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Newalta Reports Fourth Quarter and Year End 2012 Results

CALGARY, ALBERTA -- (Marketwire) -- 02/14/13 -- Newalta Corporation ("Newalta") (TSX:NAL) today reported results for the fourth quarter and year ended December 31, 2012.

FINANCIAL HIGHLIGHTS(1)


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

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

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

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

Management Commentary

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

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


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

Commodity Pricing August 2012 to January 2013: http://media3.marketwire.com/docs/213nal_graphs.pdf


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

Active Rigs - Western Canada(1): http://media3.marketwire.com/docs/213nal_graphs.pdf

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


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

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

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


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

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

Results of Q4 2012 Compared to Q4 2011


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

Results of 2012 Compared to 2011


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

Other Highlights:


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

Quarterly Conference Call

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

About Newalta

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

NEWALTA CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Three months and years ended December 31, 2012 and 2011

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


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

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


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

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

RECONCILIATION OF NON-GAAP MEASURES

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

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

They are calculated as follows:


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

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


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

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


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

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


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

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


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

Trailing Twelve-Month Return on Capital: http://media3.marketwire.com/docs/213nal_graphs.pdf

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

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

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

SELECTED ANNUAL FINANCIAL INFORMATION(1)


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

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

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

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

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

NEWALTA - WHO WE ARE

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

Vision:

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

2012 Review:


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

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

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

Strategy:

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


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

RISKS TO OUR STRATEGY

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


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

CORPORATE OVERVIEW

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

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

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

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

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

Revenue ($ millions) and Adjusted EBITDA ($ millions): http://media3.marketwire.com/docs/213nal_graphs.pdf

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

OUTLOOK

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

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

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


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

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

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

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

RESULTS OF OPERATIONS - FACILITIES DIVISION

Overview

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

The business units contributed the following to division revenue:


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

Facilities Revenue ($ millions) and Facilities Gross Profit ($ millions): http://media3.marketwire.com/docs/213nal_graphs.pdf

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


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

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

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

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

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

Western Facilities

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


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

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

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

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


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

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

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

Recovered Crude - Western Facilities (in '000 bbl): http://media3.marketwire.com/docs/213nal_graphs.pdf

Eastern Facilities

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


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

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

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

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


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

SCL - Volume Collected (in '000 MT): http://media3.marketwire.com/docs/213nal_graphs.pdf

Ville Ste-Catherine

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

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

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

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

RESULTS OF OPERATIONS - ONSITE DIVISION

Overview

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

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


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

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

The business units contributed the following to division revenue:


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

Onsite Revenue ($ millions) and Onsite Gross Profit ($ millions): http://media3.marketwire.com/docs/213nal_graphs.pdf

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


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

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

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

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

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

Western Onsite

Revenue is primarily generated from:


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

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

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

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


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

Eastern Onsite

Eastern Onsite revenue is derived from:


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

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

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

Heavy Oil

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

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

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

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

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


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

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

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

Recovered Crude - Heavy Oil (in 000 bbl): http://media3.marketwire.com/docs/213nal_graphs.pdf

CORPORATE AND OTHER


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

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

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


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

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


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

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

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

(3) Relates to decommissioning liability.

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

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

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


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

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

CHANGES IN CONSOLIDATED FINANCIAL POSITION


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

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

LIQUIDITY AND CAPITAL RESOURCES

The term liquidity refers to the speed with which a company's assets can be converted into cash, or its ability to do so, as well as cash on hand. Liquidity risk refers to the risk that we will encounter difficulty in meeting obligations associated with financial obligations that are settled by cash or another financial asset. Our liquidity risk may arise due to general day-to-day cash requirements and in the management of our assets, liabilities and capital resources. Liquidity risk is managed against our financial leverage to meet obligations and commitments in a balanced manner. For further information on our liquidity risk management, refer to Note 17 to the Financial Statements for the three months and year ended December 31, 2012.

Our debt capital structure is as follows:


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

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

DEBT RATINGS

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


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

SOURCES OF CASH

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

Credit Facility

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

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

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


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

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

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

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

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

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

Senior Unsecured Debentures


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

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

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

(3) Plus interest to the date of redemption

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

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

Covenants under our trust indenture include:


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

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

We will manage within our covenants throughout 2013.

Equity Issuance

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

USES OF CASH

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

Capital Expenditures

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

Capital expenditures for the periods indicated are as follows:


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

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

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

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

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

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


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

Dividends and Share Capital

In determining the dividend to be paid to our shareholders, the Board of Directors considers a number of factors, including: the forecasts for operating and financial results; maintenance and growth capital requirements; as well as market activity and conditions. After a review of all factors, the Board declared $5.4 million in dividends or $0.10 per share, paid January 15, 2013, to shareholders of record as at December 31, 2012.

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

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

Contractual Obligations

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


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

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

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

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

SUMMARY OF QUARTERLY RESULTS


($000s except per share data)                                           2012
                                                                            
                                               Q4       Q3       Q2       Q1
----------------------------------------------------------------------------
Revenue                                   198,445  190,136  171,130  166,498
Earnings before taxes                       4,830   21,951   22,992    7,143
Net earnings                                4,124   15,236   18,626    4,819
Earnings per share ($)                       0.08     0.31     0.38     0.10
Earnings per share ($) - adjusted            0.17     0.32     0.10     0.28
Diluted earnings per share ($)               0.08     0.31     0.38     0.10
Weighted average shares - basic            52,741   48,698   48,682   48,579
Weighted average shares - diluted          53,473   49,497   49,613   49,519
EBITDA                                     27,865   37,544   37,200   27,269
Adjusted EBITDA                            33,290   42,526   30,248   36,073
----------------------------------------------------------------------------

($000s except per share data)                                           2011
                                                                            
                                               Q4       Q3       Q2       Q1
----------------------------------------------------------------------------
Revenue                                   184,089  182,023  164,294  152,422
Earnings before taxes                       8,609   16,537   13,632    8,971
Net earnings                                6,031   11,815   10,483    5,233
Earnings per share ($)                       0.12     0.24     0.22     0.11
Earnings per share ($) - adjusted            0.19     0.25     0.20     0.21
Diluted earnings per share ($)               0.12     0.24     0.21     0.11
Weighted average shares - basic            48,569   48,607   48,523   48,495
Weighted average shares - diluted          49,286   49,403   49,318   48,949
EBITDA                                     33,515   41,691   33,648   29,942
Adjusted EBITDA                            36,677   41,871   33,044   34,883
----------------------------------------------------------------------------

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

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

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

RECENT DEVELOPMENTS

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


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

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

New Markets


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

Oilfield


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

Industrial


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

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

New Markets - Information by Quarter


                          2012                            2011              
($000s)          Q1      Q2      Q3      Q4      Q1      Q2      Q3      Q4 
----------------------------------------------------------------------------
Revenue      36,131  38,626  61,560  52,520  28,086  35,062  39,211  36,954 
Cost of                                                                     
 Sales       21,931  24,676  39,026  35,452  19,337  22,272  25,651  24,154 
----------------------------------------------------------------------------
Gross Profit 14,200  13,950  22,534  17,068   8,749  12,790  13,560  12,800 
----------------------------------------------------------------------------
Gross Profit                                                                
 as % of                                                                    
 revenue         39%     36%     37%     32%     31%     36%     35%     35%
----------------------------------------------------------------------------
Capital                                                                     
 Expenditure                                                                
 s           17,516  30,326   7,499  16,951   1,932   7,845   5,205  16,193 
----------------------------------------------------------------------------
Amortization                                                                
 included in                                                                
 Cost of                                                                    
 Sales        2,120   2,320   3,430   4,393   1,013     961   2,116   1,845 
----------------------------------------------------------------------------
Business Unit Revenue Contribution %                                        
----------------------------------------------------------------------------
Heavy Oil        63%     66%     74%     69%     62%     67%     70%     66%
----------------------------------------------------------------------------
U.S.             37%     34%     26%     31%     38%     33%     30%     34%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                          2010              
($000s)          Q1      Q2      Q3      Q4 
--------------------------------------------
Revenue      19,401  22,875  28,732  27,743 
Cost of                                     
 Sales       12,453  15,688  19,017  18,713 
--------------------------------------------
Gross Profit  6,948   7,187   9,715   9,030 
--------------------------------------------
Gross Profit                                
 as % of                                    
 revenue         36%     31%     34%     33%
--------------------------------------------
Capital                                     
 Expenditure                                
 s            2,238   5,244   3,591   6,807 
--------------------------------------------
Amortization                                
 included in                                
 Cost of                                    
 Sales        1,253   1,398   1,150   1,176 
--------------------------------------------
Business Unit Revenue Contribution %        
--------------------------------------------
Heavy Oil        81%     73%     68%     64%
--------------------------------------------
U.S.             19%     27%     32%     36%
--------------------------------------------
--------------------------------------------

New Markets - Year to Date Information


                          2012                            2011              
($000s)          Q1  Q2-YTD  Q3-YTD  Q4-YTD      Q1  Q2-YTD  Q3-YTD  Q4-YTD 
----------------------------------------------------------------------------
Revenue      36,131  74,757 136,317 188,837  28,086  63,148 102,359 139,313 
Cost of                                                                     
 Sales       21,931  46,607  85,633 121,085  19,337  41,609  67,260  91,414 
----------------------------------------------------------------------------
Gross Profit 14,200  28,150  50,684  67,752   8,749  21,539  35,099  47,899 
----------------------------------------------------------------------------
Gross Profit                                                                
 as % of                                                                    
 revenue         39%     38%     37%     36%     31%     34%     34%     34%
----------------------------------------------------------------------------
Capital                                                                     
 Expenditure                                                                
 s           17,516  47,842  55,341  72,292   1,932   9,777  14,982  31,175 
----------------------------------------------------------------------------
Amortization                                                                
 included in                                                                
 Cost of                                                                    
 Sales        2,120   4,440   7,870  12,263   1,013   1,974   4,090   5,934 
----------------------------------------------------------------------------
Business Unit Revenue Contribution %                                        
----------------------------------------------------------------------------
Heavy Oil        63%     65%     69%     69%     62%     65%     66%     66%
----------------------------------------------------------------------------
U.S.             37%     35%     31%     31%     38%     35%     34%     34%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            

                          2010              
($000s)          Q1  Q2-YTD  Q3-YTD  Q4-YTD 
--------------------------------------------
Revenue      19,401  42,276  71,008  98,751 
Cost of                                     
 Sales       12,453  28,141  47,158  65,871 
--------------------------------------------
Gross Profit  6,948  14,135  23,850  32,880 
--------------------------------------------
Gross Profit                                
 as % of                                    
 revenue         36%     33%     34%     33%
--------------------------------------------
Capital                                     
 Expenditure                                
 s            2,238   7,482  11,073  17,880 
--------------------------------------------
Amortization                                
 included in                                
 Cost of                                    
 Sales        1,253   2,651   3,800   4,976 
--------------------------------------------
Business Unit Revenue Contribution %        
--------------------------------------------
Heavy Oil        81%     76%     73%     71%
--------------------------------------------
U.S.             19%     24%     27%     29%
--------------------------------------------
--------------------------------------------

Oilfield - Information by Quarter


                                       2012                            2011 
($000s)          Q1      Q2      Q3      Q4      Q1      Q2      Q3      Q4 
----------------------------------------------------------------------------
Revenue      50,452  38,951  47,178  44,486  43,299  32,723  46,491  51,134 
Cost of                                                                     
 Sales       30,937  28,491  30,442  29,665  23,194  19,370  28,400  31,579 
----------------------------------------------------------------------------
Gross Profit 19,515  10,460  16,736  14,821  20,105  13,353  18,091  19,555 
----------------------------------------------------------------------------
Gross Profit                                                                
 as % of                                                                    
 revenue         39%     27%     35%     33%     46%     41%     39%     38%
----------------------------------------------------------------------------
Capital                                                                     
 Expenditure                                                                
 s            6,749   5,347   9,303  14,698   5,859   8,623  14,772  12,781 
----------------------------------------------------------------------------
Amortization                                                                
 included in                                                                
 Cost of                                                                    
 Sales        3,185   2,692   2,987   3,086   3,730   3,340   3,895   4,423 
----------------------------------------------------------------------------

                                       2010 
($000s)          Q1      Q2      Q3      Q4 
--------------------------------------------
Revenue      38,322  30,659  36,062  40,906 
Cost of                                     
 Sales       23,290  18,201  19,690  23,056 
--------------------------------------------
Gross Profit 15,032  12,458  16,372  17,850 
--------------------------------------------
Gross Profit                                
 as % of                                    
 revenue         39%     41%     45%     44%
--------------------------------------------
Capital                                     
 Expenditure                                
 s            1,043   3,108   6,060  10,551 
--------------------------------------------
Amortization                                
 included in                                
 Cost of                                    
 Sales        3,676   3,334   3,251   3,712 
--------------------------------------------

Oilfield - Year to Date Information


                                       2012                            2011 
($000s)          Q1  Q2-YTD  Q3-YTD  Q4-YTD      Q1  Q2-YTD  Q3-YTD  Q4-YTD 
----------------------------------------------------------------------------
Revenue      50,452  89,403 136,581 181,067  43,299  76,022 122,513 173,647 
Cost of                                                                     
 Sales       30,937  59,428  89,870 119,535  23,194  42,564  70,964 102,543 
----------------------------------------------------------------------------
Gross Profit 19,515  29,975  46,711  61,532  20,105  33,458  51,549  71,104 
----------------------------------------------------------------------------
Gross Profit                                                                
 as % of                                                                    
 revenue         39%     34%     34%     34%     46%     44%     42%     41%
----------------------------------------------------------------------------
Capital                                                                     
 Expenditure                                                                
 s            6,749  12,096  21,399  36,097   5,859  14,482  29,254  42,035 
----------------------------------------------------------------------------
Amortization                                                                
 included in                                                                
 Cost of                                                                    
 Sales        3,185   5,877   8,864  11,950   3,730   7,070  10,965  15,387 
----------------------------------------------------------------------------

                                       2010 
($000s)          Q1  Q2-YTD  Q3-YTD  Q4-YTD 
--------------------------------------------
Revenue      38,322  68,981 105,043 145,949 
Cost of                                     
 Sales       23,290  41,491  61,181  84,237 
--------------------------------------------
Gross Profit 15,032  27,490  43,862  61,712 
--------------------------------------------
Gross Profit                                
 as % of                                    
 revenue         39%     40%     42%     42%
--------------------------------------------
Capital                                     
 Expenditure                                
 s            1,043   4,151  10,211  20,762 
--------------------------------------------
Amortization                                
 included in                                
 Cost of                                    
 Sales        3,676   7,010  10,261  13,973 
--------------------------------------------

Industrial - Information by Quarter


                                       2012                            2011 
($000s)          Q1      Q2      Q3      Q4      Q1      Q2      Q3      Q4 
----------------------------------------------------------------------------
Revenue      79,915  93,553  81,398 101,439  81,037  96,509  96,321  96,001 
Inter-                                                                      
 segment                                                                    
 Revenue          -       -       -       -       -       -       -       - 
Cost of                                                                     
 Sales       70,752  79,127  71,661  94,291  70,673  83,961  83,112  85,616 
----------------------------------------------------------------------------
Gross Profit  9,163  14,426   9,737   7,148  10,364  12,548  13,209  10,385 
----------------------------------------------------------------------------
Gross Profit                                                                
 as % of                                                                    
 revenue         11%     15%     12%      7%     13%     13%     14%     11%
----------------------------------------------------------------------------
Capital                                                                     
 Expenditure                                                                
 s            4,013   6,864   8,863  13,293   3,006   7,514   8,903  10,915 
----------------------------------------------------------------------------
Amortization                                                                
 included in                                                                
 Cost of                                                                    
 Sales        6,112   6,047   5,860   6,792   6,388   7,084   9,472   7,311 
----------------------------------------------------------------------------
Business Unit Revenue Contribution %                                        
----------------------------------------------------------------------------
 Western         26%     25%     32%     22%     23%     23%     27%     26%
----------------------------------------------------------------------------
 Eastern         74%     75%     68%     78%     77%     77%     73%     74%
----------------------------------------------------------------------------
 VSC as % of                                                                
  Industrial     34%     32%     18%     36%     41%     38%     27%     33%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            

                                       2010 
($000s)          Q1      Q2      Q3      Q4 
--------------------------------------------
Revenue      73,517  83,371  80,330  94,278 
Inter-                                      
 segment                                    
 Revenue        157     189     139     104 
Cost of                                     
 Sales       62,865  72,159  71,275  81,989 
--------------------------------------------
Gross Profit 10,809  11,401   9,194  12,393 
--------------------------------------------
Gross Profit                                
 as % of                                    
 revenue         15%     13%     11%     13%
--------------------------------------------
Capital                                     
 Expenditure                                
 s            2,447   5,618  10,425   9,898 
--------------------------------------------
Amortization                                
 included in                                
 Cost of                                    
 Sales        5,464   6,076   5,779   7,221 
--------------------------------------------
Business Unit Revenue Contribution %        
--------------------------------------------
 Western         20%     23%     28%     22%
--------------------------------------------
 Eastern         80%     77%     72%     78%
--------------------------------------------
 VSC as % of                                
  Industrial     39%     34%     30%     42%
--------------------------------------------
--------------------------------------------

Industrial - Year to Date Information


                                       2012                            2011 
($000s)          Q1  Q2-YTD  Q3-YTD  Q4-YTD      Q1  Q2-YTD  Q3-YTD  Q4-YTD 
----------------------------------------------------------------------------
Revenue      79,915 173,468 254,866 356,305  81,037 177,546 273,867 369,868 
Inter-                                                                      
 segment                                                                    
 Revenue          -       -       -       -       -       -       -       - 
Cost of                                                                     
 Sales       70,752 149,879 221,540 315,831  70,673 154,634 237,746 323,362 
----------------------------------------------------------------------------
Gross Profit  9,163  23,589  33,326  40,474  10,364  22,912  36,121  46,506 
----------------------------------------------------------------------------
Gross Profit                                                                
 as % of                                                                    
 revenue         11%     14%     13%     11%     13%     13%     13%     13%
----------------------------------------------------------------------------
Capital                                                                     
 Expenditure                                                                
 s            4,013  10,877  19,740  33,033   3,006  10,520  19,423  30,338 
----------------------------------------------------------------------------
Amortization                                                                
 included in                                                                
 Cost of                                                                    
 Sales        6,112  12,159  18,019  24,811   6,388  13,472  22,944  30,255 
----------------------------------------------------------------------------
Business Unit Revenue Contribution %                                        
----------------------------------------------------------------------------
 Western         26%     26%     28%     26%     23%     23%     25%     25%
----------------------------------------------------------------------------
 Eastern         74%     74%     72%     74%     77%     77%     75%     75%
----------------------------------------------------------------------------
 VSC as % of                                                                
  Industrial     34%     33%     28%     30%     41%     40%     35%     35%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            

                                       2010 
($000s)          Q1  Q2-YTD  Q3-YTD  Q4-YTD 
--------------------------------------------
Revenue      73,517 156,888 237,218 331,496 
Inter-                                      
 segment                                    
 Revenue        157     346     485     589 
Cost of                                     
 Sales       62,865 135,024 206,299 288,287 
--------------------------------------------
Gross Profit 10,809  22,210  31,404  43,798 
--------------------------------------------
Gross Profit                                
 as % of                                    
 revenue         15%     14%     13%     13%
--------------------------------------------
Capital                                     
 Expenditure                                
 s            2,447   8,065  18,490  28,388 
--------------------------------------------
Amortization                                
 included in                                
 Cost of                                    
 Sales        5,464  11,540  17,319  24,540 
--------------------------------------------
Business Unit Revenue Contribution %        
--------------------------------------------
 Western         20%     22%     24%     23%
--------------------------------------------
 Eastern         80%     78%     76%     77%
--------------------------------------------
 VSC as % of                                
  Industrial     39%     36%     34%     36%
--------------------------------------------
--------------------------------------------

OFF-BALANCE SHEET ARRANGEMENTS

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

SENSITIVITIES

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

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

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


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

(1) Based on 2012 performance and volumes

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

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

(4) Based on 2012 volumes of 18 million litres

RISK MANAGEMENT

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


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

CRITICAL ACCOUNTING ESTIMATES

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

Recoverability of Asset Carrying Values

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

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

Decommissioning Liability

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

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

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

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

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

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

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

Taxation

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

Derivative Instruments

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

Leases

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

Revenue

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

FUTURE ACCOUNTING POLICY CHANGES

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


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

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

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

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

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

BUSINESS RISKS AND RISK MANAGEMENT

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

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

FINANCIAL AND OTHER INSTRUMENTS

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

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

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and the Chief Financial Officer (collectively the "Certifying Officers") have evaluated the design and effectiveness of our disclosure controls and procedures as of December 31, 2012, and have concluded that such disclosure controls and procedures were effective. In additional, the Certifying Officers have evaluated the design and effectiveness of our internal control over financial reporting as of December 31, 2012, and have concluded that such internal controls over financial reporting were effective. There have not been any changes in the internal control over financial reporting in Q4 of 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ADDITIONAL INFORMATION

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

Consolidated Balance Sheets

(Expressed in thousands of Canadian Dollars)


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

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

Consolidated Statements of Operations

(Expressed in thousands of Canadian Dollars)

(Except per share data)


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

Consolidated Statements of Comprehensive Income

(Expressed in thousands of Canadian Dollars)


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

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

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

Consolidated Statement of Changes in Equity

(Expressed in thousands of Canadian Dollars)


                                                       Equity              
                                                   portion of              
                                  Shareholders'   convertible   Contributed
                                        capital    debentures       surplus
---------------------------------------------------------------------------
Balance, December 31, 2010              315,934         1,021         1,679
---------------------------------------------------------------------------
Changes in equity for year ended                                           
 December 31, 2011                                                         
Exercise of options                       1,452             -             -
Redemption of convertible                                                  
 debentures                                   -        (1,021)        1,021
Dividends declared                            -             -             -
Other comprehensive loss                      -             -             -
Net earnings for the year                     -             -             -
---------------------------------------------------------------------------
Balance, December 31, 2011              317,386             -         2,700
---------------------------------------------------------------------------
Changes in equity for year ended                                           
 December 31, 2012                                                         
Exercise of options                       2,443             -             -
Issuance of shares (Note 12)             74,400             -             -
Cancellation of shares                     (181)            -           181
Dividends declared                            -             -             -
Other comprehensive loss                      -             -             -
Net earnings for the year                     -             -             -
---------------------------------------------------------------------------
Balance, December 31, 2012              394,048             -         2,881
---------------------------------------------------------------------------

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

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

Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian Dollars)


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

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

Notes to the Consolidated Financial Statements

For the years ended December 31, 2012 and 2011.

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

NOTE 1. CORPORATE STRUCTURE

Newalta Corporation (the "Corporation" or "Newalta") was incorporated on October 29, 2008, pursuant to the laws of the Province of Alberta. Newalta completed an internal reorganization resulting in a name change from Newalta Inc. to Newalta Corporation effective January 1, 2010. Newalta provides cost-effective solutions to industrial customers to improve their environmental performance with a focus on recycling and recovery of products from industrial residues. These services are provided both through our network of facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Our customers operate in a broad range of industries including oil and gas, petrochemical, refining, lead, manufacturing and mining industries.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

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

These consolidated financial statements were approved by the Board of Directors on February 12, 2013.

Basis of Preparation

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

The principal accounting policies are set out below.

a) Cash and cash equivalents

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

b) Inventories

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

c) Property, plant and equipment

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

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

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

d) Permits and other intangible assets

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

e) Leases

Lessee

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

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

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

Lessor

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

f) Goodwill

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

g) Impairments

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

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

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

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

h) Decommissioning liabilities

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

i) Revenue recognition

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


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

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

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

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

j) Research and development

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

k) Taxation

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

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

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

l) Earnings per share

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

m) Stock-based incentive plans

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

Stock options

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

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

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

Stock appreciation rights ("SARs")

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

Share units

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

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

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

n) Financial instruments

Classification

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


----------------------------------------------------------------------------
Category                        Subsequent Measurement                      
----------------------------------------------------------------------------
Financial assets at fair value  Fair value and changes in fair value are    
through profit and loss         recognized in net earnings                  
("FVTPL")                                                                   
Held-to-maturity investments    Amortized cost, using the effective interest
                                method                                      
Loans and receivables           Amortized cost, using the effective interest
                                method                                      
Available-for-sale financial    Fair value and changes in fair value are    
assets ("AFS")                  recorded in other comprehensive income until
                                the instrument is derecognized or impaired  
Financial liabilities           Amortized cost, using the effective interest
                                method                                      
----------------------------------------------------------------------------

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

Impairment of financial assets

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


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

Embedded derivatives

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

Transaction costs

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

o) Functional and presentation currency

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

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

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

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

p) Borrowing costs

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

q) Critical judgments and estimate uncertainties in applying accounting policies

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

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

Recoverability of asset carrying values

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

Decommissioning liability

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

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

Fair value calculation on stock-based payments

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

Taxation

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

Derivative instruments

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

Leases

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

Revenue

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

r) Recent pronouncements issued

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


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

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

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

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

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

NOTE 3. INVENTORIES

Inventories consist of the following:


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

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

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:


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

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

NOTE 5. PERMITS, INTANGIBLE ASSETS AND GOODWILL


----------------------------------------------------------------------------
                                           Definite                         
                                               life        Non-             
                              Indefinite   permits/ competition             
                                 permits     rights   contracts       Total 
----------------------------------------------------------------------------
Cost                                                                        
Balance, December 31, 2010        53,037     14,650       6,020      73,707 
Additions during the year              -         56           -          56 
Disposal during the year               -       (200)          -        (200)
----------------------------------------------------------------------------
Balance, December 31, 2011        53,037     14,506       6,020      73,563 
----------------------------------------------------------------------------
Expired intangibles                    -     (2,850)     (6,020)     (8,870)
----------------------------------------------------------------------------
Balance, December 31, 2012        53,037     11,656           -      64,693 
----------------------------------------------------------------------------
Accumulated Amortization (1)                                                
Balance, December 31, 2010             -     (7,108)     (6,020)    (13,128)
Amortization for the year              -     (1,042)          -      (1,042)
Disposal during the year               -        200           -         200 
----------------------------------------------------------------------------
Balance, December 31, 2011             -     (7,950)     (6,020)    (13,970)
----------------------------------------------------------------------------
Amortization for the year              -       (979)          -        (979)
Expired intangibles                    -      2,850       6,020       8,870 
----------------------------------------------------------------------------
Balance, December 31, 2012             -     (6,079)          -      (6,079)
----------------------------------------------------------------------------
Carrying amounts                                                            
As at December 31, 2011           53,037      6,556           -      59,593 
As at December 31, 2012           53,037      5,577           -      58,614 
----------------------------------------------------------------------------
(1) Amortization is included in cost of sales and selling, general and      
    administrative in the Consolidated Statements of Operations.            
                                                                            
Intangibles have been allocated to the following CGUs:                      
                                                                            
----------------------------------------------------------------------------
                                        December 31, 2012  December 31, 2011
----------------------------------------------------------------------------
West Facilities                                       683                850
East Facilities                                    41,411             41,833
Onsite                                                620              1,010
VSC                                                15,900             15,900
----------------------------------------------------------------------------
                                                   58,614             59,593
----------------------------------------------------------------------------
                                                                            
Goodwill has been allocated to the following CGUs:                          
                                                                            
----------------------------------------------------------------------------
                                        December 31, 2012  December 31, 2011
----------------------------------------------------------------------------
West Facilities                                    12,182             12,182
East Facilities                                    34,027             34,027
Onsite                                             56,406             56,688
----------------------------------------------------------------------------
                                                  102,615            102,897
----------------------------------------------------------------------------

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

Key assumptions included the following:


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

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

NOTE 6. OTHER ASSETS

a) Other assets

BioteQ Environmental Technologies Inc. ("BioteQ")

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

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

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

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

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


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

TerraAqua Resource Management LLC

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

NOTE 7. SENIOR SECURED DEBT


                                       December 31, 2012  December 31, 2011 
----------------------------------------------------------------------------
Senior secured debt                               76,500             70,010 
Issue costs(1)                                         -             (1,517)
----------------------------------------------------------------------------
Senior secured debt                               76,500             68,493 
----------------------------------------------------------------------------
(1) Issue costs related to the facility have been included in prepaid       
    expenses and other in 2012 and will be amortized over the extended      
    credit facility term.                                                   

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

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

NOTE 8. SENIOR UNSECURED DEBENTURES

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


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

Series 1

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

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


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

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

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

Series 2

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

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


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

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

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

NOTE 9. INCENTIVE PLANS

a) Option Plans

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

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


----------------------------------------------------------------------------
                           Weighted            Weighted            Weighted 
                     2008   average      2006   average      2003   average 
                   option  exercise    option  exercise    option  exercise 
                     plan     price      plan     price      plan     price 
                    (000s) ($/share)    (000s) ($/share)    (000s) ($/share)
----------------------------------------------------------------------------
At December 31,                                                             
 2010               1,667      6.67       708     16.99       353     21.37 
----------------------------------------------------------------------------
Granted               893     12.01         -         -         -         - 
Exercised            (129)     5.80         -         -         -         - 
Forfeited               -         -        (5)    32.38      (128)    17.95 
----------------------------------------------------------------------------
At December 31,                                                             
 2011               2,431      8.68       703     16.88       225     23.27 
----------------------------------------------------------------------------
Granted (1)           924     12.80         -         -         -         - 
Exercised            (241)     7.34         -         -         -         - 
Forfeited            (108)     8.88       (13)    21.88      (225)    23.27 
----------------------------------------------------------------------------
At December 31,                                                             
 2012 (2)           3,006     10.05       690     16.79         -         - 
----------------------------------------------------------------------------
Exercisable at                                                              
 December 31,                                                               
 2012               1,067      8.08       690     16.79         -         - 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Each tranche of the options vest over a three year period (with a five  
    year life).                                                             
(2) The fair value was calculated using the Black-Scholes method of         
    valuation, assuming 26.30% volatility (December 31, 2011 - 45.23%), a   
    weighted average expected annual dividend yield of 2.86% (December 31,  
    2011 - 2.71%), a risk free rate of 1.14% (December 31, 2011 - 0.95%) and
    a 3% forfeiture rate (December 31, 2011 - 3%) by period.                
                                                                            
----------------------------------------------------------------------------
                       Options   Weighted   Weighted      Options   Weighted
                   outstanding    average    average  exercisable    average
Range of exercise December 31,  remaining   exercise December 31,   exercise
 prices ($/share)         2012       life      price         2012      price
----------------------------------------------------------------------------
3.81 - 5.40                602        1.0       5.28          396       5.28
7.54 - 8.07                650        2.0       8.07          387       8.07
11.93 - 14.00            1,765        3.4      12.38          359      12.42
14.00 - 19.46              657        0.6      16.66          592      16.82
23.14 - 25.50               22        0.2      25.19           23      25.19
----------------------------------------------------------------------------
                         3,696        2.3      11.30        1,757      11.50
----------------------------------------------------------------------------
----------------------------------------------------------------------------

b) Share Appreciation Rights ("SARs")

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

Changes in the number of outstanding SARs were as follows:


----------------------------------------------------------------------------
                                                                   Weighted 
                                                                    average 
                                                        SARs exercise price 
                                                       (000s)      ($/right)
----------------------------------------------------------------------------
At December 31, 2010                                   1,427           7.53 
----------------------------------------------------------------------------
Granted                                                  945          12.24 
Exercised                                               (156)          5.95 
Forfeited                                                (75)          8.69 
----------------------------------------------------------------------------
At December 31, 2011                                   2,141           9.69 
----------------------------------------------------------------------------
Granted (1)                                              812          12.70 
Exercised                                               (426)          7.23 
Forfeited                                               (179)         11.37 
----------------------------------------------------------------------------
At December 31, 2012 (2)                               2,348          11.04 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exercisable at December 31, 2012                         733          10.34 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Each tranche of the SARs vest over a three year period (with a five year
    life).                                                                  
(2) The fair value was calculated using the Black-Scholes method of         
    valuation, assuming 26.30% volatility (December 31, 2011 - 45.23%), a   
    weighted average expected annual dividend yield of 2.86% (December 31,  
    2011 - 2.71%), a risk free rate of 1.14% (December 31, 2011 - 0.95%) and
    an 8% forfeiture rate (December 31, 2011 - 5%) by period.               
                                                                            
----------------------------------------------------------------------------
                           SARs   Weighted   Weighted        SARs   Weighted
                    outstanding    average    average exercisable    average
Range of exercise      December  remaining   exercise    December   exercise
 prices ($/share)      31, 2011       life      price    31, 2011      price
----------------------------------------------------------------------------
5.31 - 8.76                 690        1.6       6.85         368       6.95
11.93 - 16.65             1,658        3.4      12.79         365      13.76
----------------------------------------------------------------------------
                          2,348        2.8      11.04         733      10.34
----------------------------------------------------------------------------
----------------------------------------------------------------------------

c) Share Unit Plans

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


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

d) Stock-based Compensation Expense

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


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

e) Incentive Plan Liabilities

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

NOTE 10. INCOME TAX

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

Canadian Tax Jurisdiction:


----------------------------------------------------------------------------
                                        December 31, 2012  December 31, 2011
----------------------------------------------------------------------------
Deferred income tax liabilities:                                            
  Property, plant and equipment                   117,716            110,260
  Goodwill and intangible assets                   18,652             17,869
----------------------------------------------------------------------------
                                                  136,368            128,129
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 Deferred income tax assets:                                                
  Non-capital loss carry forwards                  30,921             34,251
  Decommissioning liabilities                      20,303             19,684
  Deferred financing and equity issuance                                    
   costs                                              522                165
  Deferred revenue                                  1,670              1,043
  Deferred expense                                  4,857              4,100
  Tax credit relating to components of                                      
   other comprehensive income                         223                198
  Other                                               353                299
----------------------------------------------------------------------------
                                                   58,849             59,740
----------------------------------------------------------------------------
Net deferred income tax liability                  77,519             68,389
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
U.S. Tax Jurisdiction:                                                      
                                                                            
----------------------------------------------------------------------------
                                        December 31, 2012  December 31, 2011
----------------------------------------------------------------------------
Deferred income tax liabilities:                                            
  Property, plant and equipment                     3,942                  -
----------------------------------------------------------------------------
                                                    3,942                  -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Deferred income tax assets:                                                 
  Non-capital loss carry forwards                   6,180              1,527
  Property, plant and eqiupment                         -              1,824
  Other                                               636                345
----------------------------------------------------------------------------
                                                    6,816              3,696
----------------------------------------------------------------------------
Net deferred income tax asset                       2,874              3,696
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

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


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

NOTE 11. RECONCILIATION OF DECOMMISSIONING LIABILITY

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


----------------------------------------------------------------------------
Decommissioning liability as at January 1, 2011                      54,368 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Actual expenditures incurred to fulfill obligations                  (3,356)
Unwinding of discount                                                 2,138 
Change in estimate(1)                                                24,606 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Decommissioning liability as at December 31, 2011                    77,756 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Actual expenditures incurred to fulfill obligations                  (3,554)
Unwinding of discount                                                 2,482 
Change in estimate(1)                                                 2,257 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Decommissioning liability as at December 31, 2012                    78,941 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Changes in the discount rates and in the estimated costs of abandonment 
    and reclamation are factors resulting in a change in estimate.          

NOTE 12. SHAREHOLDERS' CAPITAL

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


Common Shares                                      Shares (#)     Amount ($)
----------------------------------------------------------------------------
Shares outstanding as at January 1, 2011              48,492        315,934 
Shares issued on exercise of options                     115          1,452 
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2011            48,607        317,386 
----------------------------------------------------------------------------
Shares issued on equity offering(1)                    5,500         74,400 
Shares issued on exercise of options                     168          2,443 
Cancellation of shares                                   (12)          (181)
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2012            54,263        394,048 
----------------------------------------------------------------------------
(1) Issue costs are $2.8 million, net of tax of $0.7 million for 2012       

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

NOTE 13. CAPITAL DISCLOSURES

Newalta's capital structure consists of:


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

The objectives in managing the capital structure are to:


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

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


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

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

Covenants under our Credit Facility(1) include:


----------------------------------------------------------------------------
Ratio                     December 31, 2012 December 31, 2011      Threshold
----------------------------------------------------------------------------
Senior secured debt(2) to                                                   
 EBITDA(3)                           0.66:1            0.65:1 2.75:1 maximum
Total debt(4) to EBITDA(3)           2.46:1            2.38:1 4.00:1 maximum
Interest Coverage                    5.09:1            5.86:1 2.25:1 minimum
----------------------------------------------------------------------------
(1) We are restricted from declaring dividends if we are in breach of any   
    covenants under our credit facility.                                    
(2) Senior secured debt means the total debt less the senior unsecured      
    debentures.                                                             
(3) EBITDA is a non-IFRS measure, the closest measure of which is net       
    earnings.For the purpose of calculating the covenant, EBITDA is defined 
    as the trailing twelve months consolidated net income for Newalta before
    the deduction of interest, taxes, depreciation and amortization, and    
    non-cash items (such as non-cash stock-based compensation and gains or  
    losses on asset dispositions). Additionally, EBITDA is normalized for   
    any acquisitions or dispositions as if they had occurred at the         
    beginning of the period.                                                
(4) Total debt comprises outstanding indebtedness under the credit facility,
    including our bank surplus or overdraft balance and the senior unsecured
    debentures.                                                             

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

Covenants under the trust indenture include:


----------------------------------------------------------------------------
Ratio                  December 31, 2012 December 31, 2011 Threshold        
----------------------------------------------------------------------------
Senior Secured Debt                                        $25,000 + the    
 including Letters of                                      greater of       
 Credit                                                    $220,000 and     
                                  92,546            94,510 1.75x EBITDA     
Cumulative finance                                                          
 lease obligations                   nil               nil $25,000 maximum  
Consolidated Fixed                                                          
 Charge Coverage                  5.09:1            5.86:1 2.00:1 minimum   
Period end surplus for                                     Restricted       
 restricted payments(1)                                    payments cannot  
                                 110,739            27,001 exceed surplus   
----------------------------------------------------------------------------
(1) We are restricted from declaring dividends, purchasing and redeeming    
    shares or making certain investments if the total of such amounts       
    exceeds the period end surplus for such restricted payments.            

NOTE 14. EARNINGS PER SHARE

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

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


                                    For the three months  For the year ended
                                      ended December 31,        December 31,
----------------------------------------------------------------------------
                                          2012      2011      2012      2011
----------------------------------------------------------------------------
Weighted average number of shares       52,741    48,569    49,690    48,569
Net additional shares if options                                            
 exercised                                 732       717       833       685
----------------------------------------------------------------------------
Diluted weighted average number of                                          
 shares                                 53,473    49,286    50,523    49,254
----------------------------------------------------------------------------
                                                                            
NOTE 15. DIVIDENDS DECLARED                                                 
                                    For the three months  For the year ended
                                      ended December 31,        December 31,
----------------------------------------------------------------------------
                                          2012      2011      2012      2011
----------------------------------------------------------------------------
Total dividends declared per share       0.100     0.080     0.380     0.305
----------------------------------------------------------------------------

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

NOTE 16. COMMITMENTS

a) Debt and Lease Commitments

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


----------------------------------------------------------------------------
                       2013   2014    2015   2016    2017 Thereafter   Total
----------------------------------------------------------------------------
Amount drawn on                                                             
 credit facility(1)                                                         
 (Note 7)                 -      -  76,500      -       -          -  76,500
Senior unsecured                                                            
 debentures (Note                                                           
 8)                  19,219 19,219  19,219 19,219 143,226    143,128 363,230
----------------------------------------------------------------------------
Total debt                                                                  
 commitments         19,219 19,219  95,719 19,219 143,226    143,128 439,730
----------------------------------------------------------------------------
Office leases         9,048  8,646   8,470  8,117   7,335     16,064  57,680
Operating leases      6,226  5,083   2,590  9,699     107          -  23,705
Surface leases          465    465     465    465     465        175   2,500
Accounts payable                                                            
 and accrued                                                                
 liabilities        181,876      -       -      -       -          - 181,876
Dividends payable     5,426      -       -      -       -          -   5,426
Purchase obligation   3,160     41      36      7       7          -   3,251
----------------------------------------------------------------------------
Total debt and                                                              
 other commitments  225,420 33,454 107,280 37,507 151,140    159,367 714,168
----------------------------------------------------------------------------
(1) Gross of transaction costs. Interest payments are not reflected.        

b) Letters of Credit and Surety Bonds

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

NOTE 17. FINANCIAL INSTRUMENTS

Fair Value of Financial Assets and Liabilities

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


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

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


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

Embedded Derivatives

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

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

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

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

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

Credit risk and economic dependence

Newalta is subject to credit risk on its trade accounts receivable balances. The customer base is large and diverse, and one customer balance represented 10% of total accounts receivable at December 31, 2012, (no single customer was greater than 10% as at December 31, 2011). This account receivable is recognized within the Onsite segment. Newalta views the credit risks on these amounts as normal for the industry. Credit risk is minimized by Newalta's broad customer base and diverse product lines, and is mitigated by the ongoing assessment of the credit worthiness of its customers as well as monitoring the amount and age of balances outstanding. Newalta's assessment of credit risk has remained unchanged from the prior year.

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

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


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

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


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

Liquidity risk

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

Interest rate risk

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


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

Market risk

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

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


----------------------------------------------------------------------------
                                                            2012        2011
----------------------------------------------------------------------------
If the value of the U.S. dollar in relation to the                          
 CDN dollar increased by $0.01 with all other                               
 variables held constant                                      67         133
----------------------------------------------------------------------------
                                                                            
NOTE 18. FINANCE CHARGES                                                    
                                                                            
                              For the three months            For the year  
                                 ended December 31,      ended December 31, 
                                   2012        2011        2012        2011 
Interest:                                                                   
  Senior secured debt             1,260         967       5,322       3,815 
  Senior unsecured                                                          
   debentures                     4,805       3,601      19,219      10,732 
  Convertible debentures              -       1,684           -       7,721 
  Other                             349         346       1,235       1,123 
Amortization of issue costs         330         361       1,502       4,262 
Unwinding of discount               617       2,371       2,482       2,138 
Capitalized borrowing costs      (1,595)       (927)     (4,664)     (2,813)
Revaluation and transfer of                                                 
 AFS financial assets                74         102       1,700       1,213 
----------------------------------------------------------------------------
Finance charges                   5,840       8,505      26,796      28,191 
----------------------------------------------------------------------------

NOTE 19. RELATED PARTIES

Significant subsidiaries

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


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

Key Management Personnel

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


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

NOTE 20. CASH FLOW STATEMENT INFORMATION

The following tables provide supplemental information:


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

NOTE 21. SEGMENTED INFORMATION

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


                                                                            
                                                                            
                                                                            
                      As at and for the three months ended December 31, 2012
                                                                            
                                                    Unallocated Consolidated
                              Facilities      Onsite         (2)       Total
----------------------------------------------------------------------------
Revenue                          122,899      75,546          -      198,445
Cost of sales (1)                101,189      58,219          -      159,408
----------------------------------------------------------------------------
Gross profit                      21,710      17,327          -       39,037
Selling, general and                                                        
 administrative(2)                     -           -     28,489       28,489
Research and development               -           -        480          480
Net financing charges                  -           -      5,238        5,238
----------------------------------------------------------------------------
Earnings before taxes             21,710      17,327    (34,207)       4,830
----------------------------------------------------------------------------
Property, plant and                                                         
 equipment expenditures           26,404      18,538     12,458       57,400
----------------------------------------------------------------------------
Goodwill                          46,209      56,406          -      102,615
----------------------------------------------------------------------------
Total assets                     783,290     432,811    102,657    1,318,758
----------------------------------------------------------------------------
Total liabilities                255,577      40,032    381,709      677,318
----------------------------------------------------------------------------
                                                                            
                      As at and for the three months ended December 31, 2011
                                                                            
                                                    Unallocated Consolidated
                              Facilities      Onsite         (2)       Total
----------------------------------------------------------------------------
Revenue                          124,234      59,855          -      184,089
Cost of sales (1)                 97,930      43,419          -      141,349
----------------------------------------------------------------------------
Gross profit                      26,304      16,436          -       42,740
Selling, general and                                                        
 administrative(2)                     -           -     25,187       25,187
Research and development               -           -        439          439
Net financing charges                  -           -      8,505        8,505
----------------------------------------------------------------------------
Earnings before taxes             26,304      16,436    (34,131)       8,609
----------------------------------------------------------------------------
Property, plant and                                                         
 equipment expenditures           18,928      20,961      5,400       45,289
----------------------------------------------------------------------------
Goodwill                          46,209      56,688          -      102,897
----------------------------------------------------------------------------
Total assets                     718,748     349,083     97,190    1,165,021
----------------------------------------------------------------------------
Total liabilities                164,997     127,874    330,229      623,100
----------------------------------------------------------------------------
(1) Cost of sales includes net amortization of $14,271 for Q4 2012          
    (Facilities $9,006 and Onsite $5,265) and $13,577 for Q4 2011           
    (Facilities $9,221 and Onsite $4,356).                                  
(2) Selling, general and administrative includes amortization of $3,526 for 
    Q4 2012 and $2,824 for Q4 2011.                                         
                                                                            
                              As at and for the year ended December 31, 2012
                                                    Unallocated             
                              Facilities      Onsite         (2)Consolidated
----------------------------------------------------------------------------
Revenue                          446,217     279,992          -      726,209
Cost of sales (1)                346,176     210,275          -      556,451
----------------------------------------------------------------------------
Gross profit                     100,041      69,717          -      169,758
Selling, general and                                                        
 administrative(2)                     -           -    100,031      100,031
Research and development               -           -      2,358        2,358
Net financing charges                  -           -     13,357       13,357
----------------------------------------------------------------------------
Earnings before taxes            100,041      69,717   (115,746)      54,012
----------------------------------------------------------------------------
Property, plant and                                                         
 equipment expenditures           65,192      76,230     30,918      172,340
----------------------------------------------------------------------------
Goodwill                          46,209      56,406          -      102,615
----------------------------------------------------------------------------
Total assets                     783,290     432,811    102,657    1,318,758
----------------------------------------------------------------------------
Total liabilities                255,577      40,032    381,709      677,318
----------------------------------------------------------------------------
                                                                            
                              As at and for the year ended December 31, 2011
                                                    Unallocated             
                              Facilities      Onsite         (2)Consolidated
----------------------------------------------------------------------------
Revenue                          463,606     219,222          -      682,828
Cost of sales (1)                356,820     160,499          -      517,319
----------------------------------------------------------------------------
Gross profit                     106,786      58,723          -      165,509
Selling, general and                                                        
 administrative(2)                     -           -     87,232       87,232
Research and development               -           -      2,337        2,337
Net financing charges                  -           -     28,191       28,191
----------------------------------------------------------------------------
Earnings before taxes            106,786      58,723   (117,760)      47,749
----------------------------------------------------------------------------
Property, plant and                                                         
 equipment expenditures           54,173      49,375     14,132      117,680
----------------------------------------------------------------------------
Goodwill                          46,209      56,688          -      102,897
----------------------------------------------------------------------------
Total assets                     718,748     349,083     97,190    1,165,021
----------------------------------------------------------------------------
Total liabilities                164,997     127,874    330,229      623,100
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Cost of sales includes amortization of $49,024 (Facilities $32,019 and  
    Onsite $17,005) and $51,576 for 2011 (Facilities $36,346 and Onsite     
    $15,230).                                                               
(2) Selling, general and administrative includes amortization of $13,485 for
    2012 and $11,280 for 2011.                                              

NOTE 22. PRIOR YEAR INFORMATION

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

Contacts:
Newalta Corporation
Anne M. Plasterer
Executive Director, Investor Relations
(403) 806-7019

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