Newalta Corporation
TSX : NAL

Newalta Corporation

February 15, 2012 18:03 ET

Newalta Reports Strong Fourth Quarter and Year End 2011 Results

CALGARY, ALBERTA--(Marketwire - Feb. 15, 2012) - Newalta Corporation ("Newalta") (TSX:NAL) today reported solid gains in revenue, profitability and capital returns for the fourth quarter and year ended December 31, 2011.


--  2011 revenue up 19%, Adjusted EBITDA up 23% and net earnings up 108%
    compared to 2010 
--  Year-end Return on capital of 15.2% compared to 12.9% last year 
--  Increased dividends declared by 33% in 2011 compared to 2010 
--  Invested $86.6 million in 2011 to drive growth in 2012 

FINANCIAL HIGHLIGHTS(1)


                         Three months                                       
                                ended                 Year ended            
                         December 31,                December 31,           
($000s except per                             %                           % 
 share data)                           Increase                    Increase 
 (unaudited)            2011     2010 (Decrease)    2011     2010 (Decrease)
----------------------------------------------------------------------------
Revenue              184,089  162,927        13  682,828  576,196        19 
Gross profit(2)       42,740   39,273         9  165,509  138,390        20 
- % of revenue            23%      24%       (4)      24%      24%        - 
Net earnings           6,031    2,921       106   33,562   16,122       108 
- per share ($) -                                                           
 basic                  0.12     0.06       100     0.69     0.33       109 
- per share ($) -                                                           
 basic adjusted(3)      0.19     0.20        (5)    0.85     0.56        52 
- per share ($) -                                                           
 diluted                0.12     0.06       100     0.68     0.33       106 
Adjusted EBITDA(3)    36,677   33,647         9  146,475  118,795        23 
- per share ($)(3)      0.76     0.69        10     3.02     2.45        23 
Cash from operations  51,390   48,461         6  104,563   96,151         9 
- per share ($)         1.06     1.00         6     2.15     1.98         9 
Funds from                                                                  
 operations(3)        25,352   26,263        (3) 122,775   96,874        27 
- per share ($)(3)      0.52     0.54        (4)    2.53     2.00        27 
Maintenance capital                                                         
 expenditures(3)      11,914    8,674        37   31,051   29,013         7 
Growth capital                                                              
 expenditures(3)      33,375   21,417        56   86,629   47,535        82 
Dividends declared     3,889    3,152        23   14,818   11,152        33 
- per share ($)(3)      0.08    0.065        23    0.305     0.23        33 
Dividends paid         3,888    3,152        23   14,082   10,424        35 
Book value per                                                              
 share, December 31    11.15    10.81         3    11.15    10.81         3 
Weighted average                                                            
 shares outstanding   48,569   48,523         -   48,569   48,485         - 
Shares outstanding,                                                         
 December 31,(4)      48,607   48,492         -   48,607   48,492         - 
----------------------------------------------------------------------------

(1) Management's Discussion and Analysis and Newalta's Unaudited Consolidated Financial Statements and notes are attached. References to Generally Accepted Accounting Principles ("GAAP") are synonymous with IFRS.

(2) Gross Profit is a GAAP measure that was previously disclosed as Combined divisional net margin, a non-GAAP measure under previous GAAP.

(3) These financial measures do not have any standardized meaning prescribed by 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.

(4) Newalta has 48,607,327 shares outstanding as at February 14, 2012.

Management Commentary

"Performance in 2011 was strong across all business lines as we added new customers, expanded our engineered environmental solutions within existing markets and drove productivity and profitability enhancements consistent with our annual targets," said Al Cadotte, President and CEO of Newalta. "Annual Adjusted EBITDA increased $28 million, or 23%, largely due to improved market conditions, with 20% of the gain due to higher commodity prices. Fourth quarter performance was consistent with strong demand across all markets."

"We enter 2012 prepared for continued growth," said Mr. Cadotte. "Robust market activity combined with 2011 capital investments will contribute to our strong performance and attractive returns to investors in 2012."

Highlights of Q4 2011 Compared to Q4 2010


--  Revenue increased 13%, Adjusted EBITDA was up 9% and net earnings
    increased 106% 
--  A dividend of $0.08 per share ($0.32 per share annualized) was declared,
    payable January 16, 2012 to shareholders of record December 31, 2011 
--  On November 14, 2011, Newalta issued $125 million Senior Unsecured
    Debentures with an eight-year term, bearing interest at the rate of
    7.75% per annum. Newalta subsequently redeemed $115 million in
    convertible debentures. These initiatives strengthen the balance sheet
    and provide increased financial flexibility to meet the demands of
    future growth. 

Highlights of 2011 Compared to 2010


--  Adjusted EBITDA increased to 21.5% of revenue from 20.6% 
--  Gross Profit was up 20%, due to Facilities and Onsite division increases
    of 10% and 43%, respectively  
--  Adjusted SG&A (SG&A before stock-based compensation and amortization)
    was $68.3 million in 2011, consistent with our target of 10.0% of
    revenue 
--  Gross Debt to Adjusted EBITDA improved from 2.65 to 2.35 
--  Four projects were converted into long-term Onsite contracts providing
    stable cash flows for several years 

Other Highlights:


--  Capital expenditures in 2012 are budgeted at $145 million. Growth
    capital expenditures of $115 million are comprised of $45 million for
    Facilities, $55 million for Onsite (including $10 million for U.S.
    expansion), and $15 million for Technical Development and corporate
    investments. Maintenance capital expenditures are expected to be $30
    million. Capital expenditures will be primarily funded from funds from
    operations. Approximately 60% of the capital is expected to be deployed
    in the first half of 2012. 

Quarterly Conference Call

Management will hold a conference call on Thursday, February 16, 2012 at 11:00 a.m. (ET) to discuss Newalta's performance for the fourth quarter and year ended December 31, 2011. To participate in the teleconference, please call 1-877-240-9772. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Thursday, February, 24, 2012 by dialing 1- 800-408-3053 and using the pass code 6242104 followed by the pound sign.

About Newalta

Newalta is North America's leading provider of innovative, engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from industrial residues. We serve customers onsite directly at their operations and through a network of 85 facilities in Canada and the U.S. Our proven processes, portfolio of more than 250 operating permits and excellent record of safety make us the first choice provider of sustainability enhancing services to oil, natural gas, petrochemical, refining, lead, manufacturing and mining markets. With a skilled team of more than 2,000 people, two decade track record of profitable expansion and unwavering commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement. Newalta trades on the TSX as NAL. For more information, visit www.newalta.com.

NEWALTA CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Three months and years ended December 31, 2011 and 2010

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 growth capital investments,
    acquisitions 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; 
--  the highly regulated nature of the environmental services and waste
    management business in which we operate; 
--  dependence on our senior management team and other operations management
    personnel with waste industry experience; 
--  the competitive environment of our industry in Canada and the U.S.; 
--  success of our growth, acquisition and technical development strategies
    including integration of businesses and processes into our operations
    and potential liabilities from acquisitions; 
--  potential operational and safety risks and hazards and obtaining
    insurance for such risks and hazards on reasonable financial terms; 
--  the seasonal nature of our operations; 
--  costs associated with operating our landfills and reliance on third
    party waste volumes; 
--  risk of pending and future legal proceedings;  
--  our ability to attract and retain skilled employees and maintain
    positive labour union relationships; 
--  open access for new industry entrants and the general unprotected nature
    of technology used in the waste industry; 
--  possible volatility of the price of, and the market for, our common
    shares, and potential dilution for shareholders in the event of a sale
    of additional shares;  
--  financial covenants in our debt agreements that may restrict our ability
    to engage in transactions or to obtain additional financing; 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 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 International Financial Reporting Standards ("IFRS" or "GAAP") and may not be comparable to similar measures presented by other corporations or entities. These financial measures are identified and defined below:

"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              Year ended
                                        December 31,            December 31,
($000s)                             2011        2010        2011        2010
----------------------------------------------------------------------------
Net earnings                       6,031       2,921      33,562      16,122
Add back (deduct):                                                          
  Current income taxes             2,637         520       2,766         938
  Deferred income taxes             (59)       1,927      11,421       8,237
  Finance charges                  8,505       6,641      28,191      26,814
  Amortization                    16,401      14,801      62,856      55,630
----------------------------------------------------------------------------
EBITDA                            33,515      26,810     138,796     107,741
----------------------------------------------------------------------------
Add back (deduct):                                                          
  Stock-based compensation                                                  
   expense                         3,162       6,837       7,679      11,054
----------------------------------------------------------------------------
Adjusted EBITDA                   36,677      33,647     146,475     118,795
----------------------------------------------------------------------------
Weighted average number of                                                  
 shares                           48,569      48,523      48,569      48,485
----------------------------------------------------------------------------
EBITDA per share                    0.69        0.55        2.86        2.22
----------------------------------------------------------------------------
Adjusted EBITDA per share           0.76        0.69        3.02        2.45
----------------------------------------------------------------------------

"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 expense. Stock-based compensation expense, 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              Year ended
                                        December 31,            December 31,
($000s)                             2011        2010        2011        2010
----------------------------------------------------------------------------
Net earnings                       6,031       2,921      33,562      16,122
Add back (deduct):                                                          
  Stock-based compensation                                                  
   expense                         3,162       6,837       7,679      11,054
----------------------------------------------------------------------------
Adjusted net earnings              9,193       9,758      41,241      27,176
----------------------------------------------------------------------------
Adjusted net earnings per                                                   
 share                              0.19        0.20        0.85        0.56
----------------------------------------------------------------------------

"Book value per share" is used to assist management and investors in evaluating the book value compared to the market value.


                                                     Year ended December 31,
($000s)                                                  2011           2010
----------------------------------------------------------------------------
Total Equity                                          541,921        524,156
Shares outstanding, December 31,                       48,607         48,492
----------------------------------------------------------------------------
Book value per share                                    11.15          10.81
----------------------------------------------------------------------------

"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 IFRS. Funds from operations is derived from the consolidated statements of cash flows and is calculated as follows:


                                 Three months ended              Year ended 
                                       December 31,            December 31, 
($000s)                            2011        2010         2011       2010 
----------------------------------------------------------------------------
Cash from operations             51,390      48,461      104,563     96,151 
Add back (deduct):                                                          
  Increase (decrease) in                                                    
   non-cash working capital     (27,749)    (23,324)      14,856     (1,461)
  Decommissioning                                                           
   obligations incurred           1,711       1,126        3,356      2,184 
----------------------------------------------------------------------------
Funds from operations            25,352      26,263      122,775     96,874 
----------------------------------------------------------------------------
Weighted average number of                                                  
 shares                          48,569      48,523       48,569     48,485 
----------------------------------------------------------------------------
Funds from operations per                                                   
 share                             0.52        0.54         2.53       2.00 
----------------------------------------------------------------------------

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


($000s)                                                 2011           2010 
----------------------------------------------------------------------------
Adjusted EBITDA                                      146,475        118,795 

  Total assets                                     1,165,021      1,047,677 
  Current liabilities                                157,954        123,691 
----------------------------------------------------------------------------
Capital employed                                   1,007,067        923,986 
----------------------------------------------------------------------------
2-Year net assets average(1)                         965,527        924,172 
----------------------------------------------------------------------------
Return on capital (%)                                   15.2%          12.9%
----------------------------------------------------------------------------

(1) 2010 2-Year net assets average is calculated using January 1, 2010 asset balance under IFRS.

Trailing Twelve-Month Return Capital: http://media3.marketwire.com/docs/215nal_graphs.pdf

References to EBITDA, EBITDA per share, Adjusted EBITDA, Adjusted EBITDA per share, Adjusted net earnings, Adjusted net earnings per share, Funds from operations, Funds from operations per share and Return on capital throughout this document have the meanings set out above.

2011 is our first year reporting under International Financial Reporting Standards ("IFRS"). There was no impact to previously reported Adjusted EBITDA; however, prior year comparatives have been restated to reflect IFRS impacts to the previously reported 2010 results. References to Generally Accepted Accounting Principles ("GAAP") are synonymous with IFRS. Comparative figures presented in this MD&A for 2009 were prepared in accordance with previous Canadian GAAP and are not required to be restated in accordance with IFRS. See page 34 of this MD&A for more information on the impact of adopting IFRS.

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, 2011, (ii) the consolidated financial statements of Newalta and notes thereto and MD&A of Newalta for the year ended December 31, 2010, (iii) the most recently filed Annual Information Form of Newalta and (iv) the unaudited condensed consolidated interim financial statements of Newalta and the notes thereto and MD&A for the quarters ended March 31, 2011, June 30, 2011 and September 30, 2011. This information is available at SEDAR (www.sedar.com). Information for the year ended December 31, 2011, along with comparative information for 2010, is provided.

This MD&A is dated February 14, 2012, and takes into consideration information available up to that date. Throughout this document, unless otherwise stated, all currency is stated in Canadian dollars, and MT is defined as "tonnes" or "metric tons".

SELECTED ANNUAL FINANCIAL INFORMATION(1)


($000s except per share data)                                               
 (unaudited)                                   2011        2010        2009 
----------------------------------------------------------------------------
Revenue                                     682,828     576,196     483,401 
Gross Profit(2)                             165,509     138,390      84,228 
- % of revenue                                   24%         24%         17%
Net earnings                                 33,562      16,122       3,099 
- per share ($) - basic                       0. 69        0.33        0.07 
- per share ($) - basic adjusted(3)            0.85        0.56        0.12 
- per share ($) - diluted                      0.68        0.33        0.07 
Adjusted EBITDA(3)                          146,475     118,795      82,157 
- per share ($)(3)                             3.02        2.45        1.89 
Cash from operations                        104,563      96,151      83,518 
- per share ($)                                2.15        1.98        1.92 
Funds from operations(3)                    122,775      96,874      60,943 
- per share ($)(3)                             2.53        2.00        1.40 
Dividends declared                           14,818      11,152       8,141 
- per share ($)(3)                            0.305        0.23        0.20 
Dividends paid                               14,082      10,424      13,233 
Total Assets                              1,165,021   1,047,677     993,730 
Maintenance capital expenditures(3)          31,051      29,013       8,589 
Growth capital expenditures(3)               86,629      47,535      18,696 
Senior long-term debt - net of issue                                        
 costs                                       68,493      51,520     188,123 
Senior unsecured debentures(4) -                                            
 principal amount                           250,000     125,000     125,000 
Convertible debentures - principal                                          
 amount                                           -     115,000     115,000 
Weighted average shares outstanding          48,569      48,485      43,536 
Shares outstanding, December 31, (5)         48,607      48,492      48,476 
----------------------------------------------------------------------------

(1) Management's Discussion and Analysis and Newalta's Unaudited Consolidated Financial Statements ("Financial Statements") and notes thereto are attached. References to Generally Accepted Accounting Principles ("GAAP") are synonymous with IFRS. Comparative figures presented in this MD&A for 2009 were prepared in accordance with previous Canadian GAAP and are not required to be restated in accordance with IFRS.

(2) Gross Profit is a GAAP measure that was previously disclosed as Combined divisional net margin, a non-GAAP measure under previous Canadian GAAP.

(3) These financial measures do not have any standardized meaning prescribed by 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.

(4) Includes Series 1 and Series 2 Senior Unsecured Debentures ("Senior Unsecured Debentures")

(5) Newalta has 48,607,327 shares outstanding as at February 14, 2012.

NEWALTA - WHO WE ARE

Newalta is North America's leading provider of innovative, engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from industrial residues. We serve customers onsite directly at their operations and through a network of 85 facilities in Canada and the U.S. Our proven processes, portfolio of more than 250 operating permits and excellent record of safety make us the first choice provider of sustainability enhancing services to oil, natural gas, petrochemical, refining, lead, manufacturing and mining markets. With a skilled team of more than 2,000 people, two decade track record of profitable expansion and unwavering commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement.

Vision:

To be the North American leader in providing cost-effective engineered environmental solutions for our customers.

2011 Review:


----------------------------------------------------------------------------
Strategic           Initiative                   Progress in 2011           
 Objective                                                                  
----------------------------------------------------------------------------
Maximize            Drive higher returns on      Improved Newalta Return on 
 Facilities         existing assets              capital from 12.9% in 2010 
 Profitability                                   to 15.2%, near historic    
                                                 level of 18%.              
                    --------------------------------------------------------
                    Execute organic growth       Over $30 million in organic
                    capital projects             growth projects completed  
                                                 in 2011.                   
                    --------------------------------------------------------
                    Expand Facilities services   Ongoing. Planning was      
                    offering                     completed for new services 
                                                 to begin in mid 2012.      
                    --------------------------------------------------------
                    Strategically construct      Ongoing. Preliminary market
                    integrated facilities and    analysis in progress for   
                    satellites                   new facilities to be       
                                                 constructed in 2012 to     
                                                 2015, including 1 full     
                                                 service facility, 8        
                                                 satellite facilities and 2 
                                                 transfer facilities.       
----------------------------------------------------------------------------
Recovery at Source  Increase market share in     25% increase in project    
 (Onsite)           short-term projects          revenue nationally.        
                    nationally                                              
                    --------------------------------------------------------
                    Identify short-term          Ongoing. Effective process 
                    projects with long-term      for identification         
                    potential                    implemented throughout the 
                                                 organization. At any point 
                                                 in time, we have           
                                                 approximately 10 to 15     
                                                 potential contracts in the 
                                                 scoping and proposal stage.
                    --------------------------------------------------------
                    Transition projects to       Converted 4 projects to    
                    long-term contract service   contracts, including the   
                    arrangements                 Syncrude MFT project,      
                                                 providing a more stable    
                                                 stream of future cashflow. 
                                                 7 operating contracts and 3
                                                 in construction or design  
                                                 at end of year.            
----------------------------------------------------------------------------
Process             Evaluate technologies for    Ongoing. Our Technical     
 Commercialization  commercial application       Development team identified
                                                 30 technologies to undergo 
                                                 detailed evaluation.       
                    --------------------------------------------------------
                    Advance identified           There is a steady stream of
                    technologies to the          new technologies moving    
                    development and              from initial evaluation    
                    demonstration phase          phase to development phase.
                                                 15 technologies in lab     
                                                 testing phase.             
                    --------------------------------------------------------
                    Utilize facility network to  Ongoing. Evaluating        
                    expedite commercialization   application within         
                                                 operations. 3 pilot        
                                                 projects in progress.      
----------------------------------------------------------------------------

Moving forward, we will capitalize on strengthening markets and returns from our organic growth investments to reestablish Return on capital to historic levels and deliver the best cost-effective environmental solutions for our customers. We have an inventory of low-risk, high-return projects to expand services, extend our market coverage and to add long-term onsite operating contracts. Our average payback assumption on our growth capital investments is about four years.

Strategy:

The following table outlines our strategic focus through 2015 and the action plan in 2012 and 2013 to achieve our strategic objectives.


----------------------------------------------------------------------------
Strategy            Tactics                      Action Plan                
----------------------------------------------------------------------------
Maximize            Focus on productivity        Develop new products and   
 Facilities         improvements to drive        services at existing assets
 Profitability      incremental cash flow from   to meet changing market    
                    existing assets              demands.                   
Invest $200                                                                 
 million in                                      Improve material handling  
 organic growth                                  and processes to reduce    
 projects and                                    costs and increase         
 average 10% or                                  efficiency.                
 more in revenue                                                            
 growth per year.                                Introduce proven           
                                                 technologies within our    
                                                 Facility network to reduce 
                                                 costs and improve          
                                                 productivity.              
                    --------------------------------------------------------
                    Transfer existing services   Enhance and expand our oil 
                    throughout the network to    recycling capabilities     
                    offer full breadth of        across our facility        
                    services to customers        network.                   
                    across Canada                                           
                                                 Expand processing          
                                                 capabilities to provide    
                                                 engineered environmental   
                                                 solutions in new markets.  
                    --------------------------------------------------------
                    Expand Facility network to   Expand oil recycling       
                    take advantage of growth in  capacity to meet growing   
                    existing markets and new     demand.                    
                    opportunities                                           
                                                 Establish 2 new operating  
                                                 locations to improve       
                                                 service to key markets in  
                                                 Canada and U.S.            
----------------------------------------------------------------------------
Recovery at Source  Expand US market presence    Establish operating        
 (Onsite)                                        locations in key markets to
                                                 meet increased demand from 
Invest over $400                                 drilling activity.         
 million in growth                                                          
 capital in Canada                               Expand drill site business 
 and U.S. and                                    consistent with market     
 average 20% or                                  activity.                  
 more in revenue                                                            
 growth per year.                                Expand water recycling     
                                                 services consistent with   
                                                 demand in shale plays.     
                    --------------------------------------------------------
                    Transition projects to       Continue project scoping   
                    contract service             process. Projects          
                    arrangements, specifically   identified with long term  
                    to add 4 new long-term       potential are typically    
                    contracts per year           converted to contracts     
                                                 within 18 to 36 months of  
                                                 identification.            

                                                 We currently have 7        
                                                 operating contracts and 3  
                                                 contracts in the           
                                                 construction stage. With   
                                                 10-15 potential contracts  
                                                 in the scoping and proposal
                                                 stage at any given time,   
                                                 our objective is to have 15
                                                 contracts in operation by  
                                                 end of 2013, generating    
                                                 about $100 million in      
                                                 revenue.                   
                    --------------------------------------------------------
                    Increase market share in     Continue to expand service 
                    project activity in          offerings across Canada and
                    multiple industry segments   utilize established        
                                                 practices and partnerships 
                                                 to gain market share in key
                                                 industries.                
----------------------------------------------------------------------------
Process             Deliver two new commercial   Advance identified         
 Commercialization  processes with wide          technologies to the        
                    application to operations    demonstration phase.       
Support the         every year                                              
 development of 2                                                           
 commercial                                                                 
 processes                                                                  
 annually for                                                               
 application in at                                                          
 least 10                                                                   
 facilities or                                                              
 customers sites                                                            
                    --------------------------------------------------------
                    Our Technical Development    Assess pilot projects in   
                    team will search globally    progress for commercial    
                    and evaluate technologies    application and begin      
                    for commercial application   testing within facility    
                                                 network.                   
                    --------------------------------------------------------
                    Utilize facility network to  Schedule first commercial  
                    expedite commercialization   demonstration in 2012 at a 
                                                 facility in Western Canada.
----------------------------------------------------------------------------

RISKS TO OUR STRATEGY

While we remain optimistic about our long-term outlook, we are subject to a number of risks and uncertainties in carrying out our activities. See page 31 for further discussion on our Risk Management program. A complete list of our risk factors is disclosed in our most recently filed Annual Information Form.


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

Deterioration of safety record          - Since 1993, Safety has been       
                                        established as one of our core      
 Failure to meet customer safety        values                              
 standards while working on customer    - Long standing history of safety   
 sites or at our facilities could       excellence                          
 result in the inability to operate     - Our Environmental, Health and     
 on a customer site and could have      Safety ("EH&S") team works with     
 pervasive implications for our         operators, customers and regulators 
 Onsite strategy.                       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 targeted 
                                        to minimize waste at the source as  
 Competition can come from waste        an alternative to waste generators  
 producers processing streams           internally managing waste           
 internally or new third party waste    - Onsite operations require an      
 processors entering the market.        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 for developing    
 technologies into our processes        technologies, which differentiates  
                                        between proven and unproven         
 Failure to commercialize new           technologies, ensures resources can 
 technologies could reduce our          be redeployed efficiently to other  
 competitiveness.                       initiatives                         
                                        - Other initiatives include         
                                        expansion of services and business  
                                        development                         
                                        - Performance from our current      
                                        assets employed is not contingent on
                                        the commercialization of the        
                                        identified technologies             

Organizational capabilities             - Support through our comprehensive 
                                        on-boarding program                 
 Failure to effectively recruit,        - Develop our people through our    
 retain and integrate top talent in     Talent development program which    
 period of growth could negatively      includes customized leadership      
 impact our ability to meet our long-   training programs                   
 term targets.                          - Engage new employees in EH&S      
                                        training programs and Safety        
                                        Leadership programs                 
                                        - Use of cross functional training  
                                        and teams to promote integration    
----------------------------------------------------------------------------

CORPORATE OVERVIEW

Strong market demand across all of our services delivered continued year-over-year growth in Q4 2011, with revenue up 13% to $184.1 million and Adjusted EBITDA up 9% to $36.7 million. Net earnings grew to $6.0 million compared to $2.9 million in Q4 2010, an increase of 106%, as a result of growth in operational profitability. This flowed through to our Gross Debt to Adjusted EBITDA ratio which improved from 2.65 to 2.35 compared to Q4 2010. The ongoing improvement in financial leverage enhances our financial flexibility. In December, we were also successful in re-financing our debt structure, redeeming $115 million in convertible debentures and issuing $125 million in 8 year Series 2 Senior Unsecured Debentures. As a result of the early redemption of the convertible debentures, we incurred non-recurring financing charges which drove a 5% decrease in Q4 2011 Adjusted net earnings per share over Q4 2010.

For the year, demand for our services strengthened. Adjusted EBITDA and revenue increased by 23% and 19%, respectively. Approximately 80% of the improvement is attributable to higher activity levels and contributions from both capital investments and productivity improvements with the balance driven by higher commodity prices. These factors also contributed to a 108% increase in net earnings, and 109% increase in net earnings per share, over 2010. In 2011, we successfully transitioned four projects to long-term contracts and invested over $85 million in growth capital setting a foundation for strong growth in 2012. Our Return on capital improved from 12.9% in 2010 to 15.2% in 2011, moving towards our historic level of 18%.

Compared to Q4 2010, Facilities revenue increased 9%, while gross profit declined 7% due to weaker performance at VSC. Results at VSC were negatively impacted by lower lead pricing, a shift in product mix, higher procurement costs and an unscheduled shutdown. We expect improved performance at VSC in Q1 2012 compared to Q4 2011, supported by higher lead prices and improved procurement costs. For 2011, Facilities revenue and gross profit increased by 19% and 10%, respectively, compared to 2010. The improved performance resulted from higher activity levels across all lines of business, highlighted by increased drilling activity and higher event-based business at the Stoney Creek Landfill ("SCL"). Results were also positively impacted by improved commodity pricing.

Onsite delivered strong results for the quarter and the year, due to increased oil and gas related activity. Revenue and gross profit increased by 23% and 52%, respectively, compared to Q4, 2010. For the year, revenue increased by 17% over 2010 and gross profit increased by 43% for the second consecutive year. Gross profit as a percentage of revenue increased from 22% in 2010 to 27% in 2011. These improvements were driven primarily by higher utilization of drill site equipment and higher onsite project and contract revenue.

Trailing Twelve-Month Adjusted EBITDA: http://media3.marketwire.com/docs/215nal_graphs.pdf

2011 was a strong year of incremental growth. Our trailing twelve month Adjusted EBITDA improved for the eighth consecutive quarter to $146.5 million for the year ended December 31, 2011.

Capital expenditures, for the three months and year ended December 31, 2011, were $45.3 million and $117.7 million, respectively. Growth capital expenditures for the quarter and the year related primarily to drill site equipment in Western Onsite, centrifugation equipment in our Heavy Oil business unit and expansion in Western Facilities, including the completion of a new oilfield satellite facility. Total growth capital investment for 2011 was $86.6 million, nearly double the 2010 spend.

In August 2011, we entered into an agreement to invest $6 million for a 50% partnership interest in frac water recycling company, TerrAqua Resource Management, LLC ("TARM") of Williamsport, Pennsylvania. Capital expenditures exclude our investment in TARM.

Revenue and Adjusted EBITDA: http://media3.marketwire.com/docs/215nal_graphs.pdf

In 2011, our Technical Development team moved into the next phase of testing and assessing the most promising opportunities while continuing the global search for technologies. Compared to the year ended December 31 2010, our Research and Development operating expenditures increased by 36% to $2.3 million as our Technical Development program advanced. Several promising technologies, including wastewater treatment processes, metals recovery, gasification, and solids processing, have progressed to the testing phase.

OUTLOOK

We anticipate continued year-over-year improvement in performance in Q1 2012. Increased demand for our services and favorable commodity pricing will positively impact performance in Q1 2012. Performance in Q1 2012 is anticipated to be stronger than Q1 2011 due to increased crude oil activity, strengthening market conditions for Eastern Facilities, including better than prior year volumes at SCL, as well as growth from Onsite contract work and anticipated drill site equipment utilization nearing maximum functional capacity of 65%. This strong performance will be modestly offset by performance at VSC which will be lower than last year due to changes in lead pricing and procurement costs. We also expect strong contributions from our 2011 capital investments.

In 2012, Facilities anticipates that stable activity levels supported by strong commodity prices and asset optimization initiatives will drive growth. In Onsite, we will continue to focus on growing our portfolio of longer term contracts, strengthening our foundation of stable cash flow, and maximizing cash flow from our existing assets. With approximately 10 to 15 prospective contracts in the scoping or proposal stage at any point in time, we are targeting to secure four new contracts during the year. We remain confident that we will deliver attractive returns to our shareholders in the quarters ahead and expect ongoing improvement towards our historical corporate Return on capital average of 18%.

We have good visibility on our pipeline of organic growth capital projects, extending well into 2013. The depth of our pipeline of capital projects provides us with flexibility in how we respond to possible changes in our economic environment. Long-term commitments will be supported by contractual arrangements and the design and build of facilities will provide for their redeployment to follow market activity.

Capital expenditures in 2012 are budgeted at $145 million, comprised of growth capital expenditures of $115 million and maintenance capital of $30 million. Capital expenditures are anticipated to be predominantly funded from funds from operations. Approximately 60% of the capital is expected to be spent in the first half of 2012. The growth capital budget is up more than 30% over 2011 investments, driven by our extensive inventory of low-risk, high-return organic growth projects. Refer to Uses of Cash for further information on our capital budget for 2012.

RESULTS OF OPERATIONS - FACILITIES DIVISION

Overview

Facilities includes an integrated network of 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 at Ville Ste-Catherine, Quebec, an engineered non-hazardous solid waste landfill located at Stoney Creek, Ontario, 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, 
                                   2011        2010        2011        2010 
----------------------------------------------------------------------------
Western Facilities                   51%         45%         49%         47%
Eastern Facilities                   23%         21%         24%         22%
VSC                                  26%         34%         27%         31%
----------------------------------------------------------------------------

Facilities Revenue and Facilities Gross Profit: http://media3.marketwire.com/docs/215nal_graphs.pdf

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


                   Three months ended                   Year ended          
                         December 31,                 December 31,          
($000s)                2011      2010 % change      2011      2010 % change 
----------------------------------------------------------------------------
Revenue(1)          125,014   115,193        9   469,368   394,540       19 
Cost of Sales(2)     98,579    86,628       14   360,657   295,803       22 
----------------------------------------------------------------------------
Gross Profit         26,435    28,565       (7)  108,711    98,737       10 
----------------------------------------------------------------------------
Gross Profit as %                                                           
 of revenue              21%       25%     (16)       23%       25%      (8)
----------------------------------------------------------------------------
Maintenance                                                                 
 capital              7,889     7,021       12    21,562    22,031       (2)
----------------------------------------------------------------------------
Growth capital       10,993     7,245       52    32,210    11,718      175 
----------------------------------------------------------------------------
Assets employed(3)                               631,305   588,467        7 
----------------------------------------------------------------------------

(1) Includes nil in internal revenue in 2011 and $104 and $590 in Q4 2010 and Q4 2010 year-to-date respectively.

(2) Includes amortization of $9,248 and $36,464 for Q4 2011 and Q4 2011 year-to-date, respectively, and $8,786 and $30,652 for Q4 2010 and Q4 2010 year-to-date, respectively.

(3) "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.

Performance in Q4 was consistent with improved market conditions compared to 2010. Revenue and gross profit were $125.0 million and $26.4 million, respectively. Revenue increased 9%; however gross profit declined 7%. The incremental revenue was due to growth in our Western and Eastern Facilities. The increase in Western Facilities is largely due to increased oilfield volumes coupled with stronger crude and base oil pricing. Performance at our Eastern Facilities increased year-over-year reflecting a steady improvement in market conditions and strong event-based business at the Stoney Creek Landfill ("SCL"). VSC continues to produce stable volumes; however, performance was impacted by lower lead pricing, higher procurement costs and an unscheduled shutdown.

2011 revenue and gross profit are $469.4 million and $108.7 million, up 19% and 10%, respectively. Performance reflected higher activity levels across all lines of business highlighted by increased drilling activity, and higher event-based business at SCL. Overall, net commodity prices positively impacted results, contributing approximately 40% to the increase in gross profit.

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; and 
--  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 prices 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 10% of Western Facilities revenue. Changes in environmental regulations in western Canada also impact our business. Management is not aware of any 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.

Q4 2011 Western Facilities revenue was up 23%, primarily due to stronger performance in oil recycling and higher crude and base oil pricing. The volume of crude oil recovered to Newalta's account and waste volumes were slightly up year-over-year, consistent with oil and gas activity. Oil Recycling revenue was up 42%, due to stronger base oil pricing and market diversification initiatives which resulted in a shift to higher margin product lines.

In 2011, revenue was up 22% due to increased oilfield drilling activity combined with higher crude and base oil prices. Wells drilled and completed increased 6% and 13%, respectively, driving a 12% increase in waste processing volumes. Oil Recycling contributed 38% of the annual revenue increase due to stronger base oil pricing and product sales. Industrial facilities remained relatively flat year-over-year.


                    Three months ended                   Year ended         
                          December 31,                 December 31,         
                        2011      2010 % change      2011      2010 % change
----------------------------------------------------------------------------
Waste processing                                                            
 volumes ('000 m3)       159       152        5       545       486       12
Recovered crude                                                             
 oil ('000 bbl)(1)        65        61        7       230       223        3
Average crude oil                                                           
 price received                                                             
 (CDN$/bbl)            92.37     76.27       21     88.09     73.48       20
Recovered crude                                                             
 oil sales ($                                                               
 millions)               6.0       4.6       30      20.3      16.4       24
Edmonton par price                                                          
 (CDN$/bbl)(2)         97.26     80.21       21     94.88     77.34       23
----------------------------------------------------------------------------

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

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

Recovered Crude - Western Facilities: http://media3.marketwire.com/docs/215nal_graphs.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; and 
--  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. Management is not aware of any new 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 2011, Eastern Facilities revenue was up 22% compared to last year. Strong activity over the network drove increased revenue. Excluding the landfill, volumes in the processing facilities were up 40% year-over-year. For the quarter, SCL volumes were relatively flat compared to Q4 2010. As anticipated, SCL reached its maximum annual permitted volume of 750,000MT early in the quarter. Prior to reaching the limit, Newalta discussed with the Ontario Ministry of the Environment ("MOE") a number of possible contingency options, one of which was for the company to continue to receive materials beyond the permitted volume through to the end of the calendar year. With direction from the MOE, Newalta consulted the community liaison committee that operates as part of SCL's Certificate of Approval and the committee voted unanimously to support Newalta's proposal. As a result, SCL resumed operations shortly thereafter. This one-time contingency does not affect the annual permitted capacity at SCL.

Revenue was up 30% in 2011 compared to 2010, due to higher activity levels throughout Eastern Canada. SCL performance remains strong. In 2011, volumes at SCL averaged more than 200,000 MT per quarter, reflecting a strengthening in the market. Excluding the landfill, revenue from the eastern facilities continued to show improvement as market conditions steadied throughout the region.

In Q1 2012, we anticipate volumes to be in line with our historical quarterly average of 167,000 MT.


                   Three months ended                    Year ended         
                         December 31,                  December 31,         
                       2011      2010 % change       2011      2010 % change
----------------------------------------------------------------------------
SCL Volume                                                                  
 Collected ('000                                                            
 MT)                  205.7     211.0       (3)     874.3     684.2       28
----------------------------------------------------------------------------

SCL - Volume Collected: http://media3.marketwire.com/docs/215nal_graphs.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 London Metal Exchange (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 2011, 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.

In Q4, VSC revenue decreased by 19% compared to Q4 2010 largely due to lower lead prices and a shift in the sales mix. The lagged LME price decreased by 10% to $2,076 $U.S./MT compared to Q4 2010. Performance was also impacted by higher procurement costs and an unexpected shutdown. The demand for lead based products has some inherent market volatility which we've seen increase over the last couple of years. Generally, procurement costs are related to the trading price of lead at the time of purchase. However, from time to time, sharp swings in the LME price can distort this relationship resulting in a disconnect in values, as experienced in Q4 2011. To reduce our exposure, where possible, we will manage our tolling/direct sales split and pursue ways to supplement feedstock management strategies during periods of price instability.

2011 revenue increased 7% as a result of both higher lead prices and sales volume. Sales volumes increased by 6% to 71,700 MT, while the lagged LME price increased by 14% to $2,435 $U.S./MT The increase in price was offset by a weaker U.S. dollar and increased procurement costs.

In Q1 2012, we anticipate performance at VSC will be better than Q4 2011, but lower than last year due to a shift in product mix, and changes in lead pricing and procurement costs. We anticipate Q1 2012 production to be at or above 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 more than 25 facilities with over 700 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 services, excluding drill site, generally follow a similar sales cycle. We establish our market position through the execution of short-term projects which ideally may lead to longer term contracts, providing a more stable cash flow. The cycle to establish longer term contracts can be between 18 months to three years. Characteristics of projects and contracts are:


--  Projects: non-recurring and/or seasonal services completed in less than
    one year, primarily completed between March and November and will vary
    from period-to-period, and 
--  Contracts: typically evolve from projects and are generally year round
    arrangements based on fee for service solutions with terms longer than
    one year and no direct commodity price exposure.  

In addition, Onsite performance is affected by the customer's requirement for Newalta to maintain a strong safety record. To address this requirement, our Environmental, Health and Safety ("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              Year ended 
                                       December 31,            December 31, 
                                   2011        2010        2011        2010 
----------------------------------------------------------------------------
Western Onsite                       43%         44%         43%         39%
Eastern Onsite                       18%         23%         17%         26%
Heavy Oil                            39%         33%         40%         35%
----------------------------------------------------------------------------

Onsite Revenue and Onsite Gross Profit: http://media3.marketwire.com/docs/215nal_graphs.pdf

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


                   Three months ended                   Year ended          
                         December 31,                 December 31,          
($000s)                2011      2010  % change     2011      2010  % change
----------------------------------------------------------------------------
Revenue - external   59,075    47,838        23  213,460   182,246        17
Cost of Sales(1)     42,770    37,130        15  156,662   142,593        10
----------------------------------------------------------------------------
Gross Profit         16,305    10,708        52   56,798    39,653        43
----------------------------------------------------------------------------
Gross Profit as %                                                           
 of revenue              28%       22%       27       27%       22%       23
----------------------------------------------------------------------------
Maintenance                                                                 
 capital              3,555       911       290    7,540     4,938        53
----------------------------------------------------------------------------
Growth capital       17,452    12,080        44   42,236    28,343        49
----------------------------------------------------------------------------
Assets employed(2)                               296,028   252,698        17
----------------------------------------------------------------------------

(1) Includes amortization of $4,331 and $15,112 for Q4 2011 and 2011, respectively, and $3,323 and $12,837 for Q4 2010 and 2010, 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.

In Q4 2011, revenue and gross profit increased by 23% and 52%, respectively, over Q4 2010. Gross profit as a percentage of revenue increased to 28% compared to 22% last year. Growth from contracts in Heavy Oil, contributions from U.S. projects and higher utilization of equipment resulting from increased drilling activity, drove 50% of the incremental revenue flow through to gross profit.

For the year, revenue and gross profit improved by 17% and 43%, respectively. Improved utilization of equipment resulting from increased drilling activity and processing at the MFT project in Heavy Oil drove a 55% flow through of incremental revenue to gross profit. In addition, we were successful in converting four projects to contracts, increasing the total number of contracts both operating and in construction from six to ten in the year.

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; and 
--  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 market conditions in various other industries, including pulp and paper, refining, mining and municipal dewatering.

Q4 2011 Western Onsite revenue improved by 21% compared to Q4 2010. This is driven by increasing drilling activity in both western Canada and the U.S. and contributions from U.S. projects. Our utilization rate for drill site equipment rose to 62% from 57% in Q4 2010. As a result of capital investment, our fleet size increased by 12%. Q4 2011 utilization in Canada and the U.S. was 68% and 57%, respectively. Demand for our services was driven by activity in oil plays.

For the year, Western Onsite revenue improved by 27% compared to 2010, consistent with increased drilling activity in both western Canada and the U.S. For the year ended December 31 2011, our utilization rate for drill site equipment rose to 57% from 53% compared to 2010. For 2011, U.S. and Canadian utilization rates were 62% and 52%, respectively. For Q1 2012, based on higher demand in Canada combined with consistent drilling activity in the U.S., we anticipate approaching our maximum practical combined utilization rate of approximately 65%.


                   Three months ended                   Year ended          
                         December 31,                 December 31,          
                       2011      2010 % change      2011      2010 % change 
----------------------------------------------------------------------------
Equipment                                                                   
 Utilization                                                                
  Canada                 68%       48%      42        52%       40%      30 
  US                     57%       64%     (11)       62%       65%      (5)
  Combined               62%       57%       9        57%       53%       8 
Average equipment                                                           
 available              206       184       12       200       179       12 
----------------------------------------------------------------------------

Our utilization rate for drill site equipment is based on days in use. Taking into account mobilization/demobilization and travel between rig sites, we anticipate our maximum practical utilization to be 65%. This is based on current equipment allocations between the U.S. and Canada. Balancing our fleet equally between the U.S. and Canadian markets enables us to capitalize on changes in demand in both regions.

In addition to our growth in drill site services, Western Onsite was positively impacted by oil based processing projects in the U.S. 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; and 
--  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 two years.

We are currently engaged primarily in short-term, or event-based projects, which will vary from period-to-period. Revenue improved quarter-over-quarter; however, was down year-over-year. Eastern Onsite is in the early stage of development and its performance was consistent with the evolution of our onsite business. Our model is to convert projects into contracts and in Eastern Onsite we successfully converted a project at a major refinery into a contract.

Heavy Oil

Our heavy oil services business began 16 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. Heavy Oil revenue is generated by facilities services which includes the processing and disposal of oilfield-generated wastes, including water disposal and landfilling as well as the sale of recovered crude oil for our account. The balance of Heavy Oil revenue is generated from specialized onsite services for heavy oil producers under projects and contracts.

Heavy Oil 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. In addition, these services create cost savings and provide more environmentally beneficial solutions for our customers. Growth in the business unit will come from our ability to attract and retain customers as new heavy oil operations come on stream.

In Q4 2011, Heavy Oil revenue increased by 43% compared to Q4 2010. This was driven equally by heavy oil contracts, increased waste volumes and higher commodity prices. 2011 revenue increased by 35% compared to 2010. The primary driver was the strong performance of heavy oil project and contract work. For the year ended December 31, 2011, recovered oil is consistent with the three year quarterly average of 48,000 bbls per quarter.

In Q3 2011, we were awarded a three year contract to process Mature Fine Tailings (MFT) in a commercial demonstration process. The contract is at Syncrude's oil sands mine operations near Fort McMurray, Alberta. For the last two years, we have been working on scale up projects with Syncrude to prove the application of centrifugation for processing MFT. Construction of the equipment for this contract commenced in Q4 2011 and operations are expected to commence in late Q2 2012. This contract is anticipated to generate approximately $20.0 million in stable annual revenue over the next three years.

To date, we have nine Heavy Oil contracts, six of which were operating in Q4 2011. The remaining three contracts are in design or construction and are anticipated to be commissioned in the first half of 2012.


                    Three months ended                   Year ended         
                          December 31,                 December 31,         
                        2011      2010 % change      2011      2010 % change
----------------------------------------------------------------------------
Waste processing                                                            
 volumes ('000 m3)       197       170       16       615       562        9
Recovered crude                                                             
 oil ('000 bbl)(1)        49        46        7       191       196      (3)
Average crude oil                                                           
 price received                                                             
 (CDN$/bbl)            78.02     60.41       29     70.91     59.85       18
Recovered crude                                                             
 oil sales ($                                                               
 millions)               3.9       2.8       39      13.5      11.7       15
Bow River Hardisty                                                          
 (CDN$/bbl)(2)         89.46     71.72       25     83.57     71.06       18
----------------------------------------------------------------------------

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

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

Recovered Crude - Heavy Oil: http://media3.marketwire.com/docs/215nal_graphs.pdf

CORPORATE AND OTHER


                   Three months ended                   Year ended          
                         December 31,                 December 31,          
($000s)                2011      2010 % change      2011      2010 % change 
----------------------------------------------------------------------------
Selling, general                                                            
 and                                                                        
 administrative                                                             
 expenses ("SG&A")   25,187    26,678       (6)   87,232    84,566        3 
 Less:                                                                      
  Stock-based                                                               
   compensation       3,162     6,837      (54)    7,679    11,054      (31)
  Amortization(1)     2,824     2,690        5    11,280    12,139       (7)
----------------------------------------------------------------------------
Adjusted SG&A        19,201    17,151       12    68,273    61,373       11 
 Adjusted SG&A as                                                           
  a % of revenue       10.4%     10.5%      (1)     10.0%     10.7%      (7)
----------------------------------------------------------------------------

(1) Includes nil in loss on sale of fixed assets in Q4 2011 and 2011 and nil in Q4 2010 and $1,663 in 2010.

IFRS requires that amortization of corporate assets be included in SG&A expenses. The above table removes stock-based compensation and amortization from SG&A to provide improved transparency with respect to the comparison of our results.

For Q4 2011 and year-to-date, Adjusted SG&A was in line with our expectation of 10% of revenue. This reflects our disciplined approach to managing SG&A as our revenue base increases. Stock-based compensation expense is driven by our share price, vesting schedule and dividend increases. Changes 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, 2011 that settle only in cash had a weighted average remaining life of approximately three years with a weighted average exercise price of $9.69. In 2012, we anticipate Adjusted SG&A to be 10% of revenue.


                   Three months ended                   Year ended          
                         December 31,                 December 31,          
($000s)                2011      2010 % change      2011      2010 % change 
----------------------------------------------------------------------------
Research and                                                                
 development            439       586      (25)    2,337     1,713       36%
  Research and                                                              
   development as                                                           
   a % of revenue       0.2%      0.4%     (50)      0.3%      0.3%       - 
----------------------------------------------------------------------------

Research and development expenses are related to our Technical Development group. Compared to 2010, our operating expenditures increased as our Technical Development program advanced. Expenditures were below our budget of $3.0 million.

Our objective is to deliver two new commercial processes with wide application to operations every year. The following table reflects our Technical Development group's three-step process to commercialization as well as a progress update to December 31, 2011.


----------------------------------------------------------------------------
Step                    Description                       Number of         
                                                          Technologies      
----------------------------------------------------------------------------
Step 1 - Lab Bench      Involves conducting a             15                
 Scale                  development or lab bench scale                      
                        evaluation of the technology to                     
                        determine probability of                            
                        successful operation, possible                      
                        uses within our network, and                        
                        actions to reduce risks going                       
                        forward.                                            
----------------------------------------------------------------------------
Step 2 -                Measure feasibility and           3                 
 Demonstration/Pilot    performance of technology in a                      
 phase                  "real world" setting.                               
----------------------------------------------------------------------------
Step 3 -                Technology is commercialized      1st project       
 Commercialization      within our facility network and   scheduled for 2012
                        on our customer sites as new                        
                        business line, revenue stream or                    
                        process improvement                                 
----------------------------------------------------------------------------


                  Three months ended                    Year ended          
                        December 31,                  December 31,          
($000s)               2011      2010 % change       2011      2010 % change 
----------------------------------------------------------------------------
Bank fees and                                                               
 interest              703     2,368      (70)     4,200    14,375      (71)
Debentures                                                                  
 interest and                                                               
 accretion of                                                               
 issue costs(1)      7,268     3,782       92     21,853    10,472      109 
----------------------------------------------------------------------------
Finance charges                                                             
 before                                                                     
 unwinding of                                                               
 the discount(2)     7,971     6,150       30     26,053    24,847        5 
Unwinding of the                                                            
 discount(3)           534       491        9      2,138     1,967        9 
----------------------------------------------------------------------------
Finance charges      8,505     6,641       28     28,191    26,814        5 
----------------------------------------------------------------------------

(1) Includes convertible debentures and senior unsecured debentures.

(2) Excludes capitalized interest of $858 and $2,744 in Q4 2011 and 2011 respectively, and $454 and $803 in Q4 2010 and 2010 respectively.

(3) Related to decommissioning liability.

Under IFRS, Finance charges includes unwinding of the discount related to the decommissioning liability - under previous Canadian GAAP, it was included in amortization and accretion expense.

Finance charges before unwinding of the discount related to the decommissioning liability are higher for the quarter and for year ended December 31, 2011, than the corresponding periods in 2010. The increase was largely due to the early redemption of our Convertible Debentures, which were redeemed in Q4 2011. Unamortized issue costs of $1.6 million related to the Convertible Debentures were expensed to financing charges at the time of redemption. Finance charges associated with the Convertible Debentures included an annual coupon rate of 7.0% as well as the accretion of issue costs and the discount on the debt portion of the Convertible Debentures. Finance charges associated with the Series 1 Senior Unsecured Debentures and Series 2 Senior Unsecured Debentures ("Senior Unsecured Debentures") include annual coupon rates of 7.625% and 7.75%, respectively, as well as the accretion of issue costs for both series. 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)               2011       2010 % change       2011      2010 % change
----------------------------------------------------------------------------
Current tax          2,637        520      407      2,766       938      195
Deferred tax           (59)     1,927     (103)    11,421     8,237       39
----------------------------------------------------------------------------
Provision for                                                               
 income taxes        2,578      2,447        5     14,187     9,175       55
----------------------------------------------------------------------------

Current tax in 2011 resulted from non-recurring U.S. related taxes. The increase in deferred income tax expense for the year compared to 2010 is primarily due to higher taxable income. The effective tax rates for Q4 2011 and the year ended December 31, 2011 were 29.9% and 29.7%, respectively. Compared to 2010, the lower effective tax rate resulted from a reduction to the statutory tax rate and a lesser impact from non-deductible costs related to stock-based compensation. Our statutory tax rate in Canada was 27.35% and 29.13% for 2011 and 2010, respectively. Loss carry forwards were approximately $142 million at December 31, 2011. Other than provincial capital taxes and U.S. state and federal income taxes, we do not anticipate paying significant income tax for the next two years. See "Critical Accounting Estimates - Income Taxes" in this MD&A for further discussion.

CHANGES IN FINANCIAL POSITION


                        December 31,                                        
($000s)                                              %  Commentary          
                        2011    2010 $ change   change                      
----------------------------------------------------------------------------
Assets                                                                      
Accounts and other                                      Consistent with     
 receivables         134,172 102,378   31,794       31  increase in revenue 

Inventories                                             Consistent with     
                                                        higher activity     
                      30,953  26,645    4,308       16  levels              

Property, plant and                                     See Uses of Cash on 
 equipment           820,102 741,793   78,309       11  page 22             

Permits and other                                       -                   
 intangible assets    59,593  60,579     (986)      (2)                     

Goodwill             102,897 102,897        -        -  -                   

Other assets(1)                                         Increase due to long
                      17,304  13,385    3,919       29  term investments    
----------------------------------------------------------------------------

Equity and                                                                  
 liabilities                                                                

Bank indebtedness                                       See Unaudited       
                                                        Consolidated        
                                                        Statements of Cash  
                       6,168     169    5,999    3,550  Flows               

Accounts payable and                                    Consistent with     
 accrued liabilities                                    higher activity     
                     147,897 120,370   27,527       23  levels              

Dividends payable                                       Increase in Dividend
                       3,889   3,152      737       23  rate                
----------------------------------------------------------------------------
Senior secured                                          See Unaudited       
 debt(2)                                                Consolidated        
                                                        Statements of Cash  
                      68,493  51,520   16,973       33  Flows               

Convertible                                             See LIQUIDITY AND   
 debentures - debt                                      CAPITAL RESOUCES on 
 portion                   - 112,074 (112,074)    (100) page 23             

Senior unsecured                                        See LIQUIDITY AND   
 debentures                                             CAPITAL RESOUCES on 
                     245,049 122,050  122,999      101  page 23             

Other liabilities      5,459   5,327      132        2  -                   

Deferred tax                                            See Note 14 to the  
 liability            68,389  54,491   13,898       26  Financial Statements

Decommissioning                                         Increase due to     
 liability                                              change in risk free 
                                                        rate. See Note 10 to
                                                        the Financial       
                      77,756  54,368   23,388       43  Statements          

Equity                                                  See Unaudited       
                                                        Consolidated        
                                                        Statement of Changes
                     541,921 524,156   17,765        3  in Equity           
----------------------------------------------------------------------------

(1) Includes Investment, Prepaid expenses and other, and Other long-term assets

(2) Includes Bank indebtedness

LIQUIDITY AND CAPITAL RESOURCES

The term liquidity refers to the speed with which a company's assets can be converted into cash, or its ability to do so, as well as cash on hand. Liquidity risk refers to the risk that we will encounter difficulty in meeting obligations associated with financial obligations that are settled by cash or another financial asset. 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 18 to the Financial Statements for the three months and year ended December 31, 2011.

Our debt capital structure is as follows:


($000s)                                  December 31, 2011 December 31, 2010
----------------------------------------------------------------------------
Use of Credit Facility:                                                     
Amount drawn on Credit Facility(1)                  73,178            53,859
Senior Unsecured Debentures                        250,000           125,000
Letters of credit                                   21,332            21,477
----------------------------------------------------------------------------
Total Debt                          A              344,510           200,336
Unused Credit Facility capacity(2)                 105,490           124,664
----------------------------------------------------------------------------
Convertible Debentures              B                    -           115,000
----------------------------------------------------------------------------
Gross Debt(3)                       =A+B           344,510           315,336
----------------------------------------------------------------------------

(1) See Note 7 to the Financial Statements for the three months and year ended December 31, 2011. The net senior secured debt at December 31, 2011 was $68.5 million.

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

(3) Previously described as Total Secured and Unsecured Debt.

We continue to focus on managing our working capital accounts while supporting our growth. Working capital at December 31, 2011 was $13.7 million compared to $16.9 million at December 31, 2010. 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 18 to the Financial Statements for the three months and year ended December 31, 2011.

DEBT RATINGS

In November 2010, DBRS Limited ("DBRS") and Moody's Investor Service, Inc. ("Moody's") provided a corporate and Series 1 Senior Unsecured Debentures credit rating. On October 11 2011, DBRS revised the trend on the existing BB (low) Issuer Rating to Positive from Stable. The trend change was attributed to improved operating performance exceeding DBRS's expectation, and a stronger Onsite business portfolio with the addition of long term contracts. DBRS also reduced the rating on the Senior Unsecured Debentures to BB (low) from BB to reflect their expectation of a lower recovery rating assuming that we will increase the amount of unsecured debt as part of our convertible debenture refinancing strategy. As anticipated in November, we issued an additional $125 million in Senior Unsecured Debentures and redeemed the Convertible Debentures with the proceeds. See Senior Unsecured Debentures on page 26 for further information.

The DBRS instrument rating is now harmonized with the issuer rating and we would expect that any upward changes in our issuer rating would increase the instrument rating. Moody's ratings remains unchanged.

The ratings are as follows:


Category                                                DBRS         Moody's
----------------------------------------------------------------------------
Corporate Rating                                     BB (low)            Ba3
Senior 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.

On November 14, 2011, Newalta issued $125.0 million of 7.75% Series 2 Senior Unsecured Debentures. The net proceeds from this issuance were used to redeem our Convertible Debentures at a cost of $1,000 per Convertible Debenture plus a payment in respect of all accrued and unpaid interest on these debentures for an aggregate purchase price of $115.3 million. See Senior Unsecured Debentures on page 26 for further information.

Credit Facility

Newalta has a $200 million Credit Facility, maturing December 17, 2013, with annual extensions available at our option. At December 31, 2011, $105.5 million was available and undrawn 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, 2011, surety bonds issued and outstanding totalled $38.3 million.

Financial performance relative to the financial ratio covenants(1) under the Credit Facility is reflected in the table below. There is no impact on our covenants for changes related to IFRS.


                        December 31, 2011  December 31, 2010       Threshold
----------------------------------------------------------------------------
Senior Secured Debt(2)                                                      
 to EBITDA(3)                      0.65:1             0.63:1  2.75:1 maximum
Total Debt(4) to                                                            
 EBITDA(3)                         2.38:1             1.68:1  3.50:1 maximum
Interest Coverage                  5.86:1             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-IFRS 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 Convertible Debentures.

Gross Debt to Adjusted EBITDA: http://media3.marketwire.com/docs/215nal_graphs.pdf

Our Gross Debt was $344.5 million as at December 31, 2011 which reflected a $29.2 million increase over December 31, 2010. As a result of higher Adjusted EBITDA, Gross Debt to Adjusted EBITDA ratio improved to 2.35 from 2.65 in Q4 2010. The ongoing improvement provides Newalta with greater financial flexibility and will reduce future financing costs. Our target for Gross Debt to Adjusted EBITDA ratio remains at or below 2.0. Our covenant ratios under the Credit Facility remained well within their thresholds. We will manage within our covenants throughout 2012.

Senior Unsecured Debentures


----------------------------------------------------------------------------
Term                Series 1(1)                  Series 2(1)                
----------------------------------------------------------------------------
Principal           $125.0 million               $125.0 million             
----------------------------------------------------------------------------
Interest rate       7.625%                       7.75%                      
----------------------------------------------------------------------------
Maturity            November 23, 2017            November 14, 2019          
----------------------------------------------------------------------------
Interest payable    May 23 and November 23 each  May 14 and November 14 in  
 (in arrears)       year                         each year                  
----------------------------------------------------------------------------
Debentures are      November 23, 2013            November 14, 2015          
 redeemable at the                                                          
 option of Newalta  - Redemption price equal to  - Redemption price equal to
 prior to:          107.625% of the principal    107.75% of the principal   
                    amount(2,3)                  amount(2,3)                

                    or                           or                         

                    - In whole or in part, at a  In whole or in part, at a  
                    redemption price which is    redemption price which is  
                    equal to the greater of:     equal to the greater of:   

                    (a) the Canada Yield Price   (a) the Canada Yield Price 
                    (as defined in the trust     (as defined in the trust   
                    indenture) and               indenture) and             

                    (b) 101% of the aggregate    (b) 101% of the aggregate  
                    principal amount of Senior   principal amount of Senior 
                    Unsecured Debentures         Unsecured Debentures       
                    redeemed(3)                  redeemed(3)                
----------------------------------------------------------------------------
Debentures are      November 23, 2013            November 14, 2015          
 redeemable at the                                                          
 option of Newalta  In whole or in part, at      In whole or in part, at    
 after:             redemption prices expressed  redemption prices expressed
                    as percentages of the        as percentages of the      
                    principal(3) if redeemed     principal(3) if redeemed   
                    during the twelve month      during the twelve month    
                    period beginning on          period beginning on        
                    November 23 of the years as  November 14 of the years as
                    follows:                     follows:                   

                    - 2013 - 103.813%;           - 2015 - 103.875%;         

                    - 2014 - 102.542%;           - 2016 - 101.938%;         

                    - 2015 - 101.906%;           - 2017 and thereafter -    
                                                 100%.                      
                    - 2016 and thereafter -                                 
                    100%.                                                   
----------------------------------------------------------------------------

(1) 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

(2) Up to 35% of the aggregate principal amount with the net cash proceeds of one or more public equity offerings

(3) Plus interest to the date of redemption

During the year ended December 31, 2011, financing fees of $2.5 million were incurred in connection with the issuance of the Series 2 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 respective Senior Unsecured Debentures.

The trust indenture under which the Senior Unsecured Debentures have been issued contains certain annual 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.

Covenants under our trust indenture include:


----------------------------------------------------------------------------
                                   December  December                       
($000s except ratio)               31, 2011  31, 2010              Threshold
----------------------------------------------------------------------------
Senior Secured Debt including                                               
 Letters of Credit                   94,510    75,336       $245,000 maximum
Cumulative finance lease                                                    
 obligations                            nil       nil        $25,000 maximum
Consolidated Fixed Charge                                                   
 Coverage                            5.86:1    4.97:1         2.00:1 minimum
Period end surplus for restricted                        Restricted payments
 payments(1)                         27,001    17,084  cannot exceed surplus
----------------------------------------------------------------------------

(1) We are restricted from declaring dividends, purchasing and redeeming shares or making certain investments if the total of such amounts exceeds the period end surplus for such restricted payments.

Our covenant ratios remain well within their thresholds. We will manage within our covenants throughout 2012.

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 three months and year ended December 31, 2011 were:


                                      Three months ended          Year ended
                                            December 31,        December 31,
($000s)                                   2011      2010      2011      2010
----------------------------------------------------------------------------
Growth capital expenditures             33,375    21,417    86,629    47,535
Maintenance capital expenditures        11,914     8,674    31,051    29,013
----------------------------------------------------------------------------
Total capital expenditures(1)(2)        45,289    30,091   117,680    76,548
----------------------------------------------------------------------------

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

(2) Capital expenditures exclude our investment in TARM.

Total capital expenditures were $45.3 million and $117.7 million for three months and year ended December 31, 2011. Growth capital expenditures for the quarter and the year relate primarily to drill site equipment in Western Onsite, centrifugation equipment for contract work in our Heavy Oil business unit and expansion in Western Facilities, including the completion of a new oilfield satellite facility. For 2011, approximately 25% of our growth capital was related to Heavy Oil contracts and projects. Maintenance capital expenditures related primarily to equipment replacement and centrifuge refurbishments and process equipment improvements at our facilities.

Total capital spending for 2011 was $117.7 million which was above our most recent capital spending announcement. The increase in capital spending was driven by a combination of the three year contract to process mature fine tailings ("MFT"), and the opportunistic approach Management took to complete several additional unbudgeted projects to position our business for savings and growth in the future.

Capital expenditures in 2012 are budgeted at $145 million, comprised of growth capital of $115 million and maintenance capital of $30 million. Capital expenditures are anticipated to be predominantly funded from funds from operations. Approximately 60% of the capital is expected to be spent in the first half of 2012.

The growth capital budget is up more than 30% over our 2011 expenditures, driven by our extensive inventory of low-risk, high-return organic growth projects. Growth capital expenditures for 2012 will be allocated as follows:


Onsite                                        $55 million                   
Facilities                                    $45 million                   
Technical Development and Corporate           $15 million                   

Onsite growth capital includes approximately $30 million for three onsite contracts in design or construction, including the Syncrude MFT project and $10 million for expansion of our U.S. business. The remaining capital will focus on expansion of our drill site business.

Growth capital in Facilities relates primarily to the completion of a new oilfield satellite facility, the expansion of oilfield services, oil recycling and process improvements. Technical Development growth capital will focus on advancing our lab and pilot testing programs including the construction of a commercial demonstration plant based on a promising technology piloted in 2011. Maintenance capital expenditures will relate to the construction of additional landfill cells, process improvements and equipment replacement.

We may revise the capital 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 $3.9 million in dividends or $0.08 per share, paid January 16, 2012 to shareholders of record as at December 31, 2011.

We expect to pay a dividend of $0.08 per share to shareholders of record on March 31, 2012. The Board will continue to review future dividends, taking into account all factors noted above.

As at February 14, 2012, Newalta had 48,607,327 shares outstanding, and outstanding options to purchase up to 4,218,959 shares.

Contractual Obligations

Our contractual obligations, as at December 31, 2011, were:


----------------------------------------------------------------------------
                                 Less than                                  
($000s)                    Total  one year  1-3 years  4-5 years  Thereafter
----------------------------------------------------------------------------
Office leases             58,368     7,805     22,453      7,166      20,944
Operating leases(1)       17,182     8,706      8,313        163           -
Surface leases             2,656     1,184        954        318         200
Senior long-term                                                            
 debt(2)                  68,493         -     68,493          -           -
Senior unsecured                                                            
 debentures              382,449    19,219     57,657     19,219     286,354
Purchase obligations      23,553    23,525         21          7           -
Other obligations        151,786   151,786          -          -           -
----------------------------------------------------------------------------
Total commitments        704,487   212,225    157,891     26,873     307,498
----------------------------------------------------------------------------

(1) Operating leases relate to our vehicle fleet with terms ranging between 1 and 5 years.

(2) Senior long-term debt is gross of transaction costs. Interest payments are not included.

SUMMARY OF QUARTERLY RESULTS


                                                        2011                
($000s except per share data)                  Q4       Q3       Q2       Q1
----------------------------------------------------------------------------
Revenue                                   184,089  182,023  164,294  152,422
Earnings before taxes                       8,609   16,537   13,632    8,971
Net earnings                                6,031   11,815   10,483    5,233
Earnings per share ($)                       0.12     0.24     0.22     0.11
Diluted earnings per share ($)               0.12     0.24     0.21     0.11
Weighted average shares - basic            48,569   48,607   48,523   48,495
Weighted average shares - diluted          49,286   49,403   49,318   48,949
EBITDA                                     33,515   41,691   33,648   29,942
Adjusted EBITDA                            36,677   41,871   33,044   34,883
----------------------------------------------------------------------------

                                                        2010                
($000s except per share data)                  Q4       Q3       Q2       Q1
----------------------------------------------------------------------------
Revenue                                   162,927  145,124  136,905  131,240
Earnings before taxes                       5,368    8,926    3,894    7,111
Net earnings                                2,921    5,867    2,386    4,949
Earnings per share ($)                       0.06     0.12     0.05     0.10
Diluted earnings per share ($)               0.06     0.12     0.05     0.10
Weighted average shares - basic            48,523   48,487   48,487   48,480
Weighted average shares - diluted          48,934   48,909   48,844   48,826
EBITDA                                     26,810   28,470   25,598   26,863
Adjusted EBITDA                            33,647   29,705   26,573   28,867
----------------------------------------------------------------------------

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.

Quarterly 2010 revenue, earnings before taxes and net earnings reflect continued improvements each quarter in commodity prices and productivity and cost efficiencies combined with strengthened demand across all business units. In Q3 2010, strong performance in Western Facilities, Heavy Oil and Western Onsite was partially offset by lower contributions from VSC and SCL. 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.

All four quarters in 2011 reflect continued strong demand for our products and services. Revenue, Adjusted EBITDA, earnings before taxes and net earnings have steadily improved quarter-over-quarter in line with market conditions. Net earnings in Q2 relative to Q1 2011 were positively impacted by lower stock-based compensation expense and lower related deferred tax expense. Relative to Q3 2011, Q4 Net Earnings and Earnings before taxes were lower due to lower Adjusted EBITDA as well as higher financing fees as a result of the early redemption of the Convertible Debentures. Adjusted EBITDA was lower in Q4 relative to Q3 2011 due largely to lower contributions from Facilities resulting from lower event based business at SCL and weaker performance at VSC, as well as higher Adjusted SG&A due to the timing of expenses.

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. A $1 change in our share price, between $12 per share and $20 per share, has a $3.2 million direct impact on annual stock-based compensation reflected in SG&A, before the effects of vesting. We anticipate that approximately 40% 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. Historically, approximately 25% of our revenue is sensitive to direct impact of commodity prices. 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. Management actively manages the indirect impact by strategically geographically balancing mobile assets to meet demand and shifts in activity levels where necessary. 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 Annual
                                           benchmark ($)         Revenue ($)
----------------------------------------------------------------------------
LME lead price ($U.S./MT)(1) (2)                     220         7.5 million
Edmonton Par crude oil price ($/bbl)(1)             1.00         0.3 million
Motiva Base oil ($/litre)(1)(3)                     0.05         0.8 million
----------------------------------------------------------------------------

(1) Based on 2011 performance and volumes.

(2) Excludes impact of LME on feedstock which offsets the impact of LME on revenue.

(3) In 2011, we changed out base oil benchmark from the Gulf Coast to Motiva to reflect the improved quality of our recycled oil.

RISK MANAGEMENT

To effectively manage the risk associated with our business and strategic objectives, we are implementing an enterprise risk management (ERM) system. This process provides the framework to understand and prioritize risks faced by our organization. We use a matrix to identify and analyze the potential impact, probability and risk mitigation strategy for each key risk. Risk categories identified include:


--  Strategic - risk to earnings, capital, and strategic objectives arising
    from changes in the business environment 

--  Operational - risk of loss due to failed internal processes and systems,
    human and technical errors, or external events 

--  Financial - risk associated with financial processes, obligations, and
    assets 

--  People - risk to Business Plan due to recruiting, training, labour
    availability, union relations, and managerial structure 

--  Legal/Regulatory - risk of loss due to compliance with laws, ethical
    standards, disclosure, and contractual obligations 

--  Technology and Data - risk that IT systems are not adequate to support
    strategic and business objectives 

CRITICAL ACCOUNTING ESTIMATES

The preparation of the Financial Statements in accordance with IFRS 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. With the adoption of IFRS, these critical accounting estimates have been updated accordingly.

Amortization

Amortization of property, plant and equipment 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.

Decommissioning Liability and Accretion

Decommissioning liability is 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 our engineers and environmental, health and safety staff, 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 depreciated 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.

At December 31, 2011, we revised our estimate for the decommissioning liability for changes in the status of the assets, changes in the discount rates and changes in the estimated costs of abandonment and reclamation. The change in estimate resulted in a $24.6 million increase in the decommissioning liability from December 31, 2010. The net present value of the decommissioning liability accrued on the consolidated balance sheet at December 31, 2011 was $77.0 million ($54.6 million at January 1, 2010 and $54.4 million at December 31, 2010). The total estimated future cost for decommissioning liability at December 31, 2011, was $7.0 billion. The majority of the undiscounted future decommissioning liability relates to SCL in Ontario, which are expected to be incurred over the next 300 years. Excluding SCL, the total undiscounted future costs are $147.2 million. A discount rate of 2.5% (4% as at December 31, 2010) and an inflation rate of 2% (2% as at December 31, 2010) was used to calculate the present value of Newalta's decommissioning liabilities with the exception of Stoney Creek Landfill which used a discount rate of 6% (4% as at December 31, 2010).

The balance of the liability is adjusted each period for the unwinding of the discount, with the associated expense included in finance charges. The change of estimate does not have a material impact on the unwinding of the discount. The decommissioning liability 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.

Impairment

We perform an asset impairment test at each balance sheet date and whenever events or circumstances make it possible that impairment may have occurred. Determining whether impairment has occurred requires a valuation of the respective cash generating unit, 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.

Our determination as at December 31, 2011 and December 31, 2010 was that there was no impairment.

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 the next two years.

Deferred 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 deferred income tax expense or recovery. The applicable deferred 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 deferred income tax rate could have a material impact on the deferred 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.

The 2003 Plan is an equity-settled plan where the fair value of options at the date of grant is calculated using the Black-Scholes option pricing model method with the share-based compensation expense recognized 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 estimated and accounted for at the grant date and adjusted, if necessary, in subsequent periods.

The 2006 Plan and the 2008 Plan allow for individuals to settle their options in cash. Accordingly, the fair value at the date of grant is calculated using the Black-Scholes option pricing model method with the share-based compensation expense recognized over the vesting period of the options. Forfeitures are estimated and accounted for at the grant date and adjusted, if necessary, in subsequent periods.

We 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. The fair value at the date of grant is calculated using the Black-Scholes option pricing model method with the share-based compensation expense recognized over the vesting period of the options. Forfeitures are estimated and accounted for at the grant date and adjusted, if necessary, in subsequent periods.

Newalta has a cash-settled deferred share unit ("DSUs") plan for which the measurement of the compensation expense and corresponding liability for these awards is based on the fair value of the award, and is recognized as a stock-based compensation expense with a corresponding increase in liabilities over the vesting period of the units. Dividend equivalent grants, if any, are recorded as stock-based compensation expense in the period the dividend is paid. The liability is re-measured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognized in earnings.

A cash-settled Performance Share Unit ("PSUs") incentive plan has been established for officers and other eligible employees. Under this plan, notional PSUs are granted upon commencement in the plan and vest at the end of a three-year term. The vested PSUs are automatically paid out in cash upon vesting at a value determined by the fair market value of Shares at December 31 of the vesting year and based on the number of PSUs held multiplied by a vesting factor. The vesting factor is based on performance conditions established by the Board of Directors prior to the date of grant of the PSUs. The fair value of the PSUs is accrued in accounts payable and charged to earnings on a straight-line basis over the three-year term. This estimated value is adjusted each period based on the period-end trading price of the Corporation's Shares and an estimated vesting factor with any changes in the fair value of the liability being recognized in earnings. Dividend equivalent grants and PSU changes, if any, are recorded as stock-based compensation expense.

A Restricted Share Unit ("RSUs") incentive plan has been established for officers and other eligible employees. Under this plan, notional RSUs are granted upon commencement in the plan and vest annually over a two-year term or immediately upon termination of employment by a participant. Upon vesting, RSUs are automatically paid out in Shares purchased on the open market in a number equal to the number of RSUs held. The fair value of the RSUs is accrued in accounts payable and charged to earnings upon grant. This estimated value is adjusted each period based on the period-end trading price of the Corporation's Shares with the resulting gains or losses included in earnings. Dividend equivalent grants and RSU changes, if any, are recorded as stock-based compensation expense.

FUTURE ACCOUNTING POLICY CHANGES

As of January 1, 2013, we are required to adopt the following standards and amendments as issued by the IASB, which should not have a material impact on our financial statements. We do not plan to early adopt any of the standards outlined below.


--  IFRS 10, "Consolidated Financial Statements", which is the result of the
    IASB's project to replace Standing Interpretations Committee 12,
    "Consolidation - Special Purpose Entities" and the consolidation
    requirements of IAS 27, "Consolidated and Separate Financial
    Statements". The new standard eliminates the current risk and rewards
    approach and establishes control as the single basis for determining the
    consolidation of an entity. 

--  IFRS 12, "Disclosure of Interests in Other Entities", which outlines the
    required disclosures for interests in subsidiaries and joint
    arrangements. The new disclosures require information that will assist
    financial statement users to evaluate the nature, risks and financial
    effects associated with an entity's interests in subsidiaries and joint
    arrangements. 

--  IFRS 11, "Joint Arrangements", which is the result of the IASB's project
    to replace IAS 31, "Interest in Joint Ventures". The new standard
    redefines joint operations and joint ventures and requires joint
    operations to be proportionately consolidated and joint ventures to be
    equity accounted. Under IAS 31, joint ventures could be proportionately
    accounted. 

--  IFRS 13, "Fair Value Measurement", which provides a common definition of
    fair value, establishes a framework for measuring fair value under IFRS
    and enhances the disclosures required for fair value measurements. The
    standard applies where fair value measurements are required and does not
    require new fair value measurements. 

INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")

Effective January 1, 2011, we adopted IFRS. Our financial statements for 2011 have been prepared in accordance with IFRS and the comparative year for 2010 has been restated to reflect our transition date of January 1, 2010. IFRS uses a conceptual framework similar to previous Canadian GAAP, but there are differences in recognition, measurement and disclosures.

A summary of the key areas where changes in accounting policies have impacted our consolidated financial statements is presented below. This summary should not be regarded as a complete list of the changes that have resulted from the transition to IFRS. Rather, it is intended to highlight those areas management believes to be the most significant.

Most adjustments required on transition to IFRS have been made retrospectively against opening retained earnings as of the transition date.

The key areas that impact previously reported 2010 Net earnings are: Decommissioning liability, capitalization of borrowing costs, stock-based compensation and deferred tax. Information regarding the individual changes are included in Note 22 to the Unaudited Condensed Consolidated Financial Statements for the three months and year ended December 31, 2011. There are no changes to previously reported 2010 Adjusted EBITDA.

Decommissioning liability under IFRS increased by $33 million with a corresponding $18 million increase to the value of assets and a reduction of $15 million to retained earnings, as a result of the change in calculation methodologies. The effect on gross profit and net earnings was higher depreciation. Unwinding of the discount related to the decommissioning liability has been re-classified to finance charges where under previous Canadian GAAP, was included in amortization and accretion expense. The calculation change in decommissioning liability had no material impact on the unwinding of the discount related to the decommissioning liability.

Capitalization of borrowing costs is mandatory under IFRS for capital projects that meet the qualifying criteria. Under previous Canadian GAAP, this was optional and borrowing costs were not capitalized by Newalta. The capitalization of borrowing costs reduced finance charges, resulting in a positive impact to net earnings.

Stock-based compensation for the 2006 and 2008 option plans, and SARS are calculated using a different model. IFRS values the outstanding incentives plans at fair value. Under previous Canadian GAAP, we accounted for the plans by reference to their intrinsic value. The change in methodology under IFRS resulted in a negative impact to 2010 net earnings.

The majority of the change in deferred tax relates to the tax impact of the key areas discussed above.

Impact on 2010 Net Earnings


                                                                     Impact 
                                                         Impact  Increase / 
                              Facilities     Onsite  Increase /  (Decrease) 
                               Impact Q4  Impact Q4  (Decrease)   Full Year 
($000s)                             2010       2010     Q4 2010        2010 
----------------------------------------------------------------------------
Decommissioning Liability -                                                 
 Increased asset value drives                                               
 increased depreciation             (394)       (10)       (404)     (1,624)
Unwinding of the discount                                                   
 related to the                                                             
 decommissioning liability re-                                              
 classified as finance charges       436         58         494       1,982 
----------------------------------------------------------------------------
Impact to Gross Profit                42         48          90         358 
----------------------------------------------------------------------------
Unwinding of the discount                                                   
 related to the                                                             
 decommissioning liability re-                                              
 classified as finance charges                                              
 and revaluation                                           (492)     (1,966)
Stock-based compensation                                    (15)     (1,536)
Capitalization of borrowing                                                 
 costs for qualifying projects                              458         819 
Deferred tax                                                 19         384 
----------------------------------------------------------------------------
Impact to Net Earnings                                       60      (1,941)
----------------------------------------------------------------------------

The key areas that impact the previously reported 2010 Balance Sheet are; decommissioning liability (as described above), tax basis of goodwill including intangibles and the treatment of the trust units upon conversion from a trust to a Corporation.

Under previous Canadian GAAP, deferred tax on intangibles and goodwill upon acquisition was effectively eliminated. This is not the case with IFRS. This impact created a deferred tax liability of $7.3 million.

Trust units issued prior to our conversion to a Corporation were classified as a financial liability rather than an equity instrument. As a result, the liability associated with the trust units was measured at fair value through net earnings up until December 31, 2008, the date of conversion from a Trust to a Corporation. This resulted in a $238 million increase to retained earnings and decrease to shareholders capital.

Please refer to Note 22 in the Financial Statements for the three months and year ended December 31, 2011 for a reconciliation of the IFRS financial statements to previously released financial statements prepared under previous Canadian GAAP.

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. Historically, on an annual basis, our top 25 customers generate approximately 44% of our total revenue, with 12% of these customers having a credit rating of A or higher and 44% 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, 2011. In 2011, our exposure to foreign exchange was mitigated by 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 senior secured 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 18 to the Financial Statements for the three months and year ended December 31, 2011.

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 Unaudited Consolidated Statements of Comprehensive Income and Accumulated Other Comprehensive Income, whereas the unrealized gain or loss for warrants is reflected on the Unaudited Consolidated Financial Statements 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, 2011, 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, 2011, 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 2011 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

(Expressed in thousands of Canadian Dollars)

(Unaudited)


                                                   December 31,  January 1, 
                                          December         2010        2010 
                                          31, 2011     (Note 22)   (Note 22)
----------------------------------------------------------------------------
Assets                                                                      
Current assets                                                              
 Cash and cash equivalents                       -            -       3,920 
 Accounts and other receivables            134,172      102,378      84,317 
 Inventories (Note 3)                       30,953       26,645      33,148 
 Investment (Note 4)                           802        4,274           - 
 Prepaid expenses and other                  5,756        7,292       6,183 
----------------------------------------------------------------------------
                                           171,683      140,589     127,568 
Non-current assets                                                          
 Property, plant and equipment (Note 5)    820,102      741,793     721,656 
 Permits and other intangible assets                                        
  (Note 6)                                  59,593       60,579      61,935 
 Other long-term assets (Note 4)            10,746        1,819       2,666 
 Goodwill (Note 6)                         102,897      102,897     103,597 
----------------------------------------------------------------------------
TOTAL ASSETS                             1,165,021    1,047,677   1,017,422 
----------------------------------------------------------------------------
Equity and liabilities                                                      
Current liabilities                                                         
 Bank indebtedness                           6,168          169           - 
 Accounts payable and accrued                                               
  liabilities                              147,897      120,370      90,642 
 Dividends payable                           3,889        3,152       2,423 
----------------------------------------------------------------------------
                                           157,954      123,691      93,065 
Non-current liabilities                                                     
 Senior secured debt (Note 7)               68,493       51,520     192,043 
 Convertible debentures - debt portion                                      
 (Note 9)                                        -      112,074     110,725 
 Senior unsecured debentures (Note 8)      245,049      122,050           - 
 Other liabilities (Note 13)                 5,459        5,327       1,647 
 Deferred tax liability (Note 14)           68,389       54,491      46,856 
 Decommissioning liability (Note 10)        77,756       54,368      54,585 
----------------------------------------------------------------------------
TOTAL LIABILITIES                          623,100      523,521     498,921 
----------------------------------------------------------------------------
Shareholders' Equity                                                        
Shareholders' capital (Note 11)            317,386      315,934     315,836 
Convertible debentures - equity portion                                     
 (Note 9)                                        -        1,021       1,021 
Contributed surplus                          2,700        1,679       1,679 
Retained earnings                          223,679      204,935     199,965 
Accumulated other comprehensive (loss)                                      
 income                                     (1,844)         587           - 
----------------------------------------------------------------------------
TOTAL EQUITY                               541,921      524,156     518,501 
----------------------------------------------------------------------------
TOTAL EQUITY AND LIABILITIES             1,165,021    1,047,677   1,017,422 
----------------------------------------------------------------------------

Consolidated Statements of Operations

(Expressed in thousands of Canadian Dollars)

(Except per share data) (Unaudited)


                                For the three months     For the year ended 
                                  ended December 31,           December 31, 
                                    2011       2010        2011       2010  
                                            (Note 22)              (Note 22)
----------------------------------------------------------------------------
Revenue                          184,089     162,927    682,828     576,196 
Cost of sales                    141,349     123,654    517,319     437,806 
----------------------------------------------------------------------------
Gross profit                      42,740      39,273    165,509     138,390 
----------------------------------------------------------------------------
 Selling, general and                                                       
  administrative                  25,187      26,678     87,232      84,566 
 Research and development            439         586      2,337       1,713 
----------------------------------------------------------------------------
Earnings before finance                                                     
 charges and income tax           17,114      12,009     75,940      52,111 
Finance charges                    8,505       6,641     28,191      26,814 
----------------------------------------------------------------------------
Earnings before income taxes       8,609       5,368     47,749      25,297 
----------------------------------------------------------------------------
Provision for income taxes                                                  
 (Note 14)                                                                  
 Current                           2,637         520      2,766         938 
 Deferred                            (59)      1,927     11,421       8,237 
----------------------------------------------------------------------------
                                   2,578       2,447     14,187       9,175 
----------------------------------------------------------------------------
Net earnings                       6,031       2,921     33,562      16,122 
----------------------------------------------------------------------------
Net earnings per share (Note                                                
 15)                                0.12        0.06       0.69        0.33 
Diluted earnings per share                                                  
 (Note 15)                          0.12        0.06       0.68        0.33 
----------------------------------------------------------------------------

Supplementary information:                                                  
Amortization included within                                                
 cost of sales                    13,577      12,111     51,576      43,491 
Amortization included in                                                    
 selling, general and                                                       
 administrative                    2,824       2,690     11,280      12,139 
----------------------------------------------------------------------------
Total amortization                16,401      14,801     62,856      55,630 
----------------------------------------------------------------------------

Consolidated Statements of Comprehensive Income

(Expressed in thousands of Canadian Dollars)

(Unaudited)


                                For the three months     For the year ended 
                                  ended December 31,           December 31, 
                                    2011        2010       2011        2010 
                                            (Note 22)              (Note 22)
----------------------------------------------------------------------------
Net earnings                       6,031       2,921     33,562      16,122 

Other comprehensive (loss)                                                  
 income:                                                                    
 Exchange difference on                                                     
  translating foreign                                                       
  operations                        (460)          -       (460)          - 
 Unrealized (loss) gain on                                                  
  investment in shares(1)           (255)         55     (1,971)        587 
----------------------------------------------------------------------------
Other comprehensive (loss)                                                  
 income                             (715)         55     (2,431)        587 
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Comprehensive income               5,316       2,976     31,131      16,709 
----------------------------------------------------------------------------

(1) Net of tax of $0.1 million and $0.2 million for the three months and year ended December 31, 2011, respectively ($0.1 million and $0.3 million for the three months and year ended December 31, 2010, respectively).

Consolidated Statement of Changes in Equity

(Expressed in thousands of Canadian Dollars)

(Unaudited)


                                                                Contributed 
                                                         Equity     surplus 
                                                     portion of    (shared- 
                                      Shareholders' convertible       based 
                                            capital  debentures    payments)
----------------------------------------------------------------------------
Balance, January 1, 2010                    315,836       1,021       1,679 
----------------------------------------------------------------------------
Changes in equity for year ended                                            
 December 31, 2010                                                          
Exercise of options                              98           -           - 
Dividends declared                                -           -           - 
Unrealized gain on investment in                                            
 shares                                           -           -           - 
Net earnings for the period                       -           -           - 
----------------------------------------------------------------------------
Balance, December 31, 2010                  315,934       1,021       1,679 
----------------------------------------------------------------------------
Changes in equity for year ended                                            
 December 31, 2011                                                          
Exercise of options                           1,452           -           - 
Redemption of convertible debentures              -      (1,021)      1,021 
Dividends declared                                -           -           - 
Unrealized loss on investment in                                            
 shares                                           -           -           - 
Exchange difference on translating                                          
 foreign operations                               -           -           - 
Net earnings for the period                       -           -           - 
----------------------------------------------------------------------------
Balance, December 31, 2011                  317,386           -       2,700 
----------------------------------------------------------------------------

                                                    Accumulated             
                                                          other             
                                                  comprehensive             
                                         Retained income (loss)             
                                         earnings       (Note 4)      Total 
----------------------------------------------------------------------------
Balance, January 1, 2010                  199,965             -     518,501 
----------------------------------------------------------------------------
Changes in equity for year ended                                            
 December 31, 2010                                                          
Exercise of options                             -             -          98 
Dividends declared                        (11,152)            -     (11,152)
Unrealized gain on investment in                                            
 shares                                         -           587         587 
Net earnings for the period                16,122             -      16,122 
----------------------------------------------------------------------------
Balance, December 31, 2010                204,935           587     524,156 
----------------------------------------------------------------------------
Changes in equity for year ended                                            
 December 31, 2011                                                          
Exercise of options                             -             -       1,452 
Redemption of convertible debentures            -             -           - 
Dividends declared                        (14,818)            -     (14,818)
Unrealized loss on investment in                                            
 shares                                         -        (1,971)     (1,971)
Exchange difference on translating                                          
 foreign operations                             -          (460)       (460)
Net earnings for the period                33,562             -      33,562 
----------------------------------------------------------------------------
Balance, December 31, 2011                223,679        (1,844)    541,921 
----------------------------------------------------------------------------

Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian Dollars)

(Unaudited)


                                 For the three months    For the year ended 
                                   ended December 31,          December 31, 
                                      2011       2010       2011       2010 
                                             (Note 22)             (Note 22)
----------------------------------------------------------------------------
Cash provided by (used for):                                                
Operating Activities                                                        
Net earnings                         6,031      2,921     33,562     16,122 
Adjustments for:                                                            
 Amortization                       16,401     14,801     62,856     55,630 
 Income taxes provision (Note                                               
  14)                                2,578      2,447     14,187      9,175 
 Income taxes paid                  (1,514)      (165)    (1,809)      (783)
 Stock-based compensation                                                   
  expense (Note 13)                  3,003      6,778      6,084     10,856 
 Finance charges expense             8,505      6,641     28,191     26,812 
 Finance charges paid               (9,502)    (6,774)   (20,083)   (20,919)
 Other                                (150)      (386)      (213)       (19)
----------------------------------------------------------------------------
                                    25,352     26,263    122,775     96,874 

Decrease (increase) in non-cash                                             
 working capital (Note 20)          27,749     23,324    (14,856)     1,461 
Decommissioning costs incurred      (1,711)    (1,126)    (3,356)    (2,184)
----------------------------------------------------------------------------
                                    51,390     48,461    104,563     96,151 
----------------------------------------------------------------------------
Investing Activities                                                        
 Additions to property, plant                                               
  and equipment (Note 5)           (46,786)   (26,728)  (117,143)   (68,332)
 Proceeds on sale of property,                                              
  plant and equipment                1,023        306      1,220      2,694 
 Purchase of investment (Note 4)         -          -          -     (4,000)
 Purchase of other long-term                                                
  asset (Note 4)                         -          -     (5,757)         - 
----------------------------------------------------------------------------
                                   (45,763)   (26,422)  (121,680)   (69,638)
----------------------------------------------------------------------------
Financing Activities                                                        
 Issuance of shares                      -         27      1,249         27 
 Issuance of senior unsecured                                               
  debentures                       122,557    122,010    122,557    122,010 
 Redemption of convertible                                                  
  debentures                      (115,000)         -   (115,000)         - 
 (Decrease) increase in senior                                              
  secured debt                     (12,755)  (138,771)    16,154   (142,303)
 Increase (decrease) in bank                                                
  indebtedness                       3,384     (2,197)     5,999        169 
 Decrease in note receivable            75         44        240         88 
 Dividends paid (Note 16)           (3,888)    (3,152)   (14,082)   (10,424)
----------------------------------------------------------------------------
                                    (5,627)   (22,039)    17,117    (30,433)
----------------------------------------------------------------------------
Decrease in cash and cash                                                   
 equivalents                             -          -          -     (3,920)
Cash and cash equivalents,                                                  
 beginning of period                     -          -          -      3,920 
----------------------------------------------------------------------------
Cash and cash equivalents, end                                              
 of period                               -          -          -          - 
----------------------------------------------------------------------------

Notes to the Consolidated Financial Statements

For the three months and years ended December 31, 2011 and 2010.

(All tabular data in thousands of Canadian Dollars except per share and ratio data)

(Unaudited)

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 85 facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Over the past 17 years, the nature of our business has evolved and definitions of what is considered "waste" have been transformed. Our customers operate in a broad range of industries including oil and gas, petrochemical, refining, lead, manufacturing and mining industries.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

These unaudited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and include the accounts of Newalta and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. These unaudited consolidated financial statements are prepared using IFRS accounting policies which became Canadian Generally Accepted Accounting Principles for publicly accountable enterprises and were adopted by the Corporation for fiscal years beginning on January 1, 2011.

An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Corporation for comparative periods and as at January 1, 2010, the date of transition, is provided in note 22.

These unaudited consolidated financial statements were approved by the Board of Directors on February 14, 2012.

Basis of Preparation

a) Cash and cash equivalents

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

b) Inventories

Inventories are comprised of oil, lead and other recycled products, spare parts and supplies, and are recorded at the lower of cost and net realizable value. Inventories are valued using the weighted average costing method. 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 comprise the laid down cost.

c) Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated amortization and impairment. Amortization rates are calculated to amortize the costs, net of residual value, over the assets' estimated useful lives. Significant parts of property, plant and equipment that have different depreciable lives are amortized separately.

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 by the estimated future hours of service. Residual values, up to 20% of original cost, may be established for buildings, site improvements, and tanks. These residual values are not depreciated.

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.

d) Permits and other intangible assets

Permits and other intangible assets are stated at cost, less accumulated amortization and impairment, and consist of certain production processes, trademarks, permits and agreements which are amortized over the period of the contractual benefit of 8 to 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.

e) Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets of acquired businesses.

f) Impairments

Impairments are recorded when the recoverable amount of assets are less than their carrying amounts. The recoverable amount is the higher of an asset's fair value less cost to sell or its value in use. Impairment losses, other than those relating to goodwill, are evaluated for potential reversals when events or changes in circumstances warrant such consideration.

The carrying values of all assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Additionally, the carrying values of identifiable intangible assets with indefinite lives and goodwill are tested annually for impairment.

For the purpose of impairment testing, goodwill is allocated to cash generating units ("CGU") and management has determined that the appropriate CGUs for Newalta are: our Western Facilities business unit, Eastern Facilities business unit, Ville Ste-Catherine ("VSC") business unit, and Onsite division. Goodwill is allocated to those CGUs that are expected to benefit from the business combination in which the goodwill arose.

When the net book value of a CGU is higher than its value in use, the difference is an impairment loss. An impairment loss is first written off against any goodwill associated with the CGU with any remaining impairment loss proportionally allocated to the assets of that CGU. Management determined that as at January 1, 2010, December 31, 2010 and December 31, 2011 there were no impairments of indefinite life intangibles and goodwill.

g) Decommissioning liabilities

Newalta provides for estimated future decommissioning 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 decommissioning liabilities associated with property, plant and equipment. These obligations are initially measured at fair value, which is the discounted future value of the liability. This fair value is capitalized as part of the cost of the related asset and amortized over the asset's useful life. The balance of the liability is adjusted each period for the unwinding of the discount, with the associated expense included within finance charges. Decommissioning costs are reviewed annually and estimated by management, in consultation with Newalta's engineers and environmental, health and safety staff, on the basis of current regulations, costs, technology and industry standards. Actual decommissioning costs are charged against the provision as incurred.

h) Revenue recognition

Revenue is recognized in the period products are delivered or services provided and when all the following conditions have been satisfied:


--  Newalta has transferred the significant risks and rewards of ownership
    of the goods to the buyer; 
--  Newalta retains no continuing managerial involvement to the degree
    usually associated with ownership or effective control over the goods
    sold; 
--  the amount of revenue can be measured reliably; 
--  it is probable that the economic benefits associated with the
    transaction will flow to Newalta; and 
--  the costs incurred or to be incurred in respect of the transaction can
    be measured reliably. 

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, revenue is recognized on a percentage of completion basis. For onsite projects, revenue is recognized on a per-day fee, throughput or on a percentage of completion basis.

i) 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 IFRS 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 Corporation will assess the recoverability of the deferred costs and if considered unrecoverable, will expense the costs in the period the assessment is made.

j) Current and deferred taxes

The tax expense for the period comprises current and deferred tax. Tax is recognized in the statements of operations, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

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

Deferred 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. Deferred 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.

k) 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.

l) Share-based incentive plans

The Corporation's share-based incentive plans consist of stock options, stock appreciation rights and share units, and are granted to executives, employees and non-employee directors.

Stock options

Newalta has three share-based option 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 may grant to directors, officers, employees and consultants of Newalta or any of its affiliates, rights to acquire up to 10% of the issued and outstanding common shares of the Corporation (the "Shares").

The 2003 Plan is an equity-settled plan where the fair value of options at the date of grant is calculated using the Black-Scholes option pricing model method with the share-based compensation expense recognized 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 estimated and accounted for at the grant date and adjusted, if necessary, in subsequent periods.

The 2006 Plan and the 2008 Plan are both share-based payment awards that allow for individuals to settle their options in cash. The fair value at the date of grant is calculated using the Black-Scholes option pricing model method with the share-based compensation expense recognized over the vesting period of the options. The fair value is subsequently re-measured at the end of each reporting period. Forfeitures are estimated and accounted for at the grant date and adjusted, if necessary, in subsequent periods.

Stock appreciation rights ("SARs")

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 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. The fair value at the date of grant is calculated using the Black-Scholes option pricing model method with the share-based compensation expense recognized over the vesting period of the options and recorded as a selling, general and administrative expense. The fair value is subsequently re-measured at the end of each reporting period. Forfeitures are estimated and accounted for at the grant date and adjusted, if necessary, in subsequent periods.

Share units

Newalta has a cash-settled deferred share unit ("DSUs") plan for which the measurement of the compensation expense and corresponding liability for these awards is based on the fair value of the award, and is recognized as a stock-based compensation expense with a corresponding increase in liabilities over the vesting period of the units. Dividend equivalent grants, if any, are recorded as stock-based compensation expense in the period the dividend is paid. The liability is re-measured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognized in earnings. 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.

A cash-settled Performance Share Unit ("PSUs") incentive plan has been established for officers and other eligible employees. Under this plan, notional PSUs are granted upon commencement in the plan and vest at the end of a three-year term. The vested PSUs are automatically paid out in cash upon vesting at a value determined by the fair market value of Shares at December 31 of the vesting year and based on the number of PSUs held multiplied by a vesting factor. The vesting factor is based on performance conditions established by the Board of Directors prior to the date of grant of the PSUs. The fair value of the PSUs is accrued in accounts payable and charged to earnings on a straight-line basis over the three-year term. This estimated value is adjusted each period based on the period-end trading price of the Corporation's Shares and an estimated vesting factor with any changes in the fair value of the liability being recognized in earnings. Dividend equivalent grants, if any, are recorded as stock-based compensation expense in the period the dividend is paid.

A Restricted Share Unit ("RSUs") incentive plan has been established for officers and other eligible employees. Under this plan, notional RSUs are granted upon commencement in the plan and vest annually over a two-year term or immediately upon termination of employment by a participant. Upon vesting, RSUs are automatically paid out in Shares purchased on the open market in a number equal to the number of RSUs held. The fair value of the RSUs is accrued in accounts payable and charged to earnings upon grant. This estimated value is adjusted each period based on the period-end trading price of the Corporation's Shares with the resulting gains or losses included in earnings. Dividend equivalent grants, if any, are recorded as stock-based compensation expense in the period the dividend is paid.

m) 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                        
----------------------------------------------------------------------------
Financial assets at fair value                                              
 through profit and loss      Fair value and changes in fair value are      
 ("FVTPL")                    recognized in net earnings                    
Held-to-maturity investments  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    
Financial liabilities         Amortized cost, using the effective interest  
                              method                                        
----------------------------------------------------------------------------

Cash and cash equivalents and accounts receivable are classified as loans and receivables. Newalta's portion of the BioteQ Environmental Technologies Inc. ("BioteQ") investment allocated to shares is classified as available for sale. The other portion of the BioteQ investment is allocated to warrants and is a derivative accounted for much like financial assets at FVTPL. Senior secured debt, senior unsecured debentures, convertible debentures, bank indebtedness, accounts payable and accrued liabilities and dividends payable are classified as financial liabilities.

Convertible Debentures

Newalta presented outstanding Convertible Debentures in their debt and equity component parts on the consolidated balance sheets. The debt component represented 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 accreted over the term of the relevant debenture to the face value of the outstanding debentures at maturity. The difference was reflected in finance charges, reflecting the effective yield of the debt component of the Convertible Debentures. The equity component of the Convertible Debentures was presented under Shareholders' Equity on the consolidated balance sheets, and represented the value ascribed to the conversion right granted to the holder offset by the related deferred tax liability. The equity component remained fixed over the term of the related Convertible Debentures. If a holder had chosen to convert their Convertible Debentures into Shares, a proportionate amount of both the debt and equity components would have been transferred to Shareholders' Capital. Accretion and interest expense for the Convertible Debentures were reflected as finance charges on the consolidated statements of operations.

Transaction Costs

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

n) Functional and presentation currency

Each of the Corporation's subsidiaries is measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The unaudited consolidated financial statements are presented in Canadian dollars, which is Newalta Corporation's functional currency.

Upon consolidation, the financial statements of the subsidiary that have a functional currency different from that of the Corporation are translated into Canadian dollars whereby assets and liabilities are translated at the rate of exchange at the balance sheet date, revenues and expenses are translated at average monthly exchange rates (as this is considered a reasonable approximation of actual rates), and gains and losses in translation are recognized in the shareholders' equity section as accumulated other comprehensive income.

Effective December 31, 2011, the functional currency of Newalta's United States subsidiary changed from the Canadian dollar to the United States dollar as a result of changes in its economic circumstances.

If the Corporation were to dispose of its entire interest in a foreign operation, or to lose control, joint control, or significant influence over a foreign operation, the foreign currency gains or losses accumulated in other comprehensive income related to the foreign operation would be recognized in net earnings. If the Corporation were to dispose of part of an interest in a foreign operation which remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in other comprehensive income related to the subsidiary would be reallocated between controlling and non-controlling interests.

o) Critical judgments in applying accounting policies

The preparation of the unaudited consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. 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 decommissioning obligations, deferred income taxes, 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.

The following are the critical judgments that management has made in applying the Corporation's accounting policies and that have the most significant effect on the amounts recognized in the unaudited consolidated financial statements.

Recoverability of asset carrying values

Newalta assesses its property, plant and equipment, intangibles and goodwill for impairment by comparing the carrying amount to the recoverable amount of the underlying assets. The determination of the recoverable amount involves estimating the asset's fair value less costs to sell or its value-in-use, which is based on its discounted future cash flows using an applicable discount rate. Future cash flows are calculated based on management's best estimate of future inflation and are discounted based on management's current assessment of market conditions.

Decommissioning liability

Newalta recognizes a provision for future and post abandonment activities in the unaudited consolidated financial statements as the net present value of the estimated future expenditures required to settle the estimated future obligation at the balance sheet date. The measurement of the decommissioning liability involves the use of estimates and assumptions including the discount rate, the expected timing of future expenditures and the amount of future abandonment costs. Decommissioning estimates are reviewed annually and estimated by management, in consultation with Newalta's engineers and environmental, health and safety staff, on the basis of current regulations, costs, technology and industry standards.

Fair value calculation on share-based payments

The fair value of share-based payments is calculated using a Black-Scholes option pricing model, depending on the characteristics of the share-based payment. There are a number of estimates used in the calculation such as the future forfeiture rate, expected option life and the future price volatility of the underlying security which can vary from actual future events. The factors applied in the calculation are management's best estimates based on historical information and future forecasts.

Taxation

The calculation of deferred income taxes is based on a number of assumptions including estimating the future periods in which temporary differences, tax losses and other tax credits will reverse.

p) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. A qualifying asset is an asset that requires a period of six months or greater to get ready for its intended use or sale.

q) Provisions

General

Provisions are recognized based on an estimate of expenditures required to settle present obligations at the end of the reporting period. The provision is risk adjusted to take into account any uncertainties. When the effect of the time value of money is material, the amount of a provision is equal to the present value of the future expenditures required to settle the obligations. The discount rate reflects the current assessment of the time value of money and risks specific to the liability when those risks have not already been reflected as an adjustment to future cash flows.

Decommissioning liabilities

The fair value of future obligations for property abandonment and site restoration is recognized as a decommissioning liability on the balance sheet with a corresponding increase to the carrying amount of the related asset. The recorded liability increases over time to its future amount through accretion charges to income. Revisions to the estimated amount or timing of the obligations are reflected prospectively as increases or decreases to the recorded liability and the related asset. Actual decommissioning expenditures, up to the recorded liability at the time, are charged to the liability as the costs are incurred. Amounts capitalized to the related assets are amortized to income consistent with the depreciation of the underlying asset.

Recent Pronouncements Issued

As of January 1, 2013 with the exception of IFRS 9, which is expected to be effective as of January 1, 2015, Newalta will be required to adopt the following standards and amendments as issued by the IASB, which are not expected to have a material impact on the Corporation's unaudited consolidated financial statements.


--  IFRS 10, "Consolidated Financial Statements", which is the result of the
    IASB's project to replace Standing Interpretations Committee 12,
    "Consolidation - Special Purpose Entities" and the consolidation
    requirements of IAS 27, "Consolidated and Separate Financial
    Statements". The new standard eliminates the current risk and rewards
    approach and establishes control as the single basis for determining the
    consolidation of an entity. 

--  IFRS 12, "Disclosure of Interests in Other Entities", which outlines the
    required disclosures for interests in subsidiaries and joint
    arrangements. The new disclosures require information that will assist
    financial statement users to evaluate the nature, risks and financial
    effects associated with an entity's interests in subsidiaries and joint
    arrangements. 

--  IFRS 11, "Joint Arrangements", which is the result of the IASB's project
    to replace IAS 31, "Interest in Joint Ventures". The new standard
    redefines joint operations and joint ventures and requires joint
    operations to be proportionately consolidated and joint ventures to be
    equity accounted. Under IAS 31, joint ventures could be proportionately
    consolidated. 

--  IFRS 13, "Fair Value Measurement", which provides a common definition of
    fair value, establishes a framework for measuring fair value under IFRS
    and enhances the disclosures required for fair value measurements. The
    standard applies where fair value measurements are required and does not
    require new fair value measurements. 

--  IFRS 9, "Financial Instruments", which is the result of the first phase
    of the IASB's project to replace IAS 39, "Financial Instruments:
    Recognition and Measurement". The new standard replaces the current
    multiple classification and measurement models for financial assets and
    liabilities with a single model that has only two classification
    categories: amortized cost and fair value. 

NOTE 3. INVENTORIES

Inventories consist of the following:


----------------------------------------------------------------------------
                                    December 31,  December 31,    January 1,
                                            2011          2010          2010
----------------------------------------------------------------------------
Lead                                      12,502        10,160        15,259
Recycled and processed products            5,291         5,622         8,316
Recovered crude oil                        7,274         4,637         3,667
Parts and supplies                         5,886         6,226         5,906
----------------------------------------------------------------------------
Total inventory                           30,953        26,645        33,148
----------------------------------------------------------------------------

The cost of inventory expensed in operating expenses for the year ended December 31, 2011, was $90.8 million ($77.1 million for the same period in 2010). Inventories are pledged as general security under our credit facility.

NOTE 4. INVESTMENT AND OTHER LONG-TERM ASSETS

a) BioteQ Environmental Technologies Inc. ("BioteQ")

During the first quarter of 2010, Newalta acquired 3,636,364 units, at a price of $1.10 per share from the treasury of BioteQ for cash 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 a publicly available quoted price.

The common shares are classified as available-for-sale. The common shares are marked to market at each period end with changes in fair value recorded in other comprehensive income. For the year ended December 31, 2011 an unrealized loss of $2.0 million (net of tax $0.2 million) was recorded in accumulated other comprehensive income.

The warrants are classified as fair value through profit and loss and are revalued at each period end with the change in fair value recognized in earnings. For the three months and year ended December 31, 2011, the Corporation recorded an unrealized loss of $0.3 million and $1.2 million, respectively (three months and year ended December 31, 2010 - unrealized gain of $0.1 million and $0.6 million, respectively) which is included in finance charges. As at December 31, 2011, the fair value was calculated using the following assumptions: an expected volatility of 81.3%, a risk-free interest rate of 1.2% and no expected dividend.

b) TerraAqua Resource Management LLC ("TARM")

During the third quarter of 2011, Newalta acquired a 50% interest in TARM in exchange for cash consideration of $5.8 million. This joint venture is included within other long-term assets. Newalta's interest in TARM is accounted for under the equity method and these unaudited consolidated financial statements include Newalta's share of net earnings from the date that joint control commenced, based on our present 50% ownership interest in TARM. Newalta's share of earnings for the three months and year ended December 31, 2011, as well as the assets and liabilities as at December 31, 2011, are not significant.

NOTE 5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:


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

                                        Plant and                           
                                Land    equipment     Landfill        Total 
----------------------------------------------------------------------------
Cost                                                                        
Balance, January 1, 2010      14,813      853,215      105,442      973,470 
Additions during the                                                        
 year                              -       64,788       11,760       76,548 
Disposals during the                                                        
 year                           (117)      (7,423)           -       (7,540)
----------------------------------------------------------------------------
Balance, December 31,                                                       
 2010                         14,696      910,580      117,202    1,042,478 
----------------------------------------------------------------------------
Additions during the                                                        
 year                              -      122,980       18,517      141,497 
Disposals during the                                                        
 year                              -       (1,804)           -       (1,804)
----------------------------------------------------------------------------
Balance, December 31,                                                       
 2011                         14,696    1,031,756      135,719    1,182,171 
----------------------------------------------------------------------------
Accumulated Amortization                                                    
Balance, January 1, 2010           -     (213,991)     (37,823)    (251,814)
Amortization for the                                                        
 year                              -      (43,080)      (8,524)     (51,604)
Disposals during the                                                        
 year                              -        2,733            -        2,733 
----------------------------------------------------------------------------
Balance, December 31,                                                       
 2010                              -     (254,338)     (46,347)    (300,685)
----------------------------------------------------------------------------
Amortization for the                                                        
 year                              -      (46,156)     (15,719)     (61,875)
Disposals during the                                                        
 year                              -          491            -          491 
----------------------------------------------------------------------------
Balance, December 31,                                                       
 2011                              -     (300,003)     (62,066)    (362,069)
----------------------------------------------------------------------------
Carrying amounts                                                            
As at January 1, 2010         14,813      639,224       67,619      721,656 
As at December 31, 2010       14,696      656,242       70,855      741,793 
As at December 31, 2011       14,696      731,753       73,653      820,102 
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For the year ended December 31, 2011, the Corporation capitalized $2.7 million (year ended December 31, 2010 - $0.8 million) of borrowing costs using a capitalization rate of 6.5% (December 31, 2010 - 5.9%).

NOTE 6. PERMITS, INTANGIBLE ASSETS AND GOODWILL


----------------------------------------------------------------------------
                                          Definite                          
                                              life         Non-             
                            Indefinite    permits/  competition             
                               permits      rights    contracts       Total 
----------------------------------------------------------------------------
Cost                                                                        
Balance, January 1, 2010        53,012      14,650        6,020      73,682 
Additions during the year           25           -            -          25 
----------------------------------------------------------------------------
Balance, December 31, 2010      53,037      14,650        6,020      73,707 
----------------------------------------------------------------------------
Additions during the year            -          56            -          56 
Disposal during the year             -        (200)           -        (200)
----------------------------------------------------------------------------
Balance, December 31, 2011      53,037      14,506        6,020      73,563 
----------------------------------------------------------------------------
Accumulated Amortization                                                    
 (1)                                                                        
Balance, January 1, 2010             -       6,338        5,409      11,747 
Amortization for the year            -         770          611       1,381 
----------------------------------------------------------------------------
Balance, December 31, 2010           -       7,108        6,020      13,128 
----------------------------------------------------------------------------
Amortization for the year            -       1,042            -       1,042 
Disposal during the year             -        (200)           -        (200)
----------------------------------------------------------------------------
Balance, December 31, 2011           -       7,950        6,020      13,970 
----------------------------------------------------------------------------
Carrying amounts                                                            
As at January 1, 2010           53,012       8,312          611      61,935 
As at December 31, 2010         53,037       7,542            -      60,579 
As at December 31, 2011         53,037       6,556            -      59,593 
----------------------------------------------------------------------------

(1) Amortization is included in cost of sales and selling, general and administrative expenses in the Consolidated Statements of Operations.

Intangibles have been allocated to the following CGUs:


----------------------------------------------------------------------------
                                    December 31,  December 31,    January 1,
                                            2011          2010          2010
----------------------------------------------------------------------------
West Facilities                              850           962         1,125
East Facilities                           41,833        42,707        43,267
Onsite                                     1,010         1,010           985
VSC                                       15,900        15,900        15,900
----------------------------------------------------------------------------
                                          59,593        60,579        61,277
----------------------------------------------------------------------------

Goodwill has been allocated to the following CGUs:


----------------------------------------------------------------------------
                                    December 31,  December 31,    January 1,
                                            2011          2010          2010
----------------------------------------------------------------------------
West Facilities                           13,212        13,212        13,212
East Facilities                           31,170        31,170        31,170
Onsite                                    58,515        58,515        59,215
----------------------------------------------------------------------------
                                         102,897       102,897       103,597
----------------------------------------------------------------------------

In assessing property, plant and equipment, goodwill and intangible assets for impairment at December 31, 2011, December 31, 2010 and January 1, 2010, Newalta compared the aggregate recoverable amount of the assets included in the CGUs to their respective carrying amounts. The recoverable amount has been determined based on the value in use of the CGUs using the four year cash flow business plan approved by management and the Board of Directors that made use of observable markets for inputs. For periods beyond the four year business plan, cash flows were extrapolated using growth rates that do not exceed the long-term average in each CGU. The weighted average growth rate reflects a nominal inflationary rate as required by IFRS that is calculated over the remaining useful life of each CGU. There was no impairment as at December 31, 2011, December 31, 2010 or January 1, 2010.

Key assumptions included the following:


Year ended December      Periods      West       East     Onsite            
 31, 2011                       Facilities Facilities                   VSC 
----------------------------------------------------------------------------
Weighted average        2016 and                                            
 growth rate              beyond       2.9%       2.9%       3.6%       2.9%
                        2012 and                                            
Pre-tax discount rate     beyond      11.1%      11.9%      14.9%      18.5%
----------------------------------------------------------------------------

Year ended December      Periods      West       East     Onsite            
 31, 2010                       Facilities Facilities                   VSC 
----------------------------------------------------------------------------
Weighted average        2015 and                                            
 growth rate              beyond       2.9%       2.9%       3.6%       2.9%
                        2011 and                                            
Pre-tax discount rate     beyond      13.4%      13.5%      15.0%      19.3%
----------------------------------------------------------------------------

As at January 1, 2010    Periods      West       East     Onsite            
                                Facilities Facilities                   VSC 
----------------------------------------------------------------------------
Weighted average        2014 and                                            
 growth rate              beyond       2.9%       2.9%       3.6%       2.9%
                        2010 and                                            
Pre-tax discount rate     beyond      14.0%      12.3%      14.1%      17.8%
----------------------------------------------------------------------------

In the West Facilities, Onsite and VSC CGUs, reasonably possible changes in key assumptions would not cause the recoverable amount of goodwill to fall below the carrying value. In the East Facilities CGU, the recoverable amount exceeded the carrying amount by $26.4 million in 2011. However, reasonable possible changes in certain key assumptions could cause the carrying amount to exceed the recoverable amount, which would result in a write down of goodwill by an amount of the excess. A reduction in the discount rate by 1.3% would reduce the recoverable amount of the East Facilities CGU to its carrying amount, with no other changes to assumptions.

NOTE 7. SENIOR SECURED DEBT


                                 December 31,   December 31,     January 1, 
                                         2011           2010           2010 
----------------------------------------------------------------------------
Gross senior secured debt              70,010         53,859        195,200 
Issue costs                            (1,517)        (2,339)        (3,157)
----------------------------------------------------------------------------
Senior secured debt                    68,493         51,520        192,043 
----------------------------------------------------------------------------

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, 2011, December 31, 2010 and January 1, 2010, Newalta was in compliance with all covenants.

NOTE 8. SENIOR UNSECURED DEBENTURES

The trust indenture under which the Senior Unsecured Debentures have been issued requires Newalta to be in compliance with certain covenants as at December 31 of each year. At December 31, 2011 and December 31, 2010, Newalta was in compliance with all covenants.


                                  December 31,   December 31,     January 1,
                                          2011           2010           2010
----------------------------------------------------------------------------
Senior unsecured debentures                                                 
 Series 1 - gross                      125,000        125,000              -
Senior unsecured debentures                                                 
 Series 2 - gross                      125,000              -              -
Issue costs                             (4,951)        (2,950)             -
----------------------------------------------------------------------------
Senior unsecured debt                  245,049        122,050              -
----------------------------------------------------------------------------

Series 1

On November 23, 2010, Newalta issued $125.0 million of 7.625% Series 1 Unsecured Debentures. The Series 1 Senior Unsecured Debentures mature on November 23, 2017. The Series 1 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, which commenced on May 23, 2011. The Series 1 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 Series 1 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 the Series 1
    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 Series 1 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 Series 1 Senior Unsecured Debentures redeemed, plus,
    in each case, accrued and unpaid interest to the redemption date. 

After November 23, 2013, the Series 1 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 Series 1 Senior Unsecured Debentures, at a purchase price in cash equal to 101% of the principal amount of the Series 1 Senior Unsecured Debentures offered for repurchase plus accrued interest to the date of purchase.

Series 2

On November 14, 2011, Newalta issued $125.0 million of 7.75% Series 2 Unsecured Debentures. The Series 2 Senior Unsecured Debentures mature on November 14, 2019. The Series 2 Senior Unsecured Debentures bear interest at 7.75% per annum and such interest is payable in equal instalments semi-annually in arrears on May 14 and November 14 in each year, commencing on May 14, 2012. The Series 2 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 Series 2 Senior Unsecured Debentures are effectively subordinated to all secured debt to the extent of collateral on such debt.

Prior to November 14, 2015, Newalta may on one or more occasions:


--  Redeem up to 35% of the aggregate principal amount of the Series 2
    Senior Unsecured Debentures, with the net cash proceeds of one or more
    public equity offerings at a redemption price equal to 107.75% of the
    principal amount, plus accrued and unpaid interest to the date of
    redemption. 
--  Redeem the Series 2 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 Series 2 Senior Unsecured Debentures redeemed, plus,
    in each case, accrued and unpaid interest to the redemption date. 

After November 14, 2015, the Series 2 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 14 of the years as follows: Year 2015 - 103.875%; Year 2016 - 101.938%; Year 2017 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 Series 2 Senior Unsecured Debentures, at a purchase price in cash equal to 101% of the principal amount of the Series 2 Senior Unsecured Debentures offered for repurchase plus accrued interest to the date of purchase.

Financing Fees

During the three months and year ended December 31, 2011, financing fees of $2.5 million (three months and year ended December 31, 2010 - $3.0 million) were incurred in connection with the issuance of the Senior Unsecured Debentures. These fees have been recorded against the debentures and are being amortized using the effective interest method over the term of the respective Senior Unsecured Debentures.

NOTE 9. REDEMPTION OF CONVERTIBLE DEBENTURES

In December 2011, Newalta redeemed all of the outstanding Convertible debentures ($115 million principal amount, $113.4 million net of the related unamortized issuance costs of $1.6 million) at a cost of $1,000 per Convertible Debenture plus a payment in respect of all accrued and unpaid interest for an aggregate purchase price of $115.3 million. The unamortized issuance costs of $1.6 million were expensed to finance charges at the time of redemption. The equity portion of the Convertible Debentures of $1.0 million was reclassified into contributed surplus.

NOTE 10. RECONCILIATION OF DECOMMISSIONING LIABILITY

The total future decommissioning liability was 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, $77.8 million ($54.6 million at January 1, 2010 and $54.4 million at December 31, 2010) has been accrued on the consolidated balance sheet at December 31, 2011. The total estimated future cost for decommissioning liability at December 31, 2011, was $7.0 billion. The majority of the undiscounted future decommissioning liabilities 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 $147.2 million. A discount rate of 2.5% (4% as at December 31, 2010) and an inflation rate of 2% (2% as at December 31, 2010) was used to calculate the present value of Newalta's decommissioning liabilities with the exception of Stoney Creek landfill which used a discount rate of 6% (4% as at December 31, 2010). The reconciliation of estimated and actual expenditures for the period is provided below:


----------------------------------------------------------------------------
Decommissioning liability as at January 1, 2010                      54,585 
----------------------------------------------------------------------------
Actual expenditures incurred to fulfill obligations                  (2,184)
Unwinding of discount                                                 1,967 
----------------------------------------------------------------------------
Decommissioning liability as at December 31, 2010                    54,368 
----------------------------------------------------------------------------

Actual expenditures incurred to fulfill obligations                  (3,356)
Unwinding of discount                                                 2,138 
Change in estimate(1)                                                24,606 
----------------------------------------------------------------------------
Decommissioning liability as at December 31, 2011                    77,756 
----------------------------------------------------------------------------


(1) Changes in the discount rates and in the estimated costs of abandonment and reclamation are factors resulting in a change in estimate.

NOTE 11. SHAREHOLDERS' CAPITAL

Authorized capital of Newalta Corporation consists of an unlimited number of shares and an unlimited number of preferred shares issuable in series. The following table is a summary of the changes in shareholders' capital during the periods:


                                                     Shares (#)   Amount ($)
----------------------------------------------------------------------------
Shares outstanding as at January 1, 2010                48,476      315,836 
----------------------------------------------------------------------------
Shares issued on exercise of options                        16           98 
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2010              48,492      315,934 
----------------------------------------------------------------------------
Shares issued on exercise of options                       115        1,452 
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2011              48,607      317,386 
----------------------------------------------------------------------------

NOTE 12. CAPITAL DISCLOSURES

Newalta's capital structure consists of:


----------------------------------------------------------------------------
                                    December 31,  December 31,    January 1,
                                            2011          2010          2010
----------------------------------------------------------------------------
Senior secured debt (1)                   70,010        53,859       195,200
Letters of Credit issued as                                                 
 financial security to third                                                
 parties (Note 17)                        21,332        21,477        22,137
Convertible debentures, debt                                                
 portion                                       -       112,074       110,725
Senior unsecured debentures(1)           250,000       125,000             -
Shareholders' equity                     541,921       524,156       518,501
----------------------------------------------------------------------------
                                         883,263       836,566       846,563
----------------------------------------------------------------------------

(1) Gross of transaction costs

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 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; 
--  Redeem all or a portion of the convertible debentures and refinance the
    related obligation; 
--  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 covenants required pursuant to the Credit Facility.

Covenants under our Credit Facility(1) include:


----------------------------------------------------------------------------
                                  December 31,   December 31,               
Ratio                                     2011           2010      Threshold
----------------------------------------------------------------------------
Senior Secured Debt(2) to                                                   
 EBITDA(3)                              0.65:1         0.63:1 2.75:1 maximum
Total Debt(4) to EBITDA(3)              2.38:1         1.68:1 3.50:1 maximum
Interest Coverage                       5.86:1         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, including our bank overdraft balance 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 annual 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.

Covenants under our trust indenture include:


----------------------------------------------------------------------------
Ratio                           December 31,   December 31,                 
                                        2011           2010        Threshold
----------------------------------------------------------------------------
Senior Secured Debt including                                               
 Letters of Credit                    94,510         75,336 $245,000 maximum
Cumulative finance lease                                                    
 obligations                             nil            nil  $25,000 maximum
Consolidated Fixed Charge                                                   
 Coverage                             5.86:1         4.97:1   2.00:1 minimum
Period end surplus for                                            Restricted
 restricted payments(1)                                      payments cannot
                                      27,001         17,084   exceed surplus
----------------------------------------------------------------------------

(1) We are restricted from declaring dividends, purchasing and redeeming shares or making certain investments if the total of such amounts exceeds the period end surplus for such restricted payments.

NOTE 13. INCENTIVE PLANS

a. Option Plans

A summary of the status of Newalta's option plans as of January 1, 2010, December 31, 2010 and December 31, 2011 and changes during the periods ended on those dates is presented as follows:


----------------------------------------------------------------------------
                                                    Weighted                
                                                     average                
                                  2008 option exercise price    2006 option 
                                   plan (000s)      ($/share)    plan (000s)
----------------------------------------------------------------------------
At January 1, 2010                        887           5.34            718 
----------------------------------------------------------------------------
Granted                                   843           8.07              - 
Exercised                                 (18)          5.31              - 
Forfeited                                 (45)          7.15            (10)
Cancelled                                   -              -              - 
----------------------------------------------------------------------------
At December 31, 2010                    1,667           6.67            708 
----------------------------------------------------------------------------
Granted (1)                               893          12.01              - 
Exercised                                (129)          5.80              - 
Forfeited                                   -              -             (5)
Cancelled                                   -              -              - 
----------------------------------------------------------------------------
At December 31, 2011 (2)                2,431           8.68            703 
----------------------------------------------------------------------------
Exercisable at December 31,                                                 
 2011                                     587           6.50            539 
----------------------------------------------------------------------------


----------------------------------------------------------------------------
                                     Weighted                      Weighted 
                                      average                       average 
                               exercise price    2003 option exercise price 
                                     ($/share)    plan (000s)      ($/share)
----------------------------------------------------------------------------
At January 1, 2010                      16.95            365          21.00 
----------------------------------------------------------------------------
Granted                                     -              -              - 
Exercised                                   -              -              - 
Forfeited                               14.00            (12)         10.52 
Cancelled                                   -              -              - 
----------------------------------------------------------------------------
At December 31, 2010                    16.99            353          21.37 
----------------------------------------------------------------------------
Granted (1)                                 -              -              - 
Exercised                                   -              -              - 
Forfeited                               32.38           (128)         17.95 
Cancelled                                   -              -              - 
----------------------------------------------------------------------------
At December 31, 2011 (2)                16.88            225          23.27 
----------------------------------------------------------------------------
Exercisable at December 31,                                                 
 2011                                   16.97            225          23.27 
----------------------------------------------------------------------------

(1)Each tranche of the options vest over a three year period (with a five year life).

(2)The fair value was calculated using the Black-Scholes method of valuation, assuming 45.23% (December 31, 2010 - 51.07%) volatility, a weighted average expected dividend yield of 2.71% (December 31, 2010 - 2.58%) annually, a risk free rate of 0.95% (December 31, 2010 - 1.68%) and a 3% (December 31, 2010 - 3%) forfeiture rate by period.


----------------------------------------------------------------------------
Range of            Options    Weighted    Weighted      Options    Weighted
 exercise       outstanding     average     average  exercisable     average
 prices        December 31,   remaining    exercise December 31,    exercise
 ($/share)             2011        life       price         2011       price
----------------------------------------------------------------------------
3.81 - 5.40             728         2.1        5.29          317        5.28
7.54 - 8.07             809         3.1        8.06          258        8.05
11.93 - 14.00           968         3.9       12.16           56       14.00
14.00 - 19.46           600         1.3       16.86          457       16.87
23.14 - 25.50           254         0.5       23.49          252       23.48
----------------------------------------------------------------------------
                      3,359         2.6       11.38        1,340       13.55
----------------------------------------------------------------------------


For the three months and year ended December 31, 2011, the weighted average share price at the date of exercise of the Newalta option plans was $nil and $12.63, respectively (three months and year ended December 31, 2010 - $10.23 and $9.67, respectively).


b.  Share Appreciation Rights ("SARs") 

Changes in the number of outstanding SARs were as follows:


----------------------------------------------------------------------------
                                                                   Weighted 
                                                                    average 
                                                        SARs exercise price 
                                                       (000s)      ($/right)
----------------------------------------------------------------------------
At January 1, 2010                                       876           6.99 
----------------------------------------------------------------------------
Granted                                                  610           8.20 
Exercised                                                (36)          5.31 
Forfeited                                                (23)          8.07 
Cancelled                                                  -              - 
----------------------------------------------------------------------------
At December 31, 2010                                   1,427           7.53 
----------------------------------------------------------------------------
Granted (1)                                              945          12.24 
Exercised                                               (156)          5.95 
Forfeited                                                (75)          8.69 
Cancelled                                                  -              - 
----------------------------------------------------------------------------
At December 31, 2011 (2)                               2,141           9.69 
----------------------------------------------------------------------------
Exercisable at December 31, 2011                         454           9.23 
----------------------------------------------------------------------------


(1) The fair value was calculated using the Black-Scholes method of valuation, assuming a 5 year expected life as at December 31, 2011 and 2010.

(2) The fair value was calculated using the Black-Scholes method of valuation, assuming 45.23% (December 31, 2010 - 51.07%) volatility, a weighted average expected dividend yield of 2.71% (December 31, 2010 - 2.58%) annually, a risk free rate of 0.95% (December 31, 2010 - 1.68%) and a 3% (December 31, 2010 - 3%) forfeiture rate by period.


----------------------------------------------------------------------------
Range of               SARs    Weighted    Weighted         SARs    Weighted
 exercise       outstanding     average     average  exercisable     average
 prices        December 31,   remaining    exercise December 31,    exercise
 ($/share)             2011        life       price         2011       price
----------------------------------------------------------------------------
5.31 - 8.76           1,093         2.6        6.73          329        6.41
11.93 - 16.65         1,048         3.9       12.77          125       16.65
----------------------------------------------------------------------------
                      2,141         3.2        9.69          454        9.23
----------------------------------------------------------------------------

For the three months and year ended December 31, 2011, the weighted average share price at the date of exercise of the Newalta SARs was $12.68 and $12.67, respectively (three months and year ended December 31, 2010 - $10.80 and $9.34, respectively).


c.  Share Unit Plans 

Changes in the number of outstanding share units under our deferred share unit, performance share unit and restricted share unit plans were as follows:


----------------------------------------------------------------------------
                                                                      Units 
                                                                      (000s)
----------------------------------------------------------------------------
At January 1, 2010                                                        - 
Granted                                                                  16 
----------------------------------------------------------------------------
At December 31, 2010                                                     16 
Granted                                                                 129 
----------------------------------------------------------------------------
At December 31, 2011                                                    145 
----------------------------------------------------------------------------

Exercisable at December 31, 2011                                          - 
----------------------------------------------------------------------------

d.  Stock-based Compensation Expense 

The following table summarizes the stock-based compensation expense recorded for all plans within selling, general and administrative expense on the Consolidated Statements of Operations:


                                For the three months      For the year ended
                                  ended December 31,            December 31,
                                    2011        2010        2011        2010
----------------------------------------------------------------------------
Stock option plans - cash                                                   
 expense                               -           -           -           -
Stock option plans - non-                                                   
 cash expense                      1,663       4,121       3,059       6,530
----------------------------------------------------------------------------
Total expense - stock option                                                
 plans                             1,663       4,121       3,059       6,530
----------------------------------------------------------------------------

SARs and share unit plans -                                                 
 cash expense                        159          59       1,595         197
SARs and share unit plans -                                                 
 non-cash expense                  1,340       2,657       3,025       4,327
----------------------------------------------------------------------------
Total expense - SARs and                                                    
 share unit plans                  1,499       2,716       4,620       4,524
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Total stock-based                                                           
 compensation expense              3,162       6,837       7,679      11,054
----------------------------------------------------------------------------


e.  Other Liabilities 

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

NOTE 14. INCOME TAX

Deferred 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 Newalta's deferred income tax liabilities and assets are as follows:

Canadian Tax Jurisdiction:


----------------------------------------------------------------------------
                                    December 31,  December 31,    January 1,
                                            2011          2010          2010
----------------------------------------------------------------------------
Deferred income tax liabilities:                                            
Property, plant and equipment            110,260        99,843        96,908
Goodwill and intangible assets            17,869        16,926        16,095
----------------------------------------------------------------------------
                                         128,129       116,769       113,003
----------------------------------------------------------------------------
Deferred income tax assets:                                                 
Non-capital loss carry forwards           34,251        44,056        46,502
Decommissioning liability                 19,684        13,884        13,940
Deferred financing and equity                165           304         1,121
 issuance costs                                                             
Deferred revenue                           1,043           941         2,362
Deferred expense                           4,100         3,406         1,997
Tax charge (credit) relating to              198          (90)             -
 components of other comprehensive                                          
 income                                                                     
Other - allowance for doubtful               299         (223)           225
 accounts                                                                   
----------------------------------------------------------------------------
                                          59,740        62,278        66,147
----------------------------------------------------------------------------
Net deferred income tax liability         68,389        54,491        46,856
----------------------------------------------------------------------------

U.S. Tax Jurisdiction:


----------------------------------------------------------------------------
                                    December 31,  December 31,    January 1,
                                            2011          2010          2010
----------------------------------------------------------------------------
Deferred income tax assets:                                                 
Property, plant and equipment              1,824             -             -
Non-capital loss carry forwards            1,527           929         1,688
Other                                        345             -             -
----------------------------------------------------------------------------
Net deferred income tax asset from                                          
 U.S. operations                           3,696           929         1,688
----------------------------------------------------------------------------

Non-capital loss carry forwards relating to Canadian operations total $137.8 million and relating to our U.S. operations total $4.3 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:


                                                         For the year ended 
                                                               December 31, 
----------------------------------------------------------------------------
                                                          2011         2010 
----------------------------------------------------------------------------
Consolidated earnings of Newalta Corporation                                
 before taxes and distributions to shareholders         47,749       25,297 
Current statutory income tax rate                        27.35%       29.13%
----------------------------------------------------------------------------
Computed tax expense at statutory rate                  13,059        7,369 
Increase (decrease) in taxes resulting from:                                
Capital taxes                                                -          509 
Stock-based compensation expense and non-                                   
 deductible costs                                        1,211        2,088 
Other                                                      (83)        (791)
----------------------------------------------------------------------------
Reported income tax expense                             14,187        9,175 
----------------------------------------------------------------------------

NOTE 15. EARNINGS PER SHARE

Basic earnings per share calculations for the year ended December 31, 2011 and 2010 were based on the weighted average number of shares outstanding for the respective years. Diluted earnings per share include the potential dilution of outstanding options under incentive plans to acquire shares and from the potential 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 inclusion of these options would cause the diluted earnings per share to be overstated. The number of excluded options for the three months and year ended December 31, 2011 was 1,019,000 (1,060,200 for the three months and year ended December 31, 2010).

The convertible debentures were not included in the December 31, 2011 earnings per share calculations as they were redeemed during the fourth quarter of 2011. The December 31, 2010 dilutive earnings per share calculations does not include the impact of anti-dilutive 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 inclusion of the Debentures would cause the diluted earnings per share to be overstated. The number of shares issuable on conversion of the Debentures excluded for the three months and year ended December 31, 2010 was 5,000,000.


                                For the three months      For the year ended
                                  ended December 31,            December 31,
----------------------------------------------------------------------------
                                    2011        2010        2011        2010
----------------------------------------------------------------------------
Weighted average number of                                                  
 shares                           48,569      48,523      48,569      48,485
Net additional shares if                                                    
 options exercised                   717         411         685         298
Net additional shares if                                                    
 debentures converted                  -           -           -           -
----------------------------------------------------------------------------
Diluted weighted average                                                    
 number of shares                 49,286      48,934      49,254      48,783
----------------------------------------------------------------------------

NOTE 16. DIVIDENDS DECLARED


                                For the three months      For the year ended
                                  ended December 31,            December 31,
----------------------------------------------------------------------------
                                    2011        2010        2011        2010
----------------------------------------------------------------------------
Total dividends declared per                                                
 share                              0.08       0.065       0.305        0.23
----------------------------------------------------------------------------

On December 15, 2011 Newalta declared a dividend of $0.08 per share to holders of shares of record on December 31, 2011. This dividend was paid on January 16, 2012.

NOTE 17. 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:


----------------------------------------------------------------------------
                       2012    2013   2014   2015   2016  Thereafter   Total
----------------------------------------------------------------------------
Amount drawn on                                                             
 credit facility(1)                                                         
 (Note 7)                 -  68,493      -      -      -           -  68,493
Senior unsecured                                                            
 debentures (Note 8) 19,219  19,219 19,219 19,219 19,219     286,354 382,449
----------------------------------------------------------------------------
Total debt                                                                  
 commitments         19,219  87,712 19,219 19,219 19,219     286,354 450,942
----------------------------------------------------------------------------
Office leases         7,805   7,776  7,390  7,287  7,166      20,944  58,368
Operating leases      8,706   4,277  2,850  1,186    163           -  17,182
Surface leases        1,184     318    318    318    318         200   2,656
Accounts payable and                                                        
 accrued liabilities147,897       -      -      -      -           - 147,897
Dividends payable     3,889       -      -      -      -           -   3,889
----------------------------------------------------------------------------
Total debt and other                                                        
 commitments        188,700 100,083 29,777 28,010 26,866     307,498 680,934
----------------------------------------------------------------------------

(1) Gross of transaction costs. Interest payments are not reflected.

b) Letters of Credit and Surety Bonds

As at December 31, 2011, Newalta had issued letters of credit and surety bonds in respect of compliance with environmental licenses in the amount of $21.3 million and $38.3 million, respectively ($21.5 million and $31.5 million as at December 31, 2010 and $22.1 million and $20.2 million as at January 1, 2010).

NOTE 18. FINANCIAL INSTRUMENTS

Fair Value of Financial Assets and Liabilities

Newalta's financial instruments include cash and cash equivalents, investment, bank indebtedness, 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 secured 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, 2011 are as follows:


----------------------------------------------------------------------------
                                                                       Total
                               Loans and   Available       Other    Carrying
                       FVTPL Receivables    for sale Liabilities       Value
----------------------------------------------------------------------------
Accounts                                                                    
 receivable                -     134,172           -           -     134,172
Investment                73           -         729           -         802
Other long-term                                                             
 assets(1)                 -         688           -           -         688
Bank                                                                        
 indebtedness              -           -           -       6,168       6,168
Accounts payable                                                            
 and accrued                                                                
 liabilities               -           -           -     147,897     147,897
Dividends                                                                   
 payable                   -           -           -       3,889       3,889
Senior secured                                                              
 debt(2)                   -           -           -      68,493      68,493
----------------------------------------------------------------------------

1.  Excludes non-financial instruments. 
2.  Net of related costs. 

The fair value of the Unsecured Senior Debentures is based on open market quotation as follows:


----------------------------------------------------------------------------
As at December 31, 2011                                          Quoted fair
                                                Carrying value         value
----------------------------------------------------------------------------
7.625% Series 1 senior unsecured debentures due                             
 November 23, 2017                                     125,000       127,813
----------------------------------------------------------------------------
7.75% Series 2 senior unsecured debentures due                              
 November 14, 2019                                     125,000       126,563
----------------------------------------------------------------------------

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 investment in shares of BioteQ.

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 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, 2011, December 31, 2010 and January 1, 2010, Newalta did not have any significant Level 3 assets or liabilities.

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 exceeded 10% of total accounts receivable at December 31, 2011, (one customer - 19% as at December 31, 2010). 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 represented 13% and 13% of revenue for the three months and year ended December 31, 2011, respectively (17% and 14% for the three months and year ended December 31, 2010, respectively). This revenue is recognized within our Facilities segment. No other customer's revenue exceeded 10% for the periods presented.

Based on the nature of our 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 90 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 $2.8 million (December 31, 2010 - $2.2 million), which are considered to be outstanding beyond normal repayment terms at December 31, 2011. A provision of $0.3 million (December 31, 2010 - $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 but may hold credit insurance for specific non-domestic customer accounts.


----------------------------------------------------------------------------
                               Trade receivables      Allowance for doubtful
Aging                        aged by invoice date                   accounts
----------------------------------------------------------------------------
                        Dec 31,  Dec 31,   Jan 1,  Dec 31,  Dec 31,   Jan 1,
                           2011     2010     2010     2011     2010     2010
----------------------------------------------------------------------------
Current                  76,063   60,867   53,981       38       22       13
31-60 days               22,204   11,730   15,454       24        1       21
61-90 days                8,016    3,001    3,159       50       20       65
91 days +                 2,757    2,220      791      173      298      725
----------------------------------------------------------------------------
Total                   109,040   77,818   73,385      285      341      824
----------------------------------------------------------------------------

-------------------------------------------------
Aging                             Net receivables
-------------------------------------------------
                        Dec 31,  Dec 31,   Jan 1,
                           2011     2010     2010
-------------------------------------------------
Current                  76,025   60,845   53,968
31-60 days               22,180   11,729   15,433
61-90 days                7,966    2,981    3,094
91 days +                 2,584    1,922       66
-------------------------------------------------
Total                   108,755   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 at risk are provided for in an allowance for doubtful accounts. The changes in this account for the years ended December 31, 2011 and December 31, 2010 are as follows:


                                                December 31,   December 31, 
Allowance for doubtful accounts                         2011           2010 
----------------------------------------------------------------------------
Balance, beginning of year                               341            824 
Increase in amounts provided for                          44            108 
Net amounts written off as uncollectible                (100)          (591)
----------------------------------------------------------------------------
Balance, end of year                                     285            341 
----------------------------------------------------------------------------

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.

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 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 to net earnings as at period end:


----------------------------------------------------------------------------
                        Three months Three months                           
                               ended        ended   Year ended   Year ended 
                        December 31, December 31, December 31, December 31, 
                                2011         2010         2011         2010 
----------------------------------------------------------------------------
If interest rates                                                           
 increased by 1% with                                                       
 all other values held                                                      
 constant                       (126)        (210)        (548)        (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, recognized 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, 2011, Newalta had $47.0 million in net working capital and $30.0 million in long-term debt both 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, 2011.

The table below provides a foreign currency sensitivity analysis to net earnings on long-term debt and working capital outstanding as at period end:


----------------------------------------------------------------------------
                                                                2011    2010
----------------------------------------------------------------------------
If the value of the U.S. dollar in relation to the CDN                      
 dollar increased by $0.01 with all other variables held                    
 constant                                                        133       1
----------------------------------------------------------------------------

NOTE 19. RELATED PARTIES

Significant subsidiaries

The unaudited consolidated financial statements include the financial statements of Newalta and our subsidiaries as at December 31, 2011 and December 31, 2010. Transactions between each subsidiary and the subsidiaries and parent are eliminated on consolidation. Newalta did not have any material related party transactions with entities outside the consolidated group in the years ended December 31, 2011 and 2010. The following is a list of the major subsidiary and related party of our operations:


                                                         Ownership interest 
                                    Country of                              
                                 Incorporation          2011           2010 
----------------------------------------------------------------------------
Newalta                                                                     
 Environmental                                                              
 Services Inc.        Subsidiary United States           100%           100%
----------------------------------------------------------------------------
TerraAqua Resource                                                          
 Management LLC    Joint venture United States            50%             - 
----------------------------------------------------------------------------

Key Management Personnel

Key management personnel are comprised of Newalta's Board of Directors and Executive Management Committee. The remuneration of key management personnel during the year was as follows:


----------------------------------------------------------------------------
                                                     Year ended December 31,
----------------------------------------------------------------------------
                                                          2011          2010
----------------------------------------------------------------------------
Short term benefits                                      5,460         4,248
Share-based payments                                     1,819         4,543
----------------------------------------------------------------------------
Total remuneration                                       7,279         8,791
----------------------------------------------------------------------------

NOTE 20. CASH FLOW STATEMENT INFORMATION

The following tables provide supplemental information:


----------------------------------------------------------------------------
                             For the three months        For the year ended 
                               ended December 31,              December 31, 
----------------------------------------------------------------------------
                                 2011        2010         2011         2010 
----------------------------------------------------------------------------
Decrease (increase) in                                                      
 accounts receivable           11,787      13,332      (31,794)     (18,061)
Decrease (increase) in                                                      
 inventories                      494       4,799       (4,308)       6,502 
Decrease (increase) in                                                      
 prepayments                    4,084         240        1,447       (1,375)
Increase in accounts                                                        
 payable and accrued                                                        
 liabilities                   10,065       8,283       20,281       22,468 
Increase (decrease) in                                                      
 accounts payable and                                                       
 accrued liabilities                                                        
 related to purchases of                                                    
 property, plant and                                                        
 equipment                      1,319      (3,330)        (482)      (8,073)
----------------------------------------------------------------------------
Total decrease (increase)                                                   
 in non-cash working                                                        
 capital                       27,749      23,324      (14,856)       1,461 
----------------------------------------------------------------------------

----------------------------------------------------------------------------
                             For the three months        For the year ended 
                               ended December 31,              December 31, 
----------------------------------------------------------------------------
                                2011         2010         2011         2010 
----------------------------------------------------------------------------
Additions to property,                                                      
 plant and equipment                                                        
 during the year             (45,467)     (30,058)    (117,625)     (76,405)
(Increase) decrease in                                                      
 accounts payable and                                                       
 accrued liabilities                                                        
 related to purchases of                                                    
 property, plant and                                                        
 equipment                    (1,319)       3,330          482        8,073 
----------------------------------------------------------------------------
Total cash additions to                                                     
 property, plant and                                                        
 equipment                   (46,786)     (26,728)    (117,143)     (68,332)
----------------------------------------------------------------------------

NOTE 21. SEGMENTED INFORMATION

Onsite and Facilities 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.



                      As at and for the three months ended December 31, 2011
                                            Inter- Unallocated  Consolidated
                     Facilities    Onsite   segment        (3)         Total
----------------------------------------------------------------------------
External revenue        125,014    59,075         -          -       184,089
Cost of sales (1)        98,579    42,770         -          -       141,349
----------------------------------------------------------------------------
Gross profit             26,435    16,305         -          -        42,740
Selling, general and                                                        
 administrative               -         -         -     25,187        25,187
Research and                                                                
 development                  -         -         -        439           439
Finance charges               -         -         -      8,505         8,505
----------------------------------------------------------------------------
Earnings before taxes    26,435    16,305              (34,131)        8,609
----------------------------------------------------------------------------
Property, plant and                                                         
 equipment                                                                  
 expenditures            18,882    21,007         -      5,400        45,289
----------------------------------------------------------------------------
Goodwill                 44,381    58,516         -          -       102,897
----------------------------------------------------------------------------
Total assets            716,904   350,927         -     97,190     1,165,021
----------------------------------------------------------------------------
Total liabilities       157,849   135,022         -    330,229       623,100
----------------------------------------------------------------------------

                      As at and for the three months ended December 31, 2010
                                           Inter-  Unallocated  Consolidated
                    Facilities    Onsite   segment         (3)         Total
----------------------------------------------------------------------------
External revenue       115,089    47,838         -           -       162,927
Inter segment                                                               
 revenue(2)                104         -      (104)          -             -
Cost of sales (1)       86,628    37,130      (104)          -       123,654
----------------------------------------------------------------------------
Gross profit            28,565    10,708         -           -        39,273
Selling, general and                                                        
 administrative              -         -         -      26,678        26,678
Research and                                                                
 development                 -         -         -         586           586
Finance charges              -         -         -       6,641         6,641
----------------------------------------------------------------------------
Earnings before                                                             
 taxes                  28,565    10,708         -     (33,905)        5,368
----------------------------------------------------------------------------
Property, plant and                                                         
 equipment                                                                  
 expenditures           14,265    12,991         -       2,835        30,091
----------------------------------------------------------------------------
Goodwill                44,381    58,516         -           -       102,897
----------------------------------------------------------------------------
Total assets           648,431   299,957         -      99,289     1,047,677
----------------------------------------------------------------------------
Total liabilities      198,298   140,856         -     184,367       523,521
----------------------------------------------------------------------------

(1) Cost of sales includes amortization of $13,579 (Facilities $9,248 and Onsite $4,331) and $12,109 for 2010 (Facilities $8,786 and Onsite $3,323).

(2) Inter-segment revenue is recorded at market, less the costs of serving external customers.

(3) Management does not allocate selling, general and administrative, research and development, taxes, and finance charges in the segment analysis.




                              As at and for the year ended December 31, 2011
                                            Inter- Unallocated  Consolidated
                     Facilities    Onsite   segment        (3)         Total
----------------------------------------------------------------------------
External revenue        469,368   213,460         -          -       682,828
Cost of sales (1)       360,657   156,662         -          -       517,319
----------------------------------------------------------------------------
Gross profit            108,711    56,798         -          -       165,509
Selling, general and                                                        
 administrative               -         -         -     87,232        87,232
Research and                                                                
 development                  -         -         -      2,337         2,337
Finance charges               -         -         -     28,191        28,191
----------------------------------------------------------------------------
Earnings before taxes   108,711    56,798             (117,760)       47,749
----------------------------------------------------------------------------
Property, plant and                                                         
 equipment                                                                  
 expenditures            53,772    49,776         -     14,132       117,680
----------------------------------------------------------------------------
Goodwill                 44,381    58,516         -          -       102,897
----------------------------------------------------------------------------
Total assets            716,904   350,927         -     97,190     1,165,021
----------------------------------------------------------------------------
Total liabilities       157,849   135,022         -    330,229       623,100
----------------------------------------------------------------------------

                              As at and for the year ended December 31, 2010
                                           Inter-  Unallocated  Consolidated
                    Facilities    Onsite   segment         (3)         Total
----------------------------------------------------------------------------
External revenue       393,950   182,246         -           -       576,196
Inter segment                                                               
 revenue(2)                590         -      (590)          -             -
Cost of sales (1)      295,803   142,593      (590)          -       437,806
----------------------------------------------------------------------------
Gross profit            98,737    39,653         -           -       138,390
Selling, general and                                                        
 administrative              -         -         -      84,566        84,566
Research and                                                                
 development                 -         -         -       1,713         1,713
Finance charges              -         -         -      26,814        26,814
----------------------------------------------------------------------------
Earnings before                                                             
 taxes                  98,737    39,653         -    (113,093)       25,297
----------------------------------------------------------------------------
Property, plant and                                                         
 equipment                                                                  
 expenditures           33,749    33,281         -       9,518        76,548
----------------------------------------------------------------------------
Goodwill                44,381    58,516         -           -       102,897
----------------------------------------------------------------------------
Total assets           648,431   299,957         -      99,289     1,047,677
----------------------------------------------------------------------------
Total liabilities      198,298   140,856         -     184,367       523,521
----------------------------------------------------------------------------

(1) Cost of sales includes amortization of $51,576 (Facilities $36,464 and Onsite $15,112) and $43,489 for 2010 (Facilities $30,652 and Onsite $12,837).

(2) Inter-segment revenue is recorded at market, less the costs of serving external customers.

(3) Management does not allocate selling, general and administrative, research and development, taxes, and finance charges in the segment analysis.

NOTE 22. EXPLANATION OF TRANSITION TO IFRS

As at January 1, 2010, the date of transition, the Corporation has elected the following exemptions permitted by IFRS 1 First time adoption of IFRS:


1.  Business combinations: Newalta elected not to restate any business
    combination before the transition date. 
2.  Share-based payments: Newalta elected not to restate share-based
    payments relating to equity instruments that vested before the
    transition date and liabilities that were settled before the transition
    date.  
3.  Arrangements containing a lease: Newalta elected to not retrospectively
    apply requirements relating to arrangements containing a lease. Newalta
    has only reviewed arrangements that were in existence at the date of
    transition. 
4.  Newalta has elected under IFRS 1 to not retrospectively apply changes in
    existing decommissioning, restoration and similar liabilities. At the
    date of transition Newalta restated the provision in accordance with the
    requirement of the IFRS 1 exemption. 
5.  Capitalization of the borrowing costs: Newalta elected not to capitalize
    borrowing costs before the transition date. 

The accounting policies set out in these unaudited consolidated financial statements have been applied in preparing the financial statements for the three months and year ended December 31, 2011, the comparative information presented in these unaudited financial statements for the three months and year ended December 31, 2010 and in the preparation of an opening IFRS statement of financial position as at January 1, 2010 (the Corporation's date of transition).

In preparing its opening IFRS statement of financial position, the Corporation has adjusted amounts reported previously in its consolidated financial statements prepared in accordance with previous Canadian GAAP. An explanation of how the transition from previous Canadian GAAP to IFRS has affected the Corporation's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.

Reconciliation of the Consolidated Balance Sheets

As at January 1, 2010

(Expressed in thousands of Canadian Dollars)


                                             Previous   Effect of           
                                             Canadian  transition           
                                     Note        GAAP     to IFRS       IFRS
----------------------------------------------------------------------------
Assets                                                                      
Current Assets                                                              
 Cash and cash equivalents              a           -       3,920      3,920
 Accounts receivable                           84,317           -     84,317
 Inventories                                   33,148           -     33,148
 Prepaid expenses and other                     6,183           -      6,183
----------------------------------------------------------------------------
                                              123,648       3,920    127,568
Non-current assets                                                          
 Property, plant and equipment          b     701,884      19,772    721,656
 Permits and other intangibles                 61,935           -     61,935
 Other long-term assets                         2,666           -      2,666
 Goodwill                                     103,597           -    103,597
----------------------------------------------------------------------------
TOTAL ASSETS                                  993,730      23,692  1,017,422
----------------------------------------------------------------------------

Liabilities                                                                 
Current liabilities                                                         
 Accounts payable and accrued                                               
  liabilities                           c      90,191         451     90,642
 Dividend payable                               2,423           -      2,423
----------------------------------------------------------------------------
                                               92,614         451     93,065
Non-current liabilities                                                     
 Senior secured debt                    a     188,123       3,920    192,043
 Convertible debentures - debt                                              
  portion                               d     110,708          17    110,725
 Other liabilities                      c       1,218         429      1,647
 Deferred tax liability                 g      39,164       7,692     46,856
 Decommissioning liability              b      21,903      32,682     54,585
----------------------------------------------------------------------------
TOTAL LIABILITIES                             453,730      45,191    498,921
----------------------------------------------------------------------------
Shareholder's Equity                                                        
 Shareholder's capital                g,h     552,871    (237,035)   315,836
 Convertible debentures -                                                   
  equity portion                      d,g       1,850        (829)     1,021
 Contributed surplus                            1,679           -      1,679
 Retained earnings            b,c,d,g,h,j     (16,400)    216,365    199,965
----------------------------------------------------------------------------
TOTAL EQUITY                                  540,000     (21,499)   518,501
----------------------------------------------------------------------------
TOTAL EQUITY AND LIABILITIES                  993,730      23,692  1,017,422
----------------------------------------------------------------------------

Reconciliation of the Consolidated Balance Sheets

As at December 31, 2010

(Expressed in thousands of Canadian Dollars)


                                              Previous  Effect of           
                                              Canadian transition           
                                       Note       GAAP    to IFRS       IFRS
----------------------------------------------------------------------------
Assets                                                                      
Current Assets                                                              
 Accounts receivable                           102,378          -    102,378
 Inventories                                    26,645          -     26,645
 Investment                                      4,274          -      4,274
 Prepaid expenses and other                      7,292          -      7,292
----------------------------------------------------------------------------
                                               140,589          -    140,589
Non-current assets                                                          
 Property, plant and equipment          b,e    722,840     18,953    741,793
 Permits and other intangibles                  60,579          -     60,579
 Other long-term assets                          1,819          -      1,819
 Goodwill                                      102,897          -    102,897
----------------------------------------------------------------------------
TOTAL ASSETS                                 1,028,724     18,953  1,047,677
----------------------------------------------------------------------------

Liabilities                                                                 
Current liabilities                                                         
 Bank indebtedness                        a          -        169        169
 Accounts payable and accrued                                               
  liabilities                             c    118,218      2,152    120,370
 Dividend payable                                3,152          -      3,152
----------------------------------------------------------------------------
                                               121,370      2,321    123,691
Non-current liabilities                                                     
 Senior secured debt                      a     51,689       (169)    51,520
 Convertible debentures - debt                                              
  portion                                 d    112,073          1    112,074
 Senior unsecured debentures                   122,050          -    122,050
 Other liabilities                        c      5,063        264      5,327
 Deferred tax liability                   g     47,183      7,308     54,491
 Decommissioning liability                b     21,700     32,668     54,368
----------------------------------------------------------------------------
TOTAL LIABILITIES                              481,128     42,393    523,521
----------------------------------------------------------------------------
Shareholders' Equity                                                        
 Shareholders' capital                  g,h    552,969   (237,035)   315,934
 Convertible debentures -                                                   
  equity portion                        d,g      1,850       (829)     1,021
 Contributed surplus                             1,679          -      1,679
 Retained earnings            b,c,d,e,g,h,j     (9,489)   214,424    204,935
 Accumulated other                                                          
  comprehensive income                             587          -        587
----------------------------------------------------------------------------
TOTAL EQUITY                                   547,596    (23,440)   524,156
----------------------------------------------------------------------------
TOTAL EQUITY AND LIABILITIES                 1,028,724     18,953  1,047,677
----------------------------------------------------------------------------

Reconciliation of the Consolidated Statements of Operations and Comprehensive Income

For the three months ended December 31, 2010

(Expressed in thousands of Canadian Dollars)


                                                        Effect of           
                                             Canadian  transition           
                                     Note        GAAP     to IFRS       IFRS
----------------------------------------------------------------------------
Revenue                                       162,927           -    162,927
Operating expenses                      i     111,543    (111,543)         -
Cost of sales                         b,i           -     123,654    123,654
----------------------------------------------------------------------------
Gross profit                                                          39,273
----------------------------------------------------------------------------
 Selling, general and                                                       
  administrative                      c,i      23,972       2,706     26,678
 Research and development                         586           -        586
 Finance charges                  b,d,e,f       6,608          33      6,641
 Amortization                           i      14,891     (14,891)         -
----------------------------------------------------------------------------
Earnings before taxes                           5,327          41      5,368
----------------------------------------------------------------------------
Provisions for income taxes                                                 
 Current                                          520           -        520
 Deferred                               g       1,945         (18)     1,927
----------------------------------------------------------------------------
                                                2,465         (18)     2,447
----------------------------------------------------------------------------
Net earnings                            j       2,862          59      2,921
----------------------------------------------------------------------------
Other comprehensive income                         55           -         55
----------------------------------------------------------------------------
Comprehensive income                    j       2,917          59      2,976
----------------------------------------------------------------------------

----------------------------------------------------------------------------
 Basic earnings per Share                        0.06           -       0.06
----------------------------------------------------------------------------
 Diluted earnings per Share                      0.06           -       0.06
----------------------------------------------------------------------------

Reconciliation of the Consolidated Statements of Operations and Comprehensive Income

For the year ended December 31, 2010

(Expressed in thousands of Canadian Dollars)


                                                        Effect of           
                                             Canadian  transition           
                                     Note        GAAP     to IFRS       IFRS
----------------------------------------------------------------------------
Revenue                                       576,196           -    576,196
Operating expenses                      i     394,317    (394,317)         -
Cost of sales                         b,i           -     437,806    437,806
----------------------------------------------------------------------------
Gross profit                                                         138,390
----------------------------------------------------------------------------
 Selling, general and                                                       
  administrative                      c,i      70,891      13,675     84,566
 Research and development                       1,713           -      1,713
 Finance charges                  b,d,e,f      25,663       1,151     26,814
 Amortization                           i      55,990     (55,990)         -
----------------------------------------------------------------------------
Earnings before taxes                          27,622      (2,325)    25,297
----------------------------------------------------------------------------
Provisions for income taxes                                                 
 Current                                          938           -        938
 Deferred                               g       8,621        (384)     8,237
----------------------------------------------------------------------------
                                                9,559        (384)     9,175
----------------------------------------------------------------------------
Net earnings                            j      18,063      (1,941)    16,122
----------------------------------------------------------------------------
Other comprehensive income                        587           -        587
----------------------------------------------------------------------------
Comprehensive income                    j      18,650      (1,941)    16,709
----------------------------------------------------------------------------

----------------------------------------------------------------------------
 Basic earnings per Share                        0.37       (0.04)      0.33
----------------------------------------------------------------------------
 Diluted earnings per Share                      0.37       (0.04)      0.33
----------------------------------------------------------------------------


The following notes provide additional supplementary information regarding the impact of the transition to IFRS:


a.  Reclassification of cash and cash equivalents (bank indebtedness) 

Under IFRS, within the consolidated balance sheets, cash and cash equivalents (bank indebtedness) are disclosed separately. Under Canadian GAAP, cash and cash equivalents (bank indebtedness) were included as part of senior secured debt.


b.  Provision for decommissioning liabilities 

As at January 1, 2010, the Corporation conducted an analysis of the discount rate used to calculate the present value of its decommissioning liability.

Under Canadian GAAP - Consistent with IFRS treatment, provisions for decommissioning liabilities were previously measured based on the estimated cost of decommissioning, discounted to its net present value upon initial recognition. Decommissioning liabilities were however not subsequently remeasured to reflect period end discount rates.

Under IFRS - Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a change in the current market-based discount rate results in a change in the measurement of the provision. As a result, the decommissioning liability recorded has been re-measured using the discount rate in effect at January 1, 2010 and each subsequent reporting period, with an adjustment recorded to the corresponding property, plant and equipment.

Impact on Consolidated Balance Sheets


                                                               December 31, 
                                              January 1,2010           2010 
----------------------------------------------------------------------------
Increase in property, plant and equipment             19,772         18,150 
Increase in decommissioning liabilities              (32,682)       (32,668)
----------------------------------------------------------------------------
Decrease in retained earnings                        (12,910)       (14,518)
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income


                                                Three months     Year ended 
                                              ended December   December 31, 
                                                    31, 2010           2010 
----------------------------------------------------------------------------
Increase in cost of sales                                405          1,620 
Decrease in finance charges                               (1)           (12)
----------------------------------------------------------------------------
Net decrease in comprehensive income                     404          1,608 
----------------------------------------------------------------------------

Share based payments

Measurement of liabilities

Under Canadian GAAP - The Corporation accounted for the 2006 Plan, the 2008 Plan and the share appreciation rights ("SARs") by reference to their intrinsic value.

Under IFRS - The related liabilities have been adjusted to reflect the fair value of the outstanding incentives plans by applying an option pricing model. As a result, Newalta adjusted expenses associated with its share based incentive plans to reflect the changes of the fair values of these awards.

Forfeitures

Under Canadian GAAP - Forfeitures of awards were recognized as they occurred.

Under IFRS - Forfeiture estimates are recognized on the grant date based on management's best estimate of the expected number of forfeitures to be made in all subsequent periods.

Impact on Consolidated Balance Sheets


                                                               December 31, 
                                              January 1,2010           2010 
----------------------------------------------------------------------------
Increase in accounts payable and accrued                                    
 liabilities                                            (451)        (2,152)
Increase in other liabilities                           (429)          (264)
----------------------------------------------------------------------------
Decrease in retained earnings                           (880)        (2,416)
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income


                                                Three months     Year ended 
                                              ended December   December 31, 
                                                    31, 2010           2010 
----------------------------------------------------------------------------
Increase in selling, general and                                            
 administrative                                           15          1,536 
----------------------------------------------------------------------------
Decrease in comprehensive income                         (15)        (1,536)
----------------------------------------------------------------------------

d.  Convertible debentures 

Initial measurement of debt and equity portions

Under Canadian GAAP - Initially, the fair value of liability and equity component is measured separately. The value of the liability and equity components is then adjusted on a pro-rata basis so that the sum equals the total value of the convertible debenture.

Under IFRS - As these debentures were issued prior to the Corporation's conversion from a Trust, the option to convert the debt into equity in the form of trust units was considered a derivative financial instrument. The option to settle the debt in Trust units caused it to be classified as a financial liability rather than an equity instrument up until the date of conversion from a Trust to a Corporation on December 31, 2008.

This resulted in the derivative being measured at fair value through net earnings and the liability portion being measured at amortized cost up until December 31, 2008. Upon conversion to a Corporation, the derivative value was allocated to equity.

Issuance costs

Under Canadian GAAP - Transaction costs associated with the issuance of the convertible debentures are included in the financial liability.

Under IFRS - Transactions costs that are directly attributable to the issuance of the convertible debentures are allocated to the liability and equity component of the convertible debenture at initial recognition.

Impact on Consolidated Balance Sheets


                                                  January 1,   December 31, 
                                                        2010           2010 
----------------------------------------------------------------------------
Increase in convertible debenture - debt                                    
 portion                                                 (17)            (1)
Decrease in convertible debenture - equity                                  
 portion                                                 479            479 
----------------------------------------------------------------------------
Increase in retained earnings                            462            478 
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income


                                                Three months     Year ended 
                                              ended December   December 31, 
                                                    31, 2010           2010 
----------------------------------------------------------------------------
Decrease in finance charges                               (4)           (16)
Increase in comprehensive income                           4             16 
----------------------------------------------------------------------------


e.  Capitalized borrowing costs 

Under IFRS, an entity must capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, as part of the cost of that asset. The Corporation capitalized borrowing costs on a prospective basis, on any new qualifying project after the date of transition.

Impact on Consolidated Balance Sheets


                                                    January 1,  December 31,
                                                          2010          2010
----------------------------------------------------------------------------
Increase in property, plant and equipment                    -           803
----------------------------------------------------------------------------
Increase in retained earnings                                -           803
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income


                                                Three months     Year ended 
                                              ended December   December 31, 
                                                    31, 2010           2010 
----------------------------------------------------------------------------
Decrease in finance charges                             (454)          (803)
----------------------------------------------------------------------------
Increase in comprehensive income                         454            803 
----------------------------------------------------------------------------

f.  Reclassification of the unwinding of discount associated with
    decommissioning liabilities 

Under Canadian GAAP - The unwinding of the discount associated with decommissioning liabilities was presented in the consolidated statements of operations within amortization expense.

Under IFRS - The unwinding of the discount associated with decommissioning liabilities is presented in the consolidated statements of operations within finance charges.

Impact on Consolidated Statements of Comprehensive Income


                                                Three months     Year ended 
                                              ended December   December 31, 
                                                    31, 2010           2010 
----------------------------------------------------------------------------
Decrease in amortization expense                        (497)        (1,982)
----------------------------------------------------------------------------
Increase in finance charges                              497          1,982 
----------------------------------------------------------------------------
Increase (decrease) in comprehensive income                -              - 
----------------------------------------------------------------------------

g.  Deferred tax 

Impact of conversion from a Trust to Corporation on December 31, 2008

Under Canadian GAAP - Income tax accounting is applied for share issue costs and any related future income tax that was created at the time of conversion from a Trust to a Corporation.

Under IFRS - The tax impact is classified according to the nature of the transaction. In the case of the conversion from a Trust to a Corporation, deferred taxes associated with the share issuance costs resulting from the conversion, are recorded as an adjustment to shareholders' capital.

Convertible debentures

Under Canadian GAAP - Deferred income tax related to the equity portion of the convertible debentures is recognized through earnings.

Under IFRS- The tax impact is classified according to the nature of the transaction. In the case of the bifurcation of the convertible debentures, the deferred tax impact is recorded as an adjustment to the equity portion of the convertible debentures.

Tax basis of intangible assets, including goodwill

Under Canadian GAAP - The tax basis of intangible assets included the balance in the cumulative eligible capital pool plus the non-taxable portion (25% of the carrying amount). This would effectively eliminate any deferred tax on intangible assets upon acquisition.

Under IFRS - Deferred taxes are not recognized where goodwill or intangibles are acquired outside of a business combination. As Newalta's goodwill and intangible assets have predominantly been acquired through business combinations, this results in a deferred tax liability.

Impact on Consolidated Balance Sheets


                                                  January 1,   December 31, 
                                                        2010           2010 
----------------------------------------------------------------------------
Increase in shareholder's capital (note h)              (971)          (971)
Decrease in convertible debenture - equity                                  
 portion                                                 350            350 
Increase in deferred tax liability                    (7,692)        (7,308)
----------------------------------------------------------------------------
Decrease in retained earnings                         (8,313)        (7,929)
----------------------------------------------------------------------------

Other earnings adjustments

The first quarter and full year earnings adjustments related to capitalization of borrowing costs, decommissioning liabilities, share-based payments and convertible debentures discussed in b) through e) above, had the following additional tax related impact on the Consolidated Statements of Comprehensive Income:


                                                Three months     Year ended 
                                              ended December   December 31, 
                                                    31, 2010           2010 
----------------------------------------------------------------------------
Decrease in provision for deferred taxes                 (18)          (384)
----------------------------------------------------------------------------
Increase (decrease) in comprehensive income               18            384 
----------------------------------------------------------------------------

h.  Shareholders' Capital 

Impact of conversion from a Trust to Corporation on December 31, 2008

Under Canadian GAAP - Trust units issued under the Trust Indenture in place prior to our conversion to a Corporation were considered equity.

Under IFRS - Trust units issued prior to our conversion to a Corporation were classified as a financial liability rather than an equity instrument. As a result, the liability associated with the trust units was measured at fair value through net earnings up until December 31, 2008, the date of conversion from a Trust to a Corporation.

Impact on Consolidated Balance Sheets


                                                  January 1,   December 31, 
                                                        2010           2010 
----------------------------------------------------------------------------
Decrease in shareholders' capital                   (238,006)      (238,006)
----------------------------------------------------------------------------
Increase in retained earnings                        238,006        238,006 
----------------------------------------------------------------------------

This change had no impact on our Statements of Comprehensive Income for the year ended December 31, 2010.


i.  Summary of presentation changes to cost of sales and selling, general
    and administrative expense, and reclassification of unwinding of
    discount to finance charges 

Operating expenses presented as cost of sales

Under Canadian GAAP - Operating expenses were presented as a separate line item within the consolidated statement of operations.

Under IFRS- Operating expenses of $111,573 and $394,317 for the three months and year ended December 31, 2010, respectively, are now presented within the consolidated statement of operations and comprehensive income, as cost of sales.

Amortization presented based on function of expense

Under Canadian GAAP - Amortization of property, plant and equipment was presented as a separate line item within the consolidated statement of operations.

Under IFRS- The amortization of property, plant and equipment and intangible assets is now presented based on the function of expense to which its relates, being either part of cost of sales or part of selling, general and administrative expense.

Unwinding of discount related to decommissioning liabilities presented as finance charges

Under Canadian GAAP - The expense associated with the unwinding of the discount related to decommissioning liabilities was presented as part of amortization expense within the consolidated statement of operations.

Under IFRS - The expenses associated with the unwinding of the discount related to decommissioning liabilities is presented as finance charges.

Impact on Consolidated Statements of Comprehensive Income


                                                Three months     Year ended 
                                              ended December   December 31, 
                                          Note      31, 2010           2010 
----------------------------------------------------------------------------
Amortization disclosed                                                      
 separately under Canadian GAAP                      (14,891)       (55,990)
Amortization allocated to cost                                              
 of sales                                             11,704         41,869 
Amortization allocated to                                                   
 selling, general and                                                       
 administrative expense                                2,690         12,139 
Unwinding of discount                                                       
 reclassified to finance charges              f           497         1,982 
----------------------------------------------------------------------------
Net decrease in comprehensive                                               
 income                                                    -              - 
----------------------------------------------------------------------------

j.  Summary of changes to retained earnings and comprehensive income: 

Impact on Consolidated Balance Sheets


                                                  January 1,   December 31, 
                                          Note          2010           2010 
----------------------------------------------------------------------------
Decommissioning liability                                                   
 increase net impact                         b       (12,910)       (14,518)
Share-based payments liability                                              
 valuation impact                            c          (880)        (2,416)
Convertible debentures valuation                                            
 impact                                      d           462            478 
Capitalization of borrowing                                                 
 costs impact                                e             -            803 
Deferred tax impact                          g        (8,313)        (7,929)
Shareholder's capital re-                                                   
 measurement due to trust units              h       238,006        238,006 
----------------------------------------------------------------------------
Increase in retained earnings                        216,365        214,424 
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income


                                                Three months     Year ended 
                                              ended December   December 31, 
                                          Note      31, 2010           2010 
----------------------------------------------------------------------------
Decommissioning liability impact             b          (404)        (1,608)
Share-based payments valuation                                              
 impact                                      c           (15)        (1,536)
Convertible debentures accretion                                            
 impact                                      d             4             16 
Capitalization of borrowing                                                 
 costs                                       e           454            803 
Deferred tax impact                          g            18            384 
----------------------------------------------------------------------------
Increase in comprehensive income                          59         (1,941)
----------------------------------------------------------------------------

k.  Statement of cash flows 

Consistent with requirement of IAS 7, Statement of Cash Flows, interest paid and income taxes paid are now disclosed separately in the Statement of Cash Flows.

Additionally, borrowing costs capitalized in relation to qualifying assets are presented within additions to property, plant and equipment ($1.6 million and $2.7 million for the three months and year ended December 31, 2011, respectively and $0.7 million and $0.8 million for the same periods in 2010).

There are no other material differences between the statement of cash flows presented under IFRS and the statement of cash flows presented under previous Canadian GAAP.

Contact Information

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