Newalta Corporation
TSX : NAL

Newalta Corporation

August 04, 2011 20:36 ET

Newalta Reports Strong Second Quarter 2011 Growth, Positive Outlook

CALGARY, ALBERTA--(Marketwire - Aug. 4, 2011) - Newalta Corporation ("Newalta") (TSX:NAL) today reported solid increases in revenue, profitability and capital returns for the second quarter ended June 30, 2011 on a near full recovery in market conditions and expects continued strong performance for the remainder of the year.

Effective January 1, 2011, Newalta began reporting its financial results in accordance with International Financial Reporting Standard ("IFRS"). As such, certain prior year comparatives have been restated to reflect IFRS impacts. Please see page 26 of the second quarter MD&A for further details.


FINANCIAL HIGHLIGHTS(1)
                                              Three months ended
                                                         June 30,
                                                                 % Increase
($000s except per share data)                   2011        2010  (Decrease)
(unaudited)                                           
----------------------------------------------------------------------------
Revenue                                      164,294     136,905         20
Gross profit(2)                               38,691      31,046         25
- % of revenue                                    24%         23%         4
Net earnings                                  10,483       2,385        340
- per share ($) - basic                         0.22        0.05        340
- per share ($) - basic adjusted(3)             0.20        0.07        186
- per share ($) - diluted                       0.21        0.05        320
Adjusted EBITDA(3)                            33,044      26,574         24
- per share ($)(3)                              0.68        0.55         24
Cash from operations                          33,017       7,715        328
- per share ($)                                 0.68        0.16        325
Funds from operations(3)                      23,157      18,928         22
- per share ($)(3)                              0.48        0.39         23
Maintenance capital
 expenditures(3)                               7,271       6,924          5
Growth capital expenditures(3)                19,304       8,641        123
Dividends declared                             3,889       2,424         60
- per share ($)(3)                              0.08        0.05         60
Dividends paid                                 3,153       2,424         30
Weighted average shares
 outstanding                                  48,523      48,487          -
Shares outstanding, June 30, (4)              48,607      48,487          -

FINANCIAL HIGHLIGHTS(1)
                                                Six months ended
                                                         June 30,
                                                                 % Increase
($000s except per share data)                   2011        2010  (Decrease)
(unaudited)                                            
----------------------------------------------------------------------------
Revenue                                      316,716     268,145         18
Gross profit(2)                               77,909      63,835         22
- % of revenue                                    25%         24%         4
Net earnings                                  15,716       7,334        114
- per share ($) - basic                         0.32        0.15        113
- per share ($) - basic adjusted(3)             0.41        0.21         95
- per share ($) - diluted                       0.32        0.15        113
Adjusted EBITDA(3)                            67,927      55,441         23
- per share ($)(3)                              1.40        1.14         23
Cash from operations                          39,994      18,455        117
- per share ($)                                 0.82        0.38        116
Funds from operations(3)                      56,112      44,257         27
- per share ($)(3)                              1.16        0.91         27
Maintenance capital
 expenditures(3)                               9,744       9,972         (2)
Growth capital expenditures(3)                30,114      14,223        112
Dividends declared                             7,042       4,848         45
- per share ($)(3)                             0.145        0.10         45
Dividends paid                                 6,305       4,848         30
Weighted average shares
 outstanding                                  48,530      48,484          -
Shares outstanding, June 30, (4)              48,607      48,487          -
----------------------------------------------------------------------------

(1) Management's Discussion and Analysis and Newalta's Unaudited Condensed
    Consolidated Interim Financial Statements and notes are attached.

(2) Gross Profit is a Generally Accepted Accounting Principles ("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 August 4, 2011.

Management Commentary

"Strong market activity and solid commodity prices drove excellent profitability improvements in the quarter," said Al Cadotte, President and CEO of Newalta.

Looking ahead, Newalta expects positive market trends to continue in the quarters ahead.

"Current markets and commodity prices are at or near pre-2009 levels and they are adequate to drive historical returns on capital of 18%," said Mr. Cadotte. "We expect a strong second half of the year with results much improved over last year."

Second Quarter and Year-to-Date Divisional Highlights

- Facilities Division second quarter 2011 revenue and gross profit(2) increased by 24% and 14%, to $114.7 million and $25.2 million respectively, compared to Q2 2010, on strong contributions from Western Facilities and Ville Ste-Catherine ("VSC") operations. Year-to-date improvements in revenue and gross profit of 21% and 12%, to $222.1 million and $53.6 million respectively, were a result of higher activity levels across all lines of business, highlighted by increased drilling activity, higher event-based business at Stoney Creek Landfill ("SCL"), and increased volumes at VSC. In Q3 2011, we anticipate that sales volumes at VSC will be at or near 17,000 MT, and that SCL volumes will be more than 200,000 MT. Based on current customer projects, management expects that SCL volumes for the year will exceed 2010 volumes.

- Onsite Division second quarter 2011 revenue and gross profit increased 11% and 51% to $49.6 million and $13.5 million respectively, compared to the same period in 2010. Strong results in the quarter were due to higher equipment utilization in Western Onsite and new project activity in Heavy Oil. Year-to-date, revenue and gross profit increased by 12% and 52%, to $94.6 million and $24.3 million respectively, compared to last year, primarily due to the same reasons for the improvements in Q2 2011. Incremental revenue drove an 81% flow through to gross profit year-to-date. We expect continued growth in demand for drill site equipment in Q3 2011 with improved utilization rates compared to Q3 2010. We commissioned our centrifuge equipment to process mature fine tailings in Q2 2011 with full processing starting in early Q3 2011. This project will contribute to results in the second half.

Other Highlights

- Adjusted EBITDA(3) as a percentage of revenue improved to 20% in the second quarter of 2011 from 19% last year. On a year-to-date basis compared to last year, Adjusted EBITDA as a percentage of revenue remains at 21%. Trailing twelve-month Adjusted EBITDA to June 30, 2011 was $131.3 million - the highest in Newalta's history.

- Adjusted SG&A (SG&A before stock-based compensation and amortization) was $31.3 million year-to-date, or 9.9% of revenue, consistent with our long-term target of maintaining these expenses at or below 10% of revenue. For Q3 2011, we anticipate Adjusted SG&A to be 10% of revenue.

- Net earnings in the second quarter grew to $10.5 million ($0.20 per share, basic adjusted) compared to $2.4 million ($0.07 per share, basic adjusted) in Q2 2010 as a result of growth in operational profitability. Year-to-date, net earnings grew 114% to $15.7 million compared to $7.3 million last year.

- Newalta's trailing twelve-month return on capital was 14% at the end of the second quarter, compared to 11.6% for the same period last year. We anticipate steady progress toward our historical return on capital.

- Newalta's Board of Directors declared a second quarter dividend of $0.08 per share ($0.32 per share annualized) payable July 15, 2011 to shareholders of record June 30, 2011. This new higher dividend rate established by the Board earlier this year reflects our strong financial position and positive outlook.

- Capital expenditures for Q2 2011 and year-to-date were $26.6 million and $39.9 million respectively. Year-to-date growth capital spending of $30.1 million related primarily to drill site equipment in Western Onsite, processing equipment for Heavy Oil project work and facility expansion in Western Facilities. Year-to-date maintenance capital expenditures of $9.7 million related primarily to routine process equipment improvements at facilities. We are on track to deliver the previously disclosed capital program for 2011 of $100 million.

- In 2011, our Technical Development team is moving into the next phase of testing and assessing the most promising opportunities while continuing the global search for technologies. We expect expenditures of $5.0 million for Technical Development this year.

- Effective August 1, 2011, Newalta entered into an agreement to invest $6 million for a 50% partnership interest in a frac water recycling company, TerrAqua Resource Management, LLC ("TARM") of Williamsport, Pennsylvania. TARM's water treatment facility offers solutions for produced water from the Marcellus shale play. Our investment in TARM provides the opportunity to expand the business into a multi-facility network with two new facilities planned. The investment accelerates our entry into the frac water recycling market, and also provides the opportunity to expand our service offerings within the U.S. northeast.

Quarterly Conference Call

Management will hold a conference call on Friday, August 5, 2011 at 11:00 a.m. (ET) to discuss Newalta's performance for the second quarter and year-to-date 2011. To participate in the teleconference, please call 1-866-226-1798. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Friday, August 12, 2011 by dialing 1-800-408-3053 and using the pass code 3035747 followed by the pound sign.

About Newalta

Newalta provides cost-effective solutions to industrial customers to improve their environmental performance with a focus on recycling and recovery of products from industrial residues. These services are provided both through our network of 85 facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Our customers operate in a broad range of industries including the oil and gas, petrochemical, refining, lead, manufacturing and mining industries. Newalta has delivered strong, profitable growth for over 15 years and has established a leadership position in the industry with talented people, efficient and safe operations, innovative approaches and high ethical standards. Newalta trades on the TSX as NAL. For more information, visit www.newalta.com.

NEWALTA CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Three and six months ended June 30, 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 acquisitions, growth capital investments and our technical development initiatives;

- our projected cost structure; and

- expectations and implications of changes in legislation.

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

- general market conditions of the industries we service;

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

- fluctuations in commodity prices for oil and lead;

- fluctuations in interest rates and exchange rates;

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

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

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

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

- the seasonal nature of our operations;

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

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

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

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

- risk of pending and future legal proceedings;

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

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

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

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

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

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

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

By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Many other factors could also cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements and readers are cautioned that the foregoing list of factors is not exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and the forward-looking statements in this document are expressly qualified by this cautionary statement. Unless otherwise required by law, we do not intend, or assume any obligation, to update these forward-looking statements.

RECONCILIATION OF NON-GAAP MEASURES

This Management's Discussion and Analysis ("MD&A") contains references to certain financial measures, including some that do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS") 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        Six months ended
                                            June 30,                June 30,
($000s)                             2011       2010         2011       2010
----------------------------------------------------------------------------
Net earnings                      10,483      2,385       15,716      7,334
Add back (deduct):
 Current income taxes                100        107          126        235
 Deferred income taxes             3,049      1,401        6,761      3,435
 Finance charges                   5,812      6,596       12,839     13,333
 Amortization                     14,204     15,108       28,148     28,123
----------------------------------------------------------------------------
EBITDA                            33,648     25,597       63,590     52,460
----------------------------------------------------------------------------
Add back (deduct):
 Stock-based compensation expense   (604)       977        4,337      2,981
----------------------------------------------------------------------------
Adjusted EBITDA                   33,044     26,574       67,927     55,441
----------------------------------------------------------------------------
Weighted average number of shares 48,523     48,487       48,530     48,484
----------------------------------------------------------------------------
EBITDA per share                    0.69       0.53         1.31       1.08
----------------------------------------------------------------------------
Adjusted EBITDA per share           0.68       0.55         1.40       1.14
----------------------------------------------------------------------------

"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        Six months ended
                                            June 30,                June 30,
($000s)                             2011       2010         2011       2010
----------------------------------------------------------------------------
Net earnings                      10,483      2,385       15,716      7,334
Add back (deduct): 
 Stock-based compensation expense   (604)       977        4,337      2,981
----------------------------------------------------------------------------
Adjusted net earnings              9,879      3,362       20,053     10,315
----------------------------------------------------------------------------
Adjusted net earnings per share     0.20       0.07         0.41       0.21
----------------------------------------------------------------------------

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


                                 Three months ended        Six months ended
                                            June 30,                June 30,
($000s)                             2011       2010         2011       2010
----------------------------------------------------------------------------
Cash from operations              33,017      7,715       39,994     18,455
Add back (deduct):
 Increase (decrease) in non-cash 
  working capital                (10,293)    10,855       15,487     25,167
 Decommissioning obligations 
  incurred                           433        358          631        635
----------------------------------------------------------------------------
Funds from operations             23,157     18,928       56,112     44,257
----------------------------------------------------------------------------
Weighted average number of shares 48,523     48,487       48,530     48,484
----------------------------------------------------------------------------
Funds from operations per share     0.48       0.39         1.16       0.91
----------------------------------------------------------------------------

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

($000s)                                             Q2 2011 TTM Q2 2010 TTM
----------------------------------------------------------------------------
Adjusted EBITDA                                         131,279     107,552
 Total assets                                         1,072,217   1,033,294
 Current liabilities                                   (134,189)    (98,354)
----------------------------------------------------------------------------
Capital employed                                        938,028     934,940
----------------------------------------------------------------------------
2-Year net assets average(1)                            936,484     928,216
----------------------------------------------------------------------------
Return on capital (%)                                      14.0        11.6
----------------------------------------------------------------------------
(1) Q2 2010 TTM has been calculated using previous GAAP for Q3-Q4 2009 and
    GAAP for Q1-Q2 2010

Trailing Twelve-Month Return on Capital: http://media3.marketwire.com/docs/nal_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.

The following discussion and analysis should be read in conjunction with (i) the Unaudited Condensed Consolidated Interim Financial Statements of Newalta, and the notes thereto, for the three and six months ended June 30, 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 three and six months ended June 30, 2010. This information is available at SEDAR (www.sedar.com). Information for the three and six months ended June 30, 2011, along with comparative information for 2010, is provided.

This MD&A is dated August 4, 2011, and takes into consideration information available up to that date. Throughout this document, unless otherwise stated, all currency is stated in Canadian dollars, MT is defined as "tonnes" or "metric tons".


FINANCIAL RESULTS AND HIGHLIGHTS 

                                                         Three months ended
                                                                    June 30,
                                                                 % Increase
($000s except per share data)                   2011        2010  (Decrease)
(unaudited)                                           
----------------------------------------------------------------------------
Revenue                                      164,294     136,905         20
Gross profit(2)                               38,691      31,046         25
- % of revenue                                    24%         23%         4
Net earnings                                  10,483       2,385        340
- per share ($) - basic                         0.22        0.05        340
- per share ($) - basic adjusted(3)             0.20        0.07        186
- per share ($) - diluted                       0.21        0.05        320
Adjusted EBITDA(3)                            33,044      26,574         24
- per share ($)(3)                              0.68        0.55         24
Cash from operations                          33,017       7,715        328
- per share ($)                                 0.68        0.16        325
Funds from operations(3)                      23,157      18,928         22
- per share ($)(3)                              0.48        0.39         23
Maintenance capital
 expenditures(3)                               7,271       6,924          5
Growth capital expenditures(3)                19,304       8,641        123
Dividends declared                             3,889       2,424         60
- per share ($)(3)                              0.08        0.05         60
Dividends paid                                 3,153       2,424         30
Weighted average shares
 outstanding                                  48,523      48,487          -
Shares outstanding, June 30, (4)              48,607      48,487          -

FINANCIAL HIGHLIGHTS(1)
                                                           Six months ended
                                                                    June 30,
                                                                 % Increase
($000s except per share data)                   2011        2010  (Decrease)
(unaudited)                                            
----------------------------------------------------------------------------
Revenue                                      316,716     268,145         18
Gross profit(2)                               77,909      63,835         22
- % of revenue                                    25%         24%         4
Net earnings                                  15,716       7,334        114
- per share ($) - basic                         0.32        0.15        113
- per share ($) - basic adjusted(3)             0.41        0.21         95
- per share ($) - diluted                       0.32        0.15        113
Adjusted EBITDA(3)                            67,927      55,441         23
- per share ($)(3)                              1.40        1.14         23
Cash from operations                          39,994      18,455        117
- per share ($)                                 0.82        0.38        116
Funds from operations(3)                      56,112      44,257         27
- per share ($)(3)                              1.16        0.91         27
Maintenance capital
 expenditures(3)                               9,744       9,972         (2)
Growth capital expenditures(3)                30,114      14,223        112
Dividends declared                             7,042       4,848         45
- per share ($)(3)                             0.145        0.10         45
Dividends paid                                 6,305       4,848         30
Weighted average shares
 outstanding                                  48,530      48,484          -
Shares outstanding, June 30, (4)              48,607      48,487          -
----------------------------------------------------------------------------

(1) Management's Discussion and Analysis and Newalta's Unaudited Condensed
    Consolidated Interim Financial Statements and notes are attached.

(2) Gross Profit is a Generally Accepted Accounting Principles ("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 August 4, 2011.

NEWALTA

We provide cost-effective environmentally superior solutions to our customers' complex environmental needs. We leverage our existing talent and asset base to provide cost-effective solutions which reduce environmental impacts through recycling, recovery and reuse. These services are provided both through our network of 85 facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Our customers operate in a broad range of industries including the oil and gas, petrochemical, refining, lead, manufacturing and mining industries. Newalta has delivered strong, profitable growth for over 15 years and has established a leadership position in the industry with talented people, efficient and safe operations, innovative approaches and high ethical standards.

OUR STRATEGY

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


----------------------------------------------------------------------------
Strategic objectives                     Initiatives
----------------------------------------------------------------------------
1. Maximize Facilities Profitability     - Drive higher returns on existing 
                                           assets
                                         - Execute organic growth capital 
                                           projects
                                         - Expand Facilities service 
                                           offering
                                         - Strategically construct 
                                           integrated facilities and
                                           satellites

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

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

RISKS TO OUR STRATEGY

There are no significant changes and we do not anticipate any further material risks than those disclosed in our 2010 Annual Report. For the risks to our strategy, see page 20 of the MD&A for the year ended December 31, 2010.

CORPORATE OVERVIEW

2011 is our first year reporting under 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. Comparative figures presented in this MD&A for 2009 were prepared in accordance with previous GAAP and are not required to be restated in accordance with IFRS. See page 26 of this MD&A for more information on the impact of adopting IFRS.

We continued to deliver robust year-over-year growth in Q2 2011, in line with improved commodity pricing and market conditions. Q2 2011 results strengthened over last year, with revenue up 20% to $164.3 million and Adjusted EBITDA up 24% to $33.0 million. Gross profit as a percentage of revenue grew to 24% in Q2 2011, up from 23% in Q2 2010. Net earnings grew to $10.5 million compared to $2.4 million in Q2 2010 as a result of growth in operational profitability. This flowed through to our Gross Debt (previously Total Secured and Unsecured Debt, see page 19 of this MD&A) to Adjusted EBITDA ratio which improved to 2.43 from 3.18 in Q2 2010 and 2.61 in Q1 2011. The ongoing improvement in financial leverage continues to create greater financial flexibility for future growth.

In the first half of 2011, the demand for our services and the value of our recovered products both remained at or near pre-2009 levels. Year-to-date, Adjusted EBITDA increased by 23% to $67.9 million. Approximately 70% of the improvement is attributable to higher activity levels and improved productivity with the balance driven by higher commodity prices.

In Facilities, Q2 2011 revenue and gross profit increased by 24% and 14%, respectively, compared to Q2 2010. This was driven by strong contributions from our Western Facilities and Ville Ste-Catherine ("VSC").

Year-to-date revenue and gross profit strengthened by 21% and 12%, respectively, compared to 2010. Performance reflected higher activity levels across all lines of business, highlighted by increased drilling activity, higher event-based business at Stoney Creek Landfill ("SCL"), and increased volumes at VSC.

Onsite delivered strong results for the quarter due to higher equipment utilization in Western Onsite and new project activity in Heavy Oil. Revenue and gross profit increased by 11% and 51%, respectively. Gross profit as a percentage of revenue was 27%, up from 20% in Q2 2010. Of the incremental revenue, 91% flowed through to gross profit.

Consistent with Q2, year-to-date Onsite revenue and gross profit increased by 12% and 52%, respectively, over 2010. Gross profit as a percentage of revenue increased to 26% compared to 19% in 2010. Of the incremental revenue, 81% flowed through to gross profit.

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

Demand for our services and the value of our recovered products have both recovered to pre-2009 levels. This drove our Q2 2011 trailing twelve-month Adjusted EBIDTA to an all-time high of $131.3 million.

Effective August 1, 2011, Newalta entered into an agreement to invest $6 million for a 50% partnership interest in a frac water recycling company, TerrAqua Resource Management, LLC ("TARM") of Williamsport, Pennsylvania. TARM's water treatment facility offers solutions for frac water from the Marcellus shale play. Our investment in TARM provides the opportunity to expand the business into a multi-facility network with two new facilities planned. The investment accelerates our entry into the frac water recycling market, and also provides the opportunity to expand our service offerings within the U.S. northeast.

Capital expenditures for the three and six months ended June 30 2011 were $26.6 million and $39.9 million, respectively. Year-to-date growth capital spending of $30.1 million related to drill site equipment in Western Onsite, processing equipment for Heavy Oil project work and facility expansion in Western Facilities. Year-to-date maintenance capital expenditures of $9.7 million related primarily to routine process equipment improvements at facilities. Capital expenditures were funded by Funds from operations. We are on track to deliver the 2011 capital budget of $100 million.

Revenue ($ millions) and Adjusted EBITDA ($ millions): http://media3.marketwire.com/docs/nal_graphs.pdf

In 2011, our Technical Development team is moving into the next phase of testing and assessing the most promising opportunities while continuing the global search for technologies. Compared to the six months ended June 30 2010, our Research and Development operating expenditures have increased by 76% to $1.2 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. We are on track to spend our budgeted $5.0 million in growth capital this year.

OUTLOOK

In Q3 2011, we expect continued improvement compared to Q3 2010. Crude oil and lead prices are anticipated to remain at levels consistent with Q2 2011 and our key markets continue to improve. Oil and gas drilling activity is expected to be robust through Q3 2011. In Q3 2011, we anticipate lead sales volumes at VSC will be at or near 17,000 MT and SCL volumes to be more than 200,000 MT. Based on the number of projects in hand, SCL volumes for the year are expected to exceed 2010 volumes. In Onsite, we expect continued growth from the increased demand for drill site equipment in the U.S. and Canada where we expect to realize improved utilization rates over Q3 2010. We commissioned our centrifuge equipment to process mature fine tailings in Q2 2011 with full processing starting in early Q3 2011. This project will contribute to results in the second half of 2011.

We expect robust markets across all of our operations and sustained high commodity prices to drive strong performance in the second half of 2011. All contributors to our performance are up significantly. Based on the current strength of demand for our services and products, we are positioned for continued year-over-year growth for the balance of 2011. As a result, we anticipate a strong improvement towards our historical Return on capital average of 18% by year end. We remain confident that we will deliver attractive returns to our shareholders in the quarters ahead.

RESULTS OF OPERATIONS - FACILITIES DIVISION

Overview

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


                                        Three months ended Six months ended 
                                                   June 30,         June 30,
                                           2011       2010  2011       2010
----------------------------------------------------------------------------
Western Facilities                           44%        45%   46%        46%
Eastern Facilities                           24%        24%   22%        23%
VSC                                          32%        31%   32%        31%
----------------------------------------------------------------------------

Facilities Revenue ($ millions) and Facilities Gross Profit ($ millions): http://media3.marketwire.com/docs/nal_graphs.pdf


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

                               Three months ended          Six months ended
                                          June 30,                  June 30,
($000s)                  2011       2010 % change    2011     2010 % change 
----------------------------------------------------------------------------
Revenue(1)            114,732     92,521       24 222,138  184,270       21
Cost of Sales(2)       89,573     70,458       27 168,564  136,421       24
----------------------------------------------------------------------------
Gross Profit           25,159     22,063       14  53,574   47,849       12
----------------------------------------------------------------------------
Gross Profit as % of 
 revenue                   22%        24%      (8)     24%      26%      (8)
----------------------------------------------------------------------------
Maintenance capital     4,423      4,871       (9)  5,905    6,573      (10)
----------------------------------------------------------------------------
Growth capital          7,790        979      696  12,129    1,430      748
----------------------------------------------------------------------------
Assets employed(3)                                590,436  574,130        3
----------------------------------------------------------------------------

(1) Includes nil in internal revenue in 2011 and $189 and $346 in Q2 2010
    and Q2 2010 year-to-date respectively. 
(2) Includes amortization of $8,459 and $16,196 for Q2 2011 and Q2 2011
    year-to-date, respectively, and $7,505 and $14,582 for Q2 2010 and Q2
    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. 

Compared to Q2 2010, revenue and gross profit grew by 24% and 14%, respectively, due to contributions from our Western Facilities, including oil recycling, and VSC. The steady pace of increased performance was consistent with improved commodity pricing and stronger demand for our products. For Q2 2011, gross profit as a percentage of revenue was 22% compared to 24% in Q2 2010. The change in gross profit as a percentage of revenue was primarily due to the effects of short-term or seasonal events in Western Facilities.

In addition to the factors outlined above, year-to-date results were also positively impacted by improved oil and gas drilling activity when compared to 2010.

The implementation of IFRS did not result in a material change to the 2010 Facilities gross profit. Gross profit was increased by the reclassification of the unwinding of the discount related to the decommissioning liability to finance charges but offset by an increase in depreciation expense.

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 price of crude oil and natural gas and drilling activity. Drilling activity will impact the volume of waste received and the makeup of that waste. Changes in the waste mix will impact the amount of crude oil recovered to our account. Historically, for oilfield facilities, approximately 75% of our waste volume relates to ongoing production resulting in a fairly stable revenue base. Volatility in the price of crude oil impacts crude oil revenue. Fluctuations in the Canadian/U.S. dollar exchange rate impact U.S. dollar sales, which account for approximately 15% of Western Facilities revenue. Changes in environmental regulations in western Canada also impact our business. 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.

Western Facilities Q2 2011 revenue increased by 19% compared to Q2 2010 largely due to increased commodity pricing and demand for finished products in oil recycling. Unusually extended wet spring weather in western Canada, coupled with the closing of two facilities due to forest fires in north-eastern Alberta, resulted in a 7% decrease in waste processing volume compared to Q2 2010. Performance was also impacted by higher water disposal costs caused by some short-term water injection well disruption. Our Q2 2011 recovered crude oil volumes are modestly below the three year quarterly average of approximately 53,000 barrels per quarter.

Year-to-date revenue increased by 20% compared to 2010. Improved performance was largely due to increased oil and gas activity, stronger demand for our oil recycling finished products and improved crude oil and base oil pricing. Robust drilling activity saw waste processing volumes increase by 16% over 2010.


                               Three months ended          Six months ended
                                          June 30,                  June 30,
                         2011       2010 % change    2011     2010 % change 
----------------------------------------------------------------------------
Waste processing volumes 
 ('000 m(3))               88         95       (7)    238      205       16
Recovered crude oil 
 ('000 bbl)(1)             49         56      (13)    108      115       (6)
Average crude oil price 
 received (CDN$/bbl)    96.49      70.86       36   88.62    73.37       21
Recovered crude oil 
 sales ($ millions)       4.8        4.0       20     9.6      8.4       14
Edmonton par price 
 (CDN$/bbl)(2)         102.40      75.08       36   95.21    77.61       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 (in '000 bbl): http://media3.marketwire.com/docs/nal_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 Q2 2011, revenue improved 19% compared to Q2 2010. Higher revenue was primarily driven by increased event-based business at SCL.

Year-to-date 2011 revenue improved 9% compared to 2010. Based on current market activity and the number of projects being pursued, we anticipate Q3 2011 SCL volume to be better than 200,000 MT and volume for 2011 is expected to exceed 2010 volume.


                               Three months ended          Six months ended
                                          June 30,                  June 30,
                         2011       2010 % change    2011     2010 % change 
----------------------------------------------------------------------------
SCL Volume Collected 
 ('000 MT)              190.3      183.1        4   340.0    367.8       (8)
----------------------------------------------------------------------------

SCL - Volume Collected (in '000 MT): http://media3.marketwire.com/docs/nal_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 LME price can distort this relationship, resulting in a temporary disconnect in values.

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

VSC revenue in Q2 2011 increased by 29% compared to Q2 2010 due to higher sales volumes and strong commodity pricing. Total lead sold increased by 10% to 18,800 MT. While the lagged LME lead price was up 23%, the lagged lead price in Canadian dollars was up 18% due to movement in the U.S./Canadian exchange rate. Battery procurement costs remained in line with management expectations for the quarter.

For the six months ended June 30 2011, revenue increased by 24% over 2010. Year-to-date results are driven by a 13% increase in sales volumes to 36,800 MT and a 17% increase in lagged LME lead prices to $2,565 $U.S./MT.

We anticipate Q3 2011 production to be at or near 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 non-seasonal 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 Six months ended 
                                                   June 30,         June 30,
                                           2011       2010  2011       2010
----------------------------------------------------------------------------
Western Onsite                               38%        35%   43%        36%
Eastern Onsite                               18%        30%   17%        28%
Heavy Oil                                    44%        35%   40%        36%
----------------------------------------------------------------------------

Onsite Revenue ($ millions) and Onsite Gross Profit ($ millions): http://media3.marketwire.com/docs/nal_graphs.pdf


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

                               Three months ended          Six months ended
                                          June 30,                  June 30,
                         2011       2010 % change    2011     2010 % change 
----------------------------------------------------------------------------
Revenue - external     49,562     44,573       11  94,578   84,221       12
Cost of Sales(1)       36,030     35,590        1  70,243   68,235        3
----------------------------------------------------------------------------
Gross Profit           13,532      8,983       51  24,335   15,986       52
----------------------------------------------------------------------------
Gross Profit as % 
 of revenue                27%        20%      35      26%      19%      37
----------------------------------------------------------------------------
Maintenance capital     2,216      1,709       30   2,847    2,748        4
----------------------------------------------------------------------------
Growth capital          9,553      6,411       49  13,898    8,947       55
----------------------------------------------------------------------------
Assets employed(2)                                262,890  242,567        8
----------------------------------------------------------------------------
----------------------------------------------------------------------------

1.  Includes amortization of $2,926 and $6,320 for Q2 2011 and Q2 2011 
    year-to-date, respectively, and $3,302 and $6,618 for Q2 2010 and Q2 
    2010 year-to-date, respectively. 
2.  "Assets employed" is provided to assist management and investors in
    determining the effectiveness of the use of the assets at a divisional
    level. Assets employed is the sum of capital assets, intangible assets
    and goodwill allocated to each division. 

In Q2 2011, revenue and gross profit increased by 11% and 51%, respectively, over Q2 2010. Gross profit as a percentage of revenue increased to 27% compared to 20% last year. The commissioning of the MFT project in Heavy Oil along with higher utilization of drill site equipment resulting from increased drilling activity, drove 91% of the incremental revenue through to gross profit.

Year-to-date revenue and gross profit increased by 12% and 52%, respectively, over 2010. Gross profit as a percentage of revenue increased to 26% compared to 19% last year. Incremental revenue drove an 81% flow through to gross profit, due primarily to higher utilization of equipment resulting from higher drilling activity and more project work in Heavy Oil.

The implementation of IFRS did not result in a material change to the 2010 Onsite gross profit. Gross profit was increased by the reclassification of the unwinding of the discount related to the decommissioning liability to finance charges but offset by an increase in depreciation expense.

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.

Q2 2011 Western Onsite revenue improved by 18% compared to Q2 2010, consistent with drilling activity in western Canada and increased activity in the U.S. The size of our fleet increased while maintaining the same utilization rate compared to Q2 2010. Utilization was driven by continuing strong demand in the U.S. which was partially offset by lower Canadian utilization that was affected by an extended seasonal spring breakup. The utilization rates for the U.S. and Canada in Q2 2011 were 65% and 16%, respectively. Strengthened U.S. demand for our services was driven by activity in the Marcellus and Fayetteville shale gas plays.

Year-to-date 2011 Western Onsite revenue improved by 34% compared to 2010, consistent with increasing drilling activity in both western Canada and the U.S. For the six months ended June 30 2011, our utilization rate for drill site equipment rose to 53% from 48% in 2010 in addition to an 11% increase in fleet size. Year-to-date U.S. and Canadian utilization rates are 63% and 40%, respectively.


                               Three months ended          Six months ended
                                          June 30,                  June 30,
                         2011       2010 % change    2011     2010 % change 
----------------------------------------------------------------------------
Equipment Utilization                                                       
  Canada                   16%        21%     (24)     40%      36%      11
  US                       65%        67%      (3)     63%      61%       3
  Combined                 44%        43%       2      53%      48%      10
Average equipment 
 available                198        177       12     197      177       11
----------------------------------------------------------------------------

Our utilization rate for drill site equipment is based on days in use. Taking into account mobilization/demobilization, travel between rig sites and the increased fleet size, we anticipate our maximum operational utilization for the second half of 2011 to be 70%. This is based on current equipment allocations between the U.S. and Canada.

Based on higher demand in Canada, combined with consistent drilling activity in the U.S., we anticipate a combined utilization rate higher than the Q3 2010 utilization rate of 57%, approaching our maximum operational utilization rate.

Balancing our fleet between the U.S. and Canadian markets enables us to capitalize on increased demand in both regions. 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 one year.

We are currently engaged primarily in short-term, or event-based projects, which will vary from quarter-to-quarter. Revenue was down quarter-over-quarter; however, since Eastern Onsite is in the early stage of development, the impact on the division was minimal.

Heavy Oil

Our heavy oil services business began 15 years ago with facilities at Hughenden and Elk Point, Alberta. This business has expanded from processing heavy oil in our facility network to operating equipment on customers' sites.

Leveraging our facilities as staging areas, we deliver a broad range of specialized services at numerous customer sites. 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 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 Q2 2011, Heavy Oil revenue increased by 44% compared to Q2 2010. The main driver was the increase from Heavy Oil Onsite projects. In Q2 2011, we commissioned the project to use our centrifuge processing capabilities on mature fine tailings. This project is expected to continue into Q4 2011.

Year-to-date 2011, revenue increased by 27% compared to 2010. The primary driver was the strong performance of heavy oil project and contract work. For the six months ended June 30 2011, recovered oil is consistent with the three year quarterly average of 47,000 bbls per quarter.

In 2011, to date we have 8 contracts, 6 of which were operating in Q2 2011. The remaining 2 contracts are in construction and anticipated to come on line in the first half of 2012.


                               Three months ended          Six months ended
                                          June 30,                  June 30,
                         2011       2010 % change    2011     2010 % change 
----------------------------------------------------------------------------
Waste processing volumes 
 ('000 m(3))              132        136       (3)    266      260        2
Recovered crude oil 
 ('000 bbl)(1)             50         63      (21)     98      105       (7)
Average crude oil price 
 received (CDN$/bbl)    73.52      58.04       27   68.86    61.30       12
Recovered crude oil 
 sales ($ millions)       3.7        3.7        -     6.8      6.4        6
Bow River Hardisty 
 (CDN$/bbl)(2)          89.22      69.65       28   82.90    72.43       14
----------------------------------------------------------------------------
(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 (in 000 bbl): http://media3.marketwire.com/docs/nal_graphs.pdf


CORPORATE AND OTHER

                               Three months ended          Six months ended
                                          June 30,                  June 30,
(000's)                  2011       2010 % change    2011     2010 % change 
----------------------------------------------------------------------------
Selling, general and 
 administrative expenses 
 ("SG&A")              18,619     20,063       (7) 41,256   38,811        6
  Less:                                                                     
   Stock-based 
    compensation         (604)       977     (162)  4,337    2,981       45
   Amortization(1)      2,819      4,300      (34)  5,632    6,922      (19)
----------------------------------------------------------------------------
Adjusted SG&A          16,404     14,786       11  31,287   28,908        8
 Adjusted SG&A as a 
  % of revenue           10.0%      10.8%      (7)    9.9%    10.8%      (8)
----------------------------------------------------------------------------
(1) Includes nil in loss on sale of fixed assets in 2011 and $1,435 and
    $1,664 in Q2 2010 and 2010 year-to-date respectively.

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 continuity with respect to the comparison of our results.

For Q2 2011 and year-to-date, Adjusted SG&A improved to 10% and 9.9% of revenue respectively. This reflects our disciplined approach to managing SG&A as our revenue base increases. The decrease in stock-based compensation expense was driven by our lower share price, vesting schedule and the dividend increase. 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 June 30, 2011 that settle only in cash had a weighted average remaining life of approximately three and a half years with a weighted average exercise price of $9.14. For Q3 2011, we anticipate Adjusted SG&A to be 10% of revenue.


                               Three months ended          Six months ended
                                          June 30,                  June 30,
($000s)                  2011       2010 % change    2011     2010 % change 
----------------------------------------------------------------------------
Research and development  628        494       27   1,211      687       76
 Research and development 
  as a % of revenue       0.4%       0.4%       -     0.4%     0.3%      33
----------------------------------------------------------------------------

Research and development expenses are related to our Technical Development group. Compared to Q2 2010, our operating expenditures increased as our Technical Development program advanced. Technical Development's operating budget remains at $3.0 million for 2011, to develop and commercialize technologies into our operations.


                               Three months ended          Six months ended
                                          June 30,                  June 30,
($000s)                  2011       2010 % change    2011     2010 % change 
----------------------------------------------------------------------------
Bank fees and interest    429      3,844      (89)  2,059    7,753      (73)
Debentures interest and 
 accretion of issue 
 costs(1)               4,848      2,260      115   9,711    4,596      111
----------------------------------------------------------------------------
Finance charges before 
 unwinding of the 
 discount(2)(3)         5,277      6,104      (14) 11,770   12,349       (5)
Unwinding of the 
 discount(2)              535        492        9   1,069      984        9
----------------------------------------------------------------------------
Finance charges         5,812      6,596      (12) 12,839   13,333       (4)
----------------------------------------------------------------------------
(1) Includes convertible debentures and senior unsecured debentures. 
(2) Related to decommissioning liability.
(3) Excludes capitalized interest of $1,126 and $1,159 in Q2 2011 and 2011
    year-to-date respectively, and $86 and $90 in Q2 2010 and 2010 year-to-
    date respectively.

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

Finance charges before unwinding of the discount related to the decommissioning liability are lower for the quarter and for the six months ended June 30 2011, by 14% and 5%, respectively, than the corresponding period in 2010. This was mainly due to higher capitalized interest costs for eligible capital projects. Including capitalized interest, the quarter was relatively flat to the same period in 2010. Finance charges associated with the Convertible Debentures due November 30, 2012 include 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 Unsecured Debentures ("Senior Unsecured Debentures") include an annual coupon rate of 7.625% and the accretion of issue costs. The Senior Unsecured Debentures were issued November 23, 2010. See "Liquidity and Capital Resources" in this MD&A for discussion of our long-term borrowings.


                               Three months ended          Six months ended
                                          June 30,                  June 30,
($000s)                  2011       2010 % change    2011     2010 % change 
----------------------------------------------------------------------------
Current tax               100        107       (7)    126      235      (46)
Deferred tax            3,049      1,401      118   6,761    3,435       97
----------------------------------------------------------------------------
Provision for income 
 taxes                  3,149      1,508      109   6,887    3,670       88
----------------------------------------------------------------------------

The increase in deferred income tax expense for the quarter and year-to-date compared to 2010 is primarily due to higher taxable income. The effective tax rate for Q2 2011 and the six months ended June 30 2011 was 23.1% and 30.5%, respectively. The lower effective tax rate resulted from reduced non-deductible costs related to stock options. For the six months ended June 30 2011, our statutory tax rate in Canada was 27.4%. Loss carry forwards are approximately $156 million at June 30, 2011. Other than provincial capital taxes and U.S. state and federal income taxes, we do not anticipate paying significant income tax for at least three years. See "Critical Accounting Estimates - Income Taxes" in this MD&A for further discussion.

LIQUIDITY AND CAPITAL RESOURCES

The term liquidity refers to the speed with which a company's assets can be converted into cash, as well as cash on hand. Our liquidity risk may arise from general day-to-day cash requirements and in the management of our assets, liabilities and capital resources. Liquidity risk is managed against our financial leverage to meet obligations and commitments in a balanced manner. For further information on our risk management, refer to Note 14 to the Unaudited Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2011.


Our debt capital structure is as follows:

($000s)                                    June 30, 2011  December 31, 2010
----------------------------------------------------------------------------
Use of Credit Facility:                                             
Amount drawn on Credit Facility(1)                57,533             53,860
Senior Unsecured Debentures                      125,000            125,000
Letters of credit                                 21,637             21,477
----------------------------------------------------------------------------
Total Debt                            A          204,170            200,337
Unused Credit Facility capacity(2)               120,830            124,663
----------------------------------------------------------------------------
Convertible Debentures                B          115,000            115,000
----------------------------------------------------------------------------
Gross Debt(3)                      =A+B          319,170            315,337
----------------------------------------------------------------------------
(1) See Note 5 to the Unaudited Condensed Consolidated Interim Financial
    Statements for the three and six months ended June 30, 2011. The net
    senior secured debt at June 30, 2011 was $50 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 June 30, 2011 was relatively flat at $19.9 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 14 to the Unaudited Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2011.

DEBT RATINGS

DBRS Limited ("DBRS") and Moody's Investor Service, Inc. ("Moody's") provided a corporate and Series 1 Unsecured Debentures credit rating on November 10, 2010. There has been no change to these ratings. For further detail, see page 35 of the MD&A for the year ended December 31, 2010.

SOURCES OF CASH

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

Credit Facility

The Credit Facility was amended effective December 17, 2010 to a three-year maturity ending December 17, 2013, with annual extensions available at our option. As a result of Newalta's successful private placement of $125 million in Senior Unsecured Debentures in November 2010 and current cash forecast needs, management elected to reduce the amount available under the Credit Facility from $350 million to $200 million. At June 30, 2011, $120.8 million was available and undrawn under the Credit Facility to fund growth capital expenditures and for general corporate purposes, as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60 million. The aggregate dollar amount of outstanding letters of credit is not categorized in the financial statements as long-term debt; however, the issued letters of credit reduce the amount available under the Credit Facility and are included in the definition of Total Debt for covenant purposes. Under the Credit Facility agreement, surety bonds (including performance and bid bonds) to a maximum of $125 million are excluded from the definition of Total Debt. As at June 30, 2011, surety bonds issued and outstanding totalled $21.6 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.


                                      June 30,  December 31,      
                                         2011          2010       Threshold
----------------------------------------------------------------------------
Senior Secured Debt(2) to EBITDA(3)    0.61:1        0.63:1  2.75:1 maximum
Total Debt(4) to EBITDA(3)             1.57:1        1.68:1  3.50:1 maximum
Interest Coverage                      5.44:1        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 existing $115
    million Convertible Debentures. 

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

Our Gross Debt was $319.2 million as at June 30, 2011 which reflected a $3.8 million increase over December 31, 2010. As a result of the higher Adjusted EBITDA, Gross Debt to Adjusted EBITDA ratio improved to 2.43. 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 under 2.0. Our covenant ratios under the Credit Facility remained well within their thresholds. We will manage within our covenants throughout 2011.

Convertible Debentures

The Convertible Debentures have a maturity date of November 30, 2012 and bear interest at a rate of 7.0% payable semi-annually in arrears on May 31 and November 30 each year. Each $1,000 debenture is convertible into 43.4783 shares, at a conversion price of $23.00 per share, at any time at the option of the holders of the Convertible Debentures. The Convertible Debentures are not included in calculating financial covenants in the Credit Facility and there were no redemptions of the Convertible Debentures in Q2 2011.

Management anticipates the redemption of the Convertible Debentures within the November 30, 2011 to November 30, 2012 time period, and is exploring refinancing alternatives.

Senior Unsecured Debentures

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

The trust indenture under which the Senior Unsecured Debentures have been issued requires Newalta to be in compliance with certain covenants annually at November 23. At June 30, 2011, there are no indications we will not be in compliance with these annual covenants.

USES OF CASH

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

Capital Expenditures

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


Capital expenditures for the quarter ended June 30, 2011 were:

                                       Three months ended  Six months ended 
                                                  June 30,          June 30,
($000s)                                   2011       2010   2011       2010
----------------------------------------------------------------------------
Growth capital expenditures             19,304      8,641 30,114     14,223
Maintenance capital expenditures         7,271      6,924  9,744      9,972
----------------------------------------------------------------------------
Total capital expenditures(1)           26,575     15,565 39,858     24,195
----------------------------------------------------------------------------
(1) The numbers in this table differ from Unaudited Condensed Consolidated
    Interim Financial Statements of Cash Flows because the numbers above do
    not reflect the net change in working capital related to capital asset
    accruals. 

Total capital expenditures for the quarter were $26.6 million. Growth capital expenditures for the quarter and year-to-date 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. Maintenance capital expenditures for the quarter and year-to-date related primarily to process equipment improvements at facilities. Capital expenditures were funded by Funds from operations.

In the first half of the year, total capital expenditures were $39.9 million. We are on track to deliver our capital program for 2011 of $100 million.

Growth capital expenditures for corporate initiatives remains at $7 million for the year. A significant portion of this relates to our ongoing development and expansion of SAP in support of our business growth.

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 July 15, 2011 to shareholders of record as at June 30, 2011.

As at August 4, 2011, Newalta had 48,607,327 shares outstanding, outstanding options to purchase up to 3,358,959 shares and a number of shares that may be issuable pursuant to the $115.0 million in Debentures (see Sources of Cash - Debentures on page 19 of the MD&A for the quarter and six months ended June 30, 2011).

Contractual Obligations

For the six months ended June 30, 2011, there were no significant changes in our contractual obligations. For a summary of our contractual obligations, see page 39 of the MD&A for the year ended December 31, 2010.


SUMMARY OF QUARTERLY RESULTS

($000s except per share data)                               IFRS
                                    2011                    2010
                                 Q2      Q1      Q4      Q3      Q2      Q1
----------------------------------------------------------------------------
 Revenue                    164,294 152,422 162,927 145,124 136,905 131,240
 Earnings before taxes       13,632   8,971   5,368   8,926   3,894   7,111
 Net earnings                10,483   5,233   2,921   5,868   2,386   4,949
 Earnings per share ($)        0.22    0.11    0.06    0.12    0.05    0.10
 Diluted earnings per share 
  ($)                          0.21    0.11    0.06    0.12    0.05    0.10
 Weighted average shares -
  basic                      48,523  48,495  48,523  48,487  48,487  48,480
 Weighted average shares -     
  diluted                    49,318  48,949  48,934  48,909  48,844  48,826
 EBITDA                      33,648  29,942  26,810  28,470  25,598  26,863
 Adjusted EBITDA             33,044  34,883  33,647  29,705  26,573  28,867
----------------------------------------------------------------------------

SUMMARY OF QUARTERLY RESULTS
 ($000s except per share data)                                Canadian GAAP
                                                                    2009
                                                                 Q4      Q3
----------------------------------------------------------------------------
 Revenue                                                    137,308 122,169
 Earnings before taxes                                        3,451   5,936
 Net earnings                                                 4,092   3,567
 Earnings per share ($)                                        0.09    0.08
 Diluted earnings per share
 ($)                                                           0.09    0.08
 Weighted average shares -
  basic                                                      46,770  42,438
 Weighted average shares -     
  diluted                                                    47,049  42,610
 EBITDA                                                      24,698  25,253
 Adjusted EBITDA                                             25,506  26,606
----------------------------------------------------------------------------

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.

Improvements throughout 2009 were driven by a combination of stronger commodity prices and management's cost containment program. In Q3 2009, we observed improved commodity prices and typical seasonal activity increases; however, our waste volumes remained below historic levels. Revenue in Q4 2009 improved due to higher commodity prices, better waste receipts at SCL and increased lead sales at VSC. Weighted average shares increased reflecting the equity offering of 6 million shares completed in Q4 2009.

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.

Q1 2011 revenue, Adjusted EBITDA, earnings before taxes and net earnings reflect continued steady improvement in line with market conditions. Q2 2011 revenue, earnings before taxes and net earnings reflect continued recovery in activity levels, consistent with expectations. Net earnings in Q2 relative to Q1 2011 were positively impacted by lower stock-based compensation expense and lower related deferred tax expense.

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 $2.9 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.

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 capital assets and intangible assets incorporates estimates of useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change impacting the operation of plant and equipment.

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 Newalta's engineers, estimates these costs based on current regulations, costs, technology and industry standards. The fair value estimate is capitalized as part of the cost of the related asset and amortized to expense over the asset's useful life. The useful lives of the assets and the long-term commitments of certain sites range from 20 to 300 years. The total estimated future cost for decommissioning liability at June 30, 2011 was $9.8 billion. The net present value of this amount, $54.8 million (using a discount rate of 4%), has been accrued on the Unaudited Condensed Consolidated Interim Balance Sheet at June 30, 2011. 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 $36.1 million. There were no significant changes in the estimates used to prepare the decommissioning liability in 2011 compared to 2010.

Unwinding of the discount related to the decommissioning liability is a result of the increase in the asset retirement obligation over time. The asset retirement obligation is based on estimates that may change as more experience is obtained or as general market conditions change impacting the future cost of abandoning our facilities.

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 June 30, 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 a minimum of three 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 future income tax expense or recovery. The applicable future income tax rate for each entity is calculated based on provincial allocation calculations and the expected timing of reversal of temporary differences. Changes in the assumptions used to derive the future income tax rate could have a material impact on the future income tax expense or recovery incurred in the period.

Permits and Other Intangibles

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

Stock-Based Compensation

We have three share-based compensation plans, the 2003 Option Plan (the "2003 Plan"), the 2006 Option Plan (the "2006 Plan") and the 2008 Option Plan (the "2008 Plan"). Under the option plans, we may grant to directors, officers, employees and consultants of Newalta or any of its affiliates, options to acquire up to 10% of the issued and outstanding shares.

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, if any, are recorded as stock-based compensation expense in the period the dividend is paid.

A cash-settled 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.

FUTURE ACCOUNTING POLICY CHANGES

Information regarding our changes in accounting policies is included in Note 3 to the Unaudited Condensed Consolidated Interim Financial Statements.

INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")

Effective January 1, 2011, Newalta adopted IFRS. Our interim financial statements for 2011 have been prepared in accordance with IFRS and the comparative period in 2010 has been restated to reflect our transition date of January 1, 2010. IFRS uses a conceptual framework similar to previous 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 17 to the Unaudited Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2011. There are no changes to previously reported 2010 Adjusted EBITDA.

Decommissioning liability under IFRS increased by $33 million with a corresponding $20 million increase to the value of assets and a reduction of $13 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 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 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 GAAP, the company 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 Q2 Impact Q2  (Decrease) Full Year
($000s)                                2010      2010    Q2 2010       2010
----------------------------------------------------------------------------
Decommissioning Liability - 
 Increased asset value drives 
 increased depreciation                (397)       (9)      (406)    (1,624)
Unwinding of the discount related 
 to the decommissioning liability 
 re-classified as finance charges       437        59        496      1,982
----------------------------------------------------------------------------
Impact to Gross Profit                   40        50         90        358
----------------------------------------------------------------------------
Unwinding of the discount related 
 to the decommissioning liability 
 re-classified as finance charges 
 and revaluation                                            (491)    (1,966)
Stock-based compensation                                    (714)    (1,536)
Capitalization of borrowing costs 
 for qualifying projects                                      90        819
Deferred tax                                                 255        384
----------------------------------------------------------------------------
Impact to Net Earnings                                      (770)    (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 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 17 in the Unaudited Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2011 for a reconciliation of the IFRS financial statements to previously released financial statements prepared under previous 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 20 customers generate approximately 40% of our total revenue, with 20% of these customers having a credit rating of A or higher and 70% of these customers having ratings of BBB or higher. In the normal course of operations, we are exposed to movements in U.S. dollar exchange rates relative to the Canadian dollar. The foreign exchange risk arises primarily from U.S. dollar denominated long-term debt and working capital. We have not entered into any financial derivatives to manage the risk for the foreign currency exposure as at June 30, 2011. In Q2 2011, our exposure to foreign exchange was mitigated by the rise in commodity prices, as well as our U.S. dollar denominated long-term debt, which served as a natural hedge, reducing our balance sheet exposure.

The floating interest rate profile of our long-term debt exposes us to interest rate risk. We do not use hedging instruments to mitigate this risk. The carrying value of the long-term debt approximates fair value due to its floating interest rates. For further information regarding our financial and other instruments, please refer to Note 20 to the consolidated financial statements for the three and twelve months ended December 31, 2010.

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

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

During the six months ended June 30, 2011, there have been no changes in the internal controls and procedures relating to disclosure and financial reporting 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.


Condensed Consolidated Interim Balance Sheets

(Unaudited - Expressed in thousands of Canadian Dollars)

                                 June 30,   December 31,          January 1,
                                    2011           2010                2010
                                               (Note 17)           (Note 17)
----------------------------------------------------------------------------
Assets
Current assets
 Cash and cash equivalents             -              -               3,920
 Accounts and other receivables  114,749        102,378              84,317
 Inventories                      25,138         26,645              33,148
 Investment                        3,381          4,274                   -
 Prepaid expenses and other       10,846          7,292               6,183
----------------------------------------------------------------------------
                                 154,114        140,589             127,568

Non-current assets
 Note receivable                     801            890                 978
 Property, plant and equipment   753,793        741,793             721,656
 Permits and other intangible
  assets (Note 4)                 60,158         60,579              61,935
 Goodwill                        102,897        102,897             103,597
 Deferred tax asset                  454            929               1,688
----------------------------------------------------------------------------
TOTAL ASSETS                   1,072,217      1,047,677           1,017,422
----------------------------------------------------------------------------
Equity and liabilities
Current liabilities
 Bank indebtedness                11,523            169                   -
 Accounts payable and accrued
  liabilities                    118,777        120,370              90,642
 Dividends payable                 3,889          3,152               2,423
----------------------------------------------------------------------------
                                 134,189        123,691              93,065

Non-current liabilities
 Senior secured debt (Note 5)     49,547         51,520             192,043
 Convertible debentures - debt
  portion                        112,793        112,074             110,725
 Senior unsecured debentures
  (Note 6)                       122,236        122,050                   -
 Other liabilities (Note 10)       4,030          5,327               1,647
 Deferred tax liability           60,747         54,491              46,856
 Decommissioning liability
  (Note 7)                        54,806         54,368              54,585
----------------------------------------------------------------------------
TOTAL LIABILITIES                538,348        523,521             498,921
----------------------------------------------------------------------------
Shareholders' Equity
Shareholders' capital (Note 8)   317,386        315,934             315,836
Convertible debentures - equity
 portion                           1,021          1,021               1,021
Contributed surplus                1,679          1,679               1,679
Retained earnings                213,609        204,935             199,965
Accumulated other comprehensive
 income                              174            587                   -
----------------------------------------------------------------------------
TOTAL EQUITY                     533,869        524,156             518,501
----------------------------------------------------------------------------
TOTAL EQUITY AND LIABILITIES   1,072,217      1,047,677           1,017,422
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Condensed Consolidated Interim Statements of Operations

(Unaudited - Expressed in thousands of Canadian Dollars)

                                          For the three         For the six
                                           months ended        months ended
                                                June 30,            June 30,
                                         2011      2010      2011      2010
                                               (Note 17)           (Note 17)
----------------------------------------------------------------------------
Revenue                               164,294   136,905   316,716   268,145
Cost of sales                         125,603   105,859   238,807   204,310
----------------------------------------------------------------------------
Gross profit                           38,691    31,046    77,909    63,835
----------------------------------------------------------------------------
 Selling, general and administrative   18,619    20,063    41,256    38,811
 Research and development                 628       494     1,211       687
----------------------------------------------------------------------------
Earnings before interest and tax       19,444    10,489    35,442    24,337
Finance charges                         5,812     6,596    12,839    13,333
----------------------------------------------------------------------------
Earnings before income taxes           13,632     3,893    22,603    11,004
----------------------------------------------------------------------------
Provision for income taxes
 Current                                  100       107       126       235
 Deferred                               3,049     1,401     6,761     3,435
----------------------------------------------------------------------------
                                        3,149     1,508     6,887     3,670
----------------------------------------------------------------------------
Net earnings                           10,483     2,385    15,716     7,334
----------------------------------------------------------------------------
Net earnings per share (Note 11)         0.22      0.05      0.32      0.15
Diluted earnings per share (Note 11)     0.21      0.05      0.32      0.15
----------------------------------------------------------------------------

Supplementary information:
Amortization included within cost of
 sales                                 11,385    10,808    22,516    21,201
Amortization included in selling,
 general and administrative             2,819     4,300     5,632     6,922
----------------------------------------------------------------------------
Total amortization                     14,204    15,108    28,148    28,123
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Condensed Consolidated Interim Statements of Comprehensive Income (Loss)
and Accumulated Other Comprehensive Income

(Unaudited - Expressed in thousands of Canadian Dollars)

                                          For the three         For the six
                                           months ended        months ended
                                                June 30,            June 30,
                                         2011      2010      2011      2010
                                               (Note 17)           (Note 17)
----------------------------------------------------------------------------
Net earnings                           10,483     2,385    15,716     7,334

Other comprehensive income:
 Unrealized gain (loss) on investment
  in shares(1)                            (95)     (467)     (413)      532
----------------------------------------------------------------------------
Other comprehensive income (loss)         (95)     (467)     (413)      532
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Comprehensive income                   10,388     1,918    15,303     7,866
----------------------------------------------------------------------------

Accumulated other comprehensive
 income, beginning of period              269       999       587         -
Other comprehensive income (loss)         (95)     (467)     (413)      532
----------------------------------------------------------------------------
Accumulated other comprehensive
 income, end of period                    174       532       174       532
----------------------------------------------------------------------------
(1) Net of tax of $0.01 million and $0.1 million for the three and six
months ended June 30, 2011 ($0.1 million and $0.2 million for the three 
and six months ended June 30, 2010).


Condensed Consolidated Interim Statement of Changes in Equity              

(Unaudited - Expressed in thousands of Canadian Dollars)                   
                                                                Contributed
                                                 Convertible        surplus
                                                  debentures       (shared-
                                 Shareholders'       (equity          based
                                      capital        portion)      payments)
----------------------------------------------------------------------------
Balance, January 1, 2010              315,836          1,021          1,679
----------------------------------------------------------------------------
Changes in equity for six months                                           
 ended June 30, 2010                                                       
Dividends declared                          -              -              -
Unrealized gain on investment in                                           
 shares                                     -              -              -
Net earnings for the period                 -              -              -
----------------------------------------------------------------------------
Balance, June 30, 2010                315,836          1,021          1,679
----------------------------------------------------------------------------
Changes in equity for six months                                           
 ended December 31, 2010                                                   
Exercise of options                        98              -              -
Dividends declared                          -              -              -
Unrealized loss on investment in                                           
 shares                                     -              -              -
Net earnings for the period                 -              -              -
----------------------------------------------------------------------------
Balance, December 31, 2010            315,934          1,021          1,679
----------------------------------------------------------------------------
Changes in equity for six months                                           
 ended June 30, 2011                                                       
Issuance of shares                      1,231              -              -
Exercise of options                       221              -              -
Dividends declared                          -              -              -
Unrealized loss on investment in                                           
 shares                                     -              -              -
Net earnings for the period                 -              -              -
----------------------------------------------------------------------------
Balance, June 30, 2011                317,386          1,021          1,679
----------------------------------------------------------------------------

Condensed Consolidated Interim Statement of Changes in Equity              

(Unaudited - Expressed in thousands of Canadian Dollars)                   

                                                 Accumulated               
                                                       Other               
                                     Retained  comprehensive               
                                     earnings         income          Total
----------------------------------------------------------------------------
Balance, January 1, 2010              199,965              -        518,501
----------------------------------------------------------------------------
Changes in equity for six months                                           
 ended June 30, 2010                                                       
Dividends declared                     (4,848)             -         (4,848)
Unrealized gain on investment in                                           
 shares                                     -            532            532
Net earnings for the period             7,334              -          7,334
----------------------------------------------------------------------------
Balance, June 30, 2010                202,451            532        521,519
----------------------------------------------------------------------------
Changes in equity for six months                                           
 ended December 31, 2010                                                   
Exercise of options                         -              -             98
Dividends declared                     (6,304)             -         (6,304)
Unrealized loss on investment in                                           
 shares                                     -             55             55
Net earnings for the period             8,788              -          8,788
----------------------------------------------------------------------------
Balance, December 31, 2010            204,935            587        524,156
----------------------------------------------------------------------------
Changes in equity for six months                                           
 ended June 30, 2011                                                       
Issuance of shares                          -              -          1,231
Exercise of options                         -              -            221
Dividends declared                     (7,042)             -         (7,042)
Unrealized loss on investment in                                           
 shares                                     -           (413)          (413)
Net earnings for the period            15,716              -         15,716
----------------------------------------------------------------------------
Balance, June 30, 2011                213,609            174        533,869
----------------------------------------------------------------------------


Condensed Consolidated Interim Statements of Cash Flows                    

(Unaudited - Expressed in thousands of Canadian Dollars)                   

                                          For the three                    
                                                 months  For the six months
                                          ended June 30,      ended June 30,
                                         2011      2010      2011      2010
                                               (Note 17)           (Note 17)
----------------------------------------------------------------------------
Cash provided by (used for):                                               
Operating Activities                                                       
Net earnings                           10,483     2,385    15,716     7,334
Adjustments for:                                                           
 Amortization                          14,204    15,108    28,148    28,123
 Income taxes provision                 3,149     1,508     6,887     3,670
 Income taxes paid                       (361)     (200)     (409)     (292)
 Stock-based compensation expense      (1,282)      938     2,929     2,861
 Finance charges expense                5,812     6,596    12,839    13,333
 Finance charges paid                  (8,847)   (7,408)   (9,964)  (10,747)
 Other                                     (1)        1       (34)      (25)
----------------------------------------------------------------------------
                                       23,157    18,928    56,112    44,257

Decrease (increase) in non-cash                                            
 working capital (Note 15)             10,293   (10,855)  (15,487)  (25,167)
Decommissioning costs incurred           (433)     (358)     (631)     (635)
----------------------------------------------------------------------------
                                       33,017     7,715    39,994    18,455
----------------------------------------------------------------------------
Investing Activities                                                       
 Additions to property, plant and                                          
  equipment (Note 15)                 (26,369)  (14,006)  (44,078)  (24,027)
 Proceeds on sale of property, plant                                       
  and equipment                             -     1,425       103     1,480
 Purchase of investment (Note 3)            -         -         -    (4,000)
----------------------------------------------------------------------------
                                      (26,369)  (12,581)  (43,975)  (26,547)
----------------------------------------------------------------------------
Financing Activities                                                       
 Issuance of shares                     1,230         -     1,249         -
 Increase (decrease) in senior                                             
  secured debt                        (12,725)    6,327    (2,406)    1,362
 Decrease in note receivable               52         1        89        13
 Dividends paid                        (3,153)   (2,424)   (6,305)   (4,848)
----------------------------------------------------------------------------
                                      (14,596)    3,904    (7,373)   (3,473)
----------------------------------------------------------------------------
Decrease in cash and cash equivalents  (7,948)     (962)  (11,354)  (11,565)
Cash and cash equivalents (bank                                            
 indebtedness), beginning of period    (3,575)   (6,683)     (169)    3,920
----------------------------------------------------------------------------
Bank indebtedness, end of period      (11,523)   (7,645)  (11,523)   (7,645)
----------------------------------------------------------------------------

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2011 and 2010.

(Unaudited - all tabular data in thousands of Canadian Dollars except per share and ratio data)

NOTE 1. CORPORATE STRUCTURE

Newalta Corporation (the "Corporation" or "Newalta") was incorporated on October 29, 2008, pursuant to the laws of the Province of Alberta. Newalta completed an internal reorganization resulting in a name change from Newalta Inc. to Newalta Corporation effective January 1, 2010. Newalta provides cost-effective solutions to industrial customers to improve their environmental performance with a focus on recycling and recovery of products from industrial residues. These services are provided both through our network of 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 condensed consolidated interim financial statements have been prepared in accordance with the requirements of International Accounting Standard ("IAS") 34, Interim Financial Reporting and IFRS 1, Adoption of IFRS, as issued by the International Accounting Standards Board ("IASB") and include the accounts of Newalta and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. These unaudited condensed consolidated interim financial statements are prepared using International Financial Reporting Standards ("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. These unaudited condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with:

- The consolidated financial statements of the Corporation as at and for the year ended December 31, 2010;

- The interim statements of the Corporation as at and for the quarter ended March 31, 2011 as they are the Corporation's first IFRS financial statements issued after the date of transition with IFRS 1 applied.

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 17.

These unaudited condensed consolidated interim financial statements were approved by the Audit Committee on behalf of the Board of Directors on August 4, 2011.

USE OF ESTIMATES AND ASSUMPTIONS

Accounting measurements at interim dates inherently involve reliance on estimates and the results of operations for the interim periods shown in these financial statements are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the accompanying financial statements include all adjustments necessary to present fairly the consolidated results of Newalta's operations and cash flows for the periods ended June 30, 2011 and 2010.

NOTE 3. INVESTMENT

During the first quarter of 2010, Newalta acquired 3,643,464 units, at a price of $1.10 per share from the treasury of BioteQ Environmental Technologies Inc. ("BioteQ") for 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. As at June 30, 2011 a cumulative unrealized gain of $0.2 million (net of tax $0.1 million) was recorded in accumulated comprehensive income.

The warrants are classified as fair value through profit and loss ("FVTPL") and are revalued at each period end with the change in fair value recognized in earnings. For the three and six months ended June 30, 2011, the Company recorded an unrealized loss of $0.1 million and $0.4 million, respectively (three and six months ended June 30, 2010 - unrealized loss of $0.5 million and an unrealized gain of $0.5 million, respectively) which is included in finance charges. As at June 30, 2011, the fair value was calculated using the following assumptions: an expected volatility of 80%, a risk-free interest rate of 2.2% and no expected dividend.


NOTE 4. PERMITS AND OTHER INTANGIBLE ASSETS

----------------------------------------------------------------------------
                                                               Non-
                            Indefinite         Expiring competition
                               permits   permits/rights   contracts   Total
----------------------------------------------------------------------------
 Cost
 Balance, January 1, 2010       53,012           14,650       6,020  73,682
 Additions during the quarter 
  ended March 31, 2010              25                -           -      25
----------------------------------------------------------------------------
 Balance, December 31, 2010 
  and June 30, 2011             53,037           14,650       6,020  73,707
----------------------------------------------------------------------------
 Amortization and impairment 
  losses (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-to-date   -              421           -     421
----------------------------------------------------------------------------
 Balance, June 30, 2011              -            7,529       6,020  13,549
----------------------------------------------------------------------------
 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 June 30, 2011            53,037            7,121           -  60,158
----------------------------------------------------------------------------
(1) Amortization is included in cost of sales and selling, general 
    and administrative expenses in the Consolidated Statements of 
    Operations.


NOTE 5. SENIOR SECURED DEBT

                                           June 30,  December 31, January 1,
                                              2011          2010       2010
----------------------------------------------------------------------------
Commitments under Credit Facility           51,429        53,859    195,200
Issue costs                                 (1,882)       (2,339)    (3,157)
----------------------------------------------------------------------------
Senior secured debt                         49,547        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 June 30, 2011, Newalta was in compliance with all covenants.

NOTE 6. SENIOR UNSECURED DEBENTURES

The trust indenture under which the Senior Unsecured Debentures have been issued requires Newalta to be in compliance with certain covenants on an annual basis. At June 30, 2011, Newalta was in compliance with all covenants.


                                           June 30,  December 31, January 1,
                                              2011          2010       2010
----------------------------------------------------------------------------
Senior unsecured debentures - gross        125,000       125,000          -
Issue costs                                 (2,764)       (2,950)         -
----------------------------------------------------------------------------
Senior unsecured debt                      122,236       122,050          -
----------------------------------------------------------------------------

NOTE 7. 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, $54.8 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 June 30, 2011. The total estimated future cost for decommissioning liability at June 30, 2011, was $9.8 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 $36.1 million. For all periods presented Newalta uses a discount rate of 4% and an inflation rate of 2% to calculate the present value of the decommissioning liability. The reconciliation of estimated and actual expenditures for the period is provided below:


----------------------------------------------------------------------------
Decommissioning liability as at January 1, 2010                      54,585
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenditures incurred to fulfill obligations                         (2,184)
Unwinding of discount                                                 1,967
----------------------------------------------------------------------------
Decommissioning liability as at December 31, 2010                    54,368
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenditures incurred to fulfill obligations                           (631)
Unwinding of discount                                                 1,069
----------------------------------------------------------------------------
Decommissioning liability as at June 30, 2011                        54,806
----------------------------------------------------------------------------
----------------------------------------------------------------------------

NOTE 8. 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 period:


                                                      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 June 30, 2011                   48,607     317,386
----------------------------------------------------------------------------


NOTE 9. CAPITAL DISCLOSURES

Newalta's capital structure consists of:

----------------------------------------------------------------------------
                                           June 30,  December 31, January 1,
                                              2011          2010       2010
----------------------------------------------------------------------------
Senior secured debt (1)                     51,429        53,859    195,200
Letters of Credit issued as financial 
 security to third parties (Note 13)        21,637        21,477     22,137
Convertible debentures, debt portion       112,793       112,074    110,725
Senior unsecured debentures(1)             125,000       125,000          -
Shareholders' equity                       533,869       524,156    518,501
----------------------------------------------------------------------------
                                           844,728       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:


----------------------------------------------------------------------------
                                      June 30,  December 31,      
Ratio                                    2011          2010       Threshold
----------------------------------------------------------------------------
Senior Secured Debt(2) to EBITDA(3)    0.61:1        0.63:1  2.75:1 maximum
Total Debt(4) to EBITDA(3)             1.57:1        1.68:1  3.50:1 maximum
Interest Coverage                      5.44:1        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:


----------------------------------------------------------------------------
                                      June 30,  December 31,      
Ratio                                    2011          2010       Threshold
----------------------------------------------------------------------------
Senior Secured Debt including Letters 
 of Credit                             79,170        75,336        $245,000 
                                                                    maximum 
Cumulative finance lease obligations      nil           nil        $25,000  
                                                                    maximum 
Consolidated Fixed Charge Coverage     5.44:1        4.97:1          2.00:1 
                                                                    minimum 
Period end surplus for restricted 
 payments(1)                           22,037        17,084      Restricted 
                                                            payments 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.


NOTE 10. INCENTIVE PLANS

a) Option Plans

A summary of the status of Newalta's option plans as of January 1, 2010,
December 31, 2010 and June 30, 2011 and changes during the periods ended 
on those dates is presented as follows:
----------------------------------------------------------------------------
                         Weighted            Weighted              Weighted
                          Average             Average               Average
                   2008  Exercise      2006  Exercise       2003   Exercise
                Options     Price   Options     Price    Options      Price
                  (000s) ($/Share)    (000s) ($/Share)     (000s)  ($/Share)
----------------------------------------------------------------------------
At January 1,
 2010               887      5.34       718     16.95        365      21.00
----------------------------------------------------------------------------
Granted             843      8.07         -         -          -          -
Exercised           (18)     5.31         -         -          -          -
Forfeited             -         -         -         -          -          -
Cancelled           (45)     7.15       (10)    14.00        (12)     10.52
----------------------------------------------------------------------------
At December 31,
 2010             1,667      6.67       708     16.99        353      21.37
----------------------------------------------------------------------------
Granted (1)         893     12.01         -         -          -          -
Exercised          (129)     5.80         -         -          -          -
Forfeited             -         -         -         -          -          -
Cancelled             -         -        (5)    32.38       (126)     17.95
----------------------------------------------------------------------------
At June 30,
 2011             2,431      8.68       703     16.88        227      23.27
----------------------------------------------------------------------------
Exercisable at
 June 30, 2011      618      6.43       499     17.03        227      23.27
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Each tranche of the options vest over a three year period (with a five
    year life). The fair value was calculated using the Black-Scholes method
    of valuation, assuming 50.27% volatility, a weighted average expected 
    dividend yield of 2.37% annually, a risk free rate of 1.94% and a 3% 
    forfeiture rate by period.

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                                                -                -
Cancelled                                              (23)            8.07
----------------------------------------------------------------------------
At December 31, 2010                                 1,427             7.53
----------------------------------------------------------------------------
Granted (1)                                            640            12.03
Exercised                                             (127)            5.94
Forfeited                                                -                -
Cancelled                                              (68)            8.69
----------------------------------------------------------------------------
At June 30, 2011                                     1,872             9.14
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exercisable at June 30, 2011                           454             9.06
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The fair value was calculated using the Black-Scholes method of
    valuation, assuming a 5 year expected life, 50.27% volatility, a 
    weighted average expected dividend yield of 2.37% annually, a risk 
    free rate of 1.94% and a 5% forfeiture rate by period.

c) Share Unit Plans

Changes in the number of outstanding share units under our DSU, PSU and RSU 
plans were as follows: 
----------------------------------------------------------------------------
                                                                      Units
                                                                      (000s)
----------------------------------------------------------------------------
At January 1, 2010                                                        -
Granted                                                                  16
----------------------------------------------------------------------------
At December 31, 2010                                                     16
Granted                                                                 127
----------------------------------------------------------------------------
At June 30, 2011                                                        143
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exercisable at June 30, 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:

                                       Three months ended  Six months ended 
                                                  June 30,          June 30,
                                          2011       2010   2011       2010
----------------------------------------------------------------------------
Stock option plans - cash expense          548          -    548          -
Stock option plans - non-cash expense 
 (recovery)                             (1,040)       503  1,435      1,683
----------------------------------------------------------------------------
Total expense - stock option plans        (492)       503  1,983      1,683
----------------------------------------------------------------------------

SARs and share unit plans - cash expense   130         39    860        120
SARs and share unit plans - non-cash 
 expense (recovery)                       (242)       435  1,494      1,178
----------------------------------------------------------------------------
Total expense - SARs and share unit 
 plans                                    (112)       474  2,354      1,298
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total stock-based compensation expense    (604)       977  4,337      2,981
----------------------------------------------------------------------------
----------------------------------------------------------------------------

e) Other Liabilities

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

NOTE 11. EARNINGS PER SHARE

Basic earnings per share calculations for the three and six months ended June 30, 2011 and 2010 were based on the weighted average number of shares outstanding for the periods. Diluted earnings per Share include the potential dilution of outstanding options under incentive plans to acquire shares and from the conversion of the convertible debentures.

The calculation of diluted earnings per share does not include anti-dilutive options. These options would not be exercised during the period because their exercise price is higher than the average market price for the period. The inclusion of these options would cause the diluted earnings per share to be overstated. The number of excluded options for the three and six months ended June 30, 2011 was 929,000 (1,072,700 for the same periods in 2010).

The dilutive earnings per share calculation 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 and six months ended June 30, 2011 was 5,000,000 (5,000,000 for the same periods in 2010).


                                       Three months ended  Six months ended 
                                                  June 30,          June 30,
                                          2011       2010   2011       2010
----------------------------------------------------------------------------
Weighted average number of shares       48,523     48,487 48,530     48,484
Net additional shares if options 
 exercised                                 795        357    752        290
Net additional shares if debentures 
 converted                                   -          -      -          -
----------------------------------------------------------------------------
Diluted weighted average number of 
 shares                                 49,318     48,844 49,282     48,774
----------------------------------------------------------------------------

NOTE 12. DIVIDENDS DECLARED AND PAID

During the quarter ended June 30, 2011, Newalta declared a dividend of $0.08 per share to holders of shares of record on June 30, 2011. This dividend was paid on July 15, 2011.

NOTE 13. COMMITMENTS

As at June 30, 2011, Newalta had issued letters of credit and surety bonds in respect of compliance with environmental licenses in the amount of $21.6 million and $31.7 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 14. FINANCIAL INSTRUMENTS

a) 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 June 30, 2011 are as follows:


----------------------------------------------------------------------------
                                                                      Total
                                 Loans and  Available       Other  Carrying
                         FVTPL Receivables   for sale Liabilities     Value
----------------------------------------------------------------------------
Accounts receivable          -     114,749          -           -   114,749
Note receivable              -         801          -           -       801
Investment                 867           -      2,514           -     3,381
Bank indebtedness            -           -          -      11,523    11,523
Accounts payable and
 accrued liabilities         -           -          -     118,777   118,777
Dividends payable            -           -          -       3,889     3,889
Senior secured debt(1)       -           -          -      49,547    49,547
----------------------------------------------------------------------------

(1) Net of related costs.


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

----------------------------------------------------------------------------
As at June 30, 2011                                 Carrying    Quoted fair
                                                     value(1)         value
----------------------------------------------------------------------------
7% Convertible debentures due November 30,
 2012                                                113,814        118,738
----------------------------------------------------------------------------

(1) Includes both the debt and equity portions.


The fair value of the Unsecured Senior Debentures is based on broker quote
 as follows:

----------------------------------------------------------------------------
                                                    Carrying    Quoted fair
As at June 30, 2011                                    value          value
----------------------------------------------------------------------------
7.625% Senior unsecured debentures due November
 23, 2017                                            125,000        130,313
----------------------------------------------------------------------------

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.

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 June 30, 2011, December 31, 2010 and January 1, 2010, Newalta did not have any 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 only one customer balance exceeded 10% of total accounts receivable at June 30, 2011, representing 11% of total accounts receivable (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 17% and 16% of revenue for the three and six months ended June 30, 2011, respectively (14% for the three and six months ended June 30, 2010). This revenue is recognized within our Facilities segment.

Based on the nature of its operations, established collection history and industry norms, receivables are not considered past due until 90 days after invoice date, although standard payment terms require payment within 30 to 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 $1.3 million, which are considered to be outstanding beyond normal repayment terms at June 30, 2011. A provision of $0.3 million has been established as an allowance for doubtful accounts. No additional provision has been made as there has not been a significant change in credit quality and the amounts are still considered collectible. Newalta does not hold any collateral over these balances but may hold credit insurance for specific non-domestic customer accounts.


----------------------------------------------------------------------------
Aging                         Trade Receivables      Allowance for doubtful
                           aged by invoice date                    accounts
----------------------------------------------------------------------------
              Jun 30,      Dec 31,       Jan 1,   Jun 30,  Dec 31,    Jan 1,
                2011         2010         2010      2011     2010      2010
----------------------------------------------------------------------------
Current       72,683       60,867       53,981         4       22        13
Past due:
31-60 days    15,435       11,730       15,454         4        1        21
61-90 days     2,760        3,001        3,159        35       20        65
91 days +      1,569        2,220          791       209      298       725
----------------------------------------------------------------------------
Total         92,447       77,818       73,385       252      341       824
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Aging                                                       Net Receivables
----------------------------------------------------------------------------
                                      Jun 30,        Dec 31,          Jan 1,
                                        2011           2010            2010
----------------------------------------------------------------------------
Current                               72,679         60,845          53,968
Past due:
31-60 days                            15,431         11,729          15,433
61-90 days                             2,725          2,981           3,094
91 days +                              1,360          1,922              66
----------------------------------------------------------------------------
Total                                 92,195         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 six months ended June 30, 2011 and December 31, 2010 are as follows:


Allowance for doubtful accounts                      June 30,   December 31,
                                                        2011           2010
----------------------------------------------------------------------------
Balance, beginning of period                             341            824
Increase (decrease) in amounts provided for              (31)           108
Net amounts written off as uncollectible                 (58)          (591)
----------------------------------------------------------------------------
Balance, end of period                                   252            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 Convertible Debentures and Senior Unsecured Debentures have fixed interest rates until their maturity dates, at which point, any remaining amounts owing under these debentures will need to be repaid or refinanced. The table below provides an interest rate sensitivity analysis for the three and six months ended June 30, 2011:


----------------------------------------------------------------------------
                                                Three months     Six months
                                                       ended          ended
                                               June 30, 2011  June 30, 2011
----------------------------------------------------------------------------
                                                               Net earnings
----------------------------------------------------------------------------
If interest rates increased by 1% with
 all other values held constant                         (136)          (266)
----------------------------------------------------------------------------

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 June 30, 2011, Newalta had $29.6 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 June 30, 2011.

The table below provides a foreign currency sensitivity analysis on long-term debt and working capital outstanding as at June 30, 2011:


                                                               Net earnings
----------------------------------------------------------------------------
If the value of the U.S. dollar increased by $0.01 
 with all other variables held constant                                  30
----------------------------------------------------------------------------


NOTE 15. CASH FLOW STATEMENT INFORMATION

The following tables provide supplemental information:

                                       Three months ended  Six months ended 
                                                  June 30,          June 30,
----------------------------------------------------------------------------
                                          2011       2010     2011     2010
----------------------------------------------------------------------------
Increase in accounts receivable         (1,164)   (15,600) (12,371) (17,856)
(Increase) decrease in inventories       5,163     (1,144)   1,507     (489)
Increase in prepayments                 (3,666)    (3,121)  (3,545)  (2,781)
Increase (decrease) in accounts payable 
 and accrued liabilities                10,101      9,890   (5,327)  (4,624)
Increase (decrease) in accounts payable 
 and accrued liabilities related to 
 purchases of property, plant and 
 equipment                                (141)      (880)   4,249     (583)
----------------------------------------------------------------------------
Total increase (decrease) in non-cash   
 working capital                        10,293    (10,855) (15,487) (25,167)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                       Three months ended  Six months ended 
                                                  June 30,          June 30,
----------------------------------------------------------------------------
                                          2011       2010     2011     2010
----------------------------------------------------------------------------
Additions to property, plant and 
 equipment during the year             (26,510)   (14,887) (39,829) (23,444)
Decrease (increase) in accounts 
 payable and accrued liabilities 
 related to purchases of property, 
 plant and equipment                       141        881   (4,249)     583
----------------------------------------------------------------------------
Total cash additions to property, 
 plant and equipment                   (26,369)   (14,006) (44,078) (24,027)
----------------------------------------------------------------------------

NOTE 16. 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.


                                   For the three months ended June 30, 2011
                                         Inter-                Consolidated
                   Facilities   Onsite  segment  Unallocated(3)       Total
----------------------------------------------------------------------------
External revenue      114,732   49,562        -              -      164,294
Cost of sales (1)      89,573   36,030        -              -      125,603
----------------------------------------------------------------------------
Gross profit           25,159   13,532        -              -       38,691
Selling, general and
 administrative             -        -        -         18,619       18,619
Research and
 development                -        -        -            628          628
Finance charges             -        -        -          5,812        5,812
----------------------------------------------------------------------------
Earnings before
 taxes                 25,159   13,532        -        (25,059)      13,632
----------------------------------------------------------------------------
Property, plant
 and equipment
 expenditures          12,213   11,769        -          2,593       26,575
----------------------------------------------------------------------------
Goodwill               44,381   58,516        -              -      102,897
----------------------------------------------------------------------------
Total assets          683,758  320,729        -         67,730    1,072,217
----------------------------------------------------------------------------
Total liabilities     179,921  137,293        -        221,134      538,348
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                   For the three months ended June 30, 2010
                                         Inter-                Consolidated
                   Facilities   Onsite  segment  Unallocated(3)       Total
----------------------------------------------------------------------------
External revenue       92,332   44,573        -              -      136,905
Inter segment
 revenue(2)               189        -     (189)             -            -
Cost of sales (1)      70,458   35,590     (189)             -      105,859
----------------------------------------------------------------------------
Gross profit           22,063    8,983        -              -       31,046
Selling, general
 and administrative         -        -        -         20,063       20,063
Research and
 development                -        -        -            494          494
Finance charges             -        -        -          6,596        6,596
----------------------------------------------------------------------------
Earnings before taxes  22,063    8,983        -        (27,153)       3,893
----------------------------------------------------------------------------
Property, plant
 and equipment
 expenditures           5,850    8,120        -          1,595       15,565
----------------------------------------------------------------------------
Goodwill               44,381   58,516        -              -      102,897
----------------------------------------------------------------------------
Total assets          647,106  286,511        -         99,678    1,033,295
----------------------------------------------------------------------------
Total liabilities     248,549  150,337        -        112,891      511,777
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Cost of sales includes amortization of $11,385 (Facilities $8,459 and
    Onsite $2,926) and $10,808 for 2010 (Facilities $7,505 and Onsite
    $3,302).
(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 interest costs in the segment
    analysis.


                                     For the six months ended June 30, 2011
                                         Inter-                Consolidated
                   Facilities   Onsite  segment  Unallocated(3)       Total
----------------------------------------------------------------------------
External revenue      222,138   94,578        -              -      316,716
Cost of sales (1)     168,564   70,243        -              -      238,807
----------------------------------------------------------------------------
Gross profit           53,574   24,335        -              -       77,909
Selling, general
 and administrative         -        -        -         41,256       41,256
Research and
 development                -        -        -          1,211        1,211
Finance charges             -        -        -         12,839       12,839
----------------------------------------------------------------------------
Earnings before taxes  53,574   24,335        -        (55,306)      22,603
----------------------------------------------------------------------------
Property, plant
 and equipment
 expenditures          18,034   16,745        -          5,079       39,858
----------------------------------------------------------------------------
Goodwill               44,381   58,516        -              -      102,897
----------------------------------------------------------------------------
Total assets          683,758  320,729        -         67,730    1,072,217
----------------------------------------------------------------------------
Total liabilities     179,921  137,293        -        221,134      538,348
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                     For the six months ended June 30, 2010
                                         Inter-                Consolidated
                   Facilities   Onsite  segment  Unallocated(3)       Total
----------------------------------------------------------------------------
External revenue      183,924   84,221        -              -      268,145
Inter segment
 revenue(2)               346        -     (346)             -            -
Cost of sales (1)     136,421   68,235     (346)             -      204,310
----------------------------------------------------------------------------
Gross profit           47,849   15,986        -              -       63,835
Selling, general
 and administrative         -        -        -         38,811       38,811
Research and
 development                -        -        -            687          687
Finance charges             -        -        -         13,333       13,333
----------------------------------------------------------------------------
Earnings before taxes  47,849   15,986        -        (52,831)      11,004
----------------------------------------------------------------------------
Property, plant
 and equipment
 expenditures           8,003   11,695        -          4,497       24,195
----------------------------------------------------------------------------
Goodwill               44,381   58,516        -              -      102,897
----------------------------------------------------------------------------
Total assets          647,106  286,511        -         99,678    1,033,295
----------------------------------------------------------------------------
Total liabilities     248,549  150,337        -        112,891      511,777
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Cost of sales includes amortization of $22,516 (Facilities $16,196 and
    Onsite $6,320) and $21,201 for 2010 (Facilities $14,582 and Onsite
    $6,618).
(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 interest costs in the segment
    analysis.

NOTE 17. 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 the March 31, 2011 unaudited condensed interim financial statements have been applied in preparing the financial statements for the three and six months ended June 30, 2011, the comparative information presented in these financial statements for the three and six months ended June 30, 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 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 Condensed Consolidated Balance Sheets
As at January 1, 2010
(Unaudited - 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
 Investment                                                     -         -
 Prepaid expenses and other                      6,183          -     6,183
----------------------------------------------------------------------------
                                               123,648      3,920   127,568

Non-current assets
 Note receivable                                   978          -       978
 Property, plant and equipment              b  701,884     19,772   721,656
 Permits and other intangibles                  61,935          -    61,935
 Goodwill                                      103,597          -   103,597
 Deferred tax asset                              1,688          -     1,688
----------------------------------------------------------------------------
TOTAL ASSETS                                   993,730     23,692 1,017,422
----------------------------------------------------------------------------

Liabilities
Current liabilities
 Bank indebtedness                                   -          -         -
 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
----------------------------------------------------------------------------
Shareholders' Equity
 Shareholders' 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 Condensed Consolidated Balance Sheets
For the period ended June 30, 2010
(Unaudited - Expressed in thousands of Canadian Dollars)

                                              Previous  Effect of
                                              Canadian transition
                                        Note      GAAP    to IFRS      IFRS
----------------------------------------------------------------------------
Assets
Current Assets
 Cash and cash equivalents                           -          -         -
 Accounts receivable                           102,173          -   102,173
 Inventories                                    33,637          -    33,637
 Investment                                      4,636          -     4,636
 Prepaid expenses and other                      8,930          -     8,930
----------------------------------------------------------------------------
                                               149,376          -   149,376

Non-current assets
 Note receivable                                   965          -       965
 Property, plant and equipment           b,e   698,058     19,051   717,109
 Permits and other intangibles                  61,022          -    61,022
 Goodwill                                      102,897          -   102,897
 Deferred tax asset                              1,925          -     1,925
----------------------------------------------------------------------------
TOTAL ASSETS                                 1,014,243     19,051 1,033,294
----------------------------------------------------------------------------

Liabilities
Current liabilities
 Bank indebtedness                         a         -      7,645     7,645
 Accounts payable and accrued              
  liabilities                              c    86,522      1,763    88,285
 Dividend payable                                2,424          -     2,424
----------------------------------------------------------------------------
                                                88,946      9,408    98,354
----------------------------------------------------------------------------
Non-current liabilities
 Senior secured debt                       a   201,993     (7,645)  194,348
 Convertible debentures - debt             
  portion                                  d   111,377          9   111,386
 Other liabilities                         c     1,845        340     2,185
 Deferred tax liability                    g    43,262      7,309    50,571
 Decommissioning liability                 b    22,259     32,674    54,933
----------------------------------------------------------------------------
TOTAL LIABILITIES                              469,682     42,095   511,777
----------------------------------------------------------------------------
Shareholders' Equity
 Shareholders' 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,e,g,h,j   (12,371)   214,820   202,449
 Accumulated other
  comprehensive income                             532          -       532
----------------------------------------------------------------------------
TOTAL EQUITY                                   544,561    (23,044)  521,517
----------------------------------------------------------------------------
TOTAL EQUITY AND LIABILITIES                 1,014,243     19,051 1,033,294
----------------------------------------------------------------------------


Reconciliation of the Condensed Consolidated Balance Sheets
As at December 31, 2010
(Unaudited - Expressed in thousands of Canadian Dollars)

                                              Previous  Effect of
                                              Canadian transition
                                        Note      GAAP    to IFRS      IFRS
----------------------------------------------------------------------------
Assets
Current Assets
 Cash and cash equivalents                           -          -         -
 Accounts receivable                           102,378          -   102,378
 Inventories                                    26,645          -    26,645
 Available for sale
  investment                                     4,274          -     4,274
 Prepaid expenses and other                      7,292          -     7,292
----------------------------------------------------------------------------
                                               140,589          -   140,589

Non-current assets
 Note receivable                                   890          -       890
 Property, plant and                     b,e
  equipment                                    722,840     18,953   741,793
 Permits and other
  intangibles                                   60,579          -    60,579
 Goodwill                                      102,897          -   102,897
 Deferred tax asset                                929          -       929
----------------------------------------------------------------------------
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 Condensed Consolidated Statements of
 Operations and Comprehensive Income
For the three months ended June 30, 2010
(Unaudited - Expressed in thousands of Canadian Dollars)

                                                        Effect of
                                              Canadian transition
                                        Note      GAAP    to IFRS      IFRS
----------------------------------------------------------------------------

Revenue                                        136,905          -   136,905
Operating expenses                         i    95,052    (95,052)        -
Cost of sales                            b,i         -    105,859   105,859
----------------------------------------------------------------------------
Gross profit                                                         31,046
----------------------------------------------------------------------------
 Selling, general and                    
  administrative                         c,i    15,049      5,014    20,063
 Research and development                          494          -       494
 Finance charges                     b,d,e,f     6,194        402     6,596
 Amortization                              i    15,198    (15,198)        -
----------------------------------------------------------------------------
Earnings before taxes                            4,918     (1,025)    3,893
----------------------------------------------------------------------------
Provisions for income
  taxes
 Current                                           107          -       107
 Deferred                                  g     1,656       (255)    1,401
----------------------------------------------------------------------------
                                                 1,763       (255)    1,508
Net earnings                               j     3,155       (770)    2,385
----------------------------------------------------------------------------
Other comprehensive loss                          (467)         -      (467)
----------------------------------------------------------------------------
Total comprehensive                        
  income                                   j     2,688       (770)    1,918
----------------------------------------------------------------------------

Basic earnings per Share                          0.07      (0.02)     0.05
----------------------------------------------------------------------------
Diluted earnings per
 Share                                            0.06      (0.01)     0.05
----------------------------------------------------------------------------


Reconciliation of the Condensed Consolidated Statements of
 Operations and Comprehensive Income

For the six months ended June 30, 2010
(Unaudited - Expressed in thousands of Canadian Dollars)

                                                        Effect of
                                              Canadian transition
                                        Note      GAAP    to IFRS      IFRS
----------------------------------------------------------------------------
Revenue                                        268,145          -   268,145
Operating expenses                         i   183,110   (183,110)        -
Cost of sales                            b,i         -    204,310   204,310
----------------------------------------------------------------------------
Gross profit                                                         63,835
----------------------------------------------------------------------------
 Selling, general and                    
  administrative                         c,i    30,668      8,143    38,811
 Research and development                          687          -       687
 Finance charges                     b,d,e,f    12,446        887    13,333
 Amortization                              i    28,303    (28,303)        -
----------------------------------------------------------------------------
Earnings before taxes                           12,931     (1,927)   11,004
----------------------------------------------------------------------------
Provisions for income taxes
 Current                                           235          -       235
 Deferred                                  g     3,819       (384)    3,435
----------------------------------------------------------------------------
                                                 4,054       (384)    3,670
Net earnings                               j     8,877     (1,543)    7,334
----------------------------------------------------------------------------
Other comprehensive income                         532          -       532
----------------------------------------------------------------------------
Total comprehensive income                 j     9,409     (1,543)    7,866
----------------------------------------------------------------------------

Basic earnings per Share                          0.18      (0.03)     0.15
----------------------------------------------------------------------------
Diluted earnings per Share                        0.18      (0.03)     0.15
----------------------------------------------------------------------------


Reconciliation of the Condensed Consolidated Statements of
 Operations and Comprehensive Income
For the year ended December 31, 2010
(Unaudited - 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
Total 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

                                            January 1, June 30, December 31,
                                                 2010     2010         2010
----------------------------------------------------------------------------
Increase in property, plant and equipment      19,772   18,962       18,150
Increase in decommissioning liabilities       (32,682) (32,675)     (32,668)
----------------------------------------------------------------------------
Decrease in retained earnings                 (12,910) (13,713)     (14,518)
----------------------------------------------------------------------------


Impact on Consolidated Statements of Comprehensive Income

                      Six months ended Three months ended        Year ended 
                         June 30, 2010      June 30, 2010 December 31, 2010
----------------------------------------------------------------------------
Increase in cost of sales          810                405             1,620
Decrease in finance charges         (7)                (4)              (12)
----------------------------------------------------------------------------
Net decrease in comprehensive 
 income                            803                401             1,608
----------------------------------------------------------------------------

c. Share based payments

Measurement of liabilities

Under Canadian GAAP - The Company 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 commencing 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

                                            January 1, June 30, December 31,
                                                 2010     2010         2010
----------------------------------------------------------------------------
Increase in accounts payable and accrued 
 liabilities                                     (451)  (1,762)      (2,152)
Increase in other liabilities                    (429)    (340)        (264)
----------------------------------------------------------------------------
Decrease in retained earnings                    (880)  (2,102)      (2,416)
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income

                      Six months ended Three months ended        Year ended 
                         June 30, 2010      June 30, 2010 December 31, 2010
----------------------------------------------------------------------------
Increase in selling, 
 general and administrative      1,222                714             1,536
----------------------------------------------------------------------------
Decrease in comprehensive 
 income                         (1,222)              (714)           (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 - Transaction 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, June 30, December 31,
                                                 2010     2010         2010
----------------------------------------------------------------------------
Increase in convertible debenture - debt portion  (17)      (9)          (1)
Decrease in convertible debenture - equity 
 portion                                          479      479          479
----------------------------------------------------------------------------
Increase in retained earnings                     462      470          478
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income

                      Six months ended Three months ended        Year ended 
                         June 30, 2010      June 30, 2010 December 31, 2010
----------------------------------------------------------------------------
Decrease in finance charges         (8)                (4)              (16)
Increase in comprehensive income     8                  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.


Impact on Consolidated Balance Sheets

                                            January 1, June 30, December 31,
                                                 2010     2010         2010
----------------------------------------------------------------------------
Increase in property, plant and equipment           -       90          803
----------------------------------------------------------------------------
Increase in retained earnings                       -       90          803
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income

                      Six months ended Three months ended        Year ended 
                         June 30, 2010      June 30, 2010 December 31, 2010
----------------------------------------------------------------------------
Decrease in finance charges        (90)               (86)             (803)
----------------------------------------------------------------------------
Increase in comprehensive income    90                 86               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

                      Six months ended Three months ended        Year ended 
                         June 30, 2010      June 30, 2010 December 31, 2010
----------------------------------------------------------------------------
Decrease in amortization 
 expense                          (990)              (495)           (1,982)
----------------------------------------------------------------------------
Increase in finance charges        990                495             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 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 shareholder's capital.

Convertible debentures

Under Canadian GAAP - Deferred income tax related to the equity portion of the convertible debentures are 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, June 30, December 31,
                                                 2010     2010         2010
----------------------------------------------------------------------------
Increase in shareholder's capital (note h)       (971)    (971)        (971)
Decrease in convertible debenture - equity 
 portion                                          350      350          350
Increase in deferred tax liability             (7,692)  (7,309)      (7,308)
----------------------------------------------------------------------------
Decrease in retained earnings                  (8,313)  (7,930)      (7,929)
----------------------------------------------------------------------------

Other earnings adjustments

The 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:


                      Six months ended Three months ended        Year ended 
                         June 30, 2010      June 30, 2010 December 31, 2010
----------------------------------------------------------------------------
Decrease in provision for 
 deferred taxes                   (384)              (255)             (384)
----------------------------------------------------------------------------
Increase in comprehensive income   384                255               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, June 30, December 31,
                                                 2010     2010         2010
----------------------------------------------------------------------------
Decrease in shareholders' capital            (238,006)(238,006)    (238,006)
----------------------------------------------------------------------------
Increase in retained earnings                 238,006  238,006      238,006
----------------------------------------------------------------------------

This change had no impact on our Statements of Comprehensive Income for the three and six months ended June 30, 2010 or 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 $95,052 and $183,110 for the three and six months ended June 30, 2010, respectively and $394,317 for the year ended December 31, 2010, 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 it 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

                                     Six months   Three months   Year ended
                                  ended June 30, ended June 30, December 31,
                            Note           2010           2010         2010
----------------------------------------------------------------------------
Amortization disclosed 
 separately under Canadian 
 GAAP                                   (28,303)       (15,198)     (55,990)
Amortization allocated to 
 cost of sales                           20,391         10,403       41,869
Amortization allocated to selling,
 general and administrative
 expense                                  6,922          4,300       12,139
Unwinding of discount 
 reclassified to finance 
 charges                       f            990            495        1,982
----------------------------------------------------------------------------
Net decrease in comprehensive
 income                                       -              -            -
----------------------------------------------------------------------------

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

Impact on Consolidated Balance Sheets

                                 Note      January 1,  June 30, December 31,
                                                2010      2010         2010
----------------------------------------------------------------------------
Decommissioning liability 
 increase net impact                b        (12,910)  (13,715)     (14,518)
Share-based payments liability 
 valuation impact                   c           (880)   (2,102)      (2,416)
Convertible debentures valuation 
 impact                             d            462       470          478
Capitalization of borrowing costs 
 impact                             e              -        90          803
Deferred tax impact                 g         (8,313)   (7,929)      (7,929)
Shareholder's capital re-measurement 
 due to trust units                 h        238,006   238,006      238,006
----------------------------------------------------------------------------
Increase in retained earnings                216,365   214,820      214,424
----------------------------------------------------------------------------


Impact on Consolidated Statements of Comprehensive Income

                                     Six months   Three months   Year ended
                                  ended June 30, ended June 30, December 31,
                            Note           2010           2010         2010
----------------------------------------------------------------------------
Decommissioning liability 
 impact                        b           (803)          (401)      (1,608)
Share-based payments 
 valuation impact              c         (1,222)          (714)      (1,536)
Convertible debentures 
 accretion impact              d              8              4           16
Capitalization of borrowing 
 costs                         e             90             86          803
Deferred tax impact            g            384            255          384
----------------------------------------------------------------------------
Increase in comprehensive 
 income                                  (1,543)          (770)      (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 ($1.0 million and $1.1 million for three and six months ended June 30, 2011 and $0.1 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