Newalta Corporation
TSX : NAL

Newalta Corporation

November 05, 2008 06:00 ET

Newalta Income Fund Announces Strong Third Quarter Results


CALGARY, ALBERTA--(Marketwire – November 5, 2008) - Newalta Income Fund ("Newalta" or the "Fund")
today announced financial results for the three and nine months ended
September 30, 2008.

"Our 2007 investments to grow and diversify our business are delivering
excellent returns and drove strong profitable growth with EBITDA up 29% in the
third quarter and 41% year-to-date, compared to last year," said Al Cadotte,
Newalta's President and Chief Executive Officer. "Newalta's diversified
operations provide the strength and stability in our performance to offset
recent changes in commodity prices and uncertain market conditions."

Financial results and highlights for the three and nine months ended
September 30, 2008:

- For the third quarter and year-to-date 2008, revenue improved 19% and
25% to $158.6 million and $451.7 million, respectively, compared to
2007.

- Third quarter net earnings of $18.7 million and EBITDA(1) of
$37.4 million increased 5% and 29%, respectively, as compared to
2007, representing the highest quarterly EBITDA in the history of the
company. Year-to-date, EBITDA improved 41% to $98.2 million compared
to last year, exceeding the total annual EBITDA in 2007. Net earnings
improved 33% to $49.8 million year-to-date compared to last year.

- As a percent of revenue, EBITDA in the third quarter was 23.6%,
compared to 21.7% in 2007. Year-to-date, EBITDA as a percent of
revenue was 21.7%, compared to 19.2% for the same period in 2007.

- Funds from operations(1) increased 24% to $30.9 million in the third
quarter and 32% to $78.4 million year-to-date, as compared to the
same period in the prior year.

- Cash distributed as a percentage of funds from operations on a year-
to-date basis was reduced to 77% compared with 96% for the same
period last year.

- Western Division ("Western") revenue and net margin(1) increased 6%
to $99.0 million and 26% to $33.3 million, respectively for the third
quarter, compared to the same period in 2007. Year-to-date, revenue
and net margin increased 7% to $276.5 million and 24% to
$84.8 million, respectively, compared to 2007. Western's strong
performance was primarily due to higher crude oil sales, increased
waste receipts from heavy oil/SAGD onsite customers, and the
deployment of drill site equipment to U.S. markets.

- Eastern Division ("Eastern") third quarter revenue and net margin
increased 50% to $59.6 million and 25% to $9.2 million, respectively,
primarily due to contributions from acquisitions completed in the
second half of 2007. Year-to-date, revenue and net margin increased
67% to $175.1 million and 103% to $29.8 million, respectively.
Performance across Eastern's operations was steady, in line with
expectations, despite continued slowing of the economy. As expected,
landfill volumes increased to historical levels in the third quarter
and volumes in the fourth quarter are expected to be maintained at
similar levels.

- Adjusted for foreign exchange, selling, general, and administrative
("SG&A") expenses in the third quarter were 9.3% of revenue at
$14.8 million, compared to 10.1% for the same period last year and
year-to-date, SG&A expenses decreased to 10.1% of revenue, compared
to 10.7% in 2007. Management's objective for SG&A remains to maintain
these expenses at 10% or less, of revenue for the year.

- Newalta continues to effectively manage capital expenditures. Growth
capital expenditures in the quarter were $30.2 million, compared to
$22.5 million in 2007. Maintenance capital expenditures(1) in the
third quarter were $6.9 million compared to $5.3 million in the same
period last year. Total capital expenditures, including maintenance
capital, are expected to remain in line with the budget for the year
at $135.0 million.

- Initiatives to improve productivity by selling idle or redundant non-
core assets resulted in year-to-date proceeds of $13.6 million, with
proceeds of $7.0 million generated in the third quarter.

- Newalta extended the maturity of its $425.0 million credit facility
to October 2010. As part of this process, $40 million was
assigned by a former member of the lending syndicate to two existing
and one new member. The funded debt to EBITDA covenant for the
balance of 2008 was amended by maintaining the existing 3.00:1 ratio.
Commencing in 2009, this covenant will be 2.50:1. Upon conversion to
a corporation, the covenant will be 3.00:1 for the term of the
facility. Newalta continues to prudently manage its balance sheet. As
at September 30, 2008, funded debt to EBITDA ratio was 2.41:1,
working capital was $82.8, and unused capacity on its credit facility
was approximately $114.8 million.

- On a trailing twelve-month basis at September 30, 2008, our corporate
three-year average return on capital was 16.8% compared to the three-
year average of 19.2% for the same period in 2007. The decrease is
primarily attributable to the decline in Ontario and Québec
economies, lower utilization of Canadian drill site assets and the
impact of acquisitions and growth capital investments made last year
which have not yet fully contributed to EBITDA.

- On November 5, 2008, Newalta Fund announced its intention to convert
from an income trust to a corporation on December 31, 2008. The
Conversion is subject to unitholder and other approvals and will be
undertaken pursuant to a plan of arrangement to be considered at a
special meeting of unitholders to be held on or about December 17,
2008. If approved, the Conversion would result in the reorganization
of Newalta into a publicly-listed corporation that would own all of
the units of Newalta Fund and all of the shares of the Corporation.
Pursuant to the Conversion, unitholders would receive, for each unit
held, one common share of the public corporation.


FINANCIAL RESULTS AND HIGHLIGHTS
-------------------------------------------------------------------------
($000s except % %
per unit data) Q3 Q3 Increase YTD YTD Increase
(unaudited) 2008 2007 (Decrease) 2008 2007 (Decrease)
-------------------------------------------------------------------------
Revenue 158,579 133,358 19 451,694 362,789 25
Net earnings 18,717 17,893 5 49,797 37,576 33
per unit ($),
basic 0.44 0.44 - 1.19 0.94 27
per unit ($),
diluted 0.44 0.43 3 1.19 0.93 28
EBITDA(1) 37,441 28,980 29 98,153 69,771 41
Trailing 12
month EBITDA n/a n/a 124,609 98,209 27
Funds from
operations(1) 30,877 24,873 24 78,377 59,560 32
per unit ($) 0.73 0.61 20 1.87 1.49 26
Maintenance
capital
expenditures(1) 6,891 5,257 31 12,301 11,008 12
Distributions
declared 23,382 22,526 4 69,708 67,188 4
per unit - ($) 0.56 0.56 - 1.67 1.67 -
Cash
distributed(1) 20,232 19,211 5 59,982 56,918 5
Growth and
acquisition
capital
expenditures 30,222 34,080 (11) 66,247 93,567 (29)
Weighted
average units
outstanding
(000s) 42,102 40,579 4 41,823 40,056 4
Total units
outstanding
(000s) 42,186 40,643 4 42,186 40,643 4
Trust Unit
trading price
- high 20.10 25.92 (22) 21.10 28.25 (25)
Trust Unit
trading price
- low 12.20 18.57 (34) 12.20 18.57 (34)
Average daily
trust unit
trading volume 167,332 125,262 34 142,637 144,667 (1)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) These financial measures do not have any standardized meaning
prescribed by Canadian generally accepted accounting principles
("Canadian 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 Wednesday, November 5, 2008 at
2:00 p.m. (EST) to discuss the Fund's performance for the third quarter of
2008. To participate in the teleconference, please call 416-644-3430 or 1-800-
587-1893. 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 Wednesday, November 12,
2008, by dialling 1-877-289-8525 and using the pass code 21288003 followed by
the pound sign.

Newalta Income Fund is Canada's largest industrial waste management and
environmental services provider and focuses on maximizing the value inherent
in industrial waste through the recovery of saleable products and recycling.
It also provides environmentally sound disposal of solid, non-hazardous
industrial waste. With talented people and a national network of facilities,
Newalta serves customers in the automotive, forestry, lead, manufacturing,
mining, oil and gas, petrochemical, pulp and paper, refining, steel and
transportation service industries. Providing solid investor returns,
exceptional customer service, safe operations and environmental stewardship
has enabled Newalta to expand into new service sectors and geographic markets.
Newalta Income Fund's units trade on the TSX as NAL.UN. For more information,
visit www.newalta.com.


Management's Discussion and Analysis

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 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, nature of the debentures issued by the Fund,
Canadian federal income tax, redemption of trust units, loss of mutual fund
trust status, the effect of Canadian federal government proposals regarding
non-resident ownership, and such other risks or factors described from time to
time in the reports filed with securities regulatory authorities by Newalta.
By their nature, forward-looking statements involve numerous assumptions,
known and unknown risks and uncertainties, both general and specific, that
contribute to the possibility that the predictions, forecasts, projections and
other forward-looking statements will not occur. Many other factors could also
cause actual results, performance or achievements to be materially different
from any future results, performance or achievements that may be expressed or
implied by such forward-looking statements and readers are cautioned that the
foregoing list of factors is not exhaustive. Should one or more of these risks
or uncertainties materialize, or should assumptions underlying the forward-
looking statements prove incorrect, actual results may vary materially from
those described herein as intended, planned, anticipated, believed, estimated
or expected. Furthermore, the forward-looking statements contained in this
document are made as of the date of this document and the forward-looking
statements in this document are expressly qualified by this cautionary
statement. Unless otherwise required by law, Newalta does not intend, or
assume any obligation, to update these forward-looking statements.
This Management's Discussion and Analysis and the unaudited consolidated
financial statements and notes thereto contain references to certain financial
measures that do not have any standardized meaning prescribed by Canadian
generally accepted accounting principles ("Canadian GAAP") and may not be
comparable to similar measures presented by other funds or entities. These
financial measures are identified and defined below:

"Cash distributed" is provided to assist management and investors in
determining the actual cash outflow to unitholders in each period and is used
to assist in analyzing liquidity. Cash distributed is calculated as follows:

-------------------------------------------------------------------------
($000s) Q3 2008 Q3 2007 YTD 2008 YTD 2007
-------------------------------------------------------------------------
Distributions 23,382 22,526 69,708 67,188
Add:
Opening distributions payable 7,770 7,490 7,662 6,835
Less:
Ending distributions payable (7,804) (7,519) (7,804) (7,519)
Distributions reinvested
through DRIP (3,117) (3,286) (9,584) (9,586)
-------------------------------------------------------------------------
Cash distributed 20,231 19,211 59,982 (56,918)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

"Combined divisional net margin" is used by management to analyze
combined divisional operating performance. Combined divisional net margin as
presented is not intended to represent operating income nor should it be
viewed as an alternative to net earnings or other measures of financial
performance calculated in accordance with Canadian GAAP. Combined divisional
net margin is calculated from the segmented information contained in the notes
to the consolidated financial statements and is defined as revenue less
operating and amortization and accretion expenses for both Western and
Eastern. For further clarity combined divisional net margin excludes inter-
segment eliminations and unallocated revenue and expenses.
"EBITDA" is a measure of the Newalta'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:

-------------------------------------------------------------------------
($000s) Q3 2008 Q3 2007 YTD 2008 YTD 2007
-------------------------------------------------------------------------
Net earnings 18,717 17,893 49,797 37,576
Add back (deduct):
Current income taxes 353 209 928 872
Future income taxes (29) (3,578) (5,849) (6,470)
Interest expense 5,952 3,632 17,866 8,570
Interest revenue - (42) (80) (656)
Amortization and accretion 12,448 10,866 35,491 29,879
-------------------------------------------------------------------------
EBITDA 37,441 28,980 98,153 69,771
-------------------------------------------------------------------------
-------------------------------------------------------------------------

"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:

-------------------------------------------------------------------------
($000s) Q3 2008 Q3 2007 YTD 2008 YTD 2007
-------------------------------------------------------------------------
Cash from operating activities 41,992 20,446 74,158 32,501
Add back (deduct):
Changes in working capital (11,366) 4,094 2,402 26,229
Asset retirement expenditures
incurred 251 333 1,817 830
-------------------------------------------------------------------------
Funds from operations 30,877 24,873 78,377 59,560
-------------------------------------------------------------------------
-------------------------------------------------------------------------

"Maintenance capital expenditures" are expenditures required to maintain
current operating levels and are reported separately from growth activity by
management because these types of expenditures are not discretionary.
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.
"Operating income" is used by management to analyze corporate operating
performance before taxes. Operating income is not intended to represent net
earnings nor should it be viewed as an alternative to other measures of
financial performance calculated in accordance with Canadian GAAP. The closest
Canadian GAAP measure to operating income is net earnings. Operating income is
calculated from the statement of operations and comprehensive income and is
defined as revenue less operating, SG&A, finance and amortization and
accretion expenses.
"Return on capital" is used by management to analyze the operating
performance of investments in capital assets, intangibles and goodwill. Return
on capital is calculated by dividing EBITDA, excluding reorganization costs,
by the average net book value of capital assets, intangibles and goodwill.
References to cash distributed, combined divisional net margin, EBITDA,
funds from operations, maintenance capital expenditures, net margin, operating
income and return on capital throughout this document have the meanings set
out above.
The following discussion and analysis should be read in conjunction with
(i) the consolidated financial statements of the Fund and the notes thereto
for the three and nine months ended September 30, 2008, (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, 2007, (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, 2007. Information for the three and nine months ended
September 30, 2008, along with comparative information for 2007, is provided.
This Management's Discussion and Analysis ("MD&A") is dated November 5,
2008 and takes into consideration information available up to that date.

OVERALL PERFORMANCE

Strong crude oil prices and excellent returns on our investments
continued to drive profitable growth in the third quarter despite a continued
weak economy in Ontario and Quebec. Third quarter revenue, net earnings, and
EBITDA improved by 19%, 5% and 29%, respectively, compared to 2007. On a year-
to-date basis, revenue, net earnings, and EBITDA improved by 25%, 33% and 41%,
respectively, compared to 2007.
Drilling activity in western Canada improved in the third quarter and
remained strong in the U.S., driven by higher prices for crude oil and
significant gas drilling in the U.S. Revenue and net margin for Western
Division increased primarily due to: higher crude oil sales, increased waste
receipts from heavy oil/SAGD onsite customers, and the deployment of drill
site rental equipment to the U.S.
Improved Eastern results for the first nine months of 2008 continue to be
driven by contributions from our 2007 investments. As the price of lead
returned to more historic norms, Nova Pb continued to make a strong
contribution to performance. Despite a weakening economy in Ontario and
Quebec, the remainder of our facility network in eastern Canada produced
steady results in the third quarter, with revenue and waste volumes meeting
management's expectations.
Corporately, third quarter SG&A expense improved as a percentage of
revenue from 10.1% in 2007 to 9.3% in 2008. Excluding foreign exchange
gains/losses, SG&A expense improved to 10.1% in 2008, from 10.7% in 2007 on a
year-to-date basis. We also continued a program to identify and sell redundant
or idle non-core assets generating proceeds of $7.0 million in the third
quarter of 2008 and $13.6 million year-to-date. We continue to prudently
manage the balance sheet with a funded debt to EBITDA ratio of 2.41:1.
Overall, the improved performance on a year-to-date basis improved the ratio
of cash distributed as a percentage of funds from operations to 77% compared
to 96% in the same period in 2007.
On November 5, 2008, Newalta Fund announced its intention to convert from
an income trust to a corporation on December 31, 2008. The Conversion is
subject to unitholder and other approvals and will be undertaken pursuant to a
plan of arrangement to be considered at a special meeting of unitholders to be
held on or about December 17, 2008. If approved, the Conversion would result
in the reorganization of Newalta into a publicly-listed corporation that would
own all of the units of Newalta Fund and all of the shares of the Corporation.
Pursuant to the Conversion, unitholders would receive, for each unit held, one
common share of the public corporation.

RESULTS OF OPERATIONS

Western

Western's third quarter revenue and net margin increased 6% and 26%,
respectively over the third quarter of 2007. On a year-to-date basis,
Western's revenue improved 7% and net margin increased 24% over 2007.
Contributing factors to our continued strong results year-over-year for the
third quarter and year-to-date for 2008 were:

- strong crude oil pricing;
- successful expansion of heavy oil/SAGD onsite services; and
- growth in our share of the U.S. drill site equipment and services
business.

The following table compares Western's third quarter and year-to-date
results for 2008 to the third quarter and year-to-date results for 2007:

-------------------------------------------------------------------------
% YTD YTD %
($000s) Q3 2008 Q3 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Revenue - external 99,000 93,493 6 276,501 257,399 7
Revenue - internal 128 105 22 669 538 24
Operating costs 61,123 61,618 (1) 176,303 174,397 1
Amortization and
accretion 4,709 5,604 (16) 16,069 15,029 8
-------------------------------------------------------------------------
Net margin 33,296 26,376 26 84,798 68,511 24
-------------------------------------------------------------------------
Net margin as %
of revenue 33 28 21 31 27 15
-------------------------------------------------------------------------
Maintenance capital 3,455 3,802 (9) 6,179 7,464 (17)
-------------------------------------------------------------------------
Growth capital 16,412 6,150 167 30,944 19,649 57
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Consistent with our diversification strategy, Western's third quarter
relative contribution to consolidated revenue decreased to 62% in 2008, from
70% in 2007. On a year-to-date basis, Western's relative contributions to
consolidated revenue decreased to 61% in 2008, from 71% in 2007. However, due
to strong crude oil prices, Western's third quarter relative contribution to
divisional net margin remained flat year-over-year at 78% and decreased to 74%
year-to-date as compared to 82% in 2007.
The Oilfield business unit accounted for approximately 60% of Western's
year-to-date revenue with the Drill Site and Industrial business units each
contributing approximately 12% and 28%, respectively.
The Oilfield business unit's performance improved significantly over the
third quarter and on a year-to-date basis, with revenue increasing 20% and
25%, respectively. The improvement was due to increased waste volumes, record
high crude oil prices, and growth in heavy oil/SAGD onsite services. The
increase in waste volumes processed at our fixed facility network was driven
primarily by higher heavy oil waste receipts from heavy oil/SAGD onsite
activity and higher crude oil content in the waste received.
The table below reflects the increases in crude oil recovered for
Newalta's account and waste processed by Oilfield as well as our average price
received for crude oil sales.

-------------------------------------------------------------------------
% YTD YTD %
Q3 2008 Q3 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Waste processing
volumes ('000 m3) 276.1 232.2 19 768.1 682.4 13
Recovered crude oil
('000 bbl)(1) 102.3 99.8 3 315.4 271.3 16
Average crude oil
price received
(CDN$/bbl) 105.44 61.01 73 96.72 58.98 64
-------------------------------------------------------------------------
(1) Represents the total crude oil recovered and sold for Newalta's
account. In addition to the 99,800 bbl recovered and sold in Q3 2007,
there were 30,200 bbl of deferred oil sales that were recognized.

Drill Site business unit revenue is generated from two main areas:

(i) environmental services, and

(ii) the supply and operation of drill site processing equipment.

Environmental services comprise: drilling waste management services, site
reclamation, and well abandonment services. In 2008, environmental services
revenue was down in the third quarter of 2008 and for the first nine months of
the year compared to 2007 mainly due to decreased demand for our services.
Drill site processing equipment comprises two main groups of equipment:
solids control and drill cuttings. Solids control equipment consists of
centrifuges and ancillary equipment that can be used on any drilling location
to remove unwanted solids from any type of drilling fluid and operate closed
loop systems where the drilling muds and water can be reused. Drill cuttings
equipment is specialized to wells drilled using oil-based drilling muds. This
equipment is used to recover oil-based fluids for reuse in the active mud
system and to manage the drill cuttings to minimize transportation and
disposal of solid waste. The equipment rental business is impacted by a number
of factors, including:

(i) equipment maintenance, including regularly scheduled and emergency
maintenance;

(ii) equipment in-transit between: the U.S. and Canada, or our
customers' sites and our facilities;

(iii) billing days, as our clients are only billed for days that the
equipment is in use on the client site; and,

(iv) natural gas drilling activity levels in Canada and U.S., driven by
the demand and supply balance and natural gas prices in North
America.

We continued to grow this business by increasing the size of our U.S.
fleet, tripling our presence in the U.S. market since Q3 2007. Our growth in
the U.S. market helped offset the weakness in the Canadian market and has
improved our utilization of these assets. Our strategy to move equipment to
the U.S. will continue to diversify our revenue base in future quarters by
taking advantage of the larger U.S. drilling market.
The table below reflects the changes in Drill Site's Canadian rental
equipment-in-use for the third quarter and first nine months of 2008 compared
to the same periods in 2007:

-------------------------------------------------------------------------
% YTD YTD %
Canada Drill Site Q3 2008 Q3 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Average equipment-
in-use(1)
Solids control
equipment 8 7 14 7 7 -
Drill cuttings
equipment 12 17 (29) 17 19 (11)
-------------------------------------------------------------------------
Average rental
equipment-in-use 20 24 (17) 24 26 (8)
-------------------------------------------------------------------------
Average rental
equipment(2) 84 116 (28) 93 118 (22)
-------------------------------------------------------------------------
(1) "Equipment in use" is calculated by taking the product of the total
amount of average rental equipment and the utilization rate for the
period. The utilization rate is calculated by dividing the number of
rental days by 90% of the total number of potential rental days.
(2) "Average rental equipment" is the weighted average number of units
available during the period.

To view the Monthly Average Canadian Drilling Rig Count graph please
visit: http://files.newswire.ca/689/CanadaDrillSiteCAODC.doc

The table below reflects the changes in Drill Site's U.S. rental
equipment-in-use for the third quarter and first nine months of 2008 compared
to the same periods in 2007:

-------------------------------------------------------------------------
% YTD YTD %
U.S. Drill Site Q3 2008 Q3 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Average equipment-
in-use
Solids control
equipment 35 11 218 31 10 210
Drill cuttings
equipment 6 - n/a 4 - n/a
-------------------------------------------------------------------------
Average rental
equipment-in-use 41 11 273 35 10 250
-------------------------------------------------------------------------
Average rental
equipment 63 21 200 50 16 213
-------------------------------------------------------------------------

Activity levels and performance in the Industrial business unit remained
relatively flat for the three and nine months ended September 30, 2008. In the
third quarter of 2008, Industrial's used oil volumes collected were down 4% to
14.3 million litres, from 15.0 million litres in 2007. On a year-to-date
basis, used oil volumes collected were 7% lower at 41.7 million litres, from
44.8 million litres in 2007. Finished products sales in the third quarter and
year-to-date 2008 totalled 19.9 million litres and 47.5 million litres,
respectively, at an average price of $0.59 and $0.60 per litre. In 2007,
finished products sold totalled 18.4 million litres and 47.3 million litres,
respectively, at an average price of $0.57 per litre for the third quarter and
$0.59 per litre year-to-date. Industrial service centre revenues were up 8% to
$15.2 million in the third quarter while they decreased 3% to $44.1 million on
a year-to-date basis.
In line with our plan, our growth capital expenditures grew 167% on a
quarter-over-quarter basis, and 57% on a year-to-date basis. We continued to
focus on expanding our Drill Site and heavy oil/SAGD onsite services as well
as productivity improvements to existing Oilfield facilities. Maintenance
capital expenditures decreased in both the third quarter and year-to-date by
9% and 17%, respectively.

Western Outlook

Our outlook for Western remains relatively stable. The recent decline in
oil prices and the anticipated softening in natural gas drilling will be
somewhat offset by the weakening Canadian dollar, capital investment in our
fixed facilities and growth in our U.S. drill site and heavy oil/SAGD onsite
businesses.

Eastern

Our 2007 investments continued to enhance Eastern's overall
profitability. However, challenging economic conditions in Ontario and Québec
impacted our year-to-date growth in 2008. Nova Pb contributed to revenue and
net margin growth while Eastern's fixed facilities' performance was flat.
Consistent with management's expectations, the Stoney Creek landfill's waste
receipts recovered to historical quarterly volumes in Q3 but are still
significantly lower for the nine months ended September 30, 2008.
Consistent with our diversification strategy over the last two years,
Eastern's contributions to consolidated revenue and combined divisional net
margin increased on a year-to-date basis, to 39% and 26% (29% and 18% for
2007), respectively. Third quarter contributions to consolidated revenue
increased to 38%, from 33% and combined divisional net margin was flat at 22%.
These contributions are in line with our expectation that Eastern would
represent approximately 30% of combined divisional net margin in 2008.
The following table compares Eastern's third quarter and year-to-date
results for 2008 to the third quarter and year-to-date results for 2007:

-------------------------------------------------------------------------
% YTD YTD %
($000s) Q3 2008 Q3 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Revenue - external 59,579 39,823 50 175,133 104,735 67
Revenue - internal - - - - - -
Operating costs 46,046 29,278 57 133,432 79,433 68
Amortization and
accretion 4,352 3,184 37 11,920 10,647 12
-------------------------------------------------------------------------
Net margin 9,181 7,361 25 29,761 14,655 103
-------------------------------------------------------------------------
Net margin as %
of revenue 15 18 17 17 14 21
-------------------------------------------------------------------------
Maintenance capital 3,421 1,357 152 6,046 3,142 92
-------------------------------------------------------------------------
Growth capital 9,334 8,395 11 23,043 19,409 19
-------------------------------------------------------------------------

The Québec/Atlantic Canada business unit produced excellent results for
the third quarter due to the contributions from our 2007 acquisitions while
performance from fixed facilities was flat. For Nova Pb, as compared to the
second quarter of 2008, our volume of lead delivered in the third quarter
decreased 10% to 10.9 thousand metric tonnes ("MT"), as noted in the table
below. Nova Pb's revenue in the third quarter of 2008 decreased 19% compared
to the second quarter of 2008 due to a decrease in the average price received
for our direct sales of recycled lead, consistent with the decrease in the
average London Metals Exchange ("LME") price to more historical norms. As
expected, scheduled maintenance on the kiln was completed in July 2008
reducing the operating days in the third quarter to 76% of capacity compared
to operating at full capacity in the second quarter. Performance from other
facilities in Québec/Atlantic Canada performed in line with management's
expectations.

-------------------------------------------------------------------------
% %
Change Change
Q3 to Q2 to YTD
Q3 2008 Q2 2008 Q1 2008 Q2 Q1 2008
-------------------------------------------------------------------------
Volume of lead
delivered ('000 MT) 10.9 12.1 10.7 (10) 13 33.6
% of lead delivered
Direct Sales 62 58 67 7 - 62
Tolling 38 42 33 (10) - 38
-------------------------------------------------------------------------
Average price
received - direct
sales (CDN$/MT)(1) 2,175 2,717 2,991 (20) (9) 2,643
-------------------------------------------------------------------------
Average LME price
(U.S.$/MT)(2) 1,911 2,653 2,760 (28) (4) 2,368
-------------------------------------------------------------------------
(1) Average price received includes all direct sales of finished
products, including finished products that are alloyed to customer
specifications.
(2) Average LME price is based on a one month lag consistent with our
pricing structure.

The Ontario business unit's performance in the third quarter continued to
be affected by continued weakness in the Ontario economy. Performance from the
fixed facilities was flat for both the third quarter of 2008 and on a year-to-
date basis, with price increases offsetting the reduced waste volumes
received. Waste receipts at the Stoney Creek landfill were up in the third
quarter by 4% over the same period last year; however, continue to be down on
a year-to-date basis by 24%.
Growth capital of $9.3 million increased by $1.0 million compared to the
third quarter of 2007. Growth capital of $23.0 million increased by
$3.6 million compared to the nine months of 2007 which was mainly invested in
productivity improvements at facilities in Ontario and Québec and restarting
the second kiln at the lead recycling facility. We are in the process of
commissioning the second kiln and expect it to be operational by the end of
the first quarter 2009. Maintenance capital expenditures for the third quarter
and year-to-date each increased by $2.1 million to $3.4 million and
$2.9 million to $6.0 million, respectively.

Eastern Outlook

For the balance of 2008, our business in eastern Canada is anticipated to
produce results relatively consistent with the third quarter. The success of
our capital investments, including acquisitions, continues to produce strong
results and supports our diversification strategy.
Stoney Creek landfill volumes in the fourth quarter are anticipated to be
at similar levels as the third quarter. In Québec/Atlantic, the decline of
lead prices to more historic norms will be somewhat offset by the weakening
Canadian dollar. It is management's intent to manage our exposure to commodity
price risk by adjusting our tolling production to maximize returns.

CORPORATE AND OTHER

-------------------------------------------------------------------------
% YTD YTD %
($000s) Q3 2008 Q3 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Selling, general
and administrative
expenses(1) 14,752 13,412 10 45,567 38,873 17
as a % of revenue 9.3 10.1 (8) 10.1 10.7 (6)
Amortization and
accretion 12,448 10,866 15 35,491 29,879 19
as a % of revenue 7.8 8.1 (4) 7.9 8.2 (5)
-------------------------------------------------------------------------
(1) Excludes foreign exchange gains and losses.

The increase in selling, general and administrative expense was
attributable to increased staff to support the growth of the business compared
to the third quarter of 2007. SG&A excludes a net $0.7 million foreign
exchange gain in the third quarter of 2008 (Q3 2007 - loss of $0.1 million)
and a net $1.2 million foreign exchange gain on a year-to-date basis (year-to-
date 2007 - loss of $0.3 million). Foreign exchange gains and losses will vary
from period to period depending on the movement of the Canadian dollar versus
the U.S. dollar and the amount of U.S. denominated receivables and payables
outstanding. Newalta currently does not enter into derivative contracts to
manage foreign exchange risk.
The increase in amortization was attributable to recent acquisitions and
growth capital expenditures. As a percentage of revenue, amortization and
accretion was flat during the third quarter and decreased modestly year-over-
year. Over the past two years, we have acquired a total of 14 businesses, and
with these businesses we acquired some redundant or idle assets. We are
continuing to focus on consolidating operations and identifying and selling
redundant and idle assets. Year-to-date, redundant assets were sold for total
proceeds of $13.6 million with a net gain of $2.4 million. This gain was
offset by an impairment write-down of some idle assets of $1.0 million. Both
the net gain and the impairment write-down are reflected in amortization and
accretion.

-------------------------------------------------------------------------
% YTD YTD %
($000s) Q3 2008 Q3 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Bank fees and
interest 3,468 3,632 (5) 10,972 8,570 28
Convertible
debentures interest
and accretion of
issue costs 2,304 - n/a 6,894 - n/a
-------------------------------------------------------------------------
Finance charges 5,952 3,632 64 17,866 8,570 108
-------------------------------------------------------------------------

The increase in finance charges for the three and nine months ended
September 30, 2008 compared to the same periods in 2007 were due to an
increase in the average senior long-term debt level and the issuance of
$115.0 million in convertible debentures ("Debentures") in November 2007. At
September 30, 2008, senior long-term debt was $260.1 million compared with
$206.9 million at December 31, 2007. From January 1, 2008, senior long-term
debt increased by $53.2 million which was primarily attributable to the
funding of growth capital expenditures.

-------------------------------------------------------------------------
% YTD YTD %
($000s) Q3 2008 Q3 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Current tax 353 209 68 928 872 (6)
Future income tax (29) (3,578) (99) (5,849) (6,470) (10)
-------------------------------------------------------------------------
Provision for
(recovery of)
income taxes 324 (3,369) (110) (4,921) (5,598) (12)
-------------------------------------------------------------------------

Current tax expense for the third quarter of 2008 increased 68% in the
third quarter, while it declined 6% on a year-to-date basis. For the third
quarter, the future income tax recovery decreased 99% while on a year-to-date
basis, future income tax recoveries decreased by 10% in 2008 as compared to
2007. The reason for the shift in future income taxes is due to a decrease in
the amount of income sheltered between the Fund and its subsidiaries. After
conversion, based on current performance and investment, Newalta does not
anticipate paying any Canadian cash taxes until 2012 at the earliest. This tax
horizon is dependent on a number of factors including, but not limited to, the
amount of tax loss carryforwards and total undepreciated capital cost ("UCC")
and eligible cumulative expense ("ECE") pools accumulated. As at December 31,
2007, we had $80 million in tax loss carryforwards and $423.0 million in UCC
and ECE pools. See CRITICAL ACCOUNTING ESTIMATES - FUTURE INCOME TAXES in the
MD&A for the year ended December 31, 2007 relating to the taxation of
specified investment flow-through ("SIFT") entities.
As at November 5, 2008, the Fund had 42,238,075 trust units outstanding,
outstanding rights to acquire up to 2,892,750 trust units and a number of
trust units that may be issuable pursuant to the Debentures (see the MD&A for
the year ended December 31, 2007 LIQUIDITY AND CAPITAL RESOURCES - Sources of
Cash - Convertibles).

LIQUIDITY AND CAPITAL RESOURCES

The term liquidity refers to the speed with which a company's assets can
be converted into cash as well as cash on hand. Liquidity risk for the Fund
may arise from its general day-to-day cash requirements, and in the management
of its assets, liabilities and capital resources. Liquidity risk is managed
against Newalta's financial leverage to meet its obligations and commitments
in a balanced manner.
Our debt capital structure is as follows:

-------------------------------------------------------------------------
September 30, December 31,
($000s) 2008 2007
-------------------------------------------------------------------------
Working capital 82,813 74,529
-------------------------------------------------------------------------
Use of credit facility:
Senior long-term debt (before related costs) 260,418 207,417
Letters of credit 49,749 40,095
-------------------------------------------------------------------------
Funded senior debt A 310,167 247,512
Unused credit facility capacity 114,833 177,488
-------------------------------------------------------------------------
Debentures B 115,000 115,000
-------------------------------------------------------------------------
Total Debt (equals) A + B 425,167 362,512
-------------------------------------------------------------------------

The Fund's net working capital was $82.8 million at September 30, 2008
compared with $74.5 million at December 31, 2007. At current activity levels,
working capital of $82.8 million is expected to be sufficient to meet the
ongoing commitments and operational requirements of the business. The decrease
in working capital from December 31, 2007 related to the settlement of related
purchase price adjustments and the payment of capital expenditures accrued for
at year end, offset by higher working capital requirements to support the lead
recyling operations. The credit risks associated with accounts receivable are
viewed as normal for the industry. We have not purchased any asset-backed
commercial paper investments and have had no direct impact from the collapse
of the sub- prime mortgage markets in the United States. A measure we use 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, 2008 reflected that Newalta had sufficient current assets to
cover its current liabilities by 1.88 times (at December 31, 2007, the ratio
was 1.65 times). This ratio exceeds Newalta's bank covenant minimum
requirement of 1.20:1.

SOURCES OF CASH

The Fund's liquidity needs can be sourced in several ways including:
funds from operations, short and long-term borrowings against our credit
facility and the issuance of securities from treasury. The components of the
capital structure remained the same compared to December 31, 2007.

Credit Facility

Newalta extended the maturity of its $425.0 million credit facility to
October 2010. As part of this process, $40 million was assigned by a former
member of the lending syndicate to two existing and one new member. The funded
debt to EBITDA covenant for the balance of 2008 was amended by maintaining the
existing 3.00:1 ratio. Commencing in 2009, this covenant will be 2.50:1. Upon
conversion to a corporation, the covenant will be 3.00:1 for the term of the
facility. Newalta continues to prudently manage its balance sheet. As at
September 30, 2008, funded debt to EBITDA ratio was 2.41:1, working capital
was $82.8, and unused capacity on its credit facility was approximately $114.8
million. 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 currently required to issue either letters of credit or a
bond with various environmental regulatory authorities to ensure that the
eventual asset retirement obligations for its 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, 2008, letters of credit and bonds issued as
financial security to third parties totalled $63.9 million. Of this amount,
$49.7 million is committed on the Credit Facility. Bonds, if less than $25.0
million in total, are not required to be offset against the borrowing amount
available under the Credit Facility.
At September 30, 2008, Newalta had funded senior debt of $310.2 million,
compared to $247.5 million at December 31, 2007, an increase of $62.7 million.
The increase was primarily due to growth capital funding requirements and an
increase in letter of credit.
Newalta is restricted from declaring distributions and distributing cash
if the Corporation is in breach of the covenants under the Credit Facility.
Financial performance relative to the financial ratio covenants under the
current Credit Facility is reflected in the table below:

-------------------------------------------------------------------------
September 30, 2008 Threshold
-------------------------------------------------------------------------
Current Ratio(1) 1.88:1 1.20:1 minimum
Funded Debt to EBITDA(2) 2.41:1 3.00:1 maximum(4)
Fixed Charge Coverage Ratio(3) 1.11:1 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) 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 (including amounts under
capital leases, if any), interest (excluding accretion for the
convertible debentures), dividends and cash distributions paid by the
Fund for such period, other than cash payments in respect of the DRIP
program of the Fund. Unlike the Funded Debt to EBITDA ratio, the
Fixed Charge Coverage ratio trailing twelve month EBITDA is not
normalized for acquisitions.
(4) The maximum funded debt to EBITDA covenant under the credit facility
is 3.00:1 for the balance of 2008 and 2.50:1 thereafter. As a
corporation, the covenant will be 3.00:1 for the term of the
facility.

Debentures

In November 2007, $115.0 million in Debentures were issued which mature
on November 30, 2012 and bear an interest rate of 7.0%, payable semi-annually
in arrears on May 31 and November 30 beginning May 31, 2008. Each $1,000
debenture is convertible into 43.4783 trust units (or a conversion price of
$23.00 per trust unit (the "Conversion Price") at any time at the option of
the holders of the Debentures. The Debentures are not included in the
definition of funded debt for the purposes of calculating related financial
covenants pursuant to the Credit Facility.
Upon maturity or redemption of the Debentures, the Fund may pay the
outstanding principal of the Debentures in cash or may elect to satisfy its
obligations to repay all or a portion of the principal amount of the
Debentures which have matured or been redeemed by issuing and delivering that
number of trust units obtained by dividing the aggregate amount of principal
of the Debentures which have matured or been 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.
There have been no redemptions of the Debentures.

USES OF CASH

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

Capital Expenditures

Total capital expenditures for the current year and comparative periods
are summarized as follows:

-------------------------------------------------------------------------
($000s) Q3 2008 Q3 2007 YTD 2008 YTD 2007
-------------------------------------------------------------------------
Growth capital 30,222 22,484 66,247 55,974
Acquisitions - 11,596 - 37,593
-------------------------------------------------------------------------
Total growth capital and
acquisitions 30,222 34,080 66,247 93,567
Maintenance capital expenditures 6,891 5,257 12,301 11,008
-------------------------------------------------------------------------
Total capital expenditures(1) 37,113 39,337 78,548 104,575
-------------------------------------------------------------------------
(1) The numbers in this table differ from the interim consolidated
statement of cash flows because the numbers above do not reflect the
net change in working capital related to capital expenditures.

Growth capital expenditures in 2008 were funded by funds from operations
in excess of distributions, proceeds from the disposition of redundant assets
and by drawing on our Credit Facility. Growth capital expenditures consisted
primarily of productivity improvements at several facilities, progress
payments on additional centrifuges to support both the growing demand in the
U.S. for drill site services and heavy oil/SAGD onsite services and corporate
office leasehold improvements.
For 2008, we remain on plan to spend a total of $135.0 million in capital
spending comprised of $110.0 million in growth capital expenditures and
$25.0 million in maintenance capital expenditures. Of the growth capital
amount, $90.0 million will be directed towards internal growth projects and
$20.0 million is planned for corporate investments in innovation projects,
information technology and office space (before tenant improvement
recoveries). Approximately 70% of the growth capital investments are planned
for the third quarter of 2008. These projects will be funded out of excess
funds from operations, if any, and bank borrowings. The operations growth
projects are planned as follows:

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

Maintenance capital expenditures are capital expenditures to replace and
maintain depreciable assets at current service levels. Management continues to
estimate that the total maintenance capital expenditures for the year will be
approximately $25.0 million. Maintenance capital expenditures for fixed
facilities tend to be relatively consistent year-over-year, whereas
maintenance capital expenditures for equipment that is rented out to customers
fluctuate based on 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 funds from operations.

Distributions

On a per unit basis Newalta declared monthly distributions of $0.185 to
unitholders from January through September 2008 or $2.22 annually, consistent
with the same period in 2007. The Board of Trustees intends to maintain
distributions at $0.185 per trust unit for the remainder of 2008. Upon
approval of the reorganization plan, Newalta plans to pay a quarterly dividend
of $0.20 per share ($0.80 on an annualized basis).

SUMMARY OF QUARTERLY RESULTS

(unaudited) 2008
-------------------------------------------------------
($000s except per unit data) Q3 Q2 Q1
-------------------------------------------------------
Revenue 158,579 142,939 150,176
-------------------------------------------------------
Operating income 19,041 9,293 16,542
-------------------------------------------------------
Net earnings 18,717 11,776 19,304
Continuing operations 18,717 11,776 19,304
Discontinued operations - - -
-------------------------------------------------------
Earnings per unit ($) 0.44 0.28 0.47
Continuing operations 0.44 0.28 0.47
Discontinued operations - - -
Diluted earnings per unit ($) 0.44 0.28 0.46
Continuing operations 0.44 0.28 0.46
Discontinued operations - - -
-------------------------------------------------------
Weighted average units
- basic 42,102 41,822 41,543
-------------------------------------------------------
Weighted average units
- diluted 42,111 41,950 41,635
-------------------------------------------------------
-------------------------------------------------------


(unaudited) 2007 2006
-------------------------------------------------------------------------
($000s except per unit data) Q4 Q3 Q2 Q1 Q4
-------------------------------------------------------------------------
Revenue 137,075 133,358 111,594 117,837 122,498
-------------------------------------------------------------------------
Operating income 7,784 14,524 3,788 13,665 16,209
-------------------------------------------------------------------------
Net earnings 23,613 17,893 6,716 12,966 15,356
Continuing operations 23,613 17,893 6,716 12,966 15,528
Discontinued operations - - - - (172)
-------------------------------------------------------------------------
Earnings per unit ($) 0.57 0.44 0.17 0.33 0.42
Continuing operations 0.57 0.44 0.17 0.33 0.42
Discontinued operations - - - - (0.00)
Diluted earnings per unit ($) 0.54 0.43 0.16 0.33 0.41
Continuing operations 0.54 0.43 0.16 0.33 0.41
Discontinued operations - - - - (0.00)
-------------------------------------------------------------------------
Weighted average units
- basic 41,191 40,579 40,361 39,209 36,860
-------------------------------------------------------------------------
Weighted average units
- diluted 43,779 40,725 40,562 39,445 37,282
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Quarterly performance is affected by seasonal variation as described
below.
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
Q1 2007 which continued into Q2 2007. This weakness was further compounded by
the spring breakup road bans and an extended wet season preventing the
transportation of waste from well workovers and therefore reducing processing
volumes. This resulted in lower revenue, earnings and operating income. In Q3
2007 operations returned to seasonal levels but operating income remained
lower when compared to the same period in 2006, as a result of the continued
weakness in the western Canadian natural gas drilling market. Operating income
in Q4 2007 was lower than Q3 2007 due to a $2.1 million loss on the disposal
of leasehold improvements associated with the early termination of office
space leases as well as increased SG&A and interest expense incurred in
anticipation of growth. Net earnings in Q4 2007 improved over Q3 2007
attributable to a future income tax recovery due to a reduction in the
estimated future income tax rate. In January 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.
In 2008, the increase in revenue, operating income, and net earnings
compared to Q1, Q2, and Q3 2007 are mainly due to full quarter contributions
from acquisitions in each quarter as well as higher crude oil sales and
contributions from growth initiatives in Western.

Seasonality of Operations

Quarterly performance is affected by, among other things, weather
conditions, commodity prices, market demand and the timing of capital
investments as well as acquisitions and the contributions from those
investments. Acquisitions and growth capital investments completed in the
first half of the year will tend to strengthen the third quarter financial
performance. Seasonality has a different effect on Western and Eastern,
reflecting the different types of services that each provides. The following
seasonality factors describe the typical quarterly fluctuations in operating
results in the absence of growth and acquisition capital.
For Western, the frozen ground during the winter months in western Canada
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. The
expansion into the U.S. is anticipated to reduce the significance of weather
conditions on drilling related activities. The areas in the U.S. in which we
operate are not affected by frozen ground requirements for winter drilling nor
are they impacted by the spring thaw and therefore drilling can take place at
any time of year. For Western, over the past two years, quarterly revenue as a
percentage of annual Western revenue was: 25% for the first quarter, 22% for
the second quarter, 27% for the third quarter and finally fourth quarter
revenue was 26%.
Eastern's services are generally 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. The addition of the lead recycling facility to Eastern has
reduced the significance of this variability, as the demand for recycled lead
is not generally affected by seasonality. Eastern's quarterly revenue as a
percentage of annual Eastern revenue has not been affected by the trends
discussed above due to the effect of acquisitions. Based on historical
information acquired by management for acquisitions completed in eastern
Canada in 2006 and 2007, we estimate that quarterly revenue as a percentage of
annual revenue for Eastern would have approximately been: 22% in the first
quarter, 24% in the second quarter, 27% in the third quarter and, 27% in the
fourth quarter.
Quarterly financial results have been prepared by management in
accordance with Canadian GAAP as set out in the notes to the annual audited
consolidated financial statements of the Fund for the year ended December 31,
2007.
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:

-------------------------------------------------------------------------
YTD Fiscal Fiscal Fiscal
($000s) Q3 2008 Q3 2007 2008 2007 2006 2005
-------------------------------------------------------------------------
Cash flow generated
from operating
activities 42,992 20,446 74,339 54,058 111,963 71,732
Distributions
declared (23,382) (22,526) (69,708) (90,117) (75,923) (49,602)
-------------------------------------------------------------------------
Cash excess
(shortfall) 18,610 (2,080) 4,631 (36,059) 36,040 22,130
-------------------------------------------------------------------------

Net earnings 18,717 17,893 49,797 61,189 75,565 46,978
Distributions
declared (23,382) (22,526) (69,708) (90,117) (75,923) (49,602)
-------------------------------------------------------------------------
Net earnings
(shortfall) excess (4,665) (4,633) (19,911) (28,928) (358) (2,624)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

On a quarter and year-to-date basis cash flow generated from operating
activities was greater than distributions declared, while 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.
Due to strong cash flow generated from operating activities,
distributions declared were funded from our cash flows for the three and nine
months ended September 30, 2008. The cash excess was driven mainly by an
increase in operating working capital requirements of $15.8 million for the
three months ended September 30, 2008. In addition, these calculations do not
include proceeds from the Fund's Distribution Reinvestment Plan ("DRIP")
through which $3.1 million and $9.6 million in distributions were reinvested
by unitholders for the three and nine months ended September 30, 2008,
respectively. It also does not include cash proceeds received through the sale
of redundant assets of $13.6 million year-to-date.
The net earnings shortfall is mainly attributable to amortization and
accretion expense, a non-cash expense, of $12.4 million and $35.5 million for
the three and nine months ended September 30, 2008, respectively. The majority
of the assets related to this expense are funded by drawing on our 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 and does
not believe that the shortfalls in the table above have resulted in an
economic return of capital.

Contractual Obligations

For the three and nine month periods ended September 30, 2008, there have
been no significant changes in Newalta's contractual obligations. For a
summary of Newalta's contractual obligations, see page 26 of the MD&A for the
year ended December 31, 2007.

Outlook

The outlook for the fourth quarter is expected to be improved year-over-
year and seasonally in line with the third quarter of 2008. The integration of
our 2007 acquisitions, our 2008 capital growth program, and our disciplined
management of the business has contributed to our strong performance. We have
identified substantial organic growth opportunities that exceed our $75
million 2009 growth capital budget. The conversion to a corporation will
provide a balance between sustainable yield to our investors and funds from
operations which will allow us to self-fund the majority of our growth
capital. We have been conservative in setting our 2009 growth capital budget
in order to prudently manage our balance sheet in the current uncertain times.
As market conditions improve, we are well positioned to take advantage of
additional growth opportunities. Maintenance capital for 2009 is budgeted at
$28 million, slightly above our $25 million budget for 2008.

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 counsel to Bennett Jones LLP. The total cost of
these legal services during the three and nine month period ended
September 30, 2008 were $0.1 million and $0.3 million, respectively
($0.1 million and $0.4 million for the same periods in 2007).
Newalta provides oilfield services to Paramount Resources Ltd., an oil
and gas company. Mr. Clayton Riddell, a Trustee of the Board of Newalta, 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, 2008 were $0.3 million and $0.9 million
respectively ($0.2 million and $1.2 million for the same periods in 2007).
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.

Sensitivities

Our revenue is sensitive to changes in commodity prices for crude oil,
natural gas, base oils, and lead. Cash from operating activities is also
sensitive to changes in interest rates as well as the exchange rate between
the Canadian and U.S. dollars. These factors have both a direct and indirect
impact on our business. The direct impact of the commodity prices is reflected
in the revenue received from the sale of products such as crude oil, base oils
and lead. The indirect impact is the effect that the variation of these
factors has on activity levels of our customers and therefore the demand for
services. The indirect impact of fluctuations in the commodity prices and
other factors previously discussed are not quantifiable.
With the acquisition of the lead recycling facility in the fourth quarter
of 2007, our revenue is now exposed to the variability of lead prices
established by the London Metal Exchange. The contribution of total lead
produced between direct lead sales and tolling services was approximately 62%
direct sales and 38% tolling on a trailing twelve month basis to September 30,
2008. The variability of lead prices is partially offset because our feedstock
to produce recycled lead for direct lead sales is obtained through the
procurement of waste batteries, the cost of which also fluctuates with the
price of lead but historically the adjustment to feedstock has lagged the
change in the price of lead by up to six months. Therefore the impact of an
increase in lead prices will not have the same dollar for dollar impact of a
decrease in lead prices. Tolling revenue is not subject to the same variation
in lead prices because the fees are generally fixed.
As of the time of writing this MD&A we do not see any significant
variation to the sensitivities provided in the MD&A for the year ended
December 31, 2007.

BUSINESS RISKS

The business of Newalta is subject to certain risks and uncertainties.
Prior to making any investment decision regarding Newalta investors should
carefully consider, among other things, the risks described herein (including
the risks and uncertainties listed in the first paragraph of this Management's
Discussion and Analysis) and the risk factors set forth in the most recently
filed Annual Information Form of the Fund which are incorporated by reference
herein.
The Annual Information Form is available through the Internet on the
Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which
can be accessed at www.sedar.com. Copies of the Annual Information Form may be
obtained, on request without charge, from Newalta Corporation at 211 - 11th
Avenue S.W., Calgary, Alberta T2R 0C6, or at www.newalta.com, or by facsimile
at (403) 806-7032.

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 third quarter and first nine months of 2008 compared to
those provided in the Fund's annual consolidated financial statements for the
year ended December 31, 2007.

Goodwill

Management performs a test for goodwill impairment annually and whenever
events or circumstances make it more likely than not that an impairment may
have occurred. Determining whether an impairment has occurred requires a
valuation of the respective reporting unit, which is estimated using a
discounted cash flow method. In applying this methodology, management relies
on a number of factors, including actual operating results, future business
plans, economic projections and market data. Management tests the valuation of
goodwill at each September 30 period end and did not see any impairment in the
goodwill balance recorded nor were there any factors that changed since that
period which would lead management to believe that any impairment has
occurred.

Stock-based compensation

Newalta has three stock-based compensation plans: a Trust Unit Rights
Incentive Plan adopted in 2003 (the "2003 Plan"); a Trust Unit Rights
Incentive Plan adopted in 2006 (the "2006 Plan") and a Trust Unit Appreciation
Rights Incentive arrangement granted in 2008 (the "2008 Plan"). The 2003 Plan
and 2006 Plan differ in the manner in which they may be settled by the
grantee. The rights granted under the 2003 Plan may only be settled in Trust
Units, while the rights granted under the 2006 Plan may by settled net in cash
by the grantee. Rights under the 2008 Plan may only be settled in cash. As
such, rights granted under the 2003 Plan are accounted for in accordance with
the fair value recognition provisions of Canadian GAAP. Accordingly, stock-
based compensation expense is measured at the grant date based on the fair
value of the award and is recognized as an expense over the vesting period.
Determining the fair value of stock-based awards at the grant date requires
judgment, including estimating the expected term of the rights (including the
number of stock-based awards that are expected to be forfeited), the expected
volatility of the Fund's units and the expected distributions.
The rights granted under the 2006 Plan and 2008 Plan are accounted for as
stock appreciation rights since they may be subject to a net cash settlement
provision. Accordingly, they are re-measured at each balance sheet date to
reflect the net cash liability at that date.

Future Income Taxes

Future income taxes are estimated based upon temporary differences
between the book value and the tax value of assets and liabilities using the
applicable future income tax rates under current law. The change in these
temporary differences results in a future income tax expense or recovery. The
most significant risk in this estimate is the future income tax rates used for
each entity. On June 22, 2007, new tax legislation modifying the taxation of
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, 2008 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. For further discussion on the
impact of the New Tax Legislation please refer to pages 30 and 31 of the
Fund's MD&A for the year ended December 31, 2007.
On July 14, 2008, the Federal Government released the draft legislative
proposals to allow for the tax-deferred conversion of specified investment
flow-through entities ("SIFT") into corporations. The main objectives of the
legislation is to: (i) allow unitholders of an income trust to sell their
units to a taxable Canadian corporation on a tax-deferred basis and (ii)
provide alternatives for eliminating, on a tax-deferred basis, the trusts in
the existing fund structures so that the operating businesses can be owned in
corporate form by shareholders. These proposals, in their current form, will
expire on December 31, 2012.

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 three and
nine months ended September 30, 2008 are consistent with those disclosed in
the Management's Discussion and Analysis for the year ended December 31, 2007.

ADOPTION OF NEW ACCOUNTING STANDARDS IN 2008

Effective January 1, 2008, Newalta adopted the requirements of the
Canadian Institute of Chartered Accountants ("CICA") new handbook sections
3862 Financial Instruments - Disclosures and 3863 Financial Instruments -
Presentation. The incremental disclosure requirements for Newalta are
addressed in Note 14 to the interim consolidated financial statements for the
three and nine months ended September 30, 2008.
The CICA issued an additional new accounting standard, section 1535
Capital Disclosures which requires both qualitative and quantitative
disclosures to provide users of financial statements with information to
evaluate the entity's objectives, policies and processes for managing capital.
Effective January 1, 2008, Newalta adopted this new accounting standard and
the related disclosure is found in Note 5 to the interim consolidated
financial statements for September 30, 2008.
Effective January 1, 2008, the Fund adopted CICA handbook section 3031
Inventories, which replaces section 3030. There was no effect on the Fund's
inventory balances. However, going forward the new handbook section provides
for the ability to reverse impairment losses previously recognized if the
underlying assumption for that impairment has changed.

New accounting standards for future adoption

In February 2008, CICA issued section 3064, Goodwill and intangible
assets, replacing section 3062, Goodwill and other intangible assets and
section 3450, Research and development costs. Various changes have been made
to other sections of the CICA Handbook for consistency purposes. The new
section will be applicable to financial statements relating to fiscal years
beginning on or after October 1, 2008. Accordingly, the Fund will adopt the
new standards for its fiscal year beginning January 1, 2009. It establishes
standards for the recognition, measurement, presentation and disclosure of
goodwill subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill are unchanged from
the standards included in the previous section 3062. Management is currently
evaluating the impact of the adoption of this new section on its consolidated
financial statements and does not expect that the adoption of this new section
will have a material impact on its financial statements.
On March 11, 2008, the Accounting Standards Board of Canada ("AcSB")
confirmed that effective January 1, 2011, International Financial Reporting
Standards ("IFRS") will become Canadian GAAP for publicly accountable
enterprises such as Newalta. At this time, the impact on our future
consolidated balance sheets and statements of operations, comprehensive income
and retained earnings are not reasonably determinable or estimable.
We have commenced our IFRS project and have established a formal project
governance structure with a target implementation date of January 1, 2011. Our
structure includes a steering committee consisting of senior management, a
project team to manage and implement the change, and individual working groups
to focus on specific issues and areas. The steering committee will be
regularly reporting to senior executive management, the Audit Committee and
Board. We have also engaged an external expert advisor to assist with the
implementation.
At this stage, we have completed our project charter, developed our
implementation plan, started our detailed review of the major differences
between Canadian GAAP and IFRS for the areas identified in the high-level
scan, and began to develop the working groups for each area of the project.

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 currently 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 three months ended September 30, 2008, 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 211-11th Avenue S.W., Calgary, Alberta
T2R 0C6, or at www.newalta.com, or by facsimile at (403) 806-7032.

CONSOLIDATED BALANCE SHEETS

($000s) (unaudited) September 30, December 31,
2008 2007
-------------------------------------------------------------------------
Assets
Current assets
Accounts receivable 138,933 159,749
Inventories 31,270 24,122
Prepaid expenses and other 6,669 6,129
-------------------------------------------------------------------------
176,872 190,000
Note receivable 1,246 1,424
Capital assets 694,599 661,605
Intangible assets 64,459 66,855
Goodwill 103,597 103,597
-------------------------------------------------------------------------
1,040,773 1,023,481
-------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 86,255 107,809
Distributions payable 7,804 7,662
-------------------------------------------------------------------------
94,059 115,471
Senior long-term debt (Note 2) 260,093 206,940
Convertible debentures - debt portion 109,121 108,336
Future income taxes 43,053 49,840
Asset retirement obligations (Note 9) 20,843 20,985
-------------------------------------------------------------------------
527,169 501,572
-------------------------------------------------------------------------
Unitholders' Equity
Unitholders' capital (Note 4) 507,766 496,027
Convertible debentures - equity portion 1,850 1,850
Contributed surplus 959 1,092
Retained earnings 3,029 22,940
-------------------------------------------------------------------------
513,604 521,909
-------------------------------------------------------------------------
1,040,773 1,023,481
-------------------------------------------------------------------------
-------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF OPERATIONS, 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) 2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue 158,579 133,358 451,694 362,789
Expenses
Operating 107,041 90,791 309,066 253,292
Selling, general and
administrative 14,097 13,545 44,395 39,070
Finance charges 5,952 3,632 17,866 8,570
Amortization and accretion 12,448 10,866 35,491 29,879
-------------------------------------------------------------------------
139,538 118,834 406,818 330,811
-------------------------------------------------------------------------
Earnings before taxes 19,041 14,524 44,876 31,978
Provision for (recovery of)
income taxes
Current 353 209 928 872
Future (29) (3,578) (5,849) (6,470)
-------------------------------------------------------------------------
324 (3,369) (4,921) (5,598)
-------------------------------------------------------------------------
Net earnings and
comprehensive income 18,717 17,893 49,797 37,576
Retained earnings,
beginning of period 7,694 26,889 22,940 51,868
Distributions (Note 8) (23,382) (22,526) (69,708) (67,188)
-------------------------------------------------------------------------
Retained earnings,
end of period 3,029 22,256 3,029 22,256
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Net earnings per unit (Note 7) 0.44 0.44 1.19 0.94
-------------------------------------------------------------------------
Diluted earnings per unit
(Note 7) 0.44 0.43 1.19 0.93
-------------------------------------------------------------------------
-------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF CASH FLOWS

For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
($000s) (unaudited) 2008 2007 2008 2007
-------------------------------------------------------------------------
Net inflow (outflow) of cash
related to the following
activities:
Operating Activities
Net earnings 18,717 17,893 49,797 37,576
Items not requiring cash:
Amortization and accretion 12,448 10,866 35,491 29,879
Future income taxes (recovery) (29) (3,578) (5,849) (6,470)
Other (259) (308) (1,062) (1,425)
-------------------------------------------------------------------------
30,877 24,873 78,377 59,560
Increase (decrease) in
non-cash working capital 11,366 (4,094) (2,402) (26,229)
Asset retirement expenditures
incurred (Note 9) (251) (333) (1,817) (830)
-------------------------------------------------------------------------
41,992 20,446 74,158 32,501
-------------------------------------------------------------------------
Investing Activities
Additions to capital assets (33,077) (24,656) (82,839) (81,979)
Net proceeds on sale of
capital assets (Note 10) 7,029 133 13,619 1,848
Acquisitions (Note 3) - (11,548) - (36,808)
-------------------------------------------------------------------------
(26,048) (36,071) (69,220) (116,939)
-------------------------------------------------------------------------
Financing Activities
Issuance of units (Note 4) - (3) 1,913 77,328
Increase in debt 4,190 34,779 52,872 64,578
Repayment of acquired debt
(Note 3) - (48) - (785)
Decrease in note receivable 98 108 259 235
Distributions to unitholders
(Note 8) (20,232) (19,211) (59,982) (56,918)
-------------------------------------------------------------------------
(15,944) 15,625 (4,938) 84,438
-------------------------------------------------------------------------
Net cash flow - - - -
Cash - beginning of period - - - -
-------------------------------------------------------------------------
Cash - end of period - - - -
-------------------------------------------------------------------------
Supplementary information:
Interest paid 3,432 3,361 14,858 8,182
Income taxes paid 360 210 1,100 717
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Notes to the Interim Consolidated Financial Statements

FOR THE THREE AND NINE MONTHS ENDED September 30, 2008 AND 2007

(all tabular data in $000s except per unit and ratio data) (unaudited)

Newalta Income Fund (the "Fund") is a Canadian mutual fund trust with
wholly-owned operating subsidiaries Newalta Corporation (the
"Corporation") and Newalta Industrial Services Inc. ("NISI"); (together
the Fund, the Corporation, and NISI comprise "Newalta"). Newalta is
engaged 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, lead, manufacturing, mining, oil and gas,
petrochemical, pulp and paper, refining, 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, 2007 as contained in the Annual Report for fiscal 2007.

The accounting principles applied are consistent with those as set out in
the Fund's annual financial statements for the year ended December 31,
2007 except as noted in the following paragraphs.

a) Financial Instruments

Effective January 1, 2008, Newalta adopted the requirements of the
Canadian Institute of Chartered Accountants ("CICA") new handbook
sections 3862 Financial Instruments - Disclosures and 3863 Financial
Instruments - Presentation. The incremental disclosure requirements for
Newalta are addressed in Note 14 to these interim consolidated financial
statements.

b) Capital Disclosures

The CICA issued a new accounting standard, section 1535 Capital
Disclosures which requires both qualitative and quantitative disclosures
to provide users of financial statements with information to evaluate an
entity's objectives, policies and processes for managing capital.
Effective January 1, 2008, Newalta adopted this new accounting standard
and the related disclosure is found in Note 5 to these interim
consolidated financial statements.

c) Inventories

Effective January 1, 2008, the Fund retrospectively adopted CICA handbook
section 3031 Inventories, which replaces section 3030. There was no
effect on the Fund's inventory balances. However, going forward the new
handbook section provides for the ability to reverse impairment losses
previously recognized if the underlying assumptions for that impairment
have changed.

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,
2008 and 2007.

NOTE 2. SENIOR LONG-TERM DEBT

September 30, December 31,
2008 2007
-------------------------------------------------------------------------
Amount drawn on credit facility 260,418 207,417
Issue costs (325) (477)
-------------------------------------------------------------------------
Senior long-term debt 260,093 206,940
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Newalta extended the maturity of its $425.0 million credit facility to
October 2010. The funded debt to EBITDA covenant for the balance of
2008 was amended by maintaining the existing 3.00:1 ratio. Commencing in
2009, this covenant will be 2.50:1. Upon conversion to a corporation, the
covenant will be 3.00:1 for the term of the facility. At September 30,
2008, Newalta was in compliance with all covenants (see Note 15 -
Subsequent Events).

(1) 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.

NOTE 3. ACQUISITIONS

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

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

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

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

Eastern acquired the assets of Bucke Environmental Services &
Transportation Inc. ("Best") effective July 6, 2007 for a total purchase
price of $1.4 million, comprised of $1.4 million in cash and the
assumption of $48 thousand in debt. The acquired assets include four
vacuum trucks and related assets in the Windsor 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 $9.8 million in cash. The acquired operations include a fleet of 15
vacuum trucks, 30 people and 12 technical field consultants that provide
site remediation and abandonment services.

The 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 3,885 1,085 4,037 18,535
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.

NOTE 4. UNITHOLDERS' CAPITAL

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

(000s) Units (No.) Amount ($)
-------------------------------------------------------------------------
Units outstanding as at December 31, 2006 36,942 394,601
Units issued 3,000 73,936
Units issued as consideration for Nova Pb assets 511 10,000
Contributed surplus on rights exercised - 335
Rights exercised 289 3,222
Units issued under the DRIP 675 13,933
-------------------------------------------------------------------------
Units outstanding as at December 31, 2007 41,417 496,027
Contributed surplus on rights exercised - 242
Rights exercised 209 1,913
Units issued under the DRIP 560 9,584
-------------------------------------------------------------------------
Units outstanding as at September 30, 2008 42,186 507,766
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 5. CAPITAL DISCLOSURES

The Fund's capital structure currently consists of:

- Senior long term debt pursuant to the credit facility agreement
- Letters of Credit or bonds issued as financial security to third
parties
- Convertible debentures, debt portion; and
- Unitholders' equity.

The objectives in managing the capital structure are to:

- Utilize an appropriate amount of leverage to maximize return on
unitholders' equity, and
- To provide for borrowing capacity and financial flexibility to
finance Newalta's growth strategy.

Management and the Board of Trustees review and assess the Fund's capital
structure and distribution policy at least at each regularly scheduled
board meeting which are held at a minimum four times annually. The
financial strategy may be adjusted based on the current outlook of the
underlying business, the capital requirements to fund growth initiatives
and the state of the debt and equity capital markets. In order to
maintain or adjust the capital structure, the Fund may:

- Issue new trust units
- Issue new debt securities
- Replace outstanding letters of credit with bonds or other types of
financial security
- Amend, revise, renew or extend the terms of its then existing
long-term debt facilities
- Enter into new agreements establishing new credit facilities, and/or
- Adjust the amount of distributions paid to unitholders.

Management monitors the capital structure based on measures required
pursuant to the Corporation's credit facility agreement which restricts
Newalta from declaring distributions and distributing cash if the
Corporation is in breach of a covenant under its credit facility. These
measures include:

-------------------------------------------------------------------------
September 30, December 31,
Ratio 2008 2007 Threshold
-------------------------------------------------------------------------
Current 1.88:1 1.65:1 1.20:1 minimum
Funded Debt(1) to EBITDA(2) 2.41:1 1.89:1 3.00:1 maximum(4)
Fixed Charge Coverage(3) 1.12:1 1.07:1 1.00:1 minimum
-------------------------------------------------------------------------

(1) Current Ratio means, the ratio of consolidated current assets to
consolidated net current liabilities (excluding the current portion
of long-term debt and capital leases outstanding, if any).
(2) Funded Debt to EBITDA means the ratio of consolidated Funded Debt to
the aggregate EBITDA for the trailing twelve-months. Funded Debt is
defined as long-term debt and capital leases including any current
portion thereof but excluding future income taxes and future site
restoration costs. EBITDA is defined as the trailing twelve-months of
EBITDA for the Fund which is normalized for any acquisitions
completed during that time frame and excluding any dispositions
incurred as if they had occurred at the beginning of the trailing
twelve-months.
(3) 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 (including amounts under
capital leases, if any), interest (excluding accretion for the
convertible debentures), dividends and cash distributions paid by the
Fund for such period, other than cash payments in respect of the DRIP
program of the Fund. Unlike the Funded Debt to EBITDA ratio, the
Fixed Charge Coverage ratio trailing twelve month EBITDA is not
normalized for acquisitions.
(4) The maximum funded debt to EBITDA covenant under the credit facility
is 3.00:1 for the remainder of 2008 and 2.50:1 thereafter. As a
corporation, the covenant will be 3.00:1 for the term of the
facility.

On June 22, 2007, new tax legislation modifying the taxation of specified
investment flow-through entities including mutual fund trusts such as the
Fund and its unitholders was enacted (the "New Tax Legislation"). The New
Tax Legislation will apply a tax at the trust level on distributions of
certain income from the Fund. The New Tax Legislation permits "normal
growth" for the Fund through the transitional period which ends December
31, 2010. However, "undue expansion" could cause the transitional relief
to be revisited, and the New Tax Legislation to be effective at a date
earlier than January 1, 2011. On December 15, 2006, the Department of
Finance released guidelines on normal growth for income trusts and other
flow-through entities (the "Guidelines"). Under the Guidelines, the Fund
will be able to increase its equity capital each year during the
transitional period by an amount equal to a safe harbour amount. The safe
harbour amount is measured by reference to Newalta's market
capitalization as of the end of trading on October 31, 2006. Newalta's
market capitalization at the close of trading on October 31, 2006 was
$1.218 billion.

The safe harbour for years up to 2011 will be as follows:

-------------------------------------------------------------------------
Remaining Safe
Newalta's Annual Safe Harbour Limit
Time Period Harbour Limit ($) Available ($)
-------------------------------------------------------------------------
November 1, 2006 to
Dec 31, 2008 730,800 497,329(1)
2009 243,600 243,600
2010 243,600 243,600
-------------------------------------------------------------------------
Total 1,218,000 984,529
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) The amount reflects the net effect of gross proceeds raised from the
issuance of trust units issued from treasury as a result of an equity
financing in January 2007 and to finance a portion of the purchase
price of the Nova Pb asset acquisition in October 2007, gross
proceeds from the issue of Debentures, proceeds from the exercise of
rights granted pursuant to the Trust Unit Rights Incentive Plans and
the reinvestment by unitholders of distributions pursuant to the
DRIP. Canada's Department of Finance ("Finance") has not provided
guidance on how units issued as a result of the exercise of TURIPs
are to be handled for the purpose of determining the safe harbour
limit. Therefore, the amount calculated above may be subject to
adjustment upon further clarification from Finance.

In addition, the Fund also has commitments to issue up to 2,792,750 trust
units from treasury in connection with the 2003 and 2006 Trust Unit
Rights Incentive Plans (the "2003 Plan" and the "2006 Plan") as at
September 30, 2008.

NOTE 6. LONG-TERM INCENTIVE PLANS

a) The 2006 Trust Unit Rights Incentive Plan

On March 14, 2008 a total of 630,000 rights were granted to certain
directors, officers and employees of the Corporation. The rights were
granted at the market price of $16.65 per unit. A further 147,500 rights
were granted at an exercise price of $25.19 per unit. On May 15, 2008, an
additional 7,500 rights were granted to an employee at an exercise price
of $25.50. On July 14, 2008, 75,000 rights were granted to an officer of
the Corporation at the market price of $18.03 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 Plan have therefore been accounted for as stock
appreciation rights and the total compensation recovery for these rights
was $0.3 million (recognized in the previous quarter) for the three
months ended September 30, 2008 and nil for the nine months ended
September 30, 2008 (nil in 2007). Compensation expense is included in
sales, general and administrative in the consolidated statement of
operations, comprehensive income and retained earnings.

b) Trust Unit Appreciation Rights

On March 14, 2008, 125,000 trust unit appreciation rights were granted to
an officer of the Corporation at the market price of $16.65. These rights
vest in three equal tranches over 33 months. In addition, 372,500 trust
unit appreciation rights were granted to certain employees of the
Corporation at the market price of $16.65. Each tranche of these rights
vests over a four year period with a five year life. The holder of the
right has the option to exercise the right for an amount of cash equal to
the difference between the exercise price and the market price at the
time of exercise. The rights granted have been accounted for as stock
appreciation rights. Total compensation recovery for these rights was
$0.3 million (recognized in the previous quarter) for the three months
ended September 30, 2008 and nil for the nine months ended September 30,
2008 (nil in 2007). Compensation expense is included in sales, general
and administrative in the consolidated statement of operations,
comprehensive income and retained earnings.

NOTE 7. EARNINGS PER UNIT

Basic per unit calculations for the three and nine months ended September
30, 2008 and 2007 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 and
Debentures.

The calculation of dilutive earnings per unit does not include anti-
dilutive rights. These rights would not be exercised during the period
because their exercise price is higher than the average market price for
the period. The inclusion of these rights would cause the diluted
earnings per unit to be overstated. The number of excluded rights for the
three and nine months ended September 30, 2008 were 2,140,000 (1,635,000
and 1,973,500 for the three and nine months ended September 30, 2007
respectively).

The dilutive earnings per unit calculation does not include the impact of
anti-dilutive Debentures. The number of trust units issuable on
conversion of the Debentures excluded for the three and nine months ended
September 30, 2008 was 5.0 million (nil for the three and nine months
ended September 30, 2007).


Three Months Ended Nine Months Ended
(000s) September 30, September 30,
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Weighted average number of
units 42,102 40,579 41,823 40,056
Net additional units if rights
exercised 9 146 - 168
Net additional units if
debentures converted - - - -
-------------------------------------------------------------------------
Diluted weighted average number
of units 42,111 40,725 41,823 40,224
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 8. 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,
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Unitholder distributions
declared 23,382 22,526 69,708 67,188
per unit - $ 0.555 0.555 1.665 1.665
Unitholder distributions -
paid in cash 20,232 19,211 59,982 56,918
Unitholder distributions -
value paid in units 3,117 3,286 9,584 9,586
paid in cash - per unit $ 0.481 0.47 1.434 1.42
issued units - per unit $ 0.074 0.08 0.229 0.24
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 9. 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,
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Asset retirement obligations,
beginning of period 20,343 20,715 20,985 18,484
Additional retirement
obligations added through
acquisitions - - - 56
Additional retirement
obligations added through
development activities 289 - 289 664
Additional retirement
obligations added through a
change of estimate - - - 1,182
Expenditures incurred to
fulfill obligations (251) (333) (1,817) (830)
Accretion 462 434 1,386 1,260
-------------------------------------------------------------------------
Asset retirement obligations,
end of period 20,843 20,816 20,843 20,816
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 10. DISPOSAL OF CAPITAL ASSETS

During the nine months ended September 30, 2008, Newalta disposed of
certain transport vehicles, waste disposal bins, land and buildings with
a net book value of $11.2 million for proceeds of $13.6 million in cash.
The resulting net gain of $2.4 million is included in amortization and
accretion in the consolidated statement of operations, comprehensive
income and retained earnings.

NOTE 11. ASSET IMPAIRMENT

Management performs impairment testing on its property, plant and
equipment at least annually and whenever events or changes in
circumstances indicate that the carrying value of an asset, or group of
assets, may not be recoverable. During the first three months of 2008,
management identified a group of transport vehicles for which carrying
value exceeded fair value. Fair value for these assets was determined
based on management's review of equipment utilization and prices for
similar assets. The total impairment of $1.0 million ($0.8 million in the
Western segment and $0.2 million in the Eastern segment) is included with
amortization and accretion in the consolidated statements of operations,
comprehensive income and retained earnings.

NOTE 12. TRANSACTIONS WITH RELATED PARTIES

Bennett Jones LLP provides legal services to the Fund. Mr. Vance
Milligan, a Trustee of the Fund, is counsel to Bennett Jones LLP. The
total cost of these legal services during the three and nine month period
ended September 30, 2008 were $0.1 million and $0.3 million, respectively
($0.1 million and $0.4 million for the same periods in 2007).

Newalta provides oilfield services to Paramount Resources Ltd., an oil
and gas company. Mr. Clayton Riddell, a Trustee and Chair 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, 2008 were
$0.3 million and $0.9 million respectively ($0.2 million and $1.2 million
for the same periods in 2007).

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, 2008, Newalta had issued Letters of Credit and Bonds
with respect to compliance with environmental licenses and contracts with
third parties in the amounts of $49.7 million and $14.1 million
respectively.

NOTE 14. FINANCIAL INSTRUMENTS

Fair Values

Newalta's financial instruments include accounts receivable, note
receivable, accounts payable and accrued liabilities, distributions
payable, senior long-term debt and convertible debentures. The fair
values of the Fund's financial instruments that are included in the
consolidated balance sheet, with the exception of the convertible
debentures, approximate their recorded amount due to the short term
nature of those instruments for accounts receivable, accounts payable and
accrued liabilities and for senior long-term debt and the note receivable
due to the floating nature of the interest rate. The carrying values of
Newalta's financial instruments at September 30, 2008 are as follows:


-------------------------------------------------------------------------
Total
Held for Loans and Available Other Carrying
trading Receivables for sale Liabilities Value
-------------------------------------------------------------------------
Accounts receivable - 138,933 - - 138,933
Note receivable - 1,246 - - 1,246
Accounts payable and
accrued liabilities - - - 86,255 86,255
Distributions payable - - - 7,804 7,804
Senior long-term
debt(1) - - - 260,093 260,093
-------------------------------------------------------------------------

(1) Net of related costs.

The fair value of the convertible debentures is based on the closing
trading price on the TSX as follows:

-------------------------------------------------------------------------
September 30, 2008
Quoted
Carrying fair
value(1) value
-------------------------------------------------------------------------
7% Convertible debentures due November 30, 2012 110,971 115,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) Includes both the debt and equity portions.

Financial Instrument Risk Management

Credit risk

The Fund is subject to risk from its trade accounts receivables balances.
The customer base is large and diverse and no single customer balance
exceeds 9% of total accounts receivable. The Fund views the credit risks
on these amounts as normal for the industry. Credit risk is minimized by
the Fund's broad customer base and diverse product lines and is mitigated
by the ongoing assessment of the credit worthiness of its customers as
well as monitoring the amount and age of balances outstanding.

Based on the nature of its operations, established collection history,
and industry norms, receivables are not considered past due until 90 days
after invoice date although standard payment terms require payment within
30 to 120 days. Depending on the nature of the service and/or product,
customers may be provided with extended payment terms while Newalta
gathers certain processing or disposal data. Included in the Fund's trade
receivable balance are receivables totalling $10.3 million which are
considered to be outstanding beyond normal repayment terms at September
30, 2008. A provision of $1.7 million has been established as an
allowance for doubtful accounts. No provision has been made for the
remaining balance as there has not been a significant change in credit
quality and the amounts are still considered collectable. The Fund does
not hold any collateral over these balances.

-------------------------------------------------------------------------
Aging Trade Receivables Allowance for Net Receivables
aged by doubtful accounts
invoice date
September December September December September December
30, 2008 31, 2007 30, 2008 31, 2007 30, 2008 31, 2007
-------------------------------------------------------------------------
Current 69,380 63,680 - - 69,380 63,680
31-60 days 25,175 29,860 5 - 25,170 29,860
61-90 days 7,542 10,338 37 16 7,505 10,322
91 days + 10,288 22,511 1,612 2,247 8,676 20,264
-------------------------------------------------------------------------
Total 112,385 126,389 1,654 2,263 110,731 124,126
-------------------------------------------------------------------------

To determine the recoverability of a trade receivable, management
analyzes accounts receivable, first identifying customer groups that
represent minimal risk (large oil and gas and other low risk large
companies, governments and municipalities). Impairment of the remaining
accounts is determined by identifying specific accounts that are at risk,
and then by applying a formula based on aging to the remaining amounts
receivable. All amounts identified as impaired are provided for in an
allowance for doubtful accounts. The changes in this account for 2008 are
as follows:

-------------------------------------------------------------------------
Allowance for doubtful accounts
-------------------------------------------------------------------------
Balance, December 31, 2007 2,263
Additional amounts provided for 1,459
Amounts written off as uncollectible (2,110)
Amounts recovered during the period 42
-------------------------------------------------------------------------
Balance, September 30, 2008 1,654
-------------------------------------------------------------------------

Liquidity risk

Ultimate responsibility for liquidity risk management rests with the
Board of Trustees of the Fund, which has built an appropriate liquidity
risk management framework for the management of the Fund's short, medium
and long-term funding and liquidity management requirements. Management
mitigates liquidity risk by maintaining adequate reserves, banking
facilities and other borrowing facilities, by monitoring forecast and
actual cash flows and matching the maturity profiles of financial assets
and liabilities. Newalta is exposed to interest rate risk to the extent
that its credit facility has a variable interest rate. Management does
not enter into any derivative contracts to manage the exposure to
variable interest rates. The convertible debentures have a fixed interest
rate until November 30, 2012, at which point, any remaining convertible
debentures will need to be repaid or refinanced. The table below provides
an interest rate sensitivity analysis for the three and nine months ended
September 30, 2008:

Three Nine
Months Months
Ended Ended
September September
30, 30,
-------------------------------------------------------------------------
Net
earnings
-------------------------------------------------------------------------
If interest rates increased by 1% with all other
variables held constant (483) (1,378)
-------------------------------------------------------------------------

Market risk

Market risk is the risk that the fair value or future cash flows of our
financial instruments will fluctuate because of changes in market prices.
Components of market risk to which the Fund is exposed are discussed
below:

Foreign exchange risk

Foreign exchange risk refers to the risk that the value of a financial
commitment, recognised asset or liability will fluctuate due to changes
in foreign currency exchange rates. The risk arises primarily from firm
commitments for receipts and payments settled in U.S. dollars. Management
does not enter into any financial instruments to manage the risk for the
foreign currency exposure. The table below provides a foreign currency
sensitivity analysis on accounts receivable and accounts payable
outstanding as at September 30, 2008:


-------------------------------------------------------------------------
Net
earnings
-------------------------------------------------------------------------
If the value of the U.S. dollar increased by $0.01 with all
other variables held constant (144)
-------------------------------------------------------------------------

NOTE 15. Subsequent events

a) Plan of Conversion

On November 5, 2008 Newalta Fund announced its intention to convert from
an income trust to a corporation on December 31, 2008. The Conversion is
subject to unitholder and other approvals and will be undertaken pursuant
to a plan of arrangement to be considered at a special meeting of
unitholders to be held on or about December 17, 2008. If approved, the
Conversion would result in the reorganization of Newalta into a publicly-
listed corporation that would own all of the units of Newalta Fund and
all of the shares of the Corporation. Pursuant to the Conversion,
unitholders would receive, for each unit held, one common share of the
public corporation.

b) Credit Facility

Newalta extended the maturity of its $425.0 million credit facility to
October 2010. As part of this process, $40 million was assigned by a
former member of the lending syndicate to two existing and one new
member. The funded debt to EBITDA covenant for the balance of 2008 was
amended by maintaining the existing 3.00:1 ratio. Commencing in 2009,
this covenant will be 2.50:1. Upon conversion to a corporation, the
covenant will be 3.00:1 for the term of the facility.

NOTE 16. SEGMENTED INFORMATION

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 provides industrial waste
collection, pre-treating, transfer, processing and disposal services and
operates a fleet of specialized vehicles and equipment for waste
transport and onsite processing, a lead recycling facility and an
emergency response service in central and eastern Canada. The accounting
policies of the segments are the same as those of the Fund.


For the Three Months Ended September 30, 2008
Consol-
Inter- Unallo- idated
Western Eastern segment cated(3) Total
-------------------------------------------------------------------------
External revenue 99,000 59,579 - - 158,579
Inter segment
revenue(1) 128 - (128) - -
Operating expense 61,123 46,046 (128) - 107,041
Amortization and
accretion expense 4,709 4,352 - 3,387 12,448
-------------------------------------------------------------------------
Net margin 33,296 9,181 - (3,387) 39,090
Selling, general
and administrative - - - 14,097 14,097
Finance charges - - - 5,952 5,952
-------------------------------------------------------------------------
Operating income 33,296 9,181 - (23,436) 19,041
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 19,865 12,755 - 4,493 37,113
-------------------------------------------------------------------------
Goodwill 62,280 41,317 - - 103,597
-------------------------------------------------------------------------
Total assets 549,406 431,674 - 59,693 1,040,773
-------------------------------------------------------------------------

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
Finance charges - - - 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(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, 2008
Consol-
Inter- Unallo- idated
Western Eastern segment cated(3) Total
-------------------------------------------------------------------------
External revenue 276,501 175,113 - 80 451,694
Inter segment
revenue(1) 669 - (669) - -
Operating expense 176,303 133,432 (669) - 309,066
Amortization and
accretion expense 16,069 11,920 - 7,502 35,491
-------------------------------------------------------------------------
Net margin 84,798 29,761 - (7,422) 107,137
Selling, general and
administrative - - - 44,395 44,395
Finance charges - - - 17,866 17,866
-------------------------------------------------------------------------
Operating income 84,798 29,761 - (69,683) 44,876
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 37,122 29,089 - 12,337 78,548
-------------------------------------------------------------------------
Goodwill 62,280 41,317 - - 103,597
-------------------------------------------------------------------------
Total assets 549,406 431,674 - 59,693 1,040,773
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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) 76,618
Selling, general
and administrative - - - 39,070 39,070
Finance charges - - - 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(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
    Phone: (403) 806-7020;

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