News Releases

CALGARY, ALBERTA - Feb. 13, 2013 /CNW/ - Newalta Corporation ("Newalta") (TSX:NAL) today reported results for the fourth quarter and year ended December 31, 2012.

FINANCIAL HIGHLIGHTS(1)

		Three months ended December 31,			Year ended December 31,
($000s except per share data)		2012	2011	% Increase (Decrease)	2012	2011	% Increase (Decrease)
Revenue		198,445	184,089	8	726,209	682,828	6
Gross profit		39,037	42,740	(9)	169,758	165,509	3
	- % of revenue	20%	23%	(13)	23%	24%	(4)
Net earnings		4,124	6,031	(32)	42,804	33,562	28
	- per share ($) - basic	0.08	0.12	(33)	0.86	0.69	25
	- per share ($) - basic adjusted(2)	0.17	0.19	(11)	0.84	0.85	(1)
	- per share ($) - diluted	0.08	0.12	(33)	0.85	0.68	25
Adjusted EBITDA(2)		33,290	36,677	(9)	142,136	146,475	(3)
	- per share ($)(2)	0.63	0.76	(17)	2.86	3.02	(5)
Cash from operations		47,392	51,390	(8)	97,179	104,563	(7)
	- per share ($)	0.90	1.06	(15)	1.96	2.15	(9)
Funds from operations(2)		22,303	25,352	(12)	116,616	122,775	(5)
	- per share ($)(2)	0.42	0.52	(19)	2.35	2.53	(7)
Maintenance capital expenditures(2)		12,089	11,914	1	34,952	31,051	13
Growth capital expenditures(2)		45,311	33,375	36	137,388	86,629	59
Dividends declared		5,424	3,889	39	18,918	14,818	28
	- per share ($)(2)	0.10	0.08	25	0.38	0.31	23
Dividends paid		4,870	3,888	25	17,382	14,082	23
Book value per share, December 31		11.82	11.15	6	11.82	11.15	6
Weighted average shares outstanding		52,741	48,569	9	49,690	48,569	2
Shares outstanding, December 31(3)		54,263	48,607	12	54,263	48,607	12

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

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

(3) Newalta has 54,410,235 shares outstanding as at February 13, 2013.

Management Commentary

"Steep declines in the prices for our recovered products and reduced drilling activity in western Canada dampened otherwise solid performance in the quarter and for the year," said Al Cadotte, President and CEO of Newalta. "Most of the challenges we faced are dissipating and commodity prices are stabilizing. Returns from our 2012 capital and strengthening market demand are expected to drive improved results in the quarters ahead."

Fourth quarter results were below management's expectations as outlined in our Q3 2012 outlook, primarily due to the following key factors:

• Sharp decline in recovered crude oil and base oil prices in the latter part of the quarter, directly impacting our results
  • Our pricing for conventional and heavy oil fell dramatically from October over the latter part of the quarter, by 22% and 37%, respectively, due to the wider differentials experienced across the Western Canadian Sedimentary Basin ("WCSB"). The prices we receive for conventional and heavy oil are tied to Edmonton Par and Bow River. Further, Motiva (base oil) prices followed a similar pattern declining by 7% during the quarter.

Commodity Pricing August 2012 to January 2013: image/2013+02+13+213nal_graphs.pdf

• Decline in drilling activity in western Canada
  • Active rigs fell by 28% in the quarter, year-over-year, much more than anticipated. Reduced drilling activity primarily impacted our drill site equipment rental business in western Canada, as evidenced by equipment utilization declining from 68% in Q4 2011 to 36% in Q4 2012. Reduced waste volumes at oilfield facilities were offset by increased recovered crude oil volumes as well as operational efficiencies.

Active Rigs - Western Canada(1): image/2013+02+13+213nal_graphs.pdf

(1) Source - Canadian Association of Oilwell Drilling Contractors ("CAODC")

• Early winter freeze-up, impacting processing volumes of Mature Fine Tailings ("MFT")
  • Production delays driven by colder than expected weather restricted processing of MFT. Most, if not all, of the shortfall is anticipated to be recovered in 2013.

"Potential in our key growth areas remains unchanged and our business fundamentals remain strong," said Mr. Cadotte. "We made significant progress with our long-range growth plan in 2012, preparing us to capitalize on the many opportunities present in all areas of the business in 2013.

We met a number of objectives in 2012, specifically, we:

• increased our long-term onsite contract revenue base to 9% of revenue, up from 3% in 2011;
• established a leadership position in the area of MFT processing which may lead to additional contract work;
• grew our U.S. revenue by 25%;
• aligned the organization in three new divisions to enhance customer service and to support key growth areas;
• strengthened the organization through talent development programs and the addition of new talent, growing our employee base by 10% to over 2,200 people;
• invested $137 million to drive growth in 2013;
• increased the dividend by 25% compared to 2011; and,
• completed a $77 million equity offering to strengthen our balance sheet.

"Our markets continue to improve but progress remains choppy. We have the financial capacity, including proceeds from the recent equity financing, to weather short-term fluctuations in commodity prices and market demand as we experienced in the fourth quarter. We will continue to execute our long-term plan to deliver strong, profitable growth and outstanding returns to investors for many years ahead."

Results of Q4 2012 Compared to Q4 2011

• Revenue increased 8%, Adjusted EBITDA and net earnings declined 9% and 32%, respectively. Lower prices for recovered products impacted Adjusted EBITDA by $5.3 million;
• Revenue and gross profit from Facilities were $122.9 million and $21.7 million, down 1% and 17%, respectively. Active rigs decreased by 28% and meters drilled were down 20%. Cost efficiencies realized in the quarter at our Western Facilities were offset by lower oilfield activity and the impact of lower recovered product prices. Lower sales volumes and increased procurement costs at Ville Ste-Catherine ("VSC") also impacted results year-over-year;
• Onsite revenue and gross profit in the quarter grew 26% and 5%, respectively, to $75.5 million and $17.3 million. Strong demand for our contract and project services was impacted by reduced drilling activity and lower recovered oil prices;
• Adjusted SG&A (SG&A before stock-based compensation and amortization) was flat compared to last year at $19.5 million.

Results of 2012 Compared to 2011

• Revenue was up 6%, Adjusted EBITDA was down 3% while net earnings increased 28%. Stronger demand for our services was offset by the lower value received for our products of $13.4 million and higher Adjusted SG&A expenses. Lower finance charges, deferred income tax expense and a gain on embedded derivatives contributed to the increase in net earnings;
• Facilities revenue and gross profit were $446.2 million and $100.0 million, down 4% and 6%, respectively. Gains from productivity improvements and increased recovered oil volumes were offset by lower recovered product prices, reduced waste volumes and lower lead sales at VSC as well as lower oilfield activity;
• Onsite revenue and gross profit grew 28% and 19%, respectively, to $280.0 million and $69.7 million. Contributions from our MFT contract and higher project activity more than offset the impact of lower drilling activity and recovered crude oil prices;
• Adjusted SG&A (SG&A before stock-based compensation and amortization) was $74.3 million in 2012, a 9% increase over the prior year due to investments in people and people development to support our growth in 2013. Adjusted SG&A remains in line with our expectation of 10% of annual revenue;
• Return on capital was 13.3% compared to 15.2% in 2011;
• Total Debt to Adjusted EBITDA was 2.41 compared to 2.35 in 2011.

Other Highlights:

• Capital expenditures for the three months and year ended December 31, 2012, were $57.4 million and $172.3 million, respectively, ahead of our projected $155.0 million. The increased capital expenditure predominantly relates to equipment for the MFT contract, technical development, U.S. onsite projects and efficiency improvements in Western Facilities. Growth capital expenditures for the quarter and year primarily related to facility and service expansion at our Western Facilities and equipment for contract work in our Heavy Oil business unit;
• Our 2013 capital budget remains at $190 million, a 10% increase over 2012 capital. Growth and maintenance capital expenditures are expected to be $155 million and $35 million, respectively. We expect to spend approximately 40% of the capital budget in the first half of 2013. We may revise the capital budget, from time-to-time, in response to changes in market conditions that materially impact our financial performance and/or investment opportunities. The capital program will be predominantly funded through cash flow from operations and the proceeds from the equity offering completed in the fourth quarter of 2012;
• In the fourth quarter, Newalta completed an equity financing with the issuance of 5.5 million common shares for gross proceeds of $77 million (net proceeds of $74.4 million);
• A dividend of $0.10 per share ($0.40 per share annualized) was declared, payable January 15, 2013 to shareholders of record December 31, 2012.

Quarterly Conference Call

Management will hold a conference call on Thursday, February 14, 2013 at 11:00 a.m. (ET) to discuss Newalta's performance for the fourth quarter and year ended December 31, 2012. To participate in the teleconference, please call 1- 800-766-6630. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Thursday, February, 21, 2013 by dialing 1- 800-408-3053 and using the pass code 3871450 followed by the pound sign.

About Newalta

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

NEWALTA CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Three months and years ended December 31, 2012 and 2011

Certain statements contained in this document constitute "forward-looking statements". When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", and similar expressions, as they relate to Newalta Corporation and the subsidiaries of Newalta Corporation, or their management, are intended to identify forward-looking statements. In particular, forward-looking statements included or incorporated by reference in this document include statements with respect to:

• future operating and financial results;
• anticipated industry activity levels;
• expected demand for our services;
• business prospects and strategy;
• capital expenditure programs and other expenditures;
• the amount of dividends declared or payable in the future;
• realization of anticipated benefits of growth capital investments, acquisitions and our technical development initiatives;
• our projected cost structure; and
• expectations and implications of changes in legislation.

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

• general market conditions of the industries we service;
• strength of the oil and gas industry, including drilling activity;
• fluctuations in commodity prices for oil and lead;
• fluctuations in interest rates and exchange rates;
• supply of waste lead acid batteries as feedstock to support direct lead sales;
• demand for our finished lead products by the battery manufacturing industry;
• our ability to secure future capital to support and develop our business, including the issuance of additional common shares;
• the highly regulated nature of the environmental services and waste management business in which we operate;
• dependence on our senior management team and other operations management personnel with waste industry experience;
• the competitive environment of our industry in Canada and the U.S.;
• success of our growth, acquisition and technical development strategies including integration of businesses and processes into our operations and potential liabilities from acquisitions;
• potential operational and safety risks and hazards and obtaining insurance for such risks and hazards on reasonable financial terms;
• the seasonal nature of our operations;
• costs associated with operating our landfills and reliance on third party waste volumes;
• risk of pending and future legal proceedings;
• our ability to attract and retain skilled employees and maintain positive labour union relationships;
• open access for new industry entrants and the general unprotected nature of technology used in the waste industry;
• possible volatility of the price of, and the market for, our common shares, and potential dilution for shareholders in the event of a sale of additional shares;
• financial covenants in our debt agreements that may restrict our ability to engage in transactions or to obtain additional financing; and
• such other risks or factors described from time to time in reports we file with securities regulatory authorities.

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

RECONCILIATION OF NON-GAAP MEASURES

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

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

They are calculated as follows:

		Three months ended December 31,		Year ended December 31,
($000s)		2012	2011	2012	2011
Net earnings		4,124	6,031	42,804	33,562
Add back:
	Income taxes	706	2,578	11,208	14,187
	Net Finance charges	5,238	8,505	13,357	28,191
	Amortization	17,797	16,401	62,509	62,856
EBITDA		27,865	33,515	129,878	138,796
Add back:
	Stock-based compensation expense	5,425	3,162	12,258	7,679
Adjusted EBITDA		33,290	36,677	142,136	146,475
Weighted average number of shares		52,741	48,569	49,690	48,569
EBITDA per share		0.53	0.69	2.61	2.86
Adjusted EBITDA per share		0.63	0.76	2.86	3.02

"Adjusted net earnings" and "Adjusted net earnings per share" are measures of our profitability. Adjusted net earnings provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation expense and the gain or loss on embedded derivatives. Stock-based compensation expense, a component of employee remuneration, can vary significantly with changes in the price of our common shares. The gain on the embedded derivative is a result of the change in the trading price of the debentures and the volatility of the applicable bond market. As such, Adjusted net earnings provides improved continuity with respect to the comparison of our results over a period of time. Adjusted net earnings per share is derived by dividing Adjusted net earnings by the basic weighted average number of shares.

		Three months ended December 31,		Year ended December 31,
($000s)		2012	2011	2012	2011
Net earnings		4,124	6,031	42,804	33,562
Add back (deduct):
	Stock-based compensation expense	5,425	3,162	12,258	7,679
	Embedded derivative gain	(602)	-	(13,439)	-
Adjusted net earnings		8,947	9,193	41,623	41,241
Adjusted net earnings per share		0.17	0.19	0.84	0.85

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

	Year ended December 31,
($000s)	2012	2011
Total Equity	641,440	541,921
Shares outstanding, December 31,	54,263	48,607
Book value per share	11.82	11.15

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

		Three months ended December 31,		Year ended December 31,
($000s)		2012	2011	2012	2011
Cash from operations		47,392	51,390	97,179	104,563
Add back (deduct) :
	(Decrease) increase in non-cash working capital	(26,772)	(27,749)	15,883	14,856
	Decommissioning obligations incurred	1,683	1,711	3,554	3,356
Funds from operations		22,303	25,352	116,616	122,775
Weighted average number of shares		52,741	48,569	49,690	48,569
Funds from operations per share		0.42	0.52	2.35	2.53

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

($000s)		2012	2011
Adjusted EBITDA		142,136	146,475
	Total assets	1,318,758	1,165,021
	Current liabilities	193,796	157,954
Capital employed		1,124,962	1,007,067
2-Year net assets average		1,066,015	965,527
Return on capital (%)		13.3%	15.2%

Trailing Twelve-Month Return on Capital: image/2013+02+13+213nal_graphs.pdf

References to EBITDA, EBITDA per share, Adjusted EBITDA, Adjusted EBITDA per share, Adjusted net earnings, Adjusted net earnings per share, Funds from operations, Funds from operations per share and Return on capital throughout this document have the meanings set out above. Adjusted SG&A has the meaning described in the section titled "Corporate and Other".

The following discussion and analysis should be read in conjunction with (i) the audited consolidated financial statements of Newalta, and the notes thereto ("Financial Statements"), for the years ended December 31, 2012 and 2011, (ii) the consolidated financial statements of Newalta and notes thereto and MD&A of Newalta for the years ended December 31, 2011 and 2010, (iii) the most recently filed Annual Information Form of Newalta and (iv) the unaudited condensed consolidated interim financial statements of Newalta and the notes thereto and MD&A for the quarters ended March, 31, 2012, June 30, 2012, and September 30, 2012. This information is available at SEDAR (www.sedar.com). Information for the year ended December 31, 2012 along with comparative information for 2011, is provided.

This MD&A is dated February 13, 2013, and takes into consideration information available up to that date. Throughout this document, unless otherwise stated, all currency is stated in Canadian dollars, and MT is defined as "tonnes" or "metric tons".

SELECTED ANNUAL FINANCIAL INFORMATION(1)

($000s except per share data)		2012	2011	2010
Revenue		726,209	682,828	576,196
Gross Profit		169,758	165,509	138,390
	- % of revenue	23%	24%	24%
Net earnings		42,804	33,562	16,122
	- per share ($) - basic	0.86	0.69	0.33
	- per share ($) - basic adjusted(2)	0.84	0.85	0.56
	- per share ($) - diluted	0.85	0.68	0.33
Adjusted EBITDA(2)		142,136	146,475	118,795
	- per share ($)(2)	2.86	3.02	2.45
Cash from operations		97,179	104,563	96,151
	- per share ($)	1.96	2.15	1.98
Funds from operations(2)		116,616	122,775	96,874
	- per share ($)(2)	2.35	2.53	2.00
Dividends declared		18,918	14,818	11,152
	- per share ($)(2)	0.38	0.31	0.23
Dividends paid		17,382	14,082	10,424
Total Assets		1,318,758	1,165,021	1,047,677
Maintenance capital expenditures(2)		34,952	31,051	29,013
Growth capital expenditures(2)		137,388	86,629	47,535
Senior long-term debt - net of issue costs		76,500	68,493	51,520
Senior unsecured debentures(3) - principal amount		250,000	250,000	125,000
Convertible debentures - principal amount		-	-	115,000
Weighted average shares outstanding		49,690	48,569	48,485
Shares outstanding, December 31, (4)		54,263	48,607	48,492

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

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

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

(4) Newalta has 54,410,235 shares outstanding as at February 13, 2013.

NEWALTA - WHO WE ARE

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

Vision:

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

2012 Review:

Strategic Objective		Tactics		Progress in 2012
Maximize Facilities Profitability		Focus on productivity improvements to drive incremental cash flow from existing assets		Excluding the impact of lower prices received for our recovered products, gross profit grew to 24% compared to 23% in 2011.
		Transfer existing services throughout the network to offer full breadth of services to customers across Canada		Expanded oil recycling services into eastern Canada. Expanded our western Canadian model to process oilfield waste in Atlantic Canada.
		Expand Facility network to take advantage of growth in existing markets and new opportunities		Constructed one satellite that will be commissioned in first half 2013. Identified and pursuing multiple locations in high activity areas.
		Execute organic growth capital projects		Completed over $40 million in organic growth projects in 2012.
Recovery at Source (Onsite)		Expand U.S. market presence		Generated 25% revenue growth in the U.S.
		Transition projects to contract service arrangements, specifically to add 4 new long-term contracts per year		Contracts now generate 9% of total revenue, compared to 3% in 2011.  Commissioned a three-year contract to process mature fine tailings ("MFT"), improving our stable stream of future cash flows. Continue to make good progress on our pipeline of contracts in the scoping and development stage.
		Increase market share in project activity in multiple industry segments		Project revenue grew 12% across the network. Projects generate 12% of total revenue, up from 11% in 2011.  Commenced a multi-year arrangement in the U.S. to process slop oil emulsions on a customer's site in the Bakken.
		In Onsite, execute organic growth capital projects		Completed over $65 million of organic growth projects in 2012.
Process Commercialization		Deliver two new commercial processes with wide application to operations every year		Invested $12 million of capital in 2012.  Two technologies in the demonstration phase, with commercial application expected in 2013.
		Our Technical Development team will search globally and evaluate technologies for commercial application		Ongoing. Assess pilot projects in progress for commercial application and testing within our facility network.
		Utilize facility network to expedite commercialization		Ongoing. Upgraded wastewater treatment plant to allow for demonstration scale testing.

Effective January 1, 2013, we reorganized our reporting structure into three divisions - New Markets, Oilfield and Industrial. We expect the reorganized structure will facilitate a seamless service package to customers and optimize our resource allocations.

We will continue to focus on our core values and business fundamentals to improve returns on existing business lines. We will use our organic growth investments to re-establish Return on capital to historic levels of 18% and deliver the best cost-effective environmental solutions for our customers. We have an inventory of low-risk, high-return projects to expand services, extend our market coverage and to add long-term operating contracts. Our average payback assumption on growth capital investments is approximately four years.

Strategy:

The following table outlines our strategic focus through 2016 and the action plan in 2013 and 2014 to achieve our strategic objectives.

Strategic Objectives through 2016		Tactics	Action Plan (2013-2014)
New Markets  Invest $475 million in growth capital in Canada and U.S. while averaging 20% revenue growth per year.		Apply our successful western Canadian model to expand our presence in U.S. markets	Establish two new U.S. operating locations to service key markets and meet market demand.  Leverage drill site service capabilities to further develop customer relationships that could lead to longer term contract work.  Expand water recycling services consistent with demand in shale plays.
		Transition onsite project work to longer term contract arrangements, to grow stable revenue base	With 10-15 potential contracts in the scoping and proposal stage at any given time, our objective is to have contracts representing 15% of our annual revenue, by end of 2014.
Oilfield  Invest $175 million in organic growth projects while averaging 15% revenue growth per year.  Industrial  Invest $180 million in organic growth projects while averaging 10% revenue growth per year.		Focus on productivity improvements to drive incremental cash flow from existing assets	Develop new products and services at existing facilities to meet changing market demands.  Improve material handling and processes.  Introduce proven technologies throughout the facility network.
		Expand facility network to take advantage of growth in existing markets and new opportunities	Establish two new Oilfield satellites each year to expand market presence in western Canada.  Continue to move forward with our objective of doubling the oil recycling capacity of our North Vancouver facility to meet growing demand by 2016. Establish two new Industrial operating locations to improve service to key markets in Canada.
		Increase market share in onsite services in multiple industry segments	Leverage our operating experience and facility network to gain market share in key industries.
Process CommercializationInvest $25 million to commercialize two new processes annually for use at our facilities or on customer sites.		Search globally and evaluate technologies for commercial application	Assess pilot projects in progress for commercial application and begin testing within facility network. Advance identified technologies to the demonstration phase.
		Leverage facility network to expedite commercialization	Continue demonstrating new technologies in our facility network.

RISKS TO OUR STRATEGY

While we remain optimistic about our long-term outlook, we are subject to a number of risks and uncertainties in carrying out our activities. See page 32 for further discussion on our Risk Management program. A complete list of our risk factors is disclosed in our most recently filed Annual Information Form.

Risks		Mitigation
Market activity is lower than anticipated  Lower market activity can translate into reduced waste volumes and weaker commodity prices, impacting returns on existing assets and our capacity to invest in organic growth capital.		Improve productivity  Develop new technologies that make our processes more effective and cost efficient  Maintain debt leverage to provide adequate financial flexibility  Utilize, as needed, proven defensive toolkit to manage costs and capital expenditures
Deterioration of safety record  Failure to meet customer safety standards while working on customer sites or at our facilities could result in limitations in our ability to secure new contracts.		Since 1993, safety has been established as one of our core values  Long standing history of safety excellence  Our Environmental, Health and Safety ("EH&S") team works with operators, customers and regulators to ensure that we foster a culture of safety and prevention  Designs for facilities and onsite equipment are subject to strict hazards and operability studies and engineering practices
Competition  Competition can come from generators of waste processing streams internally or new third party waste processors entering the market.		Our onsite solutions are targeted to facilitate waste generators managing their waste onsite  We are well established in the industry with an excellent safety record and a facility network for mobilization, employee training and a backstop for process guarantees  Barriers to entry include facilities network and infrastructure as well as regulatory permits
Failure to commercialize identified technologies into our processes  Failure to commercialize new technologies could reduce our competitiveness.		Staged approach for developing technologies, which differentiates between proven and unproven technologies, ensures resources can be redeployed efficiently to other initiatives  Other initiatives include expansion of services and business development Performance from our current assets employed is not contingent on the commercialization of the identified technologies
Organizational capabilities  Failure to effectively recruit, retain and integrate top talent in period of growth could negatively impact our ability to meet our long-term targets.		Develop our people through talent development programs which include customized leadership training and comprehensive on-boarding  Engage new employees in EH&S training programs and Safety Leadership programs  Use of cross functional training and teams to promote integration

CORPORATE OVERVIEW

Fourth quarter revenue was up 8% year-over-year to $198.4 million while Adjusted EBITDA was $33.3 million, 9% lower compared to Q4 2011. Increased demand for our onsite contracts and projects was more than offset by the impact of lower value received for our recovered products and reduced oilfield activity. The impact of the lower value received for recovered crude oil, base oil and lead was $5.3 million. In addition, drilling activity was down 28% year-over-year. Excluding the lower value received for our products, Adjusted EBITDA would have been $38.6 million in Q4 2012. Reduced operational results and higher stock-based compensation, offset in part by lower finance charges, caused net earnings to decline 32% to $4.1 million in Q4 2012. Our Total Debt to Adjusted EBITDA ratio increased from 2.35 in Q4 2011 to 2.41 in Q4 2012.

In 2012, revenue increased 6% to $726.2 million (2011 - $682.8 million) and Adjusted EBITDA declined to $142.1 million (2011 - $146.5 million). Stronger demand for our contract and project services was offset by the lower value received for our products of $13.4 million, reduced oilfield activity and higher Adjusted SG&A expenses. In addition, drilling activity in 2012 decreased 15% from 2011. Excluding the lower value received for our products, Adjusted EBITDA would have been $155.5 million in 2012. Net earnings for the year increased 28% to $42.8 million. Lower finance charges, lower deferred income tax expense and gain on embedded derivatives contributed to the increase in net earnings.

Revenue and gross profit from Facilities in the quarter were $122.9 million and $21.7 million, down 1% and 17%, respectively, from Q4 2011. Compared to Q4 2011, active rigs decreased 28% and meters drilled were down 19%. Declines in the prices of crude oil, base oil and lead resulted in reduced prices received for our products of $4.3 million. Western Facilities efficiency improvements for the quarter were offset by the impact of lower oilfield activity. Eastern Facilities were positively impacted by an increase in volumes at Stoney Creek Landfill ("SCL") as compared to Q4 prior year. VSC volumes were 11% lower than Q4 2011. Compared to 2011, revenue and gross profit for the year declined 4% and 6%, respectively. The impact of lower value received for our products was $11.8 million.

Onsite revenue and gross profit in the quarter were $75.5 million and $17.3 million, up 26% and 5%, respectively, from Q4 2011. Strong demand for our contract and project services was impacted by lower value received for our products and reduced drilling activity. Declines in the price of crude oil resulted in reduced prices received for our products of $1.0 million. For the year, revenue and gross profit increased 28% and 19%, respectively, from the prior year. The increase was driven by our contract to process MFT and strong demand for our project services. This increase was partially offset by the impact of lower drilling activity and a decline in value received for our products. The impact of lower value received for our products was $1.6 million.

Return on capital decreased to 13.3% in Q4 2012 from 15.2% in Q4 2011. During the quarter, we closed an equity financing issuing 5.5 million shares for gross proceeds of $77.0 million (net $74.4 million).

Revenue ($ millions) and Adjusted EBITDA ($ millions): image/2013+02+13+213nal_graphs.pdf

Capital expenditures for the three months and year ended December 31, 2012, were $57.4 million and $172.3 million, respectively, ahead of our projected spend of $155.0 million. The increased capital expenditure predominantly relates to equipment for the MFT contract, technical development, U.S. onsite projects and efficiency improvements in Western Facilities. Growth capital expenditures for the quarter and year primarily related to facility and service expansion at our Western Facilities and equipment for contract work in our Heavy Oil business unit.

OUTLOOK

To the end of January, the prices we receive for our recovered conventional and heavy oil have increased 19% and 22%, respectively, compared to December 2012. Drilling activity has improved 35% over Q4 2012. Base oil pricing has declined 9% from December 2012.

Returns from our 2012 capital and strengthening market demand are expected to drive improved results in the quarters ahead. In the first half of 2013, we anticipate ongoing strength across our three divisions while continued short-term fluctuations impact the prices received for our recovered products. Compared to Q1 2012, conventional and heavy oil prices for January are down 9% and 24%, respectively. Drilling activity in Q1 2013 is expected to be approximately 10% below Q1 2012. Base oil for January is 24% lower than Q1 2012. We anticipate normal operations at VSC and SCL in the quarter.

In 2013, we will operate under the following three new divisions:

• New Markets will continue to focus on growing long-term contracts, strengthening our foundation of stable cash flow and maximizing cash flow from existing assets. We will continue to grow our contract revenue as a percentage of our total revenue. Our contract to process MFT will enter into its second year and we expect higher volumes to be processed in 2013 compared to 2012. Contributions from the MFT contract will predominately be realized in Q2 and Q3, with no contribution in Q1. We expect to continue to develop our U.S. platform, establishing two new U.S. operating locations to service key markets and meet market demand.
• Our Oilfield Division will drive organic growth by continuing to focus on productivity improvements, expanding our facility network through the addition of two new oilfield satellites, and adding new services. We will also leverage our onsite capabilities to expand our market presence within the conventional oilfield sector.
• Our Industrial Division will focus on growing organically through capacity expansions, expanding the facility network, productivity improvements, adding new services and growing our onsite business. In 2013, we will proceed with detailed engineering plans to double the capacity of our North Vancouver oil recycling process. We will also establish one new industrial operating location to improve service to key markets in 2013.

We have good visibility on our pipeline of organic growth capital projects, extending well into 2014. Our 2013 capital budget remains at $190 million, with growth capital and maintenance expenditures of $155 million and $35 million, respectively. We expect to spend approximately 40% of the capital budget in the first half of 2013. We may revise the capital budget, from time-to-time, in response to changes in market conditions that materially impact our financial performance and/or investment opportunities. The capital program will predominately be funded by cash flow from operations and the proceeds from the equity offering completed in the fourth quarter of 2012.

We continue to execute our business plan, reflecting a 15% and 20% revenue and Adjusted EBITDA compound annual growth rate ("CAGR"), respectively, over the plan period to 2016. Our strong balance sheet will allow us to weather short-term fluctuations that may arise from time to time as we experienced in Q4 2012. We will work towards a debt leverage ratio of 2.0, and will remain well within debt covenant thresholds through 2013.

With our continued focus on business fundamentals to improve returns on existing assets, growth from our contract and project work, contributions from the 2012 capital program and continued market demand for our services, we are well positioned for growth in 2013 and beyond.

RESULTS OF OPERATIONS - FACILITIES DIVISION

Overview

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

The business units contributed the following to division revenue:

	Three months ended December 31,		Year ended December 31,
	2012	2011	2012	2011
Western Facilities	45%	49%	50%	47%
Eastern Facilities	25%	25%	26%	25%
VSC	30%	26%	24%	28%

Facilities Revenue ($ millions) and Facilities Gross Profit ($ millions): image/2013+02+13+213nal_graphs.pdf

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

	Three months ended December 31,			Year ended December 31,
($000s)	2012	2011	% change	2012	2011	% change
Revenue	122,899	124,234	(1)	446,217	463,606	(4)
Cost of Sales(1)	101,189	97,930	3	346,176	356,820	(3)
Gross Profit	21,710	26,304	(17)	100,041	106,786	(6)
Gross Profit as % of revenue	18%	21%	(14)	22%	23%	(4)
Maintenance capital	7,917	7,899	-	21,913	21,658	1
Growth capital	18,487	11,029	68	43,279	32,515	33
Assets employed(2)(3)				655,882	624,814	5

(1) Includes amortization of $9,006 and $32,019 for Q4 2012 and 2012 year-to-date, respectively, and $9,221 and $36,346 for Q4 2011 and 2011 year-to-date, respectively.

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

Q4 2012 revenue and gross profit were $122.9 million and $21.7 million, down 1% and 17%, respectively, from prior year. Western Facilities efficiency gains were offset by the impact of reduced oilfield activity. At our Eastern Facilities, performance was positively impacted by an increase in volumes at SCL compared to prior year. A decline in the value of our crude oil, base oil and lead products reduced our gross profit $4.3 million in Q4 2012. Excluding the lower value received for our products, gross profit in Q4 2012 would have been $26.0 million, 20% of revenue.

In 2012, revenue and gross profit are $446.2 million and $100.0 million, down 4% and 6%, respectively. Western Facilities performance was positively impacted by efficiency gains and offset by reduced oilfield activity. Eastern Facilities were down due to lower volumes at SCL compared to 2011. Performance was also negatively affected by the lower value received for our products, reducing gross profit by $11.8 million. Excluding the lower value received for our products, gross profit would have increased 5% to $111.8 million in 2012, 24% of revenue and above the prior year.

Western Facilities

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

• the processing of industrial and oilfield-generated wastes, including: collection; treatment; water disposal; clean oil terminalling; custom treating and landfilling;
• sale of recovered crude oil for our account; and
• oil recycling, including the collection and processing of waste lube oils and the sale of finished products.

Western Facilities draws its revenue primarily from industrial waste generators and the oil and gas industry. Waste generated by the oil and gas industry is affected by volatility in the prices of crude oil and natural gas and drilling activity. Drilling activity will impact the volume of waste received with the makeup of that waste being affected by specific drilling techniques employed. Changes in the waste mix will impact the amount of crude oil recovered to our account. Historically, for oilfield facilities, approximately 75% of our waste volume relates to ongoing production resulting in a fairly stable revenue base. Volatility in the price of crude oil impacts crude oil revenue. Fluctuations in the Canadian/U.S. dollar exchange rate impact U.S. dollar sales, which account for approximately 10% of Western Facilities revenue. Changes in environmental regulations in western Canada also impact our business. Management is not aware of any new legislation proposed that is expected to have a material impact on our business and, regardless, we tend to have a positive bias to change in environmental regulations.

Western Facilities revenue was down 9% compared to Q4 2011. Active rigs decreased 28% and meters drilled were down 19% compared to Q4 2011 resulting in a 21% decline in waste processing volumes year-over-year. Crude oil volumes recovered increased 17% in the quarter as a result of processing higher oil content waste. The value of the crude oil we recovered was impacted by a 14% decline in Edmonton Par compared to Q4 2011. Oil recycling performance was impacted by the reduced value of our base oil products as Motiva decreased 22%.

In 2012, revenue was up 4% compared to 2011, primarily due to improved performance at the majority of our facilities. Growth at our oilfield facilities was driven by a shift to higher oil content waste derived from production related activities and increased recovered crude oil from the optimization of a facility commissioned in 2011. Growth in oil recycling was driven by market diversification initiatives which resulted in a shift to higher margin product lines. This was tempered by the impact of the lower value received for our products and the decrease in drilling activity.

	Three months ended  December 31,			Year ended December 31,
	2012	2011	% change	2012	2011	% change
Waste processing volumes ('000 m3)	126	159	(21)	487	545	(11)
Recovered crude oil ('000 bbl)(1)	76	65	17	267	230	16
Average crude oil price received (CDN$/bbl)	76.84	92.37	(17)	79.70	88.09	(10)
Recovered crude oil sales ($ millions)	5.9	6.0	(2)	21.3	20.3	5
Edmonton par price (CDN$/bbl)(2)	84.05	97.26	(14)	86.16	94.88	(9)

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

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

Recovered Crude - Western Facilities (in '000 bbl): image/2013+02+13+213nal_graphs.pdf

Eastern Facilities

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

• the processing of industrial wastes, including collection, treatment and disposal; and
• Stoney Creek Landfill ("SCL"), an engineered non-hazardous solid waste landfill with an annual permitted capacity of 750,000 MT of waste per year.

Eastern Facilities draws its revenue from the following industries in eastern Canada and the bordering U.S. states: automotive; construction; forestry; manufacturing; mining; oil and gas; petrochemical; pulp and paper; refining; steel; and transportation service. The broad customer and industry base helps to diversify risk; however, the state of the economy as a whole will affect these industries. In addition, Eastern Facilities is sensitive to changing environmental regulations regarding waste treatment and disposal. Management is not aware of any new environmental regulatory reviews underway that are expected to have a material effect on Newalta and, regardless, we tend to have a positive bias to change in environmental regulations.

In Q4 2012, volumes at SCL were up 11% from Q4 2011. Excluding SCL, Eastern Facilities revenue was relatively flat year-over-year.

Compared to 2011, Eastern Facilities revenue decreased 4% for the year. Excluding SCL, Eastern processing facilities improved 6% over prior year as a result of improved demand for our services. Volumes received at SCL in 2012 were at the maximum permitted capacity. In 2011, we received a one-time contingency to continue to receive materials beyond the annual permitted volume from the Ontario Ministry of the Environment.

	Three months ended December 31,			Year ended December 31,
	2012	2011	% change	2012	2011	% change
SCL Volume Collected ('000 MT)	228.3	205.7	11	750.0	874.3	(14)

SCL - Volume Collected (in '000 MT): image/2013+02+13+213nal_graphs.pdf

Ville Ste-Catherine

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

Our objective is to ensure optimal performance at VSC, which historically has meant balancing direct sales and tolling volumes equally. In 2012, our split was approximately 50/50. Production volumes will be managed to optimize performance under prevailing market conditions. In addition, fluctuation in the U.S./Canadian dollar exchange rate impacts revenue and procurement. Substantially all of VSC's revenue and the majority of our battery procurement costs are denominated in U.S. dollars, with the balance of our operating costs denominated in Canadian dollars.

Q4 2012 revenue was up 14% compared to prior year. The increase was mainly attributable to a shift in our tolling/direct mix towards direct sales in addition to a 4% increase in LME pricing. The lagged LME price increased to U.S. $2,167/MT (Q4 2011 - U.S. $2,076). VSC volumes were 17,600 MT (Q4 2011 - 19,800 MT), in line with our quarterly average. The increase in price was more than offset by increased procurement costs.

Compared to 2011, VSC revenue decreased 16%, primarily due to the decline in lead price. Lagged LME price decreased 16% to U.S. $2,041/MT (2011 - U.S. $2,435/MT). Sales volume in 2012 decreased 10% to 64,700 MT (2011 - 71,700 MT). The direct and tolling split was consistent with 2011.

RESULTS OF OPERATIONS - ONSITE DIVISION

Overview

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

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

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

In addition, Onsite performance is affected by the customer's requirement for Newalta to maintain a strong safety record. To address this requirement, our Environmental, Health and Safety ("EH&S") team works with our people and our customers to develop an EH&S culture and prevention strategy owned by operators to ensure we maintain our strong record.

The business units contributed the following to division revenue:

	Three months ended  December 31,		Year ended  December 31,
	2012	2011	2012	2011
Western Onsite	40%	47%	43%	46%
Eastern Onsite	16%	15%	15%	14%
Heavy Oil	44%	38%	42%	40%

Onsite Revenue ($ millions) and Onsite Gross Profit ($ millions): image/2013+02+13+213nal_graphs.pdf

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

	Three months ended  December 31,			Year ended  December 31,
($000s)	2012	2011	% change	2012	2011	% change
Revenue	75,546	59,855	26	279,992	219,222	28
Cost of Sales(1)	58,219	43,419	34	210,275	160,499	31
Gross Profit	17,327	16,436	5	69,717	58,723	19
Gross Profit as % of revenue	23%	27%	(15)	25%	27%	(7)
Maintenance capital	2,352	3,520	(33)	7,865	7,419	6
Growth capital	16,186	17,441	(7)	68,365	41,956	63
Assets employed(2)				348,036	289,530	20

(1) Includes amortization of $5,265 and $17,005 for Q4 2012 and 2012 year-to-date, respectively, and $4,356 and $15,230 for Q4 2011 and 2011 year-to-date, respectively.

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

Q4 revenue increased 26% and gross profit was 5% higher compared to Q4 2011. Strong demand for our contracts and project services was impacted by the decline in the value of our recovered products and reduced waste volumes in Heavy Oil facilities. Declines in the price of crude oil resulted in reduced prices received for our products of $1.0 million. Lower drilling activity in the WCSB resulted in lower utilization rates for drill site. Performance was positively impacted by waste volumes processed under our MFT contract in the quarter.

For the year, revenue and gross profit increased 28% and 19%, respectively, compared to prior year. Increased contract and project activity offset the impact of lower drilling activity and lower value received for our products.

Western Onsite

Revenue is primarily generated from:

• the supply and operation of drill site processing equipment, including equipment for solids control and drill cuttings management throughout western Canada and the U.S.;
• onsite service in western Canada (excluding services provided by Heavy Oil) includes: industrial cleaning; site remediation; centrifugation; and dredging and dewatering; and
• environmental services serving primarily oil and gas customers.

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

Q4 2012 Western Onsite revenue increased 8% compared to Q4 2011. The growth was driven by U.S. onsite projects including our multi-year arrangement in the U.S. to process slop oil emulsions, and increased market demand for our industrial onsite services in western Canada. Drill site utilization rates declined in the quarter over prior year. Canadian utilization was negatively impacted by a 28% decline in active rigs in western Canada. U.S. utilization improved 9% from Q4 2011 due to the deployment of new and existing equipment to more active areas.

For the year ended December 31, 2012, Western Onsite revenue increased 17% compared to 2011 with contributions from onsite projects in the U.S. and industrial onsite services in western Canada. In the third quarter, we entered into a new multi-year arrangement in the U.S. to process slop oil emulsions on a customer's site in the Bakken. The utilization rate for drill site equipment was down 9% compared to 2011.

		Three months ended December 31,			Year ended December 31,
		2012	2011	% change	2012	2011	% change
Equipment Utilization
	Canada	36%	68%	(47)	41%	52%	(21)
	U.S.	62%	57%	9	61%	62%	(2)
	Combined	51%	62%	(18)	52%	57%	(9)
Average equipment available		211	206	2	215	200	8

Eastern Onsite

Eastern Onsite revenue is derived from:

• onsite service in eastern Canada, including: industrial cleaning; centrifugation; and dredging and dewatering; and
• a fleet of specialized vehicles and equipment for emergency response and onsite processing.

Eastern Onsite services a broad range of industries in eastern Canada; however, these industries are sensitive to the state of the economy in these regions.

Revenue grew 38% and 35% for the three month period and year ended December 31, 2012, respectively, as a result of increased customer adoption of our onsite service model. We are engaged primarily in short-term or project based work, which may vary from quarter-to-quarter. Similar to our model in other regions, the strategy is to secure projects that can be converted into contracts. We currently have one Eastern Onsite operating contract.

Heavy Oil

Our heavy oil services business began 17 years ago with facilities at Hughenden and Elk Point, Alberta. This business has expanded from processing heavy oil in our facility network to operating equipment on customers' sites. Leveraging our facilities as staging areas, we deliver a broad range of specialized services at numerous customer sites. Heavy Oil revenue is generated by facilities services which includes the processing and disposal of oilfield-generated wastes, including water disposal and landfilling as well as the sale of recovered crude oil for our account. The balance of Heavy Oil revenue is generated from specialized onsite services for heavy oil producers under projects and contracts.

Heavy Oil facility revenue has an established customer base; however, performance is affected by the amount of waste generated by producers and the sale of crude oil recovered to our account. These streams vary due to volatility in the price of heavy oil and drilling activity. To address this volatility, over the past four years we have worked with customers to develop specialized onsite services where revenue is based on processed volumes, eliminating our exposure to crude oil prices for these services. In addition, these services create cost savings and provide more environmentally beneficial solutions for our customers. Growth in the business unit will come from our ability to attract and retain customers as new heavy oil operations come on stream.

Q4 2012 Heavy Oil revenue increased 43% compared to Q4 2011. Processing under our MFT contract drove the increase that was tempered by lower waste volumes received at our facilities and the impact of lower pricing received for our recovered crude oil product. Recovered crude oil volumes increased 12% over prior year due to processing higher oil content waste. Waste volumes decreased 26% due to lower oilfield activity. Price per barrel received declined 23% compared to prior year.

For the year, revenue increased 37% compared to 2011, driven by our MFT contract, increased demand for our services and increased recovered crude oil volumes. Recovered crude oil volumes increased 13% over 2011 due to processing higher oil content waste.

To date, we have nine Heavy Oil contracts, seven of which were operating in Q4 2012. Contracts now generate 9% of total revenue compared to 3% in 2011.

	Three months ended December 31,			Year ended December 31,
	2012	2011	% change	2012	2011	% change
Waste processing volumes ('000 m3)	146	197	(26)	655	615	7
Recovered crude oil ('000 bbl)(1)	55	49	12	216	191	13
Average crude oil price received (CDN$/bbl)	60.42	78.02	(23)	65.51	70.91	(8)
Recovered crude oil sales ($ millions)	3.3	3.9	(15)	14.1	13.5	4
Bow River Hardisty (CDN$/bbl)(2)	75.18	89.46	(16)	78.02	83.57	(7)

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

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

Recovered Crude - Heavy Oil (in 000 bbl): image/2013+02+13+213nal_graphs.pdf

CORPORATE AND OTHER

		Three months ended December 31,			Year ended December 31,
($000s)		2012	2011	% change	2012	2011	% change
Selling, general and administrative expenses ("SG&A")		28,489	25,187	13	100,031	87,232	15
Less:
	Stock-based compensation	5,425	3,162	72	12,258	7,679	60
	Amortization	3,526	2,824	25	13,485	11,280	20
Adjusted SG&A		19,538	19,201	2	74,288	68,273	9
	Adjusted SG&A as a % of revenue	9.8%	10.4%	(6)	10.2%	10.0%	2

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

For Q4 2012, Adjusted SG&A was flat to prior year. For the year, Adjusted SG&A increased due to investments in people and people development to support our growth in 2013. Adjusted SG&A remains in line with our expectation of 10% of annual revenue. Stock-based compensation expense increased for both the quarter and year. It fluctuates based on the effects of vesting, volatility in our share price and dividend rate changes. Approximately 55% of stock-based compensation expense is estimated to be settled with equity, with the balance to be settled in cash.

		Three months ended December 31,			Year ended December 31,
($000s)		2012	2011	% change	2012	2011	% change
Research and development		480	439	9	2,358	2,337	1
	Research and development as a % of revenue	0.2%	0.2%	-	0.3%	0.3%	-

Research and development expenses are related to our Technical Development group. They search globally and evaluate new technologies for commercial application at our Facilities and on our customer sites. There is a steady stream of new technologies moving through our Technical Development pipeline; from identification and evaluation to the development phase. Our objective is to deliver two new commercial processes every year.

	Three months ended December 31,			Year ended December 31,
($000s)	2012	2011	% change	2012	2011	% change
Bank fees and interest	228	703	(68)	4,336	4,200	3
Debenture interest, accretion of issue costs, and other(1)	4,996	7,268	(31)	19,978	21,853	(9)
Finance charges before unwinding of the discount(2)	5,224	7,971	(34)	24,314	26,053	(7)
Unwinding of the discount(3)	616	534	15	2,482	2,138	16
Finance charges	5,840	8,505	(31)	26,796	28,191	(5)
Non-cash gain on embedded derivatives(4)	(602)	-	-	(13,439)	-	-
Net Finance charges	5,238	8,505	(38)	13,357	28,191	(53)

(1) Includes convertible debentures and senior unsecured debentures in 2011.

(2) Excludes capitalized interest of $1,595 and $4,664 in Q4 2012 and 2012 year-to-date, respectively, and $858 and $2,744 in Q4 2011 and 2011 year-to-date, respectively.

(3) Relates to decommissioning liability.

(4) Relates to the early redemption feature for the Series 1 and 2 senior unsecured debentures.

The decrease in finance charges before the gain on the embedded derivatives and the unwinding of the discount for the quarter and year-to-date is attributable to unamortized issue costs expensed upon early redemption of the Convertible Debentures in Q4 2011. The non-cash gain on the embedded derivatives is associated with the early redemption feature for the Series 1 and Series 2 Senior Unsecured Debentures (collectively the "Senior Unsecured Debentures") recognized during the quarter. The gain is an estimate of the fair value of the embedded derivatives and is primarily impacted by the risk-free rate, market volatility, and our credit spread. See Note 17 to the Financial Statements for further information.

Finance charges associated with the Senior Unsecured Debentures include annual coupon rates of 7.625% and 7.75%, respectively, as well as the accretion of issue costs and gains or losses on the embedded derivatives for both series. In 2011, we had Convertible Debentures with an annual coupon rate of 7.0%, which were refinanced in Q4 2011 with the Series 2 Senior Unsecured Debentures. See "Liquidity and Capital Resources" in this MD&A for discussion of our long-term borrowings.

	Three months ended December 31,			Year ended December 31,
($000s)	2012	2011	% change	2012	2011	% change
Deferred taxes	706	2,578	(73)	11,208	14,187	(21)
Effective tax rate	14.6%	29.9%	(51)	20.8%	29.7%	(30)

Deferred taxes decreased 73% and 21% to $0.7 million and $11.2 million, respectively, in the quarter and for the year. The lower effective tax rate in 2012 resulted due to statutory and other rate decreases and changes in non-deductible items including stock-based compensation expense and gain on embedded derivatives. Our statutory tax rate in Canada is 25.72% for 2012 and was 27.35% in 2011. Loss carry forwards were approximately $142 million at December 31, 2012. We do not anticipate paying significant income tax until 2016.

CHANGES IN CONSOLIDATED FINANCIAL POSITION

	As at	As at
($000s)	December 31, 2012	December  31, 2011	$  change	% change	Commentary
Assets
Cash	409	-	409	-	See Consolidated Statements of Cash Flows
Accounts and other receivables	150,347	134,172	16,175	12	Consistent with increase in revenue
Inventories	43,123	30,953	12,170	39	Increase primarily related to higher inventory at VSC
Property, plant and equipment	929,580	820,102	109,478	13	See Uses of Cash
Permits and other intangible assets	58,614	59,593	(979)	(2)	-
Goodwill	102,615	102,897	(282)	-	-
Other assets(1)	34,070	17,304	16,766	97	Increase due to non-cash gain on embedded derivative related to Senior Unsecured Debentures and higher prepaid expenses
Equity and liabilities
Bank indebtedness	-	6,168	(6,168)	-	See Consolidated Statements of Cash Flows
Accounts payable and accrued liabilities	181,876	144,067	37,809	26	Increase related to higher capital spending
Deferred revenue	6,494	3,830	2,664	70	Increase relates to long-term waste processing contract
Dividends payable	5,426	3,889	1,537	40	Increase in dividend rate and shares outstanding
Senior secured debt	76,500	68,493	8,007	12	See Consolidated Statements of Cash Flows
Senior unsecured debentures	246,334	245,049	1,285	1	-
Other long-term liabilities	4,228	5,459	(1,231)	(23)	Change relates to non-current obligations under our Incentive plans
Deferred tax liability	77,519	68,389	9,130	13	Increase relates to current year taxable income
Decommissioning liability	78,941	77,756	1,185	2	Increase due to change in risk free rate. See Critical Accounting Estimates
Equity	641,440	541,921	99,519	18	Increase due primarily to equity offering completed in Q4 2012

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

LIQUIDITY AND CAPITAL RESOURCES

The term liquidity refers to the speed with which a company's assets can be converted into cash, or its ability to do so, as well as cash on hand. Liquidity risk refers to the risk that we will encounter difficulty in meeting obligations associated with financial obligations that are settled by cash or another financial asset. Our liquidity risk may arise due to 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, refer to Note 17 to the Financial Statements for the three months and year ended December 31, 2012.

Our debt capital structure is as follows:

($000s)	December 31, 2012	December 31, 2011
Use of Credit Facility:
Amount drawn on Credit Facility	76,500	73,178
Less: Cash on Hand	(310)	-
Senior Unsecured Debentures	250,000	250,000
Letters of credit	16,046	21,332
Total Debt	342,236	344,510
Unused Credit Facility capacity	132,764	105,490

We continue to focus on managing our working capital accounts while supporting our growth. Working capital at December 31, 2012, was $10.7 million (December 31, 2011 - $13.7 million). At current activity levels, working capital is expected to be sufficient to meet our ongoing commitments and operational requirements of the business. We continue to manage working capital well within our prescribed targets, commensurate with activity levels. For further information on credit risk management, please refer to Note 17 to the Financial Statements for the three months and year ended December 31, 2012.

DEBT RATINGS

DBRS Limited ("DBRS") and Moody's Investor Service, Inc. ("Moody's") provide a corporate and Senior Unsecured Debentures credit rating. On October 17, 2012, DBRS upgraded our issuer rating to BB from BB (low) and revised the trend to Stable from Positive. The rating change was attributable to our execution of the business plan, and a growing onsite contract business that is more stable with multi-year terms, strengthening our financial profile. DBRS has also upgraded the Senior Unsecured Debentures to BB from BB (low) with the trend being Stable. Moody's rating remains unchanged from November, 2010.

Category	DBRS	Moody's
Corporate Rating	BB	Ba3
Senior Unsecured Debentures	BB	B1

SOURCES OF CASH

Our liquidity needs can be sourced in several ways including: Funds from operations, borrowings against or increases in 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 and proceeds from the sale of assets.

Credit Facility

At December 31, 2012, $132.8 million was available and undrawn to fund growth capital expenditures and for general corporate purposes, as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60 million. The aggregate dollar amount of outstanding letters of credit is not categorized in the financial statements as long-term debt; however, the issued letters of credit reduce the amount available under the Credit Facility and are included in the definition of Total Debt for covenant purposes. Under the Credit Facility, surety bonds (including performance and bid bonds) to a maximum of $125 million are excluded from the definition of Total Debt. As at December 31, 2012, surety bonds issued and outstanding totalled $43.8 million.

During the third quarter, the Credit Facility was amended and restated. The Credit Facility now matures July 12, 2015. Management may, at its option, request an extension of the Credit Facility on an annual basis. If no request to extend the Credit Facility is made by management, the entire amount of the outstanding indebtedness would be due in full on July 12, 2015. Under the amended facility, the principal borrowing amount is $225 million and the maximum Total Debt to Consolidated EBITDA ratio is 4:1. The facility requires us to be in compliance with certain covenants. Our covenant ratios under the Credit Facility remained well within their thresholds.

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

	December 31, 2012	December 31, 2011	Threshold
Senior Secured Debt(2) to EBITDA(3)	0.66:1	0.65:1	2.75:1 maximum
Total Debt(4) to EBITDA(3)	2.46:1	2.38:1	4.00:1 maximum
Interest Coverage	5.09:1	5.86:1	2.25:1 minimum

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

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

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

(4) Total Debt comprises outstanding indebtedness under the Credit Facility, including bank overdraft balance and the Senior Unsecured Debentures.

Our Total Debt was $342.2 million as at December 31, 2012, which reflected a $2.3 million decrease over December 31, 2011. Proceeds of the equity financing were offset by increased capital spending and lower EBITDA causing the Total Debt to EBITDA ratio to increase from 2.38 in Q4 2011 to 2.47 in Q4 2012. Our target for Total Debt to EBITDA ratio remains at or below 2.0. Our covenant ratios under the Credit Facility remained well within their thresholds. We will manage within our covenants throughout 2013.

Senior Unsecured Debentures

Term	Series 1(1)		Series 2(1)
Principal	$125.0 million		$125.0 million
Interest rate	7.625%		7.75%
Maturity	November 23, 2017		November 14, 2019
Interest payable  (in arrears)	May 23 and November 23 each year		May 14 and November 14 in each year
Debentures are redeemable at the option of Newalta prior to:	November 23, 2013 Redemption price equal to 107.625% of the principal amount(2,3) or  In whole or in part, at a redemption price which is equal to the greater of: (a) the Canada Yield Price (as defined in the trust indenture) and  (b) 101% of the aggregate principal amount of Senior Unsecured Debentures redeemed(3)		November 14, 2015 Redemption price equal to 107.75% of the principal amount(2,3) or  In whole or in part, at a redemption price which is equal to the greater of: (a) the Canada Yield Price (as defined in the trust indenture) and  (b) 101% of the aggregate principal amount of Senior Unsecured Debentures redeemed(3)
Debentures are redeemable at the option of Newalta after:	November 23, 2013 In whole or in part, at redemption prices expressed as percentages of the principal(3) if redeemed during the twelve month period beginning on November 23 of the years as follows:  2013 - 103.813%;  2014 - 102.542%;  2015 - 101.906%;  2016 and thereafter - 100%.		November 14, 2015 In whole or in part, at redemption prices expressed as percentages of the principal(3) if redeemed during the twelve month period beginning on November 14 of the years as follows: 2015 - 103.875%;  2016 - 101.938%;  2017 and thereafter - 100%.

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

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

(3) Plus interest to the date of redemption

The Senior Unsecured Debentures are unsecured senior obligations and rank equally with all other existing and future unsecured senior debt and senior to any subordinated debt that may be issued by Newalta or any of its subsidiaries. The Senior Unsecured Debentures are effectively subordinated to all secured debt to the extent of collateral on such debt.

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

Covenants under our trust indenture include:

Ratio	December 31, 2012	December 31, 2011	Threshold
Senior Secured Debt including Letters of Credit	92,546	94,510	$25,000 + the greater of $220,000 and 1.75x EBITDA
Cumulative finance lease obligations	nil	nil	$25,000 maximum
Consolidated Fixed Charge Coverage	5.09:1	5.86:1	2.00:1 minimum
Period end surplus for restricted payments(1)	110,739	27,001	Restricted payments cannot exceed surplus

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

We will manage within our covenants throughout 2013.

Equity Issuance

During the fourth quarter, we closed an equity financing with the issuance of 5.5 million shares at a price of $14.00 per share for gross proceeds of $77.0 million (net proceeds of $74.4 million). The funds were used to expand our organic growth plan and contribute to the funding of customer-driven capital projects. Proceeds of the offering were used to reduce indebtedness and for general corporate purposes until fully invested.

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 periods indicated are as follows:

	Three months ended December 31,		Year ended December 31,
($000s)	2012	2011	2012	2011
Growth capital expenditures	45,311	33,375	137,388	86,629
Maintenance capital expenditures	12,089	11,914	34,952	31,051
Total capital expenditures(1)	57,400	45,289	172,340	117,680

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

Total capital expenditures were $57.4 million for the three months ended December 31, 2012. Growth capital expenditures for the quarter relate primarily to facility and service expansion at our Western Facilities and equipment for contract work in our Heavy Oil business unit. Maintenance capital expenditures relate primarily to process equipment improvements at our facilities. Capital expenditures were funded from funds from operations and our Credit Facility.

Total capital spending for 2012 was $172.3 million compared to $117.7 million in 2011. The increase over prior year was driven by additional equipment purchases primarily for our project and contract related work, facility and service expansion at our Western Facilities.

Our 2013 capital budget is $190 million, comprised of growth capital of $155 million and maintenance capital of $35 million. We expect to spend approximately 40% of the capital budget in the first half of 2013. We may revise the capital budget, from time-to-time, in response to changes in market conditions that materially impact our financial performance and/or investment opportunities. The capital program will be funded by cash flow from operations and the proceeds from the equity financing completed in the fourth quarter of 2012.

Our $155 million in growth capital investment for 2013 will be allocated among the following areas:

New Markets	$70 million
Oilfield	$40 million
Industrial	$30 million
Technical Development and Corporate	$15 million

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 $5.4 million in dividends or $0.10 per share, paid January 15, 2013, to shareholders of record as at December 31, 2012.

During the quarter we implemented a Dividend Reinvestment Plan ("DRIP"). The DRIP provides eligible Newalta shareholders with the opportunity to reinvest their quarterly cash dividend to acquire additional shares at a purchase price equal to 95% of the average market price (defined as the volume weighted average trading price of the shares for the five trading days immediately preceding the dividend payment date). The dividend paid to shareholders of record on December 31, 2012 was the first dividend eligible to be reinvested under the DRIP. The full text of the DRIP and an Enrollment Form are available from Valiant Trust at www.valianttrust.com or on Newalta's website atwww.newalta.com.

As at February 13, 2013, Newalta had 54,410,235 shares outstanding, and outstanding options to purchase up to 4,308,459 shares.

Contractual Obligations

Our contractual obligations, as at December 31, 2012 were:

($000s)	Total	Less than one year	1-3 years	4-5 years	Thereafter
Office leases	57,680	9,048	25,233	7,335	16,064
Operating leases(1)	23,705	6,226	17,372	107	-
Surface leases	2,500	465	1,395	465	175
Senior long-term debt(2)	76,500	-	76,500	-	-
Senior unsecured debentures	363,230	19,219	57,657	143,226	143,128
Purchase obligations	3,251	3,160	84	7	-
Other obligations(3)	187,302	187,302	-	-	-
Total commitments	714,168	225,420	178,241	151,140	159,367

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

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

(3) Other obligations is comprised primarily of accounts payable and accrued liability balances.

SUMMARY OF QUARTERLY RESULTS

($000s except per share data)		2012			2011
	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Revenue	198,445	190,136	171,130	166,498	184,089	182,023	164,294	152,422
Earnings before taxes	4,830	21,951	22,992	7,143	8,609	16,537	13,632	8,971
Net earnings	4,124	15,236	18,626	4,819	6,031	11,815	10,483	5,233
Earnings per share ($)	0.08	0.31	0.38	0.10	0.12	0.24	0.22	0.11
Earnings per share ($) - adjusted	0.17	0.32	0.10	0.28	0.19	0.25	0.20	0.21
Diluted earnings per share ($)	0.08	0.31	0.38	0.10	0.12	0.24	0.21	0.11
Weighted average shares - basic	52,741	48,698	48,682	48,579	48,569	48,607	48,523	48,495
Weighted average shares - diluted	53,473	49,497	49,613	49,519	49,286	49,403	49,318	48,949
EBITDA	27,865	37,544	37,200	27,269	33,515	41,691	33,648	29,942
Adjusted EBITDA	33,290	42,526	30,248	36,073	36,677	41,871	33,044	34,883

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

All four quarters in 2011 reflect continued strong demand for our products and services. Revenue, Adjusted EBITDA, earnings before taxes and net earnings have steadily improved quarter-over-quarter in line with market conditions from 2010. Net earnings in Q2 relative to Q1 2011 were positively impacted by lower stock-based compensation expense and lower related deferred tax expense. Relative to Q3 2011, Q4 net earnings and Earnings before taxes were lower due to lower Adjusted EBITDA as well as higher financing fees as a result of the early redemption of the Convertible Debentures. Adjusted EBITDA was lower in Q4 relative to Q3 2011 due largely to lower contributions from Facilities resulting from lower event-based business at SCL and weaker performance at VSC, as well as higher Adjusted SG&A due to the timing of expenses.

Quarterly revenue in 2012 grew, reflecting strong demand for our services. Compared to Q4 2011, Q1 2012 revenue was down and Adjusted EBITDA was flat. Lower contributions from Onsite due to reduced activity at our Heavy Oil facilities were offset by lower Adjusted SG&A costs. Net income was down 20% over Q4 2011 due to seasonally lower contributions from Onsite and higher stock-based compensation expense which were offset by lower finance charges. Compared to Q1, Q2 2012 revenue was up slightly and net earnings increased significantly due to lower stock-based compensation expense and net finance charges. Adjusted EBITDA in Q2 2012 was down from Q1 due to the lower value received for our products in the quarter and higher SG&A expenses. Revenue and adjusted EBITDA in Q3 2012 increased compared to the prior quarter as a result of growth in Onsite. Net earnings decreased in Q3 2012 due to higher stock-based compensation expense. Fourth quarter revenue increased relative to Q3 2012 due to increased demand for our onsite contracts and projects. Net earnings and adjusted EBITDA in Q4 decreased from Q3 2012 due to the impact of lower value received for our products, reduced oilfield activity and higher stock-based compensation expense.

RECENT DEVELOPMENTS

On January 1, 2013, we reorganized our reporting structure into three divisions - New Markets, Oilfield and Industrial. The changes to our operating structure are based on:

• improved alignment of our operations with our customers so that we can provide a seamless service package and also focus our efforts on developing new and innovative solutions for them;
• providing the optimum structure to allocate management to execute our growth plans; and,
• improving the disclosure to our investors with additional detail on the results of our areas of high growth (New Markets Division) while retaining all of the previous information provided.

The reorganization of the three new divisions will be as follows:

New Markets

• Heavy Oil Business Unit (includes heavy oil facilities and onsite)
• U.S. Business Unit (includes U.S. facilities, drill site and onsite)

Oilfield

• Includes oilfield facilities, oilfield onsite, environmental services and Canadian drill site

Industrial

• Western Business Unit (includes oil recycling, industrial facilities and industrial onsite in western Canada)
• Eastern Business Unit (includes VSC, SCL, industrial facilities and industrial onsite in eastern Canada)

The tables below restate the historical segmented information from the Facilities and Onsite divisions to the New Markets, Oilfield and Industrial divisions.

New Markets - Information by Quarter

	2012				2011				2010
($000s)	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue	36,131	38,626	61,560	52,520	28,086	35,062	39,211	36,954	19,401	22,875	28,732	27,743
Cost of Sales	21,931	24,676	39,026	35,452	19,337	22,272	25,651	24,154	12,453	15,688	19,017	18,713
Gross Profit	14,200	13,950	22,534	17,068	8,749	12,790	13,560	12,800	6,948	7,187	9,715	9,030
Gross Profit as % of revenue	39%	36%	37%	32%	31%	36%	35%	35%	36%	31%	34%	33%
Capital Expenditures	17,516	30,326	7,499	16,951	1,932	7,845	5,205	16,193	2,238	5,244	3,591	6,807
Amortization included in Cost of Sales	2,120	2,320	3,430	4,393	1,013	961	2,116	1,845	1,253	1,398	1,150	1,176
Business Unit Revenue Contribution %
Heavy Oil	63%	66%	74%	69%	62%	67%	70%	66%	81%	73%	68%	64%
U.S.	37%	34%	26%	31%	38%	33%	30%	34%	19%	27%	32%	36%

New Markets - Year to Date Information

	2012				2011				2010
($000s)	Q1	Q2-YTD	Q3-YTD	Q4-YTD	Q1	Q2-YTD	Q3-YTD	Q4-YTD	Q1	Q2-YTD	Q3-YTD	Q4-YTD
Revenue	36,131	74,757	136,317	188,837	28,086	63,148	102,359	139,313	19,401	42,276	71,008	98,751
Cost of Sales	21,931	46,607	85,633	121,085	19,337	41,609	67,260	91,414	12,453	28,141	47,158	65,871
Gross Profit	14,200	28,150	50,684	67,752	8,749	21,539	35,099	47,899	6,948	14,135	23,850	32,880
Gross Profit as % of revenue	39%	38%	37%	36%	31%	34%	34%	34%	36%	33%	34%	33%
Capital Expenditures	17,516	47,842	55,341	72,292	1,932	9,777	14,982	31,175	2,238	7,482	11,073	17,880
Amortization included in Cost of Sales	2,120	4,440	7,870	12,263	1,013	1,974	4,090	5,934	1,253	2,651	3,800	4,976
Business Unit Revenue Contribution %
Heavy Oil	63%	65%	69%	69%	62%	65%	66%	66%	81%	76%	73%	71%
U.S.	37%	35%	31%	31%	38%	35%	34%	34%	19%	24%	27%	29%

Oilfield - Information by Quarter

	2012				2011				2010
($000s)	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue	50,452	38,951	47,178	44,486	43,299	32,723	46,491	51,134	38,322	30,659	36,062	40,906
Cost of Sales	30,937	28,491	30,442	29,665	23,194	19,370	28,400	31,579	23,290	18,201	19,690	23,056
Gross Profit	19,515	10,460	16,736	14,821	20,105	13,353	18,091	19,555	15,032	12,458	16,372	17,850
Gross Profit as % of revenue	39%	27%	35%	33%	46%	41%	39%	38%	39%	41%	45%	44%
Capital Expenditures	6,749	5,347	9,303	14,698	5,859	8,623	14,772	12,781	1,043	3,108	6,060	10,551
Amortization included in Cost of Sales	3,185	2,692	2,987	3,086	3,730	3,340	3,895	4,423	3,676	3,334	3,251	3,712

Oilfield - Year to Date Information

	2012				2011				2010
($000s)	Q1	Q2-YTD	Q3-YTD	Q4-YTD	Q1	Q2-YTD	Q3-YTD	Q4-YTD	Q1	Q2-YTD	Q3-YTD	Q4-YTD
Revenue	50,452	89,403	136,581	181,067	43,299	76,022	122,513	173,647	38,322	68,981	105,043	145,949
Cost of Sales	30,937	59,428	89,870	119,535	23,194	42,564	70,964	102,543	23,290	41,491	61,181	84,237
Gross Profit	19,515	29,975	46,711	61,532	20,105	33,458	51,549	71,104	15,032	27,490	43,862	61,712
Gross Profit as % of revenue	39%	34%	34%	34%	46%	44%	42%	41%	39%	40%	42%	42%
Capital Expenditures	6,749	12,096	21,399	36,097	5,859	14,482	29,254	42,035	1,043	4,151	10,211	20,762
Amortization included in Cost of Sales	3,185	5,877	8,864	11,950	3,730	7,070	10,965	15,387	3,676	7,010	10,261	13,973

Industrial - Information by Quarter

		2012				2011				2010
($000s)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue		79,915	93,553	81,398	101,439	81,037	96,509	96,321	96,001	73,517	83,371	80,330	94,278
Inter-segment Revenue		-	-	-	-	-	-	-	-	157	189	139	104
Cost of Sales		70,752	79,127	71,661	94,291	70,673	83,961	83,112	85,616	62,865	72,159	71,275	81,989
Gross Profit		9,163	14,426	9,737	7,148	10,364	12,548	13,209	10,385	10,809	11,401	9,194	12,393
Gross Profit as % of revenue		11%	15%	12%	7%	13%	13%	14%	11%	15%	13%	11%	13%
Capital Expenditures		4,013	6,864	8,863	13,293	3,006	7,514	8,903	10,915	2,447	5,618	10,425	9,898
Amortization included in Cost of Sales		6,112	6,047	5,860	6,792	6,388	7,084	9,472	7,311	5,464	6,076	5,779	7,221
Business Unit Revenue Contribution %
	Western	26%	25%	32%	22%	23%	23%	27%	26%	20%	23%	28%	22%
	Eastern	74%	75%	68%	78%	77%	77%	73%	74%	80%	77%	72%	78%
	VSC as % of Industrial	34%	32%	18%	36%	41%	38%	27%	33%	39%	34%	30%	42%

Industrial - Year to Date Information

		2012				2011				2010
($000s)		Q1	Q2-YTD	Q3-YTD	Q4-YTD	Q1	Q2-YTD	Q3-YTD	Q4-YTD	Q1	Q2-YTD	Q3-YTD	Q4-YTD
Revenue		79,915	173,468	254,866	356,305	81,037	177,546	273,867	369,868	73,517	156,888	237,218	331,496
Inter-segment Revenue		-	-	-	-	-	-	-	-	157	346	485	589
Cost of Sales		70,752	149,879	221,540	315,831	70,673	154,634	237,746	323,362	62,865	135,024	206,299	288,287
Gross Profit		9,163	23,589	33,326	40,474	10,364	22,912	36,121	46,506	10,809	22,210	31,404	43,798
Gross Profit as % of revenue		11%	14%	13%	11%	13%	13%	13%	13%	15%	14%	13%	13%
Capital Expenditures		4,013	10,877	19,740	33,033	3,006	10,520	19,423	30,338	2,447	8,065	18,490	28,388
Amortization included in Cost of Sales		6,112	12,159	18,019	24,811	6,388	13,472	22,944	30,255	5,464	11,540	17,319	24,540
Business Unit Revenue Contribution %
	Western	26%	26%	28%	26%	23%	23%	25%	25%	20%	22%	24%	23%
	Eastern	74%	74%	72%	74%	77%	77%	75%	75%	80%	78%	76%	77%
	VSC as % of Industrial	34%	33%	28%	30%	41%	40%	35%	35%	39%	36%	34%	36%

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any material off-balance sheet arrangements.

SENSITIVITIES

Our stock-based compensation expense is sensitive to changes in our share price. At December 31, 2012, a $1 change in our share price between $12 per share and $18 per share has a $3.0 - $4.0 million direct impact on annual stock-based compensation reflected in SG&A. We anticipate that approximately 55% of stock-based compensation will be settled in cash in future periods.

Our revenue is sensitive to changes in commodity prices for crude oil, base oils and lead. These factors have both a direct and indirect impact on our business. The direct impact of these commodity prices is reflected in the revenue received from the sale of products such as crude oil, base oils and lead. Historically approximately 25% of our revenue is sensitive to direct impact of commodity prices. The indirect impact is the effect that the variations of these factors, including natural gas, has on activity levels of our customers and, therefore, demand for our services. Management actively manages the indirect impact by strategically geographically balancing mobile assets to meet demand and shifts in activity levels where necessary. The indirect impacts of these fluctuations previously discussed are not quantifiable.

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

	Change in benchmark ($)	Impact on Annual Revenue ($)
LME lead price ($U.S./MT)(1)(2)	220	7.7 million
Edmonton Par crude oil price ($/bbl)(1)	1.00	0.3 million
Bow River crude oil price ($/bbl)(1)	1.00	0.3 million
Motiva Base oil ($/litre)(3)(4)	0.05	0.8 million

(1) Based on 2012 performance and volumes

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

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

(4) Based on 2012 volumes of 18 million litres

RISK MANAGEMENT

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

• Strategic - risk to earnings, capital, and strategic objectives arising due to changes in the business environment
• Operational - risk of loss due to failed internal processes and systems, human and technical errors, or external events
• Financial - risk associated with financial processes, obligations, and assets
• People - risk to Business Plan due to recruiting, training, labour availability, union relations, and managerial structure
• Legal/Regulatory - risk of loss due to compliance with laws, ethical standards, disclosure, and contractual obligations
• Technology and Data - risk that IT systems are not adequate to support strategic and business objectives

CRITICAL ACCOUNTING ESTIMATES

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Such estimates relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts as transactions are settled in the future. Amounts recorded for amortization, accretion, future decommissioning obligations, embedded derivatives, deferred income taxes, valuation of warrants and impairment calculations are based on estimates. By their nature, these estimates are subject to measurement uncertainty, and the impact of the difference between the actual and the estimated costs on the financial statements of future periods could be material.

Recoverability of Asset Carrying Values

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

Our determination, as at December 31, 2012, was that there was no impairment.

Decommissioning Liability

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

Revisions to the estimated amount or timing of the obligations are reflected prospectively as increases or decreases to the recorded liability and the related asset. Actual decommissioning expenditures, up to the recorded liability at the time, are drawn against the liability as the costs are incurred. Amounts capitalized to the related assets are amortized to income in line with the depreciation of the underlying asset.

Fair Value Calculation on Share-Based Payments and Stock Appreciation Rights

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

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

We may also grant stock appreciation rights ("SARs") to directors, officers, employees and consultants of Newalta Corporation or any of its affiliates. SARs entitle the holder thereof to receive cash from Newalta in an amount equal to the positive difference between the grant price and the trading price of our common shares on the exercise date. The grant price is calculated based on the five-day volume weighted average trading price of our common shares on the TSX.

The fair value at the date of grant is calculated using the Black-Scholes option pricing model method with the share-based compensation expense recognized over the vesting period of the options. There are a number of estimates used in the calculation such as the future forfeiture rate, expected option life and the future price volatility of the underlying security which can vary from actual future events. The factors applied in the calculation are management's best estimates based on historical information and future forecasts.

Taxation

The calculation of deferred income taxes is based on a number of assumptions including estimating the future periods in which temporary differences, tax losses and other tax credits will reverse. Tax interpretations, regulations and legislation in the various jurisdictions in which we operate are subject to change.

Derivative Instruments

The estimated fair value of derivative instruments resulting in financial assets and liabilities, by their very nature, are subject to measurement uncertainty.

Leases

Newalta makes judgments in determining whether certain leases, in particular those with long contractual terms where the lessee is the sole user and Newalta is the lessor, are operating or finance leases.

Revenue

Newalta may enter into arrangements with customers which contain multiple elements in which revenue is recognized for each unit of accounting when earned based on the relative fair value of each unit of accounting as determined by internal or third party analyses of market-based prices. Significant judgment is required to allocate contract consideration to each unit of accounting and determine whether the arrangement is a single unit of accounting or a multiple element arrangement. Depending upon how such judgment is exercised, the timing and amount of revenue recognized could differ significantly.

FUTURE ACCOUNTING POLICY CHANGES

As of January 1, 2013 with the exception of IFRS 9, which is expected to be effective as of January 1, 2015, we are required to adopt the following standards and amendments as issued by the International Accounting Standards Board ("IASB"), which are not expected to have a material impact on our consolidated financial statements.

• IFRS 10, "Consolidated Financial Statements", which is the result of the IASB's project to replace Standing Interpretations Committee 12, "Consolidation - Special Purpose Entities" and the consolidation requirements of IAS 27, "Consolidated and Separate Financial Statements". The new standard eliminates the current risk and rewards approach and establishes control as the single basis for determining consolidation of an entity.
• IFRS 12, "Disclosure of Interests in Other Entities", which outlines the required disclosures for interests in subsidiaries and joint arrangements. The new disclosures require information that will assist financial statement users to evaluate the nature, risks and financial effects associated with an entity's interests in subsidiaries and joint arrangements.
• IFRS 11, "Joint Arrangements", which is the result of the IASB's project to replace IAS 31, "Interest in Joint Ventures". The new standard redefines joint operations and joint ventures and requires joint operations to be proportionately consolidated and joint ventures to be equity accounted. Under IAS 31, joint ventures could be proportionately consolidated.
• IFRS 13, "Fair Value Measurement", which provides a common definition of fair value, establishes a framework for measuring fair value under IFRS and enhances the disclosures required for fair value measurements. The standard applies where fair value measurements are required and does not require new fair value measurements.
• IFRS 9, "Financial Instruments", which is the result of the first phase of the IASB's project to replace IAS 39, "Financial Instruments: Recognition and Measurement". The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value.

BUSINESS RISKS AND RISK MANAGEMENT

Our business is subject to certain risks and uncertainties. Prior to making any investment decision regarding Newalta, investors should carefully consider, among other things, the risks described herein (including the risks and uncertainties listed on the front page of this MD&A and throughout this MD&A) and the risk factors set forth in the most recently filed Annual Information Form of Newalta which are incorporated by reference herein. For further information on our risk management framework, please refer to page 43 of our 2011 Annual Report.

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

FINANCIAL AND OTHER INSTRUMENTS

The carrying values of accounts receivable and accounts payable approximate the fair value of these financial instruments due to their short term maturities. Our credit risk from our customers is mitigated by our broad customer base and diverse product lines. Historically, on an annual basis, our top 25 customers generate approximately 40% of our total revenue, with 12% of these customers having a credit rating of A or higher and 52% of these customers having ratings of BBB or higher. In the normal course of operations, we are exposed to movements in U.S. dollar exchange rates relative to the Canadian dollar. The foreign exchange risk arises primarily from U.S. dollar denominated long-term debt and working capital. We have not entered into any financial derivatives to manage the risk for the foreign currency exposure as at December 31, 2012. Management assesses our working capital foreign exchange exposure regularly and may draw U.S. denominated long-term debt as required, which serves as a natural hedge, to mitigate our balance sheet exposure. The floating interest rate profile of our long-term debt exposes us to interest rate risk. We do not use hedging instruments to mitigate this risk. The carrying value of the senior secured long-term debt approximates fair value due to its floating interest rates. For further information regarding our financial and other instruments, please refer to Note 17 to the Financial Statements for the three months and year ended December 31, 2012.

During the year, we recorded an impairment of $1.6 million on our available for sale financial asset due to a decline in investment value. The change in value has been reclassified from other comprehensive loss to finance charges in accordance with IAS 39 requirements.

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, 2012, and have concluded that such disclosure controls and procedures were effective. In additional, the Certifying Officers have evaluated the design and effectiveness of our internal control over financial reporting as of December 31, 2012, 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 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ADDITIONAL INFORMATION

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

Consolidated Balance Sheets

(Expressed in thousands of Canadian Dollars)

		December 31, 2012	December 31, 2011
Assets
Current assets
	Cash	409	-
	Accounts and other receivables	150,347	134,172
	Inventories (Note 3)	43,123	30,953
	Prepaid expenses and other	10,627	6,558
		204,506	171,683
Non-current assets
	Property, plant and equipment (Note 4)	929,580	820,102
	Permits and other intangible assets (Note 5)	58,614	59,593
	Other long-term assets (Note 6)	23,443	10,746
	Goodwill (Note 5)	102,615	102,897
TOTAL ASSETS		1,318,758	1,165,021
Liabilities
Current liabilities
	Bank indebtedness	-	6,168
	Accounts payable and accrued liabilities	181,876	144,067
	Deferred revenue	6,494	3,830
	Dividends payable	5,426	3,889
		193,796	157,954
Non-current liabilities
	Senior secured debt (Note 7)	76,500	68,493
	Senior unsecured debentures (Note 8)	246,334	245,049
	Other liabilities (Note 9)	4,228	5,459
	Deferred tax liability (Note 10)	77,519	68,389
	Decommissioning liability (Note 11)	78,941	77,756
TOTAL LIABILITIES		677,318	623,100
Shareholders' Equity
Shareholders' capital (Note 12)		394,048	317,386
Contributed surplus		2,881	2,700
Retained earnings		247,565	223,679
Accumulated other comprehensive loss		(3,054)	(1,844)
TOTAL EQUITY		641,440	541,921
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		1,318,758	1,165,021

The accompanying notes to the financial statements are an integral component of the financial statements.

Consolidated Statements of Operations

(Expressed in thousands of Canadian Dollars)

(Except per share data)

		For the three months ended December 31,		For the year  ended December 31,
		2012	2011	2012	2011
Revenue		198,445	184,089	726,209	682,828
Cost of sales		159,408	141,349	556,451	517,319
Gross profit		39,037	42,740	169,758	165,509
	Selling, general and administrative	28,489	25,187	100,031	87,232
	Research and development	480	439	2,358	2,337
Earnings before finance charges and income taxes		10,068	17,114	67,369	75,940
	Finance charges (Note 18)	5,840	8,505	26,796	28,191
	Embedded derivative gain (Note 17)	(602)	-	(13,439)	-
Net financing charges expense		5,238	8,505	13,357	28,191
Earnings before income taxes		4,830	8,609	54,012	47,749
Income tax expense (Note 10)		706	2,578	11,208	14,187
Net earnings		4,124	6,031	42,804	33,562
Net earnings per share (Note 14)		0.08	0.12	0.86	0.69
Diluted earnings per share (Note 14)		0.08	0.12	0.85	0.68
Supplementary information:
Amortization included within cost of sales		14,271	13,577	49,024	51,576
Amortization included in selling, general and administrative		3,526	2,824	13,485	11,280
Total amortization		17,797	16,401	62,509	62,856

Consolidated Statements of Comprehensive Income

(Expressed in thousands of Canadian Dollars)

		For the three months ended December 31,		For the year ended December 31,
		2012	2011	2012	2011
Net earnings		4,124	6,031	42,804	33,562
Other comprehensive loss:
	Exchange difference on translating foreign operations	1,340	(460)	(2,678)	(460)
	Unrealized loss on available for sale financial assets(1)(Note 17)	(64)	(255)	(159)	(1,971)
	Transfer of available for sale financial assets to financing charges (Note 6)	70	-	1,627	-
Other comprehensive loss		1,346	(715)	(1,210)	(2,431)
Comprehensive income		5,470	5,316	41,594	31,131

(1) Net of tax of nil and nil for the three months and year ended December 31, 2012, respectively ($0.1 million and $0.2 million for the three months and year ended December 31, 2011, respectively).

The accompanying notes to the financial statements are an integral component of the financial statements.

Consolidated Statement of Changes in Equity

(Expressed in thousands of Canadian Dollars)

	Shareholders' capital	Equity portion of convertible debentures	Contributed surplus	Retained earnings	Accumulated other comprehensive income (loss)	Total
Balance, December 31, 2010	315,934	1,021	1,679	204,935	587	524,156
Changes in equity for year ended December 31, 2011
Exercise of options	1,452	-	-	-	-	1,452
Redemption of convertible debentures	-	(1,021)	1,021	-	-	-
Dividends declared	-	-	-	(14,818)	-	(14,818)
Other comprehensive loss	-	-	-	-	(2,431)	(2,431)
Net earnings for the year	-	-	-	33,562	-	33,562
Balance, December 31, 2011	317,386	-	2,700	223,679	(1,844)	541,921
Changes in equity for year ended December 31, 2012
Exercise of options	2,443	-	-	-	-	2,443
Issuance of shares (Note 12)	74,400	-	-	-	-	74,400
Cancellation of shares	(181)	-	181	-	-	-
Dividends declared	-	-	-	(18,918)	-	(18,918)
Other comprehensive loss	-	-	-	-	(1,210)	(1,210)
Net earnings for the year	-	-	-	42,804	-	42,804
Balance, December 31, 2012	394,048	-	2,881	247,565	(3,054)	641,440

The accompanying notes to the financial statements are an integral component of the financial statements.

Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian Dollars)

		For the three months ended December 31,		For the year ended December 31,
		2012	2011	2012	2011
Cash provided by (used for):
Operating Activities
Net earnings		4,124	6,031	42,804	33,562
Adjustments for:
	Amortization	17,796	16,401	62,509	62,856
	Income taxes provision (Note 10)	706	2,578	11,208	14,187
	Income taxes paid	(188)	(1,514)	(231)	(1,809)
	Stock-based compensation expense (Note 9)	4,455	3,003	8,955	6,084
	Finance charges	5,840	8,505	26,796	28,191
	Embedded derivative gain (Note 17)	(602)	-	(13,439)	-
	Finance charges paid	(10,343)	(9,502)	(22,075)	(20,083)
	Other	515	(150)	89	(213)
Funds from Operations		22,303	25,352	116,616	122,775
Decrease (increase) in non-cash working capital (Note 20)		26,772	27,749	(15,883)	(14,856)
Decommissioning costs incurred		(1,683)	(1,711)	(3,554)	(3,356)
Cash from Operating Activities		47,392	51,390	97,179	104,563
Investing Activities
	Additions to property, plant and equipment (Note 4)	(48,616)	(46,786)	(157,669)	(117,143)
	Proceeds on sale of property, plant, and equipment	1,925	1,023	2,573	1,220
	Other	-	-	100	(5,757)
Cash used in Investing Activities		(46,691)	(45,763)	(154,996)	(121,680)
Financing Activities
	Issuance of shares	73,920	-	74,562	1,249
	Issuance of senior unsecured debentures	-	122,557	-	122,557
	Redemption of convertible debentures	-	(115,000)	-	(115,000)
	(Decrease) increase in senior secured debt	(71,000)	(12,755)	7,496	16,154
	Increase (decrease) in bank indebtedness	-	3,384	(6,168)	5,999
	Decrease in note receivable	70	75	264	240
	Dividends paid (Note 15)	(4,870)	(3,888)	(17,382)	(14,082)
Cash from Financing Activities		(1,880)	(5,627)	58,772	17,117
	Effect of foreign exchange on cash	311	-	(546)	-
Change in cash		(868)	-	409	-
Cash, beginning of year		1,277	-	-	-
Cash, end of year		409	-	409	-

The accompanying notes to the financial statements are an integral component of the financial statements.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2012 and 2011.

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

NOTE 1. CORPORATE STRUCTURE

Newalta Corporation (the "Corporation" or "Newalta") was incorporated on October 29, 2008, pursuant to the laws of the Province of Alberta. Newalta completed an internal reorganization resulting in a name change from Newalta Inc. to Newalta Corporation effective January 1, 2010. Newalta provides cost-effective solutions to industrial customers to improve their environmental performance with a focus on recycling and recovery of products from industrial residues. These services are provided both through our network of 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 oil and gas, petrochemical, refining, lead, manufacturing and mining industries.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and include the accounts of Newalta and its wholly-owned subsidiaries. All intercompany balances and transactions including revenue and expenses have been eliminated. These consolidated financial statements are prepared using IFRS accounting policies which became Canadian Generally Accepted Accounting Principles for publicly accountable enterprises and were adopted by the Corporation for fiscal years beginning on January 1, 2011. 
These consolidated financial statements were approved by the Board of Directors on February 12, 2013.

Basis of Preparation

The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair value, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
The principal accounting policies are set out below.

a) Cash and cash equivalents

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

b) Inventories

Inventories are comprised of oil, lead and other recycled products, spare parts and supplies, and are recorded at the lower of cost and net realizable value. Inventories are valued using the weighted average costing method. Cost of finished goods includes the laid down cost of materials plus the cost of direct labour applied to the product and the applicable share of overhead expense. Cost of other items of inventories comprise the laid down cost.

c) Property, plant and equipment

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

Plant and equipment is principally depreciated at rates of 5-10% of the declining balance (buildings, site improvements, tanks and mobile equipment) or from 5-14 years straight line (vehicles, computer hardware and software and leasehold improvements), depending on the expected life of the asset. Some equipment is depreciated based on utilization rates. The utilization rate is determined by dividing the cost of the asset by the estimated future hours of service. Residual values, up to 20% of original cost, may be established for buildings, site improvements, and tanks. These residual values are not depreciated. The estimated useful lives, residual values and amortization methods are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

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

d) Permits and other intangible assets

Permits and other intangible assets are stated at cost, less accumulated amortization and impairment, and consist of certain production processes, trademarks, permits and agreements which are amortized over the period of the contractual benefit of 8 to 20 years on a straight line basis. Certain permits are deemed to have indefinite lives and therefore are not amortized. There are nominal fees to renew these permits provided that Newalta remains in good standing with regulatory authorities.

e) Leases

Lessee

All of the Corporation's leases are classified as operating leases and the leased assets are not recognized in the Corporation's consolidated balance sheets. Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease unless another systematic basis is representative of the time pattern of the user's benefit, including any rent-free periods. Lease incentives are recognized as an integral part of the total lease expense, over the term of the lease.

Leases where the Corporation assumes substantially all the risks and rewards of ownership would be classified as finance leases and the corresponding asset would be classified as property, plant and equipment and the liability as obligations under finance lease.

Leases may include additional payments for real estate taxes, maintenance and insurance. These amounts are expensed in the period to which they relate.

Lessor

Assets subject to operating leases are recognized and classified according to the nature of the asset. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and expensed over the lease term on the same basis as the lease income. The depreciation policy for leased assets is consistent with the depreciation policy for similar owned assets.

f) Goodwill

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

g) Impairments

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

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

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

When the net book value of a CGU is higher than its value in use, the difference is an impairment loss. An impairment loss is first written off against any goodwill associated with the CGU with any remaining impairment loss proportionally allocated to the assets of that CGU. Management determined that as at December 31, 2012 and December 31, 2011 there were no impairments of property, plant and equipment, intangibles and goodwill.

h) Decommissioning liabilities

Newalta provides for estimated future decommissioning costs for all its facilities based on the useful lives of the assets and the long-term commitments of certain sites. Over this period, Newalta recognizes the liability for the future decommissioning liabilities associated with property, plant and equipment. These obligations are initially measured at the discounted future value of the liability. This value is capitalized as part of the cost of the related asset and amortized over the asset's useful life. The balance of the liability is adjusted each period for the unwinding of the discount, with the associated expense included within finance charges. Decommissioning costs are estimated by management, in consultation with Newalta's engineers and environmental, health and safety staff, on the basis of current regulations, costs, technology and industry standards. Actual decommissioning costs are charged against the provision as incurred.

i) Revenue recognition

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

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

The major sources of revenue relate to the processing of waste material and the sale of recycled products recovered from the waste. Revenue is recognized when waste material is received and a risk and reward transferred for the waste. Revenue from the sale of recycled products is recognized when products are delivered to customers or pipelines. For construction projects, revenue is recognized on a percentage of completion basis. For onsite projects and contracts, processing revenue is recognized on a per-day fee, throughput, percentage of completion basis, or over the life of the project.

Newalta offers complete and integrated solutions to meet customer needs. These solutions may involve the delivery of multiple services and products occurring at different points in time and/or over different periods in time. As appropriate, these multiple element arrangements are separated into their units of accounting based upon their relative fair values when the delivered item has value to the customer on a stand-alone basis. If the fair value of the delivered item is not reliably measurable, then the revenue is allocated based on the difference between the total arrangement consideration and the fair value of the undelivered item.

Revenue from operating leases includes revenue from the service of operating the assets as well as revenue for the lease of the assets. Revenue for the service of operating the assets is recognized on a units of production basis at the average unit price. Revenue attributed to the lease of the assets is recognized on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished.

j) Research and development

Research and development costs are incurred in the design, testing and commercialization of Newalta's products and services. Research costs, other than capital expenditures, are expensed as incurred. The costs incurred in developing new technologies are expensed as incurred unless they meet the criteria under IFRS for deferral and amortization. These costs will be amortized over the estimated useful life of the product, commencing with commercial production. In the event that a product program for which costs have been deferred is modified or cancelled, the Corporation will assess the recoverability of the deferred costs and if considered unrecoverable, will expense the costs in the period the assessment is made.

k) Taxation

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

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

Deferred tax assets are also recognized for the benefits from tax losses and deductions with no accounting basis, provided those benefits are probable to be realized. Deferred income tax assets and liabilities are determined based on the tax laws and rates that are anticipated to apply in the period of estimated realization.

l) 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.

m) Stock-based incentive plans

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

Stock options

Newalta has three stock-based option compensation plans, the 2003 Option Plan (the "2003 Plan"), the 2006 Option Plan (the "2006 Plan") and the 2008 Option Plan (the "2008 Plan"). Under the option plans, Newalta may grant to directors, officers, employees and consultants of Newalta or any of its affiliates, rights to acquire up to 10% of the issued and outstanding common shares of the Corporation (the "Shares").

The 2003 Plan is an equity-settled plan where the fair value of options at the date of grant is calculated using the Black-Scholes option pricing model method with the stock-based compensation expense recorded as a selling, general and administrative expense that is recognized over the vesting period of the options, with a corresponding increase to contributed surplus. When options are exercised, the proceeds, together with the amount recorded in contributed surplus, are transferred to shareholders' capital. Forfeitures are estimated and accounted for at the grant date and adjusted, if necessary, in subsequent periods.

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

Stock appreciation rights ("SARs")

SARs entitle the holder thereof to receive cash from Newalta in an amount equal to the positive difference between the grant price and the trading price of Newalta's common shares on the exercise date. The grant price is calculated based on the five-day volume weighted average trading price of Newalta's Shares on the Toronto stock exchange ("TSX"). SARs generally expire five years after they have been granted and the vesting period is determined by the Board of Directors of Newalta. The fair value at the date of grant is calculated using the Black-Scholes option pricing model method with the stock-based compensation expense recognized over the vesting period of the options and recorded as a selling, general and administrative expense with a corresponding entry to accrued liabilities or other liabilities. The fair value is subsequently re-measured at the end of each reporting period. Forfeitures are estimated and accounted for at the grant date and adjusted, if necessary, in subsequent periods.

Share units

Newalta has a cash-settled Deferred Share Unit ("DSUs") plan that has been established for non-executive directors. Under this plan, notional DSUs are granted annually and vest immediately. The measurement of the compensation expense and corresponding liability for these awards is based on the fair value of the award, and is recognized as a stock-based compensation expense which is recorded as a selling, general and administrative expense with a corresponding increase in accrued liabilities. Dividend equivalent grants, if any, are recorded as stock-based compensation expense in the period the dividend is paid. The liability is re-measured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognized in earnings. Each DSU entitles the holder to receive a cash payment equal to the five-day volume weighted average trading price of the shares preceding the date of redemption. The DSUs may only be redeemed within the period beginning on the date a holder ceases to be a participant under the plan and ending on December 31 of the following calendar year.

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

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

n) Financial instruments

Classification

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

Category		Subsequent Measurement
Financial assets at fair value through profit and loss ("FVTPL")		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 financial assets ("AFS")		Fair value and changes in fair value are recorded in other comprehensive income until the instrument is derecognized or impaired
Financial liabilities		Amortized cost, using the effective interest method

Cash and accounts and other receivables are classified as loans and receivables. Senior secured debt, senior unsecured debentures, bank indebtedness, accounts payable and accrued liabilities, dividends payable and other liabilities are classified as financial liabilities.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

Category		Impairment methodology		Indicators of Impairment
Available for sale equity investments		Cumulative gains or losses previously recognized on other comprehensive income are reclassified to profit or loss in the period		Significant or prolonged decline in the fair value of the security below its cost
Financial assets carried at amortized cost		Difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate		The following indicators apply to the remaining three categories: - Significant financial difficulty of the issuer or counterparty - Breach of contract, such as default or delinquency in interest of principal payments - It becomes probable that the borrower will enter bankruptcy or financial reorganization - Disappearance of an active market for that asset because of financial difficulties
Financial assets that are carried at cost		Difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate
Other financial assets		Carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account

Embedded derivatives

The embedded derivatives are classified at fair value through profit and loss ("FVTPL"). They have been valued using the option adjusted spread ("OAS") model, which requires management to make judgements, estimates and assumptions. They are valued at fair value upon initial recognition and at the end of each reporting period with gains and losses recognized through finance charges in the consolidated statement of operations.

Transaction costs

Transaction costs incurred with respect to the credit facility are deferred and amortized using the straight-line method over the term of the facility. The asset is recognized in prepaid expenses and other on the balance sheet while the amortization is included in financing charges within net income. Transaction costs associated with other financial liabilities are netted against the related liability.

o) Functional and presentation currency

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

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

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

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

p) Borrowing costs

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

q) Critical judgments and estimate uncertainties in applying accounting policies

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Such estimates relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts as transactions are settled in the future. Amounts recorded for amortization, accretion, future decommissioning obligations, deferred income taxes, valuation of warrants and impairment calculations are based on estimates. By their nature, these estimates are subject to measurement uncertainty, and the impact of the difference between the actual and the estimated costs on the financial statements of future periods could be material.

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

Recoverability of asset carrying values

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

Decommissioning liability

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

Revisions to the estimated amount or timing of the obligations are reflected prospectively as increases or decreases to the recorded liability and the related asset. Actual decommissioning expenditures, up to the recorded liability at the time, are drawn against the liability as the costs are incurred. Amounts capitalized to the related assets are amortized to income in line with the depreciation of the underlying asset.

Fair value calculation on stock-based payments

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

Taxation

The calculation of deferred income taxes is based on a number of assumptions including estimating the future periods in which temporary differences, tax losses and other tax credits will reverse. Tax interpretations, regulations and legislation in the various jurisdictions in which the Corporation and its subsidiaries operate are subject to change.

Derivative instruments

The estimated fair value of derivative instruments resulting in financial assets and liabilities, by their very nature, are subject to measurement uncertainty.

Leases

Newalta makes judgments in determining whether certain leases, in particular those with long contractual terms where the lessee is the sole user and Newalta is the lessor, are operating or finance leases.

Revenue

Newalta may enter into arrangements with customers which contain multiple elements in which revenue is recognized for each unit of accounting when earned based on the relative fair value of each unit of accounting as determined by internal or third party analyses of market-based prices. Significant judgment is required to allocate contract consideration to each unit of accounting and determine whether the arrangement is a single unit of accounting or a multiple element arrangement. Depending upon how such judgment is exercised, the timing and amount of revenue recognized could differ significantly.

r) Recent pronouncements issued

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

• IFRS 10, "Consolidated Financial Statements", which is the result of the IASB's project to replace Standing Interpretations Committee 12, "Consolidation - Special Purpose Entities" and the consolidation requirements of IAS 27, "Consolidated and Separate Financial Statements". The new standard eliminates the current risk and rewards approach and establishes control as the single basis for determining the consolidation of an entity.
• IFRS 12, "Disclosure of Interests in Other Entities", which outlines the required disclosures for interests in subsidiaries and joint arrangements. The new disclosures require information that will assist financial statement users to evaluate the nature, risks and financial effects associated with an entity's interests in subsidiaries and joint arrangements.
• IFRS 11, "Joint Arrangements", which is the result of the IASB's project to replace IAS 31, "Interest in Joint Ventures". The new standard redefines joint operations and joint ventures and requires joint operations to be proportionately consolidated and joint ventures to be equity accounted. Under IAS 31, joint ventures could be proportionately consolidated.
• IFRS 13, "Fair Value Measurement", which provides a common definition of fair value, establishes a framework for measuring fair value under IFRS and enhances the disclosures required for fair value measurements. The standard applies where fair value measurements are required and does not require new fair value measurements.
• IFRS 9, "Financial Instruments", which is the result of the first phase of the IASB's project to replace IAS 39, "Financial Instruments: Recognition and Measurement". The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value.

NOTE 3. INVENTORIES

Inventories consist of the following:

	December 31, 2012	December 31, 2011
Lead	23,165	12,502
Recycled and processed products	6,828	5,291
Recovered crude oil	5,928	7,274
Parts and supplies	7,202	5,886
Total inventories	43,123	30,953

The cost of inventories expensed in cost of sales for the three months and year ended December 31, 2012, was $32.5 million and $88.0 million respectively (for the three months and year ended December 31, 2011 - $25.6 million and $90.8 million respectively). Inventories are pledged as general security under the credit facility.

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	Land	Plant and equipment	Landfill	Total
Cost
Balance, December 31, 2010	14,696	910,580	117,202	1,042,478
Additions during the year	-	122,980	18,517	141,497
Disposals during the year	-	(1,804)	-	(1,804)
Balance, December 31, 2011	14,696	1,031,756	135,719	1,182,171
Additions during the year	-	163,843	8,349	172,192
Disposals during the year	(3)	(7,011)	-	(7,014)
Balance, December 31, 2012	14,693	1,188,588	144,068	1,347,349
Accumulated Amortization
Balance, December 31, 2010	-	(254,338)	(46,347)	(300,685)
Amortization for the year	-	(46,156)	(15,719)	(61,875)
Disposals during the year	-	491	-	491
Balance, December 31, 2011	-	(300,003)	(62,066)	(362,069)
Amortization for the year	-	(49,729)	(10,385)	(60,114)
Disposals during the year	-	4,414	-	4,414
Balance, December 31, 2012	-	(345,318)	(72,451)	(417,769)
Carrying amounts
As at December 31, 2011	14,696	731,753	73,653	820,102
As at December 31, 2012	14,693	843,270	71,617	929,580

For the three months and year ended December 31, 2012, Newalta capitalized $1.6 million and $4.7 million respectively, (for the three months and year ended December 31, 2011 - $0.9 million and $2.7 million respectively) of borrowing costs using a capitalization rate of 6.25% and 6.3% respectively (December 31, 2011 - 6.64% and 6.5% respectively).

NOTE 5. PERMITS, INTANGIBLE ASSETS AND GOODWILL

	Indefinite permits	Definite life permits/ rights	Non-competition contracts	Total
Cost
Balance, December 31, 2010	53,037	14,650	6,020	73,707
Additions during the year	-	56	-	56
Disposal during the year	-	(200)	-	(200)
Balance, December 31, 2011	53,037	14,506	6,020	73,563
Expired intangibles	-	(2,850)	(6,020)	(8,870)
Balance, December 31, 2012	53,037	11,656	-	64,693
Accumulated Amortization (1)
Balance, December 31, 2010	-	(7,108)	(6,020)	(13,128)
Amortization for the year	-	(1,042)	-	(1,042)
Disposal during the year	-	200	-	200
Balance, December 31, 2011	-	(7,950)	(6,020)	(13,970)
Amortization for the year	-	(979)	-	(979)
Expired intangibles	-	2,850	6,020	8,870
Balance, December 31, 2012	-	(6,079)	-	(6,079)
Carrying amounts
As at December 31, 2011	53,037	6,556	-	59,593
As at December 31, 2012	53,037	5,577	-	58,614

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

Intangibles have been allocated to the following CGUs:

	December 31, 2012		December 31, 2011
West Facilities	683		850
East Facilities	41,411		41,833
Onsite	620		1,010
VSC	15,900		15,900
	58,614		59,593

Goodwill has been allocated to the following CGUs:

	December 31, 2012		December 31, 2011
West Facilities	12,182		12,182
East Facilities	34,027		34,027
Onsite	56,406		56,688
	102,615		102,897

In assessing goodwill and indefinite life intangible assets for impairment at December 31, 2012 and December 31, 2011, Newalta compared the aggregate recoverable amount of the assets included in the CGUs to their respective carrying amounts. The recoverable amount has been determined based on the value in use of the CGUs using the four year cash flow business plan approved by management and the Board of Directors that made use of observable markets for inputs. For periods beyond the four year business plan, cash flows were extrapolated using growth rates that do not exceed the long-term average in each CGU. The weighted average growth rate reflects a nominal inflationary rate as required by IFRS that is calculated over the remaining useful life of each CGU. There was no impairment as at December 31, 2012 and December 31, 2011.

Key assumptions included the following:

Year ended December 31, 2012	Periods	West Facilities	East Facilities	Onsite	VSC
Weighted average growth rate	2017 and beyond	2.9%	2.9%	3.6%	2.9%
Pre-tax discount rate	2013 and beyond	12.7%	14.9%	17.5%	18.6%
Year ended December 31, 2011	Periods	West Facilities	East Facilities	Onsite	VSC
Weighted average growth rate	2016 and beyond	2.9%	2.9%	3.6%	2.9%
Pre-tax discount rate	2012 and beyond	11.1%	11.9%	14.9%	18.5%

In all CGUs, reasonably possible changes in key assumptions would not cause the recoverable amount of goodwill to fall below the carrying value.

NOTE 6. OTHER ASSETS

a) Other assets

BioteQ Environmental Technologies Inc. ("BioteQ")

During the first quarter of 2010, Newalta acquired 3,636,364 units, at a price of $1.10 per share from the treasury of BioteQ for cash consideration of $4 million. Each unit purchased included a common share and a warrant to acquire an additional common share of BioteQ at $1.375 during the first year, and $1.65 thereafter. The warrants expire after 5 years. The fair value of the warrants is estimated using a binomial methodology and the common shares based on a publicly available quoted price.

The common shares are classified as available-for-sale and are marked to market at each period end with changes in fair value recorded in other comprehensive income. As at December 31, 2012 an unrealized loss of $0.2 million (net of tax of nil) was recorded in accumulated other comprehensive income.

During 2012 an impairment test was performed for Newalta's investment in BioteQ. For the year ended December 31, 2012, Newalta recorded an impairment on common shares of $1.6 million due to a decline in investment value. The change in value has been reclassified from other comprehensive loss to finance charges in accordance with IAS 39 requirements.

The warrants are classified as fair value through profit and loss ("FVTPL") and are revalued at each period end with the change in fair value recognized in earnings. For the year ended December 31, 2012, the Corporation recorded an unrealized loss of $0.1 million (year ended December 31, 2011 - unrealized loss of $1.2 million) which is included in finance charges. As at December 31, 2012, the fair value was calculated using the following assumptions: an expected volatility of 55.2% (December 31, 2011 - 81.3%), a risk-free interest rate of 1.1% (December 31, 2011 - 1.2%) and no expected dividend (December 31, 2011 - no expected dividend).

b) Other long-term assets consist of the following:

	December 31, 2012		December 31, 2011
Embedded derivative (Note 17)	14,138		-
Investment in TerraAqua Resource Management LLC ("TARM")	6,043		6,362
Deferred tax asset	2,874		3,732
Note receivable	388		652
	23,443		10,746

TerraAqua Resource Management LLC

During the third quarter of 2011, Newalta acquired a 50% interest in TARM in exchange for cash consideration of $5.8 million. This joint venture is included within other long-term assets. Newalta's interest in TARM is accounted for under the equity method and these consolidated financial statements include Newalta's share of net earnings from the date that joint control commenced, based on the present 50% ownership interest in TARM. Newalta's share of earnings for the year ended December 31, 2012, as well as the assets and liabilities as at December 31, 2012, are not significant.

NOTE 7. SENIOR SECURED DEBT

	December 31, 2012		December 31, 2011
Senior secured debt	76,500		70,010
Issue costs(1)	-		(1,517)
Senior secured debt	76,500		68,493

(1)	Issue costs related to the facility have been included in prepaid expenses and other in 2012 and will be amortized over the extended credit facility term.

On July 12, 2012, Newalta amended and extended its revolving Credit Facility ("Credit Facility"). The maturity of this Credit Facility is July 12, 2015. The principal borrowing amount was increased from $200 million to $225 million, the maximum Total Debt to EBITDA has been increased from 3.5:1 to 4:1, and the lending syndicate increased from five to six institutions. The Credit Facility is available to fund growth capital expenditures and for general corporate business purposes as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60 million. Newalta may, at its option, request an extension of the credit facility on an annual basis. If no request to extend the Credit Facility is made by Newalta, the entire amount of the outstanding indebtedness would be due in full on July 12, 2015. The facility also requires Newalta to be in compliance with certain covenants. At December 31, 2012, and December 31, 2011, Newalta was in compliance with all covenants.

During the year ended December 31, 2012, credit facility fees of $1.5 million (year ended December 31, 2011 - nil) were incurred in connection with the amending and extending of the revolving credit facility. These fees have been recorded in prepaid expenses and other and will be amortized over the extended credit facility term.

NOTE 8. SENIOR UNSECURED DEBENTURES

The trust indenture under which the senior unsecured debentures have been issued requires Newalta to be in compliance with certain covenants as at December 31 of each year. At December 31, 2012 and December 31, 2011, Newalta was in compliance with all covenants.

	December 31, 2012		December 31, 2011
Senior unsecured debentures series 1	125,376		125,000
Senior unsecured debentures series 2	125,322		125,000
Issue costs	(4,364)		(4,951)
Senior unsecured debentures	246,334		245,049

Series 1

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

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

• Redeem up to 35% of the aggregate principal amount of the series 1 debentures, with the net cash proceeds of one or more public equity offerings at a redemption price equal to 107.625% of the principal amount, plus accrued and unpaid interest to the date of redemption.
• Redeem the series 1 debentures, in whole or in part, at a redemption price which is equal to the greater of (a) the Canada Yield Price (as defined in the trust indenture) and (b) 101% of the aggregate principal amount of series 1 debentures redeemed, plus, in each case, accrued and unpaid interest to the redemption date.

After November 23, 2013, the series 1 debentures are redeemable at the option of Newalta, in whole or in part, at redemption prices expressed as percentages of the principal amount, plus in each case accrued interest to the redemption date, if redeemed during the twelve month period beginning on November 23 of the years as follows: Year 2013 - 103.813%; Year 2014 - 102.542%; Year 2015 - 101.906%; Year 2016 and thereafter - 100%.

If a change of control occurs, Newalta will be required to offer to purchase all or a portion of each debenture holder's series 1 debentures, at a purchase price in cash equal to 101% of the principal amount of the series 1 debentures offered for repurchase plus accrued interest to the date of purchase.

Series 2

On November 14, 2011, Newalta issued $125.0 million of 7.75% series 2 senior unsecured debentures ("series 2"). The series 2 debentures mature on November 14, 2019. The series 2 debentures bear interest at 7.75% per annum and such interest is payable in equal instalments semi-annually in arrears on May 14 and November 14 in each year, commencing on May 14, 2012. The series 2 debentures are unsecured senior obligations and rank equally with all other existing and future unsecured senior debt and senior to any subordinated debt that may be issued by Newalta or any of its subsidiaries. The series 2 debentures are effectively subordinated to all secured debt to the extent of collateral on such debt.

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

• Redeem up to 35% of the aggregate principal amount of the series 2 debentures, with the net cash proceeds of one or more public equity offerings at a redemption price equal to 107.75% of the principal amount, plus accrued and unpaid interest to the date of redemption.
• Redeem the series 2 debentures, in whole or in part, at a redemption price which is equal to the greater of (a) the Canada Yield Price (as defined in the trust indenture) and (b) 101% of the aggregate principal amount of series 2 debentures redeemed, plus, in each case, accrued and unpaid interest to the redemption date.

After November 14, 2015, the series 2 debentures are redeemable at the option of Newalta, in whole or in part, at redemption prices expressed as percentages of the principal amount, plus in each case accrued interest to the redemption date, if redeemed during the twelve month period beginning on November 14 of the years as follows: Year 2015 - 103.875%; Year 2016 - 101.938%; Year 2017 and thereafter - 100%.

If a change of control occurs, Newalta will be required to offer to purchase all or a portion of each debenture holder's series 2 debentures, at a purchase price in cash equal to 101% of the principal amount of the series 2 debentures offered for repurchase plus accrued interest to the date of purchase.

NOTE 9. INCENTIVE PLANS

a) Option Plans

For the year ended December 31, 2012, the weighted average price of our shares at the date of exercise of the options was $14.66 (for the year ended December 31, 2011 - $12.63).

A summary of the status of Newalta's option plans as of December 31, 2012 and December 31, 2011 and changes during the period is presented as follows:

	2008 option plan (000s)	Weighted average exercise price ($/share)	2006 option plan (000s)	Weighted average exercise price ($/share)	2003 option plan (000s)	Weighted average exercise price ($/share)
At December 31, 2010	1,667	6.67	708	16.99	353	21.37
Granted	893	12.01	-	-	-	-
Exercised	(129)	5.80	-	-	-	-
Forfeited	-	-	(5)	32.38	(128)	17.95
At December 31, 2011	2,431	8.68	703	16.88	225	23.27
Granted (1)	924	12.80	-	-	-	-
Exercised	(241)	7.34	-	-	-	-
Forfeited	(108)	8.88	(13)	21.88	(225)	23.27
At December 31, 2012 (2)	3,006	10.05	690	16.79	-	-
Exercisable at December 31, 2012	1,067	8.08	690	16.79	-	-

(1)	Each tranche of the options vest over a three year period (with a five year life).
(2)	The fair value was calculated using the Black-Scholes method of valuation, assuming 26.30% volatility (December 31, 2011 - 45.23%), a weighted average expected annual dividend yield of 2.86% (December 31, 2011 - 2.71%), a risk free rate of 1.14% (December 31, 2011 - 0.95%) and a 3% forfeiture rate (December 31, 2011 - 3%) by period.

Range of exercise prices ($/share)	Options outstanding December 31, 2012	Weighted average remaining life	Weighted average exercise price	Options exercisable December 31, 2012	Weighted average exercise price
3.81 - 5.40	602	1.0	5.28	396	5.28
7.54 - 8.07	650	2.0	8.07	387	8.07
11.93 - 14.00	1,765	3.4	12.38	359	12.42
14.00 - 19.46	657	0.6	16.66	592	16.82
23.14 - 25.50	22	0.2	25.19	23	25.19
	3,696	2.3	11.30	1,757	11.50

b) Share Appreciation Rights ("SARs")

For the year ended December 31, 2012, the weighted average price of our shares at the date of exercise of the SARs was $14.17 (for the year ended December 31, 2011 - $12.67).

Changes in the number of outstanding SARs were as follows:

	SARs (000s)	Weighted average exercise price ($/right)
At December 31, 2010	1,427	7.53
Granted	945	12.24
Exercised	(156)	5.95
Forfeited	(75)	8.69
At December 31, 2011	2,141	9.69
Granted (1)	812	12.70
Exercised	(426)	7.23
Forfeited	(179)	11.37
At December 31, 2012 (2)	2,348	11.04
Exercisable at December 31, 2012	733	10.34

(1)	Each tranche of the SARs vest over a three year period (with a five year life).
(2)	The fair value was calculated using the Black-Scholes method of valuation, assuming 26.30% volatility (December 31, 2011 - 45.23%), a weighted average expected annual dividend yield of 2.86% (December 31, 2011 - 2.71%), a risk free rate of 1.14% (December 31, 2011 - 0.95%) and an 8% forfeiture rate (December 31, 2011 - 5%) by period.

Range of exercise prices ($/share)	SARs outstanding December 31, 2011	Weighted average remaining life	Weighted average exercise price		SARs exercisable December 31, 2011	Weighted average exercise price
5.31 - 8.76	690	1.6	6.85		368	6.95
11.93 - 16.65	1,658	3.4	12.79		365	13.76
	2,348	2.8	11.04		733	10.34

c) Share Unit Plans

Changes in the number of outstanding share units under our Deferred Share Unit, Performance Share Unit and Restricted Share Unit plans were as follows:

	Units (000s)
At December 31, 2010	16
Granted	129
At December 31, 2011	145
Granted	112
Exercised	(25)
At December 31, 2012	232
Exercisable at December 31, 2012	-

d) Stock-based Compensation Expense

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

	For the three months ended December 31,		For the year ended December 31,
	2012	2011	2012	2011
Stock option plans - non-cash expense	3.141	1,663	6,250	3,059
SARs and share unit plans - cash expense	970	159	3,303	1,595
SARs and share unit plans - non-cash expense	1,314	1,340	2,705	3,025
Total expense - SARs and share unit plans	2,284	1,499	6,008	4,620
Total stock-based compensation expense	5,425	3,162	12,258	7,679

e) Incentive Plan Liabilities

As at December 31, 2012, the total liability related to the Corporation's incentive plans was $27.0 million, with $22.8 million classified as current and $4.2 million classified as non-current (December 31, 2011 total incentive plan liabilities of $19.8 million, with $14.4 million classified as current and $5.5 million classified as non-current). The current liability associated with the Corporation's incentive plans is included in Accounts payable and accrued liabilities in the balance sheet. Non-current liability is recorded in Other liabilities in the balance sheet.

NOTE 10. INCOME TAX

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

Canadian Tax Jurisdiction:

		December 31, 2012		December 31, 2011
Deferred income tax liabilities:
	Property, plant and equipment	117,716		110,260
	Goodwill and intangible assets	18,652		17,869
		136,368		128,129
Deferred income tax assets:
	Non-capital loss carry forwards	30,921		34,251
	Decommissioning liabilities	20,303		19,684
	Deferred financing and equity issuance costs	522		165
	Deferred revenue	1,670		1,043
	Deferred expense	4,857		4,100
	Tax credit relating to components of other comprehensive income	223		198
	Other	353		299
		58,849		59,740
Net deferred income tax liability		77,519		68,389

U.S. Tax Jurisdiction:

		December 31, 2012		December 31, 2011
Deferred income tax liabilities:
	Property, plant and equipment	3,942		-
		3,942		-
Deferred income tax assets:
	Non-capital loss carry forwards	6,180		1,527
	Property, plant and eqiupment	-		1,824
	Other	636		345
		6,816		3,696
Net deferred income tax asset		2,874		3,696

Non-capital loss carry forwards relating to Canadian operations total $124.5 million and relating to our U.S. operations total $17.7 million. The losses relating to Canadian operations will begin expiring in 2026 and losses relating to U.S. operations will begin expiring in 2029.

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

	For the year ended December 31,
	2012	2011
Consolidated earnings of Newalta Corporation before taxes and distributions to shareholders	54,012	47,749
Current statutory income tax rate	25.72%	27.35%
Computed tax expense at statutory rate	13,892	13,059
Increase (decrease) in taxes resulting from:
Unrealized gain on embedded derivatives	(3,457)	-
Stock-based compensation expense and non-deductible costs	893	1,211
Other	(120)	(83)
Reported income tax expense	11,208	14,187

NOTE 11. RECONCILIATION OF DECOMMISSIONING LIABILITY

The total future decommissioning liability was estimated by management based on the anticipated costs to abandon and reclaim facilities and wells, and the projected timing of these expenditures. The net present value of this amount, $78.9 million (December 31, 2011 - $77.8 million) has been accrued on the consolidated balance sheets at December 31, 2012. The total estimated future cost for decommissioning liability at December 31, 2012, was $402.0 million over an expected range to 200 years. During the second quarter, future costs were reduced largely due to the obligation at Stoney Creek landfill decreasing from 300 to 200 years. Newalta used the Bank of Canada's long term bond rate of 2.37% as at December 31, 2012 (December 31, 2011 - 2.5%) and an inflation rate of 2% (December 31, 2011 - 2%) to calculate the present value of the decommissioning liability with the exception of Stoney Creek landfill for which we used a discount rate of 6% (December 31, 2011 - 6%). The reconciliation of estimated and actual expenditures for the period is provided below:

Decommissioning liability as at January 1, 2011	54,368
Actual expenditures incurred to fulfill obligations	(3,356)
Unwinding of discount	2,138
Change in estimate(1)	24,606
Decommissioning liability as at December 31, 2011	77,756
Actual expenditures incurred to fulfill obligations	(3,554)
Unwinding of discount	2,482
Change in estimate(1)	2,257
Decommissioning liability as at December 31, 2012	78,941

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

NOTE 12. SHAREHOLDERS' CAPITAL

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

Common Shares	Shares (#)	Amount ($)
Shares outstanding as at January 1, 2011	48,492	315,934
Shares issued on exercise of options	115	1,452
Shares outstanding as at December 31, 2011	48,607	317,386
Shares issued on equity offering(1)	5,500	74,400
Shares issued on exercise of options	168	2,443
Cancellation of shares	(12)	(181)
Shares outstanding as at December 31, 2012	54,263	394,048

(1)	Issue costs are $2.8 million, net of tax of $0.7 million for 2012

Newalta instituted a dividend reinvestment plan ("DRIP") effective with the January 2013 dividend payable whereby eligible shareholders could elect to reinvest their cash dividends in additional Corporate Shares at a 5% discount to market price.

NOTE 13. CAPITAL DISCLOSURES

Newalta's capital structure consists of:

	December 31, 2012		December 31, 2011
Senior secured debt (1)	76,500		70,010
Letters of credit issued as financial security to third parties (Note 16)	16,046		21,332
Senior unsecured debentures(1)	250,698		250,000
Shareholders' equity	641,440		541,921
	984,684		883,263

(1)	Excludes transaction costs

The objectives in managing the capital structure are to:

• Align our debt structure with our asset structure;
• Utilize an appropriate amount of leverage to maximize return on Shareholders' equity; and
• Provide for borrowing capacity and financial flexibility to support Newalta's operations.

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

• Issue shares from treasury;
• Issue new debt securities;
• Cause the return of letters of credit with no additional financial security requirements;
• Replace outstanding letters of credit with bonds or other types of financial security;
• Amend, revise, renew or extend the terms of its then existing long-term debt facilities;
• Draw on existing credit facility and/or enter into new agreements establishing new credit facilities;
• Adjust the amount of dividends paid to shareholders; and/or
• Sell idle, redundant or non-core assets.

Management monitors the capital structure based on covenants required pursuant to the Credit Facility.

Covenants under our Credit Facility(1) include:

Ratio	December 31, 2012		December 31, 2011		Threshold
Senior secured debt(2) to EBITDA(3)	0.66:1		0.65:1		2.75:1 maximum
Total debt(4) to EBITDA(3)	2.46:1		2.38:1		4.00:1 maximum
Interest Coverage	5.09:1		5.86:1		2.25:1 minimum

(1)	We are restricted from declaring dividends if we are in breach of any covenants under our credit facility.
(2)	Senior secured debt means the total debt less the senior unsecured debentures.
(3)	EBITDA is a non-IFRS measure, the closest measure of which is net earnings.For the purpose of calculating the covenant, EBITDA is defined as the trailing twelve months consolidated net income for Newalta before the deduction of interest, taxes, depreciation and amortization, and non-cash items (such as non-cash stock-based compensation and gains or losses on asset dispositions). Additionally, EBITDA is normalized for any acquisitions or dispositions as if they had occurred at the beginning of the period.
(4)	Total debt comprises outstanding indebtedness under the credit facility, including our bank surplus or overdraft balance and the senior unsecured debentures.

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

Covenants under the trust indenture include:

Ratio	December 31, 2012		December 31, 2011		Threshold
Senior Secured Debt including Letters of Credit	92,546		94,510		$25,000 + the greater of $220,000 and 1.75x EBITDA
Cumulative finance lease obligations	nil		nil		$25,000 maximum
Consolidated Fixed Charge Coverage	5.09:1		5.86:1		2.00:1 minimum
Period end surplus for restricted payments(1)	110,739		27,001		Restricted payments cannot exceed surplus

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

NOTE 14. EARNINGS PER SHARE

Basic earnings per share calculations for the year ended December 31, 2012 and 2011 were based on the weighted average number of shares outstanding for the respective years. Diluted earnings per share include the potential dilution of outstanding options under incentive plans to acquire shares.

The calculation of diluted earnings per share does not include anti-dilutive options. These options would not be exercised during the period because their exercise price is higher than the average market price for the period. The inclusion of these options would cause the diluted earnings per share to be overstated. The number of excluded options for the year ended December 31, 2012 was 680,000 (1,019,000 for the year ended December 31, 2011).

	For the three months ended December 31,		For the year ended December 31,
	2012	2011	2012	2011
Weighted average number of shares	52,741	48,569	49,690	48,569
Net additional shares if options exercised	732	717	833	685
Diluted weighted average number of shares	53,473	49,286	50,523	49,254

NOTE 15. DIVIDENDS DECLARED

	For the three months ended December 31,		For the year ended December 31,
	2012	2011	2012	2011
Total dividends declared per share	0.100	0.080	0.380	0.305

On December 17, 2012 Newalta declared a dividend of $0.10 per share to holders of shares of record on December 31, 2012. This dividend was paid on January 15, 2013.

NOTE 16. 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:

	2013	2014	2015	2016	2017	Thereafter	Total
Amount drawn on credit facility(1) (Note 7)	-	-	76,500	-	-	-	76,500
Senior unsecured debentures (Note 8)	19,219	19,219	19,219	19,219	143,226	143,128	363,230
Total debt commitments	19,219	19,219	95,719	19,219	143,226	143,128	439,730
Office leases	9,048	8,646	8,470	8,117	7,335	16,064	57,680
Operating leases	6,226	5,083	2,590	9,699	107	-	23,705
Surface leases	465	465	465	465	465	175	2,500
Accounts payable and accrued liabilities	181,876	-	-	-	-	-	181,876
Dividends payable	5,426	-	-	-	-	-	5,426
Purchase obligation	3,160	41	36	7	7	-	3,251
Total debt and other commitments	225,420	33,454	107,280	37,507	151,140	159,367	714,168

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

b) Letters of Credit and Surety Bonds

As at December 31, 2012, Newalta had issued letters of credit and surety bonds in respect of compliance with environmental licenses in the amount of $16.0 million and $43.8 million, respectively ($21.3 million and $38.3 million as at December 31, 2011).

NOTE 17. FINANCIAL INSTRUMENTS

Fair Value of Financial Assets and Liabilities

Newalta's financial instruments include cash, bank indebtedness, accounts and other receivables, other assets, accounts payable and accrued liabilities, dividends payable, senior secured debt and senior unsecured debentures. The fair values of Newalta's financial instruments that are included in the consolidated balance sheets, with the exception of the debentures, approximate their recorded amount due to the short-term nature of those instruments for cash, bank indebtedness, accounts and other receivable, accounts payable and accrued liabilities, dividends payable, senior secured debt and the note receivable, due to the floating nature of the interest rate applicable to these instruments. The fair values incorporate an assessment of credit risk. The carrying values of Newalta's financial instruments at December 31, 2012 are as follows:

	FVTPL	Loans and receivables	AFS	Other liabilities	Total carrying value
Cash	409	-	-	-	409
Accounts and other receivables	-	150,347	-	-	150,347
Other assets	-	-	547	-	547
Other long-term assets(1)	14,138	388	-	-	14,526
Accounts payable and accrued liabilities	-	-	-	181,867	181,867
Dividends payable	-	-	-	5,426	5,426
Senior secured debt	-	-	-	76,500	76,500

(1)	Excludes non-financial instruments.

The fair value of the unsecured senior debentures is based on open market quotation as follows:

As at December 31, 2012	Carrying value		Quoted fair value
7.625% series 1 senior unsecured debentures due November 23, 2017	125,376		133,750
7.75% series 2 senior unsecured debentures due November 14, 2019	125,322		135,313

Embedded Derivatives

The senior unsecured debentures have early redemption features at values based on percentages of the principal amount plus accrued and unpaid interest. Due to the redemption rates being fixed, an embedded derivative exists when compared to current market rates. Newalta estimates the fair value of the embedded derivatives using a valuation model that considers the current bond prices and spreads associated with the senior unsecured debentures. Newalta has recognized gains of $1.3 million and $13.4 million for the three months and year ended December 31, 2012, respectively (for the three months and year ended December 31, 2011 - nil) and has determined the fair value of the embedded derivative for the senior unsecured debentures to be $14.1 million as at December 31, 2012. A corresponding embedded derivative asset was included within other long-term assets on the balance sheet. Subsequent changes in fair value will be included in finance charges on the consolidated statements of operations.

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

Level 1 includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets that are accessible at the measurement date. An active market for an asset or liability is considered to be a market where transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Newalta's cash, senior unsecured debentures and senior secured debt are classified as level 1 financial instruments.

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

Level 3 includes valuations based on inputs which are less observable, unavailable or where the observable data does not support a significant portion of the instruments' fair value. Generally, Level 3 valuations are longer dated transactions, occur in less active markets, occur at locations where pricing information is not available or have no binding broker quote to support Level 2 classification. At December 31, 2012 and 2011, Newalta did not have any significant Level 3 assets or liabilities.

Credit risk and economic dependence

Newalta is subject to credit risk on its trade accounts receivable balances. The customer base is large and diverse, and one customer balance represented 10% of total accounts receivable at December 31, 2012, (no single customer was greater than 10% as at December 31, 2011). This account receivable is recognized within the Onsite segment. 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. Newalta's assessment of credit risk has remained unchanged from the prior year.

Revenue from Newalta's largest customer represented 10% of revenue for the year ended December 31, 2012 (13% for the year ended December 31, 2011). This revenue is recognized within the Facilities segment. No other customer's revenue exceeded 10% for the period presented.

Based on the nature of operations, established collection history and industry norms, receivables are not considered past due until 90 days after invoice date, although standard payment terms require payment within 30 to 90 days. Depending on the nature of the service and/or product, customers may be provided with extended payment terms while Newalta gathers certain processing or disposal data. Included in the Corporation's trade receivable balance, are receivables totalling $5.0 million (December 31, 2011 - $2.8 million), which are considered to be outstanding beyond normal repayment terms at December 31, 2012. A provision of $0.5 million (December 31, 2011 - $0.3 million) has been established as an allowance for doubtful accounts. No additional provision has been made as there has not been a significant change in credit quality and the amounts are still considered collectible. Newalta does not hold any collateral over these balances but may hold credit insurance for specific non-domestic customer accounts. Total accounts receivable of $150.3 million is comprised of $106.8 million of trade receivables, accrued receivables of $27.6 million and other receivables of $15.9 million.

Aging	Trade receivables  aged by invoice date		Allowance for doubtful accounts		Net receivables
	Dec 31, 2012	Dec 31, 2011	Dec 31, 2012	Dec 31, 2011	Dec 31, 2012	Dec 31, 2011
Current	69,640	76,063	12	38	69,628	76,025
31-60 days	27,740	22,204	7	24	27,733	22,180
61-90 days	4,481	8,016	58	50	4,423	7,966
91 days +	4,965	2,757	403	173	4,562	2,584
Total	106,826	109,040	480	285	106,346	108,755

To determine the recoverability of a trade receivable, management analyzes accounts receivable, first identifying customer groups that represent minimal risk (large oil and gas and other low risk large companies, governments and municipalities). Impairment of the remaining accounts is determined by identifying specific accounts that are at risk, and then by applying a formula based on aging to the remaining amounts receivable. All amounts identified as at risk are provided for in an allowance for doubtful accounts. The changes in this account for the years ended December 31, 2012 and 2011 are as follows:

Allowance for doubtful accounts	December 31, 2012		December 31, 2011
Balance, beginning of year	285		341
Net increase in provision	154		44
Net amounts recovered (written off as uncollectible)	41		(100)
Balance, end of year	480		285

Liquidity risk

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

Interest rate risk

Newalta is exposed to interest rate risk to the extent that its credit facility has a variable interest rate. Management does not enter into any derivative contracts to manage the exposure to variable interest rates. The senior unsecured debentures have fixed interest rates until their maturity dates, at which point, any remaining amounts owing under these debentures will need to be repaid or refinanced. Newalta's assessment of interest rate risk has remained unchanged from the prior year. The table below provides an interest rate sensitivity analysis to net earnings as at period end:

	For the three months ended December 31,		For the year ended  December 31,
	2012	2011	2012	2011
If interest rates increased by 1% with all other values held constant	(193)	(126)	(854)	(548)

Market risk

Market risk is the risk that the fair value or future cash flows of Newalta's financial instruments will fluctuate because of changes in market prices. Newalta is exposed to foreign exchange market risk. Foreign exchange risk refers to the risk that the value of a financial commitment, recognized asset or liability will fluctuate due to changes in foreign currency exchange rates. The risk arises primarily from U.S. dollar denominated long-term debt and working capital. As at December 31, 2012, Newalta had $11.8 million in net working capital and nil in long-term debt both denominated in U.S. dollars. Management has not entered into any financial derivatives to manage the risk for the foreign currency exposure as at December 31, 2012. Newalta's assessment of market risk has remained unchanged from the prior year.

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

	2012	2011
If the value of the U.S. dollar in relation to the CDN dollar increased by $0.01 with all other variables held constant	67	133

NOTE 18. FINANCE CHARGES

		For the three months  ended December 31,		For the year  ended December 31,
		2012	2011	2012	2011
Interest:
	Senior secured debt	1,260	967	5,322	3,815
	Senior unsecured debentures	4,805	3,601	19,219	10,732
	Convertible debentures	-	1,684	-	7,721
	Other	349	346	1,235	1,123
Amortization of issue costs		330	361	1,502	4,262
Unwinding of discount		617	2,371	2,482	2,138
Capitalized borrowing costs		(1,595)	(927)	(4,664)	(2,813)
Revaluation and transfer of AFS financial assets		74	102	1,700	1,213
Finance charges		5,840	8,505	26,796	28,191

NOTE 19. RELATED PARTIES

Significant subsidiaries

The consolidated financial statements include the financial statements of Newalta and our subsidiaries as at December 31, 2012 and 2011. Transactions between each subsidiary and the subsidiaries and parent are eliminated on consolidation. Newalta did not have any material related party transactions with entities outside the consolidated group in the years ended December 31, 2012 and 2011. The following is a list of the major subsidiary and related party of our operations:

			Ownership interest
		Country of Incorporation	2012	2011
Newalta Environmental Services Inc.	Subsidiary	United States	100%	100%
TerraAqua Resource Management LLC	Joint venture	United States	50%	50%

Key Management Personnel

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

	Year ended December 31,
	2012	2011
Short term benefits	4,276	5,460
Stock-based payments	4,424	1,819
Total remuneration	8,700	7,279

NOTE 20. CASH FLOW STATEMENT INFORMATION

The following tables provide supplemental information:

	For the three months ended December 31,		For the year ended December 31,
	2012	2011	2012	2011
Decrease (increase) in accounts and other receivables	10,514	11,787	(16,059)	(31,794)
(Increase) decrease in inventories	(4,121)	494	(12,170)	(4,308)
Decrease (increase) in prepaid expenses and other	2,050	4,084	(4,557)	1,447
Increase in accounts payable and accrued liabilities	26,493	10,065	31,414	20,281
(Decrease) increase in accounts payable and accrued liabilities related to purchases of property, plant and equipment	(8,164)	1,319	(14,511)	(482)
Total decrease (increase) in non-cash working capital	26,772	27,749	(15,883)	(14,856)
	For the three months ended December 31,		For the year ended December 31,
	2012	2011	2011	2011
Additions to property, plant and equipment during the year	(56,780)	(45,467)	(172,180)	(117,625)
Increase (decrease) in accounts payable and accrued liabilities related to purchases of property, plant and equipment	8,164	(1,319)	14,511	482
Total cash additions to property, plant and equipment	(48,616)	(46,786)	(157,669)	(117,143)

NOTE 21. SEGMENTED INFORMATION

Onsite and Facilities constitute our two reportable segments. The reportable segments are distinct strategic business units whose operating results are regularly reviewed by the Corporation's executive officers in order to assess financial performance and make resource allocation decisions. The reportable segments have separate operating management and operate in distinct competitive and regulatory environments. The Facilities segment includes the processing of industrial and oilfield-generated wastes including collection, treatment, and disposal; clean oil terminalling; custom treating; the sale of recovered crude oil for our account; oil recycling; and lead battery recycling. The Onsite segment involves the mobilization of equipment and staff to process waste at our customer sites, including the processing of oilfield-generated wastes, the sale of recovered crude oil; industrial cleaning; site remediation; dredging and dewatering; and drill site processing including solids control and drill cuttings management.

As at and for the three months ended December 31, 2012
	Facilities	Onsite	Unallocated(2)	Consolidated Total
Revenue	122,899	75,546	-	198,445
Cost of sales (1)	101,189	58,219	-	159,408
Gross profit	21,710	17,327	-	39,037
Selling, general and administrative(2)	-	-	28,489	28,489
Research and development	-	-	480	480
Net financing charges	-	-	5,238	5,238
Earnings before taxes	21,710	17,327	(34,207)	4,830
Property, plant and equipment expenditures	26,404	18,538	12,458	57,400
Goodwill	46,209	56,406	-	102,615
Total assets	783,290	432,811	102,657	1,318,758
Total liabilities	255,577	40,032	381,709	677,318
As at and for the three months ended December 31, 2011
	Facilities	Onsite	Unallocated(2)	Consolidated Total
Revenue	124,234	59,855	-	184,089
Cost of sales (1)	97,930	43,419	-	141,349
Gross profit	26,304	16,436	-	42,740
Selling, general and administrative(2)	-	-	25,187	25,187
Research and development	-	-	439	439
Net financing charges	-	-	8,505	8,505
Earnings before taxes	26,304	16,436	(34,131)	8,609
Property, plant and equipment expenditures	18,928	20,961	5,400	45,289
Goodwill	46,209	56,688	-	102,897
Total assets	718,748	349,083	97,190	1,165,021
Total liabilities	164,997	127,874	330,229	623,100

(1)	Cost of sales includes net amortization of $14,271 for Q4 2012 (Facilities $9,006 and Onsite $5,265) and $13,577 for Q4 2011 (Facilities $9,221 and Onsite $4,356).
(2)	Selling, general and administrative includes amortization of $3,526 for Q4 2012 and $2,824 for Q4 2011.

As at and for the year ended December 31, 2012
	Facilities	Onsite	Unallocated(2)	Consolidated
Revenue	446,217	279,992	-	726,209
Cost of sales (1)	346,176	210,275	-	556,451
Gross profit	100,041	69,717	-	169,758
Selling, general and administrative(2)	-	-	100,031	100,031
Research and development	-	-	2,358	2,358
Net financing charges	-	-	13,357	13,357
Earnings before taxes	100,041	69,717	(115,746)	54,012
Property, plant and equipment expenditures	65,192	76,230	30,918	172,340
Goodwill	46,209	56,406	-	102,615
Total assets	783,290	432,811	102,657	1,318,758
Total liabilities	255,577	40,032	381,709	677,318
As at and for the year ended December 31, 2011
	Facilities	Onsite	Unallocated(2)	Consolidated
Revenue	463,606	219,222	-	682,828
Cost of sales (1)	356,820	160,499	-	517,319
Gross profit	106,786	58,723	-	165,509
Selling, general and administrative(2)	-	-	87,232	87,232
Research and development	-	-	2,337	2,337
Net financing charges	-	-	28,191	28,191
Earnings before taxes	106,786	58,723	(117,760)	47,749
Property, plant and equipment expenditures	54,173	49,375	14,132	117,680
Goodwill	46,209	56,688	-	102,897
Total assets	718,748	349,083	97,190	1,165,021
Total liabilities	164,997	127,874	330,229	623,100

(1)	Cost of sales includes amortization of $49,024 (Facilities $32,019 and Onsite $17,005) and $51,576 for 2011 (Facilities $36,346 and Onsite $15,230).
(2)	Selling, general and administrative includes amortization of $13,485 for 2012 and $11,280 for 2011.

NOTE 22. PRIOR YEAR INFORMATION

Deferred revenue, which was previously grouped with accounts payable and accrued liabilities, is now presented separately.