Newalta Corporation
TSX : NAL

Newalta Corporation

November 01, 2011 18:30 ET

Newalta's Growth and Earnings Momentum Continues in Third Quarter 2011

CALGARY, ALBERTA--(Marketwire - Nov. 1, 2011) - Newalta Corporation ("Newalta") (TSX:NAL) (TSX:NAL.DB) today reported substantial increases in revenue, profitability and capital returns for the third quarter ended September 30, 2O11.


--  Revenue ahead 25%, Adjusted EBITDA up 41%, net earnings increase 101%,
    compared to Q3 last year 
--  Return on capital rises to 15% on a trailing twelve month basis 
--  Capex budget increases to $110 million 

FINANCIAL HIGHLIGHTS(1)                                                     
                                           Three months ended               
                                                 September 30,              
($000s except per share data)                                    % Increase 
 (unaudited)                                 2011         2010    (Decrease)
------------------------------------------------- ------------ ------------ 
Revenue                                   182,023      145,124           25 
Gross profit(2)                            44,860       35,281           27 
 - % of revenue                                25%          24%           4 
Net earnings                               11,815        5,867          101 
 - per share ($) - basic                     0.24         0.12          100 
 - per share ($) - basic adjusted(3)         0.25         0.15           67 
 - per share ($) - diluted                   0.24         0.12          100 
Adjusted EBITDA(3)                         41,871       29,706           41 
 - per share ($)(3)                          0.86         0.61           41 
Cash from operations                       13,177       29,235          (55)
 - per share ($)                             0.27         0.60          (55)
Funds from operations(3)                   41,309       26,354           57 
 - per share ($)(3)                          0.85         0.54           57 
Maintenance capital expenditures(3)         9,393       10,367           (9)
Growth capital expenditures(3)             23,141       11,896           95 
Dividends declared                          3,889        3,152           23 
 - per share ($)(3)                          0.08        0.065           23 
Dividends paid                              3,889        2,424           60 
Book value per share                        11.12        10.81            3 
Weighted average shares outstanding        48,607       48,487            - 
Shares outstanding, September 30, (4)      48,607       48,487            - 
------------------------------------------------- ------------ ------------ 

FINANCIAL HIGHLIGHTS(1)                                                     
                                            Nine months ended               
                                                 September 30,              
($000s except per share data)                                    % Increase 
 (unaudited)                                 2011         2010    (Decrease)
------------------------------------------------- ------------ ------------ 
Revenue                                   498,739      413,269           21 
Gross profit(2)                           122,769       99,116           24 
 - % of revenue                                25%          24%           4 
Net earnings                               27,532       13,201          109 
 - per share ($) - basic                     0.57         0.27          111 
 - per share ($) - basic adjusted(3)         0.66         0.36           83 
 - per share ($) - diluted                   0.56         0.27          107 
Adjusted EBITDA(3)                        109,798       85,146           29 
 - per share ($)(3)                          2.26         1.76           28 
Cash from operations                       53,173       47,690           11 
 - per share ($)                             1.10         0.98           12 
Funds from operations(3)                   97,423       70,611           38 
 - per share ($)(3)                          2.01         1.46           38 
Maintenance capital expenditures(3)        19,137       20,339           (6)
Growth capital expenditures(3)             53,255       26,118          104 
Dividends declared                         10,930        8,000           37 
 - per share ($)(3)                          0.23         0.17           35 
Dividends paid                             10,194        7,272           40 
Book value per share                        11.12        10.81            3 
Weighted average shares outstanding        48,556       48,485            - 
Shares outstanding, September 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 November 1, 2011.  

Management Commentary

"The increase in Adjusted EBITDA of $12.2 million, or 41%, compared to last year was largely attributable to improved market conditions, with 10% of the gain due to higher commodity prices," said Al Cadotte, President and CEO of Newalta. "Strong market demand will continue to drive improved bottom-line performance in the quarters ahead."

Other Highlights


--  Adjusted EBITDA increased to 22% of revenue on a year-to-date basis from
    20.6% in 2010. Trailing twelve month Adjusted EBITDA to September 30,
    2011 was $143.4 million. 
--  Adjusted SG&A (SG&A before stock-based compensation and amortization)
    was $49.1 million year-to-date, or 9.8% of revenue, an improvement from
    10.7% last year. 
--  Third quarter net earnings grew 101% compared to Q3 2010 due to growth
    in operational profitability. Year-to-date, net earnings grew 109% over
    2010. 
--  Gross Profit in the quarter was up 27% due to Facilities and Onsite
    division increases of 29% and 25%, respectively. Year to date, Gross
    Profit was up 24%, with Facilities up 17% and Onsite up 40%.  
--  Newalta's Board of Directors declared a third quarter dividend of $0.08
    per share ($0.32 per share annualized) payable October 15, 2011 to
    shareholders of record September 30, 2011. 
--  Newalta was recently awarded a three-year contract to process mature
    fine tailings ("MFT") at Syncrude's oil sands mine operations near Fort
    McMurray, Alberta. 
--  Capital expenditure budget for 2011 is now $110 million up from $100
    million, reflecting the three-year Syncrude contract. Capital
    expenditures were $32.5 million and $72.4 million for the quarter and
    year to date, respectively.  
--  Newalta was proud to be recently named Supplier of the Year by Oilweek
    Magazine, as voted by our customers.  

Quarterly Conference Call

Management will hold a conference call on Wednesday, November 2, 2011 at 11:00 a.m. (ET) to discuss Newalta's performance for the third quarter and year-to-date 2011. To participate in the teleconference, please call 1-866-226-1792. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Wednesday, November 9, 2011 by dialing 1-800-408-3053 and using the pass code 6242104 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 nine months ended September 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   Nine months ended
                                           September 30,       September 30,
($000s)                                   2011      2010      2011      2010
----------------------------------------------------------------------------
Net earnings                            11,815     5,867    27,532    13,201
Add back (deduct):                                                          
    Current income taxes                     3       183       129       418
    Deferred income taxes                4,719     2,876    11,479     6,310
    Finance charges                      6,847     6,838    19,686    20,171
    Amortization                        18,307    12,706    46,455    40,829
----------------------------------------------------------------------------
  EBITDA                                41,691    28,470   105,281    80,929
----------------------------------------------------------------------------
  Add back (deduct):                                                        
    Stock-based compensation expense       180     1,236     4,517     4,217
----------------------------------------------------------------------------
  Adjusted EBITDA                       41,871    29,706   109,798    85,146
----------------------------------------------------------------------------
  Weighted average number of shares     48,607    48,487    48,556    48,485
----------------------------------------------------------------------------
  EBITDA per share                        0.86      0.59      2.17      1.67
----------------------------------------------------------------------------
  Adjusted EBITDA per share               0.86      0.61      2.26      1.76
----------------------------------------------------------------------------

"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   Nine months ended
                                           September 30,       September 30,
($000s)                                   2011      2010      2011      2010
----------------------------------------------------------------------------
Net earnings                            11,815     5,867    27,532    13,201
Add back (deduct):                                                          
    Stock-based compensation expense       180     1,236     4,517     4,217
----------------------------------------------------------------------------
  Adjusted net earnings                 11,995     7,103    32,049    17,418
----------------------------------------------------------------------------
  Adjusted net earnings per share         0.25      0.15      0.66      0.36
----------------------------------------------------------------------------

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


                                                           Nine months ended
                                                                September 30
($000s)                                                       2011      2010
----------------------------------------------------------------------------
Total Equity                                               540,494   524,234
Shares outstanding, September 30,                           48,607    48,487
----------------------------------------------------------------------------
  Book value per share                                       11.12     10.81
----------------------------------------------------------------------------

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


                                     Three months ended    Nine months ended
                                          September 30,        September 30,
($000s)                                  2011      2010       2011      2010
----------------------------------------------------------------------------
Cash from operations                   13,177    29,235     53,173    47,690
Add back (deduct):                                                          
 Increase (decrease) in non-cash                                            
  working capital                      27,118    (3,304)    42,605    21,863
 Decommissioning obligations                                                
  incurred                              1,014       423      1,645     1,058
----------------------------------------------------------------------------
Funds from operations                  41,309    26,354     97,423    70,611
----------------------------------------------------------------------------
Weighted average number of shares      48,607    48,487     48,556    48,485
----------------------------------------------------------------------------
Funds from operations per share          0.85      0.54       2.01      1.46
----------------------------------------------------------------------------

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


($000s)                                             Q3 2011 TTM  Q3 2010 TTM
----------------------------------------------------------------------------
Adjusted EBITDA                                         143,445      110,651

    Total assets                                      1,126,010    1,051,833
    Current liabilities                                 145,320      115,140
----------------------------------------------------------------------------
  Capital employed                                      980,690      936,693
----------------------------------------------------------------------------
  2-Year net assets average(1)                          958,692      922,916
----------------------------------------------------------------------------
  Return on capital (%)                                    15.0         12.0
----------------------------------------------------------------------------

1.  Q3 2010 TTM has been calculated using previous GAAP for Q4 2009 and GAAP
    for Q1-Q3 2010 

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

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

2011 is our first year reporting under 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 2008 and 2009 were prepared in accordance with previous GAAP and are not required to be restated in accordance with IFRS. See page 25 of this MD&A for more information on the impact of adopting IFRS.

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 nine months ended September 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 nine months ended September 30, 2010. This information is available at SEDAR (www.sedar.com). Information for the three and nine months ended September 30, 2011, along with comparative information for 2010, is provided.

This MD&A is dated November 1, 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              
                                                 September 30,              
($000s except per share data)                                    % Increase 
 (unaudited)                                 2011         2010    (Decrease)
----------------------------------------------------------------------------
Revenue                                   182,023      145,124           25 
Gross Profit(2)                            44,860       35,281           27 
 - % of revenue                                25%          24%           4 
Net earnings                               11,815        5,867          101 
 - per share ($) - basic                     0.24         0.12          100 
 - per share ($) - basic adjusted(3)         0.25         0.15           67 
 - per share ($) - diluted                   0.24         0.12          100 
Adjusted EBITDA(3)                         41,871       29,706           41 
 - per share ($)(3)                          0.86         0.61           41 
Cash from operations                       13,177       29,235          (55)
 - per share ($)                             0.27         0.60          (55)
Funds from operations(3)                   41,309       26,354           57 
 - per share ($)(3)                          0.85         0.54           57 
Maintenance capital expenditures(3)         9,393       10,367           (9)
Growth capital expenditures(3)             23,141       11,896           95 
Dividends declared                          3,889        3,152           23 
 - per share ($)(3)                          0.08        0.065           23 
Dividends paid                              3,889        2,424           60 
Book value per share                        11.12        10.81            3 
Weighted average shares outstanding        48,607       48,487            - 
Shares outstanding, September 30, (4)      48,607       48,487            - 
----------------------------------------------------------------------------

                                             Nine months ended              
                                                 September 30,              
($000s except per share data)                                    % Increase 
 (unaudited)                                 2011         2010    (Decrease)
----------------------------------------------------------------------------
Revenue                                   498,739      413,269           21 
Gross Profit(2)                           122,769       99,116           24 
 - % of revenue                                25%          24%           4 
Net earnings                               27,532       13,201          109 
 - per share ($) - basic                     0.57         0.27          111 
 - per share ($) - basic adjusted(3)         0.66         0.36           83 
 - per share ($) - diluted                   0.56         0.27          107 
Adjusted EBITDA(3)                        109,798       85,146           29 
 - per share ($)(3)                          2.26         1.76           28 
Cash from operations                       53,173       47,690           11 
 - per share ($)                             1.10         0.98           12 
Funds from operations(3)                   97,423       70,611           38 
 - per share ($)(3)                          2.01         1.46           38 
Maintenance capital expenditures(3)        19,137       20,339           (6)
Growth capital expenditures(3)             53,255       26,118          104 
Dividends declared                         10,930        8,000           37 
 - per share ($)(3)                          0.23         0.17           35 
Dividends paid                             10,194        7,272           40 
Book value per share                        11.12        10.81            3 
Weighted average shares outstanding        48,556       48,485            - 
Shares outstanding, September 30, (4)      48,607       48,487            - 
----------------------------------------------------------------------------

1.  Management's Discussion and Analysis and Newalta's Unaudited Condensed
    Consolidated Interim Financial Statements and notes thereto 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 November 1, 2011.  

NEWALTA

We provide engineered environmental solutions to our customers across Canada. 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         Drive higher returns on existing assets      
 Profitability                 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 
 (Onsite)                       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

Strong market demand across all of our services delivered robust year-over-year growth in Q3 2011, with revenue up 25% to $182.0 million and Adjusted EBITDA up 41% to $41.9 million. Gross profit as a percentage of revenue grew to 25% in Q3 2011, up from 24% in Q3 2010. Net earnings grew to $11.8 million compared to $5.9 million in Q3 2010 as a result of growth in operational profitability. Approximately 90% of the improvement in Adjusted EBITDA is attributable to higher activity levels, improved productivity and organic growth from capital investments with the balance driven by higher commodity prices. This flowed through to our Gross Debt to Adjusted EBITDA ratio which improved to 2.40 from 3.00 in Q3 2010. The ongoing improvement in financial leverage continues to create greater financial flexibility for future growth.

In the nine months ended September 30 2011, the demand for our services continued to be very strong, at or near pre-2009 levels. Year-to-date, Adjusted EBITDA increased by 29% to $109.8 million. Approximately 80% of the improvement is attributable to higher activity levels, organic growth from capital investments and improved productivity with the balance driven by higher commodity prices.

In Facilities, Q3 2011 revenue and gross profit both strengthened by 29% compared to Q3 2010. This was driven by strong contributions from our Western Facilities and Stoney Creek Landfill ("SCL"). Year-to-date revenue and gross profit increased by 23% and 17%, respectively, compared to 2010. Performance reflected higher activity levels across all lines of business.

Onsite delivered strong results for the quarter due to strong oil and gas related activity. Revenue and gross profit increased by 19% and 25%, respectively. Gross profit as a percentage of revenue was 27%, up from 26% in Q3 2010. Year-to-date Onsite business drivers were consistent with Q3. Revenue and gross profit increased by 15% and 40%, respectively, over 2010.

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

Demand for our services and the value of our recovered products have both recovered to pre-2009 levels. Combined with our growth capital investments, these have driven our Q3 2011 trailing twelve-month Adjusted EBIDTA to $143.4 million.

In Q3 2011, we were awarded a three year contract to process mature fine tailings ("MFT"). As a result, our Board of Directors approved an increase of $10 million to our original capital expenditure budget, for a revised total spend of $110 million. Capital expenditures for the three and nine months ended September 30, 2011 were $32.5 million and $72.4 million, respectively. Year-to-date growth capital spending was $53.3 million and maintenance capital expenditures totaled $19.1 million.

Capital expenditures exclude our investment of $6 million in TerrAqua Resource Management, LLC ("TARM") announced in August 2011.

Revenue and Adjusted EBITDA: http://media3.marketwire.com/docs/nal_charts.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 nine months ended September 30 2010, our Research and Development operating expenditures increased by 68% to $1.9 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 anticipate committing $5.0 million capital in 2011.

OUTLOOK

In Q4 2011, we expect improved performance consistent with the continued strengthening of our key markets. Oil and gas drilling activity is expected to be robust through Q4 2011. In Q4 2011, we anticipate lead sales volumes at Ville Ste-Catherine ("VSC") will be above 17,000 MT and SCL will reach its maximum annual permitted volume of 750,000 MT. Moving into 2012, we anticipate SCL volumes to be higher than the historical annual average of 620,000 MT. In Onsite, we expect continued growth from demand for drill site equipment in Canada and steady demand in the U.S., to realize improved utilization rates over Q4 2010.

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

We anticipate continued strong demand for our products and services moving into Q4 2011, and we expect ongoing improvement towards our historical Return on capital average of 18% by year end. Leading into 2012, we continue to focus on growing our portfolio of longer term Onsite contracts, strengthening our foundation of stable cash flow, increasing from six contracts in 2011 to nine in 2012. 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 Ville Ste-Catherine, Quebec, an engineered non-hazardous solid waste landfill located at Stoney Creek, Ontario, and over 25 oilfield facilities throughout western Canada. Facilities is organized into the Western Facilities, Eastern Facilities and VSC business units.

The business units contributed the following to division revenue:


                                    Three months ended     Nine months ended
                                         September 30,         September 30,
                                       2011       2010       2011       2010
----------------------------------------------------------------------------
Western Facilities                      50%        52%        47%        48%
Eastern Facilities                      29%        22%        25%        23%
VSC                                     21%        26%        28%        29%
----------------------------------------------------------------------------

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

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


                     Three months ended          Nine months ended          
                           September 30,              September 30,         
($000s)                   2011     2010 % change     2011     2010 % change 
----------------------------------------------------------------------------
Revenue(1)             122,216   95,076       29  344,354  279,346       23 
Cost of Sales(2)        93,514   72,754       29  262,078  209,175       25 
----------------------------------------------------------------------------
Gross Profit            28,702   22,322       29   82,276   70,171       17 
----------------------------------------------------------------------------
Gross Profit as % of                                                        
 revenue                    23%      23%       -       24%      25%      (4)
----------------------------------------------------------------------------
Maintenance capital      7,768    8,437       (8)  13,673   15,011       (9)
----------------------------------------------------------------------------
Growth capital           9,088    3,043      199   21,217    4,473      374 
----------------------------------------------------------------------------
Assets employed(3)                                596,546  578,720        3 
----------------------------------------------------------------------------

1.  Includes nil in internal revenue in 2011 and $139 and $485 in Q3 2010
    and Q3 2010 year-to-date respectively. 
2.  Includes amortization of $11,022 and $27,218 for Q3 2011 and Q3 2011
    year-to-date, respectively, and $7,284 and $21,866 for Q3 2010 and Q3
    2010 year-to-date, respectively. 
3.  "Assets employed" is provided to assist management and investors in
    determining the effectiveness of the use of the assets at a divisional
    level. Assets employed is the sum of capital assets, intangible assets
    and goodwill allocated to each division.  

Performance in Q3 was consistent with improved market conditions compared to 2010. Revenue and gross profit were $122.2 million and $28.7 million, both up 29% respectively. Incremental revenue was due primarily to growth in our Western Facilities, including oil recycling, and SCL. Approximately 90% of the improvement is attributable to higher activity levels and improved productivity with the balance driven by higher commodity prices.

Year-to-date revenue and gross profit are $344.4 million and $82.3 million, up 23% and 17%, respectively. Performance reflected higher activity levels across all lines of business.

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 Q3 2011 revenue increased by 24% compared to Q3 2010, primarily driven by higher waste receipts from increased drilling activity and stronger performance in oil recycling. Improved oil and gas activity resulted in a 12% increase in waste processing volume compared to Q3 2010. Our Q3 2011 recovered crude oil volumes are modestly above the three year quarterly average of approximately 53,000 barrels per quarter.

Consistent with customer activity seen in Q3, year-to-date revenue increased by 21% compared to 2010.


                        Three months ended        Nine months ended         
                              September 30,            September 30,        
                              2011    2010 % change    2011    2010 % change
----------------------------------------------------------------------------
Waste processing
 volumes ('000 m3)             145     129       12     383     335       14
Recovered crude oil
 ('000 bbl)(1)                  56      47       19     164     162        1
Average crude oil price                                                     
 received (CDN$/bbl)         82.29   70.18       17   86.42   72.44       19
Recovered crude oil
 sales ($ millions)            4.6     3.3       39    14.2    11.7       21
Edmonton par price                                                          
 (CDN$/bbl)(2)               91.81   73.96       24   94.08   76.39       23
----------------------------------------------------------------------------

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

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

Recovered Crude - Western Facilities: http://media3.marketwire.com/docs/nal_charts.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 Q3 2011, revenue improved 53% compared to Q3 2010. Higher revenue was primarily driven at SCL from increased event-based business, with improved performance across the eastern network.

Year-to-date 2011 revenue improved 24% compared to 2010. Based on current market activity, we expect SCL in 2011 to reach the maximum annual permitted volume of 750,000 MT. Moving into 2012, we anticipate volumes being higher than the historical annual average of 620,000 MT.


                        Three months ended        Nine months ended         
                              September 30,            September 30,        
                              2011    2010 % change    2011    2010 % change
----------------------------------------------------------------------------
SCL Volume Collected
 ('000 MT)                   328.5   105.4      212   668.6   473.1       41
----------------------------------------------------------------------------

SCL - Volume Collected: http://media3.marketwire.com/docs/nal_charts.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 Q3 2011 increased by 8% compared to Q3 2010 due to stronger commodity pricing. Total lead sold was 15,100 MT, slightly higher than Q3 2010. While the lagged LME lead price was up 35%, the lagged lead price in Canadian dollars was up 26% due to movement in the U.S./Canadian exchange rate.

For the nine months ended September 30 2011, revenue increased by 19% over 2010. Year-to-date results are driven by a 9% increase in sales volumes to 51,900 MT and a 23% increase in lagged LME lead prices to $2,554 $U.S./MT.

We anticipate Q4 2011 sales to be above 17,000 MT. We will continue to manage production volumes to capitalize on market conditions and maximize returns.

RESULTS OF OPERATIONS - ONSITE DIVISION

Overview

Onsite includes a network of more than 25 facilities with over 700 employees across Canada and the U.S. Onsite services involves the mobilization of equipment and our people to manage industrial by-products at our customer sites. Onsite includes: the processing of oilfield-generated wastes and the sale of recovered crude oil for our account; industrial cleaning; site remediation; dredging and dewatering and drill site processing, including solids control and drill cuttings management. Onsite includes the Western Onsite, Eastern Onsite and Heavy Oil business units.

Our Onsite services, excluding drill site, generally follow a similar sales cycle. We establish our market position through the execution of short-term projects which ideally may lead to longer term contracts, providing a more stable cash flow. The cycle to establish longer term contracts can be between 18 months to three years. Characteristics of projects and contracts are:


--  Projects: non-recurring and/or seasonal services completed in less than
    one year, primarily completed between March and November and will vary
    from period-to-period, and 
--  Contracts: typically evolve from projects and are 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   Nine months ended
                                            September 30,      September 30,
                                           2011     2010       2011     2010
----------------------------------------------------------------------------
Western Onsite                              41%      39%        42%      38%
Eastern Onsite                              16%      25%        17%      27%
Heavy Oil                                   43%      36%        41%      35%
----------------------------------------------------------------------------

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

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


                    Three months ended           Nine months ended         
                          September 30,               September 30,         
($000s)                  2011     2010 % change      2011     2010 % change
----------------------------------------------------------------------------
Revenue - external     59,807   50,187       19   154,385  134,408       15 
Cost of Sales(1)       43,649   37,228       17   113,892  105,463        8 
----------------------------------------------------------------------------
Gross Profit           16,158   12,959       25    40,493   28,945       40 
----------------------------------------------------------------------------
Gross Profit as % of                                                        
 revenue                   27%      26%       4        26%      22%      18 
----------------------------------------------------------------------------
Maintenance capital     1,138    1,279      (11)    3,985    4,027       (1)
----------------------------------------------------------------------------
Growth capital         10,886    7,316       49    24,784   16,263       52 
----------------------------------------------------------------------------
Assets employed(2)                                296,887  247,939       20 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

1.  Includes amortization of $4,461 and $10,781 for Q3 2011 and Q3 2011
    year-to-date, respectively, and $2,896 and $9,514 for Q3 2010 and Q3
    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 Q3 2011, revenue and gross profit increased by 19% and 25%, respectively, over Q3 2010. Gross profit as a percentage of revenue increased to 27% compared to 26% last year. Higher utilization of drill site equipment resulting from increased drilling activity and processing at the MFT project in Heavy Oil, drove 33% of the incremental revenue through to gross profit.

For the nine months ended September 30 2011, revenue and gross profit increased by 15% and 40%, respectively, compared to 2010. Gross profit as a percentage of revenue increased to 26% compared to 22% last year. Higher utilization of equipment resulting from stronger drilling activity and more project work in Heavy Oil drove a 58% flow through of incremental revenue to gross profit.

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.

Q3 2011 Western Onsite revenue improved by 23% compared to Q3 2010, consistent with increasing drilling activity in both western Canada and the U.S. Our utilization rate for drill site equipment rose to 62% from 57% in Q3 2010. As a result of capital investment, our fleet size is 11% higher. Q3 2011 utilization was 64% in the U.S. and 58% in Canada as a result of continued strong demand in the U.S and increasing demand in Canada. U.S. demand for our services was driven by the activity in the Marcellus, Fayetteville and Bakken plays while Canadian demand was driven primarily by activity in the Cardium and Bakken plays. For Q4 2011, based on higher demand in Canada, and combined with consistent drilling activity in the U.S., we anticipate a combined utilization rate higher than 57% seen in Q4 2010.

Year-to-date 2011, Western Onsite revenue improved by 30% compared to 2010, consistent with increasing drilling activity in both western Canada and the U.S. For the nine months ended September 30, 2011, our utilization rate for drill site equipment rose to 56% from 51% compared to 2010. Year-to-date U.S. and Canadian utilization rates are 63% and 46%, respectively.


                      Three months ended          Nine months ended         
                            September 30,              September 30,        
                           2011     2010 % change     2011     2010 % change
----------------------------------------------------------------------------
Equipment Utilization                                                       
  Canada                    58%      37%      57       46%      37%      24 
  US                        64%      76%     (16)      63%      66%      (5)
  Combined                  62%      57%       9       56%      51%      10 
Average equipment                                                           
 available                 199      179       11      198      178       11 
----------------------------------------------------------------------------

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

In addition to our growth in drill site services, west onsite has developed oil based processing projects in the northern U.S., which contributed to approximately half of the growth year-over-year in this business unit. 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 period-to-period. Revenue was down compared to Q3 2010, consistent with the early stage of development for this business unit.

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.

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

Currently, we have nine contracts, six of which were operating in Q3 2011. The remaining three contracts are in design or construction and are anticipated to be commissioned in the first half of 2012.

In Q3 2011, Heavy Oil revenue increased by 43% compared to Q3 2010. The main driver was the increase from Heavy Oil Onsite projects and contracts.

Year-to-date 2011, revenue increased by 33% compared to 2010. The primary driver was the strong performance of heavy oil project and contract work. For the nine months ended September 30 2011, recovered oil is consistent with the three year quarterly average of 47,000 bbls per quarter.


                        Three months ended        Nine months ended         
                              September 30,            September 30,        
                              2011    2010 % change    2011    2010 % change
----------------------------------------------------------------------------
Waste processing volumes                                                    
 ('000 m3)                     153     129      19      419     389       8 
Recovered crude oil ('000                                                   
 bbl)(1)                        43      46      (7)     141     150      (6)
Average crude oil price                                                     
 received (CDN$/bbl)         63.41   55.98      13    67.93   59.68      14 
Recovered crude oil sales                                                   
 ($ millions)                  2.7     2.6       4      9.5     9.0       6 
Bow River Hardisty                                                          
 (CDN$/bbl)(2)               79.02   67.58      17    81.60   70.87      15 
----------------------------------------------------------------------------

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

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

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

CORPORATE AND OTHER


                     Three months ended          Nine months ended         
                           September 30,              September 30,        
($000s)                   2011     2010 % change     2011     2010 % change
----------------------------------------------------------------------------
Selling, general and                                                        
 administrative   
 expenses ("SG&A")      20,789   19,077        9   62,045   57,889        7
 Less:                                                                      
  Stock-based                                                               
   compensation            180    1,236      (85)   4,517    4,217        7 
  Amortization(1)        2,824    2,528       12    8,455    9,449      (11)
----------------------------------------------------------------------------
Adjusted SG&A           17,785   15,313       16   49,073   44,223       11 
 Adjusted SG&A as a %                                                       
  of revenue               9.8%    10.6%      (8)     9.8%    10.7%      (8)
----------------------------------------------------------------------------

(1) Includes nil in loss on sale of fixed assets in 2011 and nil and $1,663 in Q3 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 Q3 2011 and year-to-date, Adjusted SG&A improved to 9.8% of revenue. This reflects our disciplined approach to managing SG&A as our revenue base increases. Stock-based compensation expense is driven by our share price, vesting schedule and dividend increases. Changes in our share price will continue to drive stock-based compensation. Approximately 60% of stock-based compensation expense is estimated to be settled with equity, with the balance to be settled in cash. Stock-based compensation grants outstanding at September 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 $9.63. For Q4 2011, we anticipate Adjusted SG&A to be 10% of revenue.


                    Three months ended          Nine months ended     
                          September 30,              September 30,       
($000s)                 2011      2010 % change    2011      2010 % change 
----------------------------------------------------------------------------
Research and                                                                
 development             687       440       56   1,898     1,127       68 
Research and                                                                
 development as a
 % of revenue            0.4%      0.3%      33     0.4%      0.3%      33 
----------------------------------------------------------------------------

Research and development expenses are related to our Technical Development group. Compared to Q3 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          Nine months ended     
                           September 30,              September 30,       
($000s)                  2011      2010 % change    2011      2010 % change 
----------------------------------------------------------------------------
Bank fees and interest  1,439     4,252      (66)  3,498    12,005      (71)
Debentures interest                                                         
 and accretion of                                                           
 issue costs(1)         4,874     2,094      133  14,585     6,690      118 
----------------------------------------------------------------------------
Finance charges before                                                      
 unwinding of the                                                           
 discount(2)(3)         6,313     6,346       (1) 18,083    18,695       (3)
Unwinding of the                                                            
 discount(2)              534       492        9   1,603     1,476        9 
----------------------------------------------------------------------------
Finance charges         6,847     6,838        -  19,686    20,171       (2)
----------------------------------------------------------------------------

1.  Includes convertible debentures and senior unsecured debentures. 
2.  Related to decommissioning liability.
3.  Excludes capitalized interest of $728 and $1,886 in Q3 2011 and 2011
    year-to-date respectively, and $259 and $349 in Q3 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 slightly lower for the quarter and for the nine months ended September 30 2011, than the corresponding period in 2010. This was mainly due to higher capitalized interest costs for eligible capital projects. 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          Nine months ended     
                          September 30,              September 30,       
($000s)                 2011      2010 % change    2011      2010 % change 
----------------------------------------------------------------------------
Current tax                3       183      (98)    129       418      (69)
Deferred tax           4,719     2,876       64  11,479     6,310       82 
----------------------------------------------------------------------------
Provision for income                                                        
 taxes                 4,722     3,059       54  11,608     6,728       73 
----------------------------------------------------------------------------

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 Q3 2011 and the nine months ended September 30 2011 was 28.6% and 29.7%, respectively. Compared to Q3 2010 and year-to-date 2010, the lower effective tax rate results from decreases to Federal and Provincial tax rates combined with a reduced impact from non-deductible costs against higher taxable income. For the nine months ended September 30 2011, our statutory tax rate in Canada was 27.4%. Loss carry forwards are approximately $142 million at September 30, 2011. Other than provincial capital taxes and U.S. state and federal income taxes, we do not anticipate paying significant income tax for the next 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 nine months ended September 30, 2011.

Our debt capital structure is as follows:


($000s)                                            September       December 
                                                    30, 2011       31, 2010
----------------------------------------------------------------------------
Use of Credit Facility:                                                     
Amount drawn on Credit Facility(1)                    82,745         53,859 
Senior Unsecured Debentures                          125,000        125,000 
Letters of credit                                     21,832         21,477 
----------------------------------------------------------------------------
Total Debt                              A            229,577        200,336 
Unused Credit Facility capacity(2)                    95,423        124,664 
----------------------------------------------------------------------------
Convertible Debentures                  B            115,000        115,000 
----------------------------------------------------------------------------
Gross Debt(3)                           =A+B         344,577        315,336 
----------------------------------------------------------------------------

1.  See Note 5 to the Unaudited Condensed Consolidated Interim Financial
    Statements for the three and nine months ended September 30, 2011. The
    net senior secured debt at September 30, 2011 was $81 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 September 30, 2011 increased to $43.2 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 nine months ended September 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. On October 11 2011, DBRS revised the trend on the existing BB (low) Issuer Rating to Positive from Stable. The trend change was attributed to improved operating performance exceeding DBRS's expectation, and a stronger Onsite business portfolio with the addition of long term contracts. DBRS also reduced the Unsecured Notes rating to BB (low) from BB to reflect their expectation of a lower recovery rating assuming that we will increase the amount of unsecured debt as part of our convertible debenture refinancing strategy. The instrument rating is now harmonized with the issuer rating and we would expect that any upward changes in our issuer rating would increase the instrument rating. Moody's ratings remains unchanged. 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. Newalta has a Credit Facility of $200 million and at September 30, 2011, $95.4 million was available and undrawn to fund growth capital expenditures and for general corporate purposes, as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60 million. The aggregate dollar amount of outstanding letters of credit is not categorized in the financial statements as long-term debt; however, the issued letters of credit reduce the amount available under the Credit Facility and are included in the definition of Total Debt for covenant purposes. Under the Credit Facility agreement, surety bonds (including performance and bid bonds) to a maximum of $125 million are excluded from the definition of Total Debt. As at September 30, 2011, surety bonds issued and outstanding totalled $21.8 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.


                                  September       December                  
                                   30, 2011       31, 2010        Threshold 
----------------------------------------------------------------------------
Senior Secured Debt(2) to                                                   
 EBITDA(3)                           0.74:1         0.63:1   2.75:1 maximum 
Total Debt(4) to EBITDA(3)           1.62:1         1.68:1   3.50:1 maximum 
Interest Coverage                    5.92:1         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.                                         

To view the Gross Debt to Adjusted EBITDA graph, please visit the following link: http://media3.marketwire.com/docs/nal_charts.pdf

Our Gross Debt was $344.6 million as at September 30, 2011 which reflected a $29.3 million increase over December 31, 2010. As a result of higher Adjusted EBITDA, Gross Debt to Adjusted EBITDA ratio improved to 2.40. 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 Q3 2011.

The Convertible Debentures are redeemable after November 30, 2011 and before November 30, 2012 at a redemption price equal to the principal value plus accrued and unpaid interest. Pursuant to the indenture governing the Convertible Debentures, we are required to provide no less than 30 days prior notice in order to redeem the Convertible Debentures. As such, as of November 1, 2011 through October 31, 2012, we can redeem our Convertible Debentures at a redemption price equal to the principal value plus accrued and unpaid interest. 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 September 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 three and nine months ended September 30, 2011 were:


                                     Three months ended   Nine months ended 
                                           September 30,       September 30,
($000s)                                  2011      2010      2011      2010 
----------------------------------------------------------------------------
Growth capital expenditures            23,141    11,896    53,255    26,118 
Maintenance capital expenditures        9,393    10,367    19,137    20,339 
----------------------------------------------------------------------------
Total capital expenditures(1)          32,534    22,263    72,392    46,457 
----------------------------------------------------------------------------
(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 $32.5 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.

Our Board of Directors approved an increase of $10 million to our original capital expenditure budget for a revised total spend of $110 million. This primarily relates to the three-year contract to process MFT that was awarded to us in Q3 2011.

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 October 17, 2011 to shareholders of record as at September 30, 2011.

As at November 1 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 nine months ended September 30, 2011).

Contractual Obligations

For the nine months ended September 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                                                

                                                   IFRS                IFRS 
($000s except per share data)                      2011                2010 
                                           Q3        Q2        Q1        Q4 
----------------------------------------------------------------------------
Revenue                               182,023   164,294   152,422   162,927 
Earnings before taxes                  16,537    13,632     8,971     5,368 
Net earnings                           11,815    10,483     5,233     2,921 
Earnings per share ($)                   0.24      0.22      0.11      0.06 
Diluted earnings per share ($)           0.24      0.21      0.11      0.06 
Weighted average shares - basic        48,607    48,523    48,495    48,523 
Weighted average shares - diluted      49,403    49,318    48,949    48,934 
EBITDA                                 41,691    33,648    29,942    26,810 
Adjusted EBITDA                        41,871    33,044    34,883    33,647 
----------------------------------------------------------------------------

                                                                   Canadian 
                                                   IFRS                GAAP 
($000s except per share data)                      2010                2009 
                                           Q3        Q2        Q1        Q4 
----------------------------------------------------------------------------
Revenue                               145,124   136,905   131,240   137,308 
Earnings before taxes                   8,926     3,894     7,111     3,451 
Net earnings                            5,867     2,386     4,949     4,092 
Earnings per share ($)                   0.12      0.05      0.10      0.09 
Diluted earnings per share ($)           0.12      0.05      0.10      0.09 
Weighted average shares - basic        48,487    48,487    48,480    46,770 
Weighted average shares - diluted      48,909    48,844    48,826    47,049 
EBITDA                                 28,470    25,598    26,863    24,698 
Adjusted EBITDA                        29,705    26,573    28,867    25,506 
----------------------------------------------------------------------------

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. 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.

All three quarters in 2011 reflect continued strong demand for our products and services. Revenue, Adjusted EBITDA, earnings before taxes and net earnings have steadily improved quarter-over-quarter in line with market conditions. Net earnings in Q2 relative to Q1 2011 were positively impacted by lower stock-based compensation expense and lower related deferred tax expense.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

SENSITIVITIES

Our stock-based compensation expense is sensitive to changes in our share price. A $1 change in our share price, between $12 per share and $20 per share, has a $3 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 September 30, 2011 was $9.7 billion. The net present value of this amount, $54.3 million (using a discount rate of 4%), has been accrued on the Unaudited Condensed Consolidated Interim Balance Sheet at September 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 September 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 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 and PSU changes, if any, are recorded as stock-based compensation expense.

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

FUTURE ACCOUNTING POLICY CHANGES

Information regarding our changes in accounting policies is included in Note 2 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 nine months ended September 30, 2011. There are no changes to previously reported 2010 Adjusted EBITDA.

Decommissioning liability under IFRS increased by $33 million with a corresponding $18 million increase to the value of assets and a reduction of $15 million to retained earnings, as a result of the change in calculation methodologies. The effect on gross profit and net earnings was higher depreciation. Unwinding of the discount related to the decommissioning liability has been re-classified to finance charges where under previous 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                                                 

($000s)                                                              Impact 
                                                         Impact  Increase / 
                               Facilities    Onsite  Increase /  (Decrease) 
                                Impact Q3 Impact Q3  (Decrease)   Full Year 
                                     2010      2010     Q3 2010        2010 
----------------------------------------------------------------------------
Decommissioning Liability -                                                 
 Increased asset value drives                                               
 increased depreciation              (396)      (10)       (406)     (1,624)
Unwinding of the discount                                                   
 related to the decommissioning                                             
 liability re-classified as                                                 
 finance charges                      436        60         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                                               (492)     (1,966)
Stock-based compensation                                   (299)     (1,536)
Capitalization of borrowing                                                 
 costs for qualifying projects                              263         819 
Deferred tax                                                 19         384 
----------------------------------------------------------------------------
Impact to Net Earnings                                     (457)     (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 nine months ended September 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 25 customers generate approximately 45% 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 September 30, 2011. In Q3 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 nine months ended September 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)                    

                                    September       December        January
                                     30, 2011       31, 2010        1, 2010
                                                    (Note 17)      (Note 17)
----------------------------------------------------------------------------
Assets                                                                      
Current assets                                                              
 Cash and cash equivalents                  -              -          3,920 
 Accounts and other receivables       145,959        102,378         84,317 
 Inventories                           31,448         26,645         33,148 
 Investment (Note 3)                    1,195          4,274              - 
 Prepaid expenses and other             9,942          7,292          6,183 
----------------------------------------------------------------------------
                                      188,544        140,589        127,568 
Non-current assets                                                          
 Property, plant and equipment        768,103        741,793        721,656 
 Permits and other intangible                                               
  assets (Note 4)                      59,780         60,579         61,935 
 Other long-term assets (Note                                               
  3)                                    6,686          1,819          2,666 
 Goodwill                             102,897        102,897        103,597 
----------------------------------------------------------------------------
TOTAL ASSETS                        1,126,010      1,047,677      1,017,422 
----------------------------------------------------------------------------
Equity and liabilities                                                      
Current liabilities                                                         
 Bank indebtedness                      2,784            169              - 
 Accounts payable and accrued                                               
  liabilities                         138,647        120,370         90,642 
 Dividends payable                      3,889          3,152          2,423 
----------------------------------------------------------------------------
                                      145,320        123,691         93,065 
Non-current liabilities                                                     
 Senior secured debt (Note 5)          81,035         51,520        192,043 
 Convertible debentures - debt                                              
  portion                             113,163        112,074        110,725 
 Senior unsecured debentures                                                
  (Note 6)                            122,344        122,050              - 
 Other liabilities (Note 10)            4,367          5,327          1,647 
 Deferred tax liability                64,961         54,491         46,856 
 Decommissioning liability                                                  
  (Note 7)                             54,326         54,368         54,585 
----------------------------------------------------------------------------
TOTAL LIABILITIES                     585,516        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                     221,537        204,935        199,965 
Accumulated other comprehensive                                             
 (loss) income                         (1,129)           587              - 
----------------------------------------------------------------------------
TOTAL EQUITY                          540,494        524,156        518,501 
----------------------------------------------------------------------------
TOTAL EQUITY AND LIABILITIES        1,126,010      1,047,677      1,017,422 
----------------------------------------------------------------------------

Condensed Consolidated Interim Statements of Operations                     

(Unaudited - Expressed in thousands of Canadian Dollars)                    

                                  For the three months  For the nine months 
                                    ended September 30,  ended September 30,
                                        2011      2010       2011      2010 
                                              (Note 17)            (Note 17)
----------------------------------------------------------------------------
Revenue                              182,023   145,124    498,739   413,269 
Cost of sales                        137,163   109,843    375,970   314,153 
----------------------------------------------------------------------------
Gross profit                          44,860    35,281    122,769    99,116 
----------------------------------------------------------------------------
 Selling, general and administrative  20,789    19,077     62,045    57,889 
 Research and development                687       440      1,898     1,127 
----------------------------------------------------------------------------
Earnings before finance charges and                                        
 tax                                  23,384    15,764     58,826    40,100 
Finance charges                        6,847     6,838     19,686    20,171 
----------------------------------------------------------------------------
Earnings before income taxes          16,537     8,926     39,140    19,929 
----------------------------------------------------------------------------
Provision for income taxes                                                  
 Current                                   3       183        129       418 
 Deferred                              4,719     2,876     11,479     6,310 
----------------------------------------------------------------------------
                                       4,722     3,059     11,608     6,728 
----------------------------------------------------------------------------
Net earnings                          11,815     5,867     27,532    13,201 
----------------------------------------------------------------------------
Net earnings per share (Note 11)        0.24      0.12       0.57      0.27 
Diluted earnings per share (Note 11)    0.24      0.12       0.56      0.27 
----------------------------------------------------------------------------

Supplementary information:                                                  
Amortization included within cost of                                        
 sales                                15,483    10,178     38,000    31,380 
Amortization included in selling,                                          
 general and administrative            2,824     2,528      8,455     9,449 
----------------------------------------------------------------------------
Total amortization                    18,307    12,706     46,455    40,829 
----------------------------------------------------------------------------

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

(Unaudited - Expressed in thousands of Canadian Dollars)                    

                                  For the three months  For the nine months 
                                    ended September 30,  ended September 30,
                                        2011      2010       2011      2010 
                                              (Note 17)            (Note 17)
----------------------------------------------------------------------------
Net earnings                          11,815     5,867     27,532    13,201 

Other comprehensive income:                                                 
 Unrealized (loss) gain on                                                  
  investment in shares(1)             (1,303)        -     (1,716)      532 
----------------------------------------------------------------------------
Other comprehensive (loss) income     (1,303)        -     (1,716)      532 
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Comprehensive income                  10,512     5,867     25,816    13,733 
----------------------------------------------------------------------------

Accumulated other comprehensive                                             
 income, beginning of period             174       532        587         - 
Other comprehensive (loss) income     (1,303)        -     (1,716)      532 
----------------------------------------------------------------------------
Accumulated other comprehensive                                             
 (loss) income, end of period         (1,129)      532     (1,129)      532 
----------------------------------------------------------------------------
(1) Net of tax of $0.2 million and $0.3 million for the three and nine      
    months ended September 30, 2011 (nil and $0.3 million for the three and 
    nine months ended September 30, 2010).                                  

Condensed Consolidated Interim Statement of Changes in Equity               

(Unaudited - Expressed in thousands of Canadian Dollars)                    


                                                                Contributed 
                                              Equity portion        surplus 
                                Shareholders' of convertible  (shared-based 
                                      capital     debentures       payments)
----------------------------------------------------------------------------
Balance, January 1, 2010              315,836          1,021          1,679 
----------------------------------------------------------------------------
Changes in equity for nine                                                  
 months ended September 30,                                                 
 2010                                                                       
Dividends declared                          -              -              - 
Unrealized gain on investment                                               
 in shares                                  -              -              - 
Net earnings for the period                 -              -              - 
----------------------------------------------------------------------------
Balance, September 30, 2010           315,836          1,021          1,679 
----------------------------------------------------------------------------
Changes in equity for three                                                 
 months ended December 31, 2010                                             
Exercise of options                        98              -              - 
Dividends declared                          -              -              - 
Unrealized gain on investment                                               
 in shares                                  -              -              - 
Net earnings for the period                 -              -              - 
----------------------------------------------------------------------------
Balance, December 31, 2010            315,934          1,021          1,679 
----------------------------------------------------------------------------
Changes in equity for nine                                                  
 months ended September 30,                                                 
 2011                                                                       
Exercise of options                     1,452              -              - 
Dividends declared                          -              -              - 
Unrealized loss on investment                                               
 in shares                                  -              -              - 
Net earnings for the period                 -              -              - 
----------------------------------------------------------------------------
Balance, September 30, 2011           317,386          1,021          1,679 
----------------------------------------------------------------------------

                                                 Accumulated                
                                                       other                
                                               comprehensive                
                                     Retained   income(loss)                
                                     earnings        (Note 3)         Total 
----------------------------------------------------------------------------
Balance, January 1, 2010              199,965              -        518,501 
----------------------------------------------------------------------------
Changes in equity for nine                                                  
 months ended September 30,                                                 
 2010                                                                       
Dividends declared                     (8,000)             -         (8,000)
Unrealized gain on investment                                               
 in shares                                  -            532            532 
Net earnings for the period            13,201              -         13,201 
----------------------------------------------------------------------------
Balance, September 30, 2010           205,166            532        524,234 
----------------------------------------------------------------------------
Changes in equity for three                                                 
 months ended December 31, 2010                                             
Exercise of options                         -              -             98 
Dividends declared                     (3,152)             -         (3,152)
Unrealized gain on investment                                               
 in shares                                  -             55             55 
Net earnings for the period             2,921              -          2,921 
----------------------------------------------------------------------------
Balance, December 31, 2010            204,935            587        524,156 
----------------------------------------------------------------------------
Changes in equity for nine                                                  
 months ended September 30,                                                 
 2011                                                                       
Exercise of options                         -              -          1,452 
Dividends declared                    (10,930)             -        (10,930)
Unrealized loss on investment                                               
 in shares                                  -         (1,716)        (1,716)
Net earnings for the period            27,532              -         27,532 
----------------------------------------------------------------------------
Balance, September 30, 2011           221,537         (1,129)       540,494 
----------------------------------------------------------------------------

Condensed Consolidated Interim Statements of Cash Flows                     

(Unaudited - Expressed in thousands of Canadian Dollars)                    

                                  For the three months  For the nine months 
                                    ended September 30,  ended September 30,
                                        2011      2010       2011      2010 
                                              (Note 17)            (Note 17)
----------------------------------------------------------------------------
Cash provided by (used for):                                                
Operating Activities                                                        
Net earnings                           11,815     5,867    27,532    13,201 
Adjustments for:                                                            
 Amortization                          18,307    12,706    46,455    40,829 
 Income taxes provision                 4,722     3,059    11,608     6,728 
 Income taxes recovered (paid)            113      (327)     (296)     (618)
 Stock-based compensation expense         152     1,218     3,081     4,079 
 Finance charges expense                6,847     6,838    19,686    20,171 
 Finance charges paid                    (617)   (3,398)  (10,581)  (14,145)
 Other                                    (30)      391       (62)      366 
----------------------------------------------------------------------------
                                       41,309    26,354    97,423    70,611 

(Increase) decrease in non-cash                                             
 working capital (Note 15)            (27,118)    3,304   (42,605)  (21,863)
Decommissioning costs incurred         (1,014)     (423)   (1,645)   (1,058)
----------------------------------------------------------------------------
                                       13,177    29,235    53,173    47,690 
----------------------------------------------------------------------------
Investing Activities                                                        
 Additions to property, plant and                                           
  equipment (Note 15)                 (26,279)  (17,577)  (70,357)  (41,604)
 Proceeds on sale of property, plant                                        
  and equipment                            91       908       192     2,388 
 Purchase of investment (Note 3)            -         -         -    (4,000)
 Purchase of other long-term asset                                          
  (Note 3)                             (5,752)        -    (5,752)        - 
----------------------------------------------------------------------------
                                      (31,940)  (16,669)  (75,917)  (43,216)
----------------------------------------------------------------------------
Financing Activities                                                        
 Issuance of shares                         -         -     1,249         - 
 Increase (decrease) in senior                                              
  secured debt                         31,316    (4,894)   28,910    (3,532)
 Increase (decrease) in bank                                                
  indebtedness                         (8,739)   (5,279)    2,615     2,366 
 Decrease in note receivable               75        31       164        44 
 Dividends paid                        (3,889)   (2,424)  (10,194)   (7,272)
----------------------------------------------------------------------------
                                       18,763   (12,566)   22,744    (8,394)
----------------------------------------------------------------------------
Decrease in cash and cash                                                   
 equivalents                                -         -         -    (3,920)
Cash and cash equivalents, beginning                                        
 of period                                  -         -         -     3,920 
----------------------------------------------------------------------------
Cash and cash equivalents, end of                                           
 period                                     -         -         -         - 
----------------------------------------------------------------------------

Notes to the Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 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 October 31, 2011.

Recent Pronouncements Issued

As of January 1, 2013 with the exception of IFRS 9, which is expected to be as of January 1, 2015, Newalta will be required to adopt the following standards and amendments as issued by the IASB, which should not have a material impact on the Corporation's Consolidated Financial Statements.


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

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

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

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

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

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 September 30, 2011 and 2010.

NOTE 3. INVESTMENT

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

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 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 September 30, 2011 a cumulative unrealized loss of $1.1 million (net of tax $0.1 million) was recorded in accumulated other comprehensive income.

The warrants are classified as fair value through profit and loss and are revalued at each period end with the change in fair value recognized in earnings. For the three and nine months ended September 30, 2011, the Company recorded an unrealized loss of $0.7 million and $1.1 million, respectively (three and nine months ended September 30, 2010 - unrealized loss of $0.4 million) which is included in finance charges. As at September 30, 2011, the fair value was calculated using the following assumptions: an expected volatility of 82%, a risk-free interest rate of 1.9% and no expected dividend.

b) TerraAqua Resource Management LLC ("TARM")

During the third quarter of 2011, Newalta acquired a 50% interest in TARM in exchange for cash consideration of $5.8 million. This joint venture is included within other long-term assets. Newalta's interest in TARM is accounted for under the equity method and these consolidated financial statements include Newalta's share of net earnings from the date that joint control commenced, based on our present 50% ownership interest in TARM. Newalta's share of earnings for the three and nine months ended September 30, 2011, as well as the assets and liabilities as at September 30, 2011, are not significant.

NOTE 4. PERMITS AND OTHER INTANGIBLE ASSETS


----------------------------------------------------------------------------
                                           Expiring         Non-            
                              Indefinite    permits  competition            
                                 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       53,037     14,650        6,020     73,707 
----------------------------------------------------------------------------
 Disposal during the quarter                                                
  ended September 30, 2011             -       (200)           -       (200)
----------------------------------------------------------------------------
 Balance, September 30, 2011      53,037     14,450        6,020     73,507 
----------------------------------------------------------------------------
 Accumulated Amortization                                                   
  (1)                                                                       
Balance, January 1, 2010               -      6,338        5,409     11,747 
Amortization for the year              -        770          611      1,381 
----------------------------------------------------------------------------
Balance, December 31, 2010             -      7,108        6,020     13,128 
----------------------------------------------------------------------------
Amortization for the year-                                                  
 to-date                               -        599            -        599 
----------------------------------------------------------------------------
Balance, September 30, 2011            -      7,707        6,020     13,727 
----------------------------------------------------------------------------
 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 September 30, 2011         53,037      6,743            -     59,780 
----------------------------------------------------------------------------

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

NOTE 5. SENIOR SECURED DEBT


                                September 30,   December 31,     January 1, 
                                        2011           2010           2010 
----------------------------------------------------------------------------
Gross senior secured debt             82,745         53,859        195,200 
Issue costs                           (1,710)        (2,339)        (3,157)
----------------------------------------------------------------------------
Senior secured debt                   81,035         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 September 30, 2011, December 31, 2010 and January 1, 2010, 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 as at December 31st of each year. At September 30, 2011, Newalta was in compliance with all covenants.


                                 September 30,   December 31,     January 1,
                                         2011           2010           2010
----------------------------------------------------------------------------
Senior unsecured debentures -                                               
 gross                                125,000        125,000              -
Issue costs                            (2,656)        (2,950)             -
----------------------------------------------------------------------------
Senior unsecured debt                 122,344        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, $54.3 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 September 30, 2011. The total estimated future cost for decommissioning liability at September 30, 2011, was $9.7 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                         (1,645)
Unwinding of discount                                                 1,603 
----------------------------------------------------------------------------
Decommissioning liability as at September 30, 2011                   54,326 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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 periods:


                                                   Shares (#)     Amount ($)
----------------------------------------------------------------------------
Shares outstanding as at January 1, 2010              48,476        315,836 
----------------------------------------------------------------------------
Shares issued on exercise of options                      16             98 
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2010            48,492        315,934 
----------------------------------------------------------------------------
Shares issued on exercise of options                     115          1,452 
----------------------------------------------------------------------------
Shares outstanding as at September 30, 2011           48,607        317,386 
----------------------------------------------------------------------------

NOTE 9. CAPITAL DISCLOSURES

Newalta's capital structure consists of:


----------------------------------------------------------------------------
                                September 30,   December 31,     January 1, 
                                        2011           2010           2010
----------------------------------------------------------------------------
Senior secured debt (1)               82,745         53,859        195,200
Letters of Credit issued as                                                 
 financial security to third                                                
 parties (Note 13)                    21,832         21,477         22,137
Convertible debentures, debt                                                
 portion                             113,163        112,074        110,725
Senior unsecured debentures(1)       125,000        125,000              -
Shareholders' equity                 540,494        524,156        518,501
----------------------------------------------------------------------------
                                     883,234        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:


----------------------------------------------------------------------------
                             September 30,   December 31,                   
Ratio                                2011           2010           Threshold
----------------------------------------------------------------------------
Senior Secured Debt(2) to                                                   
 EBITDA(3)                         0.74:1         0.63:1      2.75:1 maximum
Total Debt(4) to EBITDA(3)         1.62:1         1.68:1      3.50:1 maximum
Interest Coverage                  5.92:1         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:


----------------------------------------------------------------------------
                            September 30,  December 31,                     
Ratio                               2011          2010             Threshold
----------------------------------------------------------------------------
Senior Secured Debt                                                         
 including Letters of                                                       
 Credit                          104,577        75,336      $245,000 maximum
Cumulative finance lease                                                    
 obligations                         nil           nil       $25,000 maximum
Consolidated Fixed Charge                                                   
 Coverage                         5.92:1        4.97:1        2.00:1 minimum
Period end surplus for                                   Restricted payments
 restricted payments(1)           25,009        17,084 cannot exceed surplus
----------------------------------------------------------------------------

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

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 September 30, 2011 and changes during the periods ended on those dates is presented as follows:


-------------------------------------------------------------------------
                          Weighted           Weighted           Weighted
                    2008   average     2006   average     2003   average 
                  option  exercise   option  exercise   option  exercise 
                    plan     price     plan     price     plan     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              -         -       (5)    32.38     (126)    17.95 
Cancelled              -         -        -         -        -         - 
-------------------------------------------------------------------------
At September 30,                                                         
 2011 (2)          2,431      8.68      703     16.88      227     23.27 
-------------------------------------------------------------------------
Exercisable at                                                           
 September 30,                                                           
 2011                582      6.49      518     17.06      227     23.27 
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1)Each tranche of the options vest over a three year period (with a five year life).(2)The fair value was calculated using the Black-Scholes method of valuation, assuming 49.91% volatility, a weighted average expected dividend yield of 2.86% annually, a risk free rate of 0.95% and a 3% forfeiture rate by period.

b. Share Appreciation Rights ("SARs")

Changes in the number of outstanding SARs were as follows:


---------------------------------------------------------------------------
                                                                  Weighted 
                                                          average exercise 
                                             SARs(000s)     price ($/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)                                        945               12.24 
Exercised                                         (132)               5.92 
Forfeited                                          (68)               8.69 
Cancelled                                            -                   - 
---------------------------------------------------------------------------
At September 30, 2011 (2)                        2,172                9.63 
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Exercisable at September 30, 2011                  450                9.10 
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) The fair value was calculated using the Black-Scholes method of valuation, assuming a 5 year expected life.(2)The fair value was calculated using the Black-Scholes method of valuation, assuming 49.91% volatility, a weighted average expected dividend yield of 2.86% annually, a risk free rate of 0.95% and a 3% forfeiture rate by period.

c. Share Unit Plans

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


----------------------------------------------------------------------------
                                                                 Units(000s)
----------------------------------------------------------------------------
At January 1, 2010                                                        - 
Granted                                                                  16 
----------------------------------------------------------------------------
At December 31, 2010                                                     16 
Granted                                                                 128 
----------------------------------------------------------------------------
At September 30, 2011                                                   144 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exercisable at September 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    Nine months ended
                                          September 30,        September 30,
                                       2011       2010       2011      2010
----------------------------------------------------------------------------
Stock option plans - cash expense         -          -          -         -
Stock option plans - non-cash                                               
 expense (recovery)                     (38)       726      1,396     2,409
----------------------------------------------------------------------------
Total expense - stock option plans      (38)       726      1,396     2,409
----------------------------------------------------------------------------

SARs and share unit plans - cash                                            
 expense                                 28         18      1,436       138
SARs and share unit plans - non-cash                                        
 expense                                190        492      1,685     1,670
----------------------------------------------------------------------------
Total expense - SARs and share unit                                         
 plans                                  218        510      3,121     1,808
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total stock-based compensation                                              
 expense                                180      1,236      4,517     4,217
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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 nine months ended September 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 nine months ended September 30, 2011 was 929,000 and 1,019,000 respectively (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 nine months ended September 30, 2011 was 5,000,000 (5,000,000 for the same periods in 2010).


                                     Three months ended   Nine months ended
                                           September 30,       September 30,
----------------------------------------------------------------------------
                                         2011      2010      2011      2010
----------------------------------------------------------------------------
Weighted average number of shares      48,607    48,487    48,556    48,485
Net additional shares if options                                            
 exercised                                796       422       677       298
Net additional shares if debentures                                         
 converted                                  -         -         -         -
----------------------------------------------------------------------------
Diluted weighted average number of                                          
 shares                                49,403    48,909    49,233    48,783
----------------------------------------------------------------------------

NOTE 12. DIVIDENDS DECLARED AND PAID

During the quarter ended September 30, 2011, Newalta declared a dividend of $0.08 per share to holders of shares of record on September 30, 2011. This dividend was paid on October 17, 2011.

NOTE 13. COMMITMENTS

As at September 30, 2011, Newalta had issued letters of credit and surety bonds in respect of compliance with environmental licenses in the amount of $21.8 million and $36.3 million, respectively ($21.5 million and $31.5 million as at December 31, 2010 and $22.1 million and $20.2 million as at January 1, 2010).

NOTE 14. FINANCIAL INSTRUMENTS

Fair Value of Financial Assets and Liabilities

Newalta's financial instruments include cash and cash equivalents, investment, bank indebtedness, accounts receivable, note receivable, accounts payable and accrued liabilities, dividends payable, senior long-term debt and senior unsecured debentures. The fair values of Newalta's financial instruments that are included in the consolidated balance sheets, with the exception of the debentures, approximate their recorded amount due to the short-term nature of those instruments for accounts receivable, accounts payable and accrued liabilities and for senior secured debt and the note receivable, due to the floating nature of the interest rate applicable to these instruments. The fair values incorporate an assessment of credit risk. The carrying values of Newalta's financial instruments at September 30, 2011 are as follows:


----------------------------------------------------------------------------
                                   Loans                               Total
                                     and   Available        Other   Carrying
                      FVTPL  Receivables    for sale  Liabilities      Value
----------------------------------------------------------------------------
Accounts receivable       -      145,959           -            -    145,959
Investment              175            -       1,020            -      1,195
Other long-term                                                             
 assets(1)                -          725       5,752            -      6,477
Bank indebtedness         -            -           -        2,784      2,784
Accounts payable and                                                        
 accrued liabilities      -            -           -      138,647    138,647
Dividends payable         -            -           -        3,889      3,889
Senior secured                                                              
 debt(2)                  -            -           -       81,035     81,035
----------------------------------------------------------------------------

1.  Excludes non-financial instruments. 
2.  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 September 30, 2011               Carrying value(1)   Quoted fair value
----------------------------------------------------------------------------
7% Convertible debentures due                                               
 November 30, 2012                              114,184              115,069
----------------------------------------------------------------------------

(1) Includes both the debt and equity portions.

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


----------------------------------------------------------------------------
As at September 30, 2011                  Carrying value   Quoted fair value
----------------------------------------------------------------------------
7.625% Senior unsecured debentures                                          
 due November 23, 2017                           125,000             127,188
----------------------------------------------------------------------------

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 September 30, 2011, December 31, 2010 and January 1, 2010, Newalta did not have any significant Level 3 assets or liabilities.

Credit risk and economic dependence

Newalta is subject to credit risk on its trade accounts receivable balances. The customer base is large and diverse, and no one customer balance exceeded 10% of total accounts receivable at September 30, 2011, (one customer represented 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 10% and 14% of revenue for the three and nine months ended September 30, 2011, respectively (11% and 9% for the three and nine months ended September 30, 2010, respectively). 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 $1.6 million, which are considered to be outstanding beyond normal repayment terms at September 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.


----------------------------------------------------------------------------
                       Trade
            receivables aged           Allowance for                      
Aging        by invoice date       doubtful accounts        Net receivables
----------------------------------------------------------------------------
        Sep 30, Dec 31, Jan 1, Sep 30, Dec 31, Jan 1, Sep 30, Dec 31, Jan 1,
           2011   2010   2010    2011    2010   2010    2011    2010   2010
----------------------------------------------------------------------------
Current  92,046 60,867 53,981       -      22     13  92,046  60,845 53,968
31-60                                                                       
 days    24,627 11,730 15,454       -       1     21  24,627  11,729 15,433
61-90                                                                       
 days     4,910  3,001  3,159      97      20     65   4,813   2,981  3,094
91 days                                                                     
 +        1,576  2,220    791     160     298    725   1,416   1,922     66
----------------------------------------------------------------------------
Total   123,519 77,818 73,385     257     341    824 122,902  77,477 72,561
----------------------------------------------------------------------------

To determine the recoverability of a trade receivable, management analyzes accounts receivable, first identifying customer groups that represent minimal risk (large oil and gas and other low risk large companies, governments and municipalities). Impairment of the remaining accounts is determined by identifying specific accounts that are at risk, and then by applying a formula based on aging to the remaining amounts receivable. All amounts identified as at risk are provided for in an allowance for doubtful accounts. The changes in this account for the nine months ended September 30, 2011 and December 31, 2010 are as follows:


                                               September 30,   December 31, 
Allowance for doubtful accounts                         2011           2010 
----------------------------------------------------------------------------
Balance, beginning of period                             341            824 
Increase in amounts provided for                          26            108 
Net amounts written off as uncollectible                (110)          (591)
----------------------------------------------------------------------------
Balance, end of period                                   257            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 as at September 30, 2011:


----------------------------------------------------------------------------
                                     Three months ended   Nine months ended 
                                     September 30, 2011  September 30, 2011 
----------------------------------------------------------------------------
                                                               Net earnings 
----------------------------------------------------------------------------
If interest rates increased by 1%                                           
 with all other values held                                                 
 constant                                          (157)               (634)
----------------------------------------------------------------------------

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 September 30, 2011, Newalta had $34.3 million in net working capital and $32.0 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 September 30, 2011.

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


                                                                Net earnings
----------------------------------------------------------------------------
If the value of the U.S. dollar in relation to the CDN dollar               
 increased by $0.01 with all other variables held constant                 9
----------------------------------------------------------------------------

NOTE 15. CASH FLOW STATEMENT INFORMATION

The following tables provide supplemental information:


----------------------------------------------------------------------------
                                 Three months ended       Nine months ended 
                                      September 30,           September 30, 
----------------------------------------------------------------------------
                                   2011        2010        2011        2010 
----------------------------------------------------------------------------
Increase in accounts                                                        
 receivable                     (31,210)    (13,537)    (43,581)    (31,393)
(Increase) decrease in                                                      
 inventories                     (6,309)      2,193      (4,803)      1,704 
(Increase) decrease in                                                      
 prepayments                        908       1,165      (2,637)     (1,615)
Increase in accounts payable                                                
 and accrued liabilities         15,543      18,808      10,217      14,183 
Decrease in accounts payable                                                
 and accrued liabilities                                                    
 related to purchases of                                                    
 property, plant and                                                        
 equipment                       (6,050)     (5,325)     (1,801)     (4,742)
----------------------------------------------------------------------------
Total (increase) decrease in                                                
 non-cash working capital       (27,118)      3,304     (42,605)    (21,863)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
                                 Three months ended       Nine months ended 
                                      September 30,           September 30, 
----------------------------------------------------------------------------
                                   2011        2010        2011        2010 
----------------------------------------------------------------------------
Additions to property, plant                                                
 and equipment during the                                                   
 year                           (32,329)    (22,902)    (72,158)    (46,346)
Decrease in accounts payable                                                
 and accrued liabilities                                                    
 related to purchases of                                                    
 property, plant and                                                        
 equipment                        6,050       5,325       1,801       4,742 
----------------------------------------------------------------------------
Total cash additions to                                                     
 property, plant and                                                        
 equipment                      (26,279)    (17,577)    (70,357)    (41,604)
----------------------------------------------------------------------------

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 September 30, 2011
                                           Inter-  Unallocated  Consolidated
                  Facilities     Onsite   segment           (3)        Total
----------------------------------------------------------------------------
External revenue     122,216     59,807         -            -       182,023
Cost of sales                                                               
 (1)                  93,514     43,649         -            -       137,163
----------------------------------------------------------------------------
Gross profit          28,702     16,158         -            -        44,860
Selling, general                                                            
 and                                                                        
 administrative            -          -         -       20,789        20,789
Research and                                                                
 development               -          -         -          687           687
Finance charges            -          -         -        6,847         6,847
----------------------------------------------------------------------------
Earnings before                                                             
 taxes                28,702     16,158         -      (28,323)       16,537
----------------------------------------------------------------------------
Property, plant                                                             
 and equipment                                                              
 expenditures         16,856     12,024         -        3,653        32,533
----------------------------------------------------------------------------
Goodwill              44,381     58,516         -            -       102,897
----------------------------------------------------------------------------
Total assets         715,553    341,478         -       68,979     1,126,010
----------------------------------------------------------------------------
Total                                                                       
 liabilities         183,000    141,882         -      260,634       585,516
----------------------------------------------------------------------------


                               For the three months ended September 30, 2010
                                             Inter- Unallocated Consolidated
                  Facilities      Onsite    segment          (3)       Total
----------------------------------------------------------------------------
External revenue      94,937      50,187          -           -      145,124
Inter segment                                                               
 revenue(2)              139           -       (139)          -            -
Cost of sales                                                               
 (1)                  72,754      37,228       (139)          -      109,843
----------------------------------------------------------------------------
Gross profit          22,322      12,959          -           -       35,281
Selling, general                                                            
 and                                                                        
 administrative            -           -          -      19,077       19,077
Research and                                                                
 development               -           -          -         440          440
Finance charges            -           -          -       6,838        6,838
----------------------------------------------------------------------------
Earnings before                                                             
 taxes                22,322      12,959          -     (26,355)       8,926
----------------------------------------------------------------------------
Property, plant                                                             
 and equipment                                                              
 expenditures         11,481       8,595          -       2,186       22,262
----------------------------------------------------------------------------
Goodwill              44,381      58,516          -           -      102,897
----------------------------------------------------------------------------
Total assets         658,487     296,530          -      96,816    1,051,833
----------------------------------------------------------------------------
Total                                                                       
 liabilities         236,985     148,138          -     142,476      527,599
----------------------------------------------------------------------------

(1) Cost of sales includes amortization of $15,483 (Facilities $11,022 and Onsite $4,461) and $10,180 for 2010 (Facilities $7,284 and Onsite $2,896).(2) Inter-segment revenue is recorded at market, less the costs of serving external customers.(3) Management does not allocate selling, general and administrative, research and development, taxes, and finance charges in the segment analysis.


                                For the nine months ended September 30, 2011
                                            Inter- Unallocated  Consolidated
                  Facilities      Onsite   segment          (3)        Total
----------------------------------------------------------------------------
External revenue     344,354     154,385         -           -       498,739
Cost of sales                                                               
 (1)                 262,078     113,892         -           -       375,970
----------------------------------------------------------------------------
Gross profit          82,276      40,493         -           -       122,769
Selling, general                                                            
 and                                                                        
 administrative            -           -         -      62,045        62,045
Research and                                                                
 development               -           -         -       1,898         1,898
Finance charges            -           -         -      19,686        19,686
----------------------------------------------------------------------------
Earnings before                                                             
 taxes                82,276      40,493               (83,629)       39,140
----------------------------------------------------------------------------
Property, plant                                                             
 and equipment                                                              
 expenditures         34,890      28,769         -       8,732        72,391
----------------------------------------------------------------------------
Goodwill              44,381      58,516         -           -       102,897
----------------------------------------------------------------------------
Total assets         715,553     341,478         -      68,979     1,126,010
----------------------------------------------------------------------------
Total                                                                       
 liabilities         183,000     141,882           -    260,634      585,516
----------------------------------------------------------------------------


                                For the nine months ended September 30, 2010
                                             Inter- Unallocated Consolidated
                  Facilities      Onsite    segment          (3)       Total
----------------------------------------------------------------------------
External revenue     278,861     134,408          -           -      413,269
Inter segment                                                               
 revenue(2)              485           -       (485)          -            -
Cost of sales                                                               
 (1)                 209,175     105,463       (485)          -      314,153
----------------------------------------------------------------------------
Gross profit          70,171      28,945          -           -       99,116
Selling, general                                                            
 and                                                                        
 administrative            -           -          -      57,889       57,889
Research and                                                                
 development               -           -          -       1,127        1,127
Finance charges            -           -          -      20,171       20,171
----------------------------------------------------------------------------
Earnings before                                                             
 taxes                70,171      28,945          -     (79,187)      19,929
----------------------------------------------------------------------------
Property, plant                                                             
 and equipment                                                              
 expenditures         19,484      20,290          -       6,683       46,457
----------------------------------------------------------------------------
Goodwill              44,381      58,516          -           -      102,897
----------------------------------------------------------------------------
Total assets         658,487     296,530          -      96,816    1,051,833
----------------------------------------------------------------------------
Total                                                                       
 liabilities         236,985     148,138          -     142,476      572,599
----------------------------------------------------------------------------

(1) Cost of sales includes amortization of $37,999 (Facilities $27,218 and Onsite 10,781) and $31,380 for 2010 (Facilities $21,866 and Onsite $9,514).(2) Inter-segment revenue is recorded at market, less the costs of serving external customers.(3) Management does not allocate selling, general and administrative, research and development, taxes, and finance charges in the segment analysis.

NOTE 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 nine months ended September 30, 2011, the comparative information presented in these financial statements for the three and nine months ended September 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                     a          -           -            -
 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

As at September 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                        115,710           -      115,710
 Inventories                                 31,444           -       31,444
 Investment                                   4,245           -        4,245
 Prepaid expenses and other                   7,726           -        7,726
----------------------------------------------------------------------------
                                            159,125           -      159,125
Non-current assets                                                          
 Note receivable                                934           -          934
 Property, plant and                                                        
  equipment                          b,e    707,676      18,905      726,581
 Permits and other                                                          
  intangibles                                60,839           -       60,839
 Goodwill                                   102,897           -      102,897
 Deferred tax asset                           1,457           -        1,457
----------------------------------------------------------------------------
TOTAL ASSETS                              1,032,928      18,905    1,051,833
----------------------------------------------------------------------------

Liabilities                                                                 
Current liabilities                                                         
 Bank indebtedness                     a          -       2,367        2,367
 Accounts payable and                                                       
  accrued liabilities                  c    107,641       1,980      109,621
 Dividend payable                             3,152           -        3,152
----------------------------------------------------------------------------
                                            110,793       4,347      115,140
----------------------------------------------------------------------------
Non-current liabilities                                                     
 Senior secured debt                   a    192,325      (2,367)     189,958
 Convertible debentures -                                                   
  debt portion                         d    111,721           5      111,726
 Other liabilities                     c      2,323         422        2,745
 Deferred tax liability                g     45,702       7,326       53,028
 Decommissioning liability             b     22,331      32,671       55,002
----------------------------------------------------------------------------
TOTAL LIABILITIES                           485,195      42,404      527,599
----------------------------------------------------------------------------
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     (9,199)    214,365      205,166
 Accumulated other                                                          
  comprehensive income                          532           -          532
----------------------------------------------------------------------------
TOTAL EQUITY                                547,733     (23,499)     524,234
----------------------------------------------------------------------------
TOTAL EQUITY AND LIABILITIES              1,032,928      18,905    1,051,833
----------------------------------------------------------------------------

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                                                        
  equipment                          b,e    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 September 30, 2010

(Unaudited - Expressed in thousands of Canadian Dollars)


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

Revenue                                     145,124           -      145,124
Operating expenses                     i     99,664     (99,664)           -
Cost of sales                        b,i          -     109,843      109,843
----------------------------------------------------------------------------
Gross profit                                                          35,281
----------------------------------------------------------------------------
 Selling, general and                                                       
  administrative                     c,i     16,251       2,826       19,077
 Research and development                       440           -          440
 Finance charges                 b,d,e,f      6,609         229        6,838
 Amortization                          i     12,796     (12,796)           -
----------------------------------------------------------------------------
Earnings before taxes                         9,364        (438)       8,926
----------------------------------------------------------------------------
Provisions for income taxes                                                 
 Current                                        183           -          183
 Deferred                              g      2,857          19        2,876
----------------------------------------------------------------------------
                                              3,040          19        3,059
Net earnings                           j      6,324        (457)       5,867
----------------------------------------------------------------------------
Other comprehensive loss                          -           -            -
----------------------------------------------------------------------------
Total comprehensive income             j      6,324        (457)       5,867
----------------------------------------------------------------------------

Basic earnings per Share                       0.13       (0.01)        0.12
----------------------------------------------------------------------------
Diluted earnings per Share                     0.13       (0.01)        0.12
----------------------------------------------------------------------------

Reconciliation of the Condensed Consolidated Statements of Operations and Comprehensive Income

For the nine months ended September 30, 2010

(Unaudited - Expressed in thousands of Canadian Dollars)


                                           Previous   Effect of            
                                           Canadian  transition             
                                    Note       GAAP     to IFRS         IFRS
----------------------------------------------------------------------------
Revenue                                     413,269           -      413,269
Operating expenses                     i    282,774    (282,774)           -
Cost of sales                        b,i          -     314,153      314,153
----------------------------------------------------------------------------
Gross profit                                                          99,116
----------------------------------------------------------------------------
 Selling, general and                                                       
  administrative                     c,i     46,919      10,970       57,889
 Research and development                     1,127           -        1,127
 Finance charges                 b,d,e,f     19,055       1,116       20,171
 Amortization                          i     41,099     (41,099)           -
----------------------------------------------------------------------------
Earnings before taxes                        22,295      (2,365)      19,929
----------------------------------------------------------------------------
Provisions for income taxes                                                 
 Current                                        418           -          418
 Deferred                              g      6,676        (366)       6,310
----------------------------------------------------------------------------
                                              7,094        (366)       6,728
Net earnings                           j     15,201      (1,999)      13,201
----------------------------------------------------------------------------
Other comprehensive income                      532           -          532
----------------------------------------------------------------------------
Total comprehensive income             j     15,733      (1,999)      13,733
----------------------------------------------------------------------------

Basic earnings per Share                       0.31       (0.04)        0.27
----------------------------------------------------------------------------
Diluted earnings per Share                     0.31       (0.04)        0.27
----------------------------------------------------------------------------

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)


                                           Previous   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,  September 30,   December 31,
                                         2010           2010           2010 
----------------------------------------------------------------------------
Increase in property, plant and                                             
 equipment                             19,772         18,557         18,150 
Increase in decommissioning                                                 
 liabilities                          (32,682)       (32,671)       (32,668)
----------------------------------------------------------------------------
Decrease in retained earnings         (12,910)       (14,114)       (14,518)
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income


                         Nine months ended  Three months ended   Year ended
                              September 30,       September 30, December 31,
                                      2010                2010         2010 
----------------------------------------------------------------------------
Increase in cost of
 sales                               1,215                 405        1,620 
Decrease in finance 
 charges                               (11)                 (4)         (12)
----------------------------------------------------------------------------
Net decrease in
 comprehensive income                1,204                 401        1,608 
----------------------------------------------------------------------------

c. Share based payments

Measurement of liabilities

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

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

Forfeitures

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

Under IFRS - Forfeiture estimates are recognized on the grant date based on management's best estimate of the expected number of forfeitures to be made in all subsequent periods. During the vesting period, that estimate is revised as necessary.

Impact on Consolidated Balance Sheets


                                    January 1,  September 30,   December 31,
                                         2010           2010           2010 
----------------------------------------------------------------------------
Increase in accounts payable                                                
 and accrued liabilities                 (451)        (1,980)        (2,152)
Increase in other liabilities            (429)          (422)          (264)
----------------------------------------------------------------------------
Decrease in retained earnings            (880)        (2,402)        (2,416)
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income


                         Nine months ended  Three months ended   Year ended
                              September 30,       September 30, December 31,
                                      2010                2010         2010 
----------------------------------------------------------------------------
Increase in selling,
 general and
 administrative                      1,521                 299        1,536 
----------------------------------------------------------------------------
Decrease in
 comprehensive income               (1,521)               (299)      (1,536)
----------------------------------------------------------------------------

d. Convertible debentures

Initial measurement of debt and equity portions

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

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

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

Issuance costs

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

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

Impact on Consolidated Balance Sheets


                                    January 1,  September 30,   December 31,
                                         2010           2010           2010 
----------------------------------------------------------------------------
Increase in convertible                                                     
 debenture - debt portion                 (17)            (5)            (1)
Decrease in convertible                                                     
 debenture - equity portion               479            479            479 
----------------------------------------------------------------------------
Increase in retained earnings             462            474            478 
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income


                         Nine months ended  Three months ended   Year ended
                              September 30,       September 30, December 31,
                                      2010                2010         2010 
----------------------------------------------------------------------------
Decrease in finance charges            (12)                 (4)         (16)
Increase in comprehensive                                                   
 income                                 12                   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,  September 30,   December 31,
                                         2010           2010           2010 
----------------------------------------------------------------------------
Increase in property, plant and                                             
 equipment                                  -            349            803
----------------------------------------------------------------------------
Increase in retained earnings               -            349            803
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income


                         Nine months ended  Three months ended   Year ended
                              September 30,       September 30, December 31,
                                      2010                2010         2010 
----------------------------------------------------------------------------
Decrease in finance charges           (349)               (259)        (803)
----------------------------------------------------------------------------
Increase in comprehensive                                                   
 income                                349                 259          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


                         Nine months ended  Three months ended   Year ended
                              September 30,       September 30, December 31,
                                      2010                2010         2010 
----------------------------------------------------------------------------
Decrease in amortization                                                    
 expense                            (1,485)               (495)      (1,982)
----------------------------------------------------------------------------
Increase in finance charges          1,485                 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 tax accounting is applied for share issue costs and any related future income tax that was created at the time of conversion from a Trust to a Corporation.

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

Convertible debentures

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

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

Tax basis of intangible assets, including goodwill

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

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

Impact on Consolidated Balance Sheets

                                    January 1,  September 30,   December 31,
                                         2010           2010           2010 
----------------------------------------------------------------------------
Increase in shareholders'                                                   
 capital (note h)                        (971)          (971)          (971)
Decrease in convertible                                                     
 debenture - equity portion               350            350            350 
Increase in deferred tax                                                    
 liability                             (7,692)        (7,326)        (7,308)
----------------------------------------------------------------------------
Decrease in retained earnings          (8,313)        (7,947)        (7,929)
----------------------------------------------------------------------------

Other earnings adjustments

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


                         Nine months ended  Three months ended   Year ended
                              September 30,       September 30, December 31,
                                      2010                2010         2010 
----------------------------------------------------------------------------
Decrease in provision for                                                   
 deferred taxes                       (366)                 19         (384)
----------------------------------------------------------------------------
Increase (decrease) in                                                      
 comprehensive income                  366                 (19)         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,  September 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 nine months ended September 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 $99,664 and $282,774 for the three and nine months ended September 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 its relates, being either part of cost of sales or part of selling, general and administrative expense.

Unwinding of discount related to decommissioning liabilities presented as finance charges

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

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

Impact on Consolidated Statements of Comprehensive Income


                                  Nine months   Three months
                                        ended          ended     Year ended 
                                 September 30,  September 30,   December 31,
                           Note          2010           2010           2010 
----------------------------------------------------------------------------
Amortization disclosed                                                      
 separately under                                                           
 Canadian GAAP                        (41,099)       (12,796)       (55,990)
Amortization allocated to                                                   
 cost of sales                         30,165          9,774         41,869 
Amortization allocated to                                                   
 selling, general and                                                       
 administrative expense                 9,449          2,527         12,139 
Unwinding of discount                                                       
 reclassified to finance                                                    
 charges liabilities -                                                      
 eclassed to finance                                                        
 chargesamortization                                                        
 expense                      f         1,485            495          1,982 
----------------------------------------------------------------------------
Net decrease in                                                             
 comprehensive income                       -              -              - 
----------------------------------------------------------------------------

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

Impact on Consolidated Balance Sheets


                                    January 1,  September 30,   December 31,
                           Note          2010           2010           2010 
----------------------------------------------------------------------------
Decommissioning liability                                                   
 increase net impact          b       (12,910)       (14,115)       (14,518)
Share-based payments                                                        
 liability valuation                                                        
 impact                       c          (880)        (2,402)        (2,416)
Convertible debentures                                                      
 valuation impact             d           462            474            478 
Capitalization of                                                           
 borrowing costs              e             -            349            803 
Deferred tax impact           g        (8,313)        (7,947)        (7,929)
Shareholder's capital re-                                                   
 measurement due to trust                                                   
 units                        h       238,006        238,006        238,006 
----------------------------------------------------------------------------
Increase in retained                                                        
 earnings                             216,365        214,365        214,424 
----------------------------------------------------------------------------

Impact on Consolidated Statements of Comprehensive Income


                                  Nine months   Three months
                                        ended          ended     Year ended 
                                 September 30,  September 30,   December 31,
                           Note          2010           2010           2010 
----------------------------------------------------------------------------
Decommissioning liability                                                   
 impact                       b        (1,205)          (402)        (1,608)
Share-based payments                                                        
 valuation impact             c        (1,521)          (299)        (1,536)
Convertible debentures                                                      
 accretion impact             d            12              4             16 
Capitalization of                                                           
 borrowing costs              e           349            259            803 
Deferred tax impact           g           366            (19)           384 
----------------------------------------------------------------------------
Increase in comprehensive                                                   
 income                                (1,999)          (457)        (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 nine months ended September 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