Newalta Announces Results For The Fourth Quarter And Year-Ended 2009

TSX Trading Symbol: NAL

CALGARY, March 2 /CNW/ - Newalta Corporation ("Newalta") (TSX:NAL) today announced financial results for the three months and year ended December 31, 2009.

"In 2009, we managed through the most challenging market cycle in the last 15 years. In the first half of the year, the value of all our products slumped dramatically and the demand for our services declined. Compared to 2008, Adjusted EBITDA fell by $44 million in 2009, with 72% of the decline in the first half of the year," said Al Cadotte, President and CEO of Newalta.

"After absorbing the recessionary shocks early in the year, Adjusted EBITDA improved from $30 million in the first half to $52 million in the second half, as commodity prices strengthened, our markets slowly recovered and cost reductions were realized. In 2009, we generated excess cash after capital expenditures and dividends of $25.7 million which was used to reduce Funded Debt.

"We enter 2010 with improving market conditions, a reduced cost structure, a more agile organization and strengthened balance sheet. We look forward to substantially stronger results in the quarters ahead as commodity prices appear to have stabilized and our markets are slowly improving."

    
    Financial results and highlights for the three months ended December 31,
    2009:

    -   Revenue, net earnings, and Adjusted EBITDA(1) in Q4 2009 were down
        from Q4 2008 by 6%, 55%, and 8%, respectively. Restructuring costs
        and out of quarter adjustments were approximately $2.2 million in Q4
        2009. Excluding the impact of these items, Adjusted EBITDA of
        $27.7 million was equal to Q4 2008.

    -   Revenue and net margin(1) in the Western division were down 22% and
        23% year-over-year, respectively, due primarily to lower drilling
        activity levels and a decrease in crude oil recovered to our account.

    -   Eastern's revenue and net margin was up 14% and 22%, respectively,
        year-over-year, due to strong performance from VSC, solid results in
        the Atlantic region, and the impact of our cost savings initiatives.

    -   Cost savings in excess of $8 million were realized in Q4 2009, as
        compared to Q4 2008.

    -   SG&A expense before non-cash stock-based compensation was down 4%
        compared to Q4 2008.

    -   Maintenance capital expenditures(1) for the quarter were $3.5 million
        compared to $8.5 million in 2008. Growth capital expenditures(1) were
        $4.7 million, compared to $38.2 million in 2008.

    Financial results and highlights for the year ended December 31, 2009:

    -   Revenue, net earnings, and Adjusted EBITDA for the year were down
        compared to 2008 by 19%, 95%, and 35%, respectively. A steep drop in
        commodity prices, compared to 2008, resulted in a decrease in revenue
        of $26 million and a decline in EBITDA of $23 million.

    -   Western's revenue and net margin declined by 30% and 40%,
        respectively, year-over-year. With a 51% decline in wells drilled in
        2009 and depressed crude oil prices for the first nine months of the
        year, revenue from all business units within this segment were down.
        Excluding the impact of commodity and base oil prices, revenue and
        net margin were down 25% and 23%, respectively.

    -   Eastern's revenue and net margin were down 2% and 19%, respectively,
        year-over-year, primarily due to weak economic activity and lower
        average lead prices. Performance improved steadily throughout the
        year, impacted by higher lead volumes, improved lead prices and
        increased landfill volumes in the second half of the year.

    -   Cost efficiencies in excess of $24 million were realized over the
        last three quarters, as compared to the same period in 2008.

    -   SG&A expense decreased by 10% compared to 2008.

    -   Maintenance capital expenditures in the year were $8.6 million,
        compared to $20.8 million in 2008.

    -   Growth capital expenditures in the year were $18.7 million, compared
        to $104.4 million in 2008. Growth capital in the year related
        primarily to the commissioning of the second kiln at VSC, equipment
        for our onsite services and process improvements at facilities
        throughout Newalta.

    Other highlights:

    -   Cash from operating activities exceeded capital expenditures and
        dividends by $25.7 million, reducing Funded Debt in 2009.

    -   On October 27th, we completed an equity financing with the issuance
        of approximately 6 million common shares for gross proceeds of
        approximately $46 million (net proceeds of approximately
        $44 million).

    -   In 2010, capital investments are budgeted at $87 million, comprised
        of growth capital expenditures of $60 million, and maintenance
        capital of $27 million. These projects will be funded entirely from
        funds from operations, with approximately 40% expected to be spent in
        the first half of 2010.

    -   In 2010, we are expanding our technical development team to focus on
        identifying, evaluating and commercializing processes that are cost
        effective and environmentally superior. One of the first steps to
        further this initiative is the recently announced agreement with
        BioteQ Environmental Technologies Inc., ("BioteQ") to pursue joint
        projects. BioteQ's leading-edge technologies have the potential to
        treat a broad range of industrial wastewaters, including SAGD
        wastewater, both at our facilities as well as on customers' sites. As
        part of this agreement, we acquired a 5% interest in BioteQ for total
        consideration of approximately $4 million.

    -   The Board of Directors declared a dividend of $0.05 per share to
        holders of record as at December 31, 2009 which was paid January 15,
        2010. We expect to pay a dividend of $0.05 per share to holders of
        record as at March 31, 2010.


    FINANCIAL RESULTS AND HIGHLIGHTS

    -------------------------------------------------------------------------
    ($000s except per                       %                          %
     share data)          Q4       Q4    Increase                   Increase
    (unaudited)          2009     2008  (Decrease)  2009    2008   (Decrease)
    -------------------------------------------------------------------------
    Revenue             137,308  145,341       (6) 483,401  597,035      (19)
    Net earnings          4,092    9,085      (55)   3,099   58,882      (95)
    - per share ($)
     - basic               0.09     0.21      (57)    0.07     1.40      (95)
    - per share ($)
     - diluted             0.09     0.21      (57)    0.07     1.40      (95)
    EBITDA(1)            24,698   27,600      (11)  79,921  125,753      (36)
     - per share ($)(1)    0.53     0.65      (18)    1.84     3.00      (39)
    Adjusted EBITDA(1)   25,506   27,630       (8)  82,157  125,890      (35)
     - per share ($)(1)    0.55     0.65      (15)    1.89     3.00      (37)
    Cash from
     operations          19,165   54,764      (65)  83,518  128,922      (35)
     - per share ($)       0.41     1.30      (68)    1.92     3.07      (37)
    Funds from
     operations(1)       19,185   18,200        5   60,943   98,306      (38)
     - per share ($)(1)    0.41     0.43       (5)    1.40     2.34      (40)
    Maintenance capital
     expenditures(1)      3,501    8,461      (59)   8,589   20,762      (59)
    Dividends/
     Distributions
     declared(1)          2,423   23,472      (90)   8,141   93,180      (91)
     - per share- ($)(1)   0.05     0.56      (91)    0.20     2.22      (91)
    Cash distributed(1)   2,122   22,111      (90)  13,233   82,093      (84)
    Growth capital
     expenditures(1)      4,739   38,193      (88)  18,696  104,440      (82)
    Weighted average
     shares
     outstanding         46,770   42,266       11   43,536   41,935        4
    Shares outstanding,
     December 31,(2)     48,476   42,400       14   48,476   42,400       14
    -------------------------------------------------------------------------
    (1) These financial measures do not have any standardized meaning
        prescribed by Canadian generally accepted accounting principles
        ("GAAP") and are therefore unlikely to be comparable to similar
        measures presented by other issuers. Non-GAAP financial measures are
        identified and defined throughout the attached Management's
        Discussion and Analysis.
    (2) Newalta has 48,479,002 shares outstanding as at March 2, 2010.
    

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

Management will hold a conference call on Wednesday, March 3, 2009 at 11 a.m. (EST) to discuss Newalta's performance for the fourth quarter and year ended December 31, 2009. To participate in the teleconference, please call 647-427-7450 or 1-888-231-8191. 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, March 10, 2009, by dialling 416-849-0833 or 1-800-642-1687 and using the pass code 55120359 followed by the pound sign.

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

    
    NEWALTA CORPORATION

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    Three and twelve months ended December 31, 2009 and 2008
    

Following changes in tax rules for specified investment flow-though entities, Newalta Income Fund (the "Fund") undertook steps to convert the Fund's income trust structure into a corporate structure. On December 17, 2008, unitholders of the Fund voted and approved the reorganization by way of a plan of arrangement under the Business Corporations Act (Alberta), into a corporation pursuant to an arrangement agreement dated November 12, 2008 (as amended) between Newalta Inc., Newalta Income Fund, Newalta Corporation, Newalta Industrial Services Inc. and Newalta Services Holdings Inc. (the "Arrangement").

On January 1, 2009, Newalta Corporation, Newalta Industrial Services Inc. and Newalta Services Holdings Inc. were amalgamated to form Newalta Corporation. Prior to the Arrangement, which was effective on December 31, 2008, the consolidated financial statements included the accounts of the Fund and its subsidiaries. After giving effect to the Arrangement, the consolidated financial statements were prepared on a continuity of interests basis, which recognizes Newalta Inc. as the successor entity to the Fund. On December 31, 2009, the sole unitholder of Newalta Income Fund approved the wind-up of the fund. Subsequent to year end, on January 1, 2010, Newalta Inc. was amalgamated with its wholly-owned operating subsidiary, Newalta Corporation, to form Newalta Corporation.

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 Inc., Newalta Income Fund (the "Fund"), and Newalta Corporation (the "Corporation" and together with Newalta Inc., the Fund, and other subsidiaries, "Newalta"), 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;
    -   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 and growth
        capital investments;
    -   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 and acquisition strategies including
        integration of businesses 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 eastern and western
        Canada;
    -   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;
    -   possible volatility of the price of, and the market for, our common
        shares;
    -   obtaining insurance for various potential risks and hazards on
        reasonable financial terms;
    -   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 contains references to certain financial measures, including some that do not have any standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and may not be comparable to similar measures presented by other corporations or entities. These financial measures are identified and defined below:

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

    
    -------------------------------------------------------------------------
    ($000s)                            Q4 2009   Q4 2008      2009      2008
    -------------------------------------------------------------------------
    Earnings before taxes                3,451     5,616     2,732    50,492
    Add back (deduct):
    Selling,general, and
     administrative(1)                  16,603    16,562    56,132    62,129
    Finance charges(1)                   6,689     6,238    25,364    24,104
    -------------------------------------------------------------------------
    Consolidated net margin             26,743    28,416    84,228   136,725
    -------------------------------------------------------------------------
    Unallocated net margin(1)            2,754     3,403    12,490    10,825
    -------------------------------------------------------------------------
    Combined divisional net margin      29,497    31,819    96,718   147,550
    -------------------------------------------------------------------------

    (1) Management does not allocate interest income; selling, general, and
        administrative; taxes; finance charges; and corporate amortization
        and accretion expense in the segmented analysis (see Note 21 to the
        Consolidated Financial Statements).
    

"EBITDA", "EBITDA per share", "Adjusted EBITDA", and "Adjusted EBITDA per share" are measures of our operating profitability. EBITDA provides an indication of the results generated by our principal business activities prior to how these activities are financed, assets are amortized or how the results are taxed in various jurisdictions. In addition, Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to recognizing non-cash stock-based compensation. Non-cash 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:

    -------------------------------------------------------------------------
    ($000s)                            Q4 2009   Q4 2008      2009      2008
    -------------------------------------------------------------------------
    Net earnings (loss)                  4,092     9,085     3,099    58,882
    Add back (deduct):
      Current income taxes                 317        21       945       949
      Future income taxes                 (958)   (3,490)   (1,312)   (9,339)
      Finance charges                    6,689     6,238    25,364    24,104
      Interest revenue                       -         -         -       (80)
      Amortization and accretion        14,558    15,746    51,825    51,237
    -------------------------------------------------------------------------
    EBITDA                              24,698    27,600    79,921   125,753
    -------------------------------------------------------------------------
    Add back (deduct)
      Non-cash stock-based
       compensation                        808        30     2,236       137
    -------------------------------------------------------------------------
    Adjusted EBITDA                     25,506    27,630    82,157   125,890
    -------------------------------------------------------------------------
    Weighted average number of shares   46,770    42,266    43,536    41,935
    -------------------------------------------------------------------------
    EBITDA per share                      0.53      0.65      1.84      3.00
    -------------------------------------------------------------------------
    Adjusted EBITDA per share             0.55      0.65      1.89      3.00
    -------------------------------------------------------------------------
    

"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:

    
    -------------------------------------------------------------------------
    ($000s)                            Q4 2009   Q4 2008      2009      2008
    -------------------------------------------------------------------------
    Cash from operations                19,165    54,764    83,518   128,922
    Add back (deduct):
    Changes in non-cash working
     capital                              (298)  (36,778)  (23,599)  (32,647)
    Asset retirement costs incurred        318       214     1,024     2,031
    -------------------------------------------------------------------------
    Funds from operations               19,185    18,200    60,943    98,306
    -------------------------------------------------------------------------
    Weighted average number of shares   46,770    42,266    43,536    41,935
    -------------------------------------------------------------------------
    Funds from operations per share       0.41      0.43      1.40      2.34
    -------------------------------------------------------------------------
    

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

The following discussion and analysis should be read in conjunction with (i) the consolidated financial statements of Newalta Inc. and the notes thereto for the year ended December 31, 2009, (ii) the consolidated financial statements of Newalta Inc. and notes thereto and Management's Discussion and Analysis of Newalta Inc. for the year ended December 31, 2008, (iii) the most recently filed Annual Information Form of Newalta Inc. and Newalta Corporation, (iv) the consolidated interim financial statements of Newalta Inc. and the notes thereto and Management's Discussion and Analysis for the quarters ended March 31, 2009, June 30, 2009 and September 30, 2009. This information is available at SEDAR (www.sedar.com). Information for the year ended December 31, 2009, along with comparative information for 2008, is provided.

This Management's Discussion and Analysis is dated March 2, 2010 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" and references to shares includes trust units prior to the Conversion.

    
    SELECTED FINANCIAL INFORMATION

    -------------------------------------------------------------------------
    ($000s except per share data)                 2009       2008       2007
    -------------------------------------------------------------------------
    Revenue                                    483,401    597,035    499,864
    Net earnings                                 3,099     58,882     61,189
      - per share ($) - basic                     0.07       1.40       1.52
      - per share ($) - diluted                   0.07       1.40       1.51
    EBITDA                                      79,921    125,753     96,228
       - per share ($)                            1.84       3.00       2.39
    Adjusted EBITDA                             82,157    125,890     96,429
       - per share ($)                            1.89       3.00       2.39
    Cash from operations                        83,518    128,922     54,058
       - per share ($)                            1.92       3.07       1.34
    Funds from operations                       60,943     98,306     81,147
       - per share ($)                            1.40       2.34       2.01
    Total Assets                               993,730  1,051,910  1,023,481
    Senior long-term debt - net of issue
     costs                                     188,123    263,251    206,940
    Convertible debentures - principal amount  115,000    115,000    115,000
    Dividends/Distributions declared             8,141     93,180     90,117
      - per share ($)                             0.20       2.22       2.22
    -------------------------------------------------------------------------
    

CORPORATE OVERVIEW

We emerged from 2009 as a financially and operationally stronger company, despite the recessionary environment. Our results reflect our ability to respond quickly to a rapidly changing economy. Compared to 2008, Adjusted EBITDA decreased $43.7 million, with 72% of that decline in the first half of 2009. Performance in the first half of the year reflected significantly lower commodity prices compared to 2008, coupled with an overall dramatic decrease in industrial and drilling activity in both Canada and the U.S. In the second half of the year, stronger results were driven by our cost savings initiatives, recovering commodity prices, modest improvements in demand for our services as well as the expansion at the Ville Ste-Catherine ("VSC") facility in Québec. Adjusted EBITDA for the second half of 2009 improved by over 70% over the first half of the year and was down only $12 million or 19% compared to the prior year comparable period, despite activity levels well below the prior year. Cash from operating activities net of capital expenditures and dividends contributed $25.7 million to Funded Debt reduction in the year, of which $21.8 million was generated in the second half of the year.

The following charts outline the diversification of our business over the past 3 years.

    
    Table 1: Diversification of Business
    http://files.newswire.ca/861/NewaltaTables.pdf
    

In Q4 2009, Adjusted EBITDA was down 4% from Q3 2009. Restructuring costs and out of quarter adjustments were $2.2 million in Q4 2009. Excluding the impact of these items, Adjusted EBITDA was $27.7 million, reflecting improved market demand and stronger commodity prices. In the East, volumes at the Stoney Creek landfill ("SCL") increased by 90% over Q3 2009, while VSC benefited from higher lead pricing and higher kiln utilization. In the West, seasonal drilling activity improved Drill Site performance while reduced demand for oil recycling products and lower base oil pricing resulted in lower revenue in Q4 compared to Q3. Total combined divisional net margin was relatively flat in Q4 2009 compared to Q3 2009, and down only 7% compared to Q4 2008.

In Q4 2009, Adjusted EBITDA was down 8% over last year. Excluding restructuring costs and out of quarter adjustments in SG&A in Q4 2009, Adjusted EBITDA was equal to last year even though revenues were down $8 million. Strong performance in the Eastern division from VSC due to higher production and improved lead pricing served to offset lower revenue and net margin in the West. Eastern's share of total revenue and combined divisional net margin was 55% and 46%, respectively, compared to 45% and 35% in Q4 2008. Cost savings in excess of $8 million were realized in Q4 2009, as compared to Q4 2008.

For the year, revenue, net earnings and Adjusted EBITDA were down 19%, 95% and 35%, respectively. Performance was strongly impacted by the depressed economic environment and lower commodity prices. In the second quarter of 2009, cost saving initiatives were implemented to reduce our cost base consistent with depressed market conditions. We have been successful in realizing more than $24 million in cost efficiencies over the last three quarters, as compared to the same period in 2008. As a result, quarterly Adjusted EBITDA has grown steadily since Q1 2009, despite weak activity levels compared to last year. The impact of commodity prices on revenue and Adjusted EBITDA lessened as the year progressed and commodity prices strengthened. Overall, 53% of the decline in Adjusted EBITDA in 2009 is attributable to the changes in commodity prices. Excluding the impact of commodity prices, revenue was down 15% and Adjusted EBITDA decreased by only 16%. Net earnings were impacted by the same factors as EBITDA with the exception that 2008 earnings included higher future income tax recoveries.

    
    -------------------------------------------------------------------------
                                                         Impact of
                                               Impact of    market
                                               change in       and
                                               commodity     other
                                       Q4 2008  prices(1)  changes   Q4 2009
    -------------------------------------------------------------------------
    Revenue                            145,341     7,228   (15,261)  137,308
    Expenses
      Operating                        101,179     3,686    (8,858)   96,007
      Selling, general and
       administrative                   16,562         -        41    16,603
      Finance charges                    6,238         -       451     6,689
      Amortization and accretion        15,746         -    (1,188)   14,558
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net earnings (loss)                  9,085     3,542    (8,535)    4,092
    -------------------------------------------------------------------------
    EBITDA                              27,600     3,542    (6,444)   24,698
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                         Impact of
                                               Impact of    market
                                               change in       and
                                               commodity     other
                                          2008  prices(1)  changes      2009
    -------------------------------------------------------------------------
    Revenue                            597,035   (26,041)  (87,593)  483,401
    Expenses
      Operating                        409,073    (2,909)  (58,816)  347,348
      Selling, general and
       administrative                   62,129         -    (5,997)   56,132
      Finance charges                   24,104         -     1,260    25,364
      Amortization and accretion        51,237         -       588    51,825
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net earnings (loss)                 58,882   (23,132)  (32,651)    3,099
    -------------------------------------------------------------------------
    EBITDA                             125,753   (23,132)  (22,700)   79,921
    -------------------------------------------------------------------------
    (1) The change in commodity prices is defined as the change in the price
        received for recovered crude oil and the change in the price of lead
        received, in each instance, in Canadian dollars.


    Table 2: Trailing Twelve Month Adjusted EBITDA
    http://files.newswire.ca/861/NewaltaTables.pdf
    

Total capital expenditures for the year were $27.3 million, consistent with our expectations. In light of the economic downturn in 2009, we managed capital expenditures in line with customer activity. Maintenance expenditures were $8.6 million while growth capital expenditures totalled $18.7 million. Growth capital in the full year related primarily to the commissioning of the second kiln at VSC and equipment upgrades and process improvements within our facilities and onsite services throughout Newalta.

During the fourth quarter, we completed three key initiatives to strengthen our balance sheet and increase financial flexibility. First, our Credit Facility was renewed and extended to October 12, 2011 and, at the election of management, the principal amount was reduced from $375 million to $350 million. Second, we completed an equity financing for net proceeds of $43.8 million through the issuance of 6.0 million shares on October 27, 2009. Lastly, letters of credit totalling $25 million were returned from the Alberta Energy Resources Conservation Board (ERCB).

In early January 2010, we announced an agreement with BioteQ Environmental Technologies Inc. ("BioteQ")(TSX:BQE). Newalta and BioteQ will work together to identify waste treatment projects that recover, recycle, or treat industrial waste and manage related by-products. In conjunction with this agreement, we acquired 3.6 million common shares and warrants, at a price of $1.10 per share for a total purchase price of $4 million, representing 5% of the issued and outstanding common shares of BioteQ.

    
    Table 3: Consolidated Revenue and Consolidated EBITDA
    http://files.newswire.ca/861/NewaltaTables.pdf
    

OUTLOOK

We have identified areas of strategic focus which we believe will provide attractive returns for our shareholders in the years ahead. Effective January 1, 2010, we reorganized our divisions to include Facilities and Onsite in order to more effectively manage our operations and to execute our strategic plan. In our Facilities Division, we will focus on extending services and maximizing profitability within our existing facilities. In Onsite, we will concentrate on managing our resources more effectively on a national scale to better serve our customers' complex environmental needs. Onsite services now represent 32% of consolidated revenue. Our focus for the longer term will be to search globally for innovative ways of applying new technologies to provide solutions for existing customers as well as new markets. The recently announced agreement with BioteQ is a first step in this initiative.

We anticipate higher commodity prices and improvements in drilling and the economy to positively contribute to performance in 2010. Crude oil and lead prices are trending higher in Q1 2010 compared to Q4 2009, and well above Q1 2009. Performance for facilities in both western and eastern Canada is also expected to be stronger than Q1 2009. We anticipate seasonal increases to be higher than last year as we begin to see modest recovery in the oil and gas industry. Equipment-in-use within Drill Site is expected to strengthen reflecting this recovery. Waste receipts for the Stoney Creek landfill are anticipated to be in line with historical levels. In Q1 2010, we expect an increase in routine maintenance down time at VSC over Q4 2009; however, VSC performance will be positively impacted by increased production from the second kiln, when compared to Q1 2009.

We expect that our cost containment program implemented in Q2 2009 will continue to yield savings into the first quarter of 2010. For the balance of 2010, we will manage our cost base consistent with market demand.

Capital expenditures in 2010 are budgeted at $87 million, comprised of growth capital expenditures of $60 million, and maintenance capital of $27 million. Capital expenditures will be funded from funds from operations, with approximately 40% expected to be spent in the first half of 2010.

Initiatives completed in 2009 towards maximizing financial flexibility resulted in a stronger financial position as we enter 2010. Our strengthened balance sheet provides us with the financial capacity to capitalize on growth initiatives as our markets recover and demand for our services strengthens.

RESULTS OF OPERATIONS - WESTERN DIVISION

Overview

Western operates more than 50 facilities with more than 725 people in British Columbia, Alberta, Saskatchewan, Texas and Wyoming. In 2009, Western was organized into the Facilities, Heavy Oil and Drill Site business units.

    
    Western's performance is affected by the following factors:

    -   fluctuation in the price of crude oil
    -   state of the oil and gas industry in western Canada
    -   natural gas drilling activity
    -   the amount of waste generated by producers
    -   fluctuation in the U.S./Canadian dollar exchange rate
    -   the strength of other industries in western Canada, including:
        construction, forestry, mining, petrochemical, pulp and paper,
        refining, and transportation service industries

    Table 4: Western Revenue and Net Margin
    http://files.newswire.ca/861/NewaltaTables.pdf

    The business units contributed the following to division revenue:

    -------------------------------------------------------------------------
                                       Q4 2009   Q4 2008      2009      2008
    -------------------------------------------------------------------------
    Facilities                             69%       72%       71%       73%
    Heavy Oil                              23%       15%       23%       18%
    Drill Site                              8%       13%        6%        9%
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                                                %                          %
    ($000s)             Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Revenue - external   62,125   79,645      (22) 248,094  356,146      (30)
    Revenue - internal      295      250       18    1,203      919       31
    Operating costs      40,422   53,535      (24) 163,675  229,423      (29)
    Amortization and
     accretion            5,931    5,545        7   22,420   21,614        4
    -------------------------------------------------------------------------
    Net margin           16,067   20,815      (23)  63,202  106,028      (40)
    -------------------------------------------------------------------------
    Net margin as % of
     revenue                26%      26%        -      25%      30%      (17)
    -------------------------------------------------------------------------
    Maintenance capital     524    6,163      (91)   2,731   12,342      (78)
    -------------------------------------------------------------------------
    Growth capital(1)     4,042   20,512      (80)   7,660   51,456      (85)
    -------------------------------------------------------------------------
    Assets employed(2)                             455,955  470,121       (3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Growth capital does not include acquisitions.
    (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.

    For the full year versus the prior year:

    -   revenue decreased by 30%
    -   net margin excluding the impact of commodity and base oil prices
        decreased by 23%
    -   net margin as a percent of revenue decreased from 30% to 25%
    

Compared to Q4 2008, Western's revenue and net margin decreased by 22% and 23%, respectively, primarily due to activity levels well below 2008 and lower crude oil recovered to our account. Wells drilled in Q4 2009 decreased by 47% over Q4 2008. This decline in activity resulted in lower drill site equipment utilization, decreased waste processing and water disposal volumes as well as reduced demand for finished products from oil recycling. Higher crude oil prices and increased revenue from Heavy Oil's onsite services served to partially offset the decline. Net margin as a percentage of revenue remained flat compared to Q4 2008, reflecting the impact of cost savings initiatives carried out throughout the year.

2009 net margin in the Western division mirrored the weak economic activity in the western region. With a 51% decline in wells drilled in 2009 and depressed crude oil prices for the first nine months of the year, revenue from all business units within this segment were down. The total crude oil recovered to our account in 2009 decreased from 407,000 bbls in 2008 to 375,000 bbls. Excluding the impact of commodity and base oil prices, revenue and net margin were down 25% and 23%, respectively.

Facilities

The Facilities business unit is integral to our operations, providing the operational expertise and management capacity to support key business initiatives. Facilities revenue is primarily generated from:

    
    -   the processing and disposal of industrial and oilfield-generated
        wastes, including collection, treatment, water disposal, clean oil
        terminalling, custom treating, and landfilling
    -   sale of recovered crude oil for our account
    -   oil recycling, including the collection and processing of waste lube
        oils and the sale of finished products
    -   onsite service in western Canada, excluding services provided by
        Heavy Oil
    -   environmental services comprised of environmental projects and
        drilling waste management services
    

Seasonal increases in drilling activity in Q4 2009 resulted in a 30% increase in waste processing volume over Q3 2009, which helped to offset seasonal decreases in oil recycling services and industrial onsite. Overall, Q4 2009 Facilities revenue decreased 7% compared to Q3 2009.

Drilling activity in Q4 2009 remained well below the same period in 2008. Year-over-year, Q4 2009 Facilities revenue decreased by 26% due to lower activity levels. Despite a 31% increase in crude oil prices received compared to Q4 2008, lower drilling activity resulted in weaker waste processing and water disposal volumes by 21% and 27%, respectively. Reduced demand for finished products and a 48% decrease in base oil pricing drove lower oil recycling revenue.

For the year, significantly lower activity levels in western Canada as well as lower crude oil prices resulted in a 33% decrease in revenue. Waste processing volumes were down 34% and the total amount of crude oil recovered to Newalta's account was down by 18% for the year in 2009 compared to 2008. In addition, revenue from our oil recycling business decreased by 29% due to reduced demand for finished products and lower base oil prices.

    
    -------------------------------------------------------------------------
                                                %                          %
                        Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Waste processing
     volumes ('000 m(3))     96      121      (21)     324      489      (34)
    Recovered crude oil
     ('000 bbl)(1)           42       61      (31)     190      233      (18)
    Average crude oil
     price received
     (CDN$/bbl)              72       55       31       60       91      (34)
    Recovered crude oil
     sales ($ millions)     3.0      3.4      (12)    11.3     21.3      (47)
    Edmonton par price
     (CDN$/bbl)(2)           76       66       15       66      103      (36)
    -------------------------------------------------------------------------
    (1) Represents the total crude oil recovered and sold for our account.
    (2) Edmonton par is an industry benchmark for conventional crude oil.

    Table 5: Recovered Crude Oil - Facilities
    http://files.newswire.ca/861/NewaltaTables.pdf

    Table 6: Waste Processing Volumes - Facilities
    http://files.newswire.ca/861/NewaltaTables.pdf
    

Heavy Oil

Our heavy oil services business began 15 years ago with facilities at Hughenden and Elk Point, Alberta. Using the centrifugation experience gained in processing heavy oil waste streams, in 2005, we launched a new onsite service for customers in the heavy oil market. This business has evolved from processing heavy oil in our facility network to operating equipment on customers' sites. Leveraging our facilities as staging areas, we deliver a broad range of specialized services at numerous customer sites under short and long-term arrangements.

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

    
    -   specialized onsite services under short and long-term arrangements
    -   processing and disposal of oilfield-generated wastes, including water
        disposal, and landfilling
    -   sale of recovered crude oil for our account
    

Compared to Q4 2008, Heavy Oil revenue increased by 23% due to higher revenue from onsite services coupled with a higher average price for recovered crude oil to our account. For the full year 2009 compared to 2008, revenue decreased by $5.1 million, or 8%, largely attributable to a $4.2 million decline in recovered crude oil sales from lower average crude oil prices.

    
    -------------------------------------------------------------------------
                                                %                          %
                        Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Waste processing
     volumes ('000 m(3))    122      132       (8)     487      509       (4)
    Recovered crude oil
     ('000 bbl)(1)           35       35        -      185      174        6
    Average crude oil
     price received
     (CDN$/bbl)              62       44       41       52       80      (35)
    Recovered crude oil
     sales ($ millions)     2.2      1.5       47      9.6     13.8      (30)
    Bow River Hardisty
     (CDN$/bbl)(2)           71       52       37       61       84      (27)
    -------------------------------------------------------------------------
    (1) Represents the total crude oil recovered and sold for our account.
    (2) Bow River Hardisty is an industry benchmark for heavy crude oil.

    Table 7: Recovered Crude Oil - Heavy Oil
    http://files.newswire.ca/861/NewaltaTables.pdf

    Table 8: Waste Processing Volumes - Heavy Oil
    http://files.newswire.ca/861/NewaltaTables.pdf
    

Drill Site

Drill Site business unit revenue is generated primarily from the supply and operation of drill site processing equipment, including equipment for solids control and drill cuttings management. In 2009, Drill Site contributed 6% of divisional revenue or 3% of consolidated revenue.

In 2009, Drill Site revenue for both the U.S. and Canada decreased as natural gas drilling was depressed. Although revenue for the year declined by 51% from 2008, Q4 revenue increased by 104% over Q3 2009. In Q4 2009, average equipment-in-use was up 125% compared to Q3 2009, but remained well below 2008 levels.

The table below reflects the changes in average drill site equipment-in-use and utilization:

    
    -------------------------------------------------------------------------
                                                %                          %
                        Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Average equipment-
     in-use(1)
      Canada                 25       33      (24)      16       24      (33)
      U.S.                   20       40      (50)      17       35      (51)
    -------------------------------------------------------------------------
                             45       73      (38)      33       59      (44)
    -------------------------------------------------------------------------
    Average equipment
     available              176      162        9      175      148       18
    -------------------------------------------------------------------------
    Utilization             26%      45%      (42)     19%      40%      (53)
    -------------------------------------------------------------------------
    (1) "Average equipment in use" is calculated by taking the product of the
        total amount of average processing equipment and the utilization rate
        for the period. Average equipment available is adjusted by 10% for
        maintenance and transportation. Maximum utilization of 100%
        represents 90% of the total number of processing days.

    Table 9: Average Equipment-in-Use and Utilization - Drill Site
    http://files.newswire.ca/861/NewaltaTables.pdf


    RESULTS OF OPERATIONS - EASTERN DIVISION
    

Overview

Eastern provides industrial waste management, recycling and other environmental services to markets located in eastern Canada through our integrated network of 30 facilities with more than 700 employees. This network has two business units, Québec/Atlantic and Ontario, and features Canada's largest lead-acid battery recycling facility with two long body kilns, located in Ville Ste-Catherine, Québec ("VSC") with a potential combined annual kiln capacity of approximately 80,000MT. Current production levels fall below kiln potential capacity and is consistent with market demand. In the event of sustained increases in market demand for lead and the availability of adequate feedstock supplies, further capital investment would be required to attain full potential production. The network also includes an engineered non-hazardous solid waste landfill located in Stoney Creek, Ontario ("SCL") with an annual permitted capacity of 750,000MT of waste per year and, based on current volumes, has an estimated remaining life of 10 years. The business units contributed the following to division revenue:

    
    -------------------------------------------------------------------------
                                       Q4 2009   Q4 2008      2009      2008
    -------------------------------------------------------------------------
    Québec/Atlantic                        75%       66%       74%       68%
    Ontario                                25%       34%       26%       32%
    -------------------------------------------------------------------------

    Eastern's performance is affected by the following factors:

    -   fluctuations in the LME trading price of lead
    -   supply and demand in the North American battery manufacturing
        industry
    -   fluctuation in the U.S./Canadian dollar exchange rate
    -   market conditions in eastern Canada and bordering U.S. states,
        including: automotive, construction, forestry, manufacturing, mining,
        oil and gas, petrochemical, pulp and paper, refining, steel, and
        transportation service industries

    Table 10: Eastern Revenue and Net Margin
    http://files.newswire.ca/861/NewaltaTables.pdf

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

    -------------------------------------------------------------------------
                                                %                          %
    ($000s)             Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Revenue - external   75,183   65,696       14  235,307  240,809       (2)
    Operating costs      55,880   47,894       17  184,876  180,569        2
    Amortization and
     accretion            5,873    6,798      (14)  16,915   18,718      (10)
    -------------------------------------------------------------------------
    Net margin           13,430   11,004       22   33,516   41,522      (19)
    -------------------------------------------------------------------------
    Net margin as % of
     revenue                18%      17%        6      14%      17%      (18)
    -------------------------------------------------------------------------
    Maintenance capital   2,777    2,266       23    5,659    8,312      (32)
    -------------------------------------------------------------------------
    Growth capital(1)     1,408   12,993      (89)   7,919   36,036      (78)
    -------------------------------------------------------------------------
    Assets employed(2)                             349,107  351,617       (1)
    -------------------------------------------------------------------------
    (1) Growth capital does not include acquisitions.
    (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.

    For the full year versus the prior year:

    -   revenue remained relatively flat with a decrease of 2%
    -   net margin decreased 19%
    -   net margin as a percent of revenue decreased from 17% to 14%
    

In Q4 2009, net margin increased by 22% over Q4 2008 due to record performance from VSC and solid results in the Atlantic region. Revenue at SCL was lower due to reduced event-based business in the fourth quarter of 2009 compared to the same period last year.

Eastern's net margin was impacted by weak economic activity and lower average lead prices in 2009. However, performance improved significantly throughout 2009 due to a variety of factors, including the implementation of cost saving measures in Q2 2009. Performance at VSC was positively impacted by the commissioning of the second kiln in June 2009 and improved lead prices in the second half of 2009. SCL volumes improved in the second half of 2009 with Q4 volumes in line with historic norms, but remained lower than 2008. Atlantic's results increased as a result of cost saving initiatives and continued growth in our onsite services.

    
    Québec/Atlantic

    The Québec/Atlantic Canada business unit revenue is derived from:

    -   VSC, a lead-acid battery recycling facility in Québec
    -   waste treatment and transfer facilities that process, consolidate,
        and bulk hazardous waste
    -   onsite services, including a fleet of specialized vehicles and
        equipment for waste transport and onsite processing
    

Revenue in Q4 2009 grew by 30% over Q3 2009 as a result of higher sales at VSC and steady performance from fixed facilities and onsite services. The average lagged LME lead price rose 29% in Q4 2009 over Q3 2009 while lead sold in Q4 2009 increased 36% compared to Q3 2009. The combined operating days for both kilns increased to 164 days in Q4 2009 compared to 126 days in Q3 2009. Down time in Q3 and Q4 related to regularly scheduled maintenance which occurs at the end of December and into the first week of January and in July. Short outages may be required for maintenance from time to time during other periods in the year.

Revenue in Q4 2009 compared to the same period in 2008 was 30% higher due primarily to higher sales at VSC. Performance at VSC was impacted by both higher lead prices and increased sales volumes as a result of additional production from the second kiln.

For the full year 2009, despite lower average lead prices, Québec/Atlantic revenue grew 7% from the added capacity at VSC in the second half and sustained demand for onsite services in both Québec and Atlantic Canada. Performance has improved notably from Q1 2009 as a result of the successful start-up of the second kiln and cost control measures implemented in the second quarter of 2009. Based on the operation of two kilns, our objective is to maintain a 50/50 split between direct sales and tolling. Tolling arrangements generate revenue from a processing fee which is generally fixed, reducing our exposure to fluctuations in lead prices.

The table below highlights the lead sold and average price.

    
    -------------------------------------------------------------------------
                                                %                          %
                        Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Lead sold ('000
     MT)(1)                19.7     12.6       56     62.6     46.3       35
    -------------------------------------------------------------------------
    Average price -
     direct sales
     ($/MT)(2)            2,551    2,001       27    1,999    2,480      (19)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average lagged LME
     price (U.S.$/MT)(3)  2,251    1,547       46    1,605    2,218      (28)
    -------------------------------------------------------------------------
    (1) 2009 includes 2,600 MT sold to the LME in Q1 2009 that relates to
        production during the commissioning phase of Kiln 2.
    (2) Average price received means all direct sales of finished products,
        including finished products that are alloyed to customer
        specifications.
    (3) Average lagged LME price is based on a one-month lag consistent with
        our pricing structure.
    

Excluding VSC, Québec/Atlantic Canada revenue in 2009 remained flat despite a weaker economy. Atlantic Canada revenue contributed positive growth of 7% mainly attributable to onsite services related to the oil & gas industry in the region, reflecting our ability to continue to grow our business in the more challenging environment.

    
    Ontario

    The Ontario business unit revenue is derived from:

    -   SCL, an engineered non-hazardous solid waste landfill
    -   waste treatment and transfer fixed facilities that process,
        consolidate, and bulk hazardous waste
    -   onsite services, including a fleet of specialized vehicles and
        equipment for emergency response, waste transport, and onsite
        processing
    

Ontario performance continued to improve in Q4 2009 compared to Q3 2009 as revenue grew 30%. Waste receipts at SCL in Q4 were well above the three year quarterly average. Growth in our fixed facilities and industrial onsite services also contributed to higher revenue.

Year-over-year, the effects of weak industrial activity persisted in Ontario with revenue down 16% compared to Q4 2008. The result was lower activity at SCL and our fixed facilities which was partially offset by a 76% increase in onsite revenue.

For the full year compared to 2008, performance was impacted by the steep decline in the regional economy. However, performance in Ontario improved steadily throughout 2009 due to cost saving measures implemented in the second quarter of 2009 and higher tonnage at SCL in the second half of the year. Landfill volumes in Q4 2009 were well above the three year quarterly average and were the second highest in the last three years.

    
    -------------------------------------------------------------------------
                                                %                          %
                        Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Landfill volume
     ('000 MT)            190.3    243.2      (22)   477.2    654.7      (27)
    -------------------------------------------------------------------------

    Table 11: Volume of Waste Collected - Stoney Creek Landfill
    http://files.newswire.ca/861/NewaltaTables.pdf


    CORPORATE AND OTHER

    -------------------------------------------------------------------------
                                                %                          %
    ($000s)             Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Selling, general and
     administrative
     expenses ("SG&A")   16,603   16,562        -   56,132   62,129      (10)
      Less non-cash
       stock-based
       compensation         808       30    2,593    2,236      137    1,532
    SG&A before non-cash
     stock-based
     compensation        15,795   16,532       (4)  53,896   61,992      (13)
      SG&A before
       non-cash
       stock-based
       compensation as
       a % of revenue     11.5%    11.4%        1    11.1%    10.4%        7
    -------------------------------------------------------------------------
    

SG&A before non-cash stock-based compensation for Q4 2009 was 4% lower than Q4 2008. SG&A for Q4 2009 included the realization of out of quarter rent expense for space under construction. For the full year, SG&A before non-cash stock-based compensation was down 13% compared to 2008 reflecting the cost saving initiatives implemented in the year. Our objective in 2010 is to ensure SG&A before non-cash stock based compensation remains at or below 10% of revenue on an annual basis. Q1 2010 SG&A before non-cash stock-based compensation is expected to be at or below $15.0 million, 5% lower than Q4 09.

    
    -------------------------------------------------------------------------
                                                %                          %
    ($000s)             Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Amortization and
     accretion           14,558   15,746       (8)  51,825   51,237        1
      as a % of
       revenue            10.6%    10.8%       (2)   10.7%     8.6%       24
    -------------------------------------------------------------------------
    

Amortization and accretion in Q4 2009 compared to Q4 2008, decreased due to lower depreciation for assets amortized on a unit of production basis with lower utilization. On a year-to-date basis, amortization and accretion was flat. Lower amortization for assets on a unit of production basis as a result of lower utilization was offset by increased amortization from the growth in our capital asset base and the net loss on disposal of assets. The net loss on the disposal of assets for the quarter was $0.5 million and year-to-date was $1.6 million. The loss on disposal was added to amortization and accretion.

    
    -------------------------------------------------------------------------
                                                %                          %
    ($000s)             Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Bank fees and
     interest             4,353    3,928       11   16,059   14,900        8
    Convertible
     debentures
     interest and
     accretion of issue
     costs                2,336    2,310        1    9,305    9,204        1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Finance charges       6,689    6,238        7   25,364   24,104        5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Finance charges increased in Q4 2009 and in the full year primarily due to higher credit facility fees. Finance charges associated with the Debentures include an annual coupon rate of 7%, the accretion of issue costs and discount on the debt portion of the debentures. See "Liquidity and Capital Resources" in this MD&A for discussion of our long-term borrowings.

    
    -------------------------------------------------------------------------
                                                %                          %
    ($000s)             Q4 2009  Q4 2008   change     2009     2008   change
    -------------------------------------------------------------------------
    Current tax             317       21    1,410      945      949        -
    Future income tax      (958)  (3,490)     (73)  (1,312)  (9,339)     (86)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Provision for
     (recovery of) income
     taxes                 (641)  (3,469)     (82)    (367)  (8,390)     (96)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Future income tax recoveries in the year resulted from the reduction of future income tax rates and a one-time increase in the value of tax assets following the windup of the Fund on December 31, 2009. Future income tax recoveries in 2008 related to the build up of tax losses generated under the income trust structure. To date, we have generated approximately $178 million of tax loss carryforwards. Other than provincial capital taxes and U.S. state and federal income taxes, we do not anticipate paying significant income tax for at least three years. See "Critical Accounting Estimates - Income Taxes" in this MD&A for further discussion.

LIQUIDITY AND CAPITAL RESOURCES

The term liquidity refers to the speed with which a company's assets can be converted into cash, as well as cash on hand. Our liquidity risk may arise from general day-to-day cash requirements, and in the management of our assets, liabilities and capital resources. Liquidity risk is managed against our financial leverage to meet obligations and commitments in a balanced manner. For further information on our liquidity risk management, please refer to Note 20 to the Consolidated Financial Statements.

Our debt capital structure is as follows:

    
    -------------------------------------------------------------------------
                                                 December 31,    December 31,
    ($000s)                                             2009            2008
    -------------------------------------------------------------------------
    Use of Credit Facility:
    Amount drawn on Credit Facility(1)               195,199         264,687
    Letters of credit                                 22,137          49,249
    -------------------------------------------------------------------------
    Funded debt                          A           217,336         313,936
    Unused Credit Facility capacity(2)               132,664         111,064
    -------------------------------------------------------------------------
    Debentures                           B           115,000         115,000
    -------------------------------------------------------------------------
    Total Debt                 =A+B       332,336         428,936
    -------------------------------------------------------------------------
    (1) Issue costs were $3.2 million in 2009 and $1.4 million in 2008. See
        Note 8 to the Consolidated Financial Statements. The net senior long-
        term debt at December 31, 2009 was $188.1 million.
    (2) The principal amount of the Credit Facility was reduced, at the
        election of management, from $425 million to $375 million on April
        22, 2009 and then to $350 million on October 9, 2009.
    

In 2009, notwithstanding the $43.7 million year-over-year reduction in Adjusted EBITDA, Funded Debt decreased by $96.6 million. Despite the weaker economic environment, cash from operating activities more than exceeded capital expenditures and dividends in the year, contributing $25.7 million to Funded Debt reduction. In addition, $27.1 million in letters of credit were returned in 2009 and in October, we raised $43.8 million in net proceeds through the issuance of approximately 6.0 million shares, thus reducing Funded Debt.

Our working capital at December 31, 2009 was $31 million compared with $40 million at December 31, 2008. This improvement highlights the degree of progress over the last 12 months by addressing the following key areas:

    
    -   business process initiatives to improve the timeliness and accuracy
        of invoices
    -   improved collection processes
    -   strengthened credit risk management
    

For further information on credit risk management, please refer to Note 18 to the Consolidated Financial Statements.

As a result of these initiatives, notwithstanding a more challenging economic environment, days' sales outstanding in receivables continued to improve over the prior year with accounts over 90 days decreasing from $6.5 million at December 31, 2008 to $0.7 million at December 31, 2009.

At current activity levels, working capital of $31 million is expected to be sufficient to meet our ongoing commitments and operational requirements of the business. We will continue to manage working capital in order to protect and maintain improvements made over the last 12 months.

The Current Ratio is defined as the ratio of total current assets to total current liabilities. As a result of the ongoing process improvements in the management and collection of receivables, as well as the management and payment of payables, this ratio remained flat at 1.34 times at December 31, 2009 as compared to December 31, 2008. This ratio, at December 31, 2009, exceeds our bank covenant minimum requirement of 1.10:1.

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 adjustments to dividends paid to shareholders.

Credit Facility

In April, we elected to reduce the available credit from $425 million to $375 million and amend the Funded Debt to EBITDA and Current Ratio covenant restrictions from 3:00:1 to 3.50:1 for the remainder of 2009 and 1.20:1 to 1.10:1, respectively. In October, we renewed our Credit Facility with our Canadian lending syndicate. The terms of the Credit Facility were amended by extending the maturity to October 12, 2011, and, in anticipation of the return of the letters of credit, we elected to reduce the principal amount to $350 million from $375 million. The extension of the Credit Facility and reduction in the principal amount are in keeping with our focus on tightly managing costs and the routine management of our financial structure. The Credit Facility is available to fund growth capital expenditures and for general corporate purposes, as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60.0 million. The aggregate dollar amount of outstanding letters of credit is not 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 Funded Debt for covenant purposes.

At December 31, 2009, $22.1 million of letters of credit were issued to various environmental regulatory authorities, and were reduced by $27.1 million from December 31, 2008. Approximately $25 million in letters of credit were returned following amendments to the Alberta Energy Statutes Act. In addition, letters of credit totalling $2.2 million associated with certain facilities in Ontario were replaced with performance bonds in the third quarter.

Under the Credit Facility agreement, surety bonds (including performance and bid bonds) to a maximum of $125 million are excluded from the definition of Funded Debt. As at December 31, 2009, surety bonds totalled $20.1 million.

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

    
    -------------------------------------------------------------------------
                                           December 31, 2009       Threshold
    -------------------------------------------------------------------------
    Current Ratio(2)                                  1.34:1  1.10:1 minimum
    Funded Debt(3) to EBITDA(4)(5)                    2.60:1  3.50:1 maximum
    Fixed Charge Coverage(6)                          2.24:1  1.00:1 minimum
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) We are restricted from declaring dividends if we are in breach of the
        covenants under our Credit Facility.
    (2) Current Ratio means, the ratio of consolidated current assets to
        consolidated net current liabilities (excluding the current portion
        of long-term debt and capital leases outstanding, if any).
    (3) Funded debt is a non-GAAP measure, the closest measure of which is
        long-term senior debt. Funded Debt is generally defined as long-term
        debt and capital leases including any current portion thereof but
        excluding future income taxes and future site restoration costs.
        Funded debt is calculated by adding the senior long-term debt to the
        amount of letters of credit outstanding at the reporting date. In
        calculating Funded Debt, Letters of Credit returned after the end of
        a fiscal quarter but prior to the date that is 45 days following the
        end of the first, second or third interim period (90 days following
        the end of the annual period) are excluded.
    (4) 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 completed
        during that time frame and excludes any dispositions incurred as if
        they had occurred at the beginning of the trailing twelve-months.
    (5) Funded Debt to EBITDA means the ratio of consolidated Funded Debt to
        the aggregate EBITDA for the trailing twelve-months. On April 22,
        2009, the Funded Debt to EBITDA covenant restriction under the Credit
        Facility was amended from 3.00:1 to 3.50:1 for the remainder of 2009.
        The ratio will be 3.00:1 commencing Q1 2010.
    (6) Fixed Charge Coverage Ratio means, based on the trailing twelve month
        period, EBITDA less unfinanced capital expenditures and cash taxes to
        the sum of the aggregate of principal payments (including amounts
        under capital leases, if any), interest (excluding accretion for the
        convertible debentures), dividends paid for such period, other than
        cash payments in respect of a dividend reinvestment plan, if any.
        Unlike the Funded Debt to EBITDA ratio, the Fixed Charge Coverage
        ratio trailing twelve month EBITDA is not normalized for acquisitions
        or dispositions.

    Our Funded Debt was $217.3 million for Q4 2009, resulting in a Funded Debt
to EBITDA ratio of 2.60:1. On a year-to-date basis, we focused on reducing
Funded Debt through the following initiatives:

    -   restricted capital spending in 2009
    -   reduced expenses with the implementation of our cost control program,
        including: staff reductions, hiring restrictions, postponement of
        salary increases and restrictions on travel and discretionary
        expenses, and the suspension of our matching contributions to our
        Employee Savings Plan, which was reinstated on January 1, 2010
    -   improved the management of working capital
    -   sold redundant, idle, or non-core assets
    -   recovery of outstanding letters of credit
    -   completed equity financing
    

Our actions will continue to have a positive impact on our debt position and will continue to strengthen our balance sheet as the economy recovers. We remain confident that we will be able to manage within our covenants throughout 2010.

Equity Issuance

On October 27, 2009, we closed an equity financing with the issuance of 6,037,500 shares at a price of $7.65 per share for gross proceeds of $46.2 million (net proceeds of $43.8 million) which were used to reduce indebtedness.

Debentures

The 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 Debentures. The Debentures are not included in calculating financial covenants in the Credit Facility.

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

The Debentures are redeemable by Newalta at a price of $1,000 per Debenture after November 30, 2010 and on or before November 30, 2011 provided that the current market price of our shares on the date on which the notice of redemption is given is not less than $28.75 (being 25% of the Conversion Price.) After November 30, 2011, debentures are redeemable at a price equal to $1,000 per Debenture. In all cases, consideration will include accrued and unpaid interest, if applicable. Current market price is defined as the volume weighted average trading price of the shares on the Toronto Stock Exchange ("TSX") for the 20 consecutive trading days ending on the fifth trading day prior to the date of determination. The volume weighted average trading price is determined by dividing the aggregate sale price of all shares sold on the TSX during the 20 consecutive trading days by the total number of shares so sold.

There were no redemptions of the Debentures in 2009.

USES OF CASH

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

Capital Expenditures

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

    
    Capital expenditures for the three months and years ended December 31,
2009 and December 31, 2008 were:

    -------------------------------------------------------------------------
    ($000s)                            Q4 2009   Q4 2008      2009      2008
    -------------------------------------------------------------------------
    Growth capital expenditures(1)       4,739    38,193    18,696   104,440
    Maintenance capital expenditures     3,501     8,461     8,589    20,762
    -------------------------------------------------------------------------
    Total capital expenditures(2)        8,240    46,654    27,285   125,202
    -------------------------------------------------------------------------

    (1) Acquisitions in Q4 and 2008 were $620,000 and Q4 and 2009 were nil.
    (2) The numbers in this table differ from the consolidated statements of
        cash flows because the numbers above do not reflect the net change in
        working capital related to capital asset accruals.
    

Total capital expenditures for the quarter were $8.2 million. Growth capital expenditures of $4.7 million were primarily related to centrifugation equipment for onsite project work in our Heavy Oil business unit and equipment upgrades at our fixed facilities. For the full year, growth capital related primarily to the commissioning of the second kiln at VSC, expansion of the Heavy Oil's onsite business, upgrades to our Sussex facility in Atlantic Canada and process improvements within our facilities and onsite services across Canada. 2009 growth capital expenditures were funded by funds from operations and working capital. Maintenance capital of $8.6 million in 2009 related primarily to control equipment and structural building improvements at VSC, equipment replacement at our facilities in Ontario, Atlantic Canada and in the Western division, as well as process improvements at our Elk Point and Hughenden Heavy Oil facilities.

Capital expenditures in 2010 are budgeted at $87 million, comprised of growth capital expenditures of $60 million, and maintenance capital of $27 million. We plan to spend $35 million in growth capital expenditures in the Onsite division, primarily related to expansion of the Heavy Oil business unit as well as additional equipment for the East and West Onsite business units. We plan to spend $20 million in the Facilities division primarily related to process improvements and additions, as well as the completion of a new oilfield facility. Maintenance capital expenditures will relate to the construction of additional landfill cells, process improvements and equipment replacement.

These investments will be funded from funds from operations. We may revise the forecast, 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 a dividend of $0.05 per share, paid January 15 2010 to shareholders of record as at December 31, 2009.

We expect to pay a dividend of $0.05 per share to holders of record on March 31, 2010. The Board will continue to review future dividends, taking into account all factors noted above.

As at March 2, 2010, Newalta had 48,479,002 shares outstanding, outstanding options to purchase up to 2,807,075 shares and a number of shares that may be issuable pursuant to the $115.0 million in Debentures (see Sources of Cash - Debentures).

    
    Contractual Obligations

    Our contractual obligations, as at December 31, 2009, were:

    -------------------------------------------------------------------------
                                          Less
                                          than       1-3       4-5     There-
    ($000s)                    Total  one year     years     years     after
    -------------------------------------------------------------------------
    Office leases             71,863     7,973    14,695    14,255    34,940
    Operating leases(1)       24,912    10,692    12,782     1,438         -
    Surface leases             4,137     1,092     2,245       800         -
    Convertible debentures   138,479     8,050   130,429         -         -
    Senior long-term
     debt(2)                 191,280         -   191,280         -         -
    -------------------------------------------------------------------------
    Total commitments        430,671    27,807   351,431    16,493    34,940
    -------------------------------------------------------------------------

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


    SUMMARY OF QUARTERLY RESULTS

    ($000s except per share data)                                       2009
    -------------------------------------------------------------------------
                                          Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Revenue                            137,308   122,169   111,386   112,538
    Earnings (loss) before taxes         3,451     5,936      (293)   (6,362)
    Net earnings (loss)                  4,092     3,567      (179)   (4,381)
    Earnings (loss) per share ($)         0.09      0.08      0.00     (0.10)
    Diluted earnings (loss)
     per share ($)                        0.09      0.08      0.00     (0.10)
    Weighted average share - basic      46,770    42,438    42,450    42,402
    Weighted average share - diluted    47,049    42,610    42,450    42,402
    EBITDA                              24,698    25,253    17,940    12,030
    Adjusted EBITDA                     25,506    26,606    18,253    11,792
    -------------------------------------------------------------------------


    ($000s except per share data)                                       2008
    -------------------------------------------------------------------------
                                          Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Revenue                            145,341   158,579   142,939   150,176
    Earnings (loss) before taxes         5,616    19,041     9,293    16,542
    Net earnings (loss)                  9,085    18,717    11,776    19,304
    Earnings (loss) per share ($)         0.21      0.44      0.28      0.47
    Diluted earnings (loss)
     per share ($)                        0.21      0.44      0.28      0.46
    Weighted average share - basic      42,266    42,102    41,822    41,543
    Weighted average share - diluted    42,266    42,111    41,950    41,635
    EBITDA                              27,600    37,441    26,573    34,139
    Adjusted EBITDA                     27,630    36,887    27,190    34,184
    -------------------------------------------------------------------------
    

Quarterly performance is affected by seasonal variation as described below.

For the first three quarters in 2008, revenue, earnings before taxes, and net earnings reflect relatively high commodity prices and strong drilling activity. In Q4 2008, crude oil prices declined significantly, negatively impacting revenue and earnings in the Western division. Earnings in Q4 2008 were negatively impacted by non-reoccuring charges related to conversion costs, reorganization charges and changes in estimated revenue associated with certain environmental projects. Increases in weighted average shares in 2008 related to the DRIP which was discontinued after we converted from an income trust to a corporation.

In 2009, the decrease in revenue, earnings before taxes, and net earnings as compared to the prior period was mainly due to weak economic conditions. Lead and crude oil prices fell from historic highs achieved in 2008, continuing the negative impact on revenue and margin from Q4 2008. The improvement in Q2 2009 was driven by a combination of stronger commodity prices and management's cost containment program. In Q3 2009, we observed improved commodity prices and typical seasonal activity increases; however, our waste volumes remained below historic levels. Revenue in Q4 2009 improved due to improved commodity prices, higher waste receipts at SCL and higher daily average production at VSC. Weighted average shares increased reflecting the equity offering of 6 million shares completed on October 27, 2009. Compared to 2008, Adjusted EBITDA was down $22.4 million in Q1, $8.9 million in Q2, $10.3 million in Q3 and only $2.1 million in Q4. The year-over-year decline was higher in Q1 than for the last three quarters combined.

Seasonality of Operations

Quarterly performance is affected by, among other things, weather conditions, commodity prices, 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.

In 2009, the volatility of commodity prices and foreign exchange combined with the impact of management's cost cutting initiatives has affected the ability to see these seasonality trends in our combined divisional net margin and EBITDA.

Seasonality impacts the Western and Eastern divisions differently, reflecting the types of services that each provides. The following seasonality factors describe the typical quarterly fluctuations in operating results in the absence of growth and acquisition capital and significant volatility in commodity prices and foreign exchange rates.

For Western, the frozen ground during the winter months in western Canada provides an optimal environment for drilling activities and consequently, the first quarter is typically strong. As warm weather returns in the spring, the winter's frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until the roads have thoroughly dried out. Road bans, which are generally imposed in the spring, restrict waste transportation which reduces demand for the Western Division's services and therefore, the second quarter is generally the weakest quarter of the year for Western. The third quarter is typically the strongest quarter for Western due to favourable weather conditions and market cyclicality. The areas in the U.S. in which we operate are not affected by frozen ground requirements for winter drilling nor are they impacted by the spring thaw. Typical seasonality for quarterly revenue as a percentage of annual Western revenue is approximately: 26% for the first quarter, 23% for the second quarter, 27% for the third quarter, and 24% in the fourth quarter.

Eastern's services are generally curtailed by colder weather in the first quarter, which is typically its weakest quarter as aqueous wastes and onsite work are restricted by colder temperatures. Typical seasonality for quarterly revenue as a percentage of annual revenue for Eastern is approximately: 23% in the first quarter, 25% in the second quarter, 25% in the third quarter, and 27% in the fourth quarter.

RECENT DEVELOPMENTS

Effective January 1, 2010, we reorganized our reporting structure into two divisions - Onsite and Facilities - in order to better align the business for continued growth. The Onsite division includes the Western Onsite, Eastern Onsite and Heavy Oil business units, while the Facilities division includes the Western Facilities, Eastern Facilities and the VSC business units. The new reporting structure was implemented to facilitate growth in Onsite operations by enabling us to manage and leverage resources, equipment and technical expertise nationally in order to provide our customers with the most cost-effective solutions to their complex environmental challenges. The Onsite business is primarily contractual in nature and involves sales, finance and management capabilities distinctly different from our Facilities business. Shared resources and technical expertise will be directed primarily at large customers with complex environmental challenges, where we can help reduce their costs and improve their environmental performance.

Onsite has grown dramatically over the past few years, representing 32% of total revenue and 29% of combined net margin in 2009. When we manage waste directly onsite we bring our people, processing expertise, and specialized equipment to a customer's site to manage the customer's needs at the source. This approach creates value for our customers and minimizes off-site disposal but also requires a flexible business model capable of finding unique solutions for our customers. Onsite includes: the processing of heavy oilfield-generated wastes and the sale of recovered crude oil for our account; industrial cleaning; site remediation; dredging and dewatering; technical services; and drill site processing for solids control and drill cuttings management.

The Facilities division provides the operational expertise and management capacity to support key business initiatives. Revenue from Facilities represents 68% of total revenue and 71% of combined net margin in 2009. Facilities operations include: the processing and disposal 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 tables below restate the historical segmented information from the Western and Eastern divisions to the Onsite and Facilities divisions.

    
    Onsite - Information by Quarter

    ($000s)                                                             2009
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
    -------------------------------------------------------------------------
    Revenue                             35,593    35,732    43,124    42,671
    Operating costs                     29,107    27,219    30,117    31,263
    Amortization and accretion           3,001     2,149     2,623     3,643
    -------------------------------------------------------------------------
    Net Margin                           3,485     6,364    10,384     7,765
    -------------------------------------------------------------------------
    Net Margin as % of revenue             10%       18%       24%       18%
    -------------------------------------------------------------------------
    Capital Expenditures                 1,796     1,596     1,881     4,596
    -------------------------------------------------------------------------


    ($000s)                                                             2008
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
    -------------------------------------------------------------------------
    Revenue                             48,237    43,886    51,273    46,554
    Operating costs                     35,627    32,183    36,896    36,564
    Amortization and accretion           3,378     3,018     3,550     4,513
    -------------------------------------------------------------------------
    Net Margin                           9,232     8,685    10,827     5,477
    -------------------------------------------------------------------------
    Net Margin as % of revenue             19%       20%       21%       12%
    -------------------------------------------------------------------------
    Capital Expenditures                 3,029     6,261    15,552    18,865
    -------------------------------------------------------------------------


    ($000s)                                                             2007
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
    -------------------------------------------------------------------------
    Revenue                             34,046    37,608    50,921    52,847
    Operating costs                     27,427    30,734    37,754    40,641
    Amortization and accretion           2,459     2,854     2,843     2,889
    -------------------------------------------------------------------------
    Net Margin                           4,160     4,020    10,324     9,317
    -------------------------------------------------------------------------
    Net Margin as % of revenue             12%       11%       20%       18%
    -------------------------------------------------------------------------
    Capital Expenditures                 1,644     7,753    15,129    15,461
    -------------------------------------------------------------------------


    Onsite - Year to Date Information

    ($000s)                                                             2009
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
                                                   YTD       YTD       YTD
    -------------------------------------------------------------------------
    Revenue                             35,593    71,325   114,449   157,120
    Operating costs                     29,107    56,326    86,443   117,706
    Amortization and accretion           3,001     5,150     7,773    11,416
    -------------------------------------------------------------------------
    Net Margin                           3,485     9,849    20,233    27,998
    -------------------------------------------------------------------------
    Net Margin as % of revenue             10%       14%       18%       18%
    -------------------------------------------------------------------------
    Capital Expenditures                 1,796     3,392     5,273     9,869
    -------------------------------------------------------------------------


    ($000s)                                                             2008
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
                                                   YTD       YTD       YTD
    -------------------------------------------------------------------------
    Revenue                             48,237    92,123   143,396   189,950
    Operating costs                     35,627    67,810   104,706   141,270
    Amortization and accretion           3,378     6,396     9,946    14,459
    -------------------------------------------------------------------------
    Net Margin                           9,232    17,917    28,744    34,221
    -------------------------------------------------------------------------
    Net Margin as % of revenue             19%       19%       20%       18%
    -------------------------------------------------------------------------
    Capital Expenditures                 3,029     9,290    24,842    43,707
    -------------------------------------------------------------------------


    ($000s)                                                             2007
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
                                                   YTD       YTD       YTD
    -------------------------------------------------------------------------
    Revenue                             34,046    71,654   122,575   175,422
    Operating costs                     27,427    58,161    95,915   136,556
    Amortization and accretion           2,459     5,313     8,156    11,045
    -------------------------------------------------------------------------
    Net Margin                           4,160     8,180    18,504    27,821
    -------------------------------------------------------------------------
    Net Margin as % of revenue             12%       11%       15%       16%
    -------------------------------------------------------------------------
    Capital Expenditures                 1,644     9,397    24,526    39,987
    -------------------------------------------------------------------------


    Facilities - Information by Quarter

    ($000s)                                                             2009
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
    -------------------------------------------------------------------------
    External Revenue                    76,945    75,654    79,045    94,637
    Inter-segment Revenue                  156       341       411       295
    Operating costs                     57,950    53,698    54,158    65,039
    Amortization and accretion           6,607     6,602     6,549     8,161
    -------------------------------------------------------------------------
    Net Margin                          12,544    15,695    18,749    21,732
    -------------------------------------------------------------------------
    Net Margin as % of revenue             16%       21%       24%       23%
    -------------------------------------------------------------------------
    Capital Expenditures                 4,973     3,285     1,687     4,155
    -------------------------------------------------------------------------


    ($000s)                                                             2008
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
    -------------------------------------------------------------------------
    External Revenue                   101,898    99,014   107,306    98,787
    Inter-segment Revenue                  301       240       128       250
    Operating costs                     65,835    68,405    69,617    64,865
    Amortization and accretion           6,093     6,439     5,511     7,830
    -------------------------------------------------------------------------
    Net Margin                          30,271    24,410    32,306    26,342
    -------------------------------------------------------------------------
    Net Margin as % of revenue             30%       25%       30%       27%
    -------------------------------------------------------------------------
    Capital Expenditures                10,660    13,641    17,068    23,690
    -------------------------------------------------------------------------


    ($000s)                                                             2007
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
    -------------------------------------------------------------------------
    External Revenue                    83,267    73,897    82,395    84,186
    Inter-segment Revenue                    -       433       105       114
    Operating costs                     52,087    52,687    53,142    54,841
    Amortization and accretion           6,121     5,454     5,945     6,447
    -------------------------------------------------------------------------
    Net Margin                          25,059    16,189    23,413    23,012
    -------------------------------------------------------------------------
    Net Margin as % of revenue             30%       22%       28%       27%
    -------------------------------------------------------------------------
    Capital Expenditures                 9,908    36,654    16,169    72,800
    -------------------------------------------------------------------------


    Facilities - Year to Date Information

    ($000s)                                                             2009
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
                                                   YTD       YTD       YTD
    -------------------------------------------------------------------------
    Revenue                             76,945   152,599   231,644   326,281
    Inter-segment Revenue                  156       497       908     1,203
    Operating costs                     57,950   111,648   165,806   230,845
    Amortization and accretion           6,607    13,209    19,758    27,919
    -------------------------------------------------------------------------
    Net Margin                          12,544    28,239    46,988    68,720
    -------------------------------------------------------------------------
    Net Margin as % of revenue             16%       18%       20%       21%
    -------------------------------------------------------------------------
    Capital Expenditures                 4,973     8,258     9,945    14,100
    -------------------------------------------------------------------------


    ($000s)                                                             2008
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
                                                   YTD       YTD       YTD
    -------------------------------------------------------------------------
    Revenue                            101,898   200,912   308,218   407,005
    Inter-segment Revenue                  301       541       669       919
    Operating costs                     65,835   134,240   203,857   268,722
    Amortization and accretion           6,093    12,532    18,043    25,873
    -------------------------------------------------------------------------
    Net Margin                          30,217    54,681    86,987   113,329
    -------------------------------------------------------------------------
    Net Margin as % of revenue             30%       27%       28%       28%
    -------------------------------------------------------------------------
    Capital Expenditures                10,660    24,301    41,369    65,059
    -------------------------------------------------------------------------


    ($000s)                                                             2007
    -------------------------------------------------------------------------
                                          Q1        Q2        Q3        Q4
                                                   YTD       YTD       YTD
    -------------------------------------------------------------------------
    Revenue                             83,267   157,164   239,559   323,745
    Inter-segment Revenue                    -       433       538       652
    Operating costs                     52,087   104,774   157,915   212,756
    Amortization and accretion           6,121    11,575    17,520    23,967
    -------------------------------------------------------------------------
    Net Margin                          25,059    41,248    64,662    87,674
    -------------------------------------------------------------------------
    Net Margin as % of revenue             30%       26%       27%       27%
    -------------------------------------------------------------------------
    Capital Expenditures                 9,908    46,562    62,731   135,531
    -------------------------------------------------------------------------
    

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

SENSITIVITIES

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

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

    
    -------------------------------------------------------------------------
                                                                   Impact on
                                                   Change in          Annual
                                                   benchmark      Revenue ($)
    -------------------------------------------------------------------------
    LME lead price (U.S.$/MT)(1)                        $220     6.9 million
    Edmonton Par crude oil price ($/bbl)(1)            $1.00     0.3 million
    Gulf Coast Base oil ($/litre)(1)                   $0.05     0.8 million
    -------------------------------------------------------------------------
    (1) Based on 2009 performance and volumes.
    

CRITICAL ACCOUNTING ESTIMATES

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

Amortization and Accretion

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

Asset Retirement Obligations

Asset retirement obligations are estimated by management based on the anticipated costs to abandon and reclaim all our facilities and landfills as well as the projected timing of the costs to be incurred in future periods. Management, in consultation with Newalta's engineers, estimates these costs based on current regulations, costs, technology, and industry standards. The fair value estimate is capitalized as part of the cost of the related asset and amortized to expense over the asset's useful life. The useful lives of the assets and the long-term commitments of certain sites range from 20 to 300 years. The total estimated future cost for asset retirement obligations at December 31, 2009 was $9.8 billion. The net present value of this amount, $21.9 million (using a discount rate of 8%), has been accrued on the consolidated balance sheet at December 31, 2009. The majority of the undiscounted future asset retirement obligations relates to SCL in Ontario, which are expected to be incurred over the next 300 years. Excluding SCL, the total undiscounted future costs are $36.2 million. There were no significant changes in the estimates used to prepare the asset retirement obligation in 2009 compared to 2008.

Goodwill

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

Our determination as at September 30, 2009 and December 31, 2009 was that goodwill was not impaired.

Income Taxes

Current income tax expense predominantly represents capital taxes paid in eastern Canada, federal and provincial income taxes, and U.S. taxation imposed on the U.S. subsidiary. Prior to the elimination of the trust structure on December 31, 2008, Newalta Income Fund itself was sheltered from any current tax liability as all of its taxable income was distributed to unitholders.

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

Permits and other intangibles

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

Stock-Based Compensation

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

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

Adoption of New Accounting Standards in 2009

Effective January 1, 2009, we adopted the Canadian Institute of Chartered Accountants ("CICA") new accounting standard, section 3064, Goodwill and Intangible Assets, replacing section 3062, Goodwill and Other Intangible Assets. The new Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The standards concerning goodwill are unchanged from the standards included in the previous section 3062. The adoption of this new section did not have a material impact on Newalta's financial statements.

FUTURE ACCOUNTING POLICY CHANGES

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

International Financial Reporting Standards ("IFRS")

In February 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that Canadian publicly accountable enterprises would be required to adopt IFRS for fiscal years beginning on or after January 1, 2011. IFRS uses a conceptual framework similar to Canadian GAAP, but there are differences in recognition, measurement and disclosures. At this time, the impact of IFRS convergence on our future consolidated balance sheets and consolidated statements of operations, comprehensive income and retained earnings (deficit) and cash flows is not reasonably determinable or estimable.

We have commenced our IFRS project and have established a formal project governance structure with a target implementation date of January 1, 2011. We continue to actively monitor the activities of the AcSB and the International Accounting Standards Board which may issue new accounting standards during the period leading up to the conversion. We will modify the plan to incorporate new accounting requirements as they are issued. The following table summarizes our key activities, related milestones, and accomplishments to date.

    
    -------------------------------------------------------------------------
    Key Activity      Milestones        Status (as at       Status (as at
                                        September 30,2009)  December 31,2009)
    -------------------------------------------------------------------------
    Accounting        Complete new      Assessment          We have completed
     policies:         financial         processes are       our final review
                       policies and      ongoing.            of processes and
    Identification     procedures       We have completed    are in the
     of differences    manual            our final review    process of
     between           addressing IFRS   of processes in     confirming our
     Canadian          requirements.     most areas and      assessment with
     GAAP/IFRS        Key milestones     are confirming      our consultants
                       include:          our assessment      and auditors.
     - Accounting      - Opening         with our
       policy            balances        consultants and    Parallel SAP is
       choices           estimates -     auditors.           operational.
       under IFRS        Q3 2009
     - Financial       - Testing phase   For the            We are on track
       statement         - Q3/Q4 2009     outstanding        for finalizing
       impact          - SAP parallel     areas, we have     opening balances
     - Opening           run - Q4 2009    made significant   during the first
       balances        - Finalize         progress in our    half of 2010.
     - Final             opening          assessment
       implemen-         balances - Q4    processes.
       tation            2009/Q1 2010
       decisions
     - Financial
       policies and
       procedures
    -------------------------------------------------------------------------
    Detailed policy   Develop working   We are              We are
     assessment:       groups and        finalizing our      finalizing our
                       training to       recommendations     recommendations
    Identification     implement         for systemic        for systemic
     of areas that     changes for       process             process
     may have a        significant       changes required    changes
     significant       impact items.     by IFRS.            required
     impact.          Key milestones                          by IFRS.
                       include:
                       - Develop and                        Significant
                         implement                           impact areas
                         training                            have been
                         programs for                        identified.
                         working                             The financial
                         groups -                            statement
                         Q1 2009                             impact
                       - Identify and                        assessment
                         recommend                           is ongoing.
                         systemic
                         process                            Issue specific
                         changes -                           training
                         Q2/Q3 2009                          sessions will
                                                             begin Q1 2010.
    -------------------------------------------------------------------------
    IT                Ensure readiness  We have             Required system
     Infrastructure:   for parallel      identified and      upgrades and
     Identify key      processing of     addressed key IT    changes have
     changes in the    2010 financial    infrastructure      been made.
     following areas:  results and       issues.
     - IT system       IFRS-compliant   We are proceeding   Parallel SAP
       changes and     reporting in      in accordance       system is
       upgrades        2011 - Q4 2009    with our IT plan.   operational.
     - Systemic
       process                                              We are proceeding
       changes for                                           in accordance
       data                                                  with our IT
       collection for                                        plan.
       G/L,
       disclosures,
       and
       consolidation
     - One-time
       processes due
       to IFRS 1
    -------------------------------------------------------------------------
    Control           Complete final    Assessment is       Assessment is
     environment:      signoff and       ongoing.            ongoing.
     Internal control  review of
     over financial    accounting
     reporting         policy changes
                       by Q4 2010
     - Accounting     Update
       policy          certification
       changes and     process by
       approval        Q4 2010
     - Changes to
       certification
       process
    -------------------------------------------------------------------------
    Control           Publish material  Assessment is       Assessment is
     environment:      changes in        ongoing.            ongoing.
     Disclosure        policies and     Key stakeholder     Key stakeholder
     controls and      known impacts     communications      communications
     procedures        of IFRS           will continue       will continue
     - MD&A            throughout        into the balance    in 2010.
       communications   2009 & 2010      of 2009 and 2010.
       package        MD&A's - starting                     Material changes
     - IFRS            Q3 - 2009        Material changes     in policies and
       adjustments    Publish impact     in policies and     known impacts
       to Canadian     of conversion     known impacts       are expected to
       GAAP            (with             are expected to     be communicated
       statements      reconciliation    be communicated     throughout 2010.
       (2010)          to GAAP) on key   throughout 2010.
     - 2011 financial  measures by
       statement       Q1 2011.
       presentation   Publish
                       disclosure of
                       2010 comparative
                       information
                       (with
                       reconciliation
                       to GAAP) in the
                       interim and
                       annual financial
                       statements -
                       Q1 2011
    -------------------------------------------------------------------------
    Other Issues:     Develop investor  Assessment is       Assessment is
     Address impacts   relations         ongoing.            ongoing.
     to operations     communication
     due to IFRS:      plan by Q3 2009
     - Investor       Review of:
       relations       - Financial
     - Financial         covenants -
       covenants         by Q3 - 2010
     - Compensation    - Compensation
       packages          packages - by
                         Q3 - 2010
    -------------------------------------------------------------------------
    

The detailed project plan and the expected timing of key activities identified above may change prior to the IFRS conversion date due to the issuance of new accounting standards or amendments to existing accounting standards, changes in regulations or economic conditions or other factors.

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 in the fourth paragraph of this Management's Discussion and Analysis) 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. In the normal course of operations, we are exposed to movements in U.S. dollar exchange rates relative to the Canadian dollar. The foreign exchange risk arises primarily from U.S. dollar denominated long-term debt and working capital. We have not entered into any financial derivatives to manage the risk for the foreign currency exposure as at December 31, 2009. 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 18 to the Consolidated financial statements.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and the Chief Financial Officer (collectively the "Certifying Officers") have evaluated the design and effectiveness of our disclosure controls and procedures as of December 31, 2009 and have concluded that such disclosure controls and procedures were effective. In addition, the Certifying Officers have evaluated the design and effectiveness of our internal control over financial reporting as of December 31, 2009 and have concluded that such internal controls over financial reporting were effective. There have not been any changes in the internal control over financial reporting in Q4 of 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ADDITIONAL INFORMATION

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

    
    Consolidated Balance Sheets

                                                 December 31,    December 31,
    ($000s) (unaudited)                                 2009            2008
    -------------------------------------------------------------------------
    Assets
    Current assets
      Accounts receivable                             84,317         120,884
      Inventories (Note 4)                            33,148          29,781
      Prepaid expenses and other                       6,183           6,546
    -------------------------------------------------------------------------
                                                     123,648         157,211
    Note receivable (Note 5)                             978           1,160
    Capital assets (Note 6)                          701,884         724,788
    Permits and other intangible assets (Note 7)      61,935          64,003
    Goodwill                                         103,597         103,597
    Future income taxes (Note 10)                      1,688           1,151
    -------------------------------------------------------------------------
                                                     993,730       1,051,910
    -------------------------------------------------------------------------
    Liabilities
    Current liabilities
      Accounts payable and accrued liabilities        90,191         109,698
      Dividends/distributions payable (Note 16)        2,423           7,560
    -------------------------------------------------------------------------
                                                      92,614         117,258
    Senior long-term debt (Note 8)                   188,123         263,251
    Convertible debentures - debt portion (Note 9)   110,708         109,419
    Other long-term liabilities (Note 14)              1,218               -
    Future income taxes (Note 10)                     39,164          40,039
    Asset retirement obligations (Note 11)            21,903          21,094
    -------------------------------------------------------------------------
                                                     453,730         551,061
    -------------------------------------------------------------------------
    Shareholders' Equity (Notes 9 and 12)
    Shareholders' capital                            552,871         509,369
    Convertible debentures - equity portion            1,850           1,850
    Contributed surplus                                1,679             988
    Retained earnings (deficit)                      (16,400)        (11,358)
    -------------------------------------------------------------------------
                                                     540,000         500,849
    -------------------------------------------------------------------------
                                                     993,730       1,051,910
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Operations, Comprehensive Income (Loss) and
    Retained Earnings (Deficit)

                                                 For the
                                            three months        For the year
                                       ended December 31   ended December 31,
    -------------------------------------------------------------------------
    ($000s except earnings per
     share data) (unaudited)              2009      2008      2009      2008
    -------------------------------------------------------------------------
    Revenue                            137,308   145,341   483,401   597,035
    Expenses
      Operating (Note 4)                96,007   101,179   347,348   409,073
      Selling, general and
       administrative                   16,603    16,562    56,132    62,129
      Finance charges                    6,689     6,238    25,364    24,104
      Amortization and accretion
       (Note 6)                         14,558    15,746    51,825    51,237
    -------------------------------------------------------------------------
                                       133,857   139,725   480,669   546,543
    -------------------------------------------------------------------------
    Earnings before taxes                3,451     5,616     2,732    50,492
    Provision for (recovery of)
     income taxes (Note 10)
      Current                              317        21       945       949
      Future                              (958)   (3,490)   (1,312)   (9,339)
    -------------------------------------------------------------------------
                                          (641)   (3,469)     (367)   (8,390)
    -------------------------------------------------------------------------
    Net earnings and comprehensive
     income                              4,092     9,085     3,099    58,882
    Retained earnings (deficit),
     beginning of period               (18,069)    3,029   (11,358)   22,940
    Dividends/distributions (Note 16)   (2,423)  (23,472)   (8,141)  (93,180)
    -------------------------------------------------------------------------
    Retained earnings (deficit),
     end of period                     (16,400)  (11,358)  (16,400)  (11,358)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net earnings per share (Note 15)      0.09      0.21      0.07      1.40
    -------------------------------------------------------------------------
    Diluted earnings per share
     (Note 15)                            0.09      0.21      0.07      1.40
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Cash Flows

                                                 For the
                                            three months        For the year
                                       ended December 31   ended December 31,
    ($000s) (unaudited)                   2009      2008      2009      2008
    -------------------------------------------------------------------------
    Net inflow (outflow) of cash
     related to the following
     activities:
    Operating Activities
    Net earnings                         4,092     9,085     3,099    58,882
    Items not requiring cash:
      Amortization and accretion        14,558    15,746    51,825    51,237
      Future income tax recovery          (958)   (3,490)   (1,312)   (9,339)
      Stock based compensation expense     808        30     2,236       137
      Other (Note 19)                      685    (3,171)    5,095    (2,611)
    -------------------------------------------------------------------------
    Funds from Operations               19,185    18,200    60,943    98,306
    Increase in non-cash working
     capital (Note 19)                     298    36,778    23,599    32,647
    Asset retirement expenditures
     incurred                             (318)     (214)   (1,024)   (2,031)
    -------------------------------------------------------------------------
                                        19,165    54,764    83,518   128,922
    -------------------------------------------------------------------------
    Investing Activities
      Additions to capital assets
       (Note 19)                        (8,109)  (36,580)  (39,652) (117,472)
      Net proceeds on sale of
       capital assets (Note 6)             621     1,581     1,921    15,200
      Acquisitions                           -      (715)        -    (2,662)
    -------------------------------------------------------------------------
                                        (7,488)  (35,714)  (37,731) (104,934)
    -------------------------------------------------------------------------
    Financing Activities
      Issuance of shares                43,975         -    44,227     1,913
      Increase (decrease) in debt      (53,548)    2,975   (76,963)   55,847
      Decrease in note receivable           18        86       182       345
      Dividends/distributions to
       shareholders (Note 16)           (2,122)  (22,111)  (13,233)  (82,093)
    -------------------------------------------------------------------------
                                       (11,677)  (19,050)  (45,787)  (23,988)
    -------------------------------------------------------------------------
    Net cash flow                            -         -         -         -
    Cash - beginning of period               -         -         -         -
    -------------------------------------------------------------------------
    Cash - end of period                     -         -         -         -
    -------------------------------------------------------------------------
    Supplementary information:
    Interest paid                       12,183    11,042    22,311    22,468
    Income taxes paid                      164       760       588     1,500
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Notes to the Consolidated Financial Statements
    For the three and twelve months ended December 31, 2009 and 2008
    (all tabular data in $000s except per share and ratio data)

    NOTE 1. CORPORATE STRUCTURE

    Newalta Inc. was incorporated on October 29, 2008 pursuant to the laws of
    the Province of Alberta. Newalta Inc. is engaged, through its wholly
    owned operating subsidiary, Newalta Corporation (the "Corporation", and
    together with Newalta Inc., collectively "Newalta"), in adapting
    technologies to maximize the value inherent in industrial waste through
    the recovery of saleable products and recycling. Newalta also provides
    environmentally sound disposal of solid, non-hazardous industrial waste.
    With an integrated network of facilities, Newalta provides waste
    management solutions to a broad customer base of national and
    international corporations in a range of industries, including
    automotive, construction, forestry, lead, manufacturing, mining, oil and
    gas, petrochemical, pulp and paper, refining, steel and transportation
    services.

    Following changes in tax rules for specified investment flow-though
    entities, Newalta Income Fund (the "Fund") undertook steps to convert the
    Fund's income trust structure into a corporate structure. On December 17,
    2008, unitholders of the Fund voted and approved the reorganization by
    way of a plan of arrangement under the Business Corporations Act
    (Alberta), into a corporation pursuant to an arrangement agreement dated
    November 12, 2008 (as amended) between Newalta Inc., Newalta Income Fund,
    Newalta Corporation, Newalta Industrial Services Inc. and Newalta
    Services Holdings Inc. (the "Arrangement").

    On January 1, 2009, Newalta Corporation, Newalta Industrial Services Inc.
    and Newalta Services Holdings Inc. were amalgamated to form Newalta
    Corporation.

    Prior to the Arrangement, which was effective on December 31, 2008, the
    consolidated financial statements included the accounts of the Fund and
    its subsidiaries. After giving effect to the Arrangement, the
    consolidated financial statements were prepared on a continuity of
    interests basis, which recognizes Newalta Inc. as the successor entity to
    the Fund.

    On December 31, 2009, the sole unitholder of Newalta Income Fund approved
    the wind-up of the fund.

    Subsequent to year end, on January 1, 2010, Newalta Inc. was amalgamated
    with its wholly-owned operating subsidiary, Newalta Corporation, to form
    Newalta Corporation.

    NOTE 2. BASIS OF PRESENTATION

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

    a) Cash and cash equivalents

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

    b) Inventory

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

    c) Capital and intangible assets

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

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

    The carrying values of capital assets are reviewed at least annually to
    determine if the value of any asset is impaired. Any amount so determined
    is written off in the year of impairment. As at December 31, 2009, there
    was no impairment in the value of capital assets.

    Intangible assets consist of certain production processes, trademarks,
    permits and agreements, which are amortized over the period of the
    contractual benefit of 3-20 years, straight line. Certain permits are
    deemed to have indefinite lives and therefore are not amortized. There
    are nominal fees to renew these permits provided that Newalta remains in
    good standing with regulatory authorities.

    The carrying values of intangibles are reviewed at least annually whereby
    management reviews any changes in the regulatory environment that could
    cause impairment in the value ascribed to these permits. Any amount so
    determined is written off in the year of impairment. As at December 31,
    2009, there was no impairment in the value of these permits.

    d) Goodwill

    Goodwill represents the excess of the purchase price over the fair value
    of the net identifiable assets of acquired businesses. Newalta, at least
    annually, on September 30, assesses goodwill, and its potential
    impairment, on a reporting unit basis by determining whether the balance
    of goodwill can be recovered through the estimated discounted operating
    cash flows of each reporting unit over their remaining lives.
    Management's determination as at September 30, 2009 and December 31, 2009
    was that goodwill was not impaired.

    e) Asset retirement obligations

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

    f) Revenue recognition

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

    g) Income taxes

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

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

    h) Earnings per share

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

    i) Incentive plans

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

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

    j) Financial instruments

    Classification

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

    -------------------------------------------------------------------------
    Category                       Subsequent Measurement
    -------------------------------------------------------------------------
    Held-for-trading               Fair value and changes in fair value are
                                   recognized in net earnings

    Held-to-maturity investments   Amortized cost, using the effective
                                   interest method

    Loans and receivables          Amortized cost, using the effective
                                   interest method

    Available-for-sale             Fair value and changes in fair value are
    financial assets               recorded in other comprehensive income
                                   until the instrument is derecognized or
                                   impaired

    Other financial liabilities    Amortized cost, using the effective
                                   interest method
    -------------------------------------------------------------------------

    Accounts receivable and note receivable are classified as loans and
    receivables. Senior long-term debt, Convertible Debentures
    ("Debentures"), accounts payable and accrued liabilities and
    dividends/distributions payable are classified as other financial
    liabilities. Newalta does not have any derivatives or embedded
    derivatives.

    Convertible Debentures

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

    Transaction Costs

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

    k) Measurement uncertainty

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

    Note 3. Accounting Changes

    a) Adopted changes

    Effective January 1, 2009, Newalta adopted the Canadian Institute of
    Chartered Accountants ("CICA") new accounting standard, section 3064,
    Goodwill and Intangible Assets, replacing section 3062, Goodwill and
    Other Intangible Assets. The new Section establishes standards for the
    recognition, measurement, presentation and disclosure of goodwill and
    intangible assets. The standards concerning goodwill are unchanged from
    the standards included in the previous section 3062. The adoption of this
    new section did not have a material impact on Newalta's financial
    statements.

    In June 2009, the CICA amended Section 3862 Financial Instruments -
    Disclosures, to include additional disclosure requirements about fair
    value measurements of financial instruments and enhanced liquidity risk
    disclosures. These amendments require a three-level hierarchy that
    reflects the significance of the inputs used in making fair value
    measurements. Fair value of assets and liabilities included in Level 1
    are determined by reference to quoted prices in active markets for
    identical assets and liabilities. Asset and liabilities in Level 2
    include valuations using inputs other than the quoted prices for which
    all significant inputs are based on observable market data, either
    directly or indirectly. Level 3 valuations are based on inputs that are
    not based on observable market data. The amendments to the Section apply
    to annual financial statements for the Company's fiscal year ended
    December 31, 2009. At December 31, 2009, Newalta did not have any
    financial instruments carried at fair value and the adoption of this new
    standard did not have a material impact on the Company's consolidated
    financial statements.

    b) Future accounting changes

    In February 2008, the Canadian Accounting Standards Board ("AcSB")
    confirmed that Canadian publicly accountable enterprises would be
    required to adopt International Financial Reporting Standards ("IFRS")
    for fiscal years beginning on or after January 1, 2011. IFRS uses a
    conceptual framework similar to Canadian Generally Accepted Accounting
    Principles ("GAAP"), but there are differences in recognition,
    measurement and disclosures. At this time, the impact on Newalta's future
    consolidated balance sheets and consolidated statements of operations,
    comprehensive income and retained earnings (deficit) and cash flows is
    not reasonably determinable or estimable.

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

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

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

    NOTE 4. INVENTORIES

    Inventories consist of the following:

    -------------------------------------------------------------------------
                                                         2009           2008
    -------------------------------------------------------------------------
    Lead                                               15,259         15,989
    Recycled and processed products                     8,046          4,969
    Recovered oil                                       3,667          2,508
    Parts and supplies                                  5,906          4,797
    Burner fuel                                           270          1,518
    -------------------------------------------------------------------------
    Total inventory                                    33,148         29,781
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The cost of inventory expensed in operating expenses for the year ended
    December 31, 2009 was $62.7 million ($62.4 million for the same period in
    2008). Inventories are pledged as general security under our Credit
    Facility.

    NOTE 5. NOTE RECEIVABLE

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

    NOTE 6. Capital assets

    a) Capital assets consist of the following:

    -------------------------------------------------------------------------
                                                          2009
    -------------------------------------------------------------------------
                                                       Accumulated  Net Book
                                               Cost   Amortization    Value
    -------------------------------------------------------------------------
    Land                                      14,813           -      14,813
    Plant and equipment                      835,621    (213,991)    621,630
    Landfill                                 103,264     (37,823)     65,441
    -------------------------------------------------------------------------
    Total                                    953,698    (251,814)    701,884
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                           2008
    -------------------------------------------------------------------------
                                                       Accumulated  Net Book
                                               Cost   Amortization    Value
    -------------------------------------------------------------------------
    Land                                      14,455           -      14,455
    Plant and equipment                      814,976    (176,200)    638,776
    Landfill                                 102,395     (30,838)     71,557
    -------------------------------------------------------------------------
    Total                                    931,826    (207,038)    724,788
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    b) Disposal of capital assets

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

    During the year ended December 31, 2008, Newalta disposed of certain
    transport vehicles, land and buildings with a net book value of
    $15.0 million for proceeds of $15.2 million. The resulting net gain of
    $0.2 million is included in amortization and accretion in the
    consolidated statements of operations, comprehensive income and retained
    earnings (deficit).

    NOTE 7. PERMITS AND OTHER INTANGIBLE ASSETS

    -------------------------------------------------------------------------
                                                          2009
    -------------------------------------------------------------------------
                                                       Accumulated  Net Book
                                               Cost   Amortization    Value
    -------------------------------------------------------------------------
    Indefinite permits                        53,012           -      53,012
    Expiring permits/rights                   11,602      (3,337)      8,265
    Non-competition contracts                  9,070      (8,412)        658
    -------------------------------------------------------------------------
    Total                                     73,684     (11,749)     61,935
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                          2008
    -------------------------------------------------------------------------
                                                       Accumulated  Net Book
                                               Cost   Amortization    Value
    -------------------------------------------------------------------------
    Indefinite permits                        53,037           -      53,037
    Expiring permits/rights                   11,602      (2,697)      8,905
    Non-competition contracts                  9,070      (7,009)      2,061
    -------------------------------------------------------------------------
    Total                                     73,709      (9,706)     64,003
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 8. SENIOR LONG-TERM DEBT

    On October 9, 2009, Newalta extended the maturity of its Credit Facility
    to October 12, 2011, and elected to reduce the principal amount of the
    Credit Facility from $375 million to $350 million. The Credit Facility is
    available to fund growth capital expenditures and for general corporate
    purposes as well as to provide letters of credit to third parties for
    financial security up to a maximum amount of $60.0 million. The aggregate
    dollar amount of outstanding letters of credit is not categorized in the
    financial statements as long-term debt; however, the issued letters of
    credit reduce the amount available under the Credit Facility. Interest on
    the facilities is subject to certain conditions and may be charged at
    prime, U.S. base rate, Bankers' Acceptance ("BA") or LIBOR, at the option
    of the Corporation. The Credit Facility bears interest at a base rate
    plus an increment (depending on certain criteria) as follows:

    -------------------------------------------------------------------------
    Base Rate Type                                        Range of Increment
    -------------------------------------------------------------------------
    Prime Rate                                                1.75% to 4.00%
    U.S. Base Rate                                            1.75% to 4.00%
    BA Rate                                                   2.75% to 5.00%
    LIBOR                                                     2.75% to 5.00%
    -------------------------------------------------------------------------

    The incremental BA interest rate as at December 31, 2009 was 4.5%
    (2008 - 2.25%).

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

    An extension of the Credit Facility may be granted at the option of the
    lenders. If an extension is not granted, the entire amount of the
    outstanding indebtedness would be due in full at the maturity date. The
    facility also requires Newalta to be in compliance with certain
    covenants. At December 31, 2009, Newalta was in compliance with all
    covenants.

                                                   December 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------
    Amount drawn on credit facility                    191,280       264,687
    Issue costs                                         (3,157)       (1,436)
    -------------------------------------------------------------------------
    Senior long-term debt                              188,123       263,251
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 9. Convertible debentures

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

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

    The following table compares the face and fair values of the Debentures
    to the carrying value. The fair value of the Debentures was determined by
    reference to the trading price on December 31, 2009. The effective
    interest rate is 8.4%.

    -------------------------------------------------------------------------
                                                                    Carrying
                                                                       Value
                                    Face        Fair      Equity        Debt
                                   Value       Value     Portion     Portion
    -------------------------------------------------------------------------
    7% Debentures due 2012       115,000     116,438       1,850     110,708
    -------------------------------------------------------------------------

    NOTE 10. Income tax

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

    Canadian Tax Jurisdiction:

    -------------------------------------------------------------------------
                                                         2009           2008
    -------------------------------------------------------------------------
    Future income tax liabilities:
      Capital assets                                   91,858         83,006
      Intangible assets                                11,946         12,552
      Deferred costs                                    1,902             40
    -------------------------------------------------------------------------
                                                      105,706         95,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Future income tax assets:
      Non-capital loss carry forwards                  46,502         41,778
      Goodwill                                          6,557          7,839
      Asset retirement obligation                       5,594          5,548
      Equity issuance costs                             3,023            394
      Deferred revenue                                  4,292              -
      Other - Donations, allowance for
       doubtful accounts                                  574              -
    -------------------------------------------------------------------------
                                                       66,542         55,559
    -------------------------------------------------------------------------
    Net future income tax liability                    39,164         40,039
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    U.S. Tax Jurisdiction:

    -------------------------------------------------------------------------
                                                         2009           2008
    -------------------------------------------------------------------------
    Future income tax assets:
    Non-capital loss carry forwards                     1,688          1,151
    -------------------------------------------------------------------------
    Net future income tax asset from U.S. operations    1,688          1,151
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Non-capital loss carry forwards relating to Canadian operations total
    $173.4 million and relating to our U.S. Operations total $4.8 million.
    These losses will begin expiring in 2026.

    Immediately prior to giving effect to the Arrangement, on December 31,
    2008, the Fund itself was not subject to income tax provided it
    distributed all of its taxable income to unitholders. For taxation
    purposes the Fund was considered a specified investment flow-through
    ("SIFT") entity and was to become subject to tax commencing January 1,
    2011. For accounting purposes, the Fund computed future income tax based
    on temporary differences that were expected to reverse after 2010, at the
    tax rate expected to apply for those periods. Realization of future
    income tax assets is dependent on generating sufficient taxable income
    during the period in which the temporary differences are deductible.
    Although realization is not assured, management believes it is more
    likely than not that all future income tax assets will be realized based
    on reversals of temporary timing differences, projections of operating
    results and tax planning strategies available to Newalta and its
    subsidiaries. Effective December 31, 2008, after giving effect to the
    Arrangement, Newalta Inc. became subject to tax on taxable income earned
    from that date forward.

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

    -------------------------------------------------------------------------
                                                         2009           2008
    -------------------------------------------------------------------------
    Consolidated earnings of Newalta Inc. before
     taxes and distributions to shareholders            2,732         50,492
    Current statutory income tax rate                  30.45%         31.20%
    -------------------------------------------------------------------------
    Computed tax expense at statutory rate                832         15,754
    Increase (decrease) in taxes resulting from:
      Reduction resulting from distributions
       to unitholders                                       -        (28,948)
      Capital taxes                                       945            951
      Non-deductible costs                                592            455
      Foreign tax losses and tax credits paid               -          1,613
      Acceleration of tax loss utilization                 57          1,500
      Other                                            (1,046)           563
      Effect of future income tax rate change          (1,747)          (278)
    -------------------------------------------------------------------------
    Reported income tax expense                          (367)        (8,390)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 11. ASSET RETIREMENT OBLIGATIONS

    The total future asset retirement obligations were estimated by
    management based on the anticipated costs to abandon and reclaim
    facilities and wells, and the projected timing of these expenditures. The
    net present value of this amount, $21.9 million ($21.1 million at
    December 31, 2008) has been accrued on the consolidated balance sheets at
    December 31, 2009. The total estimated future cost for asset retirement
    obligations at December 31, 2009 was $9.8 billion. The majority of the
    undiscounted future asset retirement obligations relate to the Stoney
    Creek landfill in Ontario, which are expected to be incurred over the
    next 300 years. Excluding the landfill, the total undiscounted future
    cost is $36.2 million. Newalta uses a discount rate of 8% and an
    inflation rate of 2% to calculate the present value of the asset
    retirement obligations.

    -------------------------------------------------------------------------
                                      Three months ended          Year ended
                                             December 31,        December 31,
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------
    Asset retirement obligations,
     beginning of period                21,765    20,843    21,094    20,985
    Additional retirement obligations
     added through development
     activities                              -         -         -       289
    Expenditures incurred to
     fulfill obligations                  (318)     (214)   (1,024)   (2,031)
    Accretion                              456       465     1,833     1,851
    -------------------------------------------------------------------------
    Asset retirement obligations,
     end of year                        21,903    21,094    21,903    21,094
    -------------------------------------------------------------------------

    NOTE 12. SHAREHOLDERS' CAPITAL

    a) Shareholders' capital

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

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

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

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

    (000s)                                        Shares (No.)     Amount ($)
    -------------------------------------------------------------------------
    Shares outstanding as at October 29, 2008               -              -
    Shares issued pursuant to the Arrangement          42,400        509,369
    -------------------------------------------------------------------------
    Shares outstanding as at December 31, 2008         42,400        509,369
    -------------------------------------------------------------------------
    Shares issued (net of issues costs)                 6,136         44,227
    -------------------------------------------------------------------------
    Shares cancelled and returned to treasury             (60)          (725)
    -------------------------------------------------------------------------
    Shares outstanding as at December 31, 2009         48,476        552,871
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    b) Unitholders' capital

    -------------------------------------------------------------------------
    Units outstanding as at December 31, 2007          41,417        496,027
    -------------------------------------------------------------------------
    Contributed surplus on rights exercised                 -            241
    -------------------------------------------------------------------------
    Rights exercised                                      209          1,913
    -------------------------------------------------------------------------
    Units issued under the DRIP(1)                        774         11,188
    -------------------------------------------------------------------------
    Units cancelled under the Arrangement             (42,400)      (509,369)
    -------------------------------------------------------------------------
    Units outstanding as at December 31, 2008               -              -
    -------------------------------------------------------------------------
    1) Distribution Reinvestment Plan of the Fund


    c) Retained earnings (deficit) and contributed surplus

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

    -------------------------------------------------------------------------
                                                         2009           2008
    -------------------------------------------------------------------------
     Accumulated earnings                             363,180        360,081
     Accumulated cash distributions                  (379,580)      (371,439)
    -------------------------------------------------------------------------
      Retained Earnings (Deficit)                     (16,400)       (11,358)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
                                                                   Amount ($)
    -------------------------------------------------------------------------
    Contributed surplus as at December 31, 2007                        1,092
    Stock based compensation expense                                     137
    Amounts transferred to equity on exercise of rights                 (241)
    -------------------------------------------------------------------------
    Contributed surplus as at December 31, 2008                          988
    Stock based compensation adjustments                                 (79)
    Return of prior period distributions                                  45
    Cancellation of returned shares                                      725
    -------------------------------------------------------------------------
    Contributed surplus as at December 31, 2009                        1,679
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    d) Convertible debentures - equity portion

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

    NOTE 13. CAPITAL DISCLOSURES

    Newalta's capital structure currently consists of:

    -------------------------------------------------------------------------
                                                         2009           2008
    -------------------------------------------------------------------------
    Amount drawn on credit facility                   191,280        264,687
    Letters of Credit or bonds issued as financial
     security to third parties ("Surety Bonds")        42,283         64,457
    Convertible debentures, debt portion              110,708        109,419
    Shareholders' equity                              540,000        500,849
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                      884,271        939,412
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The objectives in managing the capital structure are to:

    -   Utilize an appropriate amount of leverage to maximize return on
        Shareholders' equity, and

    -   To provide for borrowing capacity and financial flexibility to
        support Newalta's operations.

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

    -   Issue shares from treasury

    -   Issue new debt securities

    -   Cause the return of letters of credit with no additional financial
        security requirements

    -   Replace outstanding letters of credit with bonds or other types of
        financial security

    -   Amend, revise, renew or extend the terms of its then existing long-
        term debt facilities

    -   Enter into new agreements establishing new credit facilities

    -   Adjust the amount of dividends paid to shareholders, and/or

    -   Sell idle, redundant or non-core assets.


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

    -------------------------------------------------------------------------
                                 December 31,  December 31,
    Ratio                               2009          2008         Threshold
    -------------------------------------------------------------------------
    Current(1)                        1.34:1        1.34:1    1.10:1 minimum
    Funded Debt(2) to EBITDA(3)(4)    2.60:1        2.46:1    3.50:1 maximum
    Fixed Charge Coverage(5)          2.24:1        1.19:1    1.00:1 minimum
    -------------------------------------------------------------------------
    (1) Current Ratio means, the ratio of consolidated current assets to
        consolidated net current liabilities (excluding the current portion
        of long-term debt and capital leases outstanding, if any).

    (2) Funded debt is a non-GAAP measure, the closest measure of which is
        long-term senior debt. Funded Debt is generally defined as long-term
        debt and capital leases including any current portion thereof but
        excluding future income taxes and future site restoration costs.
        Funded debt is calculated by adding the senior long-term debt to the
        amount of letters of credit outstanding at the reporting date. In
        calculating Funded Debt, Letters of Credit returned after the end of
        a fiscal quarter but prior to the date that is 45 days following the
        end of the first, second or third interim period (90 days following
        the end of the annual period) are excluded.

    (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 completed
        during that time frame and excludes any dispositions incurred as if
        they had occurred at the beginning of the trailing twelve-months.

    (4) Funded Debt to EBITDA means the ratio of consolidated Funded Debt to
        the aggregate EBITDA for the trailing twelve-months. On April 22,
        2009, the Funded Debt to EBITDA covenant restriction under the Credit
        Facility was amended from 3.00:1 to 3.50:1 for the remainder of 2009.
        The ratio will be 3.00:1 commencing Q1 2010.

    (5) Fixed Charge Coverage Ratio means, based on the trailing twelve month
        period, EBITDA less unfinanced capital expenditures and cash taxes to
        the sum of the aggregate of principal payments (including amounts
        under capital leases, if any), interest (excluding accretion for the
        convertible debentures), dividends paid for such period, other than
        cash payments in respect of a dividend reinvestment plan, if any.
        Unlike the Funded Debt to EBITDA ratio, the Fixed Charge Coverage
        ratio trailing twelve month EBITDA is not normalized for acquisitions
        or dispositions.

    NOTE 14. LONG-TERM INCENTIVE PLANS

    a) The 2008 Option Plan

    On January 2, 2009 a total of 842,500 options were granted to certain
    directors, officers and employees of the Corporation. The options were
    granted at the market price of $5.31 per share. A further 12,500 options
    were granted to a director of the Corporation on May 21, 2009 at an
    exercise price of $3.81 per share, with an additional 12,500 options
    being granted to a director of the Corporation on July 1, 2009 at an
    exercise price of $5.40 per share. On October 6, 2009, 20,000 options
    were granted to an employee at an exercise price of $7.65 per share. Each
    tranche of the options vest over a four year period (with a five year
    life), and the holder of the option can exercise the option for either a
    share of Newalta Inc. or an amount of cash equal to the difference
    between the exercise price and the market price at the time of exercise.
    The options granted under the 2008 Plan have therefore been accounted for
    as stock appreciation options. The total compensation expense for these
    options was $1.2 million for the year ended December 31, 2009 (nil in
    2008).

    b) The 2006 Option Plans

    The options granted under the 2006 Plan have been accounted for as stock
    appreciation options and the total compensation expense for these options
    was nil for the year ended December 31, 2009 (nil for 2008). During 2009,
    an aggregate of 1,810,050 options to acquire common shares were
    cancelled.

    -------------------------------------------------------------------------
                          Weighted             Weighted             Weighted
                           Average              Average              Average
                   2008   Exercise      2006   Exercise      2003   Exercise
                Options      Price   Options      Price   Options      Price
                  (000s)  ($/share)    (000s)  ($/share)    (000s)  ($/share)
    -------------------------------------------------------------------------
    At December
     31, 2007         -          -     1,440      27.47       823      19.29
    -------------------------------------------------------------------------
    Granted           -          -       960      17.86         -          -
    Exercised         -          -         -          -      (209)      9.31
    Forfeited         -          -      (117)     27.84        (4)     25.95
    -------------------------------------------------------------------------
    At December
     31, 2008         -          -     2,283      23.41       610      22.65
    -------------------------------------------------------------------------
    Granted         887       5.34         -          -         -          -
    Exercised         -          -         -          -         -          -
    Forfeited         -          -         -          -         -          -
    Cancelled         -          -    (1,565)     26.38      (245)     25.12
    -------------------------------------------------------------------------
    At December
     31, 2009       887       5.34       718      16.95       365      21.00
    -------------------------------------------------------------------------
    Exercisable at
     Dec. 31, 2009   25       5.31       215      17.80       319      20.67
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                     Options    Weighted    Weighted     Options    Weighted
    Range of     Outstanding     Average     Average Exercisable     Average
     Exercise       December   Remaining    Exercise    December    Exercise
     Prices         31, 2009        Life       Price    31, 2009       Price
     ($/share)         (000s)     (years)   ($/share)      (000s)   ($/share)
    -------------------------------------------------------------------------
    3.81  - 9.30         897         4.1        5.39          35        6.43
    14.00 - 19.46        814         3.1       16.72         317       17.10
    22.75 - 32.38        259         2.5       23.66         207       23.71
    -------------------------------------------------------------------------
                       1,970         3.4       12.47         559       18.88
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    c) Share Appreciation Rights

    On January 2, 2009, 791,500 share appreciation rights were granted to
    certain employees and an officer of the Corporation at the market price
    of $5.31. On November 16, 2009, a total of 20,000 share appreciation
    rights were granted to certain employees at the market price of $7.74.
    Each tranche of these rights vests over a four year period (with a five
    year life). The holder of the right has the option to exercise the right
    for an amount of cash equal to the difference between the exercise price
    and the market price at the time of exercise. The rights granted have
    been accounted for as stock appreciation rights. Total compensation
    expense for these rights was $1.1 million for the year ended December 31,
    2009 (nil in 2008). During 2009, an aggregate of 503,500 share
    appreciation rights were cancelled.

    d) Other Long-term liabilities

    Other long-term liabilities consist of non-current obligations under the
    Corporation's long-term incentive plans as at December 31, 2009 ($nil as
    at December 31, 2008).

    NOTE 15. EARNINGS PER SHARE

    Basic earnings per share calculations for the year ended December 31,
    2009 and 2008 were based on the weighted average number of shares
    outstanding for the periods. Diluted earnings per share include the
    potential dilution of the outstanding options to acquire shares and from
    the conversion of the Debentures.

    The calculation of diluted earnings per share does not include anti-
    dilutive options. These options would not be exercised during the period
    because their exercise price is higher than the average market price for
    the period. The number of excluded options for 2009 was 1,957,700
    (2,772,500 in 2008).

    The diluted 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
    number of shares issuable on conversion of the Debentures excluded for
    2009 was 5,000,000 (5,000,000 in 2008).

    -------------------------------------------------------------------------
                                      Three months ended          Year ended
    (000s)                                   December 31,        December 31,
    -------------------------------------------------------------------------
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------
    Weighted average number of shares   46,770    42,266    43,536    41,935
    Net additional shares if
     options exercised                     279         -         -         -
    Net additional shares if
     debentures converted                    -         -         -         -
    -------------------------------------------------------------------------
    Diluted weighted average
     number of shares                   47,049    42,266    43,536    41,935
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 16. SHAREHOLDER DIVIDENDS/DISTRIBUTIONS DECLARED AND PAID

    a) Dividends

    During the year ended December 31, 2009, Newalta declared quarterly
    dividends of $0.05 per share.

    b) Distributions

    Prior to conversion to a corporation on December 31, 2008, the Fund made
    monthly distributions to its holders of trust units. Determination of the
    amount of cash distributions for any period was at the sole discretion of
    the Board of Trustees of the Fund and was based on certain criteria
    including financial performance as well as the projected liquidity and
    capital resource position of the Fund. Distributions were declared to
    holders of trust units of record on the last business day of each month,
    and paid on the 15th day of the month following (or if such day was not a
    business day, the next following business day).

    -------------------------------------------------------------------------
                                       Three months ended         Year ended
                                        December 31, 2008  December 31, 2008
    -------------------------------------------------------------------------
    Unitholder distributions declared              23,472             93,180
      per unit - $                                  0.555              2.220
    Unitholder distributions - paid in cash        22,111             82,093
    Unitholder distributions -
     value paid in units                            1,330             10,914
      paid in cash - per unit $                     0.523              1.958
      issued units - per unit $                     0.031              0.260
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 17. COMMITMENTS

    a) Debt and Lease Commitments

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

    -------------------------------------------------------------------------
                                                              There-
                  2010     2011     2012     2013     2014    after    Total
    -------------------------------------------------------------------------
    Amount
     drawn on
     credit
     facility(1)
     (note 8)        -  191,280        -        -        -        -  191,280
    Convertible
     debentures
     (note 9)    8,050    8,050  122,379        -        -        -  138,479
    -------------------------------------------------------------------------
    Total debt
     commitments 8,050  199,330  122,379        -        -        -  329,759
    -------------------------------------------------------------------------
    Office
     leases      7,973    7,445    7,250    7,278    6,977   34,940   71,863
    Operating
     leases     10,692    8,296    4,486    1,181      257        -   24,912
    Surface
     leases      1,092    1,112    1,133      533      267             4,137
    Accounts
     payable and
     accrued
     liabil-
     ities      90,191        -        -        -        -        -   90,191
    Dividends
     payable     2,423        -        -        -        -        -    2,423
    -------------------------------------------------------------------------
    Total debt
     and other
     commit-
     ments     120,421  216,183  135,248    8,992    7,501   34,940  523,285
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Gross of transaction costs. Interest payments are not reflected.

     b) Letters of Credit and Surety bonds

    As at December 31, 2009, Newalta had issued letters of credit and surety
    bonds in respect of compliance with environmental licenses in the amount
    of $22.1 million and $20.2 million respectively.

    NOTE 18. FINANCIAL INSTRUMENTS

    a) Fair Value of Financial Assets and Liabilities

    Newalta's financial instruments include accounts receivable, note
    receivable, accounts payable and accrued liabilities,
    dividends/distributions payable, senior long-term debt and debentures.
    The fair values of Newalta's financial instruments that are included in
    the consolidated balance sheet, with the exception of the debentures,
    approximate their recorded amount due to the short term nature of those
    instruments for accounts receivable, accounts payable and accrued
    liabilities and for senior long-term debt and the note receivable due to
    the floating nature of the interest rate applicable to these instruments.
    The fair values incorporate an assessment of credit risk. The carrying
    values of Newalta's financial instruments at December 31, 2009 are as
    follows:

    -------------------------------------------------------------------------
                                                                       Total
                    Held for   Loans and   Available       Other    Carrying
                     trading  Receivables   for sale  Liabilities      Value
    -------------------------------------------------------------------------
    Accounts receivable    -      84,317           -           -      84,317
    Note receivable        -         978           -           -         978
    Accounts payable
     and accrued
     liabilities           -           -           -      90,191      90,191
    Dividends payable      -           -           -       2,423       2,423
    Amount drawn on
     credit facility       -           -           -     191,280     191,280
    -------------------------------------------------------------------------

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

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

                                                     Carrying    Quoted Fair
                                                      Value(1)         Value
    -------------------------------------------------------------------------
    7% Convertible debentures due November 30, 2012   112,558        116,438
    -------------------------------------------------------------------------
    (1) Includes both the debt and equity portions.

    b) Financial Instrument Risk Management

    Credit risk and economic dependence

    Newalta is subject to credit risk on its trade accounts receivable
    balances. The customer base is large and diverse and no single customer
    balance exceeds 11% of total accounts receivable. Newalta views the
    credit risks on these amounts as normal for the industry. Credit risk is
    minimized by Newalta's broad customer base and diverse product lines and
    is mitigated by the ongoing assessment of the credit worthiness of its
    customers as well as monitoring the amount and age of balances
    outstanding.

    Revenue from Newalta's largest customer was $63.8 million for the year
    ended December 31, 2009 ($37.5 million in 2008) representing 13% of
    revenue (2008 - 6%). This revenue is recognized within our Eastern
    segment.

    Based on the nature of its operations, established collection history,
    and industry norms, receivables are not considered past due until 90 days
    after invoice date although standard payment terms require payment within
    30 to 120 days. Depending on the nature of the service and/or product,
    customers may be provided with extended payment terms while Newalta
    gathers certain processing or disposal data. Included in the
    Corporation's trade receivable balance, are receivables totalling
    $0.8 million which are considered to be outstanding beyond normal
    repayment terms at December 31, 2009. A provision of $0.8 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.

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

                  December  December  December  December  December  December
                  31, 2009  31, 2008  31, 2009  31, 2008  31, 2009  31, 2008
    -------------------------------------------------------------------------
    Current         53,981    58,049        13         9    53,968    58,040
    31-60 days      15,454    28,953        21         7    15,433    28,946
    61-90 days       3,159     6,608        65        52     3,094     6,556
    91 days +          791     6,503       725     1,465        66     5,038
    -------------------------------------------------------------------------
    Total           73,385   100,113       824     1,533    72,561    98,580
    -------------------------------------------------------------------------

    To determine the recoverability of a trade receivable, management
    analyzes accounts receivable, first identifying customer groups that
    represent minimal risk (large oil and gas and other low risk large
    companies, governments and municipalities). Impairment of the remaining
    accounts is determined by identifying specific accounts that are at risk,
    and then by applying a formula based on aging to the remaining amounts
    receivable. All amounts identified as impaired are provided for in an
    allowance for doubtful accounts. The changes in this account for 2009 are
    as follows:

    -------------------------------------------------------------------------
    Allowance for doubtful accounts                      2009           2008
    -------------------------------------------------------------------------
    Balance, beginning of year                          1,533          2,263
    Additional amounts provided for                       922          1,502
    Amounts written off as uncollectible               (1,631)        (2,232)
    -------------------------------------------------------------------------
    Balance, end of year                                  824          1,533
    -------------------------------------------------------------------------

    Liquidity risk

    Ultimate responsibility for liquidity risk management rests with the
    Board of Directors of Newalta Inc., which has built an appropriate
    liquidity risk management framework for the management of the
    Corporation's short, medium and long-term funding and liquidity
    management requirements. Management mitigates liquidity risk by
    maintaining adequate reserves, banking facilities and other borrowing
    facilities, by continuously monitoring forecast and actual cash flows and
    matching the maturity profiles of financial assets and liabilities. See
    note 17 for maturity analysis.

    Interest rate risk

    Newalta is exposed to interest rate risk to the extent that its credit
    facility has a variable interest rate. Management does not enter into any
    derivative contracts to manage the exposure to variable interest rates.
    The Debentures have a fixed interest rate until November 30, 2012, at
    which point, any remaining Debentures will need to be repaid or
    refinanced. The table below provides an interest rate sensitivity
    analysis for the three and twelve months ended December 31, 2009:

    -------------------------------------------------------------------------
                                           Three months ended     Year ended
                                                  December 31,   December 31,
                                                         2009           2009
    -------------------------------------------------------------------------
    If interest rates increased by 1% with
     all other variables held constant                   (389)        (1,891)
    -------------------------------------------------------------------------

    Market risk

    Market risk is the risk that the fair value or future cash flows of
    Newalta's financial instruments will fluctuate because of changes in
    market prices. Newalta is exposed to foreign exchange market risk.
    Foreign exchange risk refers to the risk that the value of a financial
    commitment, recognised asset or liability will fluctuate due to changes
    in foreign currency exchange rates. The risk arises primarily from U.S.
    dollar denominated long-term debt and working capital. As at December 31,
    2009, Newalta had $24.6 million in working capital and $15.0 million in
    long-term debt denominated in U.S. dollars. Management has not entered
    into any financial derivatives to manage the risk for the foreign
    currency exposure as at December 31, 2009.

    The table below provides a foreign currency sensitivity analysis on long-
    term debt and working capital outstanding as at December 31, 2009:

    -------------------------------------------------------------------------
                                                                Net Earnings
    -------------------------------------------------------------------------
    If the value of the U.S. dollar increased by
     $0.01 with all other variables held constant                         71
    -------------------------------------------------------------------------

    NOTE 19. CASH FLOW STATEMENT INFORMATION

    The following tables provide supplemental information.

    -------------------------------------------------------------------------
                                                         2009           2008
    -------------------------------------------------------------------------
    Changes in current assets                          33,563         32,789
    Changes in accounts payable and
     accrued liabilities                              (24,644)         1,787
    Dividends/distributions payable                     5,137            102
    Stock based compensation, foreign exchange
     and other                                         (3,168)         2,463
    Changes in capital asset accruals                  12,711         (4,494)
    -------------------------------------------------------------------------
    Total increase in non-cash working capital         23,599         32,647
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Foreign exchange                                    2,354         (3,509)
    Accretion of convertible debentures                 1,289          1,083
    Amortization of deferred financing charges          1,834            463
    Other                                                (382)          (648)
    -------------------------------------------------------------------------
    Total other items not requiring cash                5,095         (2,611)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Cash additions to capital assets during the year  (26,941)      (121,966)
    Changes in capital asset accruals                 (12,711)         4,494
    -------------------------------------------------------------------------
    Total cash additions to capital assets            (39,652)      (117,472)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 20. COMPARATIVE FIGURES

    Cash Flow Statements

    2008 comparative information reflects the presentation of the change in
    deferred revenue as a decrease (increase) in non-cash working capital on
    the Cash Flow statements. In previous periods such items were classified
    as other.

    NOTE 21. SEGMENTED INFORMATION

    Newalta has two reportable segments. The reportable segments are distinct
    strategic business units whose operating results are regularly reviewed
    by the Corporation's executive officers in order to assess financial
    performance and make resource allocation decisions. The reportable
    segments have separate operating management and operate in distinct
    competitive and regulatory environments. The Western segment recovers and
    resells crude oil from oilfield waste, rents drill cuttings management
    and solids control equipment, provides environmental services comprised
    of environmental projects and drilling waste management, collects liquid
    and semi-solid industrial wastes as well as automotive wastes, including
    waste lubricating oil, and provides mobile site services in western
    Canada. The Eastern segment provides industrial waste collection, pre-
    treating, transfer, processing and disposal services and operates a fleet
    of specialized vehicles and equipment for waste transport and onsite
    processing, a lead recycling facility and an emergency response service
    in central and eastern Canada. Recovered materials both segments are
    processed into resalable products. The accounting policies of the
    segments are the same as those of Newalta.

                                For the three months ended December 31, 2009

                                                                      Consol-
                                              Inter-                  idated
                     Western     Eastern     segment   Unallocated     Total
    -------------------------------------------------------------------------
    External revenue  62,125      75,183           -           -     137,308
    Inter segment
     revenue(1)          295           -        (295)          -           -
    Operating
     expense          40,422      55,880        (295)          -      96,007
    Amortization
     and accretion
     expense           5,931       5,873           -       2,754      14,558
    -------------------------------------------------------------------------
    Net margin        16,067      13,430           -      (2,754)     26,743
    Selling,
     general and
     administrative        -           -           -      16,603      16,603
    Finance charges        -           -           -       6,689       6,689
    -------------------------------------------------------------------------
    Earnings
     before taxes     16,067      13,430           -     (26,046)      3,451
    -------------------------------------------------------------------------
    Capital
     expenditures and
     acquisitions(2)   4,566       4,185           -        (511)      8,240
    -------------------------------------------------------------------------
    Goodwill          62,280      41,317           -           -     103,597
    -------------------------------------------------------------------------
    Total assets     510,518     410,030           -      73,182     993,730
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                For the three months ended December 31, 2008

                                                                      Consol-
                                              Inter-                  idated
                     Western     Eastern     segment   Unallocated     Total
    -------------------------------------------------------------------------
    External revenue  79,645      65,696           -           -     145,341
    Inter segment
     revenue(1)          250           -        (250)          -           -
    Operating
     expense          53,535      47,894        (250)          -     101,179
    Amortization
     and accretion
     expense           5,545       6,798           -       3,403      15,746
    -------------------------------------------------------------------------
    Net margin        20,815      11,004           -      (3,403)     28,416
    Selling,
     general and
     administrative        -           -           -      16,562      16,562
    Finance charges        -           -           -       6,238       6,238
    -------------------------------------------------------------------------
    Earnings
     before taxes     20,815      11,004           -     (26,203)      5,616
    -------------------------------------------------------------------------
    Capital
     expenditures and
     acquisitions(2)  26,677      15,878           -       4,099      46,654
    -------------------------------------------------------------------------
    Goodwill          62,280      41,317           -           -     103,597
    -------------------------------------------------------------------------
    Total assets     552,132     425,233           -      74,545   1,051,910
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                        For the year ended December 31, 2009

                                                                      Consol-
                                              Inter-                  idated
                     Western     Eastern     segment   Unallocated     Total
    -------------------------------------------------------------------------
    External
     revenue         248,094     235,307           -           -     483,401
    Inter segment
     revenue(1)        1,203           -      (1,203)          -           -
    Operating
     expense         163,675     184,876      (1,203)          -     347,348
    Amortization
     and accretion
     expense          22,420      16,915           -      12,490      51,825
    -------------------------------------------------------------------------
    Net margin        63,202      33,516           -     (12,490)     84,228
    Selling,
     general and
     administrative        -           -           -      56,132      56,132
    Finance charges        -           -           -      25,364      25,364
    -------------------------------------------------------------------------
    Earnings
     before taxes     63,202      33,516           -     (93,986)      2,732
    -------------------------------------------------------------------------
    Capital
     expenditures and
     acquisitions(2)  10,391      13,578           -       3,316      27,285
    -------------------------------------------------------------------------
    Goodwill          62,280      41,317           -           -     103,597
    -------------------------------------------------------------------------
    Total assets     510,518     410,030           -      73,182     993,730
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                        For the year ended December 31, 2008

                                                                      Consol-
                                              Inter-                  idated
                     Western     Eastern     segment   Unallocated     Total
    -------------------------------------------------------------------------
    External
     revenue         356,146     240,809           -          80     597,035
    Inter segment
     revenue(1)          919           -        (919)          -           -
    Operating
     expense         229,423     180,569        (919)          -     409,073
    Amortization
     and accretion
     expense          21,614      18,718           -      10,905      51,237
    -------------------------------------------------------------------------
    Net margin       106,028      41,522           -     (10,825)    136,725
    Selling,
     general and
     administrative        -           -           -      62,129      62,129
    Finance charges        -           -           -      24,104      24,104
    -------------------------------------------------------------------------
    Earnings
     before taxes    106,028      41,522           -     (97,058)     50,492
    -------------------------------------------------------------------------
    Capital
     expenditures and
     acquisitions(2)  63,799      44,967           -      16,436     125,202
    -------------------------------------------------------------------------
    Goodwill          62,280      41,317           -                 103,597
    -------------------------------------------------------------------------
    Total assets     552,132     425,233           -      74,545   1,051,910
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    (2) Includes capital asset additions and the purchase price of
        acquisitions.

    (3) Management does not allocate selling, general and administrative,
        taxes, and interest costs in the segment analysis.
    

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


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