EVEREADY INCOME FUND
TSX : EIS.UN

EVEREADY INCOME FUND

November 08, 2007 08:00 ET

Eveready Income Fund Announces 2007 Third Quarter Financial Results

EDMONTON, ALBERTA--(Marketwire - Nov. 8, 2007) - Eveready Income Fund (TSX:EIS.UN)



Selected Consolidated Financial Information:

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Three Months Ended Nine Months Ended
September September September September
$ thousands, except 30 30 % 30 30 %
per unit amounts 2007 2006 Change 2007 2006 Change
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Revenue $126,767 $ 93,470 36% $381,745 $270,252 41%

Gross profit 40,274 30,486 32% 123,815 92,754 33%
Gross margin 31.8% 32.6% 32.4% 34.3%

EBITDA(1) 20,378 15,687 30% 60,089 51,065 18%
EBITDA margin (1) 16.1% 16.8% 15.7% 18.9%
Per unit (1) 0.25 0.24 4% 0.79 0.84 -6%

Earnings before
income taxes and
non-controlling
interest 4,318 6,180 -30% 17,709 28,907 -39%
Net earnings 4,551 5,599 -19% 10,878 27,160 -60%
Per unit - basic
and diluted 0.06 0.09 -33% 0.14 0.45 -69%
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Cash flow from
operations 12,929 9,450 37% 39,818 33,894 17%
Funds from
Operations (1) 17,486 14,948 17% 51,684 48,783 6%
Per unit(1) 0.22 0.23 -4% 0.68 0.81 -16%

Distributions
declared 15,007 10,006 50% 41,920 25,969 61%
Per unit 0.18 0.15 20% 0.54 0.42 29%
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Weighted average
units
outstanding 81,309 65,641 24% 75,595 60,540 25%
Units outstanding at
September 30 84,089 68,667 22% 84,089 68,667 22%
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Total assets 594,794 421,796 41%
Long-term
liabilities 241,931 103,934 133%
Unitholders' equity 291,554 252,731 15%
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Note: (1) These financial measures are identified and defined under the
section "Non-GAAP Financial Measures".


Quarter Overview:

- Revenue for the third quarter was $126.8 million reflecting an increase of 36% compared to 2006;

- We reported EBITDA (see "Non-GAAP Financial Measures") of $20.4 million in the third quarter. This reflects an increase of 30% from EBITDA of $15.7 million in 2006 and an increase of $0.01 per unit to $0.25 per unit from $0.24 per unit in 2006;

- We continued our aggressive expansion in the Alberta oil sands region generating $38.0 million of revenue from this region during the third quarter compared to revenue of $18.4 million in 2006. Subsequent to the quarter we also announced that we were awarded significant long-term service contracts in the Alberta oil sands region with a number of blue-chip customers. The contracts range in length from two to five years and will utilize a number of Eveready's services. We expect these contracts could generate approximately $400 million in revenue over the next three years (see "Note Regarding Forward-Looking Statements");

- We invested $59.0 million in property, plant and equipment during the first nine months of 2007. This investment included $47.8 million in growth capital expenditures to expand our service offerings in a number of locations including the Alberta oil sands region;

- We reported net earnings of $4.6 million in the third quarter compared to net earnings of $5.6 million in 2006;

- We declared distributions of $15.0 million or $0.18 per unit in the third quarter, compared to distributions of $10.0 million or $0.15 per unit in 2006; and

- On October 5, 2007, we acquired the Truck division of Wellco Energy Services Trust for cash consideration of $5.0 million. The assets acquired include a fleet of 25 units consisting of vacuum trucks, hydro-excavation trucks, and water trucks, along with additional support equipment. Combined with our current capital expansion program, these assets will be utilized to fulfill our growing service commitments in the Alberta oil sands region.

Management's Discussion & Analysis

This Management's Discussion & Analysis ("MD&A") was prepared as of November 6, 2007 to assist readers in understanding Eveready Income Fund's ("Eveready" or the "Fund") consolidated financial performance for the three and nine months ended September 30, 2007 and significant trends that may affect Eveready's future performance. This MD&A should be read together with the accompanying interim consolidated financial statements for the three and nine months ended September 30, 2007 and the notes contained therein. In addition, this MD&A should be read in conjunction with the MD&A and audited consolidated financial statements for the year ended December 31, 2006. The accompanying consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") using Eveready's reporting currency, the Canadian dollar. Eveready is a reporting issuer in each of the provinces of Canada, except Quebec. Eveready's units trade on the Toronto Stock Exchange under the symbol "EIS.UN".

Additional information relating to Eveready, including the 2006 Annual Information Form dated March 22, 2007, is available on the System for Electronic Document Analysis and Retrieval ("SEDAR") web site at www.sedar.com.

This MD&A contains forward-looking statements. Please see the section "Note Regarding Forward-Looking Statements" for a discussion of the risks, uncertainties and assumptions relating to those statements. This MD&A also makes reference to certain non-GAAP financial measures to assist users in assessing Eveready's performance. Non-GAAP financial measures do not have any standard meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures are identified and described under the section "Non-GAAP Financial Measures".

Our Business

We manage a group of businesses that provide industrial and oilfield services from over 75 locations in Canada, the United States, and internationally. Our subsidiaries operate in three business segments: industrial and oilfield services; health, safety and environmental services; and oilfield equipment rental and lodging services. Our customers operate in the energy, resource, and manufacturing sectors.

Our staff roster fluctuates seasonally and now exceeds over 2,200 employees. Our aggregate fleet consists of approximately 900 company-owned trucks and 290 lease-operated trucks. Our fleet consists of chemical and high pressure trucks, tractors, vacuum trucks, hydro vac trucks, pressure trucks, hot oiler units, steamer trucks, tank trucks, and flush-by units. In addition, we also own hundreds of additional large pieces of equipment including directional boring rigs, heli-portable drills, mulchers, catalyst handling and support systems, and other specialized pieces of equipment. Our oilfield equipment rental services include a wide range of oilfield rental equipment including approximately 6,100 access mats, and various pieces of production equipment. Our lodging services include 18 portable camps and six industrial lodges. All six industrial lodges and the majority of our portable camps are currently located in the Alberta oil sands region.

Overall Performance

We generated revenue of $126.8 million in the third quarter compared to $93.5 million in 2006, representing an increase of 36%. Likewise, we increased our EBITDA (see "Non-GAAP Financial Measures") by 30% to $20.4 million from $15.7 million and increased EBITDA per unit by $0.01 to $0.25 per unit from $0.24 per unit in 2006. Funds from Operations (see "Non-GAAP Financial Measures") also increased by $2.6 million to $17.5 million from $14.9 million in 2006.

The core driver of our business continues to be the provision of essential industrial maintenance and production services to companies operating in the energy, resource and manufacturing sectors. A significant portion of our services are provided in the oil sands region of northern Alberta. Due to this focus and our limited exposure to conventional oil and gas exploration and drilling, we continue to weather the downturn in the overall oil and gas service industry and grow our operating cash flows.

On a per unit basis, Funds from Operations (see "Non-GAAP Financial Measures") declined slightly to $0.22 per unit in the third quarter of 2007 from $0.23 per unit in 2006. Unlike a number of service companies primarily dependant on oil and gas exploration and drilling activities that are scaling back their operations to reduce costs, we continue to invest significantly in our future growth, especially in the Alberta oil sands region. These costs are necessary to fulfill our long-term service commitments to our customers. However, in the short-term, these investments negatively affect our operating results.

As previously announced, we were awarded significant long-term service contracts in the Alberta oil sands region with a number of blue-chip customers. To meet the future demand for our services, we are currently incurring costs to recruit and train over 500 additional employees from across Canada for the upcoming winter season. As we are recruiting significantly more employees than in prior years, it has also been necessary to begin our training efforts on new employees earlier than in the past. In addition, we will utilize personnel and equipment from our locations right across western Canada to meet our commitments in this region. Therefore, we are also incurring additional maintenance and training costs in a number of other locations to prepare for a busy 2008 fiscal year.

During the third quarter, our net earnings declined by $1.0 million to $4.6 million from $5.6 million in 2006. Lower revenue from higher gross margin services dependant on oil and gas exploration activity, combined with investments in our Alberta oil sands operations, contributed to this reduction. In addition, we are also incurring higher amortization costs in 2007 due to the significant growth in our property, plant and equipment over the past year. Included in amortization expense in the third quarter of 2007 is amortization of intangible assets of $2.2 million compared to $1.3 million in 2006. The majority of our intangible assets were acquired in conjunction with business acquisitions over the past two years. Interest expense also increased by $2.4 million to $4.9 million in 2007 compared to $2.5 million in 2006 as we utilized our debt credit facilities to fund a large part of our growth in 2007.

Our overall outlook for 2008 is positive. We will continue to increase our exposure to the growing infrastructure development in the Alberta oil sands through capital expenditures and business acquisitions. We expect a large portion of our organic growth in 2008 to be generated from this region. However, lower demand for our services dependant on conventional oil and gas exploration and drilling is expected to continue into 2008.


Strategic Developments

In 2007, we continue to achieve progress towards our long-term growth strategies. These growth strategies are:

- Growing our existing services;

- Adding new services to our existing customer base;

- Consolidating industry peers and competitors;

- Positioning ourselves as a leading provider of oil sands infrastructure services; and

- Geographic expansion.

We are achieving these growth objectives through a combination of organic growth through capital expansion and business acquisitions.



Organic Growth through Capital Expansion

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Strategy: Growing our existing services
Positioning ourselves as a leading provider of oil sands
infrastructure services
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We invested $59.0 million in property, plant and equipment during the first nine months of 2007. This investment included $47.8 million in growth capital expenditures to expand our service offerings in a number of locations including the Alberta oil sands region.

During the quarter we also announced that we have been awarded significant long-term service contracts in the Alberta oil sands region with a number of blue-chip customers. The contracts range in length from two to five years and will utilize a number of Eveready's services including vacuum truck, high pressure water blasting, chemical cleaning, hydro-excavation, tank truck, and steam cleaning services. These contracts could generate approximately $400 million in revenue over the next three years (see "Note Regarding Forward-Looking Statements").

To help meet the expected demand for these services in 2008 and beyond we have also revised upward our capital expenditure program for 2007 from $74 million to $84 million.



Business Acquisitions

Denman

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Strategy: Positioning ourselves as a leading provider of oil sands
infrastructure services
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On May 1, 2007, we completed our largest business acquisition to date by acquiring Denman Industrial Trailers Ltd. ("Denman") for cash consideration of $59.5 million. Founded in 1995, Denman has grown to become a premier supplier of workforce accommodation to the oil and gas industry. Denman pioneered the concept of high quality, hotel-like housing for energy-sector employees with the introduction of the Oilsands Industrial Lodge in 1997, which has since become a benchmark for employee housing requirements.

Operating six industrial lodges and 18 portable camps, Denman now generates over 95% of its revenue from the Alberta oil sands region. Denman's expansion in the Alberta oil sands is expected to continue as Denman keeps pace with the growing needs of its customers.

We estimate this acquisition will initially generate EBITDA (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") of approximately $18.0 to $20.0 million on an annual basis. However, given Denman's planned capital expansion and the anticipated growing demand for quality lodging facilities in the Alberta oil sands, Denman's EBITDA could improve significantly in the near future. To date in 2007, Denman has exceeded our expectations.



Truck Division - Wellco Energy Services Trust

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Strategy: Positioning ourselves as a leading provider of oil sands
infrastructure services
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On October 5, 2007, we acquired the Truck division of Wellco Energy Services Trust ("Wellco") for cash consideration of $5.0 million. The assets acquired include a fleet of 25 units consisting of vacuum trucks, hydro-excavation trucks, and water trucks, along with additional support equipment.

Combined with our current capital expansion programs, we believe the acquisitions of Denman and Wellco's Truck division are positioning Eveready as a leading provider of oil sands infrastructure services.



Results of Operations

Revenue

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Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2007 2006 2007 2006
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Revenue by segment:
Industrial and oilfield $ 99,839 $ 80,461 $ 323,142 $ 238,386
Health, safety and
environmental 12,592 10,086 31,278 23,486
Oilfield equipment
rental and lodging 14,336 2,923 27,325 8,380
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Total 126,767 93,470 381,745 270,252
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Industrial and Oilfield Services

Revenue from industrial and oilfield services increased by $19.4 million or 24% to $99.8 million for the three months ended September 30, 2007 from the same three month period in 2006. The majority of this change resulted from:

- Alberta oil sands operations. Significant organic revenue growth in the Alberta oil sands region generated revenue of $26.8 million during the three months ended September 30, 2007. This represents an increase of $8.6 million or 47% from revenue of $18.2 million in 2006;

- Operations in east-central Alberta and western Saskatchewan. Production services in this region generated revenue of $25.0 million during the three months ended September 30, 2007. This reflects an increase of $5.8 million or 30% from revenue of $19.2 million in 2006. The acquisition of the Diversified Pressure Services group of companies effective September 1, 2006 and investments in new equipment contributed to this increase;

- Directional boring and punching services. We generated revenue of $6.7 million from directional boring and punching services during the quarter. This compares to revenue of $3.7 million in 2006, a $3.0 million or 81% increase. This increase resulted from our acquisitions of the Bullseye Directional Drilling group of companies effective September 1, 2006 and the Rodrigue's Directional Drilling group of companies effective December 1, 2006; and

- Decoking and pigging services. We generated revenue of $4.5 million during the quarter compared to revenue of $2.5 million in 2006. Organic growth in our decoking and pigging operations in both Canada and the United States contributed to this increase.

Revenue also increased by $84.8 million or 36% to $323.1 million for the nine months ended September 30, 2007. This increase is due to organic growth and business acquisitions completed over the past year.

Health, Safety and Environmental Services

For the three months ended September 30, 2007, revenue increased by $2.5 million to $12.6 million from revenue of $10.1 million in 2006. The majority of this change resulted from organic growth in our waste hauling services. We generated revenue of $3.6 million from these services during the three month period ended September 30, 2007 compared to revenue of $1.1 million in 2006, a $2.5 million increase.

On a nine month basis, we generated revenue of $31.3 million, representing a $7.8 million increase from revenue of $23.5 million in 2006. This increase was mainly due to business acquisitions completed within this segment in 2006.


Oilfield Equipment Rental and Lodging Services

During the three and nine month periods ended September 30, 2007, we generated revenue of $14.3 million and $27.3 million, respectively, from this segment. This reflects an increase of $11.4 million and $18.9 million, respectively, from 2006. The acquisition of Denman on May 1, 2007 contributed additional revenue of $11.2 million and $19.3 million for the respective three and nine month periods ended September 30, 2007.

This increase was slightly offset by a decline in revenue generated from access rentals and well-site units. The demand for access rentals and well-site units continues to be negatively affected by lower industry drilling and exploration activity.

Looking Ahead

The execution of our growth strategies contributed to our large overall revenue increase in 2007. Throughout the remainder of 2007 and going into 2008, we expect our revenue growth to continue. This increase will come from organic growth in the Alberta oil sands region, growth in other locations, and a full year of operating results from our business acquisitions completed in the fourth quarter of 2006 and in 2007, including the acquisition of Denman on May 1, 2007.

We continue to estimate our revenue will approximate $500 million (see "Note Regarding Forward-Looking Statements") for the year ending December 31, 2007.



Gross Profit

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Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2007 2006 2007 2006
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Amount $ 40,274 $ 30,486 $ 123,815 $ 92,754
Gross margin % 31.8% 32.6% 32.4% 34.3%
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Significant revenue increases in both the three and nine month periods ended September 30, 2007 contributed to a corresponding increase in gross profit. However, our gross margin declined slightly in both the three and nine month periods ended September 30, 2007 from 2006. The majority of this decrease resulted from changes in our sales mix from 2006. Factors affecting our sales mix included:

- Growth in revenue from lower margin services. In 2007, we experienced revenue increases in our industrial and oilfield services, especially those provided in the Alberta oil sands region. To meet the demand for our services, we are required to utilize third party contractors and lease operators to supplement the services provided by our own equipment and personnel. Services provided by third party contractors and lease operators earn a lower gross margin than services provided through our own equipment and personnel. In addition, as we prepare for further growth in the Alberta oil sands region in 2008, we are also incurring additional payroll and training costs, which is further hampering our gross margin in the short-term;

- Decline in revenue from high margin services. The services we provide dependant on industry exploration and drilling activity levels are normally our highest gross margin services. These services include heli-portable drilling, solid waste disposal, and oilfield equipment rental services, among others. Lower revenue generated from these services in the first nine months of 2007 contributed to an overall lower gross margin. In addition, weaker demand has added pricing pressure to these services, which has further contributed to a lower gross margin.

Offsetting a portion of the gross margin decline in the three month period ended September 30, 2007 was the acquisition of Denman in May 2007. Our industrial lodging services typically earn a higher gross margin than our traditional industrial and oilfield services.



General and Administrative Expenses

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2007 2006 2007 2006
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Amount $ 18,558 $ 13,660 $ 59,197 $ 39,476
% of revenue 14.6% 14.6% 15.6% 14.6%
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General and administrative expenses increased by $4.9 million to $18.6 million in the quarter ended September 30, 2007 and by $19.7 million to $59.2 million in the nine months ended September 30, 2007 from the comparative periods in 2006. This increase resulted primarily from additional salary and wage costs, occupancy costs, and other administrative expenses related to business acquisitions we completed in 2006 and the first nine months of 2007. In addition, we also incurred additional general and administrative expenses to support our organic growth in several locations.

The majority of the increase in the nine month period ended September 30, 2007 consisted of the following components:

- Administrative wages and benefits - $8.1 million increase;

- Occupancy costs - $2.8 million increase;

- Vehicle lease and rental costs - $2.0 million increase;

- Office and telecommunications - $1.7 million increase;

- Insurance, licenses and registration costs - $1.6 million increase;

- Sales and marketing costs - $1.6 million increase;

- Professional fees - $1.3 million increase; and

- Bad debt provisions - $1.3 million increase.

Offsetting the increase in general and administrative expenses was a decline in accrued bonus expense of $1.1 million due to lower overall earnings in 2007.

In 2007, we adopted a more conservative approach in establishing our allowance for doubtful accounts. This approach is based on our aging characteristics, past payment history, and overall industry conditions. During the three and nine month periods ended September 30, 2007, we incurred bad debt provisions of $0.6 million and $1.9 million, respectively. This compares to a $0.3 million recovery and $0.6 million expense, respectively, for the same three and nine month periods in 2006. Based on our strong collections history, we expect that the majority of our 2007 bad debt provision will be a non-recurring expense.

As a percent of revenue, general and administrative expenses remained consistent at 14.6% of revenue during both the three months ended September 30, 2007 and 2006. Although, we have incurred additional general and administrative expenses over the past year to support our business acquisitions, we are also working on a number of measures to reduce our general and administrative expenses as our acquisitions become integrated into our existing structure. Compared to the previous quarter ended June 30, 2007, our general administrative expenses have declined by $0.3 million from $18.9 million to $18.6 million.



Other Expenses

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Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2007 2006 2007 2006
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Unit-based compensation $ 760 $ 1,091 $ 2,410 $ 1,557
Loss (gain) on foreign
exchange 279 (157) 1,258 (114)
Loss (gain) on disposal
of property, plant and
equipment 146 (79) 58 234
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During the nine months ended September 30, 2007, unit-based compensation increased by $0.8 million to $2.4 million. Additional participants invited into the Employee Unit Plan in January 2007 caused this increase. However, unit-based compensation expense declined by $0.3 million during the three month period ended September 30, 2007 compared to the same three month period in 2006. The Employee Unit Plan was first established in May 2006. Due to this timing, we recognized compensation expense for units vesting in 2006 over an eight-month period versus a 12-month period in 2007.

The majority of our loss on foreign exchange in the three month period ended September 30, 2007 resulted from our operations situated in the United States where the value of the US dollar has declined considerably versus the CDN dollar. Although the majority of our operations are conducted in Canada, we continue to expand our operations outside Canada, which is increasing our exposure to foreign currency risk. We currently do not use derivative instruments to reduce our exposure to foreign currency risk.

Gains and losses on the disposal of property, plant and equipment were not significant in any of the periods presented.

During the year, we modified the presentation of our consolidated statements of earnings to separate unit-based compensation and loss (gain) on foreign exchange from general and administrative expenses.



EBITDA

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Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2007 2006 2007 2006
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By segment:
Industrial and oilfield $ 11,854 $ 12,018 $ 45,407 $ 41,392
Health, safety and
environmental 1,962 2,092 2,699 5,334
Oilfield equipment
rental and lodging 6,562 1,577 11,983 4,339
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Total 20,378 15,687 60,089 51,065
% of revenue 16.1% 16.8% 15.7% 18.9%
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For the three months ended September 30, 2007, our EBITDA (see "Non-GAAP Financial Measures") grew to $20.4 million from $15.7 million in 2006. This increase is directly attributable to higher revenue during the quarter. However, our EBITDA margin declined to 16.1% from 16.8% in 2006. Likewise, our EBITDA margin also declined to 15.7% during the nine month period ended September 30, 2007 from 18.9% in 2006. These declines are mainly attributable to the decrease in our overall gross margin and the increase in general and administrative expenses in 2007 (see discussions under "Gross Profit" and "General and Administrative Expenses" above).



Amortization

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Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2007 2006 2007 2006
----------------------------------------------------------------------------
Amount $ 11,280 $ 7,275 $ 30,148 $ 18,339
% of revenue 8.9% 7.8% 7.9% 6.8%
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Amortization increased by $11.8 million or 64% to $30.1 million in the first nine months of 2007. As a percent of revenue, amortization also increased from 6.8% to 7.9%. The following two factors contributed to this increase:

- Significant growth in our property, plant and equipment. Property, plant and equipment increased to $292.9 million at September 30, 2007 from $190.2 million at September 30, 2006, a 54% increase; and

- Intangible assets. The majority of our intangible assets were acquired with business acquisitions and are amortized over their estimated useful lives. They include items such as customer relationships, patents, licenses, and supplier agreements. Amortization expense related to intangible assets was $5.8 million for the nine months ended September 30, 2007 compared to $2.3 million in 2006.

If we exclude amortization of intangible assets, amortization as a percentage of revenue for the nine months ended September 30, 2007 increased only slightly to 6.4% from 5.9% for the same nine month period in 2006.



Interest Expense

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2007 2006 2007 2006
----------------------------------------------------------------------------
Amount $ 4,933 $ 2,516 $ 13,035 $ 4,355
% of revenue 3.9% 2.7% 3.4% 1.6%
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Interest costs increased significantly compared to 2006, both in absolute terms and as a percentage of revenue. This increase resulted from the following factors:

- Convertible debentures. In June 2006, we completed a $50 million financing of convertible unsecured subordinated debentures (the "Debentures"). The Debentures have an annual coupon rate of 7.0% and are due to mature on June 30, 2011. During the nine month period ended September 30, 2007, we incurred interest expense on these Debentures of $3.9 million (2006 - $1.4 million), including $1.2 million (2006 - $0.4 million) in non-cash accretion expense;

- Increased use of debt credit facilities. Business acquisitions and capital expenditures completed in 2006 and 2007 required us to utilize more of our debt credit facilities. At September 30, 2007, our long-term debt and obligations under capital lease were $193.0 million compared to $60.0 million at September 30, 2006.



Earnings Before Income Taxes and Non-controlling Interest

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2007 2006 2007 2006
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By segment:
Industrial and oilfield $ 49 $ 4,389 $ 12,239 25,339
Health, safety and
environmental 678 1,114 (686) 1,353
Oilfield equipment
rental and lodging 3,591 677 6,156 2,215
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Total 4,318 6,180 17,709 28,907
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Industrial and Oilfield Services

Earnings before income taxes and non-controlling interest from our industrial and oilfield services segment declined significantly in both the three and nine month periods ended September 30, 2007 compared to 2006. This decline resulted from lower gross margin services and higher general and administrative expenses. Due to industrial and oilfield services being our largest business segment, the majority of our amortization and interest expense was also allocated to this segment during the quarter.

Health, Safety and Environmental Services

Our health, safety and environmental services segment operated in a loss position for the first nine months of the year. The loss was caused by a reduction in revenue generated from solid waste disposal services and operating losses incurred within our mechanical dredging and dewatering services and safety training services divisions. Services provided within our mechanical dredging and dewatering division tend to be project specific, and therefore, revenue and earnings can fluctuate significantly depending on the number of projects being completed during a specific period. We continue to work on managing the growth and development of our safety services division with the goal of achieving profitability in the near future.

In the third quarter, we generated earnings before income taxes and non-controlling interest of $0.7 million, which offset a large portion of our previous losses to date. These earnings were generated primarily from our waste hauling services and from improved utilization of our solid waste disposal services.

Oilfield Equipment Rental and Lodging Services

Earnings before income taxes and non-controlling interest increased significantly to $3.6 million and $6.2 million, respectively, for the three and nine month periods ended September 30, 2007 from $0.7 million and $2.2 million, respectively, in 2006. The Denman acquisition on May 1, 2007 resulted in this positive change. The overall increase in 2007 was slightly offset by lower utilization of our access rental and well-site unit equipment.

Income Taxes

As an income trust, we are currently not subject to income taxes to the extent our taxable income in a year is paid or payable to our unitholders. The majority of our current income tax expense in 2007 and 2006 relates to income earned within our incorporated subsidiaries situated in the United States.

Enacted tax changes for Canadian income trusts

On June 12, 2007, the Government of Canada enacted legislation, originally announced on October 31, 2006, to impose additional income taxes on publicly traded income trusts and limited partnerships, including Eveready, effective January 1, 2011. Prior to June 2007, we estimated the future income tax on certain temporary differences between amounts recorded on our balance sheet for book and tax purposes at a nil effective tax rate. Under this new legislation, we now estimate the effective tax rate on the post 2010 reversal of these temporary differences to be 31.5%. Temporary differences reversing before 2011 will still give rise to nil future income taxes.

Based on our assets and liabilities at September 30, 2007, we estimated the amount of our temporary differences, which were previously not subject to tax, and the periods in which these differences will reverse. We plan to maximize the amount of tax pools that can be carried forward to reduce and defer, as much as possible, our income tax exposure beginning in 2011. To achieve this objective, we plan to maximize the taxable component of all distributions declared in 2007 through 2010. We believe the application of this policy will reverse all of the current taxable temporary differences associated with our property, plant and equipment prior to January 1, 2011. We expect this policy will also build up deductible temporary differences that will result in the recognition of a future income tax asset in the future.

However, net taxable temporary differences of $18.0 million related to intangible assets, goodwill, and financing costs are expected to reverse after January 1, 2011. As a result of these reversing temporary differences, we recognized an additional future income tax liability of $5.7 million at September 30, 2007.

As the legislation gave rise to a change in our estimated future income tax liability in the second quarter, the recognition of the additional liability is accounted for prospectively from June 30, 2007. As a result, we recognized additional future income tax expense of $5.7 million during the nine month period ended September 30, 2007.

While we believe we will be subject to additional tax under the new legislation, the estimated effective tax rate on temporary difference reversals after 2011 may change in future periods. As the legislation is new, future technical interpretations of the legislation could occur and could materially affect our estimate of the future income tax liability. The amount and timing of reversals of temporary differences will also depend on our future operating results, acquisitions and dispositions of assets and liabilities, and distribution policy. A significant change in any of the preceding assumptions could materially affect our estimate of the future income tax liability. We have estimated our future income taxes based on our best estimate of our results of operations, tax pool claims, and cash distributions in the future.

Until 2011, the new legislation will not directly affect our cash flow from operations or our financial condition. By maximizing our tax pools prior to 2011, we also plan to further defer the time period when the new legislation will affect our cash taxes payable.

Income tax provisions, including current and future income tax assets and liabilities, require estimates and interpretations of federal and provincial income tax rules and regulations, and judgements as to their interpretation and application to our specific situation. Therefore, it is possible that the ultimate value of Eveready's tax assets and liabilities could change in the future and that changes to these amounts could have a material effect on our consolidated financial statements.

Non-controlling Interest

Earnings attributable to non-controlling interest were $0.2 million and $0.8 million, respectively, for the three and nine months ended September 30, 2007. The non-controlling interest represents earnings attributable to the 20% non-controlling interests that vendors retained from three business acquisitions in 2006.



Net Earnings and Earnings per Unit

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
$ thousands, except September 30 September 30 September 30 September 30
per unit amounts 2007 2006 2007 2006
----------------------------------------------------------------------------

Net earnings $ 4,551 $ 5,599 $ 10,878 $ 27,160
----------------------------------------------------------------------------

Basic weighted
average number of
units 81,309 65,641 75,595 60,540
Dilutive effect of
outstanding unit
options and
Matching Units - 200 3 382
----------------------------------------------------------------------------
Diluted weighted
average number of
units 81,309 65,841 75,598 60,922
----------------------------------------------------------------------------

Earnings per unit -
basic and diluted $ 0.06 $ 0.09 $ 0.14 $ 0.45
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Earnings per unit in the third quarter declined 33% to $0.06 per unit from earnings of $0.09 per unit in 2006. In addition to a decline in earnings, earnings per unit were also negatively affected by an increase in the weighted average number of units outstanding. In the third quarter, the basic weighted average number of units outstanding increased to 81.3 million units from 65.6 million units in 2006. Units issued in connection with various business acquisitions in 2006 and the completion of an equity financing for 8.1 million units in June 2007 caused the majority of this increase.

Earnings per unit for the nine months ended September 30, 2007 were also negatively impacted by the Government of Canada enacting legislation to impose additional income taxes on publicly traded income trusts and limited partnerships, including Eveready, effective January 1, 2011 (see discussion under "Income Taxes" above). This legislation resulted in an additional future income tax expense of $5.7 million during the nine month period.



Summary of Quarterly Data

----------------------------------------------------------------------------
$ thousands
except per Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
unit amounts 2007 2007 2007 2006 2006 2006 2006 2005
----------------------------------------------------------------------------
Revenue 126,767 111,005 143,972 109,441 93,470 82,910 93,872 64,693
EBITDA(1) 20,378 14,771 24,942 13,624 15,687 13,395 21,984 7,575
Net earnings
(loss) 4,551 (5,405) 11,733 2,741 5,599 6,748 14,813 2,421
----------------------------------------------------------------------------

Earnings (loss)
per unit
- basic 0.06 (0.07) 0.17 0.04 0.09 0.11 0.28 0.05
----------------------------------------------------------------------------
Earnings (loss)
per unit
- diluted 0.06 (0.07) 0.16 0.04 0.09 0.11 0.27 0.05
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Notes: (1) EBITDA is identified and defined under the section "Non-GAAP
Financial Measures".
(2) Quarterly earnings (loss) per unit are not additive and may not
equal the annual earnings per unit reported. This is due to the
effect of units issued during the year on the weighted average
number of units outstanding.


Revenue during the three months ended September 30, 2007 increased by $15.8 million to $126.8 million from revenue of $111.0 million in the quarter ended June 30, 2007. EBITDA (see "Non-GAAP Financial Measures") increased by $5.6 million to $20.4 million in the third quarter from EBITDA of $14.8 million in the quarter ended June 30, 2007. The increases in revenue and EBITDA from the second quarter are largely attributable to the seasonality of our business (see "Seasonality of Operations" below). In addition, we reported a net loss in the second quarter of 2007 due to future income tax expense of $5.8 million recognized during the period (see discussion under "Income Taxes" above) that was not repeated in the third quarter.

Seasonality of Operations

A large portion of our operations are carried out in western Canada where the ability to move heavy equipment is dependant on weather conditions. An example of such a condition includes thawing in the spring, which renders many secondary roads incapable of supporting heavy equipment until the ground is dry. As a result, many areas of our business traditionally follow a seasonal pattern, with revenue and earnings being higher in the quarter ending March 31st and lower in the quarter ending June 30th compared to the other quarters of the year.



Financial Condition and Liquidity

----------------------------------------------------------------------------
September 30 December 31
$ thousands, except ratio amounts 2007 2006
----------------------------------------------------------------------------

Current assets $ 135,732 $ 116,510
Total assets 594,794 466,181
----------------------------------------------------------------------------

Current liabilities 61,309 78,745
Total liabilities 303,240 204,529
----------------------------------------------------------------------------

Unitholders' equity 291,554 261,652
----------------------------------------------------------------------------

Working capital(1) 74,423 37,765
Working capital ratio(1) 2.21 1.48
Funded debt to total capital ratio(1) 0.45 0.36
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Note: (1) These financial measures are identified and defined under the
section "Non-GAAP Financial Measures".


Working Capital

Our working capital (see "Non-GAAP Financial Measures") improved from a working capital position of $37.8 million at December 31, 2006 to a working capital position of $74.4 million at September 30, 2007. The majority of this improvement resulted from refinancing our demand revolving credit facility, which is now presented on a long-term basis (see "Debt and Contractual Obligations" below). We expect our working capital to remain strong throughout the rest of 2007.

Cash Flow from Operations and Funds from Operations

Cash flow from operations for the three months ended September 30, 2007 increased to $12.9 million from $9.5 million in 2006. Likewise, cash flow from operations for the nine months ended September 30, 2007 increased by $5.9 million to $39.8 million. If we exclude changes in non-cash operating working capital balances and asset retirement costs, we actually generated higher operating cash flows in both the three and nine month periods ended September 30, 2007 compared to the same periods in 2006. Funds from Operations (see "Non-GAAP Financial Measures") were $17.5 million and $51.7 million (2006 - $14.9 million and $48.8 million), respectively, for the three and nine month periods ended September 30, 2007.

Both our cash flow from operations and Funds from Operations have increased in 2007 from 2006 due to higher revenue and growth in our operations. However, offsetting the increase in cash flow from operations were higher working capital balances associated with our on-going growth.

Capital Expenditures

We acquired $106.8 million in property, plant and equipment during the nine months ended September 30, 2007. Of these assets, $47.8 million were acquired from business acquisitions and the remaining $59.0 million from capital expenditures. We believe capital expenditures are necessary to support the growing demand for our services and to achieve our growth strategies. These expenditures also reflect our capital maintenance program. We designed our capital maintenance program to keep our equipment efficient and profitable by replacing our equipment when it is cost prohibitive to operate due to high maintenance and operating costs.

Capital expenditures for the nine months ended September 30, 2007 included $11.2 million in maintenance capital expenditures and $47.8 million in growth capital expenditures. Property, plant and equipment acquired through business acquisitions consisted principally of industrial lodges and portable camps acquired with the Denman acquisition in May 2007.

Debt and Contractual Obligations

Long-term debt

In April 2007, we established credit facilities of $250 million with a syndicate of lenders led by a Canadian affiliate of GE Energy Financial Services. The financing amended and increased our existing long-term debt credit facility and replaced our demand revolving credit facility. We are also using the credit facilities to fund capital expenditures and business acquisitions.

The credit facilities consist of a $100 million revolving, renewable credit facility and a $150 million term loan. Amounts borrowed under the credit facilities bear interest, at our option, at bank prime or bankers' acceptance rates, plus a credit spread based on a sliding scale.

The revolving credit facility ("Revolver") requires payments of interest only and is renewable annually, subject to both parties' consent. An additional stand-by fee calculated at a rate of 0.25% per annum is also required on the unused portion of the Revolver. If the Revolver is not renewed, the outstanding credit facility is subject to a 12-month interest-only phase, followed by a 24-month straight-line amortization period. As a result, the Revolver is classified as long-term debt in the accompanying consolidated financial statements. The term loan ("Term") requires fixed monthly payments of $125 thousand and a balloon payment at maturity of $142.5 million due May 2012. Both of the credit facilities are collateralized by substantially all of our assets. As at September 30, 2007, the effective interest rate on the Revolver and Term facilities was 7.50%.

The credit facilities contain financial covenants, including, but not limited to, a working capital ratio, a fixed charge coverage ratio, funded debt to EBITDA ratios, a minimum net worth, and a maximum distribution payout ratio, each calculated on a quarterly basis. We were in compliance with all financial covenants under this agreement at September 30, 2007.

Obligations under capital lease

Our obligations under capital lease substantially relate to industrial lodging facilities purchased with the Denman acquisition in May 2007. The obligations bear interest at prime plus 0.25% per annum and are repayable in monthly blended principal and interest payments of $318 thousand. At September 30, 2007, the effective rate of interest was 6.50%. The obligations mature at dates ranging from August 2012 to April 2014 and are collateralized by equipment with a $19.2 million net book value at September 30, 2007.

Convertible debentures

Convertible debentures consist of $50 million principal amount of convertible unsecured subordinated debentures (the "Debentures"). The Debentures have an annual coupon rate of 7.00%, payable semi-annually, and are due to mature on June 30, 2011. The Debentures are also convertible, at the holder's option, into units of Eveready at a price of $8.50 per unit. The Debentures trade on the Toronto Stock Exchange under the symbol "EIS.DB".

After June 30, 2009 and before June 30, 2010, the Debentures may be redeemed in whole or in part, at our option, at a price equal to their principal amount plus accrued interest thereon, provided the market price of the units on the date on which notice is given is not less than 125% of the conversion price of $8.50 per unit. After June 30, 2010, we have the option to redeem the Debentures in whole or in part at a price equal to their principal amount plus accrued interest.

We may also, subject to certain conditions, elect to satisfy our obligation to repay all or any portion of the principal amounts of the Debentures to be redeemed or repaid at maturity, by issuing units. The number of units a holder will receive in respect of each Debenture will be determined by dividing the principal amount of the Debentures that are to be redeemed or repaid at maturity by 95% of the market price of the units. The market price of the units will be calculated as the volume-weighted average trading price of the units on the Toronto Stock Exchange for the 20 consecutive trading days ending five days prior to the applicable event.



Contractual obligations

Our contractual obligations for the next five years (12-month periods ending
on September 30th) are as follows:

----------------------------------------------------------------------------
$ in thousands 2008 2009 2010 2011 2012 Total
----------------------------------------------------------------------------

Long-term debt 1,500 7,251 15,304 9,552 143,375 176,982
Obligations under capital
lease (including interest) 3,839 3,839 3,830 3,820 3,789 19,117
Convertible debentures - - - 50,000 - 50,000
Operating leases 11,521 7,891 5,007 2,580 1,102 28,101
----------------------------------------------------------------------------

Total 16,860 18,981 24,141 65,952 148,266 274,200
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The table above presents the minimum principal repayments required on the Revolver outstanding as at September 30, 2007 if it were not renewed (the next renewal date is April 25, 2008) and we were not able to refinance the credit facility with another lender.

Funded debt to total capital

Our total capital includes all funded debt (bank indebtedness, long-term debt, obligations under capital lease, convertible debentures, and the current portions of long-term debt and obligations under capital lease) and unitholders' equity. We use our capital to finance our current operations and growth strategies. Our capital consists of both debt and equity. We believe the best way to maximize unitholder value is to use a combination of equity and debt financing to leverage our operations. However, it is important that we balance this ratio.

As at September 30, 2007, our funded debt to total capital ratio was 0.45 (see "Non-GAAP Financial Measures") compared to a ratio of 0.36 at December 31, 2006. This ratio is a useful supplemental measure to analyze the proportion of our capital funded from debt versus equity. This ratio increased in 2007 due to increases in our long-term debt to fund capital expenditures and business acquisitions. Due to market conditions over the past year, we have elected to utilize more debt financing to support our growth strategies rather than raising equity on the public markets.

Unitholders' Equity

Unitholders' equity increased by $29.9 million to $291.6 million at September 30, 2007 compared to December 31, 2006. The majority of this change resulted from an increase in unitholders' capital whereby units were issued pursuant to an equity financing in June 2007 for net proceeds, after issuance costs, of $41.0 million. In addition, units issued pursuant to our Distribution Reinvestment Plan ("DRIP"), Employee Unit Plan, and the acquisition of Compass Horizontal Drilling Inc. in March 2007 also contributed to the increase. The notes to the accompanying consolidated financial statements provide a schedule showing the changes in unitholders' capital during the period.

Offsetting the increase in unitholders' equity was a reduction of $3.0 million due to an increase in the number of units held under the Eveready Employee Unit Plan. These units are recorded at cost and shown as a reduction of unitholders' equity until they vest and are transferred to the participant. In addition, year-to-date distributions in excess of net earnings of $31.0 million created a deficit of $28.9 million at September 30, 2007.



Distributions

The following table summarizes our distributions during the nine month
period ended September 30, 2007:

----------------------------------------------------------------------------
$ thousands,
except per unit
amounts Distribution per Distributions Net
unit Distributions reinvested distributions
Record Date $ $ $ $
----------------------------------------------------------------------------

January 31, 2007 0.06 4,320 1,492 2,828
February 28, 2007 0.06 4,353 1,568 2,785
March 30, 2007 0.06 4,406 1,565 2,841
April 30, 2007 0.06 4,428 1,560 2,868
May 31, 2007 0.06 4,448 1,702 2,746
June 29, 2007 0.06 4,958 1,761 3,197
July 31, 2007 0.06 4,981 1,547 3,434
August 31, 2007 0.06 5,002 1,475 3,527
September 28, 2007 0.06 5,024 1,497 3,527
----------------------------------------------------------------------------

Total 0.54 41,920 14,167 27,753
----------------------------------------------------------------------------
----------------------------------------------------------------------------


We pay cash distributions on a monthly basis to unitholders of record on the last business day of each month. Distributions are payable on or about the 15th day of the month following the record date.

Distribution Reinvestment Plan

During the nine months ended September 30, 2007, we declared total distributions of $0.54 per unit or $41.9 million (2006 - $26.0 million). Of this amount, there was a $14.2 million (2006 - $9.6 million) reinvestment through our DRIP resulting in the issuance of 2.9 million (2006 - 1.4 million) units.

The DRIP is a voluntary program that permits eligible unitholders to automatically, and without charge, reinvest monthly distributions in additional units. Unitholders who elect to participate will see their periodic cash distributions automatically reinvested in units at a price equal to 95% of the volume-weighted average price of all units traded on the Toronto Stock Exchange on the ten trading days preceding the applicable record date. Eligible unitholders may participate in the DRIP by directing their broker, dealer, or investment advisor holding their units to notify the plan administrator, Computershare Trust Company of Canada Ltd., through CDS Clearing and Depository Services Inc.

Principal Unitholder Agreement

Certain unitholders of Eveready (the "Principal Unitholders") have signed a Principal Unitholder Agreement. This agreement requires each Principal Unitholder to reinvest immediately through the DRIP 100% of any cash distributions made by Eveready on that Principal Unitholder's units prior to March 31, 2010. In addition, each Principal Unitholder is restricted from selling more than 10% of their aggregate units in any one 12-month period before March 31, 2010. We believe these agreements will ensure that we have sufficient growth capital to continue to expand our operations. At September 30, 2007 approximately 28% of our outstanding units were subject to the Principal Unitholder Agreement.

Taxation of Distributions

Our distributions can consist of taxable and tax-deferred components. The taxable amount of our distributions in 2007 will be based on the actual taxable income of the Fund for the year ended December 31, 2007. Tax-deferred distributions are considered to be a return of capital for income tax purposes and will reduce the adjusted cost base of the units held.

As explained earlier, on June 12, 2007, the Government of Canada enacted legislation to impose additional income taxes on publicly traded income trusts and limited partnerships, including Eveready, effective January 1, 2011. In anticipation of these tax changes, we plan to maximize the amount of tax pools that we can carry forward to reduce and defer, as much as possible, our income tax exposure beginning in 2011. To achieve this objective we plan to maximize the taxable components of all distributions we declare in 2007 through to 2010. Therefore, we anticipate that 100% of our distributions in 2007 will be considered taxable amounts. However, we will continue to monitor future changes in tax legislation and adjust our strategy as needed.

Cautionary Note Regarding our Distributions

Although we intend to continue making distributions to our unitholders, cash distributions are not assured, and may be reduced or suspended at any time. Our ability to make cash distributions and the actual amount distributed will depend upon, among other things, our financial performance, our debt covenants and obligations, our ability to refinance our debt obligations on similar terms and at similar interest rates, our working capital requirements, our future tax obligations, and our future capital requirements. In addition, the market value of the units may decline if we are unable to meet our cash distribution targets in the future, and that decline may be significant.

As per the terms of our credit facilities, we are restricted from declaring distributions and distributing cash if we are in breach of our financial covenants. These include, but are not limited to, a working capital ratio, a fixed charge coverage ratio, funded debt to EBITDA ratios, a minimum net worth, and a maximum distribution payout ratio, each calculated on a quarterly basis. Our maximum distribution payout ratio limits our cash distributions (net of distributions participating in our DRIP) to an amount equal to 80% of our annualized Excess Cash Flow. Excess Cash Flow, as defined in our credit facilities agreement, is substantially the same as Funds from Operations, as defined in this MD&A (see "Non-GAAP Financial Measures"). We were in compliance with all financial covenants under our credit facilities at September 30, 2007.



Distributable Cash

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
$ thousands, except September 30 September 30 September 30 September 30
per unit amounts 2007 2006 2007 2006
----------------------------------------------------------------------------
Cash flow from
operations $ 12,929 $ 9,450 $ 39,818 $ 33,894
Add (deduct):
Net change in non-cash
operating working capital 4,539 4,872 11,846 13,981
Scheduled principal
repayments of debt(1) (1,005) - (1,700) -
Maintenance capital
expenditures(1) (2,878) (2,214) (11,221) (7,272)
----------------------------------------------------------------------------

Cash available for
distribution and growth
(c)(1) 13,585 12,108 38,743 40,603
Per unit(1) 0.17 0.18 0.51 0.67
----------------------------------------------------------------------------

Distributions declared (a) 15,007 10,006 41,920 25,969
Payout ratio - including
DRIP (a)/(c)(1) 110% 83% 108% 64%

Net distributions
declared (b) 10,488 6,475 27,753 16,408
Payout ratio -
excluding DRIP
(b)/(c)(1) 77% 53% 72% 40%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Note: (1) These terms are identified and defined under the section "Non-GAAP
Financial Measures".


Our distribution policy is to maintain an annual payout ratio - including DRIP of approximately 75% to 85% of our cash available for distribution and growth. Cash available for distribution and growth in excess of the distributions we declare reflects our reserves for such things as seasonal fluctuations in operating results, future working capital requirements and future capital expenditures. In addition, cash retained through participation in our DRIP is also used to fund future capital expenditures.

Our payout ratio - including DRIP of 110% for the three months ended September 30, 2007 is significantly above our targeted annual payout ratio described above. For the year ending December 31, 2007, our payout ratio - including DRIP is now expected to slightly exceed 100% of our cash available for distribution and growth. Although this payout ratio will exceed our target annual payout ratio, we expect cash retained through participation in our DRIP to allow us to maintain our current level of distributions. Our payout ratio - excluding DRIP for the nine months ended September 30, 2007 was 72%. We expect organic growth from our capital expenditure program in 2007 and our acquisition of Denman in May 2007 to decrease our payout ratio in 2008.

Cash available for distribution and growth reported for the nine months ended September 30, 2007 and 2006 is net of maintenance capital expenditures of $11.2 million and $7.3 million, respectively. Maintenance capital expenditures are capital expenditures incurred during the period to maintain existing levels of service. This includes capital expenditures to replace property, plant and equipment and any costs incurred to enhance the operational life of existing property, plant and equipment. Maintenance capital expenditures can fluctuate from period to period depending on our needs to upgrade or replace existing property, plant and equipment.

If maintenance capital levels increase in future periods, our cash available for distribution and growth would be negatively affected. Due to our significant rate of growth in recent years, the majority of our equipment is relatively new and the remaining economic useful life is long. As a result, we currently experience relatively low levels of maintenance capital expenditures. Over time, we expect to incur annual maintenance capital expenditures in an amount approximating our amortization of property, plant and equipment reported in each period, adjusted for inflationary factors. However, we do not expect this level of maintenance capital expenditures for a number of years until the average age of our existing property, plant and equipment approaches the end of their economic useful lives.

For 2007, we estimate our total maintenance capital expenditures will approximate $13 million to $15 million (see "Note Regarding Forward-Looking Statements"). We based this estimate on our replacement expectations for property, plant and equipment. The actual timing of future capital replacements will always be subject to a number of variables that cannot be predicted. Although we believe these estimates are appropriate, our actual maintenance capital expenditures may be materially different from our current estimates.

We expect that continued increases in our operating cash flows and cash available for distribution and growth will be sufficient to fund our future maintenance capital expenditures.

Additional Distribution Information

Although our distribution policy is based on the non-GAAP measure "Distributable Cash", we have provided the following required comparisons of our distributions declared to cash flow from operations and net earnings, as determined in accordance with GAAP, to further assist investors in assessing the sustainability of our cash distributions:



----------------------------------------------------------------------------
Three Months Nine Months Year Year
Ended Ended Ended Ended
September 30 September 30 December 31 December 31
$ thousands 2007 2007 2006 2005
----------------------------------------------------------------------------

Cash flow from operations $ 12,929 $ 39,818 $ 45,783 $ 9,958
Net earnings 4,551 10,878 29,901 14,317
Distributions declared
- including DRIP 15,007 41,920 38,607 12,921
Net distributions
declared - excluding DRIP 10,488 27,753 24,387 6,364
----------------------------------------------------------------------------

(Shortfall) excess of
cash flow from
operations
over distributions
declared - including
DRIP (2,078) (2,102) 7,176 (2,963)
Excess of cash flow
from operations over
distributions declared
- excluding DRIP 2,441 12,065 21,396 3,594
----------------------------------------------------------------------------

(Shortfall) excess of
net earnings over
distributions declared
- including DRIP (10,456) (31,042) (8,706) 1,396

(Shortfall) excess of
net earnings over
distributions declared
- excluding DRIP (5,937) (16,875) 5,514 7,953
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Although our total distributions declared in 2007 have slightly exceeded our cash flow from operations, distributions excluding those participating in our DRIP are less than our cash flow from operations. Cash flow from operations not distributed in 2007 is used to help fund our capital expenditure program.

In 2007, our distributions (both including and excluding the DRIP) have exceeded our net earnings. We currently do not base our distributions on net earnings as net earnings includes a number of non-cash items such as future income taxes, accretion expense, unit-based compensation, and amortization that do not affect our ability to make distributions to our unitholders. However, since our distributions exceed net earnings, a portion of our distributions may be deemed an economic return of capital.

We expect that continued growth in our operations in 2008 will reduce the shortfall of our net earnings to our distributions declared. However, due to non-cash expenses included in net earnings, we believe our rate of distributions may continue to exceed our net earnings in the future. We also do not believe this shortfall will affect our ability to maintain our distributions in the future as the sustainability of our distributions is best determined by the amount of distributable cash we are able to generate (see "Distributable Cash" section above).

Outlook

Our overall outlook for 2008 is positive. We will continue to increase our exposure to the growing infrastructure development in the Alberta oil sands through capital expenditures and business acquisitions. We expect a large portion of our organic growth in 2008 to be generated from this region. However, lower demand for our services dependant on conventional oil and gas exploration and drilling is expected to continue into 2008.

We continue to estimate our revenue will approximate $500 million (see "Note Regarding Forward-Looking Statements") for the year ending December 31, 2007.


Off-Balance Sheet Arrangements

Our off-balance sheet arrangements are substantially the same as disclosed in our MD&A for the year ended December 31, 2006, with the following exceptions:

- During the nine months ended September 30, 2007, we issued additional letters of credit, drawn on our Revolver credit facility. Total outstanding letters of credit issued as at September 30, 2007 were CDN $2.2 million and US $500 thousand;

- In June 2007, we provided a guarantee to a financial institution for financing obtained by a contractor to purchase specific service and automotive equipment for use in supplying services to Eveready. The total future payments guaranteed were $1.3 million. As at September 30, 2007, the total balance of all third party financings we guaranteed was $2.3 million. These financings are collateralized by the specific equipment purchased. We would be required to settle these guarantees if a contractor were to default on their obligation and the collateral held by the financial institutions was not sufficient to repay the balances due. We believe we would be able to satisfy all guaranteed obligations without disrupting normal business operations;

- Certain units held within our Employee Unit Plan Trust (the "Trust") have been provided as collateral against bank loans owing by certain employees, officers, directors, and trustees that were issued in connection with their participation in the Employee Unit Plan. These units could be drawn upon by the bank if the participant defaulted on the debt obligation and the participant's units were not sufficient to cover the outstanding loan balance. At September 30, 2007, 1.6 million units with a fair value of $6.8 million were provided as collateral against outstanding bank loans; and

- We enter into long-term operating leases with various vendors to provide office space and equipment in our normal course of operations. Our commitments under operating leases are disclosed under the section "Debt and Contractual Obligations".

Related Party Transactions

Our related party transactions are disclosed in the notes to the accompanying interim consolidated financial statements. All of these transactions occurred in the normal course of operations and were measured at their exchange amounts, which were established and agreed to by the related parties.

Business Risks

Our business is subject to certain risks and uncertainties. Prior to making any investment decision regarding Eveready, investors should carefully consider, among other things, the risks described within this MD&A and the business risks and factors set forth in our 2006 Annual MD&A and our 2006 Annual Information Form. These business risks and factors are incorporated by reference herein. These documents are available on the System for Electronic Document Analysis and Retrieval ("SEDAR") website at www.sedar.com.

Adoption of New Accounting Policies

Effective January 1, 2007, we adopted the new recommendations of the Canadian Institute of Chartered Accountants ("CICA") under CICA Handbook Section 1530 Comprehensive Income, Section 3251 Equity, Section 3855 Financial Instruments - Recognition and Measurement, and Section 3861 Financial Instruments - Disclosure and Presentation. These new Handbook Sections apply to fiscal years beginning on or after October 1, 2006.

Comprehensive Income and Equity

Section 1530 establishes standards for the reporting and display of comprehensive income. The section defines other comprehensive income to include revenue, expenses, and gains and losses that, in accordance with primary sources of GAAP, are recognized in comprehensive income but excluded from net income. The section does not address issues of recognition or measurement for comprehensive income and its components. The adoption of Section 1530 did not have any impact on our financial statement presentation during the three and nine month periods ended September 30, 2007.

Section 3251 establishes standards for the presentation of equity and changes in equity during the reporting period. The requirements in this section are in addition to those of Section 1530 and recommend that an enterprise present separately the following components of equity: retained earnings, accumulated other comprehensive income, the total of retained earnings and accumulated other comprehensive income, contributed surplus, share capital, and reserves. As a result of the adoption of Section 3251, we combined our presentation of accumulated earnings and accumulated distributions within retained earnings (deficit). Each of these were previously presented as separate components within unitholders' equity. We currently have no other comprehensive income components.

Financial Instruments

Under Section 3855, all financial instruments are classified into one of five categories: held for trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments and derivatives are measured at fair value, except for loans and receivables, held-to-maturity investments, and other financial liabilities which are measured at amortized cost. Subsequent measurement and changes in fair value will depend on their initial classification. Held for trading financial instruments are measured at fair value and changes in fair value are recognized in net earnings. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the instrument is derecognized or impaired.

As a result of the adoption of Section 3855, we classified cash and cash equivalents as held for trading and accounts receivable as loans and receivables. Bank indebtedness, accounts payable and accrued liabilities, unitholder distributions payable, long-term debt, obligations under capital lease, convertible debentures, and asset retirement obligations are classified as other liabilities, all of which are measured at amortized cost.

Section 3855 also provides guidance on accounting for transaction costs incurred upon the issuance of debt instruments or modification of other financial liabilities. Transaction costs directly associated with the issuance of new debt obligations are now applied against the fair value of the related financial liability and amortized to interest expense using the effective interest rate method. As a result of the application of Section 3855, deferred financing costs of $1.7 million were reclassified against the convertible debenture's carrying value. These costs were previously included in other long-term assets and amortized to interest expense using the straight-line method. The adoption of this standard did not impact opening retained earnings as at January 1, 2007.

Capital leases

We account for our leases as either operating or capital. Capital leases are those that substantially transfer the benefits and risks of ownership to the lessee. Assets acquired under capital lease are amortized over their estimated useful lives. Obligations under capital lease are measured at the present value of future minimum lease payments. Leases not meeting the capital criteria are treated as operating and are recorded as an expense in the period paid or payable. On May 1, 2007, we acquired obligations under capital lease of $19.9 million through the acquisition of Denman.

Internal Controls over Disclosure and Financial Reporting

During the three months ended September 30, 2007, we did not make any changes to our internal controls over disclosure and financial reporting that would have materially affected, or would likely materially affect, such controls.



Outstanding Unit Data

----------------------------------------------------------------------------
As at November 6 December 31
2007 2006
----------------------------------------------------------------------------

Fund units 69,571,390 55,041,028
Rollover LP units 14,517,864 16,705,789
----------------------------------------------------------------------------

Total 84,089,254 71,746,817
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Rollover LP units were issued in conjunction with the completion of certain business acquisitions, are units of subsidiary limited partnerships and are designed to be, to the greatest extent practicable, the economic equivalent of Fund units. Rollover LP units are non-transferable (except to certain permitted assigns) and the holders thereof are entitled to receive distributions on a per unit basis equivalent to holders of Fund units. The Rollover LP units are exchangeable, at the option of the holder, into Fund units at any time.

We also had 60,000 (December 31, 2006 - 85,000) unit options outstanding at November 6, 2007, exercisable at $5.00 per unit. All of these unit options have vested and are due to expire on November 17, 2010.

Non-GAAP Financial Measures

Our MD&A contains certain financial measures that do not have any standardized meaning prescribed by Canadian GAAP. Therefore, these financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that these measures should not be construed as an alternative to net earnings or to cash flow from operating, investing, and financing activities, determined in accordance with Canadian GAAP as indicators of our performance. We provide these measures to assist investors in determining our ability to generate earnings and cash flow from operations and to provide additional information on how these cash resources are used. We list and define these measures below:

EBITDA

EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. We believe, in addition to net earnings, EBITDA is a useful supplemental earnings measure as it provides an indication of the financial results generated by our principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions and before non-cash amortization expense. EBITDA margin is calculated as EBITDA divided by revenue. EBITDA per unit is calculated as EBITDA divided by the basic weighted average number of units outstanding during the period.



The following is a reconciliation of EBITDA to net earnings for each of
the periods presented in this MD&A:

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2007 2006 2007 2006
----------------------------------------------------------------------------

Net earnings $ 4,551 $ 5,599 $ 10,878 $ 27,160
Add:
Interest 4,933 2,516 13,035 4,355
Income tax
(recovery) expense (386) 297 6,028 1,211
Amortization 11,280 7,275 30,148 18,339
----------------------------------------------------------------------------

EBITDA 20,378 15,687 60,089 51,065
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The following reconciles quarterly EBITDA to net earnings (loss) for each of
the quarters presented in this MD&A:

----------------------------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
$ thousands 2007 2007 2007 2006 2006 2006 2006 2005
----------------------------------------------------------------------------

Net earnings
(loss) 4,551 (5,405) 11,733 2,741 5,599 6,748 14,813 2,421
Add (deduct):
Interest 4,933 4,603 3,500 3,306 2,516 950 890 1,030
Income tax
(recovery)
expense (386) 5,599 815 (537) 297 255 659 343
Amortization 11,280 9,974 8,894 8,114 7,275 5,442 5,622 3,781
----------------------------------------------------------------------------

EBITDA 20,378 14,771 24,942 13,624 15,687 13,395 21,984 7,575
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Funds from Operations

Funds from Operations is derived from the consolidated statements of cash flows and is calculated as cash flow from operations before asset retirement costs incurred and changes in non-cash operating working capital. Per unit amounts refer to Funds from Operations divided by the basic weighted average number of units outstanding during the period. We believe that Funds from Operations is a useful supplemental measure as it provides an indication of our ability to generate cash flow and is a useful measure in analyzing our operating performance.



A reconciliation of this measure to cash flow from operations, as determined
in accordance with GAAP, is as follows:

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2007 2006 2007 2006
----------------------------------------------------------------------------

Cash flow from
operations $ 12,929 $ 9,450 $ 39,818 $ 33,894
Asset retirement costs
incurred 18 626 20 908
Add (deduct) changes in
non-cash operating
working capital 4,539 4,872 11,846 13,981
----------------------------------------------------------------------------

Funds from Operations 17,486 14,948 51,684 48,783
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Cash Available for Distribution and Growth

Cash available for distribution and growth is calculated as cash flow from operations before changes in non-cash operating working capital, less scheduled principal repayments of debt and maintenance capital expenditures. Per unit amounts refer to cash available for distribution and growth divided by the basic weighted average number of units outstanding during the period. We believe that cash available for distribution and growth is a useful supplemental measure as it provides an indication of cash available for distribution to our unitholders. Components of this supplemental measure are described below:

- "Scheduled principal repayments of debt" are required principal repayments on our long-term debt and obligations under capital lease. This component was added to the calculation of cash available for distribution and growth in the second quarter. Prior to establishing the new credit facilities in April, there were no scheduled principal repayments required on our debt facilities.

- "Maintenance capital expenditures" are capital expenditures incurred during the period to maintain existing levels of service. This includes capital expenditures to replace property, plant and equipment disposed and any costs incurred to enhance the operational life of existing property, plant and equipment. Growth capital expenditures are excluded from this calculation. Growth capital expenditures include additions of new equipment to grow our capital asset base.

- "Payout ratio - including DRIP" is calculated as distributions declared for the period divided by cash available for distribution and growth.

- "Payout ratio - excluding DRIP" is calculated as net distributions declared for the period (excluding those distributions participating in the DRIP) divided by cash available for distribution and growth.

A schedule showing how cash available for distribution and growth is calculated is provided under the section "Distributable Cash".

In our MD&A for the year ended December 31, 2006, we calculated EBITDA, Funds from Operations, and cash available for distribution and growth per unit amounts using the diluted weighted average number of units outstanding during the period. The current MD&A calculates these measures using the basic weighted average number of units outstanding. These measures were changed to ensure the calculations of EBITDA per unit, Funds from Operations per unit, and cash available for distribution and growth per unit were calculated on a consistent basis from period to period. The diluted weighted average number of units outstanding can change significantly depending on whether the outstanding convertible debentures have a dilutive or anti-dilutive effect on the calculation of the diluted weighted average number of units outstanding.

Working Capital

Working capital is calculated as current assets less current liabilities. Working capital ratio is calculated as current assets divided by current liabilities. We believe working capital is a useful supplemental measure as it provides an indication of our ability to settle our debt obligations as they come due.



Our calculation of working capital is provided in the table below:

----------------------------------------------------------------------------
As at September 30 December 31
$ thousands 2007 2006
----------------------------------------------------------------------------

Current assets $ 135,732 $ 116,510
Less: current liabilities 61,309 78,745
----------------------------------------------------------------------------

Working capital 74,423 37,765
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Working capital ratio (current assets
divided by current liabilities) 2.21 1.48
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Funded Debt to Total Capital

Funded debt to total capital is calculated as funded debt (bank indebtedness, long-term debt, obligations under capital lease, convertible debentures, and the current portions of long-term debt and obligations under capital lease) divided by total capital (funded debt plus unitholders' equity). We believe funded debt to total capital is a useful supplemental measure as it provides an indication of the proportion of our capital that is funded by debt versus equity sources. The calculation of funded debt to total capital in the current period now also includes obligations under capital lease and the current portions of long-term debt and obligations under capital lease. Prior to the second quarter, we did not have any obligations under capital lease or current portion of long-term debt on our balance sheet. Our calculations of funded debt and total capital are provided in the table below:



----------------------------------------------------------------------------
As at September 30 December 31
$ thousands 2007 2006
----------------------------------------------------------------------------

Bank indebtedness $ - $ 21,932
Current portion of long-term debt 1,500 -
Long-term debt 172,685 80,000
Current portion of obligations under
capital lease 2,819 -
Obligations under capital lease 15,961 -
Convertible debentures 41,813 42,277
----------------------------------------------------------------------------

Funded debt 234,778 144,209
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Funded debt 234,778 144,209
Unitholders' equity 291,554 261,652
----------------------------------------------------------------------------

Total capital 526,332 405,861
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funded debt to total capital ratio (funded
debt divided by total capital) 0.45 0.36
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Note Regarding Forward-Looking Statements

Certain statements contained in this MD&A constitute "forward-looking statements". All statements, other than statements of historical fact, that address activities, events, or developments that we or a third party expect or anticipate will or may occur in the future, including our future growth, results of operations, performance and business prospects and opportunities, and the assumptions underlying any of the foregoing, are forward-looking statements. These forward-looking statements reflect our current beliefs and are based on information currently available to us and on assumptions we believe are reasonable. Actual results and developments may differ materially from the results and developments discussed in the forward-looking statements as they are subject to a number of significant risks and uncertainties, including those discussed under "Business Risks" and elsewhere in this MD&A and in our 2006 Annual Information Form. Certain of these risks and uncertainties are beyond our control. Consequently, all of the forward-looking statements made in this MD&A are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Eveready. These forward-looking statements are made as of the date of this MD&A, and we assume no obligation to update or revise them to reflect subsequent information, events, or circumstances unless otherwise required by applicable securities legislation.

In this MD&A we estimated that our revenue will approximate $500 million for the year ending December 31, 2007. This estimate is based on our internal forecasts for the remainder of 2007. Achieving our internal revenue forecasts for the remainder of 2007 is dependant on a number of factors beyond our control including the demand for our services from our customers. We have also estimated that significant long-term contracts recently awarded to us from a number of blue-chip customers in the Alberta oil sands region could generate approximately $400 million in revenue over the next three years. This estimate is based on current expectations from these customers. These expectations may materially change in the future due to a number of factors that are outside our control, including the demand for our services, the level of overall demand for oil, and the feasibility of current and future oil sands projects for our customers.



Eveready Income Fund
Consolidated Balance Sheets
(Unaudited)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
As at September 30 December 31
2007 2006
(thousands of Canadian dollars) $ $
----------------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents 968 -
Accounts receivable 117,276 99,279
Inventory 14,717 11,312
Properties held for sale - 2,963
Prepaid expenses and deposits 2,771 2,956
----------------------------------------------------------------------------
135,732 116,510

Property, plant and equipment 292,888 212,903
Intangible assets 53,812 48,655
Goodwill 110,746 85,584
Other long-term assets 1,616 2,529
----------------------------------------------------------------------------
594,794 466,181
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness - 21,932
Accounts payable and accrued liabilities 52,309 52,855
Unitholder distributions payable 3,524 2,731
Income taxes payable 257 316
Current portion of long-term debt (note 4) 1,500 -
Current portion of obligations under
capital lease (note 5) 2,819 -
Current portion of asset retirement obligations 900 911
----------------------------------------------------------------------------
61,309 78,745

Long-term debt (note 4) 172,685 80,000
Obligations under capital lease (note 5) 15,961 -
Convertible debentures 41,813 42,277
Asset retirement obligations 1,983 354
Future income taxes (note 6) 6,294 760
Non-controlling interest 3,195 2,393
----------------------------------------------------------------------------
303,240 204,529
----------------------------------------------------------------------------
Commitments (notes 4, 5, and 16)

Unitholders' Equity
Unitholders' capital (note 7) 322,963 259,241
Equity component of convertible debentures 8,030 8,030
Contributed surplus (note 8) 3,029 2,849
Units held under Employee Unit Plan (note 9) (13,601) (10,643)
(Deficit) retained earnings (28,867) 2,175
----------------------------------------------------------------------------
291,554 261,652
----------------------------------------------------------------------------

594,794 466,181
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(see accompanying notes)



Eveready Income Fund
Consolidated Statements of Earnings and Deficit
(Unaudited)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
(thousands of
Canadian Three Months Ended Nine Months Ended
dollars, September 30 September 30 September 30 September 30
except per 2007 2006 2007 2006
unit amounts) $ $ $ $
----------------------------------------------------------------------------

Revenue 126,767 93,470 381,745 270,252
Direct costs 86,493 62,984 257,930 177,498
----------------------------------------------------------------------------

Gross profit 40,274 30,486 123,815 92,754
----------------------------------------------------------------------------

Expenses
General and
administrative 18,558 13,660 59,197 39,476
Amortization
(note 12) 11,280 7,275 30,148 18,339
Interest (note 12) 4,933 2,516 13,035 4,355
Unit-based
compensation (note 9) 760 1,091 2,410 1,557
Loss (gain) on
foreign exchange 279 (157) 1,258 (114)
Loss (gain) on
disposal
of property,
plant and equipment 146 (79) 58 234
----------------------------------------------------------------------------
35,956 24,306 106,106 63,847
----------------------------------------------------------------------------

Earnings before
income taxes and
non-controlling
interest 4,318 6,180 17,709 28,907
----------------------------------------------------------------------------

Income tax (recovery)
expense
Current (289) 21 432 956
Future (note 6) (97) 276 5,596 255
----------------------------------------------------------------------------
(386) 297 6,028 1,211
----------------------------------------------------------------------------

Earnings before
non-controlling
interest 4,704 5,883 11,681 27,696

Earnings
attributable to
non-controlling
interest 153 284 803 536
----------------------------------------------------------------------------

Net earnings and
comprehensive
income 4,551 5,599 10,878 27,160

(Deficit)
retained earnings,
beginning of
period (note 2) (18,411) 15,692 2,175 10,094

Distributions
(note 10) (15,007) (10,006) (41,920) (25,969)

Trust
reorganization
adjustments (note 6) - 787 - 787
----------------------------------------------------------------------------

(Deficit)
retained earnings,
end of period (28,867) 12,072 (28,867) 12,072
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings per unit
- basic and diluted
(note 11) 0.06 0.09 0.14 0.45
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(see accompanying notes)



Eveready Income Fund
Consolidated Statements of Cash Flows
(Unaudited)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(thousands of September 30 September 30 September 30 September 30
Canadian 2007 2006 2007 2006
dollars, $ $ $ $
----------------------------------------------------------------------------

Operating
activities
Net earnings 4,551 5,599 10,878 27,160
Items not
affecting cash:
Amortization 11,280 7,275 30,148 18,339
Loss (gain) on
disposal of
property, plant
and equipment 146 (79) 58 234
Unit-based
compensation (note 9) 760 1,091 2,410 1,557
Amortization of
deferred costs 109 180 323 322
Accretion of
long-term debt 153 - 228 -
Accretion of
convertible
debentures 431 322 1,240 380
Future income taxes (97) 276 5,596 255
Earnings
attributable to
non-controlling
interest 153 284 803 536
----------------------------------------------------------------------------
17,486 14,948 51,684 48,783

Asset retirement
costs incurred (18) (626) (20) (908)
Net change in
non-cash
operating working
capital (note 13) (4,539) (4,872) (11,846) (13,981)
----------------------------------------------------------------------------

Cash flow from
operations 12,929 9,450 39,818 33,894
----------------------------------------------------------------------------

Investing activities
Purchase of
property, plant
and equipment (18,569) (15,432) (58,992) (45,834)
Purchase of
intangible assets (1,778) (306) (2,552) (1,426)
Proceeds on
disposal of
property, plant and
equipment 1,390 915 4,729 2,812
Business
acquisitions,
net of cash
acquired (note 13) - (32,092) (60,160) (65,201)
Other long-term
assets net (58) (209) (187) (253)
----------------------------------------------------------------------------

Cash used in
investing activities (19,015) (47,124) (117,162) (109,902)
----------------------------------------------------------------------------

Financing
activities
Increase
(decrease) in
bank indebtedness - 10,101 (26,049) 764
Distributions,
net of
distribution
reinvestments (10,159) (6,317) (26,961) (15,362)
Proceeds from
issuance
of long-term debt 17,607 45,000 143,655 95,000
Repayment of
long-term debt (9,135) (10,361) (53,125) (97,522)
Repayment of
obligations
under capital lease (630) - (1,075) -
Proceeds from
issuance
of units, net of
issuance costs - - 41,014 52,699
Unit issuance
costs acquisitions - (53) (6) (103)
Proceeds from
issuance of units -
Employee Unit Plan 157 3,552 5,768 5,460
Purchase of units
Employee Unit
Plan (note 9) - (9,228) (5,188) (9,228)
Collection of
employee
share purchase
loans receivable 15 51 279 305
Repayment of notes
payable - (3,710) - (3,704)
Proceeds from
issuance
of convertible
debentures - - - 47,699
----------------------------------------------------------------------------

Cash (used in)
from financing
activities (2,145) 29,035 78,312 76,008
----------------------------------------------------------------------------

Net change in
cash and
cash equivalents (8,231) (8,639) 968 -

Cash and cash
equivalents,
beginning
of period 9,199 8,639 - -
----------------------------------------------------------------------------

Cash and cash
equivalents, end
of period 968 - 968 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(see accompanying notes)


EVEREADY INCOME FUND
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except unit and per unit amounts)
(Unaudited)

1. Nature of operations and significant accounting policies

Eveready Income Fund ("Eveready" or the "Fund") is an unincorporated open-ended mutual fund trust governed by the laws of the Province of Alberta. The business of Eveready, held in subsidiaries and limited partnerships, provides industrial and oilfield services; health, safety and environmental services; and oilfield equipment rental and lodging services to the energy, resource, and manufacturing sectors. Eveready's operations follow a seasonal pattern, with earnings traditionally being higher in the quarter ending March 31st compared to the other quarters of the year. Due to this seasonality, interim earnings reported for the three months ended September 30, 2007 may not be reflective of earnings on an annual basis.

These interim consolidated financial statements are prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP"). Except as described in note 2 below, the statements have been prepared following the same accounting policies and application methods as those disclosed in Eveready's annual consolidated financial statements for the year ended December 31, 2006. Because the disclosures provided in these interim consolidated financial statements do not conform in all respects with GAAP for annual financial statements, these interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2006.

2. New accounting policies

Effective January 1, 2007, Eveready adopted the new recommendations of the Canadian Institute of Chartered Accountants ("CICA") under CICA Handbook Section 1530 Comprehensive Income, Section 3251 Equity, Section 3855 Financial Instruments - Recognition and Measurement, and Section 3861 Financial Instruments - Disclosure and Presentation. These new Handbook Sections apply to fiscal years beginning on or after October 1, 2006.

Comprehensive Income and Equity

Section 1530 establishes standards for reporting and displaying comprehensive income. The section defines other comprehensive income to include revenue, expenses, and gains and losses which, in accordance with primary sources of GAAP, are recognized in comprehensive income but excluded from net income. The section does not address issues of recognition or measurement for comprehensive income and its components. The adoption of Section 1530 did not have any impact on Eveready's financial statement presentation during the three and nine month periods ended September 30, 2007.

Section 3251 establishes standards for the presentation of equity and changes in equity during the reporting period. The requirements in this section are in addition to those of Section 1530 and recommend an enterprise present separately the following components of equity: retained earnings, accumulated other comprehensive income, the total of retained earnings and accumulated other comprehensive income, contributed surplus, share capital, and reserves. As a result of the adoption of Section 3251, Eveready combined its presentation of accumulated earnings and accumulated distributions within retained earnings (deficit). Each of these was previously presented as separate components within unitholders' equity. Eveready currently has no other comprehensive income components.

Financial Instruments

Under Section 3855, all financial instruments are classified into one of five categories: held for trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments and derivatives are measured at fair value, except for loans and receivables, held-to-maturity investments, and other financial liabilities which are measured at amortized cost. Subsequent measurement and changes in fair value will depend on an instrument's initial classification. Held for trading financial instruments are measured at fair value and changes in fair value are recognized in net earnings. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the instrument is derecognized or impaired.

By adopting Section 3855, Eveready classified its cash and cash equivalents as held for trading and accounts receivable as loans and receivables. Bank indebtedness, accounts payable and accrued liabilities, unitholder distributions payable, long-term debt, obligations under capital lease, convertible debentures, and asset retirement obligations are classified as other liabilities, all of which are measured at amortized cost.

Section 3855 also provides guidance on accounting for transaction costs incurred upon the issuance of debt instruments or modification of other financial liabilities. Transaction costs directly associated with issuing new debt obligations are now applied against the fair value of the related financial liability and amortized to interest expense using the effective interest rate method. As a result of applying Section 3855, deferred financing costs of $1,704 were reclassified against the convertible debentures' carrying value. These costs were previously included in other long-term assets and amortized to interest expense using the straight-line method. The adoption of this standard did not impact Eveready's opening retained earnings as at January 1, 2007.

Capital leases

Eveready accounts for its leases as either operating or capital. Capital leases are those that substantially transfer the benefits and risks of ownership to the lessee. Assets acquired under capital lease are amortized over their estimated useful lives. Obligations under capital lease are measured at the present value of future minimum lease payments. Leases not meeting the capital criteria are treated as operating and are recorded as an expense in the period paid or payable. On May 1, 2007, Eveready acquired obligations under capital lease of $19,854 through the acquisition of Denman Industrial Trailers Ltd. (note 3).

3. Business acquisitions

Eveready completed two business acquisitions during the nine months ended September 30, 2007 as described below. Results of the acquired businesses have been included in the consolidated financial statements since their effective acquisition dates. The preliminary fair values of the net assets acquired and aggregate consideration given are as follows:



----------------------------------------------------------------------------
Fair value of net assets acquired Compass Denman Total
$ $
----------------------------------------------------------------------------
Current assets - 11,848 11,848
Property, plant and equipment 556 47,251 47,807
Intangible assets 601 7,741 8,342
Goodwill 1,853 23,069 24,922
----------------------------------------------------------------------------
Total assets 3,010 89,909 92,919
----------------------------------------------------------------------------

Current liabilities - 13,140 13,140
Long-term liabilities - 17,119 17,119
----------------------------------------------------------------------------
Total liabilities - 30,259 30,259
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net assets acquired 3,010 59,650 62,660
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Consideration given
----------------------------------------------------------------------------
Cash 500 59,533 60,033
Fund units 2,500 - 2,500
Acquisition costs 10 117 127
----------------------------------------------------------------------------

Total consideration 3,010 59,650 62,660
----------------------------------------------------------------------------
----------------------------------------------------------------------------


a) Compass

Effective March 1, 2007, Eveready acquired the business and assets of Compass Horizontal Drilling Inc. ("Compass"). Compass is a private Alberta based company providing directional boring services to customers primarily in the oil and gas industry. The purchase price of $3,000 was paid through a combination of: (i) $500 in cash and (ii) $2,500 through the issuance of 413,223 units at a deemed price of $6.05 per unit. In addition, acquisition costs of $10 were incurred providing for aggregate consideration of $3,010.

Intangible assets acquired with Compass include customer relationships, which will be amortized on a straight-line basis over their estimated useful life of five years. Of the goodwill acquired, $1,390 is deductible for income tax purposes.

b) Denman

Effective May 1, 2007, Eveready acquired 100% of the issued and outstanding shares of Denman Industrial Trailers Ltd. ("Denman"), a private Alberta based company. Denman supplies industrial lodges and drill camps to the oil and gas industry and has a significant market presence in the Alberta oil sands region. The purchase price of $59,533 was paid through cash consideration. Acquisition costs of $117 were also incurred providing aggregate consideration of $59,650.

Intangible assets acquired with Denman include: customer relationships of $7,203, which will be amortized on a straight-line basis over their estimated useful life of ten years; provincial land leases of $269 that will be amortized on a straight-line basis over their estimated useful life of eight years; and the Denman trade name of $269, which will be amortized over its estimated useful life of one year. The acquired property, plant and equipment includes $19,745 of assets under capital lease that will be amortized over their respective estimated useful lives. The goodwill acquired with Denman is not deductible for income tax purposes.

The above purchase price allocations are preliminary and have been allocated based upon a preliminary evaluation of the fair value of the assets and liabilities acquired. The purchase price allocations will remain preliminary until Eveready completes its final evaluation.

4. Long-term debt

In April 2007, Eveready established credit facilities of $250,000 with a syndicate of lenders led by a Canadian affiliate of GE Energy Financial Services. The financing replaced Eveready's demand revolving credit facility, and amended and increased Eveready's existing long-term debt credit facility. The new facilities will fund future capital expenditures and business acquisitions. The credit facilities consist of a $100,000 revolving, renewable credit facility and a $150,000 term loan. Amounts borrowed under the credit facilities will bear interest, at Eveready's option, at bank prime or bankers' acceptance rates, plus a credit spread based on a sliding scale.

The revolving credit facility ("Revolver") requires payments of interest only and is renewable annually, subject to both parties' consent. An additional stand-by fee calculated at a rate of 0.25% per annum is also required on the unused portion of the Revolver. If the Revolver is not renewed, the outstanding credit facility is subject to a 12-month interest-only phase, followed by a 24-month straight-line amortization period. As a result, the Revolver is classified as long-term debt in the consolidated financial statements. The term loan ("Term") requires fixed monthly payments of $125 and a balloon payment of $142,500 due May 2012. Both of the credit facilities are collateralized by substantially all of Eveready's assets. At September 30, 2007, the effective interest rate on the Revolver and Term facilities was 7.50%.

Transaction costs of $3,952 were incurred in establishing the above credit facilities. These costs (plus existing deferred transaction costs of $661) have been allocated to the Revolver and Term facilities based on their respective borrowing capacities. Transaction costs of $1,587 allocated to the Revolver are included in other long-term assets and will be amortized to interest expense over the Revolver's commitment term of 48 months. Transaction costs of $3,026 allocated to the Term facility have been recorded as a reduction to the liability's carrying amount. These costs will be amortized to interest expense, using the effective interest rate method, by accreting the Term liability to its face value of $142,500 over its 61-month term.



Eveready's long-term debt consists of the following components:

----------------------------------------------------------------------------
As at September 30
2007
$
----------------------------------------------------------------------------

Revolver 27,607
Term 149,375
----------------------------------------------------------------------------
176,982
Less: unamortized transaction costs (2,797)
----------------------------------------------------------------------------
174,185
Less: current portion of long-term debt (1,500)
----------------------------------------------------------------------------
172,685
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The credit facilities contain financial covenants, including, but not limited to, a working capital ratio, a fixed charge coverage ratio, funded debt to EBITDA ratios, a minimum net worth, and a maximum distribution payout ratio, each calculated on a quarterly basis. Eveready was in compliance with all financial covenants under this agreement at September 30, 2007. If the Revolver is not renewed (the next renewal date is April 25, 2008), the minimum annual principal repayments of the Revolver and Term facilities would be as follows:



----------------------------------------------------------------------------
Amount
$
----------------------------------------------------------------------------
2008 1,500
2009 7,251
2010 15,304
2011 9,552
2012 143,375
----------------------------------------------------------------------------

176,982
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Subsequent to September 30, 2007, Eveready drew an additional $15,000 under
the revolving credit facility.


5. Obligations under capital lease

Obligations under capital lease substantially relate to industrial lodging facilities purchased with the Denman acquisition (note 3). These obligations bear interest at prime plus 0.25% per annum and are repayable in monthly blended principal and interest payments of $318. At September 30, 2007, the effective rate of interest was 6.50%. These obligations mature at dates ranging from August 2012 to April 2014 and are collateralized by equipment with a $19,217 net book value at September 30, 2007.

Future minimum lease payments required over the next five years and thereafter for all obligations under capital lease are as follows:



----------------------------------------------------------------------------
Amount
$
----------------------------------------------------------------------------
2008 3,839
2009 3,839
2010 3,830
2011 3,820
2012 3,789
Thereafter 3,128
----------------------------------------------------------------------------
Total minimum lease payments 22,245
Less: amounts representing imputed interest
at rates ranging from 4.50% to 6.25% (3,465)
----------------------------------------------------------------------------
Balance of obligations under capital lease 18,780
Less: current portion of obligations under capital lease (2,819)
----------------------------------------------------------------------------

15,961
----------------------------------------------------------------------------
----------------------------------------------------------------------------


6. Future income taxes

Enacted tax changes for Canadian income trusts

On June 12, 2007, the Government of Canada enacted legislation to impose additional income taxes on publicly traded income trusts and limited partnerships, including Eveready, effective January 1, 2011. Prior to June 2007, Eveready estimated the future income tax on certain temporary differences between amounts recorded on its balance sheet for book and income tax purposes at a nil effective income tax rate. Under this new legislation, Eveready now estimates the effective income tax rate on the post 2010 reversal of these temporary differences to be 31.5%. Temporary differences reversing before 2011 will still give rise to nil future income taxes.

Based on its assets and liabilities at September 30, 2007, Eveready estimated the amount of its temporary differences, which were previously not subject to income tax, and the periods in which these differences will reverse. Eveready plans to maximize the amount of income tax pools that can be carried forward to reduce and defer, as much as possible, its income tax exposure beginning in 2011. To achieve this objective, Eveready plans to maximize the taxable components of all distributions declared in 2007 through 2010. Eveready expects the application of this policy will reverse all of the taxable temporary differences associated with its property, plant and equipment prior to January 1, 2011. However, net taxable temporary differences related to intangible assets, goodwill, and financing costs of $18,014 will reverse after January 1, 2011. As a result of these reversing temporary differences, Eveready recognized an additional future income tax liability of $5,674 at September 30, 2007.

As the legislation gave rise to a change in Eveready's estimated future income tax liability within the second quarter, the recognition of the additional liability is accounted for prospectively from June 30, 2007. As a result, Eveready recognized additional future income tax expense of $5,674 during the nine month period ended September 30, 2007.

While Eveready believes it will be subject to additional tax under the new legislation, the estimated effective tax rate on temporary difference reversals after 2011 may change in future periods. As the legislation is new, future technical interpretations of the legislation could occur and could materially affect management's estimate of the future income tax liability. The amount and timing of reversals of temporary differences will also depend on Eveready's future operating results, acquisitions and dispositions of assets and liabilities, and distribution policy. A significant change in any of the preceding assumptions could materially affect Eveready's estimate of the future income tax liability.

At September 30, 2007, the reported amounts of assets and liabilities held within the Fund and its subsidiary limited partnerships exceeded their tax basis by $102,871 (December 31 2006 - $62,245). These temporary differences were comprised of the following components:



----------------------------------------------------------------------------
As at September 30 December 31
2007 2006
$ $
----------------------------------------------------------------------------

Carrying value of property, plant and
equipment in excess of tax value 75,258 35,743
Carrying value of intangible assets and
goodwill in excess of tax value 38,718 33,842
Asset retirement obligations (2,883) (1,265)
Unit issue and other financing costs (8,222) (6,075)
----------------------------------------------------------------------------

Total temporary differences of entities
not currently subject to income taxes 102,871 62,245
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As discussed above, all but $18,014 of these temporary differences are expected to reverse prior to January 1, 2011. The above legislative changes have no effect on how Eveready accounts for temporary differences within its incorporated subsidiaries.

Trust reorganization adjustments

During the three and nine months ended September 30, 2006, Eveready's future income tax liability was reduced by $787 with an offsetting increase to retained earnings. This adjustment resulted from a trust reorganization effective July 1, 2006 to transfer the assets and business of several incorporated subsidiaries of Eveready into the flow through income trust structure. As a result, the previously recognized temporary differences in these incorporated subsidiaries were eliminated.

7. Unitholders' capital



----------------------------------------------------------------------------
Number Amount
Authorized - Unlimited number of voting units of units $
----------------------------------------------------------------------------
Issued:
Balance as at December 31, 2006 71,746,817 259,241

Activity during the nine months ended
September 30, 2007:
Units issued - acquisition of Compass (note 3) 413,223 2,500
Unit issuance costs - acquisition - (6)
Units issued - equity financing, net
of issuance costs 8,130,900 41,014
Units issued - distribution reinvestment
plan (note 10) 2,878,314 14,167
Units issued for cash pursuant to the
Employee Unit Plan (note 9) 920,000 5,768
Collection of employee share purchase
loans receivable - 279
----------------------------------------------------------------------------
Balance as at September 30, 2007 84,089,254 322,963
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The number of units outstanding as at
September 30, 2007 consisted of the
following:
Fund units 69,571,390
Rollover LP units 14,517,864
----------------------------------------------------------------------------

84,089,254
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Rollover LP units

The Rollover LP units were issued in conjunction with the completion of certain business acquisitions, are units of subsidiary limited partnerships of the Fund, and are designed to be, to the greatest extent practicable, the economic equivalent of Fund units. Rollover LP units are non-transferable (except to certain permitted assigns) and the holders thereof are entitled to receive distributions on a per unit basis equivalent to unitholders of the Fund. The Rollover LP units are exchangeable, at the option of the holder, into Fund units at any time. During the nine month period ended September 30, 2007, 2,187,925 Rollover LP units were exchanged into Fund units.

Equity financing

On June 5, 2007, Eveready completed an equity financing of 8,130,900 units at a price of $5.35 per unit for gross proceeds of $43,500. The units were issued pursuant to Eveready's short form prospectus dated May 28, 2007. Issuance costs of $2,486 were incurred relating to the financing, resulting in net proceeds of $41,014.

Employee share purchase loans receivable

Offset within unitholders' capital are employee share purchase loans receivable of $29 (December 31, 2006 - $307). Issued in prior years, these loans were to assist employees in acquiring shares in the capital stock of the Fund's predecessor company, Eveready Industrial Group Ltd. (which were subsequently converted into Fund units). The employee share purchase loans receivable are non-interest bearing and are collateralized by the unit certificates issued. The market value of the collateralized units for these loans was $433 at September 30, 2007. Distributions paid on these units are applied against the principal balance of the loans receivable. During the first nine months of 2007, an employee share purchase loan of $158 was repaid by a former Eveready officer.



8. Contributed surplus

----------------------------------------------------------------------------
Nine Month Period Ended September 30
2007
$
----------------------------------------------------------------------------

Balance, beginning of period 2,849
Unit-based compensation expense (note 9) 2,410
Units transferred to participants pursuant to
the Employee Unit Plan (note 9) (2,230)
----------------------------------------------------------------------------

Balance, end of period 3,029
----------------------------------------------------------------------------
----------------------------------------------------------------------------


9. Employee Unit Plan and Unit Option Plan

Employee Unit Plan

Under the Eveready Employee Unit Plan (the "Plan"), key employees, officers, directors, and trustees of Eveready (the "Employees") are invited to subscribe for an allotted number of units from Eveready that will be issued from treasury. Once the Employee has subscribed for their allotted units, Eveready will match the Employee's unit acquisition by acquiring, via the Employee Unit Plan Trust (the "Trust"), the same number of units from the market (hereinafter referred to as the "Matching Units"). The Matching Units vest to the Employee 20% per year over five years.

Compensation expense recognized pursuant to the Plan for the three and nine months ended September 30, 2007 was $760 and $2,410, respectively (2006 - $1,091 and $1,557, respectively). During the nine months ended September 30, 2007, 920,000 units (2006 - 1,065,000 units) were issued from treasury pursuant to the Plan for total proceeds of $5,768 (2006 - $5,460). In addition during the first nine months of 2007, the Employee Unit Plan Trust (the "Trust") acquired 874,000 Matching Units (2006 - 1,280,000 Matching Units) from market at a cost of $5,188 (2006 - $9,228). The following table summarizes the period's changes in the number of units held under the Plan:



----------------------------------------------------------------------------
Nine Month Period Ended September 30, 2007 Number Amount
of units $
----------------------------------------------------------------------------
Units held under Employee Unit Plan,
beginning of period 1,520,000 10,643
Purchase of units from the market 874,000 5,188
Vested units transferred to participants (319,000) (2,230)
----------------------------------------------------------------------------
Units held under Employee Unit Plan,
end of period 2,075,000 13,601
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The fair value of the units held by the Trust at September 30, 2007 was $8,860.

The Employee has the option of financing their unit purchase through a BMO Bank of Montreal unit purchase loan ("BMO Loan"). The BMO Loan is collateralized by the units acquired by the Employee. In addition, the Matching Units held by the Trust for that Employee are also collateral against the BMO Loan and could be drawn upon by the bank if the Employee defaulted on the debt obligation and the Employee's units were not sufficient to cover the outstanding BMO Loan balance. At September 30, 2007, 1,596,000 Matching Units with a fair value of $6,815 were provided as collateral against Employees' outstanding BMO Bank of Montreal unit purchase loans.

Unit Option Plan

At September 30, 2007, there were 60,000 (December 31, 2006 - 85,000) options outstanding, issued pursuant to Eveready's Unit Option Plan in 2005. The options vested in 2005, are exercisable at $5.00 per unit, and are due to expire on November 17, 2010. During the first nine months of 2007, 25,000 options were forfeited. With the establishment of the Employee Unit Plan in 2006, Eveready does not intend to grant unit options under the Unit Option Plan in the future.

The aggregate number of units reserved for issuance pursuant to the Eveready Employee Unit Plan and Unit Option Plan in aggregate shall not exceed 10% of the outstanding units of Eveready from time to time.

10. Distributions

Cash distributions are paid by Eveready on a monthly basis to unitholders of record on the last business day of each month. Distributions are payable on or about the 15th day of the month following the record date. During the nine months ended September 30, 2007, Eveready's distributions on units of record were as follows:



----------------------------------------------------------------------------
Distribution Distributions Net
per unit Distributions reinvested distributions
Record Date $ $ $ $
----------------------------------------------------------------------------

January 31, 2007 0.06 4,320 1,492 2,828
February 28, 2007 0.06 4,353 1,568 2,785
March 30, 2007 0.06 4,406 1,565 2,841
April 30, 2007 0.06 4,428 1,560 2,868
May 31, 2007 0.06 4,448 1,702 2,746
June 29, 2007 0.06 4,958 1,761 3,197
July 31, 2007 0.06 4,981 1,547 3,434
August 31, 2007 0.06 5,002 1,475 3,527
September 28, 2007 0.06 5,024 1,497 3,527
----------------------------------------------------------------------------

Total 0.54 41,920 14,167 27,753
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Accumulated distributions
----------------------------------------------------------------------------

Balance, beginning of period 51,528 20,777 30,751
Distributions declared 41,920 14,167 27,753
----------------------------------------------------------------------------

Balance, end of period 93,448 34,944 58,504
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Distribution Reinvestment Plan

During the nine months ended September 30, 2007, Eveready declared total distributions of $0.54 per unit or $41,920 (2006 - $25,969). Of this amount, $14,167 (2006 - $9,561) was reinvested through Eveready's Distribution Reinvestment Plan ("DRIP"). The DRIP is a voluntary program permitting eligible unitholders to automatically, and without charge, reinvest monthly distributions in additional units. Unitholders who elect to participate will see their periodic cash distributions automatically reinvested in units at a price equal to 95% of the volume-weighted average price of all units traded on the Toronto Stock Exchange on the ten trading days preceding the applicable record date. Eligible unitholders may participate in the DRIP by directing their broker, dealer, or investment advisor holding their units to notify the plan administrator, Computershare Trust Company of Canada Ltd., through CDS Clearing and Depository Services Inc.

Principal Unitholder Agreement

Certain of Eveready's unitholders (the "Principal Unitholders") have signed a Principal Unitholder Agreement. This requires each Principal Unitholder to reinvest immediately through the DRIP 100% of Eveready's cash distributions on that Principal Unitholder's Fund units or Rollover LP units prior to March 31, 2010. In addition, each Principal Unitholder is restricted from selling more than 10% of their aggregate Fund units or Rollover LP units in any one 12-month period before March 31, 2010. At September 30, 2007 approximately 28% of Eveready's outstanding Fund units and Rollover LP units were subject to the Principal Unitholder Agreement.



11. Earnings per unit

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Net earnings 4,551 5,599 10,878 27,160
----------------------------------------------------------------------------
Basic weighted average
number of units 81,308,598 65,640,902 75,594,957 60,540,324
Dilutive effect of
outstanding unit
options and
Matching Units
(note 9) - 199,693 3,143 381,656
----------------------------------------------------------------------------
Diluted weighted average
number of units 81,308,598 65,840,595 75,598,100 60,921,980
----------------------------------------------------------------------------

Earnings per unit -
basic and diluted 0.06 0.09 0.14 0.45
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Eveready calculates basic per unit amounts as if all outstanding Rollover LP units were converted into Fund units. Unvested units held by the Employee Unit Plan Trust are not treated as outstanding for purposes of calculating basic per unit amounts. Diluted per unit amounts for the nine months ended September 30, 2007 include the dilutive effect of outstanding unit options. Unvested units held by the Employee Unit Plan Trust and convertible debentures did not have a dilutive effect on earnings per unit in either the three or nine month periods ended September 30, 2007. The outstanding unit options were also not dilutive for the three month period ended September 30, 2007.



12. Supplemental expenditure information

a) Amortization expense

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Amortization of property,
plant and equipment 8,715 5,949 23,770 15,950
Amortization of assets
under capital lease 316 - 527 -
Amortization of
intangible assets 2,215 1,307 5,770 2,302
Accretion on asset
retirement obligations 34 19 81 87
----------------------------------------------------------------------------

11,280 7,275 30,148 18,339
----------------------------------------------------------------------------
----------------------------------------------------------------------------


b) Interest expense

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Interest - long-term debt 3,210 946 8,530 2,243
Interest - convertible
debentures 1,305 1,204 3,856 1,414
Interest - obligations
under capital lease 404 - 550 -
Interest - other 14 366 99 698
----------------------------------------------------------------------------

4,933 2,516 13,035 4,355
----------------------------------------------------------------------------
----------------------------------------------------------------------------


13. Supplemental cash flow information

a) Changes in non-cash operating working capital:

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Accounts receivable (12,849) (3,370) (6,226) (7,380)
Inventory (730) (613) (3,389) (1,447)
Properties held for resale - - 1,977 -
Prepaid expenses and
deposits 6,207 (955) 246 (1,346)
Accounts payable and
accrued liabilities 4,090 211 (3,413) (3,269)
Income taxes payable (1,257) (145) (1,041) (539)
----------------------------------------------------------------------------

(4,539) (4,872) (11,846) (13,981)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


b) Non-cash investing and financing activities:


- During the three and nine months ended September 30, 2007, distributions of $4,519 and $14,167, respectively (2006 - $3,531 and $9,561, respectively), owing to unitholders participating in the DRIP, were settled by issuing units (note 10); and

- During the three and nine months ended September 30, 2007, units valued at $nil and $2,500, respectively (2006 - $27,553 and $55,171, respectively), were issued as partial consideration in the completion of business acquisitions (note 3).

c) Income taxes and interest paid:



----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------

Income taxes paid 965 206 1,452 1,495
Interest paid 4,917 2,252 9,865 4,052
----------------------------------------------------------------------------
----------------------------------------------------------------------------


d) Cash used in business acquisitions, net of cash acquired:

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Cash consideration
paid (note 3) - 33,060 60,033 67,807
Acquisition costs (note 3) - 410 127 842
Less: cash acquired in
business acquisitions - (1,378) - (3,448)
----------------------------------------------------------------------------
Cash used in business
acquisitions, net of cash
acquired - 32,092 60,160 65,201
----------------------------------------------------------------------------
----------------------------------------------------------------------------


14. Segmented reporting

Eveready operates in three business segments, segregated based on the type of customer services. These segments include: industrial and oilfield services; health, safety and environmental services; and oilfield equipment rental and lodging services. In total, Eveready provides over 80 different services to its customers. With such a wide range of services, it is impractical to provide a revenue breakdown for each service provided.

Industrial and oilfield services source a variety of customers in the energy, resource, and manufacturing sectors. They include, among other services, catalyst handling, chemical cleaning and decontamination, directional boring and punching, fluid hauling, flush-by and coil tubing services, furnace tube decoking and pigging, geospatial data mapping, heli-portable drilling, high and ultra-high pressure water cleaning, hot oiling, hydro-excavation, pressure testing, seismic line clearing, seismic surveying, steam cleaning, tank cleaning, and wet and dry vacuum services.

Health, safety and environmental services include disposal well services, emergency response services and training, emulsion treatment, filters and filtration services, industrial health services, landfill solid waste disposal, mobile mechanical dewatering and dredging, and safety training and services.

Oilfield equipment rental and lodging services include the rental, sale, and supply of a wide variety of oilfield equipment. These services are comprised of access rentals, modular accommodations, production equipment, and premier industrial lodges and drill camp accommodations.

In the fourth quarter of 2006, Eveready made minor changes to the composition of its business segments. The comparative figures in 2006 were reclassified from statements previously presented to conform to the new composition.

Selected financial information by reportable segment is disclosed as follows:



----------------------------------------------------------------------------
Three Month Period Ended Oilfield
September 30, 2007 Health, equipment
Industrial safety and rental
and oilfield environmental and lodging
services services services Total
$ $ $ $
----------------------------------------------------------------------------

Revenue 99,839 12,592 14,336 126,767
Amortization expense 8,371 850 2,059 11,280
Interest expense 3,587 434 912 4,933
Earnings before income
taxes and
non-controlling interest 49 678 3,591 4,318

Capital expenditures
(excluding business
acquisitions) 16,036 12 2,521 18,569
Acquisition of goodwill - - - -

----------------------------------------------------------------------------
Three Month Period Ended
September 30, 2006
----------------------------------------------------------------------------

Revenue 80,461 10,086 2,923 93,470
Amortization expense 5,580 900 795 7,275
Interest expense 2,334 78 104 2,516
Earnings before income
taxes and
non-controlling interest 4,389 1,114 677 6,180

Capital expenditures
(excluding business
acquisitions) 12,157 1,186 2,089 15,432
Acquisition of goodwill 21,628 - - 21,628
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Nine Month Period Ended Oilfield
September 30, 2007 Health, equipment
Industrial safety and rental
and oilfield environmental and lodging
services services services Total
$ $ $ $
----------------------------------------------------------------------------
Revenue 323,142 31,278 27,325 381,745
Amortization expense 23,418 2,358 4,372 30,148
Interest expense 10,553 1,027 1,455 13,035
Earnings (loss) before
income taxes and
non-controlling interest 12,239 (686) 6,156 17,709

Capital expenditures
(excluding business
acquisitions) 52,432 873 5,687 58,992
Acquisition of goodwill 1,853 - 23,069 24,922
----------------------------------------------------------------------------
Nine Month Period Ended
September 30, 2006
----------------------------------------------------------------------------
Revenue 238,386 23,486 8,380 270,252
Amortization expense 12,612 3,808 1,919 18,339
Interest expense 3,976 173 206 4,355
Earnings before income
taxes and non-controlling
interest 25,339 1,353 2,215 28,907
Capital expenditures
(excluding business
acquisitions) 34,037 5,326 6,471 45,834
Acquisition of goodwill 43,233 1,758 2,131 47,122
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Selected balance sheet information by reportable segment is disclosed as
follows:

----------------------------------------------------------------------------
As at September 30, 2007 Oilfield
Health, equipment
Industrial safety and rental
and oilfield environmental and lodging
services services services Total
$ $ $ $
----------------------------------------------------------------------------
Property, plant and
equipment 212,522 13,878 66,488 292,888
Intangible assets 29,308 14,788 9,716 53,812
Goodwill 76,906 4,088 29,752 110,746
Total assets 427,892 41,507 125,395 594,794
----------------------------------------------------------------------------

----------------------------------------------------------------------------
As at December 31, 2006
----------------------------------------------------------------------------

Property, plant and
equipment 182,933 12,981 16,989 212,903
Intangible assets 30,420 15,336 2,899 48,655
Goodwill 74,760 4,141 6,683 85,584
Total assets 389,063 40,987 36,131 466,181
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Eveready's operations are conducted in the following geographic locations:

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Revenue
Canada (excluding
oil sands region) 78,054 64,667 226,266 190,117
Oil sands region(1) 38,050 18,432 115,501 66,604
United States and
international 10,663 10,371 39,978 13,531
----------------------------------------------------------------------------

126,767 93,470 381,745 270,252
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
As at September 30 December 31
2007 2006
$ $
----------------------------------------------------------------------------
Property, plant and equipment, goodwill,
and intangibles
Canada 420,521 313,728
United States and international 36,925 33,414
----------------------------------------------------------------------------

457,446 347,142
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Note: (1) The oil sands region includes Eveready's operations located in
north-eastern Alberta.


15. Related party transactions

a) During the three and nine months ended September 30, 2007, Eveready incurred professional fees of $22 and $409 (2006 - $137 and $441), respectively, from a partnership of which an Eveready officer is a partner;

b) During the three and nine months ended September 30, 2007, Eveready incurred professional fees of $23 and $92 (2006 - $174 and $291), respectively, from a partnership of which an Eveready trustee is a partner;

c) Included in general and administrative expenses for the three and nine months ended September 30, 2007 are occupancy costs of $411 and $1,145 (2006 - $184 and $503), respectively, paid to companies controlled or influenced by certain officers and/or trustees of Eveready;

d) During the three and nine months ended September 30, 2007, Eveready acquired service equipment of $1,424 and $2,496 (2006 - $nil), respectively, from companies controlled or influenced by certain officers and/or trustees of Eveready;

e) During the three and nine months ended September 30, 2007, Eveready incurred equipment rental and repair costs of $16 and $121 (2006 - $nil), respectively, from companies controlled or influenced by certain officers and/or trustees of Eveready; and

f) During the three and nine months ended September 30, 2007, Eveready earned service revenue of $888 (2006 - $8 and $88 respectively) from companies controlled or influenced by certain officers and/or trustees of Eveready.

All transactions occurred in the normal course of operations and were measured at their exchange amounts, which were established and agreed to as consideration by the related parties.

16. Guarantees

During the nine months ended September 30, 2007, Eveready entered into the following guarantee obligations:

a) In June 2007, Eveready provided a guarantee to a financial institution for financing obtained by a contractor to purchase specific service and automotive equipment for use in supplying services to Eveready. The total future payments guaranteed by Eveready were $1,329. As at September 30, 2007, the total balance of all third party financings guaranteed by Eveready was $2,250. These financings are collateralized by the specific equipment purchased. Eveready would be required to settle these guarantees if a contractor were to default on the obligation and the collateral held by the financial institutions was not sufficient to repay the balances due. Eveready believes it would be able to satisfy all guaranteed obligations without disrupting normal business operations; and

b) Eveready had outstanding letters of credit at September 30, 2007 of CDN $2,225 and US $500, drawn under the Revolver (note 4).

17. Subsequent event

Effective October 5, 2007, Eveready acquired the Truck division of Wellco Energy Services Trust ("Wellco") for cash consideration of $5,000. The acquired assets will be utilized to fulfill Eveready's growing service commitment in the Alberta oil sands region and include a 25 unit fleet of vacuum trucks, hydro-excavation trucks, and water trucks, along with additional support equipment.

18. Comparative figures

Certain of the comparative figures were reclassified from statements previously presented to conform to the current period's presentation.

Contact Information

  • Eveready Income Fund
    Rod Marlin
    President & CEO
    (780) 451-6075
    (780) 451-2142 (FAX)
    or
    Eveready Income Fund
    Darren Stevenson
    CFO
    (780) 451-6075
    (780) 451-2142 (FAX)
    Website: www.evereadyincomefund.com