Newalta Reports Strong Fourth Quarter, 2010 Results on Improving Market Conditions

CALGARY, ALBERTA - March 3, 2011 /CNW/ - Newalta Corporation ("Newalta") (TSX:NAL) today announced financial results for the quarter and year ended December 31, 2010.

FINANCIAL RESULTS 
AND HIGHLIGHTS (1)
                            Three months ended        Year ended
                                   December 31,      December 31,
($000s except 
 per share data)                  % Increase                     % Increase
(unaudited)          2010     2009 (Decrease)     2010     2009   (Decrease)
----------------------------------------------------------------------------
Revenue           162,927  137,308        19   576,196  483,401          19
Net earnings 
 (loss)             2,862    4,092       (30)   18,063    3,099         483
- per share ($) 
 - basic             0.06     0.09       (33)     0.37     0.07         429
- per share ($) 
 - basic adjusted(2) 0.20     0.10       100      0.57     0.12         375
- per share ($) 
 - diluted           0.06     0.09       (33)     0.37     0.07         429
Adjusted EBITDA(2) 33,647   25,506        32   118,792   82,157          45
 - per share ($)(2)  0.69     0.55        25      2.45     1.89          30
Cash from 
 operations        48,007   19,165       150    95,348   83,518          14
 - per share ($)     0.99     0.41       141      1.97     1.92           3
Funds from 
 operations(2)     27,373   19,185        43    95,149   60,943          56
 - per share ($)(2)  0.56     0.41        37      1.96     1.40          40
Maintenance capital 
 expenditures(2)    8,491    3,501       143    28,668    8,589         234
Dividends declared  3,152    2,423        30    11,152    8,141          37
 - per share ($)(2) 0.065     0.05        30      0.23     0.20          15
Dividends paid      3,152    2,122        49    10,424   13,233         (21)
Growth capital 
 expenditures(2)   21,146    4,739       346    47,077   18,696         152
Weighted average 
 shares 
 outstanding       48,523   46,770         4    48,485   43,536          11
Shares outstanding, 
 December 31,      48,492   48,476         0    48,492   48,476           0
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(1) Management's Discussion and Analysis and Newalta's unaudited 
    consolidated financial statements and notes thereto are attached.
(2) These financial measures do not have any standardized meaning 
    prescribed by Canadian Generally Accepted Accounting Principles 
    ("GAAP") and are therefore unlikely to be comparable to similar measures
    presented by other issuers. Non-GAAP financial measures are identified
    and defined throughout the attached Management's Discussion and 
    Analysis.
(3) Newalta has 48,495,002, shares outstanding as at March 3, 2011.

Management Commentary

"Newalta ended 2010 with considerable momentum including 19 percent year-over-year growth in revenue, 45 percent growth in Adjusted EBITDA and solid improvements in profitability and return on capital," said Al Cadotte, President and CEO of Newalta. "Performance in the fourth quarter was consistent with improved market conditions and stronger prices for our products. In 2010, we added new customers, expanded services to existing customers and continued to improve productivity and profitability."

"We enter 2011 with a strong organization prepared for growth," said Mr. Cadotte. "More robust markets, higher commodity pricing and last year's growth capital investments should all contribute to strong performance and attractive returns to investors in 2011."

Divisional highlights:

- Facilities Division fourth quarter revenue and net margin(2) increased by 21% and 31%, respectively, compared to last year, due primarily to strong contributions from Western Facilities. For the quarter, 34% of incremental revenue over last year flowed to net margin. For the year, Facilities Division revenue and net margin increased 20% and 43% respectively, compared to 2009, due primarily to higher activity levels across all three business units. On an annual basis, 45% of incremental revenue flowed through to net margin.

- Onsite Division's fourth quarter revenue and net margin increased 12% and 37%, respectively, compared to the same period in 2009, due to higher drill site utilization, driven by increased drilling activity. Incremental revenue drove a 56% flow through to net margin. For the year, revenue and net margin increased 16% and 41% to $182.2 million and $39.5 million respectively, compared to 2009, primarily due to increased demand for drill site services combined with higher onsite project activity and improved crude oil prices. On an annual basis, 45% of incremental revenue flowed through to net margin.

Other highlights:

- Adjusted EBITDA for the quarter increased to $33.6 million, up 32% over Q4 2009 and for the year, increased to $118.8 million, up 45% over 2009. Net earnings for the year, compared to 2009, increased by 483% to $18.1 million. For the quarter, net earnings decreased by 30% compared to 2009 due to higher future income tax and stock based compensation expense.

- On November 23, 2010, we issued $125 million Senior Unsecured Debentures with a seven-year term, bearing interest at the rate of 7.625% per annum. In connection with this offering, effective December 17, 2010, we amended our credit facility to a three-year maturity ending December 17, 2013 and elected to reduce the amount available under our credit facility to $200 million from $350 million. These financing initiatives strengthen our balance sheet and provide increased financial flexibility to meet the demands of future growth.

- SG&A before stock-based compensation was $17.2 million in Q4 2010, or 10.5% of revenue, and $61.4 million or 10.7% of revenue for the year. SG&A including stock-based compensation increased by 26% driven primarily by the rise in our share price to $11.89 at the end of 2010 from $8.02 last year.

- Technical Development was launched in the first half of 2010 and finished the year with a group of 15 professionals including engineers, chemists and business analysts. We begin 2011 with this group leading our technical development initiatives, with an operating budget of $3 million and $5 million of budgeted capital expenditures. In 2011, we anticipate moving into the next phase of testing and assessing the most promising opportunities while continuing the global search for technologies that we started in 2010.

- Maintenance capital expenditures for Q4 2010 were $8.5 million while growth capital expenditures were $21.1 million. Maintenance and growth capital expenditures for the year were $28.7 million and $47.1 million, respectively. Total committed capital at the end of 2010 was $95 million. The incremental capital committed beyond the 2010 target of $87 million relates to 2011 projects moved forward to take advantage of improved market conditions.

- Capital expenditures in 2011 are budgeted at $100 million. Growth capital expenditures of $73 million are comprised of $26 million for Facilities, $35 million for Onsite, $5 million for technical development and $7 million for corporate investments. Maintenance capital expenditures are expected to be $27 million. Capital expenditures will be funded from operations, with approximately 40% expected to be spent in the first half of 2011.

- Total Secured and Unsecured Debt at year end decreased by $17.0 million to $315.3 million compared to December 31, 2009, while Adjusted EBITDA on a trailing 12-month basis increased to $118.8 million at the end of Q4 2010. As a result, the Total Secured and Unsecured Debt to Adjusted EBITDA ratio improved to 2.65 at year-end.

- The Board of Directors declared a dividend of $0.065 per share to shareholders of record as at December 31, 2010 which was paid January 17, 2011. The Board expects to authorize a dividend of $0.065 per share to holders of record on March 31, 2011.

Management will hold a conference call on Friday, March 4, 2011 at 11 a.m. (EST) to discuss Newalta's performance for the fourth quarter and year ended December 31, 2010. To participate in the teleconference, please call 416-340-8018 or 1-866-223-7781. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Friday, March 11, 2011, by dialing 905-694-9451 or 1-800-408-3053 and using the pass code 4047722 followed by the pound sign.

About Newalta

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

For further information , please contact:
Anne M. Plasterer
Executive Director, Investor Relations
Phone: (403)806.7019

NEWALTA CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Three months and year ended December 31, 2010 and 2009

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

- future operating and financial results;

- anticipated industry activity levels;

- expected demand for our services;

- business prospects and strategy;

- capital expenditure programs and other expenditures;

- the amount of dividends declared or payable in the future;

- realization of anticipated benefits of acquisitions, growth capital investments and our technical development initiatives;

- our projected cost structure; and

- expectations and implications of changes in legislation.

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

- general market conditions of the industries we service;

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

- fluctuations in commodity prices for oil and lead;

- fluctuations in interest rates and exchange rates;

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

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

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

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

- the seasonal nature of our operations;

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

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

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

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

- risk of pending and future legal proceedings;

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

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

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

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

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

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

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

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

RECONCILIATION OF NON-GAAP MEASURES

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

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

                    Three months ended December 31,  Year ended December 31,
($000s)                          2010         2009        2010         2009
----------------------------------------------------------------------------
Earnings before taxes           5,327        3,451      27,622        2,732
Add back:
 Selling, general and 
  administrative(1)            23,972       16,603      70,891       56,132
 Research and Development(1)      586            -       1,713            -
 Finance charges(1)             6,608        6,689      25,663       25,364
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Consolidated net margin        36,493       26,743     125,889       84,228
----------------------------------------------------------------------------
Unallocated net margin(1)       2,690        2,754      12,139       12,490
----------------------------------------------------------------------------
Combined divisional net margin 39,183       29,497     138,028       96,718
----------------------------------------------------------------------------
(1) Management does not allocate interest income, SG&A, research and
    development, taxes, finance charges and corporate amortization and
    accretion expense in the segmented analysis (see Note 22 to the audited
    consolidated financial statements).

"EBITDA", "EBITDA per share", "Adjusted EBITDA", and "Adjusted EBITDA per share" are measures of our operating profitability. EBITDA provides an indication of the results generated by our principal business activities prior to how these activities are financed, assets are amortized or how the results are taxed in various jurisdictions. In addition, Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to recognizing 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)                          2010         2009        2010         2009
---------------------------------------------------------------------------
Net earnings                    2,862        4,092      18,063        3,099
Add back (deduct):
 Current income taxes             520          317         938          945
 Future income taxes            1,945         (958)      8,621       (1,312)
 Finance charges                6,608        6,689      25,663       25,364
 Amortization and accretion    14,891       14,558      55,990       51,825
----------------------------------------------------------------------------
EBITDA                         26,826       24,698     109,275       79,921
----------------------------------------------------------------------------
Add back:
 Stock-based compensation       6,821          808       9,517        2,236
----------------------------------------------------------------------------
Adjusted EBITDA                33,647       25,506     118,792       82,157
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Weighted average number of 
 shares                        48,523       46,770      48,485       43,536
----------------------------------------------------------------------------
EBITDA per share                 0.55         0.53        2.25         1.84
----------------------------------------------------------------------------
Adjusted EBITDA per share        0.69         0.55        2.45         1.89
----------------------------------------------------------------------------

"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. Stock-based compensation, a component of employee remuneration, can vary significantly with changes in the price of our common shares. As such, Adjusted net earnings provides improved continuity with respect to the comparison of our results over a period of time. Adjusted net earnings per share is derived by dividing Adjusted net earnings by the basic weighted average number of shares.

                    Three months ended December 31,  Year ended December 31,
($000s)                          2010         2009        2010         2009
----------------------------------------------------------------------------
Net earnings                    2,862        4,092      18,063        3,099
Add back (deduct):
 Stock-based compensation       6,821          808       9,517        2,236
----------------------------------------------------------------------------
Adjusted net earnings           9,683        4,900      27,580        5,335
----------------------------------------------------------------------------
Adjusted net earnings per share  0.20         0.10        0.57         0.12
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"Funds from operations" is used to assist management and investors in analyzing cash flow and leverage. Funds from operations as presented is not intended to represent operating funds from operations or operating profits for the period, nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Funds from operations is derived from the consolidated statements of cash flows and is calculated as follows:

                    Three months ended December 31,  Year ended December 31,
($000s)                          2010         2009        2010         2009
----------------------------------------------------------------------------
Cash from operations           48,007       19,165      95,348       83,518
Add back (deduct):
 Changes in non-cash working 
  capital                     (21,760)        (298)     (2,383)     (23,599)
 Asset retirement costs 
  incurred                      1,126          318       2,184        1,024
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Funds from operations          27,373       19,185      95,149       60,943
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Weighted average number of 
 shares                        48,523       46,770      48,485       43,536
----------------------------------------------------------------------------
Funds from operations per share  0.56         0.41        1.96         1.40
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"Return on capital (ROC)" is used to assist management and investors in measuring the returns realized from the capital employed.

                                                     Year ended December 31,
($000s)                                            2010     2009       2008
----------------------------------------------------------------------------
Adjusted EBITDA                                 118,792   82,157    125,890
 Total Assets                                 1,028,724  993,730  1,051,910
 Current Liabilities                           (121,370) (92,614)  (117,258)
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Capital Employed                                907,354  901,116    934,652
----------------------------------------------------------------------------
2-Year Net Assets Average                       904,235  917,884    921,331
----------------------------------------------------------------------------
Return on Capital (%)                              13.1      9.0       13.7
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References to Combined divisional net margin, net margin, EBITDA, EBITDA per share, Adjusted EBITDA, Adjusted EBITDA per share, Funds from operations and ROC throughout this document have the meanings set out above.

On December 31, 2009, the sole unitholder of Newalta Income Fund (the "Fund") approved the wind-up of the Fund. Subsequent to year end, on January 1, 2010, Newalta Inc. was amalgamated with its wholly-owned operating subsidiary, Newalta Corporation, to form Newalta Corporation.

The following discussion and analysis should be read in conjunction with (i) the consolidated financial statements of Newalta, and the notes thereto, for the year ended December 31, 2010, (ii) the consolidated financial statements of Newalta and notes thereto and MD&A of Newalta for the year ended December 31, 2009, (iii) the most recently filed Annual Information Form of Newalta and (iv) the consolidated interim financial statements of Newalta and the notes thereto and MD&A for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010. This information is available at SEDAR (www.sedar.com). Information for the year ended December 31, 2010, along with comparative information for 2009, is provided.

This MD&A is dated March 3, 2011, and takes into consideration information available up to that date. Throughout this document, unless otherwise stated, all currency is stated in Canadian dollars, MT is defined as "tonnes" or "metric tons".

FINANCIAL RESULTS AND HIGHLIGHTS

NEWALTA

We provide cost-effective environmentally superior solutions to our customers' complex environmental needs. We leverage our existing talent and asset base to provide cost-effective solutions which reduce environmental impacts through recycling, recovery and reuse. These services are provided both through our network of more than 80 facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Our customers operate in a broad range of industries including the oil and gas, petrochemical, refining, lead, manufacturing and mining industries. Newalta has delivered strong, profitable growth for over 15 years and has established a leadership position in the industry with talented people, efficient and safe operations, innovative approaches and high ethical standards.

OUR STRATEGY

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

----------------------------------------------------------------------------
Strategic objectives                       Initiatives
----------------------------------------------------------------------------
1. Maximize Facilities Profitability     - Drive higher returns on existing
                                           assets
                                         - Execute organic growth capital
                                           projects
                                         - Expand Facilities service
                                           offering
2. Recovery at Source                    - Increase market share in 
                                           short-term projects nationally 
                                         - Identify short-term projects 
                                           with long-term potential
                                         - Transition to long-term contract
                                           service arrangements
3. Process Commercialization             - Evaluate technologies for
                                           commercial application
                                         - Advance identified technologies 
                                           to the development and
                                           demonstration phase
                                         - Utilize facility network to
                                           expedite commercialization
----------------------------------------------------------------------------

Several initiatives were successfully completed in 2010 to establish the foundation for continued growth. In addition to enhancing our capital structure to ensure sufficient financial flexibility to meet future growth needs, we:

- Responded to recovering markets driving improved returns on existing assets of 13% up from 9% in 2009;

- Completed a $47 million growth capital program;

- Created the organizational framework for Onsite's national service;

- Executed onsite projects in eastern Canada while also building our customer base in western Canada;

- Expanded Heavy Oil onsite service at existing short-term and long-term contracts; and

- Established the Technical Development team.

RISKS TO OUR STRATEGY
----------------------------------------------------------------------------
Risks                                         Mitigation
----------------------------------------------------------------------------
Market recovery is slower 
than anticipated
                                            - Improve productivity
Lower market activity can translate         - Develop new technologies that
into reduced waste volumes and weaker         make our processes more    
commodity prices, impacting returns           effective and cost efficient
on existing assets and our ability to       - Maintain debt leverage to
invest in organic growth capital.             provide adequate financial 
                                              flexibility 
                                            - Utilize, as needed, proven
                                              defensive toolkit to manage
                                              costs and capital
                                              expenditures
Deterioration of safety record
                                            - Safety is established as one  
Failure to meet customer safety               of our core values
standards while working on customer         - Long standing history of
sites could result in the inability to        safety excellence
operate on a customer site and could        - Our Environmental, Health and
have pervasive implications for our           Safety ("EH&S") team works
Onsite strategy.                              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
                                            - Our onsite solutions are 
Competition can come from waste producers     targeted to minimize waste
processing streams internally or new third    at the source as an 
party waste processors entering the market.   alternative to waste 
                                              generators internally managing
                                              waste
                                            - Onsite operations require an 
                                              excellent safety record and a
                                              facility network for
                                              mobilization, employee 
                                              training and a backstop for
                                              process guarantees, which we
                                              have already established
                                            - Barriers to entry include
                                              facilities network
                                              infrastructure and regulatory
                                              permits that are difficult to
                                              replicate
Failure to commercialize identified         - Staged approach to developing
technologies into our processes               technologies ensures resources
                                              can be redeployed efficiently
                                              to other initiatives
                                            - Other initiatives include
                                              expansion of services and
                                              business development
                                            - Contribution to performance
                                              from commercialization is not
                                              expected for two years
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CORPORATE OVERVIEW

Consistent with the rest of 2010, we continued to deliver year-over-year improvements in performance in Q4 2010, in line with improved market conditions and the strengthening value of our products. Q4 2010 results improved over last year with revenue up 19% to $162.9 million and Adjusted EBITDA up 32% to $33.6 million. Net earnings declined to $2.9 million compared to $4.1 million in Q4 2009. Improved operational profitability was offset by higher stock-based compensation and future income tax expenses.

In Facilities, Q4 2010 revenue and net margin increased by 21% and 31%, respectively, compared to 2009. This was primarily due to improved contributions from our Western Facilities. For the quarter, 34% of incremental revenue over last year flowed to net margin. Growth in Western Facilities was driven by increased drilling activity in western Canada. Performance was mixed across the other business units, reflecting regional variation in market recovery.

Onsite delivered strong results for the quarter due to higher drilling activity and steady improvements in Heavy Oil. Revenue and net margin increased by 12% and 37%, respectively. Net margin as a percentage of revenue was 22% up from 18% in Q4 2009. Of the incremental revenue, 56% flowed through to net margin.

Table 1: Trailing Twelve-Month Adjusted EBITDA and Trailing Twelve-Month Combined Divisional Net Margin

image/2011+03+04+newalta_tables.pdf

For the year, combined divisional net margin and combined divisional net margin as a percentage of revenue continued to improve. Adjusted EBITDA increased by $36.6 million, or 45%, to $118.8 million. Improved market conditions, stronger prices for our products, productivity improvements and cost reductions implemented in 2009 have all contributed to improved performance. As a result, our Total Secured and Unsecured Debt to Adjusted EBITDA ratio improved to 2.65, from 4.04 in Q4 2009. The ongoing improvement in financial leverage continues to create greater financial flexibility for future growth.

Capital expenditures for 2010 totaled $75.7 million. Growth capital spending of $47.1 million related primarily to drill site equipment in Western Onsite, processing equipment for Heavy Oil project work and facility expansion in Western Facilities. Maintenance capital expenditures of $28.7 million related primarily to the construction of landfill cells and routine process equipment improvement at facilities. Capital expenditures were funded by Funds from operations. At December 31, 2010, total committed capital was $95 million. The incremental capital committed over our expected $87 million, as disclosed in Q3 2010, relates to 2011 projects being moved forward to take advantage of improving market conditions. We anticipate the majority of the incremental committed capital to be spent in Q1 2011.

On November 23, 2010, we issued $125 million Senior Unsecured Debentures with a seven-year term, bearing interest at the rate of 7.625% per annum. Proceeds from the offering were used to repay outstanding debt on our credit facility. In connection with this offering, effective December 17, 2010, we amended our credit facility to a three-year maturity ending December 17, 2013, with annual extensions available at Newalta's option. As a result of the successful senior unsecured debenture offering and current cash forecast needs, we elected to reduce the amount available under the credit facility from $350 million to $200 million. These initiatives will strengthen our balance sheet, achieve better alignment with our long-term assets and provide increased financial flexibility to meet the demands of future growth.

Table 2: Revenue and Adjusted EBITDA

image/2011+03+04+newalta_tables.pdf

During the first half of 2010, we launched our Technical Development team. We enter 2011 with a group of 15 professionals comprised of engineers, chemists and business analysts leading our technical development initiatives with an operating budget of $3 million and $5 million of budgeted capital expenditures. Capital expenditures are anticipated to include the purchase of equipment and licenses to use technologies. In 2011, we will move into the next phase of testing and assessing the most promising opportunities while continuing the global search for technologies that started in 2010. We anticipate our investments in technical development will start contributing to our performance in approximately two years.

OUTLOOK

In Q1 2011, we expect improved results compared to both the prior year and Q4 2010. Crude oil and lead prices for Q1 are trending higher than Q4 2010 and our key markets continue to strengthen. Oil and gas drilling activity is expected to continue to strengthen with the average Q1 2011 rig count in western Canada forecast to be up over Q4 2010 levels. We anticipate volumes at VSC will be approximately 17,000 MT. SCL volumes are anticipated to be approximately 150,000 MT. In Onsite, we expect continued gains from the increased demand for drill site equipment in the U.S. Overall, we expect continued year-over-year growth in the quarters ahead as our markets strengthen and we realize returns from our 2010 growth investments.

Capital expenditures in 2011 are budgeted at $100 million. Growth capital expenditures of $73 million are comprised of $26 million for Facilities, $35 million for Onsite, $5 million for Technical Development and $7 million for corporate investments. Maintenance capital expenditures are expected to be $27 million. Capital expenditures will be funded by Funds from operations, with approximately 40% expected to be spent in the first half of 2011.

We enter 2011 with more robust markets which will drive improved performance. We expect return on capital to continue to climb toward our historical average of 18%. We are confident that we will deliver attractive returns to our shareholders in the quarters ahead.

RESULTS OF OPERATIONS - FACILITIES DIVISION

Overview

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

The business units contributed the following to division revenue:

                                      Three months ended         Year ended
                                             December 31,       December 31,
                                            2010    2009        2010   2009
----------------------------------------------------------------------------
Western Facilities                            45%     39%         47%    46%
Eastern Facilities                            21%     23%         22%    23%
VSC                                           34%     38%         31%    31%
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Table 3: Facilities Revenue and Net Margin

image/2011+03+04+newalta_tables.pdf

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

                Three months ended                   Year ended
                       December 31,                 December 31,
($000s)               2010    2009    % change     2010    2009    % change
----------------------------------------------------------------------------
Revenue(1)         115,193  94,932          21  394,539 327,484          20
Operating costs     77,843  65,039          20  265,153 230,845          15
Amortization and 
 accretion           8,827   8,161           8   30,813  27,919          10
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Net margin          28,523  21,732          31   98,573  68,720          43
----------------------------------------------------------------------------
Net margin as % 
 of revenue             25%     23%          9       25%     21%         19
----------------------------------------------------------------------------
Maintenance capital  6,882   2,479         178   21,791   6,240         249
----------------------------------------------------------------------------
Growth capital       7,237   1,676         332   11,700   7,860          49
----------------------------------------------------------------------------
Assets employed(2)                              569,950 561,315           2
----------------------------------------------------------------------------
(1) Includes $104,000 and $589,000 in internal revenue in Q4 2010 and 2010
    year-to-date, respectively, and $295,000 and $1,203,000 in Q4 2009 and
    2009 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.

Throughout 2010, performance for the trailing twelve months from the Facilities division improved steadily.

Table 4: Facilities Trailing Twelve-Month

image/2011+03+04+newalta_tables.pdf

Compared to Q4 2009, revenue and net margin grew by 21% and 31%, respectively, due primarily to contributions from our Western Facilities. Performance was consistent with improved oil and gas industry activity and stronger prices for our recovered products. For the quarter, 34% of incremental revenue over last year flowed to net margin. Increased drilling activity in western Canada significantly improved volume receipts for Western Facilities. Performance was mixed across the other business units. Compared to Q4 2009, volumes at SCL increased due to higher event-based business while performance at VSC was impacted by higher lead procurement costs. However, VSC performance improved compared to Q3 2010 in line with strengthening market conditions.

Revenue and net margin for the year increased by 20% and 43%, respectively. Activity levels were up across all business units, highlighted by stronger drilling activity, higher event-based business at SCL and increased volumes at VSC. The impact of commodity prices for 2010 compared to 2009 was insignificant on annual Facilities performance.

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

- oil recycling, including the collection and processing of waste lube oils and the sale of finished products

Western Facilities draws its revenue primarily from industrial waste generators and the oil and gas industry. Waste generated by the oil and gas industry is affected by volatility in the price of crude oil and natural gas and drilling activity. Drilling activity will impact the volume of waste received and the makeup of that waste. Changes in the waste mix will impact the amount of crude oil recovered to our account. Historically, for oilfield facilities, approximately 75% of our waste volume relates to ongoing production resulting in a fairly stable revenue base. Volatility in the price of crude oil impacts crude oil revenue. Fluctuations in the Canadian/U.S. dollar exchange rate impact U.S. dollar sales, which account for approximately 15% of Western Facilities revenue. Changes in environmental regulations in western Canada also impact our business. There is no 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 Q4 2010 revenue increased by 42% compared to Q4 2009 largely due to increased drilling activity. Wells and metres drilled increased by 59% and 45%, respectively, compared to Q4 2009. As a result, waste processing and recovered crude oil volumes increased by 65% and 45%, respectively. Crude oil recovered as a percentage of the waste processing volumes decreased due to a change in the waste mix. Substantially all of the increase in revenue was attributable to higher oil and gas activity.

Revenue for the year increased by 24% compared to 2009 due to higher drilling activity combined with higher crude oil prices and crude oil recovery volumes.

                Three months ended                   Year ended
                       December 31,                 December 31,
                      2010    2009    % change     2010    2009    % change
----------------------------------------------------------------------------
Waste processing 
 volumes ('000 m(3))   152      92          65      486     310          57
Recovered crude oil 
 ('000 bbl)(1)          61      42          45      223     190          17
Average crude oil 
 price received 
 (CDN$/bbl)          76.27   71.69           6    73.48   59.61          23
Recovered crude oil 
 sales ($ millions)    4.6     3.0          53     16.4    11.3          45
Edmonton par price 
 (CDN$/bbl)(2)       80.21   75.92           6    77.34   65.70          18
----------------------------------------------------------------------------
(1) Represents the total crude oil recovered and sold for our account.
(2) Edmonton par is an industry benchmark for conventional crude oil.

Table 5: Waste Processing Volumes - Western Facilities and Recovered Crude - Western Facilities

image/2011+03+04+newalta_tables.pdf

Eastern Facilities

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

- the processing of industrial wastes, including collection, treatment, and disposal

- 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. At present, there are no 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 2010, the general state of the economy in eastern Canada showed positive signs of recovery. Revenue grew by 6% in Q4 2010 compared to last year, due to improved event-based activity at SCL. For the quarter, SCL volumes were 211,000 MT, up 11% over Q4 2009. Excluding the impact of SCL, the remainder of the business was flat year-over-year.

For the year, revenue improved by 15% due to higher event-based projects at SCL. SCL annual volume for 2010 was above the three-year annual average of 600,000 MT. We anticipate that Q1 2011 landfill volumes will be in line with the historical average of 150,000 MT.

                Three months ended                   Year ended
                       December 31,                 December 31,
                      2010    2009    % change     2010    2009    % change
----------------------------------------------------------------------------
SCL Volume Collected 
 ('000 MT)           211.0   190.3          11    684.2   477.2          43
----------------------------------------------------------------------------

Table 6: Volume Collected - Stoney Creek Landfill

image/2011+03+04+newalta_tables.pdf

Ville Ste-Catherine ("VSC")

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

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

VSC revenue in Q4 2010 increased by 10% compared to Q4 2009 due to higher direct sales volumes. Total lead volume sold increased by 3% to 20,300 MT. Lagged lead prices in Canadian dollars were flat compared to Q4 2009 as the impact of higher lead pricing in U.S. dollars was offset by the movement in the exchange rate. Performance at VSC continued to be affected by higher battery procurement cost compared to last year; however, the procurement market improved compared to Q3 2010.

Revenue for the year increased 20% as a result of both higher lead prices and increased sales volumes. Average lagged lead prices rose 33% to 2,141 $U.S./MT compared to 2009. Sales volumes for the year rose 8% to 67,900 MT creating a positive impact on performance.

We anticipate Q1 2011 production to be approximately 17,000 MT. We will continue to manage production volumes to capitalize on market conditions and maximize returns.

RESULTS OF OPERATIONS - ONSITE DIVISION

Overview

Onsite includes a network of 25 facilities with over 400 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 business units generally follow a similar sales cycle. We establish our market position through the execution of short-term projects, or event-based projects which lead to longer term contracts. The cycle to establish longer term contracts can be between 18 months to three years. Longer term contracts are not sensitive to commodity prices and provide a more stable cash flow. In addition, Onsite performance is affected by the customer's requirement for Newalta to maintain a strong safety record. To address this requirement, our 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,
                                 2010         2009        2010         2009
----------------------------------------------------------------------------
Western Onsite                     44%          25%         39%          26%
Eastern Onsite                     23%          40%         26%          37%
Heavy Oil                          33%          35%         35%          37%
----------------------------------------------------------------------------

Table 7: Onsite Revenue and Net Margin

image/2011+03+04+newalta_tables.pdf

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

                Three months ended                   Year ended
                       December 31,                 December 31,
($000s)               2010    2009    % change     2010    2009    % change
----------------------------------------------------------------------------
Revenue - external  47,838  42,671          12  182,246 157,120          16
Operating costs     33,804  31,263           8  129,753 117,706          10
Amortization and 
 accretion           3,374   3,643          (7)  13,038  11,416          14
----------------------------------------------------------------------------
Net margin          10,660   7,765          37   39,455  27,998          41
----------------------------------------------------------------------------
Net margin as % 
 of revenue             22%     18%         22       22%     18%         22
----------------------------------------------------------------------------
Maintenance capital    866     823           5    4,833   2,150         125
----------------------------------------------------------------------------
Growth capital      11,817   3,773         213   27,903   7,719         261
----------------------------------------------------------------------------
Assets employed(1)                              252,262 240,793           5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) "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.

Since Q2 2009, Onsite's trailing twelve month performance has steadily improved and we expect this trend to continue into 2011 as we leverage our 2010 investments. As utilization of our equipment improves, we continue to see incremental gains in profitability. We have demonstrated continued improvements in the profitability of our operations as we execute our strategy to grow these services across North America.

Table 8: Onsite Trailing Twelve-Month

image/2011+03+04+newalta_tables.pdf

In Q4 2010, net margin as a percentage of revenue increased to 22% compared to 18% last year. Incremental revenue drove a 56% flow through to net margin due to higher utilization of equipment resulting from higher drilling activity. Rigs released were up 59% in Canada compared to Q4 2009.

Revenue and net margin for the year improved by 16% and 41%, respectively with incremental revenue contributing 45% to net margin. Increased activity primarily in oil and gas boosted contributions from Western Onsite and Heavy Oil. Activity accounted for approximately 91% of the improvement in net margin with the balance attributable to higher crude oil prices.

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

- 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 various other industries including pulp and paper, refining, mining and municipal dewatering.

Q4 2010 Western Onsite revenue improved by 94% compared to Q4 2009, consistent with increased drilling activity in both western Canada and the U.S. Our utilization rate for drill site equipment rose to 57% from 26% in Q4 2009. Improved utilization was driven by higher demand in both the U.S. and Canada with utilization rates for Q4 2010 of 64% and 48%, respectively. Increased activity in the Marcellus and Fayetteville shale gas plays strengthened U.S. demand while increasing activity in the Cardium oil play drove recovery in Canadian demand.

For the year, revenue improved by 77% compared to 2009 due to the same factors impacting Q4 2010 results. Balancing our fleet equally between the U.S. and Canadian markets enabled us to capitalize on increased demand in both regions. In addition, increased demand for onsite project work due to higher industrial activity in western Canada contributed to improved results.

We anticipate continued growth year-over-year in this business unit consistent with increased drilling activity in both Canada and the U.S. and additional onsite project work.

Eastern Onsite

Eastern Onsite revenue is derived from:

- onsite service in eastern Canada, including: industrial cleaning; centrifugation and dredging and dewatering

- a fleet of specialized vehicles and equipment for emergency response and onsite processing

Eastern Onsite services a broad range of industries in eastern Canada; however, these industries are sensitive to the state of the economy in these regions. Eastern Onsite is in the early stage of development as we have only been developing this business unit for one year. We are currently engaged primarily in short-term, or event-based projects, which will vary from quarter-to-quarter.

Compared to Q4 2009, Eastern Onsite revenue decreased by 37%, due to lower than anticipated project activity in all regions.

Revenue for the year decreased by 20% compared to 2009. Dramatically reduced project activity in Atlantic Canada was partially offset by gains in Ontario from the petrochemical industry.

Heavy Oil

Our heavy oil services business began 15 years ago with facilities at Hughenden and Elk Point, Alberta. This business has expanded from processing heavy oil in our facility network to operating equipment on customers' sites. Leveraging our facilities as staging areas, we deliver a broad range of specialized services at numerous customer sites under short and long-term arrangements. Revenue from onsite services is generally based on processing volumes and is not directly susceptible to fluctuations in crude oil pricing.

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

- specialized onsite services for heavy oil producers under short and long-term arrangements;

- processing and disposal of oilfield-generated wastes, including water disposal, and landfilling; and

- sale of recovered crude oil for our account

Heavy Oil revenue streams are essentially driven by two sources: waste received at facilities and contract revenue from specialized onsite services. 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. Growth in the business unit will come from our ability to attract and retain customers with new SAGD projects coming on stream.

Q4 2010 Heavy Oil revenue increased by 8% compared to Q4 2009. This was due to higher waste receipts and crude oil recovered at our heavy oil facilities. SAGD onsite projects were stable and continued to perform as expected. In Q4 2010, we completed the first phase of a project to use our centrifuge processing capabilities on mature fine tailings, or MFT. This project is expected to resume in the spring of 2011.

Q4 2010 waste processing and recovered crude oil volumes to our account increased by 36% and 31%, respectively, due to increased waste volumes from the area served by our Heavy Oil facilities as well as higher volumes from SAGD operations.

Revenue for 2010 compared to 2009 increased by 10% due primarily to growth in our onsite services and a 22% increase in crude oil sales.

                Three months ended                   Year ended
                       December 31,                 December 31,
                      2010    2009    % change     2010    2009    % change
----------------------------------------------------------------------------
Waste processing 
 volumes ('000 m(3))   170     125          36      562     502          12
Recovered crude oil 
 ('000 bbl)(1)          46      35          31      196     185           6
Average crude oil 
 price received 
 (CDN$/bbl)          60.41   61.91          (2)   59.85   52.14          15
Recovered crude oil 
 sales ($ millions)    2.8     2.2          27     11.7     9.6          22
Bow River Hardisty 
 (CDN$/bbl)(2)       71.72   70.57           2    71.06   61.23          16
----------------------------------------------------------------------------
(1) Represents the total crude oil recovered and sold for our account.
(2) Bow River Hardisty is an industry benchmark for heavy crude oil.

Table 9: Waste Processing Volumes - Heavy Oil and Recovered Crude - Heavy Oil

image/2011+03+04+newalta_tables.pdf

CORPORATE AND OTHER
                Three months ended                   Year ended
                       December 31,                 December 31,
($000s)               2010    2009    % change     2010    2009    % change
----------------------------------------------------------------------------
Selling, general and 
 administrative 
 expenses ("SG&A")  23,972  16,603          44   70,891  56,132          26
 Less stock-based 
  compensation       6,821     808         744    9,517   2,236         326
                   ---------------------------------------------------------
SG&A before 
 stock-based 
 compensation       17,151  15,795           9   61,374  53,896          14
 SG&A before 
  stock-based 
  compensation as 
  a % of
  revenue             10.5%   11.5%         (9)    10.7%   11.1%         (4)
----------------------------------------------------------------------------

For Q4 2010 and full year 2010, SG&A before stock-based compensation improved to below 11% of revenue. This reflects our continued focus on managing costs in concert with increasing customer demand and growth initiatives. SG&A before stock-based compensation increased by 9% in Q4 2010 and 14% for the full year, compared to the prior period. The majority of the increase for Q4, and approximately 30% of the increase for the full year, related to performance-based compensation. The increase in stock-based compensation is driven by the increase in our share price to $11.89 at the end of 2010 from $8.02 last year. Increases in our share price will continue to drive stock-based compensation. Approximately 60% of stock-based compensation expense is estimated to be settled with equity, with the balance to be settled in cash. Stock-based compensation grants outstanding at December 31, 2010 that settle in cash only had a weighted average remaining life of approximately three years with a weighted average exercise price of $9.96. For Q1 2011, we anticipate SG&A before stock-based compensation to be at or below $16 million.

                Three months ended                   Year ended
                       December 31,                 December 31,
($000s)               2010    2009    % change     2010    2009    % change
----------------------------------------------------------------------------
Research and 
 development           586       -           -    1,713       -           -
 Research and 
  development as 
  a % of revenue       0.4%      0%          -      0.3%      0%          -
----------------------------------------------------------------------------

Research and development expenses for the year are related to the Technical Development group which was launched in 2010. By the end of 2010, a team of 15 people comprising engineers, chemists and business analysts was in place and charged with identifying new technologies and finding innovative ways of applying them to our business. In 2011, Technical Development has an operating budget of $3 million to develop and commercialize technologies into our operations. To date, a significant number of technologies have been identified and are now being prioritized for development.

                Three months ended                   Year ended
                       December 31,                 December 31,
($000s)               2010    2009    % change     2010    2009    % change
----------------------------------------------------------------------------
Amortization and 
 accretion          14,891  14,558           2   55,990  51,825           8
 as a % of revenue     9.1%   10.6%        (14)     9.7%   10.7%         (9)
----------------------------------------------------------------------------

Amortization and accretion for the year includes a $1.4 million net loss on disposal of assets compared to a $1.6 million net loss in 2009. Compared to Q4 2009, amortization and accretion increased due to higher depreciation for assets amortized on a unit of production basis driven by higher utilization.

                Three months ended                   Year ended
                       December 31,                 December 31,
($000s)               2010    2009    % change     2010    2009    % change
----------------------------------------------------------------------------
Bank fees and 
 interest            4,243   4,353          (3)  16,248  16,059           1
Debentures interest 
 and accretion of 
 issue costs(1)      2,365   2,336           1    9,415   9,305           1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance charges      6,608   6,689          (1)  25,663  25,364           1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes convertible debentures and senior unsecured debentures.

Finance charges for the quarter and the year were relatively flat to the same periods in 2009 primarily due to lower average senior debt. The average interest rate on the credit facility for Q4 2010 improved to 5.2% from 5.7% in Q4 2009. For the year, the average interest rate on the credit facility increased to 5.2% from 4.5% in 2009. Finance charges associated with the Convertible Debentures include an annual coupon rate of 7%, the accretion of issue costs and discount on the debt portion of the Convertible Debentures. Finance charges associated with the Senior Unsecured Debentures include an annual coupon rate of 7.625% and the accretion of issue costs. The Senior Unsecured Debentures were issued November 23, 2010. See "Liquidity and Capital Resources" in this MD&A for discussion of our long-term borrowings.

                Three months ended                   Year ended
                       December 31,                 December 31,
($000s)               2010    2009    % change     2010    2009    % change
----------------------------------------------------------------------------
Current tax            520     317          64      938     945          (1)
Future income tax    1,945    (958)        303    8,621  (1,312)        757
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Provision for 
 (recovery of) 
 income taxes        2,465    (641)        485    9,559    (367)      2,705
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The increase in future income tax expense for the quarter and year compared to 2009 is primarily due to higher taxable income. The effective tax rate for the year increased to 34.6% in 2010 compared to a 13.4% recovery in 2009. The increase in the effective tax rate resulted from higher non-deductible costs related to stock options in 2010. Additionally, in 2009, our effective tax rate was unusually low due to the recognition of reductions to Federal and Provincial tax rates in Canada and the increase in the value of certain tax assets on the windup of Newalta Income Fund. Loss carry forwards are approximately $177 million at December 31, 2010. Other than provincial capital taxes and U.S. state and federal income taxes, we do not anticipate paying significant income tax for at least three years. See "Critical Accounting Estimates - Income Taxes" in this MD&A for the year ended December 31, 2010 for further discussion.

LIQUIDITY AND CAPITAL RESOURCES

The term liquidity refers to the speed with which a company's assets can be converted into cash, as well as cash on hand. Our liquidity risk may arise from general day-to-day cash requirements and in the management of our assets, liabilities and capital resources. Liquidity risk is managed against our financial leverage to meet obligations and commitments in a balanced manner. For further information on our risk management, refer to Note 20 to the consolidated financial statements for the year ended December 31, 2010.

Our debt capital structure is as follows:
($000s)                                 December 31, 2010 December 31, 2009
----------------------------------------------------------------------------
Use of Credit Facility:
Amount drawn on Credit Facility(1)                 53,860           195,199
Senior Unsecured Debentures                       125,000                 -
Letters of credit                                  21,477            22,137
----------------------------------------------------------------------------
Total Debt                                  A     200,337           217,336
Unused Credit Facility capacity(2)                124,663           132,664
----------------------------------------------------------------------------
Convertible Debentures                      B     115,000           115,000
Total Secured and Unsecured Debt         =A+B     315,337           332,336
----------------------------------------------------------------------------
(1) See Note 9 to the consolidated financial statements for the quarter 
    and year ended December 31, 2010. The net senior secured debt at 
    December 31, 2010 was $52 million.
(2) Management elected to reduce our borrowing capacity to $200 million on
    December 17, 2010 from $350 million.

We continue to focus on managing our working capital accounts while supporting our growth. Working capital at December 31, 2010 decreased to $19.2 million from $31.0 million at December 31, 2009, due to increased activity levels and timing of receipts and payments. Cash from operations was similarly impacted. Days' sales outstanding in receivables has been maintained at levels consistent with prior year and accounts receivable over 90 days of $2.2 million has increased in line with increased activity.

At current activity levels, working capital is expected to be sufficient to meet our ongoing commitments and operational requirements of the business. We will continue to manage working capital prudently with increasing activity levels.

For further information on credit risk management, please refer to Note 20 to the consolidated financial statements.

DEBT RATINGS

DBRS Limited ("DBRS") and Moody's Investor Service, Inc. ("Moody's") provided a corporate and Series 1 Unsecured Debentures credit rating on November 10, 2010. The ratings are as follows:

Category                          DBRS    Moody's
--------------------------------------------------
Corporate Rating               BB (low)       Ba3
Series 1 Unsecured Debentures       BB         B1
--------------------------------------------------
--------------------------------------------------

Both DBRS and Moody's obligations rating are speculative and non investment-grade credit quality.

SOURCES OF CASH

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

Credit Facility

The Credit Facility was amended effective December 17, 2010 to a three-year maturity ending December 17, 2013, with annual extensions available at our option. As a result of Newalta's recent successful private placement of $125 million in Senior Unsecured Debentures and current cash forecast needs, management elected to reduce the amount available under the Credit Facility from $350 million to $200 million. At December 31, 2010, $124.7 million was available and undrawn under the Credit Facility to fund growth capital expenditures and for general corporate purposes, as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60 million. The aggregate dollar amount of outstanding letters of credit is not categorized in the financial statements as long-term debt; however, the issued letters of credit reduce the amount available under the Credit Facility and are included in the definition of Total Debt for covenant purposes. Under the Credit Facility agreement, surety bonds (including performance and bid bonds) to a maximum of $125 million are excluded from the definition of Total Debt. As at December 31, 2010, surety bonds issued and outstanding totalled $21.5 million.

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

                                        December 31, 2010         Threshold
----------------------------------------------------------------------------
Senior Secured Debt(2) to EBITDA(3)                0.63:1    2.75:1 maximum
Total Debt(4) to EBITDA(3)                         1.68:1    3.50:1 maximum
Interest Coverage                                  4.97:1    2.25:1 minimum
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) We are restricted from declaring dividends if we are in breach of the
    covenants under our Credit Facility.
(2) Senior Secured Debt means the Total Debt less the Senior Unsecured
    Debentures.
(3) EBITDA is a non-GAAP measure, the closest measure of which is net
    earnings. For the purpose of calculating the covenant, EBITDA is 
    defined as the trailing twelve-months consolidated net income for 
    Newalta before the deduction of interest, taxes, depreciation and
    amortization, and non-cash items (such as non-cash stock-based
    compensation and gains or losses on asset dispositions). Additionally,
    EBITDA is normalized for any acquisitions or dispositions as if they 
    had occurred at the beginning of the period.
(4) Total Debt comprises outstanding indebtedness under the Credit Facility
    and the Senior Unsecured Debentures, but excludes the existing $115
    million Convertible Debentures.

Table 10: Total Secured and Unsecured Debt to Adjusted EBITDA

image/2011+03+04+newalta_tables.pdf

Our Total Secured and Unsecured Debt was $315 million as at December 31, 2010 which reflected a $17 million improvement from 2009. Combined with higher Adjusted EBITDA, this reduced debt level resulted in a Total Secured and Unsecured Debt to Adjusted EBITDA ratio of 2.65. This improvement provides Newalta with greater financial flexibility and will reduce future financing costs. Our covenant ratios remained well within their thresholds. We will manage within our covenants throughout 2011.

Convertible Debentures

The Convertible Debentures have a maturity date of November 30, 2012 and bear interest at a rate of 7.0% payable semi-annually in arrears on May 31 and November 30 each year. Each $1,000 debenture is convertible into 43.4783 shares, at a conversion price of $23.00 per share, at any time at the option of the holders of the Convertible Debentures. The Convertible Debentures are not included in calculating financial covenants in the Credit Facility.

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

The Convertible Debentures are redeemable by Newalta at a price of $1,000 per debenture after November 30, 2010 and on or before November 30, 2011 provided that the current market price of our shares on the date on which the notice of redemption is given is not less than $28.75 (being 125% of the Conversion Price). After November 30, 2011, debentures are redeemable at a price equal to $1,000 per debenture. In all cases, consideration will include accrued and unpaid interest, if applicable. Current market price is defined as the volume weighted average trading price of the shares on the Toronto Stock Exchange ("TSX") for the 20 consecutive trading days ending on the fifth trading day prior to the date of determination. The volume weighted average trading price is determined by dividing the aggregate sale price of all shares sold on the TSX during the 20 consecutive trading days by the total number of shares so sold.

There were no redemptions of the Convertible Debentures in 2010.

Senior Unsecured Debentures

On November 23, 2010, Newalta issued $125.0 million of 7.625% Series 1 Unsecured Debentures (the "Senior Unsecured Debentures"). The Senior Unsecured Debentures mature on November 23, 2017. The Senior Unsecured Debentures bear interest at 7.625% per annum and such interest is payable in equal instalments semi-annually in arrears on May 23 and November 23 in each year, commencing on May 23, 2011. 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.

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

- Redeem up to 35% of the aggregate principal amount of Senior Unsecured Debentures, with the net cash proceeds of one or more public equity offerings at a redemption price equal to 107.625% of the principal amount, plus accrued and unpaid interest to the date of redemption.

- Redeem the Senior Unsecured Debentures, in whole or in part, at a redemption price which is equal to the greater of (a) the Canada Yield Price (as defined in the trust indenture) and (b) 101% of the aggregate principal amount of Senior Unsecured Debentures redeemed, plus, in each case, accrued and unpaid interest to the redemption date.

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

During the three and twelve months ended December 31, 2010, financing fees of $3.0 million were incurred in connection with the issuance of the Senior Unsecured Debentures. These fees have been recorded as deferred financing costs and are being amortized using the effective interest method over the term of the Senior Unsecured Debentures.

The trust indenture under which the Senior Unsecured Debentures have been issued also requires Newalta to be in compliance with certain covenants on an annual basis. At December 31, 2010, Newalta was in compliance with all covenants.

USES OF CASH

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

Capital Expenditures

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

Capital expenditures for the quarter and year ended December 31, 2010 were:

                     Three months ended December 31, Year ended December 31,
($000s)                           2010         2009       2010         2009
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Growth capital expenditures     21,146        4,739     47,077       18,696
Maintenance capital expenditures 8,491        3,501     28,668        8,589
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Total capital expenditures(1)   29,637        8,240     75,745       27,285
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(1) The numbers in this table differ from the Consolidated Statements of 
    Cash Flows because the numbers above do not reflect the net change in
    working capital related to capital asset accruals.

Total capital expenditures for the quarter were $29.6 million. Growth capital expenditures for the quarter and the year relate primarily to drill site equipment in Western Onsite, centrifugation equipment for project work in our Heavy Oil business unit and expansion in Western Facilities. Maintenance capital expenditures for the quarter and year related primarily to the construction of landfill cells, process equipment refurbishment at VSC and routine process equipment refurbishment at other facilities. Capital expenditures were funded by Funds from operations.

Total capital expenditures for the year were $75.7 million. Of the $47.1 million in growth capital expenditures, Onsite accounted for 60%, Facilities expenditures were 25% and the balance was attributable to corporate investments.

Capital expenditures in 2011 are budgeted at $100 million, comprised of growth capital expenditures of $73 million and maintenance capital of $27 million. We plan to spend $35 million in growth capital expenditures in the Onsite division, primarily related to expansion of the Heavy Oil business unit, as well as additional equipment for the Eastern and Western Onsite business units. We plan to spend $26 million in the Facilities division, primarily related to process improvements and additions, as well as the completion of a new oilfield facility. Capital expenditures for technical development are budgeted to be $5 million, with the remaining $7 million in growth capital expenditures for corporate investments. Maintenance capital expenditures will relate to the construction of additional landfill cells, process improvements and equipment replacement.

We may revise the budget, from time to time, in response to changes in market conditions that materially impact our financial performance and/or investment opportunities.

Dividends and Share Capital

In determining the dividend to be paid to our shareholders, the Board of Directors considers a number of factors including the forecasts for operating and financial results, maintenance and growth capital requirements as well as market activity and conditions. After a review of all factors, the Board declared $3.2 million in dividends or $0.065 per share, paid January 17, 2011 to shareholders of record as at December 31, 2010.

We expect to pay a dividend of $0.065 per share to shareholders of record on March 31, 2011. The Board will continue to review future dividends, taking into account all factors noted above.

As at March 3, 2011, Newalta had 48,495,002 shares outstanding, outstanding options to purchase up to 3,526,075 shares and a number of shares that may be issuable pursuant to the $115.0 million in Debentures (see Sources of Cash - Debentures in this MD&A for the year December 31, 2010).

Contractual Obligations
Our contractual obligations, as at December 31, 2010, were:
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                                Less than
                                      one
($000s)                    Total     year  1-3 years  4-5 years  Thereafter
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Office leases             64,138    7,676     14,830     13,870      27,762
Operating leases(1)       15,229    9,025      5,774        430           -
Surface leases             3,387    1,135      1,447        580         225
Convertible debentures   130,429    8,050    122,379          -           -
Senior long-term debt(2)  54,028        -     54,028          -           -
Senior unsecured
 debentures              190,726    9,531     19,063     19,062     143,070
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Total commitments        457,937   35,417    217,521     33,942     171,057
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(1) Operating leases relate to our vehicle fleet with terms ranging between
    3 and 5 years.
(2) Senior long-term debt is gross of transaction costs. Interest payments 
    are not included.
SUMMARY OF QUARTERLY RESULTS
($000s
 except per
 share
 data)                                2010                             2009
                Q4      Q3      Q2      Q1      Q4      Q3      Q2       Q1
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Revenue    162,927 145,124 136,905 131,240 137,308 122,169 111,386  112,538
Earnings
 (loss)
 before
 taxes       5,327   9,364   4,918   8,013   3,451   5,936    (293)  (6,362)
Net
 earnings
 (loss)      2,862   6,324   3,155   5,722   4,092   3,567    (179)  (4,381)
Earnings
 (loss) per
 share ($)    0.06    0.13    0.07    0.12    0.09    0.08       -    (0.10)
Diluted
 earnings
 (loss) per
 share ($)    0.06    0.13    0.06    0.12    0.09    0.08       -    (0.10)
Weighted
 average
 shares
 basic      48,523  48,487  48,487  48,480  46,770  42,438  42,450   42,402
Weighted
 average
 shares
 diluted    48,934  48,909  48,844  48,826  47,049  42,610  42,450   42,402
EBITDA      26,826  28,769  26,310  27,370  24,698  25,253  17,940   12,030
Adjusted
 EBITDA     33,647  29,706  26,573  28,866  25,506  26,606  18,253   11,792
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Quarterly performance is affected by, among other things, weather conditions, timing of onsite projects, commodity prices, foreign exchange rates, market demand and the timing of our growth capital investments as well as acquisitions and the contributions from those investments. Growth capital investments completed in the first half of the year will tend to strengthen the second half financial performance. Revenue from certain business units is impacted by seasonality. However, due to the diversity of our business, the impact is limited on a consolidated basis. For example, waste volumes received at our oilfield facilities decline in the second quarter due to road bans which restrict drilling activity. This decline is offset by increased activity in our Eastern Onsite business unit due to the aqueous nature of work performed, as well as potentially by fluctuations in commodity prices or event-based waste receipts at SCL. As experienced over the last eight quarters, fluctuations in commodity prices can dramatically impact our results.

In 2009, revenue and net earnings grew as the year progressed, with lower revenue, earnings before taxes and net earnings in the first half of the year as compared to the second half, mainly due to weaker economic conditions. Lead and crude oil prices fell from historic highs achieved in 2008, continuing the negative impact on revenue and net earnings in the first half of 2009. The improvement in Q2 2009 was driven by a combination of stronger commodity prices and management's cost containment program. In Q3 2009, we observed improved commodity prices and typical seasonal activity increases; however, our waste volumes remained below historic levels. Revenue in Q4 2009 improved due to higher commodity prices, better waste receipts at SCL and increased lead production at VSC. Weighted average shares increased reflecting the equity offering of 6 million shares completed in Q4 2009.

Q1 2010 revenue, earnings before taxes and net earnings reflect continued improvements in commodity prices and productivity and cost efficiencies combined with strengthened demand across all business units. Q2 2010 revenue, earnings before taxes and net earnings reflect continued recovery in activity levels, consistent with expectations. Q3 2010 revenue, earnings before taxes and net earnings improved. Strong performance in Western Facilities, Heavy Oil and Western Onsite was partially offset by lower contributions from VSC, SCL and Eastern Onsite. Q4 2010 revenue and Adjusted EBITDA continued to improve driven by strong market activity in Western Facilities and increased demand for Western Onsite services. The Q4 2010 decrease in earnings before taxes and net earnings was due to higher stock-based stock compensation.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

SENSITIVITIES

Our stock-based compensation expense is sensitive to changes in our share price. Using Canadian GAAP, a $1 change in our share price, up to $15 per share, has a $2.1 million direct impact on annual stock-based compensation reflected in SG&A, before the effects of vesting. We anticipate that approximately one third 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. The indirect impact is the effect that the variations of these factors, including natural gas, has on activity levels of our customers and, therefore, demand for our services. The indirect impacts of these fluctuations previously discussed are not quantifiable.

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

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                                                   Change in      Impact on
                                                   benchmark         Annual
                                                          ($)    Revenue ($)
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LME lead price ($U.S./MT)(1) (2)                         220    8.2 million
Edmonton Par crude oil price ($/bbl)(1)                 1.00    0.3 million
Gulf Coast Base oil ($/litre)(1)                        0.05    0.9 million
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(1) Based on 2010 performance and volumes.
(2) Excludes impact of LME on feedstock which offsets the impact of LME
    on revenue.

CRITICAL ACCOUNTING ESTIMATES

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

Amortization and Accretion

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

Asset Retirement Obligations

Asset retirement obligations are estimated by management based on the anticipated costs to abandon and reclaim all our facilities and landfills as well as the projected timing of the costs to be incurred in future periods. Management, in consultation with Newalta's engineers, estimates these costs based on current regulations, costs, technology and industry standards. The fair value estimate is capitalized as part of the cost of the related asset and amortized to expense over the asset's useful life. The useful lives of the assets and the long-term commitments of certain sites range from 20 to 300 years. The total estimated future cost for asset retirement obligations at December 31, 2010 was $9.7 billion. The net present value of this amount, $21.7 million (using a discount rate of 8%), has been accrued on the consolidated balance sheet at December 31, 2010. The majority of the undiscounted future asset retirement obligations relates to SCL in Ontario, which are expected to be incurred over the next 300 years. Excluding SCL, the total undiscounted future costs are $36.2 million. There were no significant changes in the estimates used to prepare the asset retirement obligation in 2010 compared to 2009.

Goodwill

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

Our determination as at September 30, 2010 and December 31, 2010 was that goodwill was not impaired.

Income Taxes

Current income tax expense predominantly represents capital taxes paid in eastern Canada, federal and provincial income taxes and U.S. taxation imposed on the U.S. subsidiary. Tax losses generated under the income fund structure are expected to provide shelter from any significant corporate current tax exposure for a minimum of three years.

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

Permits and other intangibles

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

Stock-Based Compensation

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

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

Newalta may also grant stock appreciation rights ("SARs") to directors, officers, employees and consultants of Newalta Corporation or any of its affiliates. SARs entitle the holder thereof to receive cash from Newalta in an amount equal to the positive difference between the grant price and the trading price of our common shares on the exercise date. The grant price is calculated based on the five-day volume weighted average trading price of our common shares on the TSX. SARs generally expire five years after they have been granted and the vesting period is determined by the Board of Directors of Newalta. Newalta uses the intrinsic value method to account for SARs. The intrinsic value reflects the net liability calculated as the difference between the market value of the shares and the exercise price of the SAR. This is re-measured at each reporting date and stock-based compensation expense is increased or decreased accordingly. Decreases or reversals of stock-based compensation expense are limited to previously recognized stock-based compensation expense.

Newalta has a deferred share unit ("DSU") Plan, which is described in Note 12 to the consolidated financial statements. DSUs are settled in cash and are recorded as liabilities. The measurement of the compensation expense and corresponding liability for these awards is based on the intrinsic value of the award, and is recorded as a charge to SG&A expense over the vesting period of the award. At the end of each financial period, changes in the Company's payment obligation due to changes in the market value of Newalta's shares are recorded as a charge to SG&A expense. Dividend equivalent grants, if any, are recorded as a charge to SG&A expense in the period the dividend is paid.

FUTURE ACCOUNTING POLICY CHANGES

Information regarding our changes in accounting policies is included in Note 3 to the consolidated financial statements.

INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")

In February 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that Canadian publicly accountable enterprises would be required to adopt IFRS for fiscal years beginning on or after January 1, 2011. IFRS uses a conceptual framework similar to GAAP, but there are differences in recognition, measurement and disclosures.

Management established a project team to plan for and achieve a smooth transition to IFRS. An external resource was also engaged in an advisory capacity. The Audit Committee of the Board of Directors regularly receives progress reports on the status of the IFRS implementation project.

The following table summarizes our key activities, related milestones and accomplishments to date.

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  Key Activity               Milestones              Status
----------------------------------------------------------------------------
Accounting policies and
 procedures:
- Identification of        - Finalize accounting     We have completed our
   differences between        policy choices          internal review of
   IFRS and the company's     under IFRS              differences between
   existing policies and                              IFRS and current 
   procedures              - Finalize opening         policies and 
                              balances                procedures, and have
- Accounting policy                                   made assessments of
   choices under IFRS      - Complete new             accounting policy
                              financial policies      choices. We are in
- Financial statement         and procedures          the process of 
   impact                     manual addressing       confirming and
                              IFRS requirements       finalizing these
- Opening balances                                    assessments and their
                                                      financial statement
- Financial policies                                  impacts with our 
   and procedures                                     consultants and
                                                      auditors.
- Identification of                                                 
   areas that may have                               The review of opening
   a significant impact                               balances is in 
                                                      progress and is
                                                      expected to be
                                                      completed during the
                                                      first quarter of 2011.
                                                      Communication of 
                                                      financial impacts will
                                                      follow review 
                                                      completion.
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Financial Statement
 Preparation:
- Prepare financial        - Senior management       A preliminary pro 
   statements and             approval and Audit      forma financial
   note disclosures           Committee review        statement and note
   in compliance              of pro forma            disclosure structure
   with IFRS                  financial               was presented to 
                              statements and          senior management
- Quantify the effects of     disclosures             and the Audit
   converting to IFRS                                 Committee in early
                                                      2009.
- Prepare first-time                                                    
   adoption                                          Updated pro forma
   reconciliations                                    financial statement
   required under IFRS 1                              and note disclosure
                                                      structures continue
                                                      to be presented to
                                                      senior management and
                                                      the Audit Committee
                                                      on a regular basis
                                                      and will be finalized
                                                      during the first 
                                                      quarter of 2011.
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IT Infrastructure:
Identify key changes in    - Ensure readiness for    Required system 
 the following areas:         parallel processing     upgrades and changes
                              of 2010 financial       have been made.
- IT system changes and       results and IFRS-       
   upgrades                   compliant reporting in
                              2011
 - Systemic process        - Identify and recommend  Parallel ERP system is
    changes for data          systemic process        operational.
    collection for G/L,       changes
    disclosures, and          
    consolidation             
 - One-time processes due  - Testing phase
    to IFRS 1                
                           - ERP parallel run
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Control Environment:
Internal control over      - Complete final signoff  Internal assessment,
 financial reporting          and review of           control 
                              accounting policy       implementation
 - Accounting policy          changes by Q4 2010      and independent 
   changes and approval                               assessment will be
                           - Update certification     ongoing throughout
 - Changes to                 process by Q4 2010      2011 to ensure
    certification                                     appropriate controls
                                                      are effective.
                                                     No material changes
Disclosure controls and    - Publish material         were made to the
 procedures                   changes in policies     certification process
                              and known impacts of    during 2010, nor are
 - MD&A communications        IFRS in the MD&A        they expected for 
    package                   throughout 2009 & 2010  2011.
 - IFRS adjustments to     - Publish impact of       Our disclosure
   GAAP statements            conversion (with        procedures ensure
   (2010)                     reconciliation to GAAP) that key impacts due
   (2010)                     on key measures (Q1     to IFRS are
                              2011)                   adequately disclosed. 
 - 2011 financial                                     Disclosure 
    statement              - Publish disclosure of    requirements relating
    presentation              2010 comparative        to IFRS will be 
                              information             independently 
                              (with reconciliati      reviewed and tested
                              to GAAP) in the interim throughout 2011
                              and annual financial    to determine
                              statements (Q1 2011)    effectiveness.
                                                     Material changes in
                                                      policies are discussed
                                                      in the MD&A. Financial
                                                      impacts will be 
                                                      communicated as they
                                                      are finalized and 
                                                      confirmed.
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Training, Communication and
 Other:
- Provide training to    - Develop working groups    Issue specific
   key stakeholders         and training to           training sessions were
                            implement changes for     delivered throughout
- Address impacts to        significant impact items  2010 and will
   IFRS                                               continue during the
                         - Develop investor           first quarter of 2011.
- Investor relations        relations communication
                            plan (Q3 2009)           Key communication
- Financial covenants                                 continues to be
                         - Review of:                 provided through the
- Compensation packages                               MD&A. Assessment of
                            - Financial covenants     requirements for
                               (by Q3 2010)           further communication
                                                      is ongoing. 
                            - Compensation packages   
                               (by Q3 2010)          We have structured our
                                                      Credit Facility and
                                                      the Senior Unsecured
                                                      Debenture Indenture,
                                                      in order to minimize
                                                      the impact of 
                                                      IFRS on our financial
                                                      covenants We will
                                                      continue to assess
                                                      the impact on
                                                      our compensation 
                                                      compensation 
                                                      packages.
                                                     Key stakeholder
                                                      communications will
                                                      continue throughout
                                                      the first quarter of
                                                      2011.
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Management is in the final stages of the transition to IFRS and is focused on working with our external auditors to achieve agreement on conclusions. A summary of the key areas where changes in accounting policies are expected to impact our consolidated financial statements are listed below. This summary should not be regarded as a complete list of the changes that will result from the transition to IFRS. Rather, it is intended to highlight those areas management currently believes to be the most significant.

Most adjustments required on transition to IFRS will be made retrospectively against opening retained earnings as of January 1, 2010 ("transition date"). Transitional adjustments relating to those standards where comparative figures are not required to be restated will only be made as of the first day of the year of adoption.

First-Time Adoption of IFRS

The First-Time Adoption of International Financial Reporting Standard ("IFRS 1") provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions, to the general requirement for full retrospective application of IFRS.

The most significant IFRS 1 exemptions applying to Newalta are summarized below.

----------------------------------------------------------------------------
Area of IFRS                Summary of Exemption Available
----------------------------------------------------------------------------
Business Combinations       An entity may elect, on transition to IFRS, not
                            to retrospectively apply IFRS 3, "Business
                            Combinations" to past business combinations. 
                            This election is allowed subject to specific
                            requirements (an entity must maintain the
                            classification of the acquirer and acquiree,
                            recognize/derecognize certain assets or
                            liabilities as required under IFRS and 
                            remeasure certain assets and liabilities at 
                            fair value).
                            Newalta has elected on transition to IFRS to
                            apply this exemption and not restate business
                            combinations prior to the transition date.
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Property, Plant and 
Equipment (Capital Assets)  An elective exemption exists whereby an entity
                            may elect to revalue, as the new cost basis for
                            property, plant and equipment, its fair value at
                            the date of transition. The exemption can be
                            applied on an asset-by-asset basis.
                            Newalta has chosen not to take this election to
                            revalue any of its assets at transition date, 
                            and will continue to measure its property, plant
                            and equipment at historical cost. 
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Share-Based Payments        An entity may elect not to apply IFRS 2, 
                            "Share-based Payments" to equity instruments
                            granted on or before November 7, 2002, or which
                            vested prior to transition to IFRS, and may also
                            elect not to apply IFRS 2 to liabilities arising
                            from share-based payment transactions which
                            settled before the date of transition to IFRS.
                            Newalta has elected, on transition to IFRS, to
                            take this exemption and not apply IFRS 2 to
                            equity instruments and liabilities as described
                            above.
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Decommissioning Liabilities 
(Asset Retirement 
Obligations)                In accounting for changes in obligations to
                            dismantle, remove and restore items of property,
                            plant and equipment, IFRS guidance requires 
                            changes in such obligations to be added to or 
                            deducted from the cost of the asset to which it 
                            relates. The adjusted depreciable amount of the 
                            asset is then depreciated prospectively over its
                            remaining useful life. Rather than recalculating
                            the effect of all such changes throughout the
                            life of the obligation, an entity may elect to
                            measure the liability and the related 
                            depreciation effects at the date of transition 
                            to IFRS.
                            Newalta has elected to measure any
                            decommissioning liabilities and the related
                            depreciation effects at the date of transition 
                            to IFRS.
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Expected Areas of Significance in Accounting Policies

The following table summarizes the key areas where accounting policies are expected to differ under IFRS and for which accounting policy decisions are necessary. This summary is limited to those areas (with the exception of transition policy choices made under IFRS 1 which are described above) that, based on management's assessment, may have an impact on Newalta's consolidated financial statements.

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Accounting Policy Area     Summary of Differences and Decision Requirements
----------------------------------------------------------------------------
Property, Plant and 
Equipment (Capital Assets) Under IFRS, an entity is required to 
                           prospectively choose between the cost model and
                           the revaluation model to account for its capital
                           and intangible assets. The cost model refers to
                           the use of an asset's carrying value as its cost
                           less any accumulated depreciation and impairment
                           loss, and is generally consistent with GAAP. 
                           Under the revaluation model the asset is carried
                           at its fair value as at the date of revaluation,
                           less any accumulated depreciation and impairment
                           loss. Value increases affect equity whereas
                           decreases (in excess of previously recognized
                           surpluses, if any) affect net income.
                           Newalta has chosen to continue to value property,
                           plant and equipment using the historical cost
                           method. As such, the impact of this difference
                           under IFRS will be minimal.
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Borrowing Costs            IFRS requires the capitalization of borrowing
                           costs that are directly attributable to the
                           acquisition, construction or production of a
                           qualifying asset as part of the cost of that
                           asset. A qualifying asset is an asset that
                           necessarily takes a substantial period of time 
                           to prepare for its intended use or sale. 
                           Borrowing costs are considered to be directly
                           attributable to a qualifying asset when they 
                           would have been avoided if the expenditure on 
                           the qualifying asset had not been made.
                           This change will be applied prospectively, and
                           will result in ongoing reduced finance charges
                           and increased capital asset values, which will
                           be driven by the levels of activity within
                           qualifying projects in any given period. As a
                           result of higher capital asset values we would
                           expect increased amortization expense in future
                           periods.
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Impairment                 Under GAAP, goodwill is tested for impairment by
                           comparing the fair value of the goodwill, on a
                           reporting unit basis, with the carrying value of
                           the goodwill. For remaining assets, GAAP 
                           generally uses a two-step approach to impairment
                           testing: first comparing asset carrying values
                           with undiscounted future cash flows to determine
                           whether impairment exists; and then measuring any
                           impairment by comparing asset carrying values 
                           with fair values.
                           With IFRS, goodwill is not tested independent of
                           other assets. Instead, a one-step approach is 
                           used for testing and measuring impairment of all
                           assets at the cash generating unit (CGU) level. 
                           A cash-generating unit (CGU) is the smallest
                           identifiable group of assets that generates cash
                           inflows that are largely independent of the cash
                           inflows from other assets or groups of assets. 
                           Any impairment is applied first to goodwill and
                           then prorated to the other assets in the CGU.
                           Impairment of assets other than goodwill can be
                           reversed in later periods if there is a change 
                           in the estimate that resulted in the original
                           impairment.
                           Newalta is in the process of finalizing its
                           assessment of the transition impact of this
                           accounting policy change and confirming results
                           with our external auditors, but does not expect
                           the impact at transition to be significant.
                           Prospective impacts will be dependent on future
                           circumstances. Differences in measurement and
                           recognition of impairment losses and reversals
                           could lead to increased income statement
                           volatility under IFRS.
----------------------------------------------------------------------------
Provisions including 
Decommissioning 
Liabilities (Asset 
Retirement Obligations) 
and Constructive 
Obligations                IFRS requires a provision to be recognized when:
                           there is a present obligation as a result of a
                           past transaction or event; it is probable that 
                           an outflow of resources will be required to 
                           settle the obligation; and a reliable estimate 
                           can be made of the obligation. "Probable" in 
                           this context means more likely than not. Under
                           GAAP, the criterion for recognition in the
                           financial statement is "likely", which is a 
                           higher threshold than "probable". Therefore it 
                           is possible that there may be some contingent
                           liabilities which would meet the criteria for
                           recognition under IFRS that would not have been
                           recognized under GAAP.
                           Other differences between IFRS and GAAP exist 
                           in relation to the measurement of provisions, 
                           such as the methodology for determining the best
                           estimate where there is a range of equally
                           possible outcomes (IFRS uses the mid-point of 
                           the range, whereas GAAP uses the low end of the
                           range), and the requirement under IFRS for
                           provisions to be discounted where material.
                           In measuring the Decommissioning Liability, the
                           IFRS requirement is based on management's best
                           estimate of cash flows discounted to present 
                           value using a discount rate which is based on 
                           the risks specific to the liability (unless 
                           those risks have been built into the cash flow
                           estimates). GAAP uses fair value of the 
                           obligation and cash flows discounted using a
                           credit adjusted risk-free rate to discount cash
                           flow estimates.
                           Under IFRS, Newalta's cash flow assumptions
                           incorporate liability-specific risks and so a
                           risk-free discount rate is used to determine the
                           Decommissioning Liability. Use of this lower
                           discount rate (risk free under IFRS versus credit
                           adjusted under Canadian GAAP) will drive an
                           increase to the Decommissioning Liability and a
                           lesser increase to Capital Assets, with an
                           offsetting decrease to Retained Earnings.
                           Prospectively, we will see an increase to finance
                           charges and amortization. The assessment of the
                           transition and ongoing impact of this accounting 
                           policy change is in the process of being 
                           finalized and confirmed with our external
                           auditors.
----------------------------------------------------------------------------
Share-Based Payments       Under GAAP, cash settled transactions and 
                           transactions containing settlement alternatives
                           are measured and re-measured at each reporting
                           date using the intrinsic value method. IFRS
                           requires initial and subsequent measurement of
                           fair value by applying an option pricing model.
                           The difference will impact the accounting
                           measurement of awards of share appreciation 
                           rights and options granted under Newalta's 
                           option plans adopted in 2006 and 2008.
                           Newalta is in the process of finalizing its
                           assessment of the transition impact of this
                           accounting policy change. Due to the change in
                           valuation methodology, management expects that
                           there will be an increase to Other long-term
                           liabilities with a corresponding decrease to
                           Retained earnings on transition, but does not
                           expect the impact to be significant. Future
                           differences between the fair value and intrinsic
                           value of outstanding SARs and options plans will
                           result in different share-based liability and
                           expense measurements under IFRS and GAAP.
----------------------------------------------------------------------------
Income Taxes               IFRS requires that deferred tax assets and
                           liabilities must be classified as non-current in
                           the statement of financial position. Under GAAP,
                           future income taxes are classified as current and
                           non-current based on the classification of the
                           underlying assets or liabilities to which they
                           relate, or, if there is no underlying recognized
                           asset or liability, based on the expected 
                           reversal of the temporary difference.
                           GAAP, like IFRS, current tax represents the 
                           amount of income taxes payable (recoverable) 
                           based on taxable profit (tax loss) for the period
                           and is measured based on tax rates and laws that
                           are enacted or substantively enacted at the
                           reporting date. However, the interpretation of
                           "substantively enacted" under GAAP may differ 
                           from IFRS.
                           Newalta is in the process of finalizing its
                           assessment of the impact of this accounting 
                           policy change and confirming it with our 
                           auditors. The impact at transition and for 
                           future periods is not expected to be significant.
----------------------------------------------------------------------------

The above list and related summaries should not be regarded as a complete list of changes that will result from transition to IFRS. It is intended to highlight those areas we believe to be most significant based on our assessments at this time. However, several of our assessments of the impacts of certain differences remain in process and will be finalized during the first quarter of 2011. Moreover, until our first full set of financial statements under IFRS has been prepared, management will not be able to determine or precisely quantify all of the impacts that will result from converting to IFRS.

There are significant ongoing International Accounting Standards Board ("IASB") projects that could affect the ultimate differences between GAAP and IFRS and their impact on Newalta's consolidated financial statements in future years. In particular, there may be additional new or revised IFRS standards in relation to income taxes, liabilities, leases, related party disclosures, and financial instruments. We have processes in place to ensure that such potential changes are monitored and evaluated. The future impacts of IFRS will also depend on the particular circumstances prevailing in those years. The differences described are those existing based on GAAP and IFRS as of February 24, 2011.

BUSINESS RISKS

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

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

FINANCIAL AND OTHER INSTRUMENTS

The carrying values of accounts receivable and accounts payable approximate the fair value of these financial instruments due to their short term maturities. Our credit risk from our customers is mitigated by our broad customer base and diverse product lines. Our top 20 customers generate approximately 40% of our total revenue, with 20% of these customers having a credit rating of A or higher and 70% of these customers having ratings of BBB or higher. In the normal course of operations, we are exposed to movements in U.S. dollar exchange rates relative to the Canadian dollar. The foreign exchange risk arises primarily from U.S. dollar denominated long-term debt and working capital. We have not entered into any financial derivatives to manage the risk for the foreign currency exposure as at December 31, 2010. In Q4 2010, our exposure to foreign exchange was mitigated by the rise in commodity prices, as well as our U.S. dollar denominated long-term debt, which served as a natural hedge, reducing our balance sheet exposure.

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

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

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and the Chief Financial Officer (collectively the "Certifying Officers") have evaluated the design and effectiveness of our disclosure controls and procedures as of December 31, 2010, and have concluded that such disclosure controls and procedures were effective. In addition, the Certifying Officers have evaluated the design and effectiveness of our internal control over financial reporting as of December 31, 2010, 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 2010 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
($000s) (unaudited)                              December 31,   December 31,
                                                        2010           2009
----------------------------------------------------------------------------
Assets
Current assets
 Accounts receivable                                 102,378         84,317
 Inventories (Note 4)                                 26,645         33,148
 Investment (Note 5)                                   4,274              -
 Prepaid expenses and other                            7,292          6,183
----------------------------------------------------------------------------
                                                     140,589        123,648
Note receivable (Note 6)                                 890            978
Capital assets (Note 7)                              722,840        701,884
Permits and other intangible assets (Note 8)          60,579         61,935
Goodwill                                             102,897        103,597
Future income taxes (Note 13)                            929          1,688
----------------------------------------------------------------------------
                                                   1,028,724        993,730
----------------------------------------------------------------------------
Liabilities
Current liabilities
 Accounts payable and accrued liabilities            118,218         90,191
 Dividends payable (Note 17)                           3,152          2,423
----------------------------------------------------------------------------
                                                     121,370         92,614
Senior secured debt (Note 9)                          51,689        188,123
Convertible debentures - debt portion (Note 10)      112,073        110,708
Senior unsecured debentures (Note 11)                122,050              -
Other long-term liabilities (Note 12)                  5,063          1,218
Future income taxes (Note 13)                         47,183         39,164
Asset retirement obligations (Note 14)                21,700         21,903
----------------------------------------------------------------------------
                                                     481,128        453,730
----------------------------------------------------------------------------
Shareholders' Equity (Notes 15 and 17)
Shareholders' capital                                552,969        552,871
Convertible debentures - equity portion                1,850          1,850
Contributed surplus                                    1,679          1,679
Retained earnings (deficit)                           (9,489)       (16,400)
Accumulated other comprehensive income                   587              -
----------------------------------------------------------------------------
                                                     547,596        540,000
----------------------------------------------------------------------------
                                                   1,028,724        993,730
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Operations and Retained Earnings 
(Deficit)
($000s except earnings per share          For the three             For the
 data)                                     months ended          year ended
(unaudited)                                 December 31,        December 31,
                                         2010      2009      2010      2009
----------------------------------------------------------------------------
Revenue                               162,927   137,308   576,196   483,401
Expenses
 Operating (Note 4)                   111,543    96,007   394,317   347,348
 Selling, general and administrative   23,972    16,603    70,891    56,132
 Research and development                 586         -     1,713         -
 Finance charges                        6,608     6,689    25,663    25,364
 Amortization and accretion            14,891    14,558    55,990    51,825
 (Notes 7 and 14)
----------------------------------------------------------------------------
                                      157,600   133,857   548,574   480,669
----------------------------------------------------------------------------
Earnings before taxes                   5,327     3,451    27,622     2,732
Provision for (recovery of) income
 taxes
(Note 13)
 Current                                  520       317       938       945
 Future                                 1,945      (958)    8,621    (1,312)
----------------------------------------------------------------------------
                                        2,465      (641)    9,559      (367)
----------------------------------------------------------------------------
Net earnings                            2,862     4,092    18,063     3,099
Retained earnings (deficit),
 beginning of period                   (9,199)  (18,069)  (16,400)  (11,358)
Dividends (Note 17)                    (3,152)   (2,423)  (11,152)   (8,141)
----------------------------------------------------------------------------
Retained earnings (deficit), end of
 period                                (9,489)  (16,400)   (9,489)  (16,400)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per share (Note 16)         0.06      0.09      0.37      0.07
----------------------------------------------------------------------------
Diluted earnings per share 
(Note 16)                                0.06      0.09      0.37      0.07
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income and Accumulated Other 
 Comprehensive Income
                                          For the Three             For the
                                           Months ended          Year ended
                                            December 31,        December 31,
($000s) (unaudited)                      2010      2009      2010      2009
----------------------------------------------------------------------------
Net earnings                            2,862     4,092    18,063     3,099
Other comprehensive income:
 Unrealized gain on investment in
 shares(1)                                 54         -       587         -
----------------------------------------------------------------------------
Other comprehensive income                 54         -       587         -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive income                    2,916     4,092    18,650     3,099
----------------------------------------------------------------------------
Accumulated other comprehensive
 income, beginning of period              533         -         -         -
Other comprehensive income                 54         -       587         -
----------------------------------------------------------------------------
Accumulated other comprehensive
 income, end of period                    587         -       587         -
----------------------------------------------------------------------------
(1) Net of tax of $0.1 million for the year ended December 31, 2010.
Consolidated Statements of Cash Flows
                                          For the three             For the
                                           months ended          year ended
                                            December 31,        December 31,
($000s) (unaudited)                      2010      2009      2010      2009
----------------------------------------------------------------------------
Net inflow (outflow) of cash
 related to the following 
 activities:
Operating Activities
Net earnings                            2,862     4,092    18,063     3,099
Items not requiring cash:
 Amortization and accretion            14,891    14,558    55,990    51,825
 Future income tax provision        
  (recovery)                            1,945      (958)    8,621    (1,312)
 Stock-based compensation expense       6,763       808     9,321     2,236
 Other (Note 21)                          912       685     3,154     5,095
----------------------------------------------------------------------------
                                       27,373    19,185    95,149    60,943
Increase in non-cash working
 capital (Note 21)                     21,760       298     2,383    23,599
Asset retirement expenditures
 incurred                              (1,126)     (318)   (2,184)   (1,024)
----------------------------------------------------------------------------
                                       48,007    19,165    95,348    83,518
----------------------------------------------------------------------------
Investing Activities
 Additions to capital assets 
  (Note 21)                           (26,274)   (8,109)  (67,529)  (39,652)
 Net proceeds on sale of capital           
  assets (Note 7)                         306       621     2,694     1,921
 Purchase of investment (Note 5)            -         -    (4,000)        -
----------------------------------------------------------------------------
                                      (25,968)   (7,488)  (68,835)  (37,731)
----------------------------------------------------------------------------
Financing Activities
 Issuance of shares                        27    43,975        27    44,227
 Decrease in senior secured debt     (140,968)  (53,548) (138,214)  (76,963)
 Issuance of senior unsecured         122,010         -   122,010         -
  debentures
 Decrease in note receivable               44        18        88       182
 Dividends to shareholders (Note 17)   (3,152)   (2,122)  (10,424)  (13,233)
----------------------------------------------------------------------------
                                      (22,039)  (11,677)  (26,513)  (45,787)
----------------------------------------------------------------------------
Net cash flow                               -         -         -         -
Cash - beginning of period                  -         -         -         -
----------------------------------------------------------------------------
Cash - end of period                        -         -         -         -
----------------------------------------------------------------------------
Supplementary information:
Interest paid                           3,950    12,183    18,132    22,311
Income taxes paid                          96       150       546       588
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Notes to the Consolidated Financial Statements

For the three and twelve months ended December 31, 2010 and 2009

(all tabular data in $000s 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 80 facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Our customers operate in a broad range of industries including the oil and gas, petrochemical, refining, lead, manufacturing and mining industries.

NOTE 2. BASIS OF PRESENTATION

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

a) Cash and cash equivalents

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

b) Inventory

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

c) Capital and intangible assets

Capital and intangible assets are stated at cost, less accumulated amortization. Amortization rates are calculated to amortize the costs, net of salvage value, over the assets' estimated useful lives. Plant and equipment 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 (net of estimated salvage value) by the estimated future hours of service.

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

The carrying values of capital assets are reviewed at least annually to determine if the value of any asset is impaired. Any amount so determined is written off in the year of impairment. As at December 31, 2010, there was no impairment in the value of capital assets.

Intangible assets consist of certain production processes, trademarks, permits and agreements, which are amortized over the period of the contractual benefit of 8-20 years, straight line. Certain permits are deemed to have indefinite lives and therefore are not amortized. There are nominal fees to renew these permits provided that Newalta remains in good standing with regulatory authorities.

The carrying values of both definite and indefinite life intangibles are reviewed at least annually whereby management reviews any changes in the regulatory environment that could cause impairment in the value ascribed to these permits. Any amount so determined is written off in the year of impairment. As at December 31, 2010, there was no impairment in the value of these permits.

d) Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets of acquired businesses. Newalta, at least annually, on September 30, assesses goodwill and its potential impairment, on a reporting unit basis by determining whether the balance of goodwill can be recovered through the estimated discounted operating cash flows of each reporting unit over their remaining lives. Management's determination as at September 30, 2010 and December 31, 2010 was that goodwill was not impaired.

e) Asset retirement obligations

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

f) Revenue recognition

Revenues are recognized in the period products are delivered or services provided and when collection is reasonably assured.

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

g) 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 Canadian GAAP 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 Company will assess the recoverability of the deferred costs and if considered unrecoverable, will expense the costs in the period the assessment is made. No development costs have been deferred to date.

h) Income taxes

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

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

i) Earnings per share

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

j) Incentive plans

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

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

Newalta may also grant stock appreciation rights ("SARs") to directors, officers, employees and consultants of Newalta Corporation or any of its affiliates. SARs entitle the holder thereof to receive cash from Newalta in an amount equal to the positive difference between the grant price and the trading price of our common shares on the exercise date. The grant price is calculated based on the five-day volume weighted average trading price of our common shares on the TSX. SARs generally expire five years after they have been granted and the vesting period is determined by the Board of Directors of Newalta. Newalta uses the intrinsic value method to account for SARs. The intrinsic value reflects the net liability calculated as the difference between the market value of the shares and the exercise price of the SAR. This is re-measured at each reporting date and stock-based compensation expense is increased or decreased accordingly. Decreases or reversals of stock-based compensation expense are limited to previously recognized stock-based compensation expense.

Newalta has a deferred share unit ("DSU") Plan, which is described in Note 12 d). DSUs are settled in cash and are recorded as liabilities. The measurement of the compensation expense and corresponding liability for these awards is based on the intrinsic value of the award, and is recorded as a charge to selling, general and administrative ("SG&A") expense over the vesting period of the award. At the end of each financial period, changes in Newalta's payment obligation due to changes in the market value of Newalta's shares are recorded as a charge to SG&A expense. Dividend equivalent grants, if any, are recorded as a charge to SG&A expense in the period the dividend is paid.

k) Financial instruments

Classification

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

----------------------------------------------------------------------------
Category                           Subsequent Measurement                   
----------------------------------------------------------------------------
Held-for-trading                   Fair value and changes in fair value are 
                                   recognized in net earnings               
Held-to-maturity                   Amortized cost, using the effective      
                                   interest method                          
Loans and receivables              Amortized cost, using the effective      
                                   interest method                          
Available-for-sale financial       Fair value and changes in fair value are 
 assets                            recorded in other comprehensive income   
                                   until the instrument is derecognized or  
                                   impaired                                 
Other financial liabilities        Amortized cost, using the effective      
                                   interest method                          
----------------------------------------------------------------------------

Accounts receivable and note receivable are classified as loans and receivables. The portion of the investment allocated to shares has been classified as available for sale and the portion of the investment allocated to warrants is a derivative accounted for much like held-for-trading investments. Senior long-term debt, senior unsecured debentures ("Senior Unsecured Debentures"), convertible debentures ("Convertible Debentures"), accounts payable and accrued liabilities and dividends payable are classified as other financial liabilities.

Convertible Debentures

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

Transaction Costs

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

l) Measurement uncertainty

The preparation of Newalta's financial statements in a timely manner and in accordance with Canadian GAAP requires the use of estimates, assumptions and judgment regarding assets, liabilities, revenue and expenses. Such estimates relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts as transactions are settled in the future. Amounts recorded for amortization, accretion, future asset retirement obligations, future income taxes, the equity component of convertible debentures, 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.

NOTE 3. ACCOUNTING CHANGES

In February 2009, the Canadian Accounting Standards Board ("AcSB") confirmed that Canadian publicly accountable enterprises would be required to adopt International Financial Reporting Standards ("IFRS") for fiscal years beginning on or after January 1, 2011. IFRS uses a conceptual framework similar to GAAP, but there are differences in recognition, measurement and disclosures.

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

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

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

NOTE 4. INVENTORIES

Inventories consist of the following:

----------------------------------------------------------------------------
                                                             2010       2009
----------------------------------------------------------------------------
Lead                                                       10,160     15,259
Recycled and processed products                             4,414      8,046
Recovered oil                                               4,637      3,667
Parts and supplies                                          6,226      5,906
Burner fuel                                                 1,208        270
----------------------------------------------------------------------------
Total inventory                                            26,645     33,148
----------------------------------------------------------------------------

The cost of inventory expensed in operating expenses for the year ended December 31, 2010, was $77.1 million ($62.7 million for the same period in 2009). Inventories are pledged as general security under our Credit Facility.

NOTE 5. INVESTMENT

During the first quarter of 2010, Newalta acquired 3,643,464 units, at a price of $1.10 per share from the treasury of BioteQ Environmental Technologies Inc. ("BioteQ") for consideration of $4 million. Each unit purchased includes a common share and a warrant to acquire an additional common share of BioteQ at $1.375 during the first year, and $1.65 thereafter. The warrants expire after 5 years. The fair value of the warrants is estimated using a binomial methodology and the common shares based on publicly available quoted prices.

The common shares are classified as available for sale. This investment is marked to market at each period end with changes in fair value recorded in other comprehensive income. As at December 31, 2010, a cumulative unrealized gain of $0.6 million (net of tax of $0.1 million) was recorded in accumulated comprehensive income.

The warrants are classified as held for trading and are revalued at each period end with change in fair value recognized in earnings. For the year ended December 31, 2010, the Company recorded an unrealized loss $0.4 million in earnings. As at December 31, 2010, the fair value was calculated using the following assumptions: an expected volatility of 81%, a risk-free interest rate of 2.2% and no expected dividend. This loss has been included within finance charges.

NOTE 6. NOTE RECEIVABLE

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

NOTE 7. CAPITAL ASSETS

a) Capital assets consist of the following:

----------------------------------------------------------------------------
                              2010                            2009          
----------------------------------------------------------------------------
                       Accumulated  Net Book           Accumulated  Net Book
                 Cost Amortization     Value     Cost Amortization     Value
----------------------------------------------------------------------------
Land           14,696            -    14,696   14,813            -    14,813
Plant and                                                                   
 equipment    891,627     (254,338)  637,289  835,621     (213,991)  621,630
Landfill      117,202      (46,347)   70,855  103,264      (37,823)   65,441
----------------------------------------------------------------------------
Total       1,023,525     (300,685)  722,840  953,698     (251,814)  701,884
----------------------------------------------------------------------------

b) Disposal of capital assets

During the year ended December 31, 2010, Newalta disposed of certain land, transport vehicles, building assets and associated goodwill with a net book value of $4.1 million for proceeds of $2.7 million. The resulting net loss of $1.4 million, including the disposal of goodwill having a carrying value of $0.7 million, is included in amortization and accretion in the Consolidated Statements of Operations and Retained Earnings (Deficit).

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

NOTE 8. PERMITS AND OTHER INTANGIBLE ASSETS

----------------------------------------------------------------------------
                                2010                       2009             
----------------------------------------------------------------------------
                                          Net                         Net 
                        Accumulated      Book          Accumulated     Book
                   Cost Amortization    Value    Cost Amortization    Value
----------------------------------------------------------------------------
Indefinite                                                                  
 permits         53,037            -   53,037  53,012            -   53,012
Definite                                                                    
 life permits/     
 rights          14,650       (7,108)   7,542  14,650       (6,338)   8,312
Non-competition      
 contracts        6,020       (6,020)       -   6,020       (5,409)     611
----------------------------------------------------------------------------
Total            73,707      (13,128)  60,579  73,682      (11,747)  61,935
----------------------------------------------------------------------------

NOTE 9. SENIOR SECURED DEBT

On December 17, 2010, Newalta entered into an amended and restated extendible revolving credit facility ("Credit Facility"). The maturity of this Credit Facility is December 17, 2013. At the election of Newalta, the principal borrowing amount was reduced from $350 million to $200 million. The Credit Facility is available to fund growth capital expenditures and for general corporate purposes as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60.0 million. The aggregate dollar amount of outstanding letters of credit is not presented in the financial statements as long-term debt; however, the issued letters of credit reduce the amount available under the Credit Facility. Interest on the facilities is subject to certain conditions and may be charged at prime, U.S. base rate, Bankers' Acceptance ("BA") or LIBOR, at the option of the Corporation. The Credit Facility bears interest at a market rate plus an increment (depending on certain criteria) as follows:

----------------------------------------------------------------------------
Base Rate Type                                            Range of Increment
----------------------------------------------------------------------------
Prime Rate                                                    1.00% to 2.50%
U.S. Base Rate                                                1.00% to 2.50%
BA Rate                                                       2.25% to 3.75%
LIBOR                                                         2.25% to 3.75%
----------------------------------------------------------------------------
The incremental BA interest rate as at December 31, 2010 was 2.5% (2009 -
4.5%).                                                    

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

Newalta may, at its option, request an extension of the Credit Facility on an annual basis. If no request to extend the Credit Facility is made by Newalta, the entire amount of the outstanding indebtedness would be due in full on December 17, 2013. The facility also requires Newalta to be in compliance with certain covenants. At December 31, 2010, Newalta was in compliance with all covenants.

                                        December 31, 2010 December 31, 2009 
----------------------------------------------------------------------------
Amount drawn on credit facility                    54,028           191,280 
Issue costs                                        (2,339)           (3,157)
----------------------------------------------------------------------------
Senior secured debt                                51,689           188,123 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

NOTE 10. CONVERTIBLE DEBENTURES

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

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

The following table compares the face and fair values of the Convertible Debentures to the carrying value. The fair value of the Convertible Debentures was determined by reference to the trading price on December 31, 2010. The effective interest rate is 8.2%.

7% Convertible Debentures due 2012      December 31, 2010  December 31, 2009
----------------------------------------------------------------------------
Face value                                        115,000            115,000
Fair value                                        118,738            116,438
----------------------------------------------------------------------------
Carrying Value                                                              
----------------------------------------------------------------------------
 Equity Portion                                     1,850              1,850
----------------------------------------------------------------------------
 Debt Portion                                     112,073            110,708
----------------------------------------------------------------------------
Total carrying value                              113,923            112,558
----------------------------------------------------------------------------

NOTE 11. SENIOR UNSECURED DEBENTURES

On November 23, 2010, Newalta issued $125.0 million of 7.625% Series 1 Unsecured Debentures (the "Senior Unsecured Debentures"). The Senior Unsecured Debentures mature on November 23, 2017. The Senior Unsecured Debentures bear interest at 7.625% per annum, and such interest is payable in equal installments semi-annually in arrears on May 23 and November 23 in each year, commencing on May 23, 2011. 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.

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

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

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

If a change of control occurs, Newalta will be required to offer to purchase all or a portion of each debenture holder's 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.

During the three and twelve months ended December 31, 2010, financing fees of $3.0 million were incurred in connection with the issuance of the Senior Unsecured Debentures. These fees have been recorded as deferred financing costs and are being amortized using the effective interest method over the term of the Senior Unsecured Debentures.

The trust indenture under which the Senior Unsecured Debentures have been issued also requires Newalta to be in compliance with certain covenants on an annual basis. At December 31, 2010, Newalta was in compliance with all covenants.

NOTE 12. LONG-TERM INCENTIVE PLANS

a) The 2008 Option Plan

On January 4, 2010 a total of 842,500 options were granted to certain directors, officers and employees of the Corporation. The options were granted at the market price of $8.07 per share. Each tranche of the options vest over a three-year period (with a five-year life), and the holder of the option can exercise the option for either a share of Newalta or an amount of cash equal to the difference between the exercise price and the market price at the time of exercise. The options granted under the 2008 Plan have therefore been accounted for as stock appreciation options and the total compensation expense for these options was $5.2 million for the year ended December 31, 2010 ($1.2 million in 2009). During 2010, an aggregate of 45,000 options to acquire common shares were forfeited under the 2008 Option Plan (nil in 2009).

b) The 2006 Option Plan

The options granted under the 2006 Plan have been accounted for as stock appreciation options and the total compensation expense for these options was nil for the year ended December 31, 2010 (nil for 2009). During 2010, an aggregate of 10,000 options to acquire common shares were forfeited (nil in 2009). During 2009, an aggregate of 1,565,000 options to acquire common shares were cancelled (nil in 2010).

c) The 2003 Option Plan

The options granted under the 2003 Plan have been accounted for as stock options and the total compensation expense for these options was nil for the year ended December 31, 2010 (nil for 2009). During 2010, an aggregate of 12,500 options to acquire common shares were cancelled (245,050 in 2009).

A summary of the status of Newalta's option plans as of December 31, 2010, 2009 and 2008, and changes during the years ending on those dates is presented as follows:

----------------------------------------------------------------------------
                          Weighted             Weighted            Weighted 
                           Average              Average             Average 
                   2008   Exercise      2006   Exercise     2003   Exercise 
                Options      Price   Options      Price  Options      Price 
                  (000s)  ($/share)    (000s)  ($/share)   (000s)  ($/share)
----------------------------------------------------------------------------
 At December                                                                
  31, 2008            -          -     2,283      23.41      610      22.65 
----------------------------------------------------------------------------
 Granted            887       5.34         -          -        -          - 
 Exercised            -          -         -          -        -          - 
 Forfeited            -          -         -          -        -          - 
 Cancelled            -          -    (1,565)     26.38     (245)     25.12 
----------------------------------------------------------------------------
 At December                                                                
  31, 2009          887       5.34       718      16.95      365      21.00 
----------------------------------------------------------------------------
 Granted            843       8.07         -          -        -          - 
 Exercised          (18)      5.31         -          -        -          - 
 Forfeited          (45)      7.15       (10)     14.00      (12)     10.52 
 Cancelled            -          -         -          -        -          - 
----------------------------------------------------------------------------
 At December                                                                
  31, 2010        1,667       6.67       708      16.99      353      21.37 
----------------------------------------------------------------------------
 Exercisable at                                                             
  Dec. 31, 2010     222       5.34       378      17.31      353      21.37 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                 Options                  Weighted      Options    Weighted
Range of     Outstanding     Weighted      Average  Exercisable     Average 
 Exercise       December      Average     Exercise     December    Exercise
 Prices         31, 2010    Remaining        Price     31, 2010       Price
($/share)          (000s) Life (years)    ($/share)       (000s)   ($/share)
----------------------------------------------------------------------------
3.81 - 5.40          834          3.1         5.29          217        5.29
7.65 - 8.07          833          4.1         8.06            5        7.65
14.00 - 19.46        801          2.1        16.76          476       16.93
23.14 - 32.38        259          1.5        23.66          255       23.64
----------------------------------------------------------------------------
                   2,727          2.9        11.25          953       16.02
----------------------------------------------------------------------------

d) Share Appreciation Rights(SARs)

On January 4, 2010, 490,000 share appreciation rights were granted to certain employees of the Corporation at the market price of $8.07. On March 11, 2010, 40,000 share appreciation rights were granted to an officer of the Corporation at the market price of $8.70. On August 16, 2010, 80,000 share appreciation rights were granted to certain employees of the Corporation at the market price of $8.76. Each tranche of these rights vests over a three- year period (with a five-year life).

On March 11, 2010, the expiry date of 155,000 rights previously granted to an Officer, was amended such that the expiry date of such rights be five years from the initial grant date.

The holder of a share appreciation right has the option to exercise the right for an amount of cash equal to the difference between the exercise price and the market price at the time of exercise. The rights granted have been accounted for as stock appreciation rights. Total compensation expense for these rights was $4.0 million for the year ended December 31, 2010 ($1.1 million in 2009). During 2010, an aggregate of 22,500 rights were forfeited (61,375 in 2009).

A summary of the status of Newalta's share appreciation rights plans as of December 31, 2010, 2009 and 2008, and changes during the years ending on those dates is presented as follows:

                                                           Weighted Average
                                           SARs              Exercise Price
                                          (000s)                   ($/right)
----------------------------------------------------------------------------
At December                                                                 
 31, 2008                                   125                       16.65
----------------------------------------------------------------------------
Granted                                     812                        5.18
Exercised                                     -                           -
Forfeited                                   (61)                       5.31
Cancelled                                     -                           -
----------------------------------------------------------------------------
At December                                                                 
 31, 2009                                   876                        6.99
----------------------------------------------------------------------------
Granted                                     610                        8.20
Exercised                                   (36)                       5.31
Forfeited                                   (23)                       8.07
Cancelled                                     -                           -
----------------------------------------------------------------------------
At December                                                                 
 31, 2010                                 1,427                        7.53
----------------------------------------------------------------------------
Exercisable                                                                 
 at Dec. 31,                                                                
 2010                                       307                        9.96
----------------------------------------------------------------------------
Range of             SARs  Weighted   Weighted         SARs        Weighted
 Exercise     Outstanding   Average    Average  Exercisable         Average
 Prices          December Remaining   Exercise     December        Exercise
($/share)        31, 2010      Life      Price     31, 2010           Price
                    (000s)   (years)  ($/share)       (000s)       ($/share)
----------------------------------------------------------------------------
5.31 - 8.70         1,302       3.6       5.37          182            5.38
16.65                 125       2.3      16.65          125           16.65
----------------------------------------------------------------------------
                    1,427       3.1       7.53          307            9.96
----------------------------------------------------------------------------
----------------------------------------------------------------------------

e) Deferred Share Unit Plan

In May 2010, Newalta implemented a Deferred Share Unit Plan, pursuant to which deferred share units ("DSU") may be granted to non-employee members of the Board of Directors on an annual basis. The number of deferred share units granted to a participant is calculated by dividing (i) a specified dollar amount of the participant's annual retainer by (ii) the five-day volume weighted average trading price of the shares of Newalta traded through the facilities of the Toronto Stock Exchange on the trading days immediately preceding the date of grant. Dividends paid on the shares of Newalta are credited as additional DSUs. Each DSU entitles the holder to receive a cash payment equal to the five-day volume weighted average trading price of the shares preceding the date of redemption. The DSUs vest immediately and may only be redeemed within the period beginning on the date a holder ceases to be a participant under the plan and ending on December 31 of the following calendar year.

During the second quarter of 2010, an aggregate of 15,463 DSUs were granted to the non-employee members of the Board of Directors representing the 2010 grant. Total compensation expense for these DSUs was $0.1 million for the year ended December 31, 2010 (nil in 2009). As at December 31, 2010, the total number of DSU's held by participating directors was 15,668, including additional DSUs credited as a result of dividends paid since the date of their original grant (2009 - nil).

f) Other Long-term liabilities

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

NOTE 13. INCOME TAX

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

Canadian Tax Jurisdiction:

----------------------------------------------------------------------------
                                                        2010            2009
----------------------------------------------------------------------------
Future income tax liabilities:                                              
 Capital assets                                       95,003          91,858
 Intangible assets                                    11,799          11,946
 Deferred financing costs                              2,024           1,902
----------------------------------------------------------------------------
                                                     108,826         105,706
----------------------------------------------------------------------------
Future income tax assets:                                                   
 Non-capital loss carry forwards                      44,056          46,502
 Goodwill                                              5,448           6,557
 Asset retirement obligation                           5,542           5,594
 Equity issuance costs                                 2,332           3,023
 Deferred revenue                                        941           2,362
 Deferred expense                                      3,282           1,930
 Other - donations, allowance for doubtful                                  
  accounts                                                42             574
----------------------------------------------------------------------------
                                                      61,643          66,542
----------------------------------------------------------------------------
Net future income tax liability                       47,183          39,164
----------------------------------------------------------------------------
----------------------------------------------------------------------------
U.S. Tax Jurisdiction:
----------------------------------------------------------------------------
                                                        2010            2009
----------------------------------------------------------------------------
Future income tax assets:                                                   
Non-capital loss carry forwards                          929           1,688
----------------------------------------------------------------------------
Net future income tax asset from U.S.                                       
 operations                                              929           1,688
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Non-capital loss carry forwards relating to Canadian operations total $175.9 million and relating to our U.S. Operations total $2.6 million. These losses will begin expiring in 2026.

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

----------------------------------------------------------------------------
                                                       2010            2009
----------------------------------------------------------------------------
Consolidated earnings of Newalta Corporation                                
 before taxes and distributions to                    
 shareholders                                        27,622           2,732
Current statutory income tax rate                     29.13%          30.45%
----------------------------------------------------------------------------
Computed tax expense at statutory rate                8,046             832
Increase (decrease) in taxes resulting from:                                
 Capital taxes                                          509             945
 Non-deductible costs                                 1,796             592
 Other                                                 (791)         (2,736)
----------------------------------------------------------------------------
Reported income tax expense (recovery)                9,560            (367)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

NOTE 14. ASSET RETIREMENT OBLIGATIONS

The total future asset retirement obligations were estimated by management based on the anticipated costs to abandon and reclaim facilities and wells, and the projected timing of these expenditures. The net present value of this amount, $21.7 million ($21.9 million at December 31, 2009) has been accrued on the consolidated balance sheets at December 31, 2010. The total estimated future cost for asset retirement obligations at December 31, 2010 was $9.7 billion. The majority of the undiscounted future asset retirement obligations relate to the Stoney Creek landfill in Ontario, which are expected to be incurred over the next 300 years. Excluding the landfill, the total undiscounted future cost is $ 36.2 million. Newalta uses a discount rate of 8% and an inflation rate of 2% to calculate the present value of the asset retirement obligations.

----------------------------------------------------------------------------
                                   Three months ended            Year ended
                                          December 31,          December 31,
                                      2010       2009       2010       2009
----------------------------------------------------------------------------
Asset retirement obligations,                                               
 beginning of period                22,331     21,765     21,903     21,094
Expenditures incurred to fulfill                                            
 obligations                        (1,126)      (318)    (2,184)    (1,024)
Accretion                              495        456      1,981      1,833
----------------------------------------------------------------------------
Asset retirement obligations,                                               
 end of year                        21,700     21,903     21,700     21,903
----------------------------------------------------------------------------
----------------------------------------------------------------------------

NOTE 15. SHAREHOLDERS' CAPITAL

a) Shareholders' capital

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

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

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

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

(000s)                                            Shares (#)      Amount ($)
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2008           42,400         509,369
Shares issued (net of issues costs)                   6,136          44,227
Shares cancelled and returned to treasury               (60)           (725)
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2009           48,476         552,871
----------------------------------------------------------------------------
Shares issued (net of issuance costs)                    16              98
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2010           48,492         552,969
----------------------------------------------------------------------------
----------------------------------------------------------------------------

b) Retained earnings (deficit) and contributed surplus

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

----------------------------------------------------------------------------
                                                       2010            2009
----------------------------------------------------------------------------
Accumulated earnings                                381,243         363,180
Accumulated cash dividends                         (390,732)       (379,580)
----------------------------------------------------------------------------
Retained Earnings (Deficit)                          (9,489)        (16,400)

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

----------------------------------------------------------------------------
                                                                  Amount ($)
----------------------------------------------------------------------------
Contributed surplus as at December 31, 2008                              988
Stock-based compensation adjustments                                    (79)
Return of prior period distributions                                      45
Cancellation of returned shares                                          725
----------------------------------------------------------------------------
Contributed surplus as at December 31, 2009 and 2010                   1,679
----------------------------------------------------------------------------
----------------------------------------------------------------------------

c) Convertible debentures - equity portion

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

NOTE 16. EARNINGS PER SHARE

Basic earnings per share calculations for the year ended December 31, 2010 and 2009 were based on the weighted average number of shares outstanding for the periods. Diluted earnings per share include the potential dilution of the outstanding options to acquire shares and from the conversion of the convertible debentures.

The calculation of diluted earnings per share does not include anti-dilutive options. These options would not be exercised during the period because their exercise price is higher than the average market price for the period. The number of excluded options for 2010 was 1,060,200 (1,957,700 in 2009).

The diluted earnings per share calculation does not include the impact of anti-dilutive Convertible Debentures. These debentures would not be converted to shares during the period because the current period interest (net of tax) per share obtainable on conversion exceeds basic earnings per share. The number of shares issuable on conversion of these debentures excluded for 2010 was 5,000,000 (5,000,000 in 2009).

----------------------------------------------------------------------------
                                  Three months ended             Year ended
(000s)                                   December 31,           December 31,
----------------------------------------------------------------------------
                                    2010        2009        2010        2009
----------------------------------------------------------------------------
Weighted average number of                                                  
 shares                           48,523      46,770      48,485      43,536
Net additional shares if                                                    
 options exercised                   411         279         302           -
Net additional shares if                                                    
 debentures converted                  -           -           -           -
----------------------------------------------------------------------------
Diluted weighted average                                                    
 number of shares                 48,934      47,049      48,787      43,536
----------------------------------------------------------------------------
----------------------------------------------------------------------------

NOTE 17. SHAREHOLDER DIVIDENDS DECLARED

During the year ended December 31, 2010, Newalta declared quarterly dividends of $0.05 per share on each of March 15th and July 15th, and quarterly dividends of $0.065 on each of September 15th and December 15th.

NOTE 18. CAPITAL DISCLOSURES

Newalta's capital structure currently consists of:

----------------------------------------------------------------------------
                                                        2010            2009
----------------------------------------------------------------------------
Amount drawn on credit facility                       54,028         191,280
Letters of Credit issued as financial                                       
 security to third parties                            21,477          42,283
Convertible debentures, debt portion                 112,073         110,708
Senior unsecured debentures                          125,000               -
Shareholders' equity                                 547,596         540,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                     860,174         884,271
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The objectives in managing the capital structure are to:

--  Utilize an appropriate amount of leverage to maximize return on
    Shareholders' equity; and 
--  To provide for borrowing capacity and financial flexibility to support
    Newalta's operations. 

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

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

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

----------------------------------------------------------------------------
                                                 December 31,               
Ratio                                                   2010       Threshold
----------------------------------------------------------------------------
Senior Secured Debt(1) to EBITDA(2)                   0.63:1  2.75:1 maximum
Total Debt(3) to EBITDA(2)                            1.68:1  3.50:1 maximum
Interest Coverage                                     4.97:1  2.25:1 minimum
----------------------------------------------------------------------------
(1) Senior Secured Debt means the Total Debt less the Senior Unsecured
    Debentures. 
(2) EBITDA is a non-GAAP measure, the closest measure of which is net
    earnings. For the purpose of calculating the covenant, EBITDA is defined
    as the trailing twelve-months consolidated net income for Newalta before
    the deduction of interest, taxes, depreciation and amortization, and
    non-cash items (such as non-cash stock-based compensation and gains or
    losses on asset dispositions). Additionally, EBITDA is normalized for
    any acquisitions or dispositions as if they had occurred at the
    beginning of the period. 
(3) Total Debt comprises outstanding indebtedness under the credit facility
    and the senior unsecured debentures but excludes the existing $115
    million convertible debentures. 

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

----------------------------------------------------------------------------
                                                December 31,                
 Ratio                                                 2010       Threshold 
----------------------------------------------------------------------------
 Senior Secured Debt including Letters of                           $245,000
 Credit                                              75,336         maximum 
 Cumulative capital lease obligations                   nil  $25,000 maximum
 Consolidated Fixed Charge Coverage                  4.97:1  2.00:1 minimum 
                                                               Not to exceed
 Period end surplus for restricted payments          17,284         surplus 
----------------------------------------------------------------------------

NOTE 19. 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:

----------------------------------------------------------------------------
                 2011     2012    2013    2014    2015  Thereafter   Total 
---------------------------------------------------------------------------
Amount drawn                                                              
 on credit                                                                 
 facility (1)                                                              
 (note 9)           -        -  54,028       -       -          -   54,028 
Convertible                                                               
 debentures                                                                
 (note 10)      8,050  122,379       -       -       -          -  130,429 
Senior                                                                    
 unsecured                                                                 
 debentures                                                                
 (note 11)      9,531    9,531   9,531   9,531   9,531    143,070  190,726 
---------------------------------------------------------------------------
Total debt                                                                
 commitments   17,581  131,910  63,559   9,531   9,531    143,070  375,182 
---------------------------------------------------------------------------
Office                                                                    
 leases         7,676    7,453   7,377   6,988   6,882     27,762   64,138 
Operating                                                                 
 leases         9,025    4,560   1,214     382      48          -   15,229 
Surface                                                                   
 leases         1,135    1,157     290     290     290        225    3,387 
Accounts                                                                  
 payable                                                                   
 and accrued                                                               
 liabilities  118,218        -       -       -       -          -  118,218 
Dividends                                                                 
 payable        3,152        -       -       -       -          -    3,152 
---------------------------------------------------------------------------
Total debt                                                                
 and other    156,787  145,080  72,440  17,191  16,751    171,057  579,306 
 commitments                                                               
---------------------------------------------------------------------------
(1)Gross of transaction costs. Interest payments are not reflected.

b) Letters of Credit and Surety Bonds

As at December 31, 2010, Newalta had issued letters of credit and surety bonds in respect of compliance with environmental licenses in the amount of $21.5 million and $30.5, million respectively.

NOTE 20. FINANCIAL INSTRUMENTS

a) Fair Value of Financial Assets and Liabilities

Newalta's financial instruments include accounts receivable, note receivable, accounts payable and accrued liabilities, dividends payable, senior long-term debt and senior unsecured debentures. The fair values of Newalta's financial instruments that are included in the consolidated balance sheets, with the exception of the debentures, approximate their recorded amount due to the short-term nature of those instruments for accounts receivable, accounts payable and accrued liabilities and for senior long-term debt and the note receivable, due to the floating nature of the interest rate applicable to these instruments. The fair values incorporate an assessment of credit risk. The carrying values of Newalta's financial instruments at December 31, 2010 are as follows:

----------------------------------------------------------------------------
                                                                      Total 
                    Held for    Loans and  Available        Other  Carrying 
                     Trading  Receivables   for Sale  Liabilities     Value 
----------------------------------------------------------------------------
Accounts                                                                   
 receivable                -      102,378          -            -   102,378 
Note receivable            -          890          -            -       890 
Accounts payable                                                           
 and accrued                                                                
 liabilities               -            -          -      118,218   118,218 
Dividends payable          -            -          -        3,152     3,152 
Amount drawn on                                                            
 credit facility(1)        -            -          -       54,028    54,028 
----------------------------------------------------------------------------
(1)Gross of transaction costs

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

----------------------------------------------------------------------------
                                                           December 31, 2010
                                                                 Quoted Fair
                                            Carrying Value(1)          Value
----------------------------------------------------------------------------
7% Convertible debentures due November 30,                                  
 2012                                                113,923         118,738
----------------------------------------------------------------------------
(1)Includes both the debt and equity portions.                            
The fair value of the Unsecured Senior Debentures is based                  
on broker quote as follows:                                                 
----------------------------------------------------------------------------
                                                           December 31, 2010
                                                                 Quoted Fair
                                              Carrying Value           Value
----------------------------------------------------------------------------
7.625% Senior unsecured debentures due                                      
 November 23, 2017                                   125,000         127,500
----------------------------------------------------------------------------

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

Level 1 includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets that are accessible at the measurement date. An active market for an asset or liability is considered to be a market where transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Instruments valued using Level 1 inputs include our Convertible Debentures and investment in BioteQ shares.

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

Level 3 includes valuations based on inputs which are less observable, unavailable or where the observable data does not support a significant portion of the instruments' fair value. Generally, Level 3 valuations are longer dated transactions, occur in less active markets, occur at locations where pricing information is not available or have no binding broker quote to support Level 2 classification. At December 31, 2010 and December 31, 2009, Newalta did not have any Level 3 assets or liabilities.

b) Financial Instrument Risk Management

Credit risk and economic dependence

Newalta is subject to credit risk on its trade accounts receivable balances. The customer base is large and diverse, and no single customer balance exceeds 19% of total accounts receivable. Newalta views the credit risks on these amounts as normal for the industry. Credit risk is minimized by Newalta's broad customer base and diverse product lines, and is mitigated by the ongoing assessment of the credit worthiness of its customers as well as monitoring the amount and age of balances outstanding.

Revenue from Newalta's largest customer was $81.2 million for the year ended December 31, 2010 ($63.8 million in 2009), representing 14% of revenue (2009 - 13%). This revenue is recognized within our Facilities segment.

Based on the nature of its operations, established collection history and industry norms, receivables are not considered past due until 90 days after invoice date, although standard payment terms require payment within 30 to 120 days. Depending on the nature of the service and/or product, customers may be provided with extended payment terms while Newalta gathers certain processing or disposal data. Included in the Corporation's trade receivable balance, are receivables totalling $2.2 million, which are considered to be outstanding beyond normal repayment terms at December 31, 2010. A provision of $0.3 million has been established as an allowance for doubtful accounts. No additional provision has been made as there has not been a significant change in credit quality and the amounts are still considered collectible. Newalta does not hold any collateral over these balances.

----------------------------------------------------------------------------
               Trade Receivables         Allowance for                   
Aging       aged by Invoice Date    Doubtful Accounts        Net Receivables
             December   December   December   December   December   December
                  31,        31,        31,        31,        31,        31,
                2010       2009       2010       2009       2010       2009 
----------------------------------------------------------------------------
 Current      60,867     53,981         22         13     60,845     53,968 
 31-60 days   11,730     15,454          1         21     11,729     15,433 
 61-90 days    3,001      3,159         20         65      2,981      3,094 
 91 days +     2,220        791        298        725      1,922         66 
----------------------------------------------------------------------------
 Total        77,818     73,385        341        824     77,477     72,561 
----------------------------------------------------------------------------

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

----------------------------------------------------------------------------
 Allowance for doubtful accounts                        2010           2009 
----------------------------------------------------------------------------
 Balance, beginning of year                              824          1,533 
 Additional amounts provided for                         108            922 
 Amounts written off as uncollectible                   (591)        (1,631)
----------------------------------------------------------------------------
 Balance, end of year                                    341            824 
----------------------------------------------------------------------------

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. See Note 19 for maturity analysis.

Interest rate risk

Newalta is exposed to interest rate risk to the extent that its Credit Facility has a variable interest rate. Management does not enter into any derivative contracts to manage the exposure to variable interest rates. The Convertible Debentures and Senior Unsecured Debentures have fixed interest rates until their maturity dates, at which point, any remaining amounts owing under these debentures will need to be repaid or refinanced. The table below provides an interest rate sensitivity analysis for the three and twelve months ended December 31, 2010:

----------------------------------------------------------------------------
                                     Three months ended          Year ended 
                                      December 31, 2010   December 31, 2010
----------------------------------------------------------------------------
If interest rates increased by 1%
 with all other variables held              
 constant                                          (210)               (668)
----------------------------------------------------------------------------

Market risk

Market risk is the risk that the fair value or future cash flows of Newalta's financial instruments will fluctuate because of changes in market prices. Newalta is exposed to foreign exchange market risk. Foreign exchange risk refers to the risk that the value of a financial commitment, recognised asset or liability will fluctuate due to changes in foreign currency exchange rates. The risk arises primarily from U.S. dollar denominated long-term debt and working capital. As at December 31, 2010, Newalta had $25.3 million in working capital and $25.4 million in long- term debt denominated in U.S. dollars. Management has not entered into any financial derivatives to manage the risk for the foreign currency exposure as at December 31, 2010.

The table below provides a foreign currency sensitivity analysis on long-term debt and working capital outstanding as at December 31, 2010:

----------------------------------------------------------------------------
                                                               Net Earnings
----------------------------------------------------------------------------
If the value of the U.S. dollar increased by $0.01 with all
 other variables held constant                                            1
----------------------------------------------------------------------------

NOTE 21. CASH FLOW STATEMENT INFORMATION

The following tables provide supplemental information.

----------------------------------------------------------------------------
                                     Three months ended Twelve months ended
                                            December 31,        December 31,
----------------------------------------------------------------------------
                                         2010      2009      2010      2009
----------------------------------------------------------------------------
Changes in current assets              18,536       652   (16,941)   33,563
Changes in current liabilities         10,578       366    28,756   (24,644)
Investment                                 29         -     4,274         -
Dividends payable                           -      (301)     (729)    5,137
Stock-based compensation, foreign
 exchange and other                    (4,051)     (316)   (4,903)   (3,168)
Changes in capital asset accruals      (3,332)     (103)   (8,074)   12,711
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total increase in non-cash working
 capital                               21,760       298     2,383    23,599
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                     Three months ended Twelve months ended
                                            December 31,        December 31,
----------------------------------------------------------------------------
                                         2010      2009      2010      2009
----------------------------------------------------------------------------
Foreign exchange                          (99)     (149)     (429)    2,354
Accretion of convertible debentures       352       323     1,365     1,289
Amortization of deferred financing
 charges                                  373       471     1,821     1,834
Unrealized loss on investment in
 warrants                                  44         -       435         -
Other                                     242        40       (38)     (382)
----------------------------------------------------------------------------
Total other items not requiring cash      912       685     3,154     5,095
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                     Three months ended Twelve months ended
                                            December 31,        December 31,
----------------------------------------------------------------------------
                                         2010      2009      2010      2009
----------------------------------------------------------------------------
Cash additions to capital assets
 during the year                      (29,606)   (8,212)  (75,603)  (26,941)
Changes in capital asset accruals       3,332       103     8,074   (12,711)
Total cash additions to capital
 assets                               (26,274)   (8,109)  (67,529)  (39,652)
----------------------------------------------------------------------------

NOTE 22. SEGMENTED INFORMATION

Effective January 1, 2010, Newalta reorganized its reporting structure into two divisions, Onsite and Facilities, which 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. Newalta had previously reported Western and Eastern reportable segments. As such, 2009 comparative information has been restated to present information under the applicable new segments.

----------------------------------------------------------------------------
                               For the three months ended December 31, 2010
                                       Inter-                  Consolidated
                   Facilities  Onsite  segment  Unallocated(3)        Total
----------------------------------------------------------------------------
External revenue      115,089  47,838       -               -       162,927
Inter segment
 revenue(1)               104       -    (104)              -             -
Operating expense      77,843  33,804    (104)              -       111,543
Amortization and
 accretion expense      8,827   3,374       -           2,690        14,891
----------------------------------------------------------------------------
Net margin             28,523  10,660       -          (2,690)       36,493
Selling, general
and administrative          -       -       -          23,972        23,972
Research and
 development                -       -       -             586           586
Finance charges             -       -       -           6,608         6,608
----------------------------------------------------------------------------
Earnings before
 taxes                 28,523  10,660       -         (33,856)        5,327
----------------------------------------------------------------------------
Capital
 expenditures and
 acquisitions(2)       14,119  12,683       -           2,835        29,637
----------------------------------------------------------------------------
Goodwill               44,381  58,516       -               -       102,897
----------------------------------------------------------------------------
Total assets          647,426 300,951       -          80,347     1,028,724
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                               For the three months ended December 31, 2009
                                       Inter-                  Consolidated
                   Facilities  Onsite segment   Unallocated(3)        Total
----------------------------------------------------------------------------
External revenue       94,637  42,671       -               -       137,308
Inter segment
 revenue(1)               295       -    (295)              -             -
Operating expense      65,039  31,263    (295)              -        96,007
Amortization and
 accretion expense      8,161   3,643       -           2,754        14,558
----------------------------------------------------------------------------
Net margin             21,732   7,765       -          (2,754)       26,743
Selling, general
and administrative          -       -       -          16,603        16,603
Research and
 development                -       -       -               -             -
Finance charges             -       -       -           6,689         6,689
----------------------------------------------------------------------------
Earnings before
 taxes                 21,732   7,765       -         (26,046)        3,451
----------------------------------------------------------------------------
Capital
 expenditures and
 acquisitions(2)        4,155   4,596       -            (511)        8,240
----------------------------------------------------------------------------
Goodwill               44,381  59,216       -               -       103,597
----------------------------------------------------------------------------
Total assets          648,960 271,588       -          73,182       993,730
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                       For the year ended December 31, 2010
                                     Inter-                    Consolidated
                 Facilities  Onsite segment   Unallocated(3)          Total
----------------------------------------------------------------------------
External revenue    393,950 182,246       -               -         576,196
Inter segment
 revenue(1)             589       -    (589)              -               -
Operating expense   265,153 129,753    (589)              -         394,317
Amortization and
 accretion expense   30,813  13,038       -          12,139          55,990
----------------------------------------------------------------------------
Net margin           98,573  39,455       -         (12,139)        125,889
Selling, general
 and administrative       -       -       -          70,891          70,891
Research and
 development              -       -       -           1,713           1,713
Finance charges           -       -       -          25,663          25,663
----------------------------------------------------------------------------
Earnings before
 taxes               98,573  39,455       -        (110,406)         27,622
----------------------------------------------------------------------------
Capital expenditures
 and
 acquisitions(2)     33,491  32,736       -           9,518          75,745
----------------------------------------------------------------------------
Goodwill             44,381  58,516       -             -           102,897
----------------------------------------------------------------------------
Total assets        647,426 300,951       -          80,347       1,028,724
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                       For the year ended December 31, 2009
                                     Inter-                    Consolidated
                 Facilities  Onsite segment   Unallocated(3)          Total
----------------------------------------------------------------------------
External revenue    326,281 157,120       -               -         483,401
Inter segment
 revenue(1)           1,203       -  (1,203)              -               -
Operating expense   230,845 117,706  (1,203)              -         347,348
Amortization and
 accretion expense   27,919  11,416       -          12,490          51,825
----------------------------------------------------------------------------
Net margin           68,720  27,998       -         (12,490)         84,228
Selling, general
 and administrative       -       -       -          56,132          56,132
Research and
 development              -       -       -               -               -
----------------------------------------------------------------------------
Finance charges           -       -       -          25,364          25,364
----------------------------------------------------------------------------
Earnings before
 taxes               68,720  27,998       -         (93,986)          2,732
----------------------------------------------------------------------------
Capital expenditures
 and
 acquisitions(2)     14,100   9,869       -           3,316          27,285
----------------------------------------------------------------------------
Goodwill             44,381  59,216       -               -         103,597
----------------------------------------------------------------------------
Total assets        648,960 271,588       -          73,182         993,730
----------------------------------------------------------------------------
(1) Inter-segment revenue is recorded at market, less the costs of serving
    external customers.
(2) Includes capital asset additions and the purchase price of
    acquisitions.
(3) Management does not allocate selling, general and administrative, taxes,
    and interest costs in the segment analysis.
 
For further information: Anne M. Plasterer,,Executive Director, Investor Relations, (403) 806-7019, www.newalta.com