January 16, 2008 17:51 ET

Eveready Income Fund Announces 2008 Growth Plans and Approves Strategic Changes to Distribution Policy

EDMONTON, ALBERTA--(Marketwire - Jan. 16, 2008) - Eveready Income Fund (TSX:EIS.UN) ("Eveready" or the "Fund") is pleased to announce that it has approved a capital expenditure program of $78 million for 2008. The program is comprised of growth capital expenditures of $62 million and maintenance capital expenditures of $16 million. The capital additions will consist of approximately 120 new service units as well as approximately $20 million to expand Eveready's industrial lodge and camp facilities located in the Alberta oil sands region. Delivery of the capital equipment is expected throughout the year with a large portion of the expenditures being incurred to support planned revenue and earnings growth in 2009.

Sustained Growth Expected to Continue

Eveready's robust 2008 capital expenditure program is required to help meet the growing demand for its services, especially in the Alberta oil sands region of north-eastern Alberta. As previously announced, Eveready was awarded a number of long-term service contracts in the Alberta oil sands region with several blue-chip customers. The contracts range in length from two to five years and include Suncor Energy Inc., Nexen Inc., Canadian Natural Resources Limited, Petro Canada, and Syncrude Canada Ltd. Eveready expects these contracts to generate approximately $400 million in revenue over the next three years. Eveready's 2008 capital expenditure program will be critical to meeting its customers' needs in this area. Approximately 75% of Eveready's planned growth capital expenditures in 2008 have been earmarked for the Alberta oil sands region.

"Eveready continues to position itself as a leading provider of industrial and oilfield maintenance and production services to the Alberta oil sands," comments Rod Marlin, Eveready's President and Chief Executive Officer. "We are committed to retaining our market position in the oil sands, one of the largest remaining oil reserves in the world, and ensuring we continue to grow to meet the needs of our customers."

Eveready estimates that consolidated revenue for the year ended December 31, 2007, subject to finalization of its fourth quarter financial results, will approximate $515 million, a 36% increase from 2006. In addition, Eveready expects the execution of its aggressive capital expenditure program and business acquisitions completed in 2007 will result in revenue in excess of $600 million in 2008.

Eveready expects revenue from industrial and oilfield maintenance and production services outside of the Alberta oil sands to achieve modest growth in 2008. In addition, Eveready will continue to have limited exposure to conventional oil and gas exploration. In 2008, Eveready expects to generate approximately 12% of its consolidated revenue from activities related to conventional oil and gas exploration and drilling.

Proven Track Record

Eveready has proven that it can sustain significant levels of growth over the long-term. Eveready was recently listed in the January 2008 issue of Alberta Venture magazine as one of the 25 fastest growing companies in Alberta with revenue over $20 million. This is now the fifth consecutive year that Eveready has achieved this recognition. Eveready ranked third on the list achieving a 313% increase in revenue and 580% increase in EBITDA from 2004 to 2006.

"We are pleased to continue to be recognized for our outstanding level of growth," adds Rod Marlin. "Our track record for achieving year-over-year growth is a reflection of the tremendous effort and dedication of our employees and management team over the past several years. Their contributions have made Eveready the successful organization it is today."

Strategic Changes to Distribution Policy

Eveready's Board of Trustees has unanimously approved amendments to the Fund's distribution policy to maximize the retention of operating cash flow to re-invest in growth. Eveready's current monthly cash distribution of $0.06 per unit ($0.72 per unit on an annualized basis) will be eliminated and replaced with a quarterly "in-kind" distribution of $0.18 per unit ($0.72 per unit on an annualized basis). Distributions settled "in-kind" means that unitholders will receive additional Fund units instead of cash. "In-kind" Fund units will be issued at a deemed price equal to the volume-weighted average price of all units traded on the Toronto Stock Exchange on the ten trading days preceding the applicable record date. Eveready anticipates that the next distribution will be paid on or about April 15, 2008 to unitholders of record as of the close of business on March 31, 2008.

"The market has been sending us a strong signal that our current distribution policy is not the most effective use of our cash," comments Peter Lacey, Eveready's Chairman of the Board. "We concur and believe that reinvesting the Fund's cash in growing our business will maximize Eveready's long-term value. Essentially, our new distribution policy will provide the benefits that a corporation enjoys of being able to reinvest its profits in growth, yet retains the positive flow-through tax characteristics of an income trust until our likely conversion to a corporation in 2011."

The following points summarize Eveready's rationale in changing its distribution policy:

- The new policy should allow Eveready to retain in excess of $60 million in operating cash flow on an annual basis to re-invest in its capital expenditure programs, which are critical to its long-term success;

- Due to Eveready's current market price, Eveready is experiencing a very high cost of capital. As a result, raising additional equity capital in the public markets at this time would be very dilutive to existing unitholders. The new distribution policy should allow Eveready to complete both its 2008 and 2009 capital expenditure programs without raising additional external equity; and

- Payment of "in-kind" distributions will allow Eveready to continue to take advantage of the tax deferral on income trusts until 2011. The "in-kind" distributions will be deductible for tax purposes and allow the Fund to continue to eliminate its taxable income on an annual basis and maximize its future tax pools. This will allow the Fund to utilize its tax pools to shelter a significant amount of its taxable income beginning in 2011.

Eveready's Board of Trustees also considered an alternative decision to convert Eveready into a corporation. The board agreed that continuing to achieve the tax benefits of an income trust until 2011 was more accretive to the Fund and to its unitholders.

Holders of Rollover limited partnership units of subsidiaries of the Fund will continue to receive the equivalent economic treatment as unitholders of the Fund. In conjunction with implementing the new distribution policy, Eveready will be canceling its Distribution Reinvestment Plan.

Investors are cautioned that distributions are always subject to approval from the Board of Trustees and may be increased, decreased, suspended or converted entirely to cash by the board at any time.

Tax Treatment of "In-kind" Distributions

The following information is based on the Fund's understanding of the Income Tax Act (Canada) and is provided as general information only. This information is not exhaustive of all possible income tax considerations under the Income Tax Act (Canada) or other applicable legislation and is not intended to be legal or tax advice to any particular holder of Fund units. Unitholders or potential unitholders should consult their own legal, business and/or tax advisors as to the tax implications of holding Fund units in their particular circumstances.

In general, an "in-kind" distribution of Fund units to a Canadian resident will be treated as income for income tax purposes (and is subject to Canadian income tax). Each Fund unit received will have a cost base to the unitholder of an amount equal to the fair market value of the Fund unit at the time of the distribution. If a unitholder holds his or her Fund units in an RRSP, RRIF, DPSP, or RESP, no amount is required to be reported by the unitholder as income. An "in-kind" distribution to a U.S. resident is subject to Canadian withholding tax of 15%. Taxable U.S. resident unitholders may be able to claim a foreign tax credit for the Canadian withholding tax. Non-resident unitholders should consult their own legal, business, and/or tax advisors as to the tax implications of holding Fund units in their particular circumstances.

Eveready is a growth oriented income fund that provides industrial and oilfield maintenance and production services to the energy, resource, and industrial sectors. Operating from over 75 locations in Canada, the United States, and internationally, Eveready currently employs over 2,500 employees and operates a service fleet of over 1,000 trucks. Eveready is a leading provider of infrastructure services in Alberta's fast growing oil sands sector. The units of Eveready trade on the Toronto Stock Exchange under the trading symbol "EIS.UN".

EBITDA is a supplemental earnings measure that does not have any standardized meaning prescribed by Canadian GAAP and may not be comparable to EBITDA calculated by other funds or entities. EBITDA is a useful supplemental measure as it provides an indication of the financial results generated by Eveready's 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 is defined as earnings before interest, taxes, depreciation and amortization.

This press release contains forward-looking statements subject to various risk factors and uncertainties, which may cause the actual results, performances or achievements of Eveready to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, fluctuations in the market for oil and gas and related products and services, political and economic conditions, the demand for services provided by Eveready, industry competition and Eveready's ability to attract and retain both customers and key personnel.

Contact Information

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