Newalta Income Fund
TSX : NAL.UN

Newalta Income Fund

August 11, 2005 07:00 ET

Newalta Income Fund Announces 2005 Second Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 11, 2005) - Newalta Income Fund (TSX:NAL.UN) ("Newalta" or the "Fund") today announced financial results for the three and six months ended June 30, 2005. Revenue and operating results improved in both divisions in spite of unseasonably wet weather in June which led to a general slowdown in activity and restricted the transportation of waste to our processing facilities. Revenue for the three months ended June 30, 2005 improved 16% to $47.0 million compared to $40.4 million and combined divisional net margin5 increased 19% to $15.1 million compared to $12.7 million last year. Operating expenses, as a percent of revenue, were reduced to 59% compared to 60% in the same quarter last year.

The Industrial division ("Industrial") continued to drive improved profitability and increased returns. Revenue was up 6% to $17.3 million and net margin improved 27% to $3.1 million compared to $16.4 million and $2.4 million, respectively, in the second quarter of 2004. Increased profitability was attributable to the expansion and acquisition of profitable services, improved product pricing and cost reduction initiatives. Wet weather delayed on-site projects and limited further gains. Higher crude oil prices resulted in a decline in net margin of $0.6 million in the quarter, due to decreased collection revenue and increased vehicle fuel costs. Excluding the impact of higher crude oil prices, net margin increased by 51%. Maintenance capital expenditures were $0.3 million compared to $0.7 million in 2004.

The Oilfield division ("Oilfield") also generated strong results in the quarter as revenue increased to $29.8 million, up 23% from $24.1 million, and net margin increased to $12.0 million, up 17% from $10.2 million in 2004. Financial performance was negatively impacted by the inclement weather. Third party well completions and workovers were down approximately 20% during the quarter, impacting oilfield waste processing volumes. Crude oil sales were relatively unchanged compared to the same quarter of 2004. The volume of crude oil recovered by Newalta was down 15% while the average price per barrel sold increased 17%. Two-thirds of the revenue increase in the quarter was attributable to growth in on-site services, satellites and partnerships, which resulted from growth capital expenditures in 2004. Maintenance capital expenditures were $2.2 million compared to $2.3 million in 2004.

Selling, general and administrative ("SG&A") costs in the quarter increased by $1.3 million to $5.4 million compared to $4.1 million in 2004. The increase in SG&A costs was due primarily to increased salaries and related costs, corporate governance, advertising and other costs associated with growth in the business.

Cash flow(2) of $13.1 million, or $0.48 per unit, for the three months increased by 12% compared to $11.7 million, or $0.43 per unit, in 2004. Cash available for growth and distributions(3) grew by 38% to $10.5 million, or $0.38 per unit, compared to $7.6 million, or $0.28 per unit, in the same quarter last year. Cash distributed4 to unitholders represented 103% of cash available for growth and distributions in the quarter, but represented 79% for the six months ended June 30, 2005.

On July 28, 2005, the Fund entered into a new credit agreement with a lending syndicate of four Canadian chartered banks. Under this new $130.0 million credit agreement, Newalta's extendible operating line to fund working capital remains at $25.0 million and the extendible term facility to fund growth was increased from $65.0 million to $105.0 million.

Maintenance capital expenditures in the quarter were $2.7 million compared to $3.3 million in 2004. Total maintenance capital expenditures are still estimated to be approximately $9.0 million in 2005. Growth and acquisition capital expenditures in the quarter were $7.8 million compared to $11.4 million in 2004. An Oilfield facility in Plover Lake, Saskatchewan was acquired during the quarter for total cash consideration of $4.1 million. In addition, effective August 1, 2005, substantially all of the assets of WasteCo Environmental Services Ltd., an Oilfield and Industrial waste management operation, were acquired for cash consideration of approximately $7.6 million and is expected to contribute approximately $25.0 million in revenue on an annualized basis. Total capital expenditures for the year, excluding any additional acquisitions, are estimated to be $62.0 million.

"Our financial results for the quarter and year-to-date have been consistent with our expectations. We are making steady progress on improving profitability and returns. We have completed $20.0 million in acquisitions in 2005 and we are expecting a total of $30.0 million in growth capital expenditures this year to set the foundation for strong future growth," said Al Cadotte, Newalta Income Fund's President and Chief Executive Officer.

Newalta's liquidity and capital resource capacity remains strong with a working capital ratio of 1.79, a long-term debt to 12-month trailing EBITDA(1) ratio of 0.88 and $70.2 million of the credit facility unutilized at June 30, 2005.

During the quarter, a total of $1.6 million was reinvested by unitholders under the Distribution Reinvestment Plan (the "DRIP"), representing an average participation rate of approximately 13%, resulting in Newalta issuing 74,363 trust units. The DRIP provides eligible holders of trust units of Newalta with the opportunity to reinvest their monthly cash distributions to acquire additional trust units at a net purchase price equal to 95% of the average market price as defined in the DRIP.



FINANCIAL RESULTS AND HIGHLIGHTS

------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
(unaudited) (unaudited)
($000s except %Increase %Increase
per unit data) 2005 2004 (Decrease) 2005 2004 (Decrease)
------------------------------------------------------------------------
Revenue 47,037 40,449 16 95,523 83,338 15
Operating income 8,674 8,094 7 19,689 18,356 7
Net earnings 8,344 7,879 6 18,139 17,753 2
Earnings per
unit ($) 0.30 0.29 3 0.66 0.66 -
Diluted net
earnings per
unit ($) 0.30 0.28 7 0.65 0.65 -
EBITDA(1) 13,713 11,982 14 29,779 25,829 15
Trailing 12
month EBITDA 58,876 55,214 7
Cash flow(2) 13,122 11,681 12 28,540 25,484 12
- per unit - ($) 0.48 0.43 12 1.04 0.94 11
Maintenance
capital
expenditures 2,674 3,315 (19) 3,555 4,340 (18)
Principal
repayments - 750 (100) - 1,500 (100)
Cash available
for growth and
distributions(3) 10,479 7,587 38 25,060 19,611 28
- per unit - ($) 0.38 0.28 36 0.91 0.73 25
Distributions
declared 12,419 10,193 22 23,373 19,214 22
- per unit - ($) 0.45 0.38 18 0.85 0.71 20
Cash
distributed(4) 10,775 10,172 6 19,688 18,627 6
Growth and
acquisition
capital
expenditures 7,843 11,396 (31) 20,206 25,661 (21)
Weighted average
units outstanding 27,574 27,147 2 27,458 27,011 2
Total units
outstanding 27,677 27,240 2 27,677 27,240 2
------------------------------------------------------------------------
------------------------------------------------------------------------


(1) EBITDA is provided to assist management and investors in determining the ability of Newalta to generate cash from operations. EBITDA as presented does not have any standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and may not be comparable to the calculation of similar measures for other funds or entities. EBITDA is calculated from the consolidated statements of operations and accumulated earnings and is defined as revenue less operating and selling, general and administrative expenses.

(2) Cash flow is used by management to analyze operating performance and leverage. Cash flow as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other funds or entities. Cash flow as presented is not intended to represent operating cash flow 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. Cash flow is calculated from the consolidated statements of cash flows and is defined as cash provided by operating activities before changes in non-cash working capital and asset retirement costs.

(3) Cash available for growth and distributions is used by management to supplement cash flow as a measure of operating performance and leverage. Cash available for growth and distributions as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other funds or entities. The objective of this non-GAAP measure is to calculate the amount which is available for distribution to unitholders. Cash available for growth and distributions is defined as cash flow less maintenance capital expenditures, principal repayments, asset retirement costs and deferred costs plus net proceeds on sales of fixed assets.

(4) Cash distributed is provided to assist management and investors in determining the actual cash outflow to unitholders in each period and is used to analyze liquidity. Cash distributed as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other funds or entities. Cash distributed is defined as distributions declared for the period plus opening distributions payable, less ending distributions payable and distributions reinvested by unitholders under the DRIP during the period.

(5) Net margin is used by management to analyze divisional operating performance. Net margin as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other funds or entities. 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 depreciation and accretion expenses.

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

Management will hold a conference call on Thursday, August 11, 2005 at 1:00 p.m. (ET) to discuss the Fund's performance for the three months and six months ended June 30, 2005. To listen, please dial 1-888-334-9269 or 416-695-9709, or log onto the webcast at www.newalta.com. For those unable to listen to the live event, a rebroadcast will be available at www.newalta.com and, until midnight on August 18, 2005, by dialing 1-888-509-0081 or 416-695-5275.

Newalta Income Fund is an open-ended trust that maximizes the inherent value in certain industrial wastes through recovery of saleable products and recycling, rather than disposal. Through an integrated network of 44 state-of-the-art facilities, Newalta delivers world-class solutions to a broad customer base of national and international corporations, in a range of industries, including the automotive, forestry, pulp and paper, manufacturing, mining, oil and gas, petrochemical, and transportation services industries. With a track record of profitable growth and environmental stewardship, Newalta is focused on leveraging its position in new service sectors and geographic markets from coast to coast.

NEWALTA INCOME FUND

Management's Discussion and Analysis

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005

This document contains certain forward-looking statements, relating to the operations or to the environment in which Newalta Income Fund (the "Fund") and Newalta Corporation (the "Corporation" and together with the Fund, "Newalta") operate, which are based on Newalta's operations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict, or are beyond Newalta's control. A number of important factors could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. These factors include, but are not limited to, general economic, regulatory, oil and gas industry activity and such other risks or factors described from time to time in the reports filed with securities regulatory authorities by Newalta. Consequently, readers should not place any undue reliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Newalta does not undertake any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained in this document are expressly qualified by this cautionary statement.

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 provided to assist management and investors in determining the ability of Newalta to generate cash from operations. EBITDA is calculated from the consolidated statements of operations and accumulated earnings and is defined as revenue less operating and selling, general and administrative expenses. All references to EBITDA throughout this document have the meaning set out in this note.

"Cash flow" is provided to assist management and investors in analyzing operating performance and leverage. Cash flow as presented is not intended to represent operating cash flow 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. Cash flow is calculated from the consolidated statements of cash flows and is defined as cash provided by operating activities before changes in non-cash working capital and asset retirement costs. All references to cash flow and cash flow per unit throughout this document have the meaning set out in this note.

"Cash available for growth and distributions" is used by management to supplement cash flow as a measure of operating performance and leverage. The objective of this non-GAAP measure is to calculate the amount which is available for distribution to unitholders. Cash available for growth and distributions is defined as cash flow less maintenance capital expenditures, principal repayments, asset retirement costs and deferred costs plus net proceeds on sales of fixed assets. All references to cash available for growth and distributions throughout this document have the meaning set out in this note.

"Cash distributed" is provided to assist management and investors in determining the actual cash outflow to unitholders in each period and is used to analyze liquidity. Cash distributed is defined as distributions declared for the period plus opening distributions payable, less ending distributions payable and distributions reinvested by unitholders under the DRIP during the period. All references to cash distributed throughout this document have the meaning set out in this note.

"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 depreciation and accretion expenses. All references to net margin throughout this document have the meaning set out in this note.

The following discussion and analysis should be read in conjunction with the consolidated interim financial statements of the Fund and the notes thereto for the six months ended June 30, 2005, the consolidated financial statements of the Fund and notes thereto, the Management's Discussion and Analysis and the Annual Information Form of the Fund for the year ended December 31, 2004, and the consolidated interim financial statements of the Fund and the notes thereto and the Management's Discussion and Analysis for the six months ended June 30, 2004.

Information for the three months and six months ended June 30, 2005, along with comparative information for 2004, is provided.

This Management's Discussion and Analysis is dated August 10, 2005 and takes into consideration information available up to that date.

OVERALL PERFORMANCE

Strong performance in the second quarter was tempered by unusually wet weather conditions in the month of June which reduced activity levels in both divisions. In spite of this, Newalta achieved revenue growth of 16% to $47.0 million and improved profitability as combined divisional net margin increased by 19% to $15.1 million, compared to $40.4 million and $12.7 million, respectively, in 2004. The Industrial division ("Industrial") was the primary source for the increased profitability as revenue grew 6% to $17.3 million, while net margin increased 27% to $3.1 million, compared to $16.4 million and $2.4 million, respectively, in 2004. Increased profitability was attributed to the expansion and acquisition of profitable services, improved product pricing and cost reduction initiatives. High crude oil prices continued to impact Industrial, resulting in a reduction to net margin of $0.6 million due to decreased collection revenue and increased transportation fuel costs. Strong results were also generated in the Oilfield division ("Oilfield"), although performance was affected by the wet weather. The number of third party well completions and workovers were down approximately 20% on the quarter, impacting Oilfield waste processing volumes, yet revenue grew by 23% to $29.8 million and net margin increased 17% to $12.0 million compared to last year. A significant portion of the revenue growth in Oilfield was attributable to 2004 growth capital initiatives related to the expansion in on-site services, satellites and partnerships, as well as contribution from acquisitions completed in 2004. Crude oil sales did not impact revenue growth in the second quarter as increases in commodity prices were offset by reduced volumes sold.

Cash flow increased 12% to $13.1 million, or $0.48 per unit, compared to $11.7 million, or $0.43 per unit, in 2004. For the first half of 2005, cash flow was up by 12% to $28.5 million, or $1.04 per unit, compared to $25.5 million, or $0.94 per unit. Maintenance capital expenditures, which are funded from cash flow, were $2.7 million compared to $3.3 million in 2004. Cash available for growth and distribution in the second quarter increased 38% to $10.5 million compared to $7.6 million in 2004, due to increased cash flow and the elimination of principal repayments. Cash distributed to unitholders represented 103% of cash available for growth and distributions in the quarter, but represented 79% for the six months ended June 30, 2005.

Growth capital expenditures of $3.7 million were incurred in the quarter compared to $6.3 million in 2004. Contribution from the growth capital expenditures in 2004 was experienced in both divisions during the second quarter. Total acquisition expenditures were $4.1 million compared to $5.1 million in 2004.

Segmented information is discussed in further detail in the Results of Operations.

RESULTS OF OPERATIONS

Revenue increased $6.6 million in the second quarter, of which $5.7 million was generated from Oilfield and $0.9 million from Industrial. For the first half of 2005, revenue increased $12.2 million or 15% to $95.5 million compared to $83.3 million in 2004, of which $11.3 million of the revenue increase was derived from Oilfield and the remainder from Industrial. A significant portion of the Oilfield revenue increase for each of the six and three months ended June 30, 2005 was attributable to growth in on-site services, satellites and partnerships. Crude oil sales accounted for $0.9 million of Oilfield's revenue increase in the first half. Industrial continued to experience the effect of high crude oil prices as collection revenue was adversely impacted by an estimated $0.7 million in the first six months of 2005. Excluding the impact of high crude oil prices, Industrial revenue was up by $1.6 million in the first half, attributable to improved product sales and the contribution from acquisition and growth capital initiatives completed in 2004.

While revenue in the second quarter increased 16%, combined divisional net margin increased 19% to $15.1 million compared to $12.7 million in 2004. Improved profitability was driven by Industrial due primarily to improved product pricing and management initiatives aimed at improving operating efficiency and reducing costs. Combined divisional net margin for the first half increased 19% to $32.5 million compared to $27.4 million in 2004.

Operating expenses, as a percent of revenue, were reduced to 59% compared to 60% in the second quarter of 2004. For the first half of 2005, operating expenses were 58% of revenue compared to 59% in the prior year. Initiatives relating to improving margins and expanding profitable service areas are proceeding as planned.

INDUSTRIAL

Industrial collects liquid and semi-solid industrial wastes as well as automotive wastes, including lubricating oil, and provides mobile site services in western Canada. Recovered materials are processed into resaleable products. Industrial produces various resaleable products from waste lubricating oil, including base oils, refinery feedstocks, industrial fuels and carrier fluids such as drilling oil. Industrial accounted for 32% of Newalta's total assets and generated 37% of Newalta's total revenue for the quarter ended June 30, 2005. Approximately $8.3 million or 48% of revenue during the quarter was derived from product sales as compared to $7.4 million or 47% in 2004. The balance of Industrial's revenue was derived mainly from collection and processing fees, which remained unchanged at $8.9 million compared to the same quarter of 2004. Industrial's performance is impacted by the general state of the economy in western Canada, as well as commodity prices and economic conditions related to the oil and gas, mining and forestry industries. The automotive market into which the resaleable Industrial products are sold is generally a stable market as the sale of goods such as lube oil does not significantly fluctuate from year to year.

Industrial revenue for the second quarter increased $0.9 million or 6% to $17.3 million compared to $16.4 million in 2004. Net margin increased $0.7 million or 27% to $3.1 million compared to $2.4 million in 2004. High crude oil prices continued to impact Industrial in the second quarter, resulting in an estimated reduction to net margin of $0.6 million due to decreased used oil collection revenue, as industrial fuel consumers sourced alternative fuel sources, and increased transportation fuel costs. Excluding this effect, Industrial's revenue was up $1.3 million or 8% and net margin was up $1.3 million or 51%. Increased profitability was attributable to the expansion and acquisition of profitable services, improved product pricing and cost reduction initiatives. Used oil collection volumes showed modest improvement compared to the same quarter in 2004. Wet weather limited further gains by delaying project work and site services activities such as road de-dust.

Growth capital expenditures in the second quarter were $0.6 million compared to $1.0 million in 2004. Maintenance capital expenditures were $0.3 million compared to $0.7 million in 2004.

Industrial will continue to focus on developing product markets, leveraging its centrifugation expertise in sludge processing, increasing utilization of its fleet of mobile equipment for site services, expanding wastewater processing as well as identifying potential acquisitions of complementary businesses. This strategy, combined with the contribution from acquisitions and growth capital spending investments undertaken in 2004, is anticipated to contribute to strong performance for the remainder of 2005.

OILFIELD

Oilfield recovers and resells crude oil from oilfield waste. Oilfield accounted for approximately 63% of Newalta's total assets and generated 63% of Newalta's revenue in the second quarter. Revenue from Oilfield is generated mainly from the fees charged for the treatment and processing of various oilfield waste materials and from the sale of recovered crude oil. Approximately 85% of revenue is derived from day to day production-related waste. Revenue is also impacted by oilfield activity levels which are driven mainly by commodity prices. A change of Cdn $1.50 for WTI is estimated to impact operating income by approximately $0.5 million.

Oilfield revenue increased to $29.8 million, up 23% from $24.1 million, and net margin increased to $12.0 million, up 17% from $10.2 million. Despite the strong results, performance was negatively impacted by unseasonably wet weather in the second quarter which delayed drilling and completions activity and impacted Oilfield waste processing volumes. The number of third party well completions and workovers in Western Canada were down approximately 20% during the quarter compared to the prior year. A significant portion of the revenue growth in Oilfield was provided by 2004 growth capital initiatives related to the expansion of on-site services, satellites and partnerships, as well as contribution from acquisitions completed in 2004. Crude oil sales did not contribute to revenue growth in the quarter as higher crude oil prices were offset by lower volumes.

Recovered crude oil sales decreased by 0.5% to $3.7 million compared to $3.8 million in 2004. The volume of crude oil sold to Newalta's account was 78,015 barrels compared to 91,960 barrels in 2004, representing a decrease of 15%. This decrease is mainly attributable to cavern oil recoveries. The price per barrel sold increased by 17% to an average price of Cdn $48.15 per barrel compared to an average price of Cdn $41.04 per barrel in 2004. The total volume of crude oil recovered in the second quarter increased by 4% to 236,700 barrels compared to 226,800 barrels in 2004.

Acquisitions completed in the second quarter included an Oilfield facility in Plover Lake, Saskatchewan acquired on April 15, 2005 for total cash consideration of $4.1 million. This acquisition, in addition to the Greencourt, Alberta facility acquired in the first quarter, provided meaningful contribution to revenue and net margin in the second quarter. Growth capital expenditures in the division were $1.8 million compared to $4.5 million in 2004. Maintenance capital expenditures were $2.2 million compared to $2.3 million in 2004.

The outlook for Oilfield for the remainder of 2005 remains positive. Activity levels have been strong in the third quarter and are expected to remain strong as producers take advantage of favourable market conditions and robust commodity prices. Growth capital investments and acquisitions made in 2004 are expected to continue to positively impact performance for the remainder of 2005. These conditions, combined with the continued impact of management initiatives, a plan to develop complementary services and an aggressive growth program, should result in continued strong results.

CORPORATE AND OTHER

Selling, general and administrative ("SG&A") costs increased $1.3 million or 30% to $5.4 million compared to $4.1 million in the second quarter of 2004. The increase in second quarter SG&A costs was due primarily to increased salaries and related costs, corporate governance, advertising and other costs associated with growth in the business. SG&A costs as a percent of revenue were 11.4% compared to 10.2% in the same quarter of last year. Management's continued goal is to maintain SG&A costs, as a percent of revenue, at 10% or less on an annualized basis.

Depreciation and accretion increased $0.8 million or 21% to $4.4 million compared to $3.6 million in the same quarter of last year. Increased depreciation was attributable to growth capital and acquisition expenditures. As a percentage of revenue, depreciation and accretion were 9.4% compared to 9.0% in the second quarter of 2004.

Interest expense increased by $0.3 million to $0.6 million compared to $0.3 million in 2004. The increase was a result of higher average debt levels in the second quarter of 2005 compared to 2004. Long-term debt at the end of the second quarter was $52.0 million compared to $22.4 million at the end of the same period in 2004. The increase in long-term debt was attributable to growth capital and acquisition expenditures funded from the credit facility.

Income tax expense of $0.3 million was comparable to the amount reported in the same quarter of 2004. In the first half of 2005, income tax expense of $1.6 million was higher by $0.9 million compared to $0.6 million in 2004. Income tax expense was lower in the first half of 2004 due to a decrease in the Alberta corporate tax rate announced March 31, 2004 which resulted in a $0.7 million reduction to future income tax in that period. Current tax expense was related to large corporation taxes and provincial capital taxes. Newalta does not anticipate paying any cash income taxes in 2005, with the exception of large corporation taxes and provincial capital taxes.

Operating income increased by 7% to $8.7 million compared to $8.1 million in the second quarter of 2004. For the six months ended June 30, 2005, operating income also improved by 7% to $19.7 million compared to $18.4 million in 2004.

Net earnings for the quarter were $8.3 million compared to $7.9 million in 2004. Diluted earnings per unit were $0.30 per unit compared to $0.28 in 2004, representing an increase of 7%. Cash flow increased 12% to $13.1 million or $0.48 per unit compared to 11.7 million or 0.43 per unit in 2004.

As at August 10, 2005 the Fund had 27,702,269 units outstanding and outstanding rights to acquire up to 1,464,900 units.



SUMMARY OF QUARTERLY RESULTS

------------------------------------------------------------------------
($000s
except
per unit 2005 2004 2003
data) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
------------------------------------------------------------------------
Revenue 47,037 48,487 49,339 45,990 40,449 42,888 40,098 41,981
Operating
income 8,674 11,015 8,941 11,447 8,095 10,260 9,938 12,186
Net
earnings 8,344 9,795 8,364 10,088 7,880 9,872 9,171 9,740
Earnings
per unit
($) 0.30 0.36 0.31 0.37 0.29 0.37 0.35 0.43
Diluted
earnings
per unit
($) 0.30 0.35 0.30 0.36 0.28 0.36 0.35 0.42
Weighted
average
units 27,574 27,343 27,265 27,244 27,147 26,878 25,966 22,907
Diluted
units 28,028 27,910 27,866 27,756 27,608 27,463 26,515 23,404
------------------------------------------------------------------------
------------------------------------------------------------------------


Quarterly performance is affected by weather conditions, commodity prices, market demand and capital investments as well as acquisitions. The ability to transport waste is dependent on weather conditions. During the winter months the ability to provide various site services or transport certain liquids can be restricted due to freezing conditions. The first quarter is therefore typically the weakest quarter for the Industrial division. For the Oilfield division, frozen ground during the winter months tends to provide an optimal environment for drilling activities and the first quarter is typically strong for Oilfield. 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 Newalta's services and, therefore, the second quarter is generally the weakest quarter of the year for Oilfield. The third quarter is typically the strongest quarter for both Oilfield and Industrial due to favourable weather conditions and market cyclicality. Changes in commodity prices and drilling activity throughout the year will also impact performance. Similarly, acquisitions and growth capital investments completed in the first half will tend to strengthen second half financial performance. First quarter revenue can range from 20% to 26% of year-end revenue and typically averages approximately 24%. Second quarter revenue averages approximately 22% of year-end revenue and can range from 20% to 23%. Third quarter revenue can range from 26% to 31% and averages approximately 27% of year-end totals. Fourth quarter revenue averages approximately 27% and can range from 24% to 30%. In 2004, quarterly revenues as a percent of total year-end revenue were 24% in the first quarter, 23% in the second quarter, 26% in the third quarter and 27% in the fourth quarter.

Quarterly financial results have been prepared by management in accordance with Canadian generally accepted accounting principles in Canadian dollars.

LIQUIDITY

Newalta generated cash flow of $13.1 million, or $0.48 per unit, representing a 12% increase, compared to $11.7 million, or $0.43 per unit, in the second quarter of 2004. On a year-to-date basis, cash flow also increased by 12% to $28.5 million, or $1.04 per unit, compared $25.5 million, or $0.94 per unit, in 2004. Maintenance capital expenditures were $2.7 million compared to $3.3 million in 2004. No principal payments were made in the second quarter and according to the terms of the new credit facility, no further principal repayments are due until May 2007, at the earliest. Cash distributed during the quarter represented 103% of cash available for growth and distributions, but represented 79% for the six months ended June 30, 2005. For the three months ended June 30, 2005, cash available for growth and distributions was $0.4 million lower than cash distributed. This deficiency is typical for the second quarter, as it is historically the weakest quarter for Newalta. On a year-to-date basis, $5.3 million of cash available for growth and distributions was generated in excess of cash distributed, calculated as follows:




------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------------------
($ millions) 2005 2004 2005 2004
------------------------------------------------------------------------
Cash flow 13.1 11.7 28.5 25.5
Maintenance capital (2.7) (3.3) (3.6) (4.3)
Asset retirement and deferred costs - - - (0.1)
Proceeds on sale of capital assets - - 0.1 -
Principal repayments - (0.8) - (1.5)
------------------------------------------------------------------------
Cash available for growth and
distributions 10.4 7.6 25.0 19.6
Cash distributed (10.8) (10.2) (19.7) (18.6)
Excess cash (cash deficiency) (0.4) (2.6) 5.3 1.0
------------------------------------------------------------------------
------------------------------------------------------------------------


The Fund is restricted from declaring distributions and distributing cash if the Corporation is in breach of the covenants under its credit facility. Current financial performance is well in excess of the debt covenants under the new credit facility. At June 30, 2005, Newalta had a long-term debt to 12-month trailing EBITDA ratio of 0.88 and a working capital ratio of 1.79. Newalta does not have a stability rating.

At June 30, 2005, Newalta had working capital of $23.0 million, up from $21.4 million at December 31, 2004. The increase in working capital is primarily the result of the excess cash that was not distributed to holders of trust units. At current activity levels, working capital of $23.0 million is expected to be sufficient to meet the ongoing commitments and operational demands of the business.

For the six months ended June 30, 2005, with the exception of the credit facility, 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, 2004. The Fund entered into a new credit agreement on July 28, 2005. Under the terms of the new agreement, the extendible term facility to fund growth capital and acquisition expenditures was increased from $65.0 million to $105.0 million with the extendible operating line to fund working capital and financial security requirements remaining at $25.0 million. Letters of credit provided as financial security to third parties totaled $7.8 million at June 30, 2005.

The total estimated cost for asset retirement at June 30, 2005 was $14.7 million. At June 30, 2005, $5.3 million of asset retirement costs has been accrued on the consolidated balance sheet.

The Distribution Reinvestment Plan (the "DRIP") provides eligible holders of trust units of Newalta with the opportunity to reinvest their monthly cash distributions to acquire additional trust units at a net purchase price equal to 95% of the average market price as defined in the DRIP. During the second quarter of 2005, a total of $1.6 million was reinvested by unitholders under the DRIP, representing an average participation rate of approximately 13%, resulting in Newalta issuing 74,363 trust units.

CAPITAL RESOURCES

Total capital expenditures in the second quarter were $10.5 million compared to $14.7 million in 2004. Maintenance capital expenditures in the quarter were $2.7 million compared to $3.3 million in 2004. Total maintenance capital expenditures for 2005 are on track to be approximately $9.0 million. Maintenance capital is funded from cash flow. A total of $3.7 million was spent on internal growth projects in the quarter compared to $6.3 million in 2004. It is estimated that spending on internal growth projects will be approximately $30.0 million for 2005. Total acquisition expenditures in the second quarter were $4.1 million compared to $5.1 million in 2004. On April 15, 2005 Newalta acquired an Oilfield facility in Plover Lake, Saskatchewan for total cash consideration of $4.1 million. In addition, effective August 1, 2005 substantially all of the assets of WasteCo Environmental Services Ltd., an Oilfield and Industrial waste management operation, were acquired for total cash consideration of approximately $7.6 million. Including the August 1, 2005 acquisition, total capital expenditures for the year are estimated to be approximately $62.0 million, excluding any additional acquisitions. Future expenditures for growth capital will be funded from working capital and the extendible term facility. Sources of funding for acquisitions will be dependent on the size of the acquisition.

Total capital expenditures for the second quarter and six months ended June 30, 2005 are summarized as follows:



------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------------------
($ millions) 2005 2004 2005 2004
------------------------------------------------------------------------
Growth capital 3.7 6.3 8.1 9.8
Acquisitions 4.1 5.1 12.1 15.9
------------------------------------------------------------------------
Total growth and acquisition capital 7.8 11.4 20.2 25.7
Maintenance capital 2.7 3.3 3.6 4.3
------------------------------------------------------------------------
Total capital expenditures 10.5 14.7 23.8 30.0
------------------------------------------------------------------------
------------------------------------------------------------------------


Newalta's new credit facility provides for a $25.0 million extendible operating line plus a $105.0 million extendible term facility. At June 30, 2005, Newalta had $11.2 million of unutilized extendible operating line and $59.0 million of unutilized extendible term facility.

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 and Corporate Secretary of the Fund, is a partner in the law firm of Bennett Jones LLP and is involved in providing and managing the legal services provided by Bennett Jones L.L.P. to Newalta. The total amount of these legal services in the second quarter of 2005 was $0.1 million compared to $0.2 million in 2004. For the six months ended June 30, 2005 these legal services were $0.2 million compared to $0.2 million in 2004.

Newalta provides Oilfield services to Paramount Resources Ltd., an oil and gas company. Mr. Clayton Riddell, a Trustee and Chairman of the Board of the Fund, is Chairman and Chief Executive Officer of Paramount Resources Ltd. The total revenue for services provided by Newalta to Paramount Resources Ltd. in the second quarter of 2005 was $0.1 million compared to $0.1 million in 2004. For the six months ended June 30, 2005, total revenue from Paramount Resources Ltd. was $0.5 million compared to $0.2 million in 2004.

These transactions were incurred 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 revenues 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 judgement 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 and wells and the projected timing of the costs to be incurred in future periods. Management, in consultation with the Corporation'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.

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 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.

DEPRECIATION

Depreciation 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.

CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION

VARIABLE INTEREST ENTITIES

In June 2003, the Canadian Institute of Chartered Accountants ("CICA") issued Accounting Guideline 15 ("ACG-15"), Consolidation of Variable Interest Entities, which defines Variable Interest Entities as entities that have insufficient equity or their equity investors lack one or more specified essential characteristics of a controlling financial interest. The standard provides guidance for determining when an entity is a Variable Interest Entity and who, if anyone, should consolidate the Variable Interest Entity. ACG-15 applies to all annual and interim periods beginning on or after November 1, 2004. The adoption of this new accounting guideline does not have an impact on the consolidated financial statements of the Fund.

FINANCIAL INSTRUMENTS - RECOGNITION AND MEASUREMENT, HEDGES, AND COMPREHENSIVE INCOME

The Accounting Standards Board ("AcSB") has issued three exposure drafts on financial instruments which will apply to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2006. It will require the following:

- all trading financial instruments will be recognized on the balance sheet and will be fair valued through the income statement;

- all remaining financial assets will be recorded at cost and amortized through the financial statements;

- a new statement for comprehensive income that will include certain gains and losses on translation of assets and liabilities; and

- an update to Accounting Guideline 13 to incorporate the fair value changes not recorded in the income statement to be recorded through the comprehensive income statement.

The Fund is currently evaluating the impact of this new accounting guideline but its adoption is not expected to have an impact on the consolidated financial statements.

EXCHANGEABLE SECURITIES ISSUED BY SUBSIDIARIES OF INCOME TRUSTS

On January 19, 2005, the CICA Emerging Issues Committee ("EIC") issued EIC Abstract 151, Exchangeable Securities Issued by Subsidiaries of Income Trusts which provides guidance on how to present exchangeable securities representing a retained interest in a subsidiary of an income trust on the consolidated balance sheet of the income trust. This Abstract must be applied retroactively, with restatement of prior periods, to all financial statements issued after January 19, 2005. Newalta does not have exchangeable shares and, accordingly, the adoption of this new accounting guideline does not have an impact on the consolidated financial statements of the Fund.

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.

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 #1200, 333 - 11th Avenue S.W., Calgary, Alberta T2R 1L9 or by facsimile at (403) 262-7348.



Newalta Income Fund
Consolidated Balance Sheets

------------------------------------------------------------------------
($000's) (unaudited) June 30, 2005 December 31, 2004
------------------------------------------------------------------------

ASSETS
Current assets
Accounts receivable 36,702 40,885
Inventories 8,114 7,214
Prepaid expenses 3,793 1,075
Future income tax 3,600 3,600
------------------------------------------------------------------------
52,209 52,774
Capital assets 269,790 255,197
Intangibles 3,944 3,212
Goodwill 13,212 13,212
Deferred costs 550 550
------------------------------------------------------------------------
339,705 324,945
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES
Current liabilities
Accounts payable 25,009 27,996
Distribution payable (Note 10) 4,152 3,412
------------------------------------------------------------------------
29,161 31,408
Long-term debt (Note 5) 51,971 36,617
Future income taxes 42,597 41,347
Asset retirement obligation
(Note 11) 5,320 4,875
------------------------------------------------------------------------
129,049 114,247
------------------------------------------------------------------------

UNITHOLDERS' EQUITY
Unitholders' capital (Note 6) 160,239 154,170
Contributed surplus 801 1,678
Accumulated earnings 135,606 117,467
Accumulated cash distributions
(Note 10) (85,990) (62,617)
------------------------------------------------------------------------
210,656 210,698
------------------------------------------------------------------------
339,705 324,945
------------------------------------------------------------------------
------------------------------------------------------------------------


Newalta Income Fund
Consolidated Statements of Operations and Accumulated Earnings



------------------------------------------------------------------------
For the Three Months For the Six Months
Ended June 30 Ended June 30
($000s) (unaudited) 2005 2004 2005 2004
------------------------------------------------------------------------

Revenue 47,037 40,449 95,523 83,338
Expenses
Operating 27,950 24,345 55,334 49,256
Selling, general
and administrative 5,374 4,122 10,410 8,253
Interest 641 250 1,284 326
Depreciation and accretion 4,398 3,638 8,806 7,147
------------------------------------------------------------------------
38,363 32,355 75,834 64,982
------------------------------------------------------------------------
Operating income 8,674 8,094 19,689 18,356
Provisions for income taxes
Current 150 175 300 300
Future (Note 8) 180 40 1,250 303
------------------------------------------------------------------------
330 215 1,550 603
------------------------------------------------------------------------
Net earnings 8,344 7,879 18,139 17,753

Accumulated earnings,
beginning of period,
as reported 127,262 91,136 117,467 81,123
Cumulative effect of
change in accounting
policy (Note 2b) - - - 139
------------------------------------------------------------------------
Accumulated earnings,
end of period 135,606 99,015 135,606 99,015
------------------------------------------------------------------------
Earnings per unit (Note 9) $ 0.30 $ 0.29 $ 0.66 $ 0.66
------------------------------------------------------------------------
Diluted earnings per
unit (Note 9) $ 0.30 $ 0.28 $ 0.65 $ 0.65
------------------------------------------------------------------------
------------------------------------------------------------------------


Newalta Income Fund
Consolidated Statements of Cash Flows

------------------------------------------------------------------------
For the Three Months For the Six Months
Ended June 30 Ended June 30
($000s) (unaudited) 2005 2004 2005 2004
------------------------------------------------------------------------

Net inflow (outflow) of cash
related to the following
activities:
OPERATING ACTIVITIES
Net earnings 8,344 7,879 18,139 17,753
Items not requiring cash:
Depreciation and accretion 4,398 3,638 8,806 7,147
Future income taxes 180 40 1,250 303
Amortizaton of lease
inducements 98 - 116 -
Stock compensation expense 102 124 229 281
------------------------------------------------------------------------
13,122 11,681 28,540 25,484
Decrease (increase) in
non-cash working capital 3,189 2,544 2,136 (853)
Asset retirement costs incurred - (5) (40) (28)
------------------------------------------------------------------------
16,311 14,220 30,636 24,603
------------------------------------------------------------------------

INVESTING ACTIVITIES
Additions to capital assets (6,406) (9,575) (11,634) (14,150)
Net proceeds on sale
of capital assets 20 - 115 22
Acquisitions (Note 4) (4,111) (5,136) (12,127) (15,851)
Decrease (increase) in
non-cash working capital (387) 795 (4,673) (698)
Deferred costs - (24) - (27)
------------------------------------------------------------------------
(10,884) (13,940) (28,319) (30,704)
------------------------------------------------------------------------

FINANCING ACTIVITIES
Issuance of units 1,015 1,434 2,017 3,336
Increase (decrease) in debt 4,333 4,249 15,354 3,498
Distributions to unitholders (10,775) (10,172) (19,688) (18,627)
------------------------------------------------------------------------
(5,427) (4,489) (2,317) (11,793)
------------------------------------------------------------------------
Net cash inflow (outflow) - (4,209) - (17,894)
Cash (bank indebtedness),
beginning of period - (1,156) - 12,529
------------------------------------------------------------------------
Bank indebtedness,
end of period - (5,365) - (5,365)
------------------------------------------------------------------------
------------------------------------------------------------------------


Supplementary information:

Interest paid 367 477 1,014 651
Income taxes paid 148 190 296 324


NEWALTA INCOME FUND

Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2005 and 2004
($000's except per unit data) (unaudited)


Newalta Income Fund (the "Fund") was established by Deed of Trust dated January 16, 2003. The Fund is a Canadian income trust engaged, through its wholly-owned operating subsidiary Newalta Corporation (the "Corporation"), in maximizing the inherent value in certain industrial wastes through recovery of saleable products and recycling, rather than disposal. Through an integrated network of facilities, the Corporation delivers waste management solutions to a broad customer base of national and international corporations, in a range of industries, including the automotive, forestry, pulp and paper, manufacturing, mining, oil and gas, petrochemical, and transportation services industries.

1) Summary of Significant Accounting Policies

The interim consolidated financial statements include the accounts of the Fund and its wholly-owned subsidiary companies and have been prepared by management in accordance with Canadian generally accepted accounting principles. Certain information and disclosures normally required to be included in the notes to the audited annual financial statements have been omitted or condensed. The accounting principles applied are consistent with those as set out in the Fund's annual financial statements for the year ended December 31, 2004. 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, 2004 as contained in the Annual Report for fiscal 2004.

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 (of a normal recurring nature) necessary to present fairly the consolidated results of the Fund's operations and cash flows for the periods ended June 30, 2005 and 2004.

2) Changes in Accounting Policies

a) Variable Interest Entities: In June 2003, the CICA issued Accounting Guideline 15 ("ACG-15"), Consolidation of Variable Interest Entities, which defines Variable Interest Entities as entities that have insufficient equity or their equity investors lack one or more specified essential characteristics of a controlling financial interest. The standard provides guidance for determining when an entity is a Variable Interest Entity and who, if anyone, should consolidate the Variable Interest Entity. ACG-15 applies to all annual and interim periods beginning on or after November 1, 2004. The adoption of the standard does not have an impact on the consolidated financial statements of the Fund.

b) Asset retirement obligations: In December 2002, the CICA issued a new standard on the accounting for asset retirement obligations. This standard requires recognition of a liability for the future retirement obligations associated with property, plant and equipment. These obligations are initially measured at fair value, which is the discounted future value of the liability. This fair value is capitalized as part of the cost of the related asset and amortized to expense over its useful life. The liability accretes until the date of expected settlement of the retirement obligations. The new standard was effective for all fiscal years beginning on or after January 1, 2004. The Fund estimates the undiscounted cash flows related to asset retirement obligations, adjusted for inflation, to be incurred over the estimated period of 20 years to be $14,720. The cumulative effect of this change in accounting standards was an increase to retained earnings at January 1, 2004 of $139.

3) Seasonality of Operations

The ability to transport waste is dependent on weather conditions. During the winter months the ability to provide various site services or transport certain liquids can be restricted due to freezing conditions. The first quarter is therefore typically the weakest quarter for the Industrial segment. For the Oilfield segment, frozen ground during the winter months tends to provide an optimal environment for drilling activities and the first quarter is typically strong for Oilfield. 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 Corporation's services and, therefore, the second quarter is generally the weakest quarter of the year for Oilfield. The third quarter is typically the strongest quarter for both Oilfield and Industrial due to favourable weather conditions and market cyclicality. First quarter revenue ranges from 20% to 26% of year-end revenue and has averaged approximately 24%. Second quarter revenue has averaged approximately 22% of year-end revenue and ranges from 20% to 23%. Third quarter revenue ranges from 26% to 31% and has averaged approximately 27% of year-end revenue. Fourth quarter revenue has averaged approximately 27% and ranges from 24% to 30%.

4) Acquisitions

a) On March 1, 2005 the Corporation acquired an oilfield facility in Greencourt, Alberta. On April 15, 2005 the Corporation acquired an oilfield facility near Plover Lake, Saskatchewan. The amount of the considerations paid and the fair values of the assets received were:



------------------------------------------------------------------------
March 1, April 15,
2005 2005 Total
------------------------------------------------------------------------
Total cash consideration 8,057 4,070 12,127
------------------------------------------------------------------------
------------------------------------------------------------------------

Plant and equipment 7,123 4,271 11,394
Intangibles 1,000 - 1,000
Asset retirement obligation (66) (201) (267)
------------------------------------------------------------------------
Total 8,057 4,070 12,127
------------------------------------------------------------------------
------------------------------------------------------------------------


b) The Corporation acquired a satellite oilfield facility located near Drumheller, Alberta on January 1, 2004; purchased a second satellite facility near Redwater, Alberta on March 1, 2004; acquired the business and assets of an industrial services company in Cranbrook, British Columbia on March 31, 2004; and acquired the assets of a centrifuge rental business located in Nisku, Alberta on June 1, 2004. The amount of the consideration paid and the assets received were:



------------------------------------------------------------------------
January 1, March 1, March 31, June 1,
2004 2004 2004 2004 Total
------------------------------------------------------------------------
Total cash consideration 2,029 4,057 4,760 5,005 15,851
------------------------------------------------------------------------
------------------------------------------------------------------------

Land - - 300 300
Plant and equipment 1,570 2,132 2,925 4,508 11,135
Intangibles 500 100 520 500 1,620
Petroleum and natural
gas rights - 500 - 500
Goodwill - 1,400 1,030 2,430
Asset retirement obligation (41) (75) (15) (3) (134)
------------------------------------------------------------------------
Total 2,029 4,057 4,760 5,005 15,851
------------------------------------------------------------------------
------------------------------------------------------------------------


In both 2005 and 2004 the purchased assets consisted of stand-alone businesses that expanded the service offerings, geographic coverage, and customer base of the Corporation. The consolidated financial statements of the Fund include earnings from the closing date of the acquisition, for each acquisition. Certain of the above amounts are management's current estimate of the known and expected fair values of the assets acquired, and may change as final information becomes known.



5) Long-term Debt

------------------------------------------------------------------------
June 30, 2005 December 31, 2004
------------------------------------------------------------------------
Extendible operating term facility 5,971 2,617
Extendible term facility 46,000 34,000
------------------------------------------------------------------------
51,971 36,617
------------------------------------------------------------------------
------------------------------------------------------------------------


Effective June 17, 2005, the Corporation secured an amended and restated credit facility which provided for a $25,000 extendible operating term facility plus a $65,000 extendible term facility. The credit facility is secured principally by a general security agreement over the assets of the Corporation. Interest on the facilities is subject to certain conditions, and may be charged at a prime based or a Banker's Acceptance ("BA") based rate, at the option of the Corporation. Currently the operating facility charges interest at the lenders' prime rate, or at the BA rate plus 1.25%. The extendible term facility charges interest at the lenders' prime rate plus 0.25%, or at the BA rate plus 1.75%. The operating and the term facilities are subject to an annual review and extension, at the option of the lender. The next review is scheduled on May 18, 2006. If an extension is not granted, principal repayments for the extendible term loan would commence 15 months after the annual review at the quarterly rate of one-twelfth of the outstanding indebtedness for three quarters and a balloon payment for the balance at the end of the fourth quarter. The operating loan, subject to certain conditions, would be due in full 12 months after the annual review.

Subsequent to the end of the period, on July 28, 2005, the Corporation entered into a revised credit agreement with a syndicate of four Canadian chartered banks. Under the new $130,000 credit agreement, Newalta's extendible operating line to fund working capital remains at $25,000 and the extendible term facility to fund growth increases from $65,000 to $105,000.



6) 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/Shares
(000's) Amount
------------------------------------------------------------------------
Units outstanding as at December 31, 2003 26,836 149,798

Rights exercised 410 3,378
Units issued under the DRIP program 48 994
------------------------------------------------------------------------
Units outstanding as at December 31, 2004 27,294 154,170

Contributed surplus on rights exercised - 1,107
Rights exercised 248 2,017
Units issued under the DRIP program 135 2,945
------------------------------------------------------------------------
Units outstanding as at June 30, 2005 27,677 160,239
------------------------------------------------------------------------
------------------------------------------------------------------------


On October 15, 2004, the Fund implemented a Dividend Reinvestment Plan ("DRIP") which allows participating unitholders to increase their investment in the Fund through the automatic reinvesting of their monthly distributions in units. Under the terms of the DRIP, units are purchased by unitholders from the treasury of the Fund at a cost of 95% of the volume weighted average TSX trading price for the 10 trading days immediately preceding the distribution payment date.

The Fund declared distributions of $0.125 per unit for each of the months of January and February, 2005, increasing to $0.15 for the months of March through June 2005, for total declared distributions of $0.85 per unit for the six months ending June 30, 2005. During the three months ending June 30, 2005, $10,775 of cash was distributed to unitholders ($10,172 in the second quarter of 2004). During the six month period $19,688 of cash was distributed to unitholders ($18,627 during the same period in 2004).



7) Rights to Acquire Trust Units

------------------------------------------------------------------------
Trust
Weighted unit Weighted
Average rights Average
Exchange Exercise incentive Exercise
rights Price plan Price
------------------------------------------------------------------------
Balance, December 31, 2004 35,487 $0.01 1,284 11.46
Forfeited - (6) 9.08
Exercised (35,487) $0.01 (213) 9.47
Granted - - 400 23.22
------------------------------------------------------------------------
Balance, June 30, 2005 - - 1,465 14.97
------------------------------------------------------------------------
------------------------------------------------------------------------


8) Income Tax

On March 31, 2004, the Province of Alberta announced a reduction in the corporate tax rate from 12.5% to 11.5%. The Fund recognized the change in future tax rate by reducing the future income tax liability for the period ended March 31, 2004 by $650 or $0.02 per unit.

9) Earnings per Unit

Basic per unit calculations for the three months and six months ended June 30, 2005 and 2004 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.



------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Weighted average number of units 27,574 27,147 27,458 27,011
Net additional units if rights
exercised 454 461 475 448
------------------------------------------------------------------------
Diluted weighted average number
of units 28,028 27,608 27,933 27,459
------------------------------------------------------------------------
------------------------------------------------------------------------

10) Reconciliation of Unitholder Distributions Declared and Paid

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Cash provided by operating
activities before non-cash
working capital and asset
retirement costs 13,122 11,681 28,540 25,484
Maintenance capital expenditures (2,663) (3,315) (3,555) (4,340)
Asset retirement and deferred costs - (29) (40) (55)
Net proceeds on sales of fixed assets 20 - 115 22
Principal repayments - (750) - (1,500)
------------------------------------------------------------------------
Cash available for growth and
distribution 10,479 7,587 25,060 19,611
------------------------------------------------------------------------
------------------------------------------------------------------------

Unitholder distributions declared 12,419 10,193 23,373 19,214
- per unit - $ 0.450 0.375 0.850 0.710
Unitholder distributions
- paid in cash 10,775 10,172 19,688 18,627
Unitholder distributions
- units issued 1,615 - 2,945 -
- paid in cash - per unit $ 0.391 0.375 0.717 0.690
- issued units - per unit $ 0.059 - 0.108 -
------------------------------------------------------------------------

Reconciliation of Accumulated Unitholder Distributions:

------------------------------------------------------------------------
Balance, December 31, 2003 (22,958)
------------------------------------------------------------------------

Unitholder distributions declared and paid in cash (36,247)
Unitholder distributions declared (3,412)
------------------------------------------------------------------------
(39,659)

------------------------------------------------------------------------
Balance, December 31, 2004 (62,617)
------------------------------------------------------------------------

Unitholder distributions declared and paid in cash or units (19,221)
Unitholder distributions declared (4,152)
------------------------------------------------------------------------
(23,373)

------------------------------------------------------------------------
Balance, June 30, 2005 (85,990)
------------------------------------------------------------------------
------------------------------------------------------------------------


11) Reconciliation of Asset Retirement Obligation

The total future asset retirement obligation was estimated by management based on the anticipated costs to abandon and reclaim the Corporation's facilities and wells, and the projected timing of these expenditures. The net present value is estimated to be $5,320 ($5,033 in 2004) based on a total estimated future liability of $14,720. Cash expenditures to fulfill these obligations will be incurred over the next 20 years, with the majority of the expenses occurring in the 15 to 20 year range. The Fund used a discount rate of 8% and an inflation rate of 2% to calculate the present value of the asset retirement obligation.



------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Asset retirement obligation,
beginning of period 5,009 4,939 4,875 4,736
Additional retirement obligations
added through acquisitions 201 3 267 134
Costs incurred to fulfill obligations - (5) (40) (28)
Accretion 110 96 218 191
------------------------------------------------------------------------
Asset retirement obligation,
end of period 5,320 5,033 5,320 5,033
------------------------------------------------------------------------
------------------------------------------------------------------------


12) Transactions with Related Parties

Bennett Jones LLP provides legal services to the Fund. Mr. Vance Milligan, a Trustee and Corporate Secretary of the Fund is a partner in the law firm of Bennett Jones LLP and is involved in providing and managing the legal services provided by Bennett Jones LLP to the Fund. The total cost of these legal services during the three month period was $140 ($174 in 2004) and $223 for the six month period ended June 30, 2005 ($234 in 2004).

The Corporation provides Oilfield services to Paramount Resources Ltd., an oil and gas company. Mr. Clayton Riddell, a Trustee and Chairman of the Board of the Fund, is Chairman and Chief Executive Officer of Paramount Resources Ltd. The total amount invoiced by the Fund to Paramount Resources Ltd. during the three month period was $49 ($54 in 2004) and during the six month period ended June 30, 2005 was $508 ($226 in 2004).

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.

13) Comparative Figures

Certain of the prior period's comparative figures have been reclassified to conform to the current period's presentation.

14) Subsequent Events

On August 2, 2005, substantially all of the assets of WasteCo Environmental Services Ltd., an oilfield and industrial waste management operation, were acquired for total cash consideration of approximately $7,600.

15) Segmented Information

The Fund has two reportable segments. The reportable segments are distinct strategic business units whose operating results are regularly reviewed by the Fund'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 Oilfield segment recovers and resells crude oil from oilfield waste. The Industrial segment 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 resaleable products. The accounting policies of the segments are the same as those of the Fund.



For the Three Months Ended June 30 ($000's)
------------------------------------------------------------------------
Inter- Consolidated
2005 Oilfield Industrial segment Unallocated(2) Total
------------------------------------------------------------------------
External revenue 29,761 17,276 47,037
Inter segment
revenue(1) 125 9 (134) -
Operating expense 15,200 12,884 (134) 27,950
Depreciation and
accretion 2,719 1,304 375 4,398
------------------------------------------------------------------------
Net margin 11,967 3,097 (375) 14,689
Selling, general
and
administrative 5,374 5,374
Interest expense 641 641
------------------------------------------------------------------------
Operating income 11,967 3,097 (6,390) 8,674
------------------------------------------------------------------------
------------------------------------------------------------------------
Capital
expenditures 7,989 831 1,697 10,517
------------------------------------------------------------------------
------------------------------------------------------------------------
Goodwill 12,182 1,030 13,212
------------------------------------------------------------------------
------------------------------------------------------------------------
Total assets 212,500 107,187 20,018 339,705
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Inter- Consolidated
2004 Oilfield Industrial segment Unallocated(2) Total
------------------------------------------------------------------------
External revenue 24,099 16,350 40,449
Inter segment
revenue(1) 87 17 (104) -
Operating expense 11,805 12,644 (104) 24,345
Depreciation and
accretion 2,144 1,275 219 3,638
------------------------------------------------------------------------
Net margin 10,237 2,448 (219) 12,466
Selling, general
and
administrative 4,122 4,122
Interest expense 250 250
------------------------------------------------------------------------
Operating income 10,237 2,448 (4,591) 8,094
------------------------------------------------------------------------
------------------------------------------------------------------------
Capital
expenditures 11,950 1,819 942 14,711
------------------------------------------------------------------------
------------------------------------------------------------------------
Goodwill 12,182 1,030 13,212
------------------------------------------------------------------------
------------------------------------------------------------------------
Total assets 188,041 98,864 14,641 301,546
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Inter-segment revenue is recorded at market, less the costs of
serving external customers.
(2) Management does not allocate selling, general & administrative,
taxes, and interest costs in the segment analysis.


For the Six Months Ended June 30 ($000's)
------------------------------------------------------------------------
Inter- Consolidated
2005 Oilfield Industrial segment Unallocated(2) Total
------------------------------------------------------------------------
External revenue 63,936 31,587 95,523
Inter segment
revenue(1) 278 29 (307) -
Operating expense 30,740 24,901 (307) 55,334
Depreciation and
accretion 5,077 2,608 1,121 8,806
------------------------------------------------------------------------
Net margin 28,397 4,107 (1,121) 31,383
Selling, general
and
administrative 10,410 10,410
Interest expense 1,284 1,284
------------------------------------------------------------------------
Operating income 28,397 4,107 (12,815) 19,689
------------------------------------------------------------------------
------------------------------------------------------------------------
Capital
expenditures 17,938 1,233 4,590 23,761
------------------------------------------------------------------------
------------------------------------------------------------------------
Goodwill 12,182 1,030 13,212
------------------------------------------------------------------------
------------------------------------------------------------------------
Total assets 212,500 107,187 20,018 339,705
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Inter- Consolidated
2004 Oilfield Industrial segment Unallocated(2) Total
------------------------------------------------------------------------
External revenue 52,647 30,691 83,338
Inter segment
revenue(1) 101 23 (124) -
Operating expense 25,064 24,316 (124) 49,256
Depreciation and
accretion 4,281 2,427 439 7,147
------------------------------------------------------------------------
Net margin 23,403 3,971 (439) 26,935
Selling, general
and
administrative 8,253 8,253
Interest expense 326 326
------------------------------------------------------------------------
Operating income 23,403 3,971 (9,018) 18,356
------------------------------------------------------------------------
Capital
expenditures 19,269 8,607 2,125 30,001
------------------------------------------------------------------------
Goodwill 12,182 1,030 13,212
------------------------------------------------------------------------
Total assets 188,041 98,864 14,641 301,546
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Inter-segment revenue is recorded at market, less the costs of
serving external customers.
(2) Management does not allocate selling, general & administrative,
taxes, and interest costs in the segment analysis.



Contact Information

  • Newalta Income Fund
    Ronald L. Sifton
    Senior Vice President, Finance & CFO
    (403) 206-2684
    Website: www.newalta.com