over-year revenue and net margin for both the quarter and the
first nine months of 2007 came from the contributions of acquisitions
completed in the second half of 2006 in Québec and Atlantic Canada.
The outlook for Eastern is positive as internal growth projects of
$20.0 million that have been initiated in 2007 should begin to
contribute in the fourth quarter of 2007 and 2008.

- SG&A expenses in the third quarter were 10.2% of revenue at
$13.5 million, compared to 9.3% last year. The increase is
attributable to strengthening the organization for future growth and
acquisitions completed. Management's objective for SG&A remains to
maintain these expenses at 10%, or less, of revenue for the year.

- Funds from operations(1) decreased 26% in the third quarter and 31% on
a year-to-date basis to $24.9 million and $59.6 million. The decline
was mainly attributable to the continued reduced natural gas drilling
activity levels in Western.

- Cash distributed(1) to unitholders in the third quarter was consistent
with the same period in 2006 at $19.2 million. On a year-to-date
basis, cash distributed increased by 22% to $67.2 million driven by
the increase in the number of trust units outstanding and higher
monthly distributions from January to April compared to 2006.
Distributions were increased in May of 2006 to $0.185 per unit per
month. In 2007, investments of almost $200.0 million will have been
made with the anticipated effect of driving increased cash flow in
2008. In spite of reduced performance in 2007, distributions have been
maintained.

- Maintenance capital expenditures(1) in the quarter were $5.3 million
or 34% lower than the third quarter in 2006. Growth capital
expenditures in the quarter were $22.5 million compared to
$16.6 million in 2006. For the year, maintenance capital expenditures
are expected to total approximately $20.0 million, while growth
capital expenditures are expected to be approximately $100.0 million.

- On October 16, 2007, Eastern acquired the operating assets of
Montréal, Québec-based Nova Pb Inc. ("Nova Pb") for a total purchase
price of $55.5 million, comprised of $45.5 million in cash with the
balance paid through the issuance of 510,690 Trust Units. Although the
effective date of the transaction is November 1, 2007, since certain
inventory relating to the operation of the business prior to
November 1, 2007 will be sold for the account of Nova Pb after
November 1, 2007, Newalta does not anticipate receiving any revenue
related to this operation prior to December 1, 2007 at the earliest.
Nova Pb operates Canada's largest integrated lead battery recycling
facility located on a 20 hectare (50 acre) site just outside Montréal.
The Nova Pb facility has two kilns which are used to produce recycled
lead, one of which is currently idle creating a future growth
opportunity for Newalta. This facility, if operating at full capacity,
has the ability to process up to 200,000 tonnes of used batteries and
produce up to 100,000 tonnes of recycled lead per year. Nova Pb
employs 115 full-time people and is a leading supplier of custom lead
alloys to manufacturers of automotive and industrial batteries.

- In 2007, Newalta continued an aggressive acquisition program to
establish a greater presence its core markets. Including the
acquisition of Nova Pb, the combined investment in acquisitions was
$93.1 million. Acquisitions and growth capital
investments completed in 2007 were funded through debt. In early
October, management took steps to diversify its debt composition and
maturities to include an amended two-year credit facility with
borrowing capacity of up to $425.0 million (previously $280.0 million)
and an offering to issue $100.0 million in 7.0% convertible unsecured
subordinated debentures.

- Newalta's balance sheet remains strong with a funded debt to EBITDA
ratio of 2.57:1 and working capital of 1.92:1.

- On a trailing twelve-month basis at September 30, 2007, the return on
capital, excluding SG&A allocations, was 28% for Western and 16% for
Eastern. Newalta's corporate three-year average return on capital at
September 30, 2007 was 23%.

- Newalta entered into an amended credit agreement on October 12, 2007
which provides for a $425.0 million extendible revolving credit
facility which will be used to fund growth capital expenditures, for
general corporate purposes and for the issuance of financial security
to third parties. As at September 30, 2007, Newalta's unused capacity
on its credit facility was approximately $204.7 million, net of
outstanding letters of credit in the amount of $40.1 million, and
after giving effect to the Nova Pb acquisition and applying the net
proceeds of the convertible debenture issue.

- On October 22, 2007, Newalta announced the offering of $100.0 million
of convertible unsecured subordinated debentures on a bought deal
basis. The offering is expected to close on or about November 16,
2007. The debentures have a maturity date of November 30, 2012 and
will 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
will be used to repay outstanding indebtedness borrowed to fund
acquisitions and growth capital and will not reduce the total amount
of funds available under the new amended credit facility. In addition,
the underwriters of the debentures have the option to purchase up to
an additional $15.0 million in debentures within thirty days of the
closing.

- Newalta completed an equity financing on January 26, 2007 through the
issuance of 3.0 million trust units at $26.10 per unit for total gross
proceeds of $78.3 million ($74.1 million net) 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 is expected to be
completed by the end of the first half of 2008. The implementation of
the SAP system across Canada will provide Newalta with a solid
platform for the future growth of the business.

- The specified investment flow-through ("SIFT") legislation, first
announced on October 31, 2006, has been enacted. 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 that have
been 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
interim consolidated financial statements.

- On October 25, 2007, the Alberta government announced a plan to
restructure the royalty regime in Alberta. While Newalta is not
directly affected by this plan, management believes that Western will
be impacted by the effect such royalty regime has on its oil and gas
producing customers in Alberta. Many customer projects were put on
hold in September and October until guidance was provided by the
government on the royalty review program. Management is currently
reviewing the anticipated effects that the new royalty regime may have
on its customers and reviewing new information as it becomes
available.


FINANCIAL RESULTS AND HIGHLIGHTS
-------------------------------------------------------------------------
($000s except % %
per unit data) Q3 Q3 Increase YTD YTD Increase
(unaudited) 2007 2006 (Decrease) 2007 2006 (Decrease)
-------------------------------------------------------------------------
Revenue 133,358 120,297 11 362,789 318,543 14
Net earnings 17,893 20,136 (11) 37,576 60,209 (38)
per unit ($),
basic 0.44 0.55 (20) 0.94 1.73 (46)
per unit ($),
diluted 0.43 0.54 (20) 0.93 1.71 (46)
per unit ($) -
continuing
operations 0.44 0.55 (20) 0.94 1.68 (44)
per unit ($) -
discontinued
operations - - - - 0.05 (100)
EBITDA(1) 28,980 35,099 (17) 69,771 91,922 (24)
Trailing 12 month
EBITDA n/a n/a n/a 98,209 117,318 (16)
Trailing 12 month
EBITDA -
continuing ops. n/a n/a n/a 98,209 115,662 (15)
Funds from
operations(1) 24,873 33,758 (26) 59,560 86,023 (31)
per unit ($) 0.61 0.92 (34) 1.49 2.47 (40)
per unit ($) -
continuing
operations 0.61 0.92 (34) 1.49 2.45 (40)
per unit ($) -
discontinued
operations - - - - 0.02 (100)
Maintenance
capital
expenditures 5,257 7,970 (34) 11,008 16,142 (32)
Distributions
declared 22,526 20,405 10 67,188 55,463 21
per unit - ($) 0.56 0.56 - 1.67 1.59 5
Cash
distributed(1) 19,211 19,080 1 56,918 46,809 22
Growth and
acquisition
capital
expenditures 34,080 33,681 1 93,567 202,380 (54)
Weighted average
units outstanding
(000s) 40,579 36,734 10 40,056 34,774 15
Total units
outstanding (000s) 40,643 36,799 10 40,643 36,799 10
Trading price
- high 25.92 33.65 (23) 28.25 33.80 (16)
Trading price
- low 18.57 33.08 (44) 18.57 26.25 (29)
Average daily
trading volume 125,262 79,298 58 144,667 98,268 47
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(1) These financial measures do not have any standardized meaning
prescribed by Canadian generally accepted accounting principles
("GAAP"). Non-GAAP financial measures are identified and defined
in the attached Management's Discussion and Analysis.

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

Management will hold a conference call on Thursday, November 8, 2007 at
11:00 a.m. (EST) to discuss the Fund's performance for the three and nine
months ended September 30, 2007. To participate in the teleconference, please
call 1-800-733-7560 or 416-644-3426. 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, November 15, 2007, by dialing 1-877-289-8525 and using the pass code
21252636 followed by the number 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, manufacturing, mining,
oil and gas, petrochemical, pulp and paper, steel and transportation service
industries. Providing solid investor returns, exceptional customer service,
safe operations and environmental stewardship has enabled Newalta to expand
into new service sectors and geographic markets. Newalta Income Fund's units
trade on the TSX as NAL.UN. For more information, visit www.newalta.com.



MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007

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

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

Three months ended Nine months ended
September 30, September 30,
-------------------------------------------------------------------------
($000s) 2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings(1) 17,893 20,136 37,576 60,209
Add back (deduct):
Current income taxes 209 103 872 319
Future income taxes(1) (3,578) 4,607 (6,470) 1,811
Interest expense 3,632 1,378 8,570 5,241
Interest revenue (42) - (656) -
Amortization and accretion(1) 10,866 8,875 29,879 24,342
-------------------------------------------------------------------------
EBITDA 28,980 35,099 69,771 91,922
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes related amounts from discontinued operations for the 2006
periods. See note 4 to the consolidated interim financial statements
for the breakdown for the three and nine months ended September 30,
2006.

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

Three months ended Nine months ended
September 30, September 30,
-------------------------------------------------------------------------
($000s) 2007 2006 2007 2006
-------------------------------------------------------------------------
Cash from operating activities 20,446 24,604 32,501 82,136
Add back (deduct):
Changes in working capital 4,094 8,961 26,229 3,128
Asset retirement costs incurred 333 193 830 759
-------------------------------------------------------------------------
Funds from operations 24,873 33,758 59,560 86,023
-------------------------------------------------------------------------
-------------------------------------------------------------------------

"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 Nine months ended
September 30, September 30,
-------------------------------------------------------------------------
($000s) 2007 2006 2007 2006
-------------------------------------------------------------------------
Distributions declared 22,526 20,405 67,188 55,463
Add:
Opening distributions payable 7,490 6,779 6,835 4,794
Less:
Ending distributions payable (7,519) (6,808) (7,519) (6,808)
Distributions reinvested
through DRIP (3,286) (1,296) (9,586) (6,640)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash distributed 19,211 19,080 56,918 46,809
-------------------------------------------------------------------------
-------------------------------------------------------------------------

"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 Canadian GAAP.
Net margin is calculated from the segmented information contained in the notes
to the consolidated financial statements and is defined as revenue less
operating and amortization and accretion expenses.
"Return on capital" is used by management to analyze the operating
performance of investments in capital assets, intangibles and goodwill. Return
on capital is calculated by dividing EBITDA, excluding reorganization costs,
by the average net book value of capital assets, intangibles and goodwill.
References to EBITDA, funds from operations, cash distributed, net
margin, return on capital and maintenance 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 is 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 three and nine months ended September 30, 2007, (ii) the consolidated
financial statements of the Fund and notes thereto and Management's Discussion
and Analysis of the Fund for the year ended December 31, 2006, (iii) the most
recently filed Annual Information Form of the Fund, and (iv) the consolidated
interim financial statements of the Fund and the notes thereto and
Management's Discussion and Analysis for the three and nine months ended
September 30, 2006.
Information for the three and nine months ended September 30, 2007, along
with comparative information for 2006, is provided.
In December 2006, Newalta reorganized its operations into the Western
division ("Western") and the Eastern division ("Eastern"). In western Canada,
Newalta combined the previously reported Industrial and Oilfield divisions to
form Western. Services offered to customers in Western are similar and are
sold to a similar customer base. Newalta has merged or eliminated some senior
management and sales positions, resulting in improved efficiencies as well as
reductions to overhead costs. Western now comprises three business units:
Oilfield, Drill Site and Industrial; while Eastern comprises two business
units: Ontario and Québec/Atlantic Canada. The business units within Western
share a common customer base and Drill Site utilizes both Oilfield and
Industrial facilities for residual waste processing and disposal. Acquisition
and growth initiatives in the last year increased overlap between the three
business units. This overlap necessitated the integration of services into one
operating division to provide a seamless service package to customers and
enhance both productivity and consistency of operations. The following
Management's Discussion and Analysis provides management's interpretation of
the results of the business the Western and Eastern divisions and overall.
This Management's Discussion and Analysis is dated November 7, 2007 and
takes into consideration information available up to that date.

OVERALL PERFORMANCE

Newalta's third quarter results were consistent with market conditions
across Canada. Management's strategy to diversify earnings through
acquisitions completed in eastern Canada helped to counter the continued
weakness in western Canada's natural gas drilling. The eastern operations have
diversified Newalta's revenue base lessening the Fund's dependence on oil and
gas related services. The anticipated return on capital for the eastern
operations is consistent with management's expectation of approximately four
years after integration is complete. Overall, revenue increased 11% and net
margin was down 15% compared to the same period in 2006, while revenue and net
margin in the third quarter were up 13% and 11%, respectively over the first
quarter of 2007. The diversification of Newalta's services contributed to the
gains and the change in the business mix impacted the overall net margin as a
percentage of revenue.
Compared to the third quarter of last year, Western's revenue was flat
and net margin was down by 19%, however, revenue increased over the first
quarter of 2007 by 5% while net margin remained flat. Drilling rig and service
rig activity levels for the third quarter remained at 10 year low levels at
38% and 55%, respectively in 2007. Management has completed a cost reduction
program in the Drill Site business unit early in the fourth quarter of 2007 as
lower activity levels in western Canada are anticipated to continue into 2008.
The full benefits of this program are anticipated to be seen in the first
quarter of 2008.
The performance of Eastern in the third quarter continued to be positive,
delivering strong revenue and net margin growth. Revenue was up 61% and net
margin increased 34% compared to the same period in 2006. For the first nine
months of 2007 revenue and net margin increased 78% and 47%, respectively. The
increase in Eastern's year-over-year revenue and net margin for both the
quarter and the first nine months of 2007 came from the contributions of
acquisitions completed in the second half of 2006 in Québec and Atlantic
Canada. Subsequent to the end of the third quarter, Newalta acquired the lead
battery recycling facility of Nova Pb Inc. ("Nova Pb") located just outside
Montréal, Québec for a total purchase price of $55.5 million comprised of
$45.0 million paid in cash at closing and $0.5 million cash payable in 2008,
with the balance funded through the issuance of 510,690 trust units. This
acquisition complements Eastern's asset base and will provide processing
capability to expand services in the eastern Canadian market.
In 2007, Newalta continued an aggressive acquisition program to establish
a greater presence in its core markets. Including the recent acquisition of
Nova Pb, the combined acquisition investments totalled $93.1 million. As at
September 30, 2007, Western's trailing twelve-month return on capital,
excluding any corporate SG&A allocation, was 28% while Eastern's return on
capital was 16%. Newalta's corporate three year average return on capital at
September 30, 2007 was 23%.
To finance these acquisitions and growth capital for 2007, Newalta
entered into an amended credit facility agreement subsequent to the end of the
third quarter which increased the credit facility from $280.0 million to
$425.0 million. The amended credit facility has a two-year term with some
minor changes to the financial covenants (see LIQUIDITY AND CAPITAL
RESOURCES). In addition, on October 22, 2007, the Fund announced the offering
of $100.0 million of convertible unsecured subordinated debentures (the
"Debentures") on a bought deal basis. The offering is expected to close on or
about November 16, 2007. The Debentures have a maturity date of November 30,
2012 and will 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 will be used to repay outstanding
indebtedness of Newalta and will not reduce the total amount of funds
available under the new amended credit facility. As at September 30, 2007,
Newalta's unused capacity on its credit facility was approximately
$204.7 million, net of outstanding letters of credit in the amount of
$40.1 million, and after giving effect to the Nova Pb acquisition and applying
the net proceeds of the convertible debenture issue.

RESULTS OF OPERATIONS

Third quarter revenue increased $13.1 million, or 11%, to $133.4 million
compared to $120.3 million in 2006. On a year-to-date basis revenue increased
$44.2 million, or 14%, to $362.8 million compared to $318.5 million for the
same period in 2006. The majority of both the current quarter and year-to-date
revenue growth relates to acquisitions completed in Québec and Atlantic Canada
in the second half of 2006. Operating expenses, as a percentage of revenue,
increased to 68% in the three months ended September 30, 2007 and averaged 70%
of year-to-date revenue. These ratios increased compared to the third quarter
and nine months ended September 30, 2006, in which operating expenses were 62%
of each period's revenue. Funds from operations decreased 26% to $24.9 million
for the three months ended September 30, 2007 and 31% to $59.6 million for the
nine months ended September 30, 2007.
For the three months ended September 30, 2007, cash distributed was
consistent with the same period in 2006 at $19.2 million despite an increase
of 3.8 million trust units year-over-year due to an increased participation in
the Distribution Reinvestment Plan (the "DRIP") of Newalta. Cash distributed
for the first nine months of the year in 2007 increased 22% over the first
nine months of 2006 to $56.9 million, due to an increase in monthly
distributions effective in May of 2006 and a higher number of trust units
outstanding. Declared distributions and cash distributed levels are monitored
and assessed through internal forecasts which incorporate the most recent
operating and financial results, maintenance and growth capital requirements
as well as market activity and conditions. The Board of Trustees has
maintained the monthly distribution of $0.185 per unit in anticipation that
investments made in 2007 will contribute to stronger results in 2008.

WESTERN

Western operates over 50 facilities with over 900 people in British
Columbia, Alberta and Saskatchewan and comprises three business units:
Oilfield, Drill Site and Industrial. The division is operated and managed as
an integrated set of assets to provide a broad range of seamless waste
management and recycling services to customers. 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 the third quarter, Western accounted for 62% of
Newalta's total assets, generated 70% of Newalta's revenue and 78% of
Newalta's combined net margin in the third quarter of 2007 compared with 69%,
79% and 87% respectively for the same period in 2006.
Below is a chart of key services provided by each business unit within
Western:

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Oilfield Drill Site Industrial
-------------------------------------------------------------------------
Waste processing at Operates 2 facilities Waste processing at
over 30 facilities Pre-drilling 17 facilities
Crude oil recovery assessments Mobile onsite services
Water recycling Drilling waste Product recovery from
Custom treating management wastes
Clean oil terminalling Solids control unit Sale of recovered
Water disposal rentals products as:
Landfills Cuttings management - base oils
Onsite services unit rentals - refinery feedstock
Drilling fluid sales - industrial fuels
and service - carrier fluids
Post-drilling (e.g. drilling oil)
remediation
Well abandonment
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Western's performance is affected by the state of the economy in western
Canada, the amount of waste generated by crude oil producers, natural gas
drilling activity as well as the strength of the oil and gas, mining, forestry
and transportation industries. In addition, seasonality and the contributions
from investments in growth capital and acquisitions can cause fluctuations in
quarter-to-quarter results. The Oilfield business unit contributed
approximately 51% of Western's total year-to-date revenue with Drill Site and
Industrial each contributing approximately 18% and 31%, respectively.
The following table compares the third quarter of 2007 and year-to-date
2007 results to third quarter of 2006 and year-to-date 2006:

-------------------------------------------------------------------------
% YTD YTD %
($000s) Q3 2007 Q3 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Revenue - external 93,493 95,502 (2) 257,399 259,608 (1)
Revenue - internal 105 - n/a 538 - n/a
Operating costs 61,618 57,998 6 174,397 155,670 12
Amortization and
accretion 5,604 5,077 10 15,029 15,186 (1)
-------------------------------------------------------------------------
Net margin 26,376 32,427 (19) 68,511 88,752 (23)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net margin as % of
revenue 28% 34% (18) 27% 34% (21)
-------------------------------------------------------------------------
Maintenance capital 3,802 4,787 (21) 7,464 10,465 (29)
-------------------------------------------------------------------------
Growth capital 6,150 7,393 (17) 19,649 23,305 (16)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Weak drilling rig and service rig utilization, which were both at 10 year
lows for the third quarter, continued to impact Western's net margin. The low
service rig activity contributed to lower waste volumes received at Newalta's
fixed facility network in the third quarter 2007 compared to the same period
in 2006. With a high fixed component to the facilities' operating costs, a
decrease in revenue has a direct impact on net margin. Current natural gas
pricing is expected to result in drilling rig utilization and market activity
being at depressed levels for the remainder of 2007 and well into 2008.
The Oilfield business unit's waste processing volumes and crude oil
recovery volumes returned to seasonal levels in the third quarter but were
still lower than the record year in 2006. In the quarter, Oilfield waste
volumes decreased approximately 9% from the same period in 2006 and prices
decreased by 6% due to the overall mix of waste received in the third quarter.
On a year-to-date basis Oilfield's volumes have decreased by 5%.
The mix of waste products resulted in an overall increase of 7% in crude
oil volumes recovered to Newalta's account in the third quarter. The average
price of oil sold in the quarter was down 8% due to a heavier mix of crude
sold and the effect of the rising Canadian dollar relative to the U.S. dollar.
Crude oil sales compared to last year increased $1.9 million for the quarter
mainly due to the recognition of deferred revenue of $1.8 million related to
previously recovered crude oil that was released from storage. On a
year-to-date basis, compared to last year, recovered crude oil volumes were
down 11% and the average oil price was down 7%. On a year-to-date basis sales
decreased 17%.
The table below reflects the changes in the Drill Site business unit's
utilization rates of its rental equipment, Drill Site's core services, for the
current quarter and the first nine months of 2007 compared to their respective
prior year periods:

-------------------------------------------------------------------------
Q3 Q2 % Q3 Q3 % YTD YTD %
2007 2007 Change 2007 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Utilization
rates (%)
Equipment
in Canada 20 10 100 20 33 (39) 21 51 (59)
Equipment in
the U.S. 56 75 (25) 56 74 (24) 68 87 (22)
-------------------------------------------------------------------------
Total Drill
Site rental
equipment 25 16 56 25 35 (29) 24 45 (47)
-------------------------------------------------------------------------

The performance of the Drill Site business unit was down compared to last
year but increased significantly compared to the second quarter of 2007.
Year-over-year, equipment utilization rates declined consistent with the drop
in drilling rig utilization rates which were down from 63% in Q3 2006 to 38%
in Q3 2007. In 2007, management redeployed equipment to the U.S. where demand
has been stronger, increasing overall asset utilization with 21 units in the
U.S. during the third quarter of 2007 compared to 4 units in the same period
in 2006 (19 units in the second quarter of 2007). Current natural gas pricing
is expected to result in drilling rig utilization and market activity in
western Canada being at depressed levels for the remainder of 2007 and well
into 2008. Management initiated cost reduction measures early in the fourth
quarter which consisted mainly of downsizing the Drill Site group and a
continued focus on optimizing the utilization of Drill Site's rental equipment
fleet.
Activity levels and performance in the Industrial business unit were
consistent year-over-year for both the quarter and nine months ended
September 30, 2007. Revenue was up compared to last year which was offset by
increased fixed costs resulting in flat performance compared to 2006.
During the year, Western added to its filtration 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 abandonment and site restoration services to its drilling waste
customers. The details of these acquisitions are outlined below:

-------------------------------------------------------------------------
Acquisition Business Location Purchase Description of
Date Assets Price ($) Acquired Assets
Acquired
-------------------------------------------------------------------------
April 1, Panaco Fluid Rocky 5.9 million - 15 people
2007 Filtration Mountain - 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 Medicine 9.8 million - 30 people and
2007 Fluid Hat, 12 technical field
Management Inc. Alberta consultants
- Site remediation and
abandonment
- Fleet of 15 vacuum
trucks
-------------------------------------------------------------------------
Total Western Acquisitions 15.7 million
-------------------------------------------------------------------------

Maintenance capital expenditures decreased by $1.0 million when compared
with the third quarter of 2006 and by $3.0 million for the first nine months
of 2007. The lower maintenance capital required is a reflection of the lower
utilization of the drill site assets in 2007 compared to record rates in 2006.
Growth capital expenditures of $8.0 million in the quarter consisted primarily
of productivity improvements at Oilfield facilities.
The outlook for the Oilfield and Industrial business units is positive
heading into the historically seasonally strong fourth quarter, while the
Drill Site business unit will continue to be impacted by the weak natural gas
drilling market. Newalta's management will continue to exploit opportunities
to improve the utilization of assets by moving idle units into areas with the
highest demand levels.

EASTERN

Eastern was created in January 2006 through an acquisition with
operations in Ontario and the subsequent expansion into Québec and Atlantic
Canada in the second half of 2006. Eastern provides industrial waste
management and other environmental services to markets located in eastern
Canada through its integrated network of over 30 facilities. This network
features an engineered non-hazardous solid waste landfill that handles
approximately 650,000 metric tonnes of waste per year and, based on current
volumes, has an estimated remaining life of 13 years. The division's network
also includes industrial solid waste pre-treatment facilities; industrial
waste transfer and processing facilities; a fleet of specialized vehicles and
equipment for waste transport and onsite processing; and an emergency response
service. Eastern's performance is impacted by the general state of the economy
in eastern Canada, and the bordering U.S. states, fluctuations in the
U.S./Canadian dollar exchange rate, and specific market conditions in the
automotive, forestry, manufacturing, mining, oil and gas, petrochemical, pulp
and paper, steel and transportation service industries. 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"), scarce landfill capacity in the
Province of Ontario and the growing trend towards outsourcing of waste
management activities. The addition of Eastern has diversified Newalta's
services and reduced exposure to 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 the third quarter,
Eastern accounted for approximately 34% of Newalta's total assets, generated
30% of Newalta's total revenue and 22% of Newalta's combined net margin
compared with 27%, 21% and 15% respectively, in the same period in 2006.
The table below compares the third quarter and first nine months of 2007
results to the same periods in 2006:

-------------------------------------------------------------------------
% YTD YTD %
($000s) Q3 2007 Q3 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Revenue - external 39,823 24,795 61 104,735 58,935 78
Revenue - internal - - - - - -
Operating costs 29,278 16,018 83 79,433 41,228 93
Amortization and
accretion 3,184 3,274 (3) 10,647 7,721 38
-------------------------------------------------------------------------
Net margin -
continuing
operations 7,361 5,503 34 14,655 9,986 47
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net margin as %
of revenue 18% 22% (18) 14% 17% (18)
-------------------------------------------------------------------------
Net margin -
discontinued
operations - - - - 1,657 (100)
-------------------------------------------------------------------------
Maintenance capital 1,357 3,077 (56) 3,142 5,160 (39)
-------------------------------------------------------------------------
Growth capital 8,395 5,880 43 19,409 8,450 130
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The performance of Eastern in the third quarter was consistent with
market conditions. For the quarter revenue was up 61% and net margin increased
34%. Acquisitions completed in the second half of 2006 in the Québec/Atlantic
Canada business unit contributed to all of Eastern's revenue increase
year-over-year for both the quarter and year-to-date.
The Québec/Atlantic Canada business unit was established in the second
half of 2006 through five acquisitions. The integration has proceeded smoothly
and operating results are consistent with management's expectations for the
trailing twelve-months. The 2007 capital program is underway with the
expectation of delivering growth in 2008.
The Ontario business unit delivered lower revenue for the quarter and
revenue was flat for the nine months ended September 30, 2007. In the third
quarter, landfill volumes decreased 19% due to project delays and the timing
of waste receipts as the market adjusted to the first phase of the new LDR
regulations which were implemented on August 31, 2007. Newalta anticipates
that customers will resume normal waste shipping schedules in the fourth
quarter as the market adjusts to these new regulations. Pricing was consistent
with the prior year. The performance of the service centers reflected lower
waste receipts which were mostly offset by higher average prices.
Newalta has invested $19.4 million in growth capital for Eastern on a
year-to-date basis. Most of this capital has been directed at either new
facilities or preparing existing facilities to treat waste streams in
accordance with the new LDR regulations. These investments will position
Eastern to capitalize on new waste management opportunities presented by the
evolving regulatory environment in Ontario.
In the first nine months of 2007, management executed four asset
acquisitions to increase geographic reach and market penetration in Ontario,
Québec and New Brunswick. Subsequent to the end of the third quarter Newalta
announced the acquisition of the lead battery recycling assets of Nova Pb
which operates Canada's largest integrated lead battery recycling facility
located on a 20 hectare (50 acre) site just outside Montréal. The Nova Pb
facility has two kilns which are used to produce recycled lead, one of which
is currently idle creating a future growth opportunity for Newalta. Although
the effective date of the transaction is November 1, 2007, since certain
inventory relating to the operation of the business prior to November 1, 2007
will be sold for the account of Nova Pb after November 1, 2007, Newalta does
not anticipate receiving any revenue related to this operation prior to
December 1, 2007 at the earliest.
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 for the
remainder of 2007 and 2008 as these assets are integrated into operations:

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

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

June 1, Eastern New 9.3 million - Transfer station and
2007 Environmental Brunswick processing facility
Services Ltd. in Sussex, New
Brunswick
- 30 people
- Satellite office in
Bedford, Nova Scotia

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

November Nova Pb Inc. Québec 55.5 million - Canada's largest
1, 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 77.4 million
-------------------------------------------------------------------------

The outlook for the remainder of the year for Eastern is positive.
Management's priorities are to capture growth through market penetration and
to improve returns through pricing improvements at all facilities as well as
the timely execution of capital projects for internal growth.

CORPORATE AND OTHER
-------------------------------------------------------------------------
% YTD YTD %
($000s) Q3 2007 Q3 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Selling, general and
administrative
expenses 13,545 11,182 21 39,070 31,380 25
as a % of revenue 10.2 9.3 10 10.8 9.9 9
-------------------------------------------------------------------------
Amortization and
accretion 10,866 8,875 22 29,879 24,342 23
as a % of revenue 8.1 7.4 10 8.2 7.6 8
-------------------------------------------------------------------------
Interest expense 3,632 1,378 164 8,570 5,241 64
-------------------------------------------------------------------------

The increase in selling, general and administrative ("SG&A") expense is
attributable to strengthening the organization for future growth as well as
SG&A costs associated with acquisitions completed during the year. SG&A is
also affected by operating costs associated with the maintenance of the new
financial information system implemented in 2007 which was phased into
Eastern's accounting system in the third quarter. Management has been able to
use its experience in implementing the new system in the west to create a
smooth transition in the eastern Canadian operations. It is anticipated that
both operations and accounting will be fully integrated and using the new
system by the end of the second quarter of 2008. Management's objective for
SG&A is to maintain these expenses at 10%, or less, of revenue for the year.
Compared to the first and second quarters of 2007, SG&A is trending lower as a
percentage of revenue.
The increase in amortization was attributable to recent acquisitions and
growth capital expenditures. As a percentage of revenue, amortization and
accretion have increased less than 1% year-over-year, consistent with
expectations.
The increase in interest expense for both the three and nine months ended
September 30, 2007 compared to the same periods in 2006 is due to an increase
in the average debt level. At September 30, 2007, long-term debt was
$230.8 million compared with $166.3 million at December 31, 2006. The average
debt level increase is the result of current year acquisitions totalling
$37.6 million, growth capital initiatives totalling $57.8 million year-to-date
as well as the funding of working capital outstanding at year end and
distributions in excess of current period cash flow. These were offset in part
by the proceeds from the equity financing that was completed in January 2007
pursuant to which the Fund issued 3.0 million trust units at $26.10 per unit
for net proceeds of $74.1 million. Newalta's working capital ratio was 1.92:1
at September 30, 2007 compared with 2.04:1 at June 30, 2007 and 1.37:1 at
December 31, 2006.
A current tax expense of $0.2 million was recorded in the quarter
compared to current income tax expense of $0.1 million in 2006. The increased
expense is due to Newalta's higher capitalization in 2007 compared to 2006 and
increased size of operations in eastern Canada, resulting in higher provincial
capital taxes. Based on projected levels of capital spending and anticipated
earnings, Newalta is not expected to pay cash taxes until 2010 at the
earliest, with the exception of U.S. federal, state and Canadian provincial
capital taxes. Future income tax recoveries year-to-date increased by
$8.3 million from an expense of $1.8 million in 2006 to a recovery of
$6.5 million in 2007. The increase in future income tax recoveries for the
three and nine months ended September 30, 2007 is due to lower taxable
earnings.
The specified investment flow-through ("SIFT") legislation, first
announced on October 31, 2006, has been enacted. 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 that have been 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
interim consolidated financial statements. For further information about the
impact on future income taxes please refer to CRITICAL ACCOUNTING ESTIMATES -
FUTURE INCOME TAXES in this MD&A.
As at November 7, 2007, the Fund had 41,215,628 trust units outstanding
and outstanding rights to acquire up to 2,366,425 trust units.
On October 22, 2007, Newalta announced the offering of $100.0 million of
Debentures. The offering is expected to close on or about November 16, 2007.
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. In addition, the underwriters of the
Debentures have the option to purchase up to an additional $15.0 million in
Debentures within thirty days of the closing. The Debentures are redeemable by
the Fund at a price of $1,000 per Debenture after November 30, 2010 and on or
before November 30, 2011 (provided that the current market price of the trust
units of the Fund on the date on which the notice of redemption is given is
not less than 125% of the Conversion Price) and at a price equal to $1,000 per
Debenture after November 30, 2011 and before maturity, in each case, plus
accrued and unpaid interest thereon, if any.
Upon the 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 Debentures (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.

SUMMARY OF QUARTERLY RESULTS

(unaudited) 2007 2006
-------------------------------------------------------------------------
($000s except per Q3 Q2 Q1 Q4
unit data)
-------------------------------------------------------------------------
Revenue 133,358 111,594 117,837 122,498
-------------------------------------------------------------------------
Operating income 14,524 3,799 13,665 16,209
-------------------------------------------------------------------------
Net earnings 17,893 6,716 12,966 15,356
Continuing Operations 17,893 6,716 12,966 15,528
Discontinued Operations - - - (172)
-------------------------------------------------------------------------
Earnings per unit ($) 0.44 0.17 0.33 0.42
Continuing Operations 0.44 0.17 0.33 0.42
Discontinued Operations - - - (0.00)
-------------------------------------------------------------------------
Diluted earnings per unit ($) 0.43 0.16 0.33 0.41
Continuing Operations 0.43 0.16 0.33 0.41
Discontinued Operations - - - (0.00)
-------------------------------------------------------------------------
Weighted average units -
basic 40,579 40,361 39,209 36,860
-------------------------------------------------------------------------
Weighted average units -
diluted 40,725 40,562 39,445 37,282
-------------------------------------------------------------------------


(unaudited) 2006 2005
-------------------------------------------------------------------------
($000s except per Q3 Q2 Q1(1) Q4
unit data)
-------------------------------------------------------------------------
Revenue 120,297 96,082 102,162 86,663
-------------------------------------------------------------------------
Operating income 24,846 14,363 21,445 18,862
-------------------------------------------------------------------------
Net earnings 20,136 22,685 17,388 14,445
Continuing Operations 20,136 21,213 17,175 14,445
Discontinued Operations - 1,472 213 -
-------------------------------------------------------------------------
Earnings per unit ($) 0.55 0.62 0.56 0.51
Continuing Operations 0.55 0.58 0.55 0.51
Discontinued Operations - 0.04 0.01 -
-------------------------------------------------------------------------
Diluted earnings per unit ($) 0.54 0.61 0.54 0.50
Continuing Operations 0.54 0.57 0.54 0.50
Discontinued Operations - 0.04 0.00 -
-------------------------------------------------------------------------
Weighted average units -
basic 36,734 36,381 31,291 28,597
-------------------------------------------------------------------------
Weighted average units -
diluted 37,279 37,000 31,917 29,066
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The Q1 2006 results have been restated from the disclosure in the
first quarter 2006 report to reflect the reclassification of the in-
plant industrial cleaning service operation as discontinued
operations.

Quarterly performance is affected by seasonal variation as described
below. However, in the past eight quarters this is difficult to assess due to
the aggressive acquisition and internal growth capital program pursued by
Newalta during that time. The increases in revenue, operating income and net
earnings in Q4 of 2005 were driven primarily by growth in the Western
division. Two-thirds of the revenue growth in Western was attributable to
Drill Site related acquisitions and growth in onsite services, satellites and
partnerships consistent with the investments in these services in 2004 and
2005. Additional revenue growth was attributable to strong activity levels and
demand for services which led to increases in waste processing volumes and
higher crude oil sales. In the latter portion of 2005, operating income
declined as a percentage of revenue mostly due to changes in the business mix
from the expansion of Drill Site services.
In 2006, the first and second quarter performance increased mainly as a
result of continued high demand in the Western division as well as the
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 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 January of 2007, the Fund issued 3.0 million
trust units for net proceeds of $74.1 million, which accounts for the majority
of the increase in trust units outstanding from Q4 2006 to Q1 2007. 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.

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,
first quarter revenue has ranged from 17% to 25% of annual revenue, second
quarter revenue has ranged from 19% to 25%, revenue from the third quarter has
ranged from 26% to 30% and finally fourth quarter revenue has ranged from 26%
to 35%.
Eastern's services are curtailed by colder weather in the first quarter,
which is typically its weakest quarter 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 that management obtained for the recent acquisitions, it is
estimated that first quarter revenue is typically 16 to 18% of annual revenue,
second quarter revenue is estimated to be approximately 20 to 25%, the revenue
for the third quarter is estimated to be between 28% to 32% and, finally,
fourth quarter revenue is estimated to be approximately 24% to 29% of annual
revenue.
Quarterly financial results have been prepared by management in
accordance with Canadian GAAP as set out in the notes to the annual audited
consolidated financial statements of the Fund for the year ended December 31,
2006.

LIQUIDITY AND CAPITAL RESOURCES

The term liquidity refers to the speed with which a company's assets can
be converted into cash as well as cash on hand. Liquidity risk for the Fund
may arise from its general day-to-day cash requirements, and in the management
of its assets, liabilities and capital resources. Liquidity risk is managed
against Newalta's financial leverage to meet its obligations and commitments
in a balanced manner.
The Fund's net working capital was $78.3 million at September 30, 2007
compared with $78.8 at June 30, 2007 and $36.1 million at December 31, 2006.
At current activity levels, working capital of $78.3 million is expected to be
sufficient to meet the ongoing commitments and operational requirements of the
business. The credit risks associated with accounts receivable are viewed as
normal for the industry. Despite the current natural gas drilling industry
conditions, management views the credit risk to be normal. A measure used by
the Fund as an indication of liquidity is the Current Ratio, which is defined
as the ratio of total current assets to total current liabilities. The Current
Ratio at September 30, 2007 reflected that Newalta has sufficient assets to
cover its current liabilities by 1.92 times (at December 31, 2006 and June 30,
2007 the ratio was 1.37 times and 2.04 times respectively). This ratio exceeds
Newalta's bank covenant minimum requirement of 1.20:1.
The Fund's liquidity needs can be sourced in several ways including:
funds from operations, short and long-term borrowings against Newalta's credit
facilities and the issuance of securities from treasury. Subsequent to the
quarter, Newalta announced an offering of $100.0 million of Debentures. The
proceeds from the sale of the Debentures will be used to repay outstanding
indebtedness on Newalta's credit facility. Newalta's primary uses of funds are
operational and administrative expenses, distributions, maintenance and growth
capital spending, and acquisitions.
On a per unit basis Newalta declared monthly distributions of $0.185 to
unitholders from January through September 2007 or $2.22 annually. In 2006,
monthly distributions declared were $0.165 per month from January to April and
$0.185 for the remainder of the year. The Board of Trustees has maintained the
monthly distribution of $0.185 per unit in anticipation that investments made
in 2007 will contribute to stronger results in 2008.
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:

-------------------------------------------------------------------------
($000s) Q3 YTD Fiscal Fiscal Fiscal
2007 2007 2006 2005 2004
-------------------------------------------------------------------------
Cash flow generated
from operating
activities 20,446 32,501 111,963 71,732 49,718
Distributions
declared (22,526) (67,188) (75,923) (49,602) (39,659)
-------------------------------------------------------------------------
Cash excess
(shortfall) (2,080) (34,687) 36,040 22,130 10,059
-------------------------------------------------------------------------

Net earnings 17,893 37,576 75,565 46,978 36,205
Distributions
declared (22,526) (67,188) (75,923) (49,602) (39,659)
-------------------------------------------------------------------------
Net earnings
(shortfall) excess (4,633) (29,612) (358) (2,624) (3,454)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

For both the third quarter and year-to-date, cash flow generated from
operating activities and net earnings were less than distributions declared.
Declared distributions and cash distributed levels are monitored and assessed
through internal forecasts which incorporate the most recent operating and
financial results, maintenance and growth capital requirements as well as
market activity and conditions. Based on this analysis, management does not
believe that the shortfalls in the table above have resulted in an economic
return of capital.
Distributions declared in excess of cash flow generated from operating
activities in the short term have been funded by drawing on the Corporation's
credit facility, the Fund's DRIP program which produced $9.6 million in
distributions that have been 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 of $29.9 million. The majority of the
assets related to this expense are funded by drawing on the fund's 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. For a
discussion of the annual trends please refer to page 14 of the Fund's
Management's Discussion and Analysis for the year ended December 31, 2006.
Total capital expenditures for the current year and comparative periods
are summarized as follows:

-------------------------------------------------------------------------
($000s) Q3 2007 Q3 2006 YTD 2007 YTD 2006
-------------------------------------------------------------------------
Growth capital 22,484 17,041 55,974 41,843
Acquisitions 11,596 16,640 37,593 160,537
-------------------------------------------------------------------------
Total growth capital and
acquisitions 34,080 33,681 93,567 202,380
Maintenance capital 5,257 7,970 11,008 16,142
-------------------------------------------------------------------------
Total acquisitions and capital
expenditures 39,337 41,651 104,575 218,522
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Growth capital and acquisitions to date in 2007 have been funded by
drawing on the Corporation's 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
at this time. The 2007 growth capital program includes $26.0 million in
corporate investments that primarily relate to the implementation of a new
information technology system throughout Canada and approximately
$12.0 million in leasehold improvements (before $5.7 million in tenant
improvement recoveries) for the new corporate head office which is expected to
be completed in the fourth quarter of 2007. The remaining $62.0 million is
being invested in facilities and equipment to expand services, improve
productivity and enhance market coverage in Western and Eastern.
Maintenance capital expenditures are capital expenditures to replace and
maintain depreciable assets at current service levels. Management estimates
that the total maintenance capital expenditures for the year will be
approximately $20.0 million. These expenditures will vary from
quarter-to-quarter and year-to-year depending on the utilization of the
assets. For fixed facilities maintenance capital expenditures tend to be
relatively consistent year-over-year, while equipment that is rented out to
customers will fluctuated 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. It is not anticipated that the short term
deficit of cash flow generated from operating activities will impact future
distributions as the Board of Trustees has maintained the monthly distribution
of $0.185 per unit in anticipation that investments made in 2007 will
contribute to stronger results in 2008.
On October 12, 2007, Newalta's management took steps to diversify its
capital resources and maturity of its capital resources and arranged a new
amended credit facility with a two-year term. Newalta replaced its 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 have been 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 letters 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
September 30, 2007, letters of credit and bonds issued as financial security
to third parties totalled $53.9 million. Of this amount, $40.1 million is
committed on the Corporation's credit facility which provides for
$60.0 million in letters of credit. Bonds are not required to be offset
against the borrowing amount available under the credit facility.
The second part of the diversification strategy included the issuance of
the Debentures announced on October 22, 2007. The offering is expected to
close on or about November 16, 2007. The Debentures have a maturity date of
November 30, 2012 and will 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 will be 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.
The Corporation has entered into a letter agreement with J.P. Morgan
Securities Inc. and CIBC World Markets Inc. (collectively, the "Agents")
pursuant to which the Agents have 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. There can be no assurance that all or any portion of
such private placement will be completed. Upon each issuance of Debt
Securities, if any, the Corporation is required under the Credit Facility to
repay and cancel a portion of the total commitment under the Credit Facility
equal to the net proceeds thereof up to a maximum of $200.0 million.
As at September 30, 2007, the Fund had drawn $230.8 million on its credit
facility compared to $166.3 million outstanding at December 31, 2006, an
increase of $64.5 million. The increase was due to recent acquisitions
completed for a total of $37.6 million, growth capital to date of
$57.8 million and distributions in excess of cash flow generated from
operating activities of $34.8 million (which includes net changes in working
capital). These were offset by an equity financing completed in January 2007
pursuant to which the Fund issued 3.0 million trust units for net proceeds of
$74.1 million. As at September 30, 2007, after giving effect to the Nova Pb
acquisition and applying the net proceeds of the convertible debenture issue,
Newalta's unused capacity on its credit facility was approximately
$204.7 million (net of outstanding letters of credit in the amount of
$40.1 million).
Newalta is restricted from declaring distributions and distributing cash
if the Corporation is in breach of the covenants under its credit facility.
Financial performance relative to the financial ratio covenants under the
current Credit Facility is reflected in the table below:

-------------------------------------------------------------------------
Ratio September 30, 2007 Threshold
-------------------------------------------------------------------------
Current Ratio(1) 1.92:1 1.20:1 minimum
Funded Debt to EBITDA(2) 2.57:1 3.00:1 maximum(3)
Fixed Charge Coverage Ratio(4) 2.02:1 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 fourth quarter of 2008 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.

During the three and nine months ended September 30, 2007, there have
been no material changes to the specified contractual obligations as set forth
in the Management's Discussion and Analysis for the year ended December 31,
2006.

OFF-BALANCE SHEET ARRANGEMENTS

Newalta currently has no off-balance sheet arrangements.

TRANSACTIONS WITH RELATED PARTIES

Bennett Jones LLP provides legal services to Newalta. Mr. Vance Milligan,
a Trustee of the Fund, is a partner in the law firm of Bennett Jones LLP and
is involved in providing and managing the legal services provided by Bennett
Jones LLP to Newalta. The total cost of these legal services during the three
and nine months ended September 30, 2007 was $0.1 million and $0.4 million,
respectively ($0.1 million and $0.7 million for the same periods in 2006).
Newalta provides oilfield services to Paramount Resources Ltd., an oil
and gas company. Mr. Clayton Riddell, a Trustee and Chairman of the Board of
the Fund, is Chairman and Chief Executive Officer of Paramount Resources Ltd.
The total revenue for services provided by Newalta to this entity for the
quarter and nine months ended September 30, 2007 was $0.2 million and
$1.2 million, respectively ($0.2 million and $1.1 million for the same periods
in 2006).
These transactions were in the normal course of operations on similar
terms and conditions to those entered into with unrelated parties. These
transactions are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.

CRITICAL ACCOUNTING ESTIMATES

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

ASSET RETIREMENT OBLIGATIONS

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

GOODWILL

Management performs a test for goodwill impairment annually and whenever
events or circumstances make it more likely than not that an impairment may
have occurred. Determining whether an impairment has occurred requires a
valuation of the respective reporting unit, which is estimated using a
discounted cash flow method. In applying this methodology, management relies
on a number of factors, including actual operating results, future business
plans, economic projections and market data. The increase of $13.6 million
since December 31, 2007 relates entirely to acquisitions completed in 2007.
Management tests the valuation of goodwill at each September 30 period end and
did not see any impairment in the goodwill balance recorded.

FUTURE INCOME TAXES

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

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

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

- The annual safe harbour amounts are cumulative.

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

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

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

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

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

AMORTIZATION AND ACCRETION

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

ADOPTION OF NEW ACCOUNTING STANDARDS IN 2007

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

Effective January 1, 2007, the Fund also adopted the new recommendations
under CICA Handbook section 1530, Comprehensive Income, section 3251, Equity,
section 3855, Financial Instruments - Recognition and Measurement, section
3861, Financial Instruments - Disclosure and Presentation and section 3865
Hedges. These new Handbook sections provide requirements for the recognition
and measurement of financial instruments and on the use of hedge accounting.
Section 1530 establishes standards for reporting and presenting comprehensive
income which is defined as the change in equity from transactions and other
events from non-owners sources. Other comprehensive income refers to items
recognized in comprehensive income but that are excluded from net earnings
calculated in accordance with generally accepted accounting principles.
Section 1530 requires the Fund to present a new statement entitled
Comprehensive Income. The new statement is included in the Fund's accompanying
interim consolidated financial statements for the three and nine months ended
September 30, 2007 and 2006.

BUSINESS RISKS

The business of Newalta is subject to certain risks and uncertainties.
Prior to making any investment decision regarding Newalta investors should
carefully consider, among other things, the risks described herein (including
the risks and uncertainties listed in the first paragraph of this Management's
Discussion and Analysis) and the risk factors set forth in the most recently
filed Annual Information Form of the Fund. These risk factors are incorporated
by reference herein and are supplemented by those described below.
As a result of its recent acquisition of the assets of Nova Pb, Newalta
owns Canada's largest integrated lead battery recycling facility which sells
recycled lead alloys to the automotive and industrial battery manufacturing
industries. The primary source of raw material for this business is waste lead
acid batteries that are purchased from a diversified network of scrap dealers,
waste collectors and battery manufacturers. The cost of the waste batteries
will fluctuate in relation to lead prices. The business of Newalta is
therefore directly affected by fluctuations in the price of lead which are
affected by events beyond Newalta's control.
Newalta is also subject to foreign currency risks and foreign exchange
exposure as an increasing portion of Newalta's operations are being conducted
in the United States. Fluctuations in the Canada/U.S. exchange rate increase
the risks that Newalta may experience from foreign exchange fluctuations and
may have an adverse effect on Newalta's business and results of operations.
The Annual Information Form is available through the Internet on the
Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which
can be accessed at www.sedar.com. Copies of the Annual Information Form may be
obtained, on request without charge, from Newalta Corporation at Suite 1200,
333 - 11th Avenue S.W., Calgary, Alberta T2R 1L9, or at www.newalta.com, or by
facsimile at (403) 806-7348.

FINANCIAL AND OTHER INSTRUMENTS

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

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL
REPORTING

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

ADDITIONAL INFORMATION

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

CONSOLIDATED BALANCE SHEETS

($000s) (unaudited) September 30, December 31,
2007 2006
-------------------------------------------------------------------------
Assets
Current assets
Accounts receivable 145,327 120,621
Inventories 12,138 9,238
Prepaid expenses and other 5,790 3,729
-------------------------------------------------------------------------
163,255 133,588
Notes receivable 1,452 1,031
Capital assets 588,191 528,085
Intangible assets (Note 3) 51,674 50,062
Goodwill (Note 3) 103,597 90,078
-------------------------------------------------------------------------
908,169 802,844
-------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable 77,411 90,650
Distributions payable 7,519 6,834
-------------------------------------------------------------------------
84,930 97,484
Long-term debt (Note 5) 230,849 166,271
Future income taxes (Note 6) 66,440 72,910
Asset retirement obligations (Note 11) 20,816 18,484
-------------------------------------------------------------------------
403,035 355,149
-------------------------------------------------------------------------
Unitholders' Equity
Unitholders' capital (Note 7) 481,849 394,601
Contributed surplus 1,029 1,226
Retained earnings 22,256 51,868
-------------------------------------------------------------------------
505,134 447,695
-------------------------------------------------------------------------
908,169 802,844
-------------------------------------------------------------------------
-------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME AND
RETAINED EARNINGS

For the For the
Three Months Ended Nine Months Ended
($000s except per unit data) September 30, September 30,
(unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue 133,358 120,297 362,789 318,543
Expenses
Operating 90,791 74,016 253,292 196,898
Selling, general and
administrative 13,545 11,182 39,070 31,380
Interest 3,632 1,378 8,570 5,241
Amortization and accretion 10,866 8,875 29,879 24,342
-------------------------------------------------------------------------
118,834 95,451 330,811 257,861
-------------------------------------------------------------------------
Earnings before taxes 14,524 24,846 31,978 60,682
Provision for (recovery of)
income taxes
Current 209 103 872 319
Future (3,578) 4,607 (6,470) 1,811
-------------------------------------------------------------------------
(3,369) 4,710 (5,598) 2,130
-------------------------------------------------------------------------
Net earnings from
continuing operations 17,893 20,136 37,576 58,552
Earnings from discontinued
operations (Note 4) - - - 1,657
-------------------------------------------------------------------------
Net earnings and
comprehensive income 17,893 20,136 37,576 60,209
Retained earnings,
beginning of period, 26,889 57,241 51,868 52,226
Distributions (Note 10) (22,526) (20,405) (67,188) (55,463)
-------------------------------------------------------------------------
Retained earnings,
end of period 22,256 56,972 22,256 56,972
-------------------------------------------------------------------------
Earnings per unit from
continuing operations (Note 9) 0.44 0.55 0.94 1.68
Earnings per unit from
discontinued operations (Note 9) - - - 0.05
-------------------------------------------------------------------------
Earnings per unit 0.44 0.55 0.94 1.73
-------------------------------------------------------------------------
Diluted earnings per unit from
continuing operations (Note 9) 0.43 0.54 0.93 1.66
Diluted earnings per unit from
discontinued operations (Note 9) - - - 0.05
-------------------------------------------------------------------------
Diluted earnings per unit 0.43 0.54 0.93 1.71
-------------------------------------------------------------------------
-------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF CASH FLOWS

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

OPERATING ACTIVITIES
Net earnings from
continuing operations 17,893 20,136 37,576 58,552
Items not requiring cash:
Amortization and accretion 10,866 8,875 29,879 24,342
Future income taxes
(recovery) (3,578) 4,607 (6,470) 1,811
Funds from discontinued
operations (Note 4) - - - 811
Other (308) 140 (1,425) 507
-------------------------------------------------------------------------
24,873 33,758 59,560 86,023
Increase in non-cash
working capital (4,094) (8,961) (26,229) (3,128)
Asset retirement
expenditures incurred (333) (193) (830) (759)
-------------------------------------------------------------------------
20,446 24,604 32,501 82,136
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to capital assets (24,656) (24,602) (81,979) (59,470)
Net proceeds on sale of
capital assets 133 120 1,848 388
Acquisitions (Note 3) (11,548) (14,738) (36,808) (149,373)
Proceeds on disposal of
discontinued operations - 135 - 2,807
-------------------------------------------------------------------------
(36,071) (39,085) (116,939) (205,648)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of units (3) 474 77,328 189,125
Increase (decrease) in debt 34,779 32,968 64,578 (19,056)
Settlement of acquired
debt (Note 3) (48) - (785) -
Decrease in notes receivable 108 119 235 252
Distributions to unitholders
(Note 10) (19,211) (19,080) (56,918) (46,809)
-------------------------------------------------------------------------
15,625 14,481 84,438 123,512
-------------------------------------------------------------------------
Net cash inflow - - - -
Cash - beginning of period - - - -
-------------------------------------------------------------------------
Cash - end of period - - - -
-------------------------------------------------------------------------
Supplementary information:
Interest paid 3,361 1,483 8,182 5,053
Income taxes paid 210 299 717 4,400
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

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

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

NOTE 1. BASIS OF PRESENTATION

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

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

Accounting Changes

Effective January 1, 2007, the Fund adopted the new accounting
recommendation of the Canadian Institute of Chartered Accountants
("CICA") under CICA Handbook section 1506, Accounting Changes. The impact
of this section is to provide disclosure of when an entity has not
applied a new source of GAAP that has been issued but is not yet
effective.

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
- 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 an impact on the
financial statements.

Financial instruments

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

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

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

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

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

Use of estimates and assumptions

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

Note 2. SEASONALITY OF OPERATIONS

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

For the Western division ("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 Western's services and, therefore, the second quarter
is generally the weakest quarter of the year for Western. The third
quarter is typically the strongest quarter for Western due to favourable
weather conditions and market cyclicality. Acquisitions and growth
capital investments completed in the first half of the year will tend to
strengthen second half financial performance. For Western, first quarter
revenue has ranged from 17% to 25% of annual revenue, second quarter
revenue has ranged from 19% to 25%, revenue from the third quarter has
ranged from 26% to 30% and finally fourth quarter revenue has ranged from
26% to 35%.

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

NOTE 3. ACQUISITIONS (NOTE 14)

a) On April 1, 2007, Western acquired all of the assets of Panaco Fluid
Filtration Systems Ltd. ("Panaco") for a total purchase price of
$5,927 in cash. Panaco and its 15 people based out of Rocky Mountain
House, Alberta, deliver onsite fluid filtration services to
refineries and gas plants as well as oil and gas exploration drilling
locations. Panaco provides services to western Canada and the United
States.

Effective May 1, 2007, Eastern acquired the operating assets of three
private entities (collectively referred to as Groupe Envirex,
"Envirex") based out of Québec for a collective purchase price of
$8,066 in cash. This acquisition adds four centrifuges to Eastern
servicing the Québec refinery and petrochemical market. The acquired
operations include a fleet of eight vacuum trucks and pressure
washers and a household waste, small industrial waste generator and
soil treatment business.

Effective May 1, 2007, Eastern acquired a portion of the operating
assets of EcoloSite Inc. ("Ecolosite"), based in London, Ontario, for
a total purchase price of $3,104, comprised of $2,367 in cash and the
assumption of $737 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 $9,293 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.

Eastern acquired the assets of Bucke Environmental Services &
Transportation Inc. ("BEST") effective July 6, 2007 for a total
purchase price of $1,435, comprised of $1,387 in cash and the
assumption of $48 in debt. The acquired assets include four vacuum
trucks and related assets in the Windsor area.

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 $9,768 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 amount of the consideration paid and the fair value of the assets
acquired and liabilities assumed were:

Eastern
Eco- Environ- New
Panaco Envirex losite mental BEST West Total
-------------------------------------------------------------------------
Cash
consideration 5,927 8,066 2,367 9,293 1,387 9,768 36,808
Debt assumed - - 737 - 48 - 785
-------------------------------------------------------------------------
Total Purchase
Price 5,927 8,066 3,104 9,293 1,435 9,768 37,593
-------------------------------------------------------------------------
Net working
capital 294 (53) - 226 - 231 698
Capital assets:
Land 45 800 - 202 - - 1,047
Plant &
equipment 2,270 4,719 2,539 3,886 1,085 4,037 18,536
Intangibles 500 1,000 - 1,000 350 1,000 3,850
Goodwill 2,818 1,600 581 4,020 - 4,500 13,519
Asset retirement
obligations - - (16) (40) - - (56)
-------------------------------------------------------------------------
5,927 8,066 3,104 9,293 1,435 9,768 37,593
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

b) On January 6, 2006 the Fund, through a wholly-owned subsidiary,
acquired all the shares of PSC Industrial Services Canada Inc. ("PSC
Canada"). PSC Canada is engaged in the business of collecting and
disposing of industrial waste material in southern Ontario. The
acquired operations were set up as a separate division of Newalta, as
described in Note 15. The amount of the consideration paid and the
fair value of the assets acquired and liabilities assumed is shown
below.

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

The operating assets of Québec-based Norama Industries Inc.
("Norama") were acquired on August 1, 2006 for cash consideration of
$10,842. Norama added to the Eastern segment, 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, Eastern acquired all of the operating assets of
Island Waste Management Inc. ("Island Waste") including a 49%
partnership interest in the Labrador Innu Waste Management
partnership for $5,798. 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.

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

PSC Island
Canada Treeline Norama Waste Total
-------------------------------------------------------------------------
Deferred costs -
paid in 2005 7,175 - - - 7,175
Cash paid in 2006 113,230 13,804 10,842 3,898 141,774
Equity issued - 5,000 - 1,900 6,900
-------------------------------------------------------------------------
Total consideration 120,405 18,804 10,842 5,798 155,849
-------------------------------------------------------------------------
Net working capital 9,164 8,239 (50) (20) 17,333
Debt acquired - (8,700) - - (8,700)
Capital assets:
Land 3,643 - 614 464 4,721
Plant & equipment 22,337 167 3,946 200 26,650
Landfill 71,187 - - - 71,187
Intangibles 34,600 - 720 1,367 36,687
Goodwill 15,239 18,956 5,700 3,825 43,720
Future income tax (23,274) 142 - - (23,132)
Asset retirement
obligations (12,491) - (88) (38) (12,617)
-------------------------------------------------------------------------
120,405 18,804 10,842 5,798 155,849
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 4. DISCONTINUED OPERATIONS

On May 31, 2006, the Corporation disposed of a non-core industrial onsite
cleaning services operation that was sold for total proceeds of $3,472
consisting of $2,672 in cash and an $800 non-interest bearing promissory
note. The note receivable was valued on the balance sheet at its net
present value of $748. The note was repayable in equal quarterly
instalments of $135 until May 31, 2007 and the balance of the note was
due on June 30, 2007. The full balance of the note receivable outstanding
at June 30, 2007 was received in early July. The gain in the table below
is reflected net of a disposition of the proportionate goodwill of
$1,500. The following table sets forth the results of operations
(excluding selling, general and administration costs and divisional
administration costs), associated with the operations sold, for the three
and nine months ended September 30, 2006 that have been reclassified from
the following accounts to earnings from discontinued operations:

September 30, 2006
-------------------------------------------------------------------------
Three Months Nine Months
Ended Ended
-------------------------------------------------------------------------
Revenue - 5,408
Operating expenses - 4,597
-------------------------------------------------------------------------
- 811
Amortization and accretion - 21
Future income tax - 284
Gain on disposition (net of tax) - (1,151)
-------------------------------------------------------------------------
Earnings from discontinued operations - 1,657
-------------------------------------------------------------------------
-------------------------------------------------------------------------


NOTE 5. LONG-TERM DEBT

September 30, December 31,
2007 2006
-------------------------------------------------------------------------
Extendible term facility 230,849 166,271
-------------------------------------------------------------------------
-------------------------------------------------------------------------

On October 12, 2007 Newalta replaced its previous credit facilities
(comprised of a $35,000 operating facility and a $245,000 extendible term
credit facility) with a $425,000 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
$60,000. 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.
The credit facility is secured principally by a general security
agreement over the assets of the Corporation and its subsidiary NISI.
Interest on the facilities is subject to certain conditions, and may be
charged at a prime, 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%
LIBOR Rate 0.9% to 2.0%
-----------------------------------------------

The facility is secured by a fixed and floating charge debenture to the
lenders 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 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
September 30, 2007, Newalta was in compliance with all covenants.

NOTE 6. FUTURE INCOME TAXES

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 31.5% 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 a result of the
New Tax Legislation, Newalta is required to reflect any previously
unrecognized temporary differences in the consolidated financial
statements of the Fund. Newalta has determined that there are no
unrecognized temporary differences resulting from the new tax
legislation.

NOTE 7. UNITHOLDERS' CAPITAL

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

Units (No.) Amount ($)
-------------------------------------------------------------------------
Units outstanding as at December 31, 2005 29,055 188,761
Units issued 7,000 185,718
Units issued for acquisitions 215 6,900
Contributed surplus on rights exercised - 500
Rights exercised 365 4,194
Units issued under the DRIP 307 8,528
------------------------------------------------------------------------
Units outstanding as at December 31, 2006 36,942 394,601
Units issued 3,000 74,105
Contributed surplus on rights exercised - 335
Rights exercised 289 3,222
Units issued under the DRIP 412 9,586
------------------------------------------------------------------------
Units outstanding as at September 30, 2007
(Note 14) 40,643 481,849
------------------------------------------------------------------------
------------------------------------------------------------------------

On January 26, 2007, the Fund issued 3,000,000 units through a bought
deal equity financing at a price of $26.10 per unit for net proceeds of
$74,105 after share issuance costs of $4,195.

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

NOTE 8. RIGHTS TO ACQUIRE TRUST UNITS

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

NOTE 9. EARNINGS PER UNIT

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

The calculation of dilutive earnings per unit does not include anti-
dilutive rights, if any. These rights would not be exercised during the
period because their exercise price is higher than the average market
price for the period. The inclusion of these rights would cause the
diluted earnings per unit to be overstated. The number of excluded rights
for the three and nine months ended September 30, 2007 was 1,635 and
1,974 (705,000 for both the three and nine months periods ended
September 30, 2006).

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Weighted average
number of units 40,579 36,734 40,056 34,774
Net additional units if
rights exercised 146 545 168 526
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted weighted average
number of units 40,725 37,279 40,224 35,300
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 10. UNITHOLDER DISTRIBUTIONS DECLARED AND PAID

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

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Unitholder distributions
declared 22,526 20,405 67,188 55,463
per unit - $ 0.555 0.555 1.665 1.585
Unitholder distributions -
paid in cash 19,211 19,080 56,918 46,809
Unitholder distributions -
value paid in units 3,286 1,296 9,586 6,640
paid in cash - per unit $ 0.47 0.520 1.42 1.388
issued units - per unit $ 0.08 0.035 0.24 0.177
-------------------------------------------------------------------------
-------------------------------------------------------------------------


NOTE 11. RECONCILIATION OF ASSET RETIREMENT OBLIGATIONS

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

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Asset retirement obligations,
beginning of period 20,715 18,147 18,484 5,468
Additional retirement
obligations added through
acquisitions - 126 56 12,617
Additional retirement
obligations added through
development activities - - 664 -
Additional retirement
obligations added through a
change of estimate - - 1,182 -
Expenditures incurred to
fulfill obligations (333) (193) (830) (759)
Accretion 434 378 1,260 1,132
-------------------------------------------------------------------------
Asset retirement obligations,
end of period 20,816 18,458 20,816 18,458
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 12. 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 and nine month periods ended September 30, 2007
were $140 and $422 respectively ($112 and $700 for the same periods in
2006).

Newalta provides oilfield services to Paramount Resources Ltd., an oil
and gas company. Mr. Clayton Riddell, a Trustee and Chairman of the Board
of the Fund, is Chairman and Chief Executive Officer of Paramount
Resources Ltd. The total revenue for services provided by Newalta to this
entity during the three and nine months ended September 30, 2007 were
$226 and $1,214 respectively ($200 and $1,100 for the same periods in
2006).

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

NOTE 13. COMMITMENTS

Letters of Credit and Surety Bonds

At September 30, 2007, the Corporation had issued Letters of Credit and
Bonds with respect to compliance with environmental licenses and
contracts with third parties in the amounts of $40,075 and $13,858
respectively.

NOTE 14. SUBSEQUENT EVENTS

Subsequent to September 30, 2007, Newalta entered into the following
transactions:

On October 16, 2007, the Eastern segment completed the acquisition of
Nova Pb's lead recycling facility business for total consideration of
$55,500 comprised of $45,000 in cash paid at closing, $500 in cash
payable in 2008 and the balance was funded through the issuance of
510,690 trust units. Although the effective date of the transaction
is November 1, 2007, since certain inventory relating to the
operation of the business prior to November 1, 2007 will be sold for
the account of Nova Pb after November 1, 2007, Newalta does not
anticipate receiving any revenue related to this operation prior to
December 1, 2007 at the earliest.

On October 22, 2007, the Fund announced the offering of $100,000 of
convertible unsecured subordinated debentures (the "Debentures") on a
bought deal basis. The offering is expected to close on or about
November 16, 2007. The Debentures have a maturity date of
November 30, 2012 and will 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 will be used to repay outstanding
indebtedness of the Fund incurred to fund acquisitions and growth
capital. In addition, as subordinated debt, the issuance of the
Debentures, does not affect the borrowing capacity on the new amended
credit facility. In addition, the underwriters of the Debentures have
the option to purchase up to an additional $15,000 in debentures
within thirty days of the closing.

On October 30, 2007, the Corporation entered into a letter agreement
with J.P. Morgan Securities Inc. and CIBC World Markets Inc.
(collectively, the "Agents") pursuant to which the Agents have agreed
to act as placement agents, on a best efforts basis, in connection
with a possible offering by the Corporation of approximately $150,000
of debt securities (the "Debt Securities") on a private placement
basis. There can be no assurance that all or any portion of such
private placement will be completed. Upon each issuance of Debt
Securities, if any, the Corporation is required under the Credit
Facility to repay and cancel a portion of the total commitment under
the Credit Facility equal to the net proceeds thereof up to a maximum
of $200,000.

NOTE 15. SEGMENTED INFORMATION

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

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

For the Three Months Ended September 30, 2007
Consol-
Inter- Unallo- idated
Western Eastern segment cated(3) Total
-------------------------------------------------------------------------
External revenue 93,493 39,823 - 42 133,358
Inter segment revenue(1) 105 - (105) - -
Operating expense 61,618 29,278 (105) - 90,791
Amortization and
accretion expense 5,604 3,184 - 2,078 10,866
-------------------------------------------------------------------------
Net margin 26,376 7,361 - (2,036) 31,701
Selling, general and
administrative - - - 13,545 13,545
Interest expense - - - 3,632 3,632
-------------------------------------------------------------------------
Operating income 26,376 7,361 - (19,213) 14,524
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 19,738 11,560 - 8,039 39,337
-------------------------------------------------------------------------
Goodwill 62,280 41,317 - - 103,597
-------------------------------------------------------------------------
Total assets 561,233 310,799 - 36,137 908,169
-------------------------------------------------------------------------
-------------------------------------------------------------------------


For the Three Months Ended September 30, 2006
Consol-
Inter- Unallo- idated
2006 Western Eastern segment cated(3) Total
-------------------------------------------------------------------------
External revenue 95,502 24,795 - - 120,297
Inter segment revenue(1) - - - - -
Operating expense 57,998 16,018 - - 74,016
Amortization and
accretion expense 5,077 3,274 - 524 8,875
-------------------------------------------------------------------------
Net margin 32,427 5,503 - (524) 37,406
Selling, general and
administrative - - - 11,182 11,182
Interest expense - - - 1,378 1,378
-------------------------------------------------------------------------
Operating income -
continuing operations 32,427 5,503 - (13,084) 24,846
-------------------------------------------------------------------------
Operating income -
discontinued operations - - - - -
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 12,180 25,597 - 3,872 41,649
-------------------------------------------------------------------------
Goodwill 53,710 23,273 - - 76,983
-------------------------------------------------------------------------
Total assets 485,401 192,144 - 30,768 708,313
-------------------------------------------------------------------------

(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 Nine Months Ended September 30, 2007
Consol-
Inter- Unallo- idated
Western Eastern segment cated(3) Total
-------------------------------------------------------------------------
External revenue 257,399 104,735 - 655 362,789
Inter segment revenue(1) 538 - (538) - -
Operating expense 174,397 79,433 (538) - 253,292
Amortization and
accretion expense 15,029 10,647 - 4,203 29,879
-------------------------------------------------------------------------
Net margin 68,511 14,655 - (3,548) 79,618
Selling, general
and administrative - - - 39,070 39,070
Interest expense - - - 8,570 8,570
-------------------------------------------------------------------------
Operating income 68,511 14,655 - (51,188) 31,978
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 42,810 44,447 - 17,318 104,575
-------------------------------------------------------------------------
Goodwill 62,280 41,317 - - 103,597
-------------------------------------------------------------------------
Total assets 561,233 310,799 - 36,137 908,169
-------------------------------------------------------------------------
-------------------------------------------------------------------------


For the Nine Months Ended September 30, 2006
Consol-
Inter- Unallo- idated
Western Eastern segment cated(3) Total
-------------------------------------------------------------------------
External revenue 259,608 58,935 - - 318,543
Inter segment revenue(1) - - - - -
Operating expense 155,670 41,228 - - 196,898
Amortization and
accretion expense 15,186 7,721 - 1,435 24,342
-------------------------------------------------------------------------
Net margin 88,752 9,986 - (1,435) 97,303
Selling, general
and administrative - - - 31,380 31,380
Interest expense - - - 5,241 5,241
-------------------------------------------------------------------------
Operating income -
continuing operations 88,752 9,986 - (38,056) 60,682
-------------------------------------------------------------------------
Operating income -
discontinued operations - 1,657 - - 1,657
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 57,263 150,655 - 10,605 218,523
-------------------------------------------------------------------------
Goodwill 53,710 23,273 - - 76,983
-------------------------------------------------------------------------
Total assets 485,401 192,144 - 30,768 708,313
-------------------------------------------------------------------------

(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