Newalta Corporation
TSX : NAL

Newalta Corporation

March 03, 2011 19:58 ET

Newalta Reports Strong Fourth Quarter, 2010 Results on Improving Market Conditions

CALGARY, ALBERTA--(Marketwire - March 3, 2011) - Newalta Corporation ("Newalta") (TSX:NAL) today announced financial results for the quarter and year ended December 31, 2010.



FINANCIAL RESULTS
AND HIGHLIGHTS (1)
Three months ended Year ended
December 31, December 31,
($000s except
per share data) % Increase % Increase
(unaudited) 2010 2009 (Decrease) 2010 2009 (Decrease)
----------------------------------------------------------------------------
Revenue 162,927 137,308 19 576,196 483,401 19
Net earnings
(loss) 2,862 4,092 (30) 18,063 3,099 483
- per share ($)
- basic 0.06 0.09 (33) 0.37 0.07 429
- per share ($)
- basic adjusted(2) 0.20 0.10 100 0.57 0.12 375
- per share ($)
- diluted 0.06 0.09 (33) 0.37 0.07 429
Adjusted EBITDA(2) 33,647 25,506 32 118,792 82,157 45
- per share ($)(2) 0.69 0.55 25 2.45 1.89 30
Cash from
operations 48,007 19,165 150 95,348 83,518 14
- per share ($) 0.99 0.41 141 1.97 1.92 3
Funds from
operations(2) 27,373 19,185 43 95,149 60,943 56
- per share ($)(2) 0.56 0.41 37 1.96 1.40 40
Maintenance capital
expenditures(2) 8,491 3,501 143 28,668 8,589 234
Dividends declared 3,152 2,423 30 11,152 8,141 37
- per share ($)(2) 0.065 0.05 30 0.23 0.20 15
Dividends paid 3,152 2,122 49 10,424 13,233 (21)
Growth capital
expenditures(2) 21,146 4,739 346 47,077 18,696 152
Weighted average
shares
outstanding 48,523 46,770 4 48,485 43,536 11
Shares outstanding,
December 31, 48,492 48,476 0 48,492 48,476 0
----------------------------------------------------------------------------

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

(2) These financial measures do not have any standardized meaning
prescribed by Canadian Generally Accepted Accounting Principles
("GAAP") and are therefore unlikely to be comparable to similar measures
presented by other issuers. Non-GAAP financial measures are identified
and defined throughout the attached Management's Discussion and
Analysis.

(3) Newalta has 48,495,002, shares outstanding as at March 3, 2011.


Management Commentary

"Newalta ended 2010 with considerable momentum including 19 percent year-over-year growth in revenue, 45 percent growth in Adjusted EBITDA and solid improvements in profitability and return on capital," said Al Cadotte, President and CEO of Newalta. "Performance in the fourth quarter was consistent with improved market conditions and stronger prices for our products. In 2010, we added new customers, expanded services to existing customers and continued to improve productivity and profitability."
"We enter 2011 with a strong organization prepared for growth," said Mr. Cadotte. "More robust markets, higher commodity pricing and last year's growth capital investments should all contribute to strong performance and attractive returns to investors in 2011."

Divisional highlights:

- Facilities Division fourth quarter revenue and net margin(2) increased by 21% and 31%, respectively, compared to last year, due primarily to strong contributions from Western Facilities. For the quarter, 34% of incremental revenue over last year flowed to net margin. For the year, Facilities Division revenue and net margin increased 20% and 43% respectively, compared to 2009, due primarily to higher activity levels across all three business units. On an annual basis, 45% of incremental revenue flowed through to net margin.

- Onsite Division's fourth quarter revenue and net margin increased 12% and 37%, respectively, compared to the same period in 2009, due to higher drill site utilization, driven by increased drilling activity. Incremental revenue drove a 56% flow through to net margin. For the year, revenue and net margin increased 16% and 41% to $182.2 million and $39.5 million respectively, compared to 2009, primarily due to increased demand for drill site services combined with higher onsite project activity and improved crude oil prices. On an annual basis, 45% of incremental revenue flowed through to net margin.

Other highlights:

- Adjusted EBITDA for the quarter increased to $33.6 million, up 32% over Q4 2009 and for the year, increased to $118.8 million, up 45% over 2009. Net earnings for the year, compared to 2009, increased by 483% to $18.1 million. For the quarter, net earnings decreased by 30% compared to 2009 due to higher future income tax and stock based compensation expense.

- On November 23, 2010, we issued $125 million Senior Unsecured Debentures with a seven-year term, bearing interest at the rate of 7.625% per annum. In connection with this offering, effective December 17, 2010, we amended our credit facility to a three-year maturity ending December 17, 2013 and elected to reduce the amount available under our credit facility to $200 million from $350 million. These financing initiatives strengthen our balance sheet and provide increased financial flexibility to meet the demands of future growth.

- SG&A before stock-based compensation was $17.2 million in Q4 2010, or 10.5% of revenue, and $61.4 million or 10.7% of revenue for the year. SG&A including stock-based compensation increased by 26% driven primarily by the rise in our share price to $11.89 at the end of 2010 from $8.02 last year.

- Technical Development was launched in the first half of 2010 and finished the year with a group of 15 professionals including engineers, chemists and business analysts. We begin 2011 with this group leading our technical development initiatives, with an operating budget of $3 million and $5 million of budgeted capital expenditures. In 2011, we anticipate moving into the next phase of testing and assessing the most promising opportunities while continuing the global search for technologies that we started in 2010.

- Maintenance capital expenditures for Q4 2010 were $8.5 million while growth capital expenditures were $21.1 million. Maintenance and growth capital expenditures for the year were $28.7 million and $47.1 million, respectively. Total committed capital at the end of 2010 was $95 million. The incremental capital committed beyond the 2010 target of $87 million relates to 2011 projects moved forward to take advantage of improved market conditions.

- Capital expenditures in 2011 are budgeted at $100 million. Growth capital expenditures of $73 million are comprised of $26 million for Facilities, $35 million for Onsite, $5 million for technical development and $7 million for corporate investments. Maintenance capital expenditures are expected to be $27 million. Capital expenditures will be funded from operations, with approximately 40% expected to be spent in the first half of 2011.

- Total Secured and Unsecured Debt at year end decreased by $17.0 million to $315.3 million compared to December 31, 2009, while Adjusted EBITDA on a trailing 12-month basis increased to $118.8 million at the end of Q4 2010. As a result, the Total Secured and Unsecured Debt to Adjusted EBITDA ratio improved to 2.65 at year-end.

- The Board of Directors declared a dividend of $0.065 per share to shareholders of record as at December 31, 2010 which was paid January 17, 2011. The Board expects to authorize a dividend of $0.065 per share to holders of record on March 31, 2011.

Management will hold a conference call on Friday, March 4, 2011 at 11 a.m. (EST) to discuss Newalta's performance for the fourth quarter and year ended December 31, 2010. To participate in the teleconference, please call 416-340-8018 or 1-866-223-7781. 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 Friday, March 11, 2011, by dialing 905-694-9451 or 1-800-408-3053 and using the pass code 4047722 followed by the pound sign.

About Newalta

Newalta provides cost-effective solutions to industrial customers to improve their environmental performance with a focus on recycling and recovery of products from industrial residues. These services are provided both through our network of more than 80 facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Our customers operate in a broad range of industries including the oil and gas, petrochemical, refining, lead, manufacturing and mining industries. The company has delivered strong, profitable growth for over 15 years and has established a leadership position in the industry with talented people, efficient and safe operations, innovative approaches and high ethical standards. Newalta trades on the TSX as NAL. For more information, visit www.newalta.com.



For further information , please contact:

Anne M. Plasterer
Executive Director, Investor Relations
Phone: (403)806.7019


NEWALTA CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Three months and year ended December 31, 2010 and 2009

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 Corporation and the subsidiaries of Newalta Corporation, or their management, are intended to identify forward-looking statements. In particular, forward-looking statements included or incorporated by reference in this document include statements with respect to:

- future operating and financial results;

- anticipated industry activity levels;

- expected demand for our services;

- business prospects and strategy;

- capital expenditure programs and other expenditures;

- the amount of dividends declared or payable in the future;

- realization of anticipated benefits of acquisitions, growth capital investments and our technical development initiatives;

- our projected cost structure; and

- expectations and implications of changes in legislation.

Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation:

- general market conditions of the industries we service;

- strength of the oil and gas industry, including drilling activity;

- fluctuations in commodity prices for oil and lead;

- fluctuations in interest rates and exchange rates;

- supply of waste lead acid batteries as feedstock to support direct lead sales;

- demand for our finished lead products by the battery manufacturing industry;

- our ability to secure future capital to support and develop our business, including the issuance of additional common shares;

- dependence on our senior management team and other operations management personnel with waste industry experience;

- the seasonal nature of our operations;

- success of our growth, acquisition and technical development strategies including integration of businesses and processes into our operations and potential liabilities from acquisitions;

- the highly regulated nature of the waste management and environmental services business in which we operate;

- costs associated with operating our landfills and reliance on third party waste volumes;

- the competitive environment of our industry in Canada and the U.S.;

- risk of pending and future legal proceedings;

- our ability to attract and retain skilled employees and maintain positive labour union relationships;

- fluctuations in the costs and availability of fuel for our operations;

- open access for new industry entrants and the general unprotected nature of technology used in the waste industry;

- obtaining insurance for various potential risks and hazards on reasonable financial terms;

- possible volatility of the price of, and the market for, our common shares;

- the nature of, and market for, our debentures; and

- such other risks or factors described from time to time in reports we file with securities regulatory authorities.

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, we do not intend, or assume any obligation, to update these forward-looking statements.

RECONCILIATION OF NON-GAAP MEASURES

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

"Combined divisional net margin" and "net margin" are used by management to analyze divisional operating performance. Combined divisional net margin and net margin as presented are not intended to represent earnings before taxes, nor should it be viewed as an alternative to net earnings or other measures of financial performance calculated in accordance with GAAP. Combined divisional net margin is calculated from the segmented information contained in the notes to the consolidated financial statements and is defined as revenue less operating and amortization and accretion expenses for both of our operating segments. Combined divisional net margin excludes inter-segment eliminations and unallocated revenue and expenses. Net margin for each of our segments is calculated from the segmented information contained in the notes to the consolidated financial statements and is defined as earnings before taxes with financing, selling, general and administrative ("SG&A") and research and development expenses added back.



Three months ended December 31, Year ended December 31,
($000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Earnings before taxes 5,327 3,451 27,622 2,732
Add back:
Selling, general and
administrative(1) 23,972 16,603 70,891 56,132
Research and Development(1) 586 - 1,713 -
Finance charges(1) 6,608 6,689 25,663 25,364
----------------------------------------------------------------------------
Consolidated net margin 36,493 26,743 125,889 84,228
----------------------------------------------------------------------------
Unallocated net margin(1) 2,690 2,754 12,139 12,490
----------------------------------------------------------------------------
Combined divisional net margin 39,183 29,497 138,028 96,718
----------------------------------------------------------------------------

(1) Management does not allocate interest income, SG&A, research and
development, taxes, finance charges and corporate amortization and
accretion expense in the segmented analysis (see Note 22 to the audited
consolidated financial statements).


"EBITDA", "EBITDA per share", "Adjusted EBITDA", and "Adjusted EBITDA per share" are measures of our operating profitability. EBITDA provides an indication of the results generated by our principal business activities prior to how these activities are financed, assets are amortized or how the results are taxed in various jurisdictions. In addition, Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation. Stock-based compensation, a component of employee remuneration, can vary significantly with changes in the price of our common shares. As such, Adjusted EBITDA provides improved continuity with respect to the comparison of our operating results over a period of time. EBITDA and Adjusted EBITDA are derived from the consolidated statements of operations, comprehensive income and retained earnings. EBITDA per share and Adjusted EBITDA per share are derived by dividing EBITDA and Adjusted EBITDA by the basic weighted average number of shares.

They are calculated as follows:



Three months ended December 31, Year ended December 31,
($000s) 2010 2009 2010 2009
---------------------------------------------------------------------------
Net earnings 2,862 4,092 18,063 3,099
Add back (deduct):
Current income taxes 520 317 938 945
Future income taxes 1,945 (958) 8,621 (1,312)
Finance charges 6,608 6,689 25,663 25,364
Amortization and accretion 14,891 14,558 55,990 51,825
----------------------------------------------------------------------------
EBITDA 26,826 24,698 109,275 79,921
----------------------------------------------------------------------------
Add back:
Stock-based compensation 6,821 808 9,517 2,236
----------------------------------------------------------------------------
Adjusted EBITDA 33,647 25,506 118,792 82,157
----------------------------------------------------------------------------
Weighted average number of
shares 48,523 46,770 48,485 43,536
----------------------------------------------------------------------------
EBITDA per share 0.55 0.53 2.25 1.84
----------------------------------------------------------------------------
Adjusted EBITDA per share 0.69 0.55 2.45 1.89
----------------------------------------------------------------------------


"Adjusted net earnings" and "Adjusted net earnings per share" are measures of our profitability. Adjusted net earnings provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation. Stock-based compensation, a component of employee remuneration, can vary significantly with changes in the price of our common shares. As such, Adjusted net earnings provides improved continuity with respect to the comparison of our results over a period of time. Adjusted net earnings per share is derived by dividing Adjusted net earnings by the basic weighted average number of shares.



Three months ended December 31, Year ended December 31,
($000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net earnings 2,862 4,092 18,063 3,099
Add back (deduct):
Stock-based compensation 6,821 808 9,517 2,236
----------------------------------------------------------------------------
Adjusted net earnings 9,683 4,900 27,580 5,335
----------------------------------------------------------------------------
Adjusted net earnings per share 0.20 0.10 0.57 0.12
----------------------------------------------------------------------------


"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 operations or operating profits for the period, nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Funds from operations is derived from the consolidated statements of cash flows and is calculated as follows:



Three months ended December 31, Year ended December 31,
($000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Cash from operations 48,007 19,165 95,348 83,518
Add back (deduct):
Changes in non-cash working
capital (21,760) (298) (2,383) (23,599)
Asset retirement costs
incurred 1,126 318 2,184 1,024
----------------------------------------------------------------------------
Funds from operations 27,373 19,185 95,149 60,943
----------------------------------------------------------------------------
Weighted average number of
shares 48,523 46,770 48,485 43,536
----------------------------------------------------------------------------
Funds from operations per share 0.56 0.41 1.96 1.40
----------------------------------------------------------------------------


"Return on capital (ROC)" is used to assist management and investors in measuring the returns realized from the capital employed.



Year ended December 31,
($000s) 2010 2009 2008
----------------------------------------------------------------------------
Adjusted EBITDA 118,792 82,157 125,890
Total Assets 1,028,724 993,730 1,051,910
Current Liabilities (121,370) (92,614) (117,258)
----------------------------------------------------------------------------
Capital Employed 907,354 901,116 934,652
----------------------------------------------------------------------------
2-Year Net Assets Average 904,235 917,884 921,331
----------------------------------------------------------------------------
Return on Capital (%) 13.1 9.0 13.7
----------------------------------------------------------------------------


References to Combined divisional net margin, net margin, EBITDA, EBITDA per share, Adjusted EBITDA, Adjusted EBITDA per share, Funds from operations and ROC throughout this document have the meanings set out above.

On December 31, 2009, the sole unitholder of Newalta Income Fund (the "Fund") approved the wind-up of the Fund. Subsequent to year end, on January 1, 2010, Newalta Inc. was amalgamated with its wholly-owned operating subsidiary, Newalta Corporation, to form Newalta Corporation.

The following discussion and analysis should be read in conjunction with (i) the consolidated financial statements of Newalta, and the notes thereto, for the year ended December 31, 2010, (ii) the consolidated financial statements of Newalta and notes thereto and MD&A of Newalta for the year ended December 31, 2009, (iii) the most recently filed Annual Information Form of Newalta and (iv) the consolidated interim financial statements of Newalta and the notes thereto and MD&A for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010. This information is available at SEDAR (www.sedar.com). Information for the year ended December 31, 2010, along with comparative information for 2009, is provided.

This MD&A is dated March 3, 2011, and takes into consideration information available up to that date. Throughout this document, unless otherwise stated, all currency is stated in Canadian dollars, MT is defined as "tonnes" or "metric tons".

FINANCIAL RESULTS AND HIGHLIGHTS

NEWALTA

We provide cost-effective environmentally superior solutions to our customers' complex environmental needs. We leverage our existing talent and asset base to provide cost-effective solutions which reduce environmental impacts through recycling, recovery and reuse. These services are provided both through our network of more than 80 facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Our customers operate in a broad range of industries including the oil and gas, petrochemical, refining, lead, manufacturing and mining industries. Newalta has delivered strong, profitable growth for over 15 years and has established a leadership position in the industry with talented people, efficient and safe operations, innovative approaches and high ethical standards.

OUR STRATEGY

In connection with the ongoing development of our strategy, the following are our principal strategic objectives, as well as the key underlying risks related thereto.



----------------------------------------------------------------------------
Strategic objectives Initiatives
----------------------------------------------------------------------------
1. Maximize Facilities Profitability - Drive higher returns on existing
assets
- Execute organic growth capital
projects
- Expand Facilities service
offering

2. Recovery at Source - Increase market share in
short-term projects nationally
- Identify short-term projects
with long-term potential
- Transition to long-term contract
service arrangements

3. Process Commercialization - Evaluate technologies for
commercial application
- Advance identified technologies
to the development and
demonstration phase
- Utilize facility network to
expedite commercialization
----------------------------------------------------------------------------


Several initiatives were successfully completed in 2010 to establish the foundation for continued growth. In addition to enhancing our capital structure to ensure sufficient financial flexibility to meet future growth needs, we:

- Responded to recovering markets driving improved returns on existing assets of 13% up from 9% in 2009;

- Completed a $47 million growth capital program;

- Created the organizational framework for Onsite's national service;

- Executed onsite projects in eastern Canada while also building our customer base in western Canada;

- Expanded Heavy Oil onsite service at existing short-term and long-term contracts; and

- Established the Technical Development team.



RISKS TO OUR STRATEGY

----------------------------------------------------------------------------
Risks Mitigation
----------------------------------------------------------------------------
Market recovery is slower
than anticipated
- Improve productivity
Lower market activity can translate - Develop new technologies that
into reduced waste volumes and weaker make our processes more
commodity prices, impacting returns effective and cost efficient
on existing assets and our ability to - Maintain debt leverage to
invest in organic growth capital. provide adequate financial
flexibility

- Utilize, as needed, proven
defensive toolkit to manage
costs and capital
expenditures


Deterioration of safety record
- Safety is established as one
Failure to meet customer safety of our core values
standards while working on customer - Long standing history of
sites could result in the inability to safety excellence
operate on a customer site and could - Our Environmental, Health and
have pervasive implications for our Safety ("EH&S") team works
Onsite strategy. with operators, customers and
regulators to ensure that we
foster a culture of safety
and prevention
- Designs for facilities and
onsite equipment are subject
to strict hazards and
operability studies and
engineering practices

Competition
- Our onsite solutions are
Competition can come from waste producers targeted to minimize waste
processing streams internally or new third at the source as an
party waste processors entering the market. alternative to waste
generators internally managing
waste
- Onsite operations require an
excellent safety record and a
facility network for
mobilization, employee
training and a backstop for
process guarantees, which we
have already established
- Barriers to entry include
facilities network
infrastructure and regulatory
permits that are difficult to
replicate

Failure to commercialize identified - Staged approach to developing
technologies into our processes technologies ensures resources
can be redeployed efficiently
to other initiatives
- Other initiatives include
expansion of services and
business development
- Contribution to performance
from commercialization is not
expected for two years
----------------------------------------------------------------------------


CORPORATE OVERVIEW

Consistent with the rest of 2010, we continued to deliver year-over-year improvements in performance in Q4 2010, in line with improved market conditions and the strengthening value of our products. Q4 2010 results improved over last year with revenue up 19% to $162.9 million and Adjusted EBITDA up 32% to $33.6 million. Net earnings declined to $2.9 million compared to $4.1 million in Q4 2009. Improved operational profitability was offset by higher stock-based compensation and future income tax expenses.

In Facilities, Q4 2010 revenue and net margin increased by 21% and 31%, respectively, compared to 2009. This was primarily due to improved contributions from our Western Facilities. For the quarter, 34% of incremental revenue over last year flowed to net margin. Growth in Western Facilities was driven by increased drilling activity in western Canada. Performance was mixed across the other business units, reflecting regional variation in market recovery.

Onsite delivered strong results for the quarter due to higher drilling activity and steady improvements in Heavy Oil. Revenue and net margin increased by 12% and 37%, respectively. Net margin as a percentage of revenue was 22% up from 18% in Q4 2009. Of the incremental revenue, 56% flowed through to net margin.

Table 1: Trailing Twelve-Month Adjusted EBITDA and Trailing Twelve-Month Combined Divisional Net Margin

http://media3.marketwire.com/docs/newalta_tables.pdf

For the year, combined divisional net margin and combined divisional net margin as a percentage of revenue continued to improve. Adjusted EBITDA increased by $36.6 million, or 45%, to $118.8 million. Improved market conditions, stronger prices for our products, productivity improvements and cost reductions implemented in 2009 have all contributed to improved performance. As a result, our Total Secured and Unsecured Debt to Adjusted EBITDA ratio improved to 2.65, from 4.04 in Q4 2009. The ongoing improvement in financial leverage continues to create greater financial flexibility for future growth.

Capital expenditures for 2010 totaled $75.7 million. Growth capital spending of $47.1 million related primarily to drill site equipment in Western Onsite, processing equipment for Heavy Oil project work and facility expansion in Western Facilities. Maintenance capital expenditures of $28.7 million related primarily to the construction of landfill cells and routine process equipment improvement at facilities. Capital expenditures were funded by Funds from operations. At December 31, 2010, total committed capital was $95 million. The incremental capital committed over our expected $87 million, as disclosed in Q3 2010, relates to 2011 projects being moved forward to take advantage of improving market conditions. We anticipate the majority of the incremental committed capital to be spent in Q1 2011.

On November 23, 2010, we issued $125 million Senior Unsecured Debentures with a seven-year term, bearing interest at the rate of 7.625% per annum. Proceeds from the offering were used to repay outstanding debt on our credit facility. In connection with this offering, effective December 17, 2010, we amended our credit facility to a three-year maturity ending December 17, 2013, with annual extensions available at Newalta's option. As a result of the successful senior unsecured debenture offering and current cash forecast needs, we elected to reduce the amount available under the credit facility from $350 million to $200 million. These initiatives will strengthen our balance sheet, achieve better alignment with our long-term assets and provide increased financial flexibility to meet the demands of future growth.

Table 2: Revenue and Adjusted EBITDA

http://media3.marketwire.com/docs/newalta_tables.pdf

During the first half of 2010, we launched our Technical Development team. We enter 2011 with a group of 15 professionals comprised of engineers, chemists and business analysts leading our technical development initiatives with an operating budget of $3 million and $5 million of budgeted capital expenditures. Capital expenditures are anticipated to include the purchase of equipment and licenses to use technologies. In 2011, we will move into the next phase of testing and assessing the most promising opportunities while continuing the global search for technologies that started in 2010. We anticipate our investments in technical development will start contributing to our performance in approximately two years.

OUTLOOK

In Q1 2011, we expect improved results compared to both the prior year and Q4 2010. Crude oil and lead prices for Q1 are trending higher than Q4 2010 and our key markets continue to strengthen. Oil and gas drilling activity is expected to continue to strengthen with the average Q1 2011 rig count in western Canada forecast to be up over Q4 2010 levels. We anticipate volumes at VSC will be approximately 17,000 MT. SCL volumes are anticipated to be approximately 150,000 MT. In Onsite, we expect continued gains from the increased demand for drill site equipment in the U.S. Overall, we expect continued year-over-year growth in the quarters ahead as our markets strengthen and we realize returns from our 2010 growth investments.

Capital expenditures in 2011 are budgeted at $100 million. Growth capital expenditures of $73 million are comprised of $26 million for Facilities, $35 million for Onsite, $5 million for Technical Development and $7 million for corporate investments. Maintenance capital expenditures are expected to be $27 million. Capital expenditures will be funded by Funds from operations, with approximately 40% expected to be spent in the first half of 2011.

We enter 2011 with more robust markets which will drive improved performance. We expect return on capital to continue to climb toward our historical average of 18%. We are confident that we will deliver attractive returns to our shareholders in the quarters ahead.

RESULTS OF OPERATIONS - FACILITIES DIVISION

Overview

Facilities includes an integrated network of more than 55 facilities located to service key market areas across Canada employing over 900 people. This division features Canada's largest lead-acid battery recycling facility, located in Ville Ste-Catherine, Quebec ("VSC"), an engineered non-hazardous solid waste landfill located in Stoney Creek, Ontario ("SCL"), and over 25 oilfield facilities throughout western Canada. Facilities is organized into the Western Facilities, Eastern Facilities and VSC business units.

The business units contributed the following to division revenue:



Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
----------------------------------------------------------------------------
Western Facilities 45% 39% 47% 46%
Eastern Facilities 21% 23% 22% 23%
VSC 34% 38% 31% 31%
----------------------------------------------------------------------------


Table 3: Facilities Revenue and Net Margin

http://media3.marketwire.com/docs/newalta_tables.pdf

The following table compares Facilities' results for the periods indicated:



Three months ended Year ended
December 31, December 31,
($000s) 2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
Revenue(1) 115,193 94,932 21 394,539 327,484 20
Operating costs 77,843 65,039 20 265,153 230,845 15
Amortization and
accretion 8,827 8,161 8 30,813 27,919 10
----------------------------------------------------------------------------
Net margin 28,523 21,732 31 98,573 68,720 43
----------------------------------------------------------------------------
Net margin as %
of revenue 25% 23% 9 25% 21% 19
----------------------------------------------------------------------------
Maintenance capital 6,882 2,479 178 21,791 6,240 249
----------------------------------------------------------------------------
Growth capital 7,237 1,676 332 11,700 7,860 49
----------------------------------------------------------------------------
Assets employed(2) 569,950 561,315 2
----------------------------------------------------------------------------

(1) Includes $104,000 and $589,000 in internal revenue in Q4 2010 and 2010
year-to-date, respectively, and $295,000 and $1,203,000 in Q4 2009 and
2009 year-to-date, respectively.

(2) "Assets employed" is provided to assist management and investors in
determining the effectiveness of the use of the assets at a divisional
level. Assets employed is the sum of capital assets, intangible assets
and goodwill allocated to each division.


Throughout 2010, performance for the trailing twelve months from the Facilities division improved steadily.

Table 4: Facilities Trailing Twelve-Month

http://media3.marketwire.com/docs/newalta_tables.pdf

Compared to Q4 2009, revenue and net margin grew by 21% and 31%, respectively, due primarily to contributions from our Western Facilities. Performance was consistent with improved oil and gas industry activity and stronger prices for our recovered products. For the quarter, 34% of incremental revenue over last year flowed to net margin. Increased drilling activity in western Canada significantly improved volume receipts for Western Facilities. Performance was mixed across the other business units. Compared to Q4 2009, volumes at SCL increased due to higher event-based business while performance at VSC was impacted by higher lead procurement costs. However, VSC performance improved compared to Q3 2010 in line with strengthening market conditions.

Revenue and net margin for the year increased by 20% and 43%, respectively. Activity levels were up across all business units, highlighted by stronger drilling activity, higher event-based business at SCL and increased volumes at VSC. The impact of commodity prices for 2010 compared to 2009 was insignificant on annual Facilities performance.

Western Facilities

Western Facilities are located in British Columbia, Alberta and Saskatchewan and generate revenue from:

- the processing of industrial and oilfield-generated wastes, including collection, treatment, water disposal, clean oil terminalling, custom treating and landfilling

- sale of recovered crude oil for our account

- oil recycling, including the collection and processing of waste lube oils and the sale of finished products

Western Facilities draws its revenue primarily from industrial waste generators and the oil and gas industry. Waste generated by the oil and gas industry is affected by volatility in the price of crude oil and natural gas and drilling activity. Drilling activity will impact the volume of waste received and the makeup of that waste. Changes in the waste mix will impact the amount of crude oil recovered to our account. Historically, for oilfield facilities, approximately 75% of our waste volume relates to ongoing production resulting in a fairly stable revenue base. Volatility in the price of crude oil impacts crude oil revenue. Fluctuations in the Canadian/U.S. dollar exchange rate impact U.S. dollar sales, which account for approximately 15% of Western Facilities revenue. Changes in environmental regulations in western Canada also impact our business. There is no new legislation proposed that is expected to have a material impact on our business and, regardless, we tend to have a positive bias to change in environmental regulations.

Western Facilities Q4 2010 revenue increased by 42% compared to Q4 2009 largely due to increased drilling activity. Wells and metres drilled increased by 59% and 45%, respectively, compared to Q4 2009. As a result, waste processing and recovered crude oil volumes increased by 65% and 45%, respectively. Crude oil recovered as a percentage of the waste processing volumes decreased due to a change in the waste mix. Substantially all of the increase in revenue was attributable to higher oil and gas activity.

Revenue for the year increased by 24% compared to 2009 due to higher drilling activity combined with higher crude oil prices and crude oil recovery volumes.



Three months ended Year ended
December 31, December 31,
2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
Waste processing
volumes ('000 m(3)) 152 92 65 486 310 57
Recovered crude oil
('000 bbl)(1) 61 42 45 223 190 17
Average crude oil
price received
(CDN$/bbl) 76.27 71.69 6 73.48 59.61 23
Recovered crude oil
sales ($ millions) 4.6 3.0 53 16.4 11.3 45
Edmonton par price
(CDN$/bbl)(2) 80.21 75.92 6 77.34 65.70 18
----------------------------------------------------------------------------

(1) Represents the total crude oil recovered and sold for our account.

(2) Edmonton par is an industry benchmark for conventional crude oil.


Table 5: Waste Processing Volumes - Western Facilities and Recovered Crude - Western Facilities

http://media3.marketwire.com/docs/newalta_tables.pdf

Eastern Facilities

Eastern Facilities is comprised of facilities in Ontario, Quebec and Atlantic Canada and includes an engineered non-hazardous solid waste landfill located in Stoney Creek, Ontario. Eastern revenue is primarily derived from:

- the processing of industrial wastes, including collection, treatment, and disposal

- SCL, an engineered non-hazardous solid waste landfill with an annual permitted capacity of 750,000 MT of waste per year

Eastern Facilities draws its revenue from the following industries in eastern Canada and the bordering U.S. states: automotive, construction, forestry, manufacturing, mining, oil and gas, petrochemical, pulp and paper, refining, steel, and transportation service. The broad customer and industry base helps to diversify risk; however, the state of the economy as a whole will affect these industries. In addition, Eastern Facilities is sensitive to changing environmental regulations regarding waste treatment and disposal. At present, there are no environmental regulatory reviews underway that are expected to have a material effect on Newalta and, regardless, we tend to have a positive bias to change in environmental regulations.

In Q4 2010, the general state of the economy in eastern Canada showed positive signs of recovery. Revenue grew by 6% in Q4 2010 compared to last year, due to improved event-based activity at SCL. For the quarter, SCL volumes were 211,000 MT, up 11% over Q4 2009. Excluding the impact of SCL, the remainder of the business was flat year-over-year.

For the year, revenue improved by 15% due to higher event-based projects at SCL. SCL annual volume for 2010 was above the three-year annual average of 600,000 MT. We anticipate that Q1 2011 landfill volumes will be in line with the historical average of 150,000 MT.



Three months ended Year ended
December 31, December 31,
2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
SCL Volume Collected
('000 MT) 211.0 190.3 11 684.2 477.2 43
----------------------------------------------------------------------------


Table 6: Volume Collected - Stoney Creek Landfill

http://media3.marketwire.com/docs/newalta_tables.pdf

Ville Ste-Catherine ("VSC")

VSC is our lead-acid battery recycling facility. This facility generates revenue from a combination of direct lead sales and tolling fees received for processing batteries. Fluctuations in the price of lead affect our direct sales revenue and waste battery procurement costs. Tolling fees are generally fixed, reducing our exposure to fluctuations in lead prices. The cost to acquire waste batteries is generally related to the trading price of lead at the time of purchase. As a result of the shipping, processing and refining of lead, there is a lag between the purchase and final sale of lead. Slow and modest changes in the value of lead result in a relatively stable differential between the price received for recycled lead and the cost to acquire lead acid waste batteries. However, sharp short-term swings in the LME price can distort this relationship resulting in a temporary disconnect in values.

Our objective is to ensure optimal performance at VSC, which historically has meant balancing direct sales and tolling volumes equally. In 2010, our split was 50/50. Production volumes will be managed to optimize performance under prevailing market conditions. In addition, fluctuation in the U.S./Canadian dollar exchange rate impacts revenue and procurement. Substantially all of VSC's revenue and the majority of our battery procurement costs are denominated in U.S. dollars, with the balance of our operating costs denominated in Canadian dollars.

VSC revenue in Q4 2010 increased by 10% compared to Q4 2009 due to higher direct sales volumes. Total lead volume sold increased by 3% to 20,300 MT. Lagged lead prices in Canadian dollars were flat compared to Q4 2009 as the impact of higher lead pricing in U.S. dollars was offset by the movement in the exchange rate. Performance at VSC continued to be affected by higher battery procurement cost compared to last year; however, the procurement market improved compared to Q3 2010.

Revenue for the year increased 20% as a result of both higher lead prices and increased sales volumes. Average lagged lead prices rose 33% to 2,141 $U.S./MT compared to 2009. Sales volumes for the year rose 8% to 67,900 MT creating a positive impact on performance.

We anticipate Q1 2011 production to be approximately 17,000 MT. We will continue to manage production volumes to capitalize on market conditions and maximize returns.

RESULTS OF OPERATIONS - ONSITE DIVISION

Overview

Onsite includes a network of 25 facilities with over 400 employees across Canada and the U.S. Onsite services involves the mobilization of equipment and our people to manage industrial by-products at our customer sites. Onsite includes: the processing of oilfield-generated wastes and the sale of recovered crude oil for our account; industrial cleaning; site remediation; dredging and dewatering and drill site processing including solids control and drill cuttings management. Onsite includes the Western Onsite, Eastern Onsite and Heavy Oil business units.

Our Onsite business units generally follow a similar sales cycle. We establish our market position through the execution of short-term projects, or event-based projects which lead to longer term contracts. The cycle to establish longer term contracts can be between 18 months to three years. Longer term contracts are not sensitive to commodity prices and provide a more stable cash flow. In addition, Onsite performance is affected by the customer's requirement for Newalta to maintain a strong safety record. To address this requirement, our EH&S team works with our people and our customers to develop an EH&S culture and prevention strategy owned by operators to ensure we maintain our strong record.

The business units contributed the following to division revenue:



Three months ended December 31, Year ended December 31,
2010 2009 2010 2009
----------------------------------------------------------------------------
Western Onsite 44% 25% 39% 26%
Eastern Onsite 23% 40% 26% 37%
Heavy Oil 33% 35% 35% 37%
----------------------------------------------------------------------------


Table 7: Onsite Revenue and Net Margin

http://media3.marketwire.com/docs/newalta_tables.pdf

The following table compares Onsite's results for the periods indicated:



Three months ended Year ended
December 31, December 31,
($000s) 2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
Revenue - external 47,838 42,671 12 182,246 157,120 16
Operating costs 33,804 31,263 8 129,753 117,706 10
Amortization and
accretion 3,374 3,643 (7) 13,038 11,416 14
----------------------------------------------------------------------------
Net margin 10,660 7,765 37 39,455 27,998 41
----------------------------------------------------------------------------
Net margin as %
of revenue 22% 18% 22 22% 18% 22
----------------------------------------------------------------------------
Maintenance capital 866 823 5 4,833 2,150 125
----------------------------------------------------------------------------
Growth capital 11,817 3,773 213 27,903 7,719 261
----------------------------------------------------------------------------
Assets employed(1) 252,262 240,793 5
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) "Assets employed" is provided to assist management and investors in
determining the effectiveness of the use of the assets at a divisional
level. Assets employed is the sum of capital assets, intangible assets
and goodwill allocated to each division.


Since Q2 2009, Onsite's trailing twelve month performance has steadily improved and we expect this trend to continue into 2011 as we leverage our 2010 investments. As utilization of our equipment improves, we continue to see incremental gains in profitability. We have demonstrated continued improvements in the profitability of our operations as we execute our strategy to grow these services across North America.

Table 8: Onsite Trailing Twelve-Month

http://media3.marketwire.com/docs/newalta_tables.pdf

In Q4 2010, net margin as a percentage of revenue increased to 22% compared to 18% last year. Incremental revenue drove a 56% flow through to net margin due to higher utilization of equipment resulting from higher drilling activity. Rigs released were up 59% in Canada compared to Q4 2009.

Revenue and net margin for the year improved by 16% and 41%, respectively with incremental revenue contributing 45% to net margin. Increased activity primarily in oil and gas boosted contributions from Western Onsite and Heavy Oil. Activity accounted for approximately 91% of the improvement in net margin with the balance attributable to higher crude oil prices.

Western Onsite

Revenue is primarily generated from:

- the supply and operation of drill site processing equipment, including equipment for solids control and drill cuttings management throughout western Canada and the U.S.

- onsite service in western Canada (excluding services provided by Heavy Oil) includes: industrial cleaning; site remediation; centrifugation and dredging and dewatering

- environmental services serving primarily oil and gas customers

Western Onsite performance is primarily affected by fluctuations in drilling activity in western Canada and the U.S. We can also be impacted by the competitive environment. To address these risks, we have developed a strong customer partnership approach and service differentiation to secure Newalta brand loyalty. Other onsite services for this business unit are in the early stages of development. We are currently engaged primarily in short-term, or event-based projects, which will vary from quarter-to-quarter. Western Onsite is also affected by various other industries including pulp and paper, refining, mining and municipal dewatering.

Q4 2010 Western Onsite revenue improved by 94% compared to Q4 2009, consistent with increased drilling activity in both western Canada and the U.S. Our utilization rate for drill site equipment rose to 57% from 26% in Q4 2009. Improved utilization was driven by higher demand in both the U.S. and Canada with utilization rates for Q4 2010 of 64% and 48%, respectively. Increased activity in the Marcellus and Fayetteville shale gas plays strengthened U.S. demand while increasing activity in the Cardium oil play drove recovery in Canadian demand.

For the year, revenue improved by 77% compared to 2009 due to the same factors impacting Q4 2010 results. Balancing our fleet equally between the U.S. and Canadian markets enabled us to capitalize on increased demand in both regions. In addition, increased demand for onsite project work due to higher industrial activity in western Canada contributed to improved results.

We anticipate continued growth year-over-year in this business unit consistent with increased drilling activity in both Canada and the U.S. and additional onsite project work.

Eastern Onsite

Eastern Onsite revenue is derived from:

- onsite service in eastern Canada, including: industrial cleaning; centrifugation and dredging and dewatering

- a fleet of specialized vehicles and equipment for emergency response and onsite processing

Eastern Onsite services a broad range of industries in eastern Canada; however, these industries are sensitive to the state of the economy in these regions. Eastern Onsite is in the early stage of development as we have only been developing this business unit for one year. We are currently engaged primarily in short-term, or event-based projects, which will vary from quarter-to-quarter.

Compared to Q4 2009, Eastern Onsite revenue decreased by 37%, due to lower than anticipated project activity in all regions.

Revenue for the year decreased by 20% compared to 2009. Dramatically reduced project activity in Atlantic Canada was partially offset by gains in Ontario from the petrochemical industry.

Heavy Oil

Our heavy oil services business began 15 years ago with facilities at Hughenden and Elk Point, Alberta. This business has expanded from processing heavy oil in our facility network to operating equipment on customers' sites. Leveraging our facilities as staging areas, we deliver a broad range of specialized services at numerous customer sites under short and long-term arrangements. Revenue from onsite services is generally based on processing volumes and is not directly susceptible to fluctuations in crude oil pricing.

Heavy Oil business unit revenue is generated from three main activities:

- specialized onsite services for heavy oil producers under short and long-term arrangements;

- processing and disposal of oilfield-generated wastes, including water disposal, and landfilling; and

- sale of recovered crude oil for our account

Heavy Oil revenue streams are essentially driven by two sources: waste received at facilities and contract revenue from specialized onsite services. Facility revenue has an established customer base; however, performance is affected by the amount of waste generated by producers and the sale of crude oil recovered to our account. These streams vary due to volatility in the price of heavy oil and drilling activity. To address this volatility, over the past four years we have worked with customers to develop specialized onsite services where revenue is based on processed volumes, eliminating our exposure to crude oil prices for these services. Growth in the business unit will come from our ability to attract and retain customers with new SAGD projects coming on stream.

Q4 2010 Heavy Oil revenue increased by 8% compared to Q4 2009. This was due to higher waste receipts and crude oil recovered at our heavy oil facilities. SAGD onsite projects were stable and continued to perform as expected. In Q4 2010, we completed the first phase of a project to use our centrifuge processing capabilities on mature fine tailings, or MFT. This project is expected to resume in the spring of 2011.

Q4 2010 waste processing and recovered crude oil volumes to our account increased by 36% and 31%, respectively, due to increased waste volumes from the area served by our Heavy Oil facilities as well as higher volumes from SAGD operations.

Revenue for 2010 compared to 2009 increased by 10% due primarily to growth in our onsite services and a 22% increase in crude oil sales.



Three months ended Year ended
December 31, December 31,
2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
Waste processing
volumes ('000 m(3)) 170 125 36 562 502 12
Recovered crude oil
('000 bbl)(1) 46 35 31 196 185 6
Average crude oil
price received
(CDN$/bbl) 60.41 61.91 (2) 59.85 52.14 15
Recovered crude oil
sales ($ millions) 2.8 2.2 27 11.7 9.6 22
Bow River Hardisty
(CDN$/bbl)(2) 71.72 70.57 2 71.06 61.23 16
----------------------------------------------------------------------------

(1) Represents the total crude oil recovered and sold for our account.

(2) Bow River Hardisty is an industry benchmark for heavy crude oil.


Table 9: Waste Processing Volumes - Heavy Oil and Recovered Crude - Heavy Oil

http://media3.marketwire.com/docs/newalta_tables.pdf



CORPORATE AND OTHER



Three months ended Year ended
December 31, December 31,
($000s) 2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
Selling, general and
administrative
expenses ("SG&A") 23,972 16,603 44 70,891 56,132 26
Less stock-based
compensation 6,821 808 744 9,517 2,236 326
---------------------------------------------------------
SG&A before
stock-based
compensation 17,151 15,795 9 61,374 53,896 14
SG&A before
stock-based
compensation as
a % of
revenue 10.5% 11.5% (9) 10.7% 11.1% (4)
----------------------------------------------------------------------------



For Q4 2010 and full year 2010, SG&A before stock-based compensation improved to below 11% of revenue. This reflects our continued focus on managing costs in concert with increasing customer demand and growth initiatives. SG&A before stock-based compensation increased by 9% in Q4 2010 and 14% for the full year, compared to the prior period. The majority of the increase for Q4, and approximately 30% of the increase for the full year, related to performance-based compensation. The increase in stock-based compensation is driven by the increase in our share price to $11.89 at the end of 2010 from $8.02 last year. Increases in our share price will continue to drive stock-based compensation. Approximately 60% of stock-based compensation expense is estimated to be settled with equity, with the balance to be settled in cash. Stock-based compensation grants outstanding at December 31, 2010 that settle in cash only had a weighted average remaining life of approximately three years with a weighted average exercise price of $9.96. For Q1 2011, we anticipate SG&A before stock-based compensation to be at or below $16 million.



Three months ended Year ended
December 31, December 31,
($000s) 2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
Research and
development 586 - - 1,713 - -
Research and
development as
a % of revenue 0.4% 0% - 0.3% 0% -
----------------------------------------------------------------------------


Research and development expenses for the year are related to the Technical Development group which was launched in 2010. By the end of 2010, a team of 15 people comprising engineers, chemists and business analysts was in place and charged with identifying new technologies and finding innovative ways of applying them to our business. In 2011, Technical Development has an operating budget of $3 million to develop and commercialize technologies into our operations. To date, a significant number of technologies have been identified and are now being prioritized for development.



Three months ended Year ended
December 31, December 31,
($000s) 2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
Amortization and
accretion 14,891 14,558 2 55,990 51,825 8
as a % of revenue 9.1% 10.6% (14) 9.7% 10.7% (9)
----------------------------------------------------------------------------



Amortization and accretion for the year includes a $1.4 million net loss on disposal of assets compared to a $1.6 million net loss in 2009. Compared to Q4 2009, amortization and accretion increased due to higher depreciation for assets amortized on a unit of production basis driven by higher utilization.



Three months ended Year ended
December 31, December 31,
($000s) 2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
Bank fees and
interest 4,243 4,353 (3) 16,248 16,059 1
Debentures interest
and accretion of
issue costs(1) 2,365 2,336 1 9,415 9,305 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance charges 6,608 6,689 (1) 25,663 25,364 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes convertible debentures and senior unsecured debentures.


Finance charges for the quarter and the year were relatively flat to the same periods in 2009 primarily due to lower average senior debt. The average interest rate on the credit facility for Q4 2010 improved to 5.2% from 5.7% in Q4 2009. For the year, the average interest rate on the credit facility increased to 5.2% from 4.5% in 2009. Finance charges associated with the Convertible Debentures include an annual coupon rate of 7%, the accretion of issue costs and discount on the debt portion of the Convertible Debentures. Finance charges associated with the Senior Unsecured Debentures include an annual coupon rate of 7.625% and the accretion of issue costs. The Senior Unsecured Debentures were issued November 23, 2010. See "Liquidity and Capital Resources" in this MD&A for discussion of our long-term borrowings.



Three months ended Year ended
December 31, December 31,
($000s) 2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
Current tax 520 317 64 938 945 (1)
Future income tax 1,945 (958) 303 8,621 (1,312) 757
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Provision for
(recovery of)
income taxes 2,465 (641) 485 9,559 (367) 2,705
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The increase in future income tax expense for the quarter and year compared to 2009 is primarily due to higher taxable income. The effective tax rate for the year increased to 34.6% in 2010 compared to a 13.4% recovery in 2009. The increase in the effective tax rate resulted from higher non-deductible costs related to stock options in 2010. Additionally, in 2009, our effective tax rate was unusually low due to the recognition of reductions to Federal and Provincial tax rates in Canada and the increase in the value of certain tax assets on the windup of Newalta Income Fund. Loss carry forwards are approximately $177 million at December 31, 2010. Other than provincial capital taxes and U.S. state and federal income taxes, we do not anticipate paying significant income tax for at least three years. See "Critical Accounting Estimates - Income Taxes" in this MD&A for the year ended December 31, 2010 for further discussion.

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. Our liquidity risk may arise from general day-to-day cash requirements and in the management of our assets, liabilities and capital resources. Liquidity risk is managed against our financial leverage to meet obligations and commitments in a balanced manner. For further information on our risk management, refer to Note 20 to the consolidated financial statements for the year ended December 31, 2010.



Our debt capital structure is as follows:

($000s) December 31, 2010 December 31, 2009
----------------------------------------------------------------------------
Use of Credit Facility:
Amount drawn on Credit Facility(1) 53,860 195,199
Senior Unsecured Debentures 125,000 -
Letters of credit 21,477 22,137
----------------------------------------------------------------------------
Total Debt A 200,337 217,336
Unused Credit Facility capacity(2) 124,663 132,664
----------------------------------------------------------------------------
Convertible Debentures B 115,000 115,000
Total Secured and Unsecured Debt =A+B 315,337 332,336
----------------------------------------------------------------------------

(1) See Note 9 to the consolidated financial statements for the quarter
and year ended December 31, 2010. The net senior secured debt at
December 31, 2010 was $52 million.

(2) Management elected to reduce our borrowing capacity to $200 million on
December 17, 2010 from $350 million.


We continue to focus on managing our working capital accounts while supporting our growth. Working capital at December 31, 2010 decreased to $19.2 million from $31.0 million at December 31, 2009, due to increased activity levels and timing of receipts and payments. Cash from operations was similarly impacted. Days' sales outstanding in receivables has been maintained at levels consistent with prior year and accounts receivable over 90 days of $2.2 million has increased in line with increased activity.

At current activity levels, working capital is expected to be sufficient to meet our ongoing commitments and operational requirements of the business. We will continue to manage working capital prudently with increasing activity levels.

For further information on credit risk management, please refer to Note 20 to the consolidated financial statements.

DEBT RATINGS

DBRS Limited ("DBRS") and Moody's Investor Service, Inc. ("Moody's") provided a corporate and Series 1 Unsecured Debentures credit rating on November 10, 2010. The ratings are as follows:



Category DBRS Moody's
--------------------------------------------------
Corporate Rating BB (low) Ba3
Series 1 Unsecured Debentures BB B1
--------------------------------------------------
--------------------------------------------------


Both DBRS and Moody's obligations rating are speculative and non investment-grade credit quality.

SOURCES OF CASH

Our liquidity needs can be sourced in several ways including: Funds from operations, borrowings against our Credit Facility, new debt instruments, the issuance of securities from treasury, return of letters of credit or replacement of letters of credit with other types of financial security, proceeds from the sale of assets and payments of dividends to shareholders.

Credit Facility

The Credit Facility was amended effective December 17, 2010 to a three-year maturity ending December 17, 2013, with annual extensions available at our option. As a result of Newalta's recent successful private placement of $125 million in Senior Unsecured Debentures and current cash forecast needs, management elected to reduce the amount available under the Credit Facility from $350 million to $200 million. At December 31, 2010, $124.7 million was available and undrawn under the Credit Facility to fund growth capital expenditures and for general corporate purposes, as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60 million. The aggregate dollar amount of outstanding letters of credit is not categorized in the financial statements as long-term debt; however, the issued letters of credit reduce the amount available under the Credit Facility and are included in the definition of Total Debt for covenant purposes. Under the Credit Facility agreement, surety bonds (including performance and bid bonds) to a maximum of $125 million are excluded from the definition of Total Debt. As at December 31, 2010, surety bonds issued and outstanding totalled $21.5 million.

Financial performance relative to the financial ratio covenants(1) under the Credit Facility is reflected in the table below:



December 31, 2010 Threshold
----------------------------------------------------------------------------
Senior Secured Debt(2) to EBITDA(3) 0.63:1 2.75:1 maximum
Total Debt(4) to EBITDA(3) 1.68:1 3.50:1 maximum
Interest Coverage 4.97:1 2.25:1 minimum
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) We are restricted from declaring dividends if we are in breach of the
covenants under our Credit Facility.

(2) Senior Secured Debt means the Total Debt less the Senior Unsecured
Debentures.

(3) EBITDA is a non-GAAP measure, the closest measure of which is net
earnings. For the purpose of calculating the covenant, EBITDA is
defined as the trailing twelve-months consolidated net income for
Newalta before the deduction of interest, taxes, depreciation and
amortization, and non-cash items (such as non-cash stock-based
compensation and gains or losses on asset dispositions). Additionally,
EBITDA is normalized for any acquisitions or dispositions as if they
had occurred at the beginning of the period.

(4) Total Debt comprises outstanding indebtedness under the Credit Facility
and the Senior Unsecured Debentures, but excludes the existing $115
million Convertible Debentures.


Table 10: Total Secured and Unsecured Debt to Adjusted EBITDA

http://media3.marketwire.com/docs/newalta_tables.pdf

Our Total Secured and Unsecured Debt was $315 million as at December 31, 2010 which reflected a $17 million improvement from 2009. Combined with higher Adjusted EBITDA, this reduced debt level resulted in a Total Secured and Unsecured Debt to Adjusted EBITDA ratio of 2.65. This improvement provides Newalta with greater financial flexibility and will reduce future financing costs. Our covenant ratios remained well within their thresholds. We will manage within our covenants throughout 2011.

Convertible Debentures

The Convertible Debentures have a maturity date of November 30, 2012 and bear interest at a rate of 7.0% payable semi-annually in arrears on May 31 and November 30 each year. Each $1,000 debenture is convertible into 43.4783 shares, at a conversion price of $23.00 per share, at any time at the option of the holders of the Convertible Debentures. The Convertible Debentures are not included in calculating financial covenants in the Credit Facility.

Upon maturity or redemption of the Convertible Debentures, we may pay the outstanding principal of the Convertible Debentures in cash or we may elect to satisfy our 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 shares obtained by dividing the aggregate amount of principal of the Convertible Debentures which have matured or redeemed by 95% of the current market price. We may also elect, subject to regulatory approval, from time to time, to satisfy our obligation to pay all or any part of the interest on the Convertible Debentures, on the date interest is payable under the Convertible Debenture Indenture, by delivering a sufficient number of shares to the debenture trustee to satisfy all or any part, as the case may be, of the interest obligation.

The Convertible Debentures are redeemable by Newalta at a price of $1,000 per debenture after November 30, 2010 and on or before November 30, 2011 provided that the current market price of our shares on the date on which the notice of redemption is given is not less than $28.75 (being 125% of the Conversion Price). After November 30, 2011, debentures are redeemable at a price equal to $1,000 per debenture. In all cases, consideration will include accrued and unpaid interest, if applicable. Current market price is defined as the volume weighted average trading price of the shares on the Toronto Stock Exchange ("TSX") for the 20 consecutive trading days ending on the fifth trading day prior to the date of determination. The volume weighted average trading price is determined by dividing the aggregate sale price of all shares sold on the TSX during the 20 consecutive trading days by the total number of shares so sold.

There were no redemptions of the Convertible Debentures in 2010.

Senior Unsecured Debentures

On November 23, 2010, Newalta issued $125.0 million of 7.625% Series 1 Unsecured Debentures (the "Senior Unsecured Debentures"). The Senior Unsecured Debentures mature on November 23, 2017. The Senior Unsecured Debentures bear interest at 7.625% per annum and such interest is payable in equal instalments semi-annually in arrears on May 23 and November 23 in each year, commencing on May 23, 2011. The Senior Unsecured Debentures are unsecured senior obligations and rank equally with all other existing and future unsecured senior debt and senior to any subordinated debt that may be issued by Newalta or any of its subsidiaries. The Senior Unsecured Debentures are effectively subordinated to all secured debt to the extent of collateral on such debt.

Prior to November 23, 2013, Newalta may on one or more occasions:

- Redeem up to 35% of the aggregate principal amount of Senior Unsecured Debentures, with the net cash proceeds of one or more public equity offerings at a redemption price equal to 107.625% of the principal amount, plus accrued and unpaid interest to the date of redemption.

- Redeem the Senior Unsecured Debentures, in whole or in part, at a redemption price which is equal to the greater of (a) the Canada Yield Price (as defined in the trust indenture) and (b) 101% of the aggregate principal amount of Senior Unsecured Debentures redeemed, plus, in each case, accrued and unpaid interest to the redemption date.

After November 23, 2013, the Senior Unsecured Debentures are redeemable at the option of Newalta, in whole or in part, at redemption prices expressed as percentages of the principal amount, plus in each case accrued interest to the redemption date, if redeemed during the twelve month period beginning on November 23 of the years as follows: Year 2013 - 103.813%; Year 2014 - 102.542%; Year 2015 - 101.906%; Year 2016 and thereafter - 100%.

During the three and twelve months ended December 31, 2010, financing fees of $3.0 million were incurred in connection with the issuance of the Senior Unsecured Debentures. These fees have been recorded as deferred financing costs and are being amortized using the effective interest method over the term of the Senior Unsecured Debentures.

The trust indenture under which the Senior Unsecured Debentures have been issued also requires Newalta to be in compliance with certain covenants on an annual basis. At December 31, 2010, Newalta was in compliance with all covenants.

USES OF CASH

Our primary uses of funds include maintenance and growth capital expenditures as well as acquisitions, payment of dividends, operating and SG&A expenses and the repayment of debt.

Capital Expenditures

"Growth capital expenditures" or "growth and acquisition capital expenditures" are capital expenditures that are intended to improve our efficiency and productivity, allow us to access new markets and diversify our business. Growth capital, or growth and acquisition capital, are reported separately from maintenance capital because these types of expenditures are discretionary. "Maintenance capital expenditures" are capital expenditures to replace and maintain depreciable assets at current service levels. Maintenance capital expenditures are reported separately from growth activity because these types of expenditures are not discretionary and are required to maintain current operating levels.

Capital expenditures for the quarter and year ended December 31, 2010 were:



Three months ended December 31, Year ended December 31,
($000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Growth capital expenditures 21,146 4,739 47,077 18,696
Maintenance capital expenditures 8,491 3,501 28,668 8,589
----------------------------------------------------------------------------
Total capital expenditures(1) 29,637 8,240 75,745 27,285
----------------------------------------------------------------------------

(1) The numbers in this table differ from the Consolidated Statements of
Cash Flows because the numbers above do not reflect the net change in
working capital related to capital asset accruals.


Total capital expenditures for the quarter were $29.6 million. Growth capital expenditures for the quarter and the year relate primarily to drill site equipment in Western Onsite, centrifugation equipment for project work in our Heavy Oil business unit and expansion in Western Facilities. Maintenance capital expenditures for the quarter and year related primarily to the construction of landfill cells, process equipment refurbishment at VSC and routine process equipment refurbishment at other facilities. Capital expenditures were funded by Funds from operations.

Total capital expenditures for the year were $75.7 million. Of the $47.1 million in growth capital expenditures, Onsite accounted for 60%, Facilities expenditures were 25% and the balance was attributable to corporate investments.

Capital expenditures in 2011 are budgeted at $100 million, comprised of growth capital expenditures of $73 million and maintenance capital of $27 million. We plan to spend $35 million in growth capital expenditures in the Onsite division, primarily related to expansion of the Heavy Oil business unit, as well as additional equipment for the Eastern and Western Onsite business units. We plan to spend $26 million in the Facilities division, primarily related to process improvements and additions, as well as the completion of a new oilfield facility. Capital expenditures for technical development are budgeted to be $5 million, with the remaining $7 million in growth capital expenditures for corporate investments. Maintenance capital expenditures will relate to the construction of additional landfill cells, process improvements and equipment replacement.

We may revise the budget, from time to time, in response to changes in market conditions that materially impact our financial performance and/or investment opportunities.

Dividends and Share Capital

In determining the dividend to be paid to our shareholders, the Board of Directors considers a number of factors including the forecasts for operating and financial results, maintenance and growth capital requirements as well as market activity and conditions. After a review of all factors, the Board declared $3.2 million in dividends or $0.065 per share, paid January 17, 2011 to shareholders of record as at December 31, 2010.

We expect to pay a dividend of $0.065 per share to shareholders of record on March 31, 2011. The Board will continue to review future dividends, taking into account all factors noted above.

As at March 3, 2011, Newalta had 48,495,002 shares outstanding, outstanding options to purchase up to 3,526,075 shares and a number of shares that may be issuable pursuant to the $115.0 million in Debentures (see Sources of Cash - Debentures in this MD&A for the year December 31, 2010).



Contractual Obligations

Our contractual obligations, as at December 31, 2010, were:
----------------------------------------------------------------------------

Less than
one
($000s) Total year 1-3 years 4-5 years Thereafter
----------------------------------------------------------------------------
Office leases 64,138 7,676 14,830 13,870 27,762
Operating leases(1) 15,229 9,025 5,774 430 -
Surface leases 3,387 1,135 1,447 580 225
Convertible debentures 130,429 8,050 122,379 - -
Senior long-term debt(2) 54,028 - 54,028 - -
Senior unsecured
debentures 190,726 9,531 19,063 19,062 143,070
----------------------------------------------------------------------------
Total commitments 457,937 35,417 217,521 33,942 171,057
----------------------------------------------------------------------------

(1) Operating leases relate to our vehicle fleet with terms ranging between
3 and 5 years.
(2) Senior long-term debt is gross of transaction costs. Interest payments
are not included.


SUMMARY OF QUARTERLY RESULTS

($000s
except per
share
data) 2010 2009
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
Revenue 162,927 145,124 136,905 131,240 137,308 122,169 111,386 112,538
Earnings
(loss)
before
taxes 5,327 9,364 4,918 8,013 3,451 5,936 (293) (6,362)
Net
earnings
(loss) 2,862 6,324 3,155 5,722 4,092 3,567 (179) (4,381)
Earnings
(loss) per
share ($) 0.06 0.13 0.07 0.12 0.09 0.08 - (0.10)
Diluted
earnings
(loss) per
share ($) 0.06 0.13 0.06 0.12 0.09 0.08 - (0.10)
Weighted
average
shares
basic 48,523 48,487 48,487 48,480 46,770 42,438 42,450 42,402
Weighted
average
shares
diluted 48,934 48,909 48,844 48,826 47,049 42,610 42,450 42,402
EBITDA 26,826 28,769 26,310 27,370 24,698 25,253 17,940 12,030
Adjusted
EBITDA 33,647 29,706 26,573 28,866 25,506 26,606 18,253 11,792
----------------------------------------------------------------------------


Quarterly performance is affected by, among other things, weather conditions, timing of onsite projects, commodity prices, foreign exchange rates, market demand and the timing of our growth capital investments as well as acquisitions and the contributions from those investments. Growth capital investments completed in the first half of the year will tend to strengthen the second half financial performance. Revenue from certain business units is impacted by seasonality. However, due to the diversity of our business, the impact is limited on a consolidated basis. For example, waste volumes received at our oilfield facilities decline in the second quarter due to road bans which restrict drilling activity. This decline is offset by increased activity in our Eastern Onsite business unit due to the aqueous nature of work performed, as well as potentially by fluctuations in commodity prices or event-based waste receipts at SCL. As experienced over the last eight quarters, fluctuations in commodity prices can dramatically impact our results.

In 2009, revenue and net earnings grew as the year progressed, with lower revenue, earnings before taxes and net earnings in the first half of the year as compared to the second half, mainly due to weaker economic conditions. Lead and crude oil prices fell from historic highs achieved in 2008, continuing the negative impact on revenue and net earnings in the first half of 2009. The improvement in Q2 2009 was driven by a combination of stronger commodity prices and management's cost containment program. In Q3 2009, we observed improved commodity prices and typical seasonal activity increases; however, our waste volumes remained below historic levels. Revenue in Q4 2009 improved due to higher commodity prices, better waste receipts at SCL and increased lead production at VSC. Weighted average shares increased reflecting the equity offering of 6 million shares completed in Q4 2009.

Q1 2010 revenue, earnings before taxes and net earnings reflect continued improvements in commodity prices and productivity and cost efficiencies combined with strengthened demand across all business units. Q2 2010 revenue, earnings before taxes and net earnings reflect continued recovery in activity levels, consistent with expectations. Q3 2010 revenue, earnings before taxes and net earnings improved. Strong performance in Western Facilities, Heavy Oil and Western Onsite was partially offset by lower contributions from VSC, SCL and Eastern Onsite. Q4 2010 revenue and Adjusted EBITDA continued to improve driven by strong market activity in Western Facilities and increased demand for Western Onsite services. The Q4 2010 decrease in earnings before taxes and net earnings was due to higher stock-based stock compensation.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

SENSITIVITIES

Our stock-based compensation expense is sensitive to changes in our share price. Using Canadian GAAP, a $1 change in our share price, up to $15 per share, has a $2.1 million direct impact on annual stock-based compensation reflected in SG&A, before the effects of vesting. We anticipate that approximately one third of stock-based compensation will be settled in cash in future periods.

Our revenue is sensitive to changes in commodity prices for crude oil, base oils and lead. These factors have both a direct and indirect impact on our business. The direct impact of these 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 variations of these factors, including natural gas, has on activity levels of our customers and, therefore, demand for our services. The indirect impacts of these fluctuations previously discussed are not quantifiable.

The following table provides management's estimates of fluctuations in key inputs and prices and the direct impact on revenue from product sales and SG&A:




----------------------------------------------------------------------------
Change in Impact on
benchmark Annual
($) Revenue ($)
----------------------------------------------------------------------------
LME lead price ($U.S./MT)(1) (2) 220 8.2 million
Edmonton Par crude oil price ($/bbl)(1) 1.00 0.3 million
Gulf Coast Base oil ($/litre)(1) 0.05 0.9 million
----------------------------------------------------------------------------
(1) Based on 2010 performance and volumes.
(2) Excludes impact of LME on feedstock which offsets the impact of LME
on revenue.


CRITICAL ACCOUNTING ESTIMATES

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

Amortization and Accretion

Amortization of capital assets and intangible assets incorporates estimates of useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change impacting the operation of plant and equipment. Accretion expense is the increase in the asset retirement obligation over time. The asset retirement obligation is based on estimates that may change as more experience is obtained or as general market conditions change impacting the future cost of abandoning our facilities. Amortization of capital assets and intangible assets incorporates estimates of useful lives and residual values. The estimates may change as more experience is obtained or as general market conditions change impacting the operating of plant and equipment.

Asset Retirement Obligations

Asset retirement obligations are estimated by management based on the anticipated costs to abandon and reclaim all our facilities and landfills as well as 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. The useful lives of the assets and the long-term commitments of certain sites range from 20 to 300 years. The total estimated future cost for asset retirement obligations at December 31, 2010 was $9.7 billion. The net present value of this amount, $21.7 million (using a discount rate of 8%), has been accrued on the consolidated balance sheet at December 31, 2010. The majority of the undiscounted future asset retirement obligations relates to SCL in Ontario, which are expected to be incurred over the next 300 years. Excluding SCL, the total undiscounted future costs are $36.2 million. There were no significant changes in the estimates used to prepare the asset retirement obligation in 2010 compared to 2009.

Goodwill

We perform a test for goodwill impairment annually and whenever events or circumstances make it possible that impairment may have occurred. Determining whether impairment has occurred requires a valuation of the respective segment, based on its future discounted cash flows. In applying this methodology, we rely on a number of factors, including actual operating results, future business plans, economic projections and market data. We test the valuation of goodwill as at September 30 of each year to determine whether or not any impairment in the goodwill balance recorded exists. In addition, on a quarterly basis, we assess the reasonableness of assumptions used for the valuation to determine if further impairment testing is required.

Our determination as at September 30, 2010 and December 31, 2010 was that goodwill was not impaired.

Income Taxes

Current income tax expense predominantly represents capital taxes paid in eastern Canada, federal and provincial income taxes and U.S. taxation imposed on the U.S. subsidiary. Tax losses generated under the income fund structure are expected to provide shelter from any significant corporate current tax exposure for a minimum of three years.

Future income taxes are estimated based on temporary differences between the book value and 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 applicable future income tax rate for each entity is calculated based on provincial allocation calculations and the expected timing of reversal of temporary differences. Changes in the assumptions used to derive the future income tax rate could have a material impact on the future income tax expense or recovery incurred in the period.

Permits and other intangibles

Permits and other intangibles represent the book value of expiring permits and rights, indefinite permits and non-competition contracts. The intrinsic value of the permits relates to the breadth of the terms and conditions and the types of waste we are able to process. In today's regulatory environment, management believes an operator would be unable to obtain similar permits with the same scope of operations. Therefore, management estimates that the value of our permits could be greater than its book value.

Stock-Based Compensation

We have three share-based compensation plans, the 2003 Option Plan (the "2003 Plan"), the 2006 Option Plan (the "2006 Plan") and the 2008 Option Plan (the "2008 Plan"). Under the option plans, we may grant to directors, officers, employees and consultants of Newalta or any of its affiliates, options to acquire up to 10% of the issued and outstanding shares. Newalta uses the fair value method to account for the options granted pursuant to the 2003 Plan and recognizes the share-based compensation expense over the vesting period of the options, with a corresponding increase to contributed surplus. When options are exercised, the proceeds, together with the amount recorded in contributed surplus, are transferred to shareholders' capital. Forfeitures are accounted for as incurred. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of the options, the expected volatility of the underlying security and the expected dividends.

The 2006 Plan and the 2008 Plan are accounted for as stock appreciation rights since they allow for individuals to settle their rights in cash. Accordingly, we use the intrinsic value method to account for these rights. The intrinsic value reflects the net cash liability calculated as the difference between the market value of the shares and the exercise price of the right. This is re-measured at each reporting date and stock-based compensation expense is increased or decreased accordingly. Decreases or reversals of stock-based compensation expense are limited to previously recognized stock-based compensation expense.

Newalta may also grant stock appreciation rights ("SARs") to directors, officers, employees and consultants of Newalta Corporation or any of its affiliates. SARs entitle the holder thereof to receive cash from Newalta in an amount equal to the positive difference between the grant price and the trading price of our common shares on the exercise date. The grant price is calculated based on the five-day volume weighted average trading price of our common shares on the TSX. SARs generally expire five years after they have been granted and the vesting period is determined by the Board of Directors of Newalta. Newalta uses the intrinsic value method to account for SARs. The intrinsic value reflects the net liability calculated as the difference between the market value of the shares and the exercise price of the SAR. This is re-measured at each reporting date and stock-based compensation expense is increased or decreased accordingly. Decreases or reversals of stock-based compensation expense are limited to previously recognized stock-based compensation expense.

Newalta has a deferred share unit ("DSU") Plan, which is described in Note 12 to the consolidated financial statements. DSUs are settled in cash and are recorded as liabilities. The measurement of the compensation expense and corresponding liability for these awards is based on the intrinsic value of the award, and is recorded as a charge to SG&A expense over the vesting period of the award. At the end of each financial period, changes in the Company's payment obligation due to changes in the market value of Newalta's shares are recorded as a charge to SG&A expense. Dividend equivalent grants, if any, are recorded as a charge to SG&A expense in the period the dividend is paid.

FUTURE ACCOUNTING POLICY CHANGES

Information regarding our changes in accounting policies is included in Note 3 to the consolidated financial statements.

INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")

In February 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that Canadian publicly accountable enterprises would be required to adopt IFRS for fiscal years beginning on or after January 1, 2011. IFRS uses a conceptual framework similar to GAAP, but there are differences in recognition, measurement and disclosures.

Management established a project team to plan for and achieve a smooth transition to IFRS. An external resource was also engaged in an advisory capacity. The Audit Committee of the Board of Directors regularly receives progress reports on the status of the IFRS implementation project.
The following table summarizes our key activities, related milestones and accomplishments to date.



----------------------------------------------------------------------------
Key Activity Milestones Status
----------------------------------------------------------------------------

Accounting policies and
procedures:

- Identification of - Finalize accounting We have completed our
differences between policy choices internal review of
IFRS and the company's under IFRS differences between
existing policies and IFRS and current
procedures - Finalize opening policies and
balances procedures, and have
- Accounting policy made assessments of
choices under IFRS - Complete new accounting policy
financial policies choices. We are in
- Financial statement and procedures the process of
impact manual addressing confirming and
IFRS requirements finalizing these
- Opening balances assessments and their
financial statement
- Financial policies impacts with our
and procedures consultants and
auditors.
- Identification of
areas that may have The review of opening
a significant impact balances is in
progress and is
expected to be
completed during the
first quarter of 2011.
Communication of
financial impacts will
follow review
completion.

----------------------------------------------------------------------------

Financial Statement
Preparation:

- Prepare financial - Senior management A preliminary pro
statements and approval and Audit forma financial
note disclosures Committee review statement and note
in compliance of pro forma disclosure structure
with IFRS financial was presented to
statements and senior management
- Quantify the effects of disclosures and the Audit
converting to IFRS Committee in early
2009.
- Prepare first-time
adoption Updated pro forma
reconciliations financial statement
required under IFRS 1 and note disclosure
structures continue
to be presented to
senior management and
the Audit Committee
on a regular basis
and will be finalized
during the first
quarter of 2011.

----------------------------------------------------------------------------


IT Infrastructure:

Identify key changes in - Ensure readiness for Required system
the following areas: parallel processing upgrades and changes
of 2010 financial have been made.
- IT system changes and results and IFRS-
upgrades compliant reporting in
2011

- Systemic process - Identify and recommend Parallel ERP system is
changes for data systemic process operational.
collection for G/L, changes
disclosures, and
consolidation

- One-time processes due - Testing phase
to IFRS 1

- ERP parallel run

----------------------------------------------------------------------------

Control Environment:

Internal control over - Complete final signoff Internal assessment,
financial reporting and review of control
accounting policy implementation
- Accounting policy changes by Q4 2010 and independent
changes and approval assessment will be
- Update certification ongoing throughout
- Changes to process by Q4 2010 2011 to ensure
certification appropriate controls
are effective.

No material changes
Disclosure controls and - Publish material were made to the
procedures changes in policies certification process
and known impacts of during 2010, nor are
- MD&A communications IFRS in the MD&A they expected for
package throughout 2009 & 2010 2011.

- IFRS adjustments to - Publish impact of Our disclosure
GAAP statements conversion (with procedures ensure
(2010) reconciliation to GAAP) that key impacts due
(2010) on key measures (Q1 to IFRS are
2011) adequately disclosed.
- 2011 financial Disclosure
statement - Publish disclosure of requirements relating
presentation 2010 comparative to IFRS will be
information independently
(with reconciliati reviewed and tested
to GAAP) in the interim throughout 2011
and annual financial to determine
statements (Q1 2011) effectiveness.

Material changes in
policies are discussed
in the MD&A. Financial
impacts will be
communicated as they
are finalized and
confirmed.

----------------------------------------------------------------------------

Training, Communication and
Other:

- Provide training to - Develop working groups Issue specific
key stakeholders and training to training sessions were
implement changes for delivered throughout
- Address impacts to significant impact items 2010 and will
IFRS continue during the
- Develop investor first quarter of 2011.
- Investor relations relations communication
plan (Q3 2009) Key communication
- Financial covenants continues to be
- Review of: provided through the
- Compensation packages MD&A. Assessment of
- Financial covenants requirements for
(by Q3 2010) further communication
is ongoing.
- Compensation packages
(by Q3 2010) We have structured our
Credit Facility and
the Senior Unsecured
Debenture Indenture,
in order to minimize
the impact of
IFRS on our financial
covenants We will
continue to assess
the impact on
our compensation
compensation
packages.

Key stakeholder
communications will
continue throughout
the first quarter of
2011.

----------------------------------------------------------------------------


Management is in the final stages of the transition to IFRS and is focused on working with our external auditors to achieve agreement on conclusions. A summary of the key areas where changes in accounting policies are expected to impact our consolidated financial statements are listed below. This summary should not be regarded as a complete list of the changes that will result from the transition to IFRS. Rather, it is intended to highlight those areas management currently believes to be the most significant.

Most adjustments required on transition to IFRS will be made retrospectively against opening retained earnings as of January 1, 2010 ("transition date"). Transitional adjustments relating to those standards where comparative figures are not required to be restated will only be made as of the first day of the year of adoption.

First-Time Adoption of IFRS

The First-Time Adoption of International Financial Reporting Standard ("IFRS 1") provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions, to the general requirement for full retrospective application of IFRS.

The most significant IFRS 1 exemptions applying to Newalta are summarized below.



----------------------------------------------------------------------------
Area of IFRS Summary of Exemption Available
----------------------------------------------------------------------------
Business Combinations An entity may elect, on transition to IFRS, not
to retrospectively apply IFRS 3, "Business
Combinations" to past business combinations.
This election is allowed subject to specific
requirements (an entity must maintain the
classification of the acquirer and acquiree,
recognize/derecognize certain assets or
liabilities as required under IFRS and
remeasure certain assets and liabilities at
fair value).

Newalta has elected on transition to IFRS to
apply this exemption and not restate business
combinations prior to the transition date.
----------------------------------------------------------------------------
Property, Plant and
Equipment (Capital Assets) An elective exemption exists whereby an entity
may elect to revalue, as the new cost basis for
property, plant and equipment, its fair value at
the date of transition. The exemption can be
applied on an asset-by-asset basis.

Newalta has chosen not to take this election to
revalue any of its assets at transition date,
and will continue to measure its property, plant
and equipment at historical cost.
----------------------------------------------------------------------------
Share-Based Payments An entity may elect not to apply IFRS 2,
"Share-based Payments" to equity instruments
granted on or before November 7, 2002, or which
vested prior to transition to IFRS, and may also
elect not to apply IFRS 2 to liabilities arising
from share-based payment transactions which
settled before the date of transition to IFRS.

Newalta has elected, on transition to IFRS, to
take this exemption and not apply IFRS 2 to
equity instruments and liabilities as described
above.
----------------------------------------------------------------------------
Decommissioning Liabilities
(Asset Retirement
Obligations) In accounting for changes in obligations to
dismantle, remove and restore items of property,
plant and equipment, IFRS guidance requires
changes in such obligations to be added to or
deducted from the cost of the asset to which it
relates. The adjusted depreciable amount of the
asset is then depreciated prospectively over its
remaining useful life. Rather than recalculating
the effect of all such changes throughout the
life of the obligation, an entity may elect to
measure the liability and the related
depreciation effects at the date of transition
to IFRS.

Newalta has elected to measure any
decommissioning liabilities and the related
depreciation effects at the date of transition
to IFRS.
----------------------------------------------------------------------------


Expected Areas of Significance in Accounting Policies

The following table summarizes the key areas where accounting policies are expected to differ under IFRS and for which accounting policy decisions are necessary. This summary is limited to those areas (with the exception of transition policy choices made under IFRS 1 which are described above) that, based on management's assessment, may have an impact on Newalta's consolidated financial statements.



----------------------------------------------------------------------------
Accounting Policy Area Summary of Differences and Decision Requirements
----------------------------------------------------------------------------
Property, Plant and
Equipment (Capital Assets) Under IFRS, an entity is required to
prospectively choose between the cost model and
the revaluation model to account for its capital
and intangible assets. The cost model refers to
the use of an asset's carrying value as its cost
less any accumulated depreciation and impairment
loss, and is generally consistent with GAAP.
Under the revaluation model the asset is carried
at its fair value as at the date of revaluation,
less any accumulated depreciation and impairment
loss. Value increases affect equity whereas
decreases (in excess of previously recognized
surpluses, if any) affect net income.

Newalta has chosen to continue to value property,
plant and equipment using the historical cost
method. As such, the impact of this difference
under IFRS will be minimal.
----------------------------------------------------------------------------
Borrowing Costs IFRS requires the capitalization of borrowing
costs that are directly attributable to the
acquisition, construction or production of a
qualifying asset as part of the cost of that
asset. A qualifying asset is an asset that
necessarily takes a substantial period of time
to prepare for its intended use or sale.
Borrowing costs are considered to be directly
attributable to a qualifying asset when they
would have been avoided if the expenditure on
the qualifying asset had not been made.

This change will be applied prospectively, and
will result in ongoing reduced finance charges
and increased capital asset values, which will
be driven by the levels of activity within
qualifying projects in any given period. As a
result of higher capital asset values we would
expect increased amortization expense in future
periods.
----------------------------------------------------------------------------
Impairment Under GAAP, goodwill is tested for impairment by
comparing the fair value of the goodwill, on a
reporting unit basis, with the carrying value of
the goodwill. For remaining assets, GAAP
generally uses a two-step approach to impairment
testing: first comparing asset carrying values
with undiscounted future cash flows to determine
whether impairment exists; and then measuring any
impairment by comparing asset carrying values
with fair values.

With IFRS, goodwill is not tested independent of
other assets. Instead, a one-step approach is
used for testing and measuring impairment of all
assets at the cash generating unit (CGU) level.
A cash-generating unit (CGU) is the smallest
identifiable group of assets that generates cash
inflows that are largely independent of the cash
inflows from other assets or groups of assets.
Any impairment is applied first to goodwill and
then prorated to the other assets in the CGU.
Impairment of assets other than goodwill can be
reversed in later periods if there is a change
in the estimate that resulted in the original
impairment.

Newalta is in the process of finalizing its
assessment of the transition impact of this
accounting policy change and confirming results
with our external auditors, but does not expect
the impact at transition to be significant.
Prospective impacts will be dependent on future
circumstances. Differences in measurement and
recognition of impairment losses and reversals
could lead to increased income statement
volatility under IFRS.
----------------------------------------------------------------------------
Provisions including
Decommissioning
Liabilities (Asset
Retirement Obligations)
and Constructive
Obligations IFRS requires a provision to be recognized when:
there is a present obligation as a result of a
past transaction or event; it is probable that
an outflow of resources will be required to
settle the obligation; and a reliable estimate
can be made of the obligation. "Probable" in
this context means more likely than not. Under
GAAP, the criterion for recognition in the
financial statement is "likely", which is a
higher threshold than "probable". Therefore it
is possible that there may be some contingent
liabilities which would meet the criteria for
recognition under IFRS that would not have been
recognized under GAAP.

Other differences between IFRS and GAAP exist
in relation to the measurement of provisions,
such as the methodology for determining the best
estimate where there is a range of equally
possible outcomes (IFRS uses the mid-point of
the range, whereas GAAP uses the low end of the
range), and the requirement under IFRS for
provisions to be discounted where material.

In measuring the Decommissioning Liability, the
IFRS requirement is based on management's best
estimate of cash flows discounted to present
value using a discount rate which is based on
the risks specific to the liability (unless
those risks have been built into the cash flow
estimates). GAAP uses fair value of the
obligation and cash flows discounted using a
credit adjusted risk-free rate to discount cash
flow estimates.

Under IFRS, Newalta's cash flow assumptions
incorporate liability-specific risks and so a
risk-free discount rate is used to determine the
Decommissioning Liability. Use of this lower
discount rate (risk free under IFRS versus credit
adjusted under Canadian GAAP) will drive an
increase to the Decommissioning Liability and a
lesser increase to Capital Assets, with an
offsetting decrease to Retained Earnings.
Prospectively, we will see an increase to finance
charges and amortization. The assessment of the
transition and ongoing impact of this accounting
policy change is in the process of being
finalized and confirmed with our external
auditors.
----------------------------------------------------------------------------
Share-Based Payments Under GAAP, cash settled transactions and
transactions containing settlement alternatives
are measured and re-measured at each reporting
date using the intrinsic value method. IFRS
requires initial and subsequent measurement of
fair value by applying an option pricing model.
The difference will impact the accounting
measurement of awards of share appreciation
rights and options granted under Newalta's
option plans adopted in 2006 and 2008.

Newalta is in the process of finalizing its
assessment of the transition impact of this
accounting policy change. Due to the change in
valuation methodology, management expects that
there will be an increase to Other long-term
liabilities with a corresponding decrease to
Retained earnings on transition, but does not
expect the impact to be significant. Future
differences between the fair value and intrinsic
value of outstanding SARs and options plans will
result in different share-based liability and
expense measurements under IFRS and GAAP.
----------------------------------------------------------------------------
Income Taxes IFRS requires that deferred tax assets and
liabilities must be classified as non-current in
the statement of financial position. Under GAAP,
future income taxes are classified as current and
non-current based on the classification of the
underlying assets or liabilities to which they
relate, or, if there is no underlying recognized
asset or liability, based on the expected
reversal of the temporary difference.

GAAP, like IFRS, current tax represents the
amount of income taxes payable (recoverable)
based on taxable profit (tax loss) for the period
and is measured based on tax rates and laws that
are enacted or substantively enacted at the
reporting date. However, the interpretation of
"substantively enacted" under GAAP may differ
from IFRS.

Newalta is in the process of finalizing its
assessment of the impact of this accounting
policy change and confirming it with our
auditors. The impact at transition and for
future periods is not expected to be significant.
----------------------------------------------------------------------------



The above list and related summaries should not be regarded as a complete list of changes that will result from transition to IFRS. It is intended to highlight those areas we believe to be most significant based on our assessments at this time. However, several of our assessments of the impacts of certain differences remain in process and will be finalized during the first quarter of 2011. Moreover, until our first full set of financial statements under IFRS has been prepared, management will not be able to determine or precisely quantify all of the impacts that will result from converting to IFRS.

There are significant ongoing International Accounting Standards Board ("IASB") projects that could affect the ultimate differences between GAAP and IFRS and their impact on Newalta's consolidated financial statements in future years. In particular, there may be additional new or revised IFRS standards in relation to income taxes, liabilities, leases, related party disclosures, and financial instruments. We have processes in place to ensure that such potential changes are monitored and evaluated. The future impacts of IFRS will also depend on the particular circumstances prevailing in those years. The differences described are those existing based on GAAP and IFRS as of February 24, 2011.

BUSINESS RISKS

Our business 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 on the front page of this MD&A and throughout this MD&A) and the risk factors set forth in the most recently filed Annual Information Form of Newalta which are incorporated by reference herein.

The Annual Information Form is available through the internet on the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") which can be accessed at www.sedar.com. Copies of the Annual Information Form may be obtained, on request without charge, from Newalta Corporation at 211 - 11th Avenue S.W., Calgary, Alberta T2R 0C6, or by facsimile at (403) 806-7032.

FINANCIAL AND OTHER INSTRUMENTS

The carrying values of accounts receivable and accounts payable approximate the fair value of these financial instruments due to their short term maturities. Our credit risk from our customers is mitigated by our broad customer base and diverse product lines. Our top 20 customers generate approximately 40% of our total revenue, with 20% of these customers having a credit rating of A or higher and 70% of these customers having ratings of BBB or higher. In the normal course of operations, we are exposed to movements in U.S. dollar exchange rates relative to the Canadian dollar. The foreign exchange risk arises primarily from U.S. dollar denominated long-term debt and working capital. We have not entered into any financial derivatives to manage the risk for the foreign currency exposure as at December 31, 2010. In Q4 2010, our exposure to foreign exchange was mitigated by the rise in commodity prices, as well as our U.S. dollar denominated long-term debt, which served as a natural hedge, reducing our balance sheet exposure.

The floating interest rate profile of our long-term debt exposes us to interest rate risk. We do 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. For further information regarding our financial and other instruments, please refer to Note 20 to the consolidated financial statements for the three and twelve months ended December 31, 2010.

In January 2010, we invested $4 million in shares and warrants in BioteQ Environmental Technologies Inc. The portion of the investment allocated to shares has been classified as available for sale and the portion of the investment allocated to warrants is a derivative accounted for much like held-for-trading investments. The investment is re-valued each quarter. The unrealized gain or loss on the shares is reflected on the Statements of Comprehensive Income and Accumulated Other Comprehensive Income, whereas the unrealized gain or loss for warrants is reflected on the Consolidated Statement of Operations under Finance charges.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and the Chief Financial Officer (collectively the "Certifying Officers") have evaluated the design and effectiveness of our disclosure controls and procedures as of December 31, 2010, and have concluded that such disclosure controls and procedures were effective. In addition, the Certifying Officers have evaluated the design and effectiveness of our internal control over financial reporting as of December 31, 2010, and have concluded that such internal controls over financial reporting were effective. There have not been any changes in the internal control over financial reporting in Q4 of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ADDITIONAL INFORMATION

Additional information relating to Newalta, including the Annual Information Form, is available through the internet on the Canadian SEDAR, which can be accessed at www.sedar.com. Copies of the Annual Information Form of Newalta may be obtained from Newalta Corporation on the internet at www.newalta.com, by mail at 211 - 11th Avenue S.W., Calgary, Alberta T2R 0C6, or by facsimile at (403) 806-7032.



Consolidated Balance Sheets


($000s) (unaudited) December 31, December 31,
2010 2009
----------------------------------------------------------------------------
Assets
Current assets
Accounts receivable 102,378 84,317
Inventories (Note 4) 26,645 33,148
Investment (Note 5) 4,274 -
Prepaid expenses and other 7,292 6,183
----------------------------------------------------------------------------
140,589 123,648
Note receivable (Note 6) 890 978
Capital assets (Note 7) 722,840 701,884
Permits and other intangible assets (Note 8) 60,579 61,935
Goodwill 102,897 103,597
Future income taxes (Note 13) 929 1,688
----------------------------------------------------------------------------
1,028,724 993,730
----------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 118,218 90,191
Dividends payable (Note 17) 3,152 2,423
----------------------------------------------------------------------------
121,370 92,614
Senior secured debt (Note 9) 51,689 188,123
Convertible debentures - debt portion (Note 10) 112,073 110,708
Senior unsecured debentures (Note 11) 122,050 -
Other long-term liabilities (Note 12) 5,063 1,218
Future income taxes (Note 13) 47,183 39,164
Asset retirement obligations (Note 14) 21,700 21,903
----------------------------------------------------------------------------
481,128 453,730
----------------------------------------------------------------------------
Shareholders' Equity (Notes 15 and 17)
Shareholders' capital 552,969 552,871
Convertible debentures - equity portion 1,850 1,850
Contributed surplus 1,679 1,679
Retained earnings (deficit) (9,489) (16,400)
Accumulated other comprehensive income 587 -
----------------------------------------------------------------------------
547,596 540,000
----------------------------------------------------------------------------
1,028,724 993,730
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Consolidated Statements of Operations and Retained Earnings
(Deficit)

($000s except earnings per share For the three For the
data) months ended year ended
(unaudited) December 31, December 31,
2010 2009 2010 2009
----------------------------------------------------------------------------
Revenue 162,927 137,308 576,196 483,401
Expenses
Operating (Note 4) 111,543 96,007 394,317 347,348
Selling, general and administrative 23,972 16,603 70,891 56,132
Research and development 586 - 1,713 -
Finance charges 6,608 6,689 25,663 25,364
Amortization and accretion 14,891 14,558 55,990 51,825
(Notes 7 and 14)
----------------------------------------------------------------------------
157,600 133,857 548,574 480,669
----------------------------------------------------------------------------
Earnings before taxes 5,327 3,451 27,622 2,732
Provision for (recovery of) income
taxes
(Note 13)
Current 520 317 938 945
Future 1,945 (958) 8,621 (1,312)
----------------------------------------------------------------------------
2,465 (641) 9,559 (367)
----------------------------------------------------------------------------
Net earnings 2,862 4,092 18,063 3,099
Retained earnings (deficit),
beginning of period (9,199) (18,069) (16,400) (11,358)
Dividends (Note 17) (3,152) (2,423) (11,152) (8,141)
----------------------------------------------------------------------------
Retained earnings (deficit), end of
period (9,489) (16,400) (9,489) (16,400)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Net earnings per share (Note 16) 0.06 0.09 0.37 0.07
----------------------------------------------------------------------------
Diluted earnings per share
(Note 16) 0.06 0.09 0.37 0.07
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------


Consolidated Statements of Comprehensive Income and Accumulated Other
Comprehensive Income

For the Three For the
Months ended Year ended
December 31, December 31,
($000s) (unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net earnings 2,862 4,092 18,063 3,099

Other comprehensive income:
Unrealized gain on investment in
shares(1) 54 - 587 -
----------------------------------------------------------------------------
Other comprehensive income 54 - 587 -
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Comprehensive income 2,916 4,092 18,650 3,099
----------------------------------------------------------------------------

Accumulated other comprehensive
income, beginning of period 533 - - -
Other comprehensive income 54 - 587 -
----------------------------------------------------------------------------
Accumulated other comprehensive
income, end of period 587 - 587 -
----------------------------------------------------------------------------
(1) Net of tax of $0.1 million for the year ended December 31, 2010.


Consolidated Statements of Cash Flows



For the three For the
months ended year ended
December 31, December 31,
($000s) (unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net inflow (outflow) of cash
related to the following
activities:
Operating Activities
Net earnings 2,862 4,092 18,063 3,099
Items not requiring cash:
Amortization and accretion 14,891 14,558 55,990 51,825
Future income tax provision
(recovery) 1,945 (958) 8,621 (1,312)
Stock-based compensation expense 6,763 808 9,321 2,236
Other (Note 21) 912 685 3,154 5,095
----------------------------------------------------------------------------
27,373 19,185 95,149 60,943
Increase in non-cash working
capital (Note 21) 21,760 298 2,383 23,599
Asset retirement expenditures
incurred (1,126) (318) (2,184) (1,024)
----------------------------------------------------------------------------
48,007 19,165 95,348 83,518
----------------------------------------------------------------------------
Investing Activities
Additions to capital assets
(Note 21) (26,274) (8,109) (67,529) (39,652)
Net proceeds on sale of capital
assets (Note 7) 306 621 2,694 1,921
Purchase of investment (Note 5) - - (4,000) -
----------------------------------------------------------------------------
(25,968) (7,488) (68,835) (37,731)
----------------------------------------------------------------------------
Financing Activities
Issuance of shares 27 43,975 27 44,227
Decrease in senior secured debt (140,968) (53,548) (138,214) (76,963)
Issuance of senior unsecured 122,010 - 122,010 -
debentures
Decrease in note receivable 44 18 88 182
Dividends to shareholders (Note 17) (3,152) (2,122) (10,424) (13,233)
----------------------------------------------------------------------------
(22,039) (11,677) (26,513) (45,787)
----------------------------------------------------------------------------
Net cash flow - - - -
Cash - beginning of period - - - -
----------------------------------------------------------------------------
Cash - end of period - - - -
----------------------------------------------------------------------------
Supplementary information:
Interest paid 3,950 12,183 18,132 22,311
Income taxes paid 96 150 546 588
----------------------------------------------------------------------------

----------------------------------------------------------------------------


Notes to the Consolidated Financial Statements

For the three and twelve months ended December 31, 2010 and 2009

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

NOTE 1. CORPORATE STRUCTURE

Newalta Corporation (the "Corporation" or "Newalta") was incorporated on October 29, 2008, pursuant to the laws of the Province of Alberta. Newalta completed an internal reorganization resulting in a name change from Newalta Inc. to Newalta Corporation effective January 1, 2010. Newalta provides cost-effective solutions to industrial customers to improve their environmental performance with a focus on recycling and recovery of products from industrial residues. These services are provided both through our network of 80 facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Our customers operate in a broad range of industries including the oil and gas, petrochemical, refining, lead, manufacturing and mining industries.

NOTE 2. BASIS OF PRESENTATION

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

a) Cash and cash equivalents

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

b) Inventory

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

c) Capital and intangible assets

Capital and intangible assets are stated at cost, less accumulated amortization. Amortization rates are calculated to amortize the costs, net of salvage value, over the assets' estimated useful lives. Plant and equipment is principally depreciated at rates of 5-10% of the declining balance (buildings, site improvements, tanks and mobile equipment) or from 5-14 years straight line (vehicles, computer hardware and software and leasehold improvements), depending on the expected life of the asset. Some equipment is depreciated based on utilization rates. The utilization rate is determined by dividing the cost of the asset (net of estimated salvage value) by the estimated future hours of service.

Landfill assets represent the costs of landfill available space, including original acquisition cost, incurred landfill construction and development costs, including gas collection systems installed during the operating life of the site, and capitalized landfill closure and post-closure costs. The cost of landfill assets, together with projected landfill construction and development costs for permitted capacity, is amortized on a per-unit basis as landfill space is consumed. Management annually updates landfill capacity estimates, based on survey information provided by independent engineers, and projected landfill construction and development costs. The impact on annual amortization expense of changes in estimated capacity and construction costs is accounted for prospectively.

The carrying values of capital assets are reviewed at least annually to determine if the value of any asset is impaired. Any amount so determined is written off in the year of impairment. As at December 31, 2010, there was no impairment in the value of capital assets.

Intangible assets consist of certain production processes, trademarks, permits and agreements, which are amortized over the period of the contractual benefit of 8-20 years, straight line. Certain permits are deemed to have indefinite lives and therefore are not amortized. There are nominal fees to renew these permits provided that Newalta remains in good standing with regulatory authorities.

The carrying values of both definite and indefinite life intangibles are reviewed at least annually whereby management reviews any changes in the regulatory environment that could cause impairment in the value ascribed to these permits. Any amount so determined is written off in the year of impairment. As at December 31, 2010, there was no impairment in the value of these permits.

d) Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets of acquired businesses. Newalta, at least annually, on September 30, assesses goodwill and its potential impairment, on a reporting unit basis by determining whether the balance of goodwill can be recovered through the estimated discounted operating cash flows of each reporting unit over their remaining lives. Management's determination as at September 30, 2010 and December 31, 2010 was that goodwill was not impaired.

e) Asset retirement obligations

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

f) Revenue recognition

Revenues are recognized in the period products are delivered or services provided and when collection is reasonably assured.

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

g) Research and development

Research and development costs are incurred in the design, testing and commercialization of Newalta's products and services. Research costs, other than capital expenditures, are expensed as incurred. The costs incurred in developing new technologies are expensed as incurred unless they meet the criteria under Canadian GAAP for deferral and amortization. These costs will be amortized over the estimated useful life of the product, commencing with commercial production. In the event that a product program for which costs have been deferred is modified or cancelled, the Company will assess the recoverability of the deferred costs and if considered unrecoverable, will expense the costs in the period the assessment is made. No development costs have been deferred to date.

h) Income taxes

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

Income tax assets are also recognized for the benefits from tax losses and deductions with no accounting basis, provided those benefits are more likely than not to be realized. Future income tax assets and liabilities are determined based on the tax laws and rates that are anticipated to apply in the period of estimated realization.

i) Earnings per share

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

j) Incentive plans

Newalta has three share-based compensation plans, the 2003 Option Plan (the "2003 Plan"), the 2006 Option Plan (the "2006 Plan") and the 2008 Option Plan (the "2008 Plan"). Under the option plans, Newalta Corporation may grant to directors, officers, employees and consultants of Newalta Corporation or any of its affiliates, rights to acquire up to 10% of the issued and outstanding shares. Newalta Corporation uses the fair value method to account for the options granted pursuant to the 2003 Plan and recognizes the share-based compensation expense over the vesting period of the options, with a corresponding increase to contributed surplus. When options are exercised, the proceeds, together with the amount recorded in contributed surplus, are transferred to shareholders' capital. Forfeitures are accounted for as incurred.

The 2006 Plan and the 2008 Plan allow for individuals to settle their options in cash. Accordingly, Newalta Corporation uses the intrinsic value method to account for these options. The intrinsic value reflects the net liability, calculated as the difference between the market value of the shares and the exercise price of the option. This is re-measured at each reporting date and stock-based compensation expense is increased or decreased accordingly. Decreases or reversals of stock-based compensation expense are limited to previously recognized stock-based compensation expense.

Newalta may also grant stock appreciation rights ("SARs") to directors, officers, employees and consultants of Newalta Corporation or any of its affiliates. SARs entitle the holder thereof to receive cash from Newalta in an amount equal to the positive difference between the grant price and the trading price of our common shares on the exercise date. The grant price is calculated based on the five-day volume weighted average trading price of our common shares on the TSX. SARs generally expire five years after they have been granted and the vesting period is determined by the Board of Directors of Newalta. Newalta uses the intrinsic value method to account for SARs. The intrinsic value reflects the net liability calculated as the difference between the market value of the shares and the exercise price of the SAR. This is re-measured at each reporting date and stock-based compensation expense is increased or decreased accordingly. Decreases or reversals of stock-based compensation expense are limited to previously recognized stock-based compensation expense.

Newalta has a deferred share unit ("DSU") Plan, which is described in Note 12 d). DSUs are settled in cash and are recorded as liabilities. The measurement of the compensation expense and corresponding liability for these awards is based on the intrinsic value of the award, and is recorded as a charge to selling, general and administrative ("SG&A") expense over the vesting period of the award. At the end of each financial period, changes in Newalta's payment obligation due to changes in the market value of Newalta's shares are recorded as a charge to SG&A expense. Dividend equivalent grants, if any, are recorded as a charge to SG&A expense in the period the dividend is paid.

k) Financial instruments

Classification

All financial instruments are classified into one of five categories and are initially recognized at fair value and subsequently measured as noted in the table below.



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


Accounts receivable and note receivable are classified as loans and receivables. The portion of the investment allocated to shares has been classified as available for sale and the portion of the investment allocated to warrants is a derivative accounted for much like held-for-trading investments. Senior long-term debt, senior unsecured debentures ("Senior Unsecured Debentures"), convertible debentures ("Convertible Debentures"), accounts payable and accrued liabilities and dividends payable are classified as other financial liabilities.

Convertible Debentures

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

Transaction Costs

Transaction costs associated with other financial liabilities are netted against the related liability.

l) Measurement uncertainty

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

NOTE 3. ACCOUNTING CHANGES

In February 2009, the Canadian Accounting Standards Board ("AcSB") confirmed that Canadian publicly accountable enterprises would be required to adopt International Financial Reporting Standards ("IFRS") for fiscal years beginning on or after January 1, 2011. IFRS uses a conceptual framework similar to GAAP, but there are differences in recognition, measurement and disclosures.

Section 1582, Business Combinations. This new section will be applicable to business combinations for which the acquisition date is on or after interim and fiscal periods beginning January 1, 2011, with prospective application. Early adoption is permitted. This section improves the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. The adoption of this new section would not have a material impact on Newalta's financial statements.

Section 1601, Consolidated Financial Statements. This new section will be applicable to financial statements relating to interim and fiscal periods beginning on or after January 1, 2011, with prospective application. Early adoption is permitted. This section establishes standards for the preparation of consolidated financial statements. The adoption of this new section would not have a material impact on Newalta's financial statements.

Section 1602, Non-Controlling Interests. This new section will be applicable to financial statements relating to interim and fiscal periods beginning on or after January 1, 2011, with prospective application. Early adoption is permitted. This section establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. The adoption of this new section would not have a material impact on Newalta's financial statements.

NOTE 4. INVENTORIES

Inventories consist of the following:



----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
Lead 10,160 15,259
Recycled and processed products 4,414 8,046
Recovered oil 4,637 3,667
Parts and supplies 6,226 5,906
Burner fuel 1,208 270
----------------------------------------------------------------------------
Total inventory 26,645 33,148
----------------------------------------------------------------------------


The cost of inventory expensed in operating expenses for the year ended December 31, 2010, was $77.1 million ($62.7 million for the same period in 2009). Inventories are pledged as general security under our Credit Facility.

NOTE 5. INVESTMENT

During the first quarter of 2010, Newalta acquired 3,643,464 units, at a price of $1.10 per share from the treasury of BioteQ Environmental Technologies Inc. ("BioteQ") for consideration of $4 million. Each unit purchased includes a common share and a warrant to acquire an additional common share of BioteQ at $1.375 during the first year, and $1.65 thereafter. The warrants expire after 5 years. The fair value of the warrants is estimated using a binomial methodology and the common shares based on publicly available quoted prices.

The common shares are classified as available for sale. This investment is marked to market at each period end with changes in fair value recorded in other comprehensive income. As at December 31, 2010, a cumulative unrealized gain of $0.6 million (net of tax of $0.1 million) was recorded in accumulated comprehensive income.

The warrants are classified as held for trading and are revalued at each period end with change in fair value recognized in earnings. For the year ended December 31, 2010, the Company recorded an unrealized loss $0.4 million in earnings. As at December 31, 2010, the fair value was calculated using the following assumptions: an expected volatility of 81%, a risk-free interest rate of 2.2% and no expected dividend. This loss has been included within finance charges.

NOTE 6. NOTE RECEIVABLE

Included in an acquisition in 2005 were certain capital costs relating to landfill construction that are recoverable from a third party based on usage of the landfill. This unsecured and non-interest bearing amount is shown as a note receivable.

NOTE 7. CAPITAL ASSETS

a) Capital assets consist of the following:



----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
Accumulated Net Book Accumulated Net Book
Cost Amortization Value Cost Amortization Value
----------------------------------------------------------------------------
Land 14,696 - 14,696 14,813 - 14,813
Plant and
equipment 891,627 (254,338) 637,289 835,621 (213,991) 621,630
Landfill 117,202 (46,347) 70,855 103,264 (37,823) 65,441
----------------------------------------------------------------------------
Total 1,023,525 (300,685) 722,840 953,698 (251,814) 701,884
----------------------------------------------------------------------------


b) Disposal of capital assets

During the year ended December 31, 2010, Newalta disposed of certain land, transport vehicles, building assets and associated goodwill with a net book value of $4.1 million for proceeds of $2.7 million. The resulting net loss of $1.4 million, including the disposal of goodwill having a carrying value of $0.7 million, is included in amortization and accretion in the Consolidated Statements of Operations and Retained Earnings (Deficit).

During the year ended December 31, 2009, Newalta disposed of certain transport vehicles, equipment, land and buildings with a net book value of $3.5 million for proceeds of $1.9 million. The resulting net loss of $1.6 million is included in amortization and accretion in the Consolidated Statements of Operations, comprehensive income and retained earnings (deficit).

NOTE 8. PERMITS AND OTHER INTANGIBLE ASSETS



----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
Net Net
Accumulated Book Accumulated Book
Cost Amortization Value Cost Amortization Value
----------------------------------------------------------------------------
Indefinite
permits 53,037 - 53,037 53,012 - 53,012
Definite
life permits/
rights 14,650 (7,108) 7,542 14,650 (6,338) 8,312
Non-competition
contracts 6,020 (6,020) - 6,020 (5,409) 611
----------------------------------------------------------------------------
Total 73,707 (13,128) 60,579 73,682 (11,747) 61,935
----------------------------------------------------------------------------


NOTE 9. SENIOR SECURED DEBT

On December 17, 2010, Newalta entered into an amended and restated extendible revolving credit facility ("Credit Facility"). The maturity of this Credit Facility is December 17, 2013. At the election of Newalta, the principal borrowing amount was reduced from $350 million to $200 million. The Credit Facility is available to fund growth capital expenditures and for general corporate purposes as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60.0 million. The aggregate dollar amount of outstanding letters of credit is not presented in the financial statements as long-term debt; however, the issued letters of credit reduce the amount available under the Credit Facility. Interest on the facilities is subject to certain conditions and may be charged at prime, U.S. base rate, Bankers' Acceptance ("BA") or LIBOR, at the option of the Corporation. The Credit Facility bears interest at a market rate plus an increment (depending on certain criteria) as follows:



----------------------------------------------------------------------------
Base Rate Type Range of Increment
----------------------------------------------------------------------------
Prime Rate 1.00% to 2.50%
U.S. Base Rate 1.00% to 2.50%
BA Rate 2.25% to 3.75%
LIBOR 2.25% to 3.75%
----------------------------------------------------------------------------
The incremental BA interest rate as at December 31, 2010 was 2.5% (2009 -
4.5%).


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

Newalta may, at its option, request an extension of the Credit Facility on an annual basis. If no request to extend the Credit Facility is made by Newalta, the entire amount of the outstanding indebtedness would be due in full on December 17, 2013. The facility also requires Newalta to be in compliance with certain covenants. At December 31, 2010, Newalta was in compliance with all covenants.



December 31, 2010 December 31, 2009
----------------------------------------------------------------------------
Amount drawn on credit facility 54,028 191,280
Issue costs (2,339) (3,157)
----------------------------------------------------------------------------
Senior secured debt 51,689 188,123
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOTE 10. CONVERTIBLE DEBENTURES

In November 2007, Newalta issued $115.0 million of convertible unsecured subordinated debentures. The Convertible Debentures have a maturity date of November 30, 2012 and bear interest at a rate of 7.0% payable semi-annually in arrears on May 31 and November 30 each year beginning May 31, 2008. Each $1,000 debenture is convertible into 43.4783 shares (or a conversion price of $23.00 per share) at any time at the option of the holders of the convertible debentures. As subordinated debt, the issuance of the Convertible Debentures does not affect the borrowing capacity on the Credit Facility. On the consolidated balance sheets, the convertible debentures are presented net of the costs to issue. The equity portion of the Convertible Debentures will be reclassified into Shareholders' Capital as the debentures are converted into shares.

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

The following table compares the face and fair values of the Convertible Debentures to the carrying value. The fair value of the Convertible Debentures was determined by reference to the trading price on December 31, 2010. The effective interest rate is 8.2%.



7% Convertible Debentures due 2012 December 31, 2010 December 31, 2009
----------------------------------------------------------------------------
Face value 115,000 115,000
Fair value 118,738 116,438
----------------------------------------------------------------------------
Carrying Value
----------------------------------------------------------------------------
Equity Portion 1,850 1,850
----------------------------------------------------------------------------
Debt Portion 112,073 110,708
----------------------------------------------------------------------------
Total carrying value 113,923 112,558
----------------------------------------------------------------------------


NOTE 11. SENIOR UNSECURED DEBENTURES

On November 23, 2010, Newalta issued $125.0 million of 7.625% Series 1 Unsecured Debentures (the "Senior Unsecured Debentures"). The Senior Unsecured Debentures mature on November 23, 2017. The Senior Unsecured Debentures bear interest at 7.625% per annum, and such interest is payable in equal installments semi-annually in arrears on May 23 and November 23 in each year, commencing on May 23, 2011. The Senior Unsecured Debentures are unsecured senior obligations and rank equally with all other existing and future unsecured senior debt and senior to any subordinated debt that may be issued by Newalta or any of its subsidiaries. The Senior Unsecured Debentures are effectively subordinated to all secured debt to the extent of collateral on such debt.

Prior to November 23, 2013, Newalta may on one or more occasions:



-- Redeem up to 35% of the aggregate principal amount of Senior Unsecured
Debentures, with the net cash proceeds of one or more public equity
offerings at a redemption price equal to 107.625% of the principal
amount, plus accrued and unpaid interest to the date of redemption.

-- Redeem the Senior Unsecured Debentures, in whole or in part, at a
redemption price which is equal to the greater of (a) the Canada Yield
Price (as defined in the trust indenture) and (b) 101% of the aggregate
principal amount of Senior Unsecured Debentures redeemed, plus, in each
case, accrued and unpaid interest to the redemption date.


After November 23, 2013, the Senior Unsecured Debentures are redeemable at the option of Newalta, in whole or in part, at redemption prices expressed as percentages of the principal amount, plus in each case accrued interest to the redemption date, if redeemed during the twelve month period beginning on November 23 of the years as follows: Year 2013 - 103.813%; Year 2014 - 102.542%; Year 2015 - 101.906%; Year 2016 and thereafter - 100%.

If a change of control occurs, Newalta will be required to offer to purchase all or a portion of each debenture holder's Senior Unsecured Debentures, at a purchase price in cash equal to 101% of the principal amount of the Senior Unsecured Debentures offered for repurchase plus accrued interest to the date of purchase.

During the three and twelve months ended December 31, 2010, financing fees of $3.0 million were incurred in connection with the issuance of the Senior Unsecured Debentures. These fees have been recorded as deferred financing costs and are being amortized using the effective interest method over the term of the Senior Unsecured Debentures.

The trust indenture under which the Senior Unsecured Debentures have been issued also requires Newalta to be in compliance with certain covenants on an annual basis. At December 31, 2010, Newalta was in compliance with all covenants.

NOTE 12. LONG-TERM INCENTIVE PLANS

a) The 2008 Option Plan

On January 4, 2010 a total of 842,500 options were granted to certain directors, officers and employees of the Corporation. The options were granted at the market price of $8.07 per share. Each tranche of the options vest over a three-year period (with a five-year life), and the holder of the option can exercise the option for either a share of Newalta or an amount of cash equal to the difference between the exercise price and the market price at the time of exercise. The options granted under the 2008 Plan have therefore been accounted for as stock appreciation options and the total compensation expense for these options was $5.2 million for the year ended December 31, 2010 ($1.2 million in 2009). During 2010, an aggregate of 45,000 options to acquire common shares were forfeited under the 2008 Option Plan (nil in 2009).

b) The 2006 Option Plan

The options granted under the 2006 Plan have been accounted for as stock appreciation options and the total compensation expense for these options was nil for the year ended December 31, 2010 (nil for 2009). During 2010, an aggregate of 10,000 options to acquire common shares were forfeited (nil in 2009). During 2009, an aggregate of 1,565,000 options to acquire common shares were cancelled (nil in 2010).

c) The 2003 Option Plan

The options granted under the 2003 Plan have been accounted for as stock options and the total compensation expense for these options was nil for the year ended December 31, 2010 (nil for 2009). During 2010, an aggregate of 12,500 options to acquire common shares were cancelled (245,050 in 2009).

A summary of the status of Newalta's option plans as of December 31, 2010, 2009 and 2008, and changes during the years ending on those dates is presented as follows:



----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
2008 Exercise 2006 Exercise 2003 Exercise
Options Price Options Price Options Price
(000s) ($/share) (000s) ($/share) (000s) ($/share)
----------------------------------------------------------------------------
At December
31, 2008 - - 2,283 23.41 610 22.65
----------------------------------------------------------------------------
Granted 887 5.34 - - - -
Exercised - - - - - -
Forfeited - - - - - -
Cancelled - - (1,565) 26.38 (245) 25.12
----------------------------------------------------------------------------
At December
31, 2009 887 5.34 718 16.95 365 21.00
----------------------------------------------------------------------------
Granted 843 8.07 - - - -
Exercised (18) 5.31 - - - -
Forfeited (45) 7.15 (10) 14.00 (12) 10.52
Cancelled - - - - - -
----------------------------------------------------------------------------
At December
31, 2010 1,667 6.67 708 16.99 353 21.37
----------------------------------------------------------------------------
Exercisable at
Dec. 31, 2010 222 5.34 378 17.31 353 21.37
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Options Weighted Options Weighted
Range of Outstanding Weighted Average Exercisable Average
Exercise December Average Exercise December Exercise
Prices 31, 2010 Remaining Price 31, 2010 Price
($/share) (000s) Life (years) ($/share) (000s) ($/share)
----------------------------------------------------------------------------
3.81 - 5.40 834 3.1 5.29 217 5.29
7.65 - 8.07 833 4.1 8.06 5 7.65
14.00 - 19.46 801 2.1 16.76 476 16.93
23.14 - 32.38 259 1.5 23.66 255 23.64
----------------------------------------------------------------------------
2,727 2.9 11.25 953 16.02
----------------------------------------------------------------------------


d) Share Appreciation Rights(SARs)

On January 4, 2010, 490,000 share appreciation rights were granted to certain employees of the Corporation at the market price of $8.07. On March 11, 2010, 40,000 share appreciation rights were granted to an officer of the Corporation at the market price of $8.70. On August 16, 2010, 80,000 share appreciation rights were granted to certain employees of the Corporation at the market price of $8.76. Each tranche of these rights vests over a three- year period (with a five-year life).

On March 11, 2010, the expiry date of 155,000 rights previously granted to an Officer, was amended such that the expiry date of such rights be five years from the initial grant date.

The holder of a share appreciation 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 expense for these rights was $4.0 million for the year ended December 31, 2010 ($1.1 million in 2009). During 2010, an aggregate of 22,500 rights were forfeited (61,375 in 2009).

A summary of the status of Newalta's share appreciation rights plans as of December 31, 2010, 2009 and 2008, and changes during the years ending on those dates is presented as follows:



Weighted Average
SARs Exercise Price
(000s) ($/right)
----------------------------------------------------------------------------
At December
31, 2008 125 16.65
----------------------------------------------------------------------------
Granted 812 5.18
Exercised - -
Forfeited (61) 5.31
Cancelled - -
----------------------------------------------------------------------------
At December
31, 2009 876 6.99
----------------------------------------------------------------------------
Granted 610 8.20
Exercised (36) 5.31
Forfeited (23) 8.07
Cancelled - -
----------------------------------------------------------------------------
At December
31, 2010 1,427 7.53
----------------------------------------------------------------------------
Exercisable
at Dec. 31,
2010 307 9.96
----------------------------------------------------------------------------


Range of SARs Weighted Weighted SARs Weighted
Exercise Outstanding Average Average Exercisable Average
Prices December Remaining Exercise December Exercise
($/share) 31, 2010 Life Price 31, 2010 Price
(000s) (years) ($/share) (000s) ($/share)
----------------------------------------------------------------------------
5.31 - 8.70 1,302 3.6 5.37 182 5.38

16.65 125 2.3 16.65 125 16.65
----------------------------------------------------------------------------
1,427 3.1 7.53 307 9.96
----------------------------------------------------------------------------
----------------------------------------------------------------------------


e) Deferred Share Unit Plan

In May 2010, Newalta implemented a Deferred Share Unit Plan, pursuant to which deferred share units ("DSU") may be granted to non-employee members of the Board of Directors on an annual basis. The number of deferred share units granted to a participant is calculated by dividing (i) a specified dollar amount of the participant's annual retainer by (ii) the five-day volume weighted average trading price of the shares of Newalta traded through the facilities of the Toronto Stock Exchange on the trading days immediately preceding the date of grant. Dividends paid on the shares of Newalta are credited as additional DSUs. Each DSU entitles the holder to receive a cash payment equal to the five-day volume weighted average trading price of the shares preceding the date of redemption. The DSUs vest immediately and may only be redeemed within the period beginning on the date a holder ceases to be a participant under the plan and ending on December 31 of the following calendar year.

During the second quarter of 2010, an aggregate of 15,463 DSUs were granted to the non-employee members of the Board of Directors representing the 2010 grant. Total compensation expense for these DSUs was $0.1 million for the year ended December 31, 2010 (nil in 2009). As at December 31, 2010, the total number of DSU's held by participating directors was 15,668, including additional DSUs credited as a result of dividends paid since the date of their original grant (2009 - nil).

f) Other Long-term liabilities

Other long-term liabilities consist of non-current obligations under the Corporation's long-term incentive plans.

NOTE 13. INCOME TAX

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

Canadian Tax Jurisdiction:



----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
Future income tax liabilities:
Capital assets 95,003 91,858
Intangible assets 11,799 11,946
Deferred financing costs 2,024 1,902
----------------------------------------------------------------------------
108,826 105,706
----------------------------------------------------------------------------
Future income tax assets:
Non-capital loss carry forwards 44,056 46,502
Goodwill 5,448 6,557
Asset retirement obligation 5,542 5,594
Equity issuance costs 2,332 3,023
Deferred revenue 941 2,362
Deferred expense 3,282 1,930
Other - donations, allowance for doubtful
accounts 42 574
----------------------------------------------------------------------------
61,643 66,542
----------------------------------------------------------------------------
Net future income tax liability 47,183 39,164
----------------------------------------------------------------------------
----------------------------------------------------------------------------

U.S. Tax Jurisdiction:

----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
Future income tax assets:
Non-capital loss carry forwards 929 1,688
----------------------------------------------------------------------------
Net future income tax asset from U.S.
operations 929 1,688
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Non-capital loss carry forwards relating to Canadian operations total $175.9 million and relating to our U.S. Operations total $2.6 million. These losses will begin expiring in 2026.

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



----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
Consolidated earnings of Newalta Corporation
before taxes and distributions to
shareholders 27,622 2,732
Current statutory income tax rate 29.13% 30.45%
----------------------------------------------------------------------------
Computed tax expense at statutory rate 8,046 832
Increase (decrease) in taxes resulting from:
Capital taxes 509 945
Non-deductible costs 1,796 592
Other (791) (2,736)
----------------------------------------------------------------------------
Reported income tax expense (recovery) 9,560 (367)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOTE 14. ASSET RETIREMENT OBLIGATIONS

The total future asset retirement obligations were estimated by management based on the anticipated costs to abandon and reclaim facilities and wells, and the projected timing of these expenditures. The net present value of this amount, $21.7 million ($21.9 million at December 31, 2009) has been accrued on the consolidated balance sheets at December 31, 2010. The total estimated future cost for asset retirement obligations at December 31, 2010 was $9.7 billion. The majority of the undiscounted future asset retirement obligations relate to the Stoney Creek landfill in Ontario, which are expected to be incurred over the next 300 years. Excluding the landfill, the total undiscounted future cost is $ 36.2 million. Newalta uses a discount rate of 8% and an inflation rate of 2% to calculate the present value of the asset retirement obligations.



----------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
----------------------------------------------------------------------------
Asset retirement obligations,
beginning of period 22,331 21,765 21,903 21,094
Expenditures incurred to fulfill
obligations (1,126) (318) (2,184) (1,024)
Accretion 495 456 1,981 1,833
----------------------------------------------------------------------------
Asset retirement obligations,
end of year 21,700 21,903 21,700 21,903
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOTE 15. SHAREHOLDERS' CAPITAL

a) Shareholders' capital

Authorized capital of Newalta consists of an unlimited number of common shares and an unlimited number of preferred shares issuable in series.

On June 29, 2009, an aggregate of 60,483 common shares were cancelled and returned to treasury. Under the terms of the March 1, 2003 Plan of Arrangement, Newalta Corporation (a predecessor entity) converted from a corporate structure to Newalta Income Fund (the "Fund"), a trust structure. The Plan of Arrangement provided that certificates formerly representing common shares of Newalta Corporation that were not deposited with the required documentation on or before March 1, 2009 ceased to represent a right or claim of any kind or nature and the right of the holder of such common shares to receive certificates representing trust units of the Fund or cash payments pursuant to the Plan of Arrangement, as the case may be, were deemed to be surrendered together with all dividends or distributions thereon held for such holder. These shares were valued at $11.99 each using the average carrying amount of shares outstanding prior to their return. As a result $0.7 million was transferred from Share Capital to Contributed Surplus.

On October 27, 2009, Newalta issued 6.0 million shares pursuant to a bought deal equity financing at a price of $7.65 per share. Proceeds, net of issuance costs, were $43.8 million.

The following table is a summary of the changes in Shareholders' capital during the period:



(000s) Shares (#) Amount ($)
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2008 42,400 509,369
Shares issued (net of issues costs) 6,136 44,227
Shares cancelled and returned to treasury (60) (725)
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2009 48,476 552,871
----------------------------------------------------------------------------
Shares issued (net of issuance costs) 16 98
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2010 48,492 552,969
----------------------------------------------------------------------------
----------------------------------------------------------------------------


b) Retained earnings (deficit) and contributed surplus

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



----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
Accumulated earnings 381,243 363,180
Accumulated cash dividends (390,732) (379,580)
----------------------------------------------------------------------------
Retained Earnings (Deficit) (9,489) (16,400)


The following tables provide a summary of the changes to contributed surplus during the period:



----------------------------------------------------------------------------
Amount ($)
----------------------------------------------------------------------------
Contributed surplus as at December 31, 2008 988
Stock-based compensation adjustments (79)
Return of prior period distributions 45
Cancellation of returned shares 725
----------------------------------------------------------------------------
Contributed surplus as at December 31, 2009 and 2010 1,679
----------------------------------------------------------------------------
----------------------------------------------------------------------------


c) Convertible debentures - equity portion

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

NOTE 16. EARNINGS PER SHARE

Basic earnings per share calculations for the year ended December 31, 2010 and 2009 were based on the weighted average number of shares outstanding for the periods. Diluted earnings per share include the potential dilution of the outstanding options to acquire shares and from the conversion of the convertible debentures.

The calculation of diluted earnings per share does not include anti-dilutive options. These options would not be exercised during the period because their exercise price is higher than the average market price for the period. The number of excluded options for 2010 was 1,060,200 (1,957,700 in 2009).

The diluted earnings per share calculation does not include the impact of anti-dilutive Convertible Debentures. These debentures would not be converted to shares during the period because the current period interest (net of tax) per share obtainable on conversion exceeds basic earnings per share. The number of shares issuable on conversion of these debentures excluded for 2010 was 5,000,000 (5,000,000 in 2009).



----------------------------------------------------------------------------
Three months ended Year ended
(000s) December 31, December 31,
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Weighted average number of
shares 48,523 46,770 48,485 43,536
Net additional shares if
options exercised 411 279 302 -
Net additional shares if
debentures converted - - - -
----------------------------------------------------------------------------
Diluted weighted average
number of shares 48,934 47,049 48,787 43,536
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOTE 17. SHAREHOLDER DIVIDENDS DECLARED

During the year ended December 31, 2010, Newalta declared quarterly dividends of $0.05 per share on each of March 15th and July 15th, and quarterly dividends of $0.065 on each of September 15th and December 15th.

NOTE 18. CAPITAL DISCLOSURES

Newalta's capital structure currently consists of:



----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
Amount drawn on credit facility 54,028 191,280
Letters of Credit issued as financial
security to third parties 21,477 42,283
Convertible debentures, debt portion 112,073 110,708
Senior unsecured debentures 125,000 -
Shareholders' equity 547,596 540,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
860,174 884,271
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The objectives in managing the capital structure are to:



-- Utilize an appropriate amount of leverage to maximize return on
Shareholders' equity; and
-- To provide for borrowing capacity and financial flexibility to support
Newalta's operations.


Management and the Board of Directors review and assess Newalta's capital structure and dividend/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, Newalta may:



-- Issue shares from treasury;
-- Issue new debt securities;
-- Cause the return of letters of credit with no additional financial
security requirements;
-- 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;
-- Adjust the amount of dividends paid to shareholders; and/or
-- Sell idle, redundant or non-core assets.


Management monitors the capital structure based on measures required pursuant to the Credit Facility agreement which restricts Newalta from declaring dividends and distributing cash if the Corporation is in breach of a covenant under the Credit Facility. These measures include:



----------------------------------------------------------------------------
December 31,
Ratio 2010 Threshold
----------------------------------------------------------------------------
Senior Secured Debt(1) to EBITDA(2) 0.63:1 2.75:1 maximum
Total Debt(3) to EBITDA(2) 1.68:1 3.50:1 maximum
Interest Coverage 4.97:1 2.25:1 minimum
----------------------------------------------------------------------------

(1) Senior Secured Debt means the Total Debt less the Senior Unsecured
Debentures.
(2) EBITDA is a non-GAAP measure, the closest measure of which is net
earnings. For the purpose of calculating the covenant, EBITDA is defined
as the trailing twelve-months consolidated net income for Newalta before
the deduction of interest, taxes, depreciation and amortization, and
non-cash items (such as non-cash stock-based compensation and gains or
losses on asset dispositions). Additionally, EBITDA is normalized for
any acquisitions or dispositions as if they had occurred at the
beginning of the period.
(3) Total Debt comprises outstanding indebtedness under the credit facility
and the senior unsecured debentures but excludes the existing $115
million convertible debentures.


The trust indenture under which the Senior Unsecured Debentures have been issued also contains certain restrictions and covenants that, subject to certain exceptions, limit our ability to incur additional indebtedness, pay dividends, make certain loans or investments and sell or otherwise dispose of certain assets subject to certain conditions, among other limitations.


----------------------------------------------------------------------------
December 31,
Ratio 2010 Threshold
----------------------------------------------------------------------------

Senior Secured Debt including Letters of $245,000
Credit 75,336 maximum
Cumulative capital lease obligations nil $25,000 maximum
Consolidated Fixed Charge Coverage 4.97:1 2.00:1 minimum
Not to exceed
Period end surplus for restricted payments 17,284 surplus
----------------------------------------------------------------------------


NOTE 19. COMMITMENTS

a) Debt and Lease Commitments

Newalta has annual commitments for senior long-term debt, debentures, leased property and equipment and short- term amounts payable as follows:



----------------------------------------------------------------------------
2011 2012 2013 2014 2015 Thereafter Total
---------------------------------------------------------------------------
Amount drawn
on credit
facility (1)
(note 9) - - 54,028 - - - 54,028

Convertible
debentures
(note 10) 8,050 122,379 - - - - 130,429

Senior
unsecured
debentures
(note 11) 9,531 9,531 9,531 9,531 9,531 143,070 190,726


---------------------------------------------------------------------------
Total debt
commitments 17,581 131,910 63,559 9,531 9,531 143,070 375,182
---------------------------------------------------------------------------
Office
leases 7,676 7,453 7,377 6,988 6,882 27,762 64,138
Operating
leases 9,025 4,560 1,214 382 48 - 15,229
Surface
leases 1,135 1,157 290 290 290 225 3,387
Accounts
payable
and accrued
liabilities 118,218 - - - - - 118,218

Dividends
payable 3,152 - - - - - 3,152
---------------------------------------------------------------------------
Total debt
and other 156,787 145,080 72,440 17,191 16,751 171,057 579,306
commitments
---------------------------------------------------------------------------
(1)Gross of transaction costs. Interest payments are not reflected.


b) Letters of Credit and Surety Bonds

As at December 31, 2010, Newalta had issued letters of credit and surety bonds in respect of compliance with environmental licenses in the amount of $21.5 million and $30.5, million respectively.

NOTE 20. FINANCIAL INSTRUMENTS

a) Fair Value of Financial Assets and Liabilities

Newalta's financial instruments include accounts receivable, note receivable, accounts payable and accrued liabilities, dividends payable, senior long-term debt and senior unsecured debentures. The fair values of Newalta's financial instruments that are included in the consolidated balance sheets, with the exception of the 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 applicable to these instruments. The fair values incorporate an assessment of credit risk. The carrying values of Newalta's financial instruments at December 31, 2010 are as follows:



----------------------------------------------------------------------------
Total
Held for Loans and Available Other Carrying
Trading Receivables for Sale Liabilities Value
----------------------------------------------------------------------------
Accounts
receivable - 102,378 - - 102,378
Note receivable - 890 - - 890
Accounts payable
and accrued
liabilities - - - 118,218 118,218
Dividends payable - - - 3,152 3,152
Amount drawn on
credit facility(1) - - - 54,028 54,028
----------------------------------------------------------------------------
(1)Gross of transaction costs


The fair value of the Convertible Debentures is based on the closing trading price on the Toronto Stock Exchange as follows:



----------------------------------------------------------------------------
December 31, 2010
Quoted Fair
Carrying Value(1) Value
----------------------------------------------------------------------------
7% Convertible debentures due November 30,
2012 113,923 118,738
----------------------------------------------------------------------------
(1)Includes both the debt and equity portions.


The fair value of the Unsecured Senior Debentures is based
on broker quote as follows:
----------------------------------------------------------------------------
December 31, 2010
Quoted Fair
Carrying Value Value
----------------------------------------------------------------------------
7.625% Senior unsecured debentures due
November 23, 2017 125,000 127,500
----------------------------------------------------------------------------


Newalta categorizes its financial instruments carried at fair value into one of three different levels, depending on the significance of inputs employed in their measurement.

Level 1 includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets that are accessible at the measurement date. An active market for an asset or liability is considered to be a market where transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Instruments valued using Level 1 inputs include our Convertible Debentures and investment in BioteQ shares.

Level 2 includes valuations determined using directly or indirectly observable inputs other than quoted prices included within Level 1. Financial instruments in this category are valued using models or other industry standard valuation techniques derived from observable market data. Such valuation techniques include inputs such as quoted forward prices, time value, volatility factors and broker quotes that can be observed or corroborated in the market for the entire duration of the derivative instrument. Instruments valued using Level 2 inputs include our Unsecured Senior Debentures and investment in warrants of BioteQ.

Level 3 includes valuations based on inputs which are less observable, unavailable or where the observable data does not support a significant portion of the instruments' fair value. Generally, Level 3 valuations are longer dated transactions, occur in less active markets, occur at locations where pricing information is not available or have no binding broker quote to support Level 2 classification. At December 31, 2010 and December 31, 2009, Newalta did not have any Level 3 assets or liabilities.

b) Financial Instrument Risk Management

Credit risk and economic dependence

Newalta is subject to credit risk on its trade accounts receivable balances. The customer base is large and diverse, and no single customer balance exceeds 19% of total accounts receivable. Newalta views the credit risks on these amounts as normal for the industry. Credit risk is minimized by Newalta'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.

Revenue from Newalta's largest customer was $81.2 million for the year ended December 31, 2010 ($63.8 million in 2009), representing 14% of revenue (2009 - 13%). This revenue is recognized within our Facilities segment.

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 Corporation's trade receivable balance, are receivables totalling $2.2 million, which are considered to be outstanding beyond normal repayment terms at December 31, 2010. A provision of $0.3 million has been established as an allowance for doubtful accounts. No additional provision has been made as there has not been a significant change in credit quality and the amounts are still considered collectible. Newalta does not hold any collateral over these balances.


----------------------------------------------------------------------------
Trade Receivables Allowance for
Aging aged by Invoice Date Doubtful Accounts Net Receivables

December December December December December December
31, 31, 31, 31, 31, 31,
2010 2009 2010 2009 2010 2009
----------------------------------------------------------------------------

Current 60,867 53,981 22 13 60,845 53,968

31-60 days 11,730 15,454 1 21 11,729 15,433

61-90 days 3,001 3,159 20 65 2,981 3,094

91 days + 2,220 791 298 725 1,922 66
----------------------------------------------------------------------------

Total 77,818 73,385 341 824 77,477 72,561
----------------------------------------------------------------------------


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 2010 are as follows:



----------------------------------------------------------------------------
Allowance for doubtful accounts 2010 2009
----------------------------------------------------------------------------
Balance, beginning of year 824 1,533
Additional amounts provided for 108 922
Amounts written off as uncollectible (591) (1,631)
----------------------------------------------------------------------------
Balance, end of year 341 824
----------------------------------------------------------------------------


Liquidity risk

Ultimate responsibility for liquidity risk management rests with the Board of Directors of Newalta, which has built an appropriate liquidity risk management framework for the management of the Corporation'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 continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. See Note 19 for maturity analysis.

Interest rate risk

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 and Senior Unsecured Debentures have fixed interest rates until their maturity dates, at which point, any remaining amounts owing under these debentures will need to be repaid or refinanced. The table below provides an interest rate sensitivity analysis for the three and twelve months ended December 31, 2010:



----------------------------------------------------------------------------
Three months ended Year ended
December 31, 2010 December 31, 2010
----------------------------------------------------------------------------
If interest rates increased by 1%
with all other variables held
constant (210) (668)
----------------------------------------------------------------------------


Market risk

Market risk is the risk that the fair value or future cash flows of Newalta's financial instruments will fluctuate because of changes in market prices. Newalta is exposed to foreign exchange market 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 U.S. dollar denominated long-term debt and working capital. As at December 31, 2010, Newalta had $25.3 million in working capital and $25.4 million in long- term debt denominated in U.S. dollars. Management has not entered into any financial derivatives to manage the risk for the foreign currency exposure as at December 31, 2010.

The table below provides a foreign currency sensitivity analysis on long-term debt and working capital outstanding as at December 31, 2010:



----------------------------------------------------------------------------
Net Earnings
----------------------------------------------------------------------------

If the value of the U.S. dollar increased by $0.01 with all
other variables held constant 1
----------------------------------------------------------------------------


NOTE 21. CASH FLOW STATEMENT INFORMATION

The following tables provide supplemental information.



----------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Changes in current assets 18,536 652 (16,941) 33,563
Changes in current liabilities 10,578 366 28,756 (24,644)
Investment 29 - 4,274 -
Dividends payable - (301) (729) 5,137
Stock-based compensation, foreign
exchange and other (4,051) (316) (4,903) (3,168)
Changes in capital asset accruals (3,332) (103) (8,074) 12,711
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total increase in non-cash working
capital 21,760 298 2,383 23,599
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Foreign exchange (99) (149) (429) 2,354
Accretion of convertible debentures 352 323 1,365 1,289
Amortization of deferred financing
charges 373 471 1,821 1,834
Unrealized loss on investment in
warrants 44 - 435 -
Other 242 40 (38) (382)
----------------------------------------------------------------------------
Total other items not requiring cash 912 685 3,154 5,095
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Cash additions to capital assets
during the year (29,606) (8,212) (75,603) (26,941)
Changes in capital asset accruals 3,332 103 8,074 (12,711)
Total cash additions to capital
assets (26,274) (8,109) (67,529) (39,652)
----------------------------------------------------------------------------


NOTE 22. SEGMENTED INFORMATION

Effective January 1, 2010, Newalta reorganized its reporting structure into two divisions, Onsite and Facilities, which constitute our 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 Facilities segment includes the processing of industrial and oilfield-generated wastes including: collection, treatment and disposal; clean oil terminalling; custom treating; the sale of recovered crude oil for our account; oil recycling and lead battery recycling. The Onsite segment involves the mobilization of equipment and staff to process waste at our customer sites including: the processing of oilfield-generated wastes: the sale of recovered crude oil; industrial cleaning; site remediation; dredging and dewatering and drill site processing including solids control and drill cuttings management. Newalta had previously reported Western and Eastern reportable segments. As such, 2009 comparative information has been restated to present information under the applicable new segments.



----------------------------------------------------------------------------
For the three months ended December 31, 2010
Inter- Consolidated
Facilities Onsite segment Unallocated(3) Total
----------------------------------------------------------------------------
External revenue 115,089 47,838 - - 162,927
Inter segment
revenue(1) 104 - (104) - -
Operating expense 77,843 33,804 (104) - 111,543
Amortization and
accretion expense 8,827 3,374 - 2,690 14,891
----------------------------------------------------------------------------
Net margin 28,523 10,660 - (2,690) 36,493
Selling, general
and administrative - - - 23,972 23,972
Research and
development - - - 586 586
Finance charges - - - 6,608 6,608
----------------------------------------------------------------------------
Earnings before
taxes 28,523 10,660 - (33,856) 5,327
----------------------------------------------------------------------------
Capital
expenditures and
acquisitions(2) 14,119 12,683 - 2,835 29,637
----------------------------------------------------------------------------
Goodwill 44,381 58,516 - - 102,897
----------------------------------------------------------------------------
Total assets 647,426 300,951 - 80,347 1,028,724
----------------------------------------------------------------------------


----------------------------------------------------------------------------
For the three months ended December 31, 2009
Inter- Consolidated
Facilities Onsite segment Unallocated(3) Total
----------------------------------------------------------------------------
External revenue 94,637 42,671 - - 137,308
Inter segment
revenue(1) 295 - (295) - -
Operating expense 65,039 31,263 (295) - 96,007
Amortization and
accretion expense 8,161 3,643 - 2,754 14,558
----------------------------------------------------------------------------
Net margin 21,732 7,765 - (2,754) 26,743
Selling, general
and administrative - - - 16,603 16,603
Research and
development - - - - -
Finance charges - - - 6,689 6,689
----------------------------------------------------------------------------
Earnings before
taxes 21,732 7,765 - (26,046) 3,451
----------------------------------------------------------------------------
Capital
expenditures and
acquisitions(2) 4,155 4,596 - (511) 8,240
----------------------------------------------------------------------------
Goodwill 44,381 59,216 - - 103,597
----------------------------------------------------------------------------
Total assets 648,960 271,588 - 73,182 993,730
----------------------------------------------------------------------------

----------------------------------------------------------------------------
For the year ended December 31, 2010
Inter- Consolidated
Facilities Onsite segment Unallocated(3) Total
----------------------------------------------------------------------------
External revenue 393,950 182,246 - - 576,196
Inter segment
revenue(1) 589 - (589) - -
Operating expense 265,153 129,753 (589) - 394,317
Amortization and
accretion expense 30,813 13,038 - 12,139 55,990
----------------------------------------------------------------------------
Net margin 98,573 39,455 - (12,139) 125,889
Selling, general
and administrative - - - 70,891 70,891
Research and
development - - - 1,713 1,713
Finance charges - - - 25,663 25,663
----------------------------------------------------------------------------
Earnings before
taxes 98,573 39,455 - (110,406) 27,622
----------------------------------------------------------------------------
Capital expenditures
and
acquisitions(2) 33,491 32,736 - 9,518 75,745
----------------------------------------------------------------------------
Goodwill 44,381 58,516 - - 102,897
----------------------------------------------------------------------------
Total assets 647,426 300,951 - 80,347 1,028,724
----------------------------------------------------------------------------

----------------------------------------------------------------------------
For the year ended December 31, 2009
Inter- Consolidated
Facilities Onsite segment Unallocated(3) Total
----------------------------------------------------------------------------
External revenue 326,281 157,120 - - 483,401
Inter segment
revenue(1) 1,203 - (1,203) - -
Operating expense 230,845 117,706 (1,203) - 347,348
Amortization and
accretion expense 27,919 11,416 - 12,490 51,825
----------------------------------------------------------------------------
Net margin 68,720 27,998 - (12,490) 84,228
Selling, general
and administrative - - - 56,132 56,132
Research and
development - - - - -
----------------------------------------------------------------------------
Finance charges - - - 25,364 25,364
----------------------------------------------------------------------------
Earnings before
taxes 68,720 27,998 - (93,986) 2,732
----------------------------------------------------------------------------
Capital expenditures
and
acquisitions(2) 14,100 9,869 - 3,316 27,285
----------------------------------------------------------------------------
Goodwill 44,381 59,216 - - 103,597
----------------------------------------------------------------------------
Total assets 648,960 271,588 - 73,182 993,730
----------------------------------------------------------------------------

(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

  • Newalta Corporation
    Anne M. Plasterer
    Executive Director, Investor Relations
    (403) 806-7019
    www.newalta.com