EVEREADY INCOME FUND
TSX : EIS.UN

EVEREADY INCOME FUND

November 08, 2006 07:00 ET

Eveready Income Fund Announces 2006 Third Quarter Financial Results

EDMONTON, ALBERTA--(CCNMatthews - Nov. 8, 2006) - Eveready Income Fund (TSX:EIS.UN):



Selected Consolidated Financial Information:

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$ thousands, Three Months Ended Nine Months Ended
except per September 30 % September 30 %
unit amounts 2006 2005 Change 2006 2005 Change
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Revenue $ 93,470 $ 56,415 66% $ 270,252 $ 155,616 74%

Gross profit 30,486 16,467 85% 92,754 46,645 99%
Gross margin % 32.6 29.2% 34.3% 30.0%

EBITDA(1) 15,687 7,861 100% 51,065 23,546 117%
EBITDA margin %(1) 16.8 13.9% 18.9% 15.1%
Per unit - diluted(1) 0.24 0.19 26% 0.84 0.67 25%

Net earnings 5,599 3,684 52% 27,160 11,896 128%
Per unit - diluted 0.09 0.09 0% 0.45 0.34 32%
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Cash Flow (1) 14,768 6,233 137% 48,461 19,546 148%
Per unit - diluted(1) 0.22 0.15 47% 0.80 0.56 43%
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Weighted average
units outstanding(2)
Basic 65,641 40,928 60,540 34,887
Diluted 65,841 40,928 60,828 34,887
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Notes: (1) These financial measures are identified and defined under the
section "Non-GAAP Financial Measures."
(2) Basic and diluted per unit amounts have been calculated on the
basis that all rollover limited partnership units ("Rollover LP"
units - see "Outstanding Unit Data" section for a description of
the Rollover LP units) have been converted into Fund units.


Highlights:

- Revenue for the third quarter was $93.5 million reflecting an increase of 66% compared to revenue of $56.4 million in 2005;

- We reported EBITDA (see "Non-GAAP Financial Measures") of $15.7 million in the third quarter. This reflects an increase of $7.8 million or 100% compared to 2005;

- We reported net earnings of $5.6 million or $0.09 per unit on a diluted basis for the third quarter compared to net earnings of $3.7 million or $0.09 per unit in 2005;

- In October we increased our monthly distribution to $0.06 per unit ($0.72 per unit on an annualized basis). This reflects an increase of 20% from our previous monthly distribution of $0.05 per unit;

- Effective July 1, 2006, we acquired the Cat Tech group of companies for approximately US $29.4 million. Cat Tech is a leader in the provision of catalyst changeout services to major chemical and petroleum companies throughout the world;

- In September 2006, we acquired an 80% interest in the business and assets of the Bullseye Directional Drilling group of companies for approximately $11.3 million. We also entered into a letter of intent to acquire an 80% interest in the business and assets of the Rodrigue's Directional Drilling group of companies for approximately $8.4 million. These acquisitions will build on our previous acquisition of an 80% interest in Red Deer Directional Boring Ltd. in May 2006 and provide us a leading market position in this growing sector;

- In September 2006, we continued to expand our operations in east-central Alberta and western Saskatchewan by acquiring the Diversified Pressure Services group of companies for approximately $7.7 million;

- We continued to expand our seismic exploration service capabilities. In September, we acquired the business and assets of Real Time Surveys Inc. for $1.6 million. In October 2006, we also acquired Airborne Imaging Inc., a specialized provider of comprehensive planning and mapping solutions, for $4.8 million. These services compliment our existing seismic line clearing and heli-drilling services;

- Our on-going expansion in the Alberta oil sands region continued to generate higher revenues. We generated $66.6 million of revenue from this region during the first nine months of 2006 (compared to revenue of $38.2 million for the same period in 2005);

- In October 2006, we continued our expansion in the health, safety, and environmental services segment by acquiring Great Lakes Carbon Treatment, Inc., based out of Michigan, USA for total consideration of US $4.0 million;

- We continued to achieve organic growth in a number of existing service lines during the third quarter. This growth was achieved through investments in capital equipment and personnel; and

- On October 31, 2006, the federal Minister of Finance announced a new tax plan that will affect the future level of taxation of income trusts and corporations. The proposed new tax plan effectively imposes a tax on trusts comparable to corporations, beginning in 2011. The application of the new tax plan will reduce the tax efficiency of publicly traded income trusts such as Eveready.

Management's Discussion & Analysis

This Management's Discussion & Analysis ("MD&A") was prepared as of November 6, 2006 and is provided to assist readers in understanding Eveready Income Fund's ("Eveready" or the "Fund") financial performance for the three and nine month periods ended September 30, 2006 and significant trends that may affect the future performance of the Fund. This MD&A should be read in conjunction with the accompanying unaudited interim consolidated financial statements for the three and nine month periods ended September 30, 2006 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, 2005. The accompanying interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") using the Fund's reporting currency, the Canadian dollar. Eveready is a reporting issuer in each of the provinces of Canada, except Quebec. The Fund's units trade on the Toronto Stock Exchange under the symbol "EIS.UN".

Additional information relating to the Fund, including the Annual Information Form, 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 the Fund'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

Eveready manages a group of businesses that provide industrial and oilfield services from over 65 locations across Canada, the United States, and internationally. These subsidiaries operate in three business segments: industrial and oilfield services; health, safety, and environmental services; and oilfield equipment rental services. Our customers operate in the energy, resource, and manufacturing sectors.

Our staff roster fluctuates seasonally and now exceeds over 1,600 employees during our peak seasons. The aggregate fleet of Eveready consists of over 620 company-owned trucks and 240 lease-operated trucks. The fleet is made up 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 over 390 additional large pieces of equipment including directional boring rigs, heli-drills, mulchers, catalyst handling and support systems, and other specialized pieces of equipment. Our oilfield equipment rental services segment includes a wide range of oilfield rental equipment including approximately 6,800 access mats and 70 well-site units.

Overall Performance

We continue to be very pleased with our progress in meeting our growth objectives. We completed a number of business acquisitions during the quarter that we believe will provide accretive cash flow and earnings growth to our Unitholders. In addition, our revenue and earnings continue to increase. We achieved revenues of over $93 million and net earnings of $5.6 million during the third quarter. These results show a significant improvement compared to the same period in 2005.

However, there were factors that negatively impacted our operating performance in the third quarter. We experienced unseasonably wet weather in a number of areas during the month of September causing work to be delayed into the month of October. Wet weather can significantly limit our ability to move heavy equipment and provide customer services on a timely basis. As a result, our operating performance in certain areas did not meet our expectations in the month of September and hindered our overall third quarter financial results.

Despite this shortcoming, our outlook for the fourth quarter of 2006 and winter of 2007 continues to be strong. Even with the recent downturn in oil and gas prices, the demand for our services, which are principally provided in industrial maintenance, production services, and deep gas exploration remain high. Work delayed in the month of September is now being completed in the fourth quarter. In addition our exposure to shallow gas exploration, which has been cut back significantly in recent months, is minimal.

We completed six business acquisitions during the third quarter. Our most significant acquisition was the purchase of the Cat Tech group of companies ("Cat Tech") in July 2006. Cat Tech is a leader in the field of catalyst handling providing catalyst changeout services to major chemical and petroleum companies throughout the world. This acquisition represents another step in our on-going growth strategy and will help position Eveready as the preferred industrial services provider. Cat Tech is also a profitable company that we estimate could generate revenue of US $40.0 to $45.0 million and EBITDA of approximately US $6.0 to $7.0 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis. However, Cat Tech's operations do follow a seasonal pattern with the majority of their earnings being realized in the first six months of the fiscal year. As a result, Cat Tech did not contribute additional earnings to our overall financial results during the third quarter. We will begin to realize the financial benefits of the Cat Tech acquisition in the first quarter of 2007.

We expect the growth strategies that we have been executing will continue to increase our earnings and cash flows on a per-unit basis in the coming year. In October we increased our monthly distribution to $0.06 per unit ($0.72 per unit on an annualized basis). This represents an increase of 20% from our previous monthly distribution of $0.05 per unit and reflects our expectations for growth in our operating cash flows to continue in the fourth quarter of 2006 and in 2007.

The key to our success has been and will continue to be our employees. Eveready has grown at a significant rate over the past few years and completed several business acquisitions including eleven business acquisitions in 2005 and seventeen business acquisitions to date in 2006. Through the dedication and hard work of our employees, we have been successful in growing our business and maximizing our growth potential.

Strategic Developments

During the three months ended September 30, 2006, we continued to achieve significant progress towards our growth strategies.

Our growth strategies include:

- Growing our existing services and 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 believe that successfully executing these growth strategies is critical to Eveready achieving our mission of becoming the preferred supplier to our customers. Our major customers require diverse services to meet their needs. We believe these customers prefer to deal with those suppliers capable of providing a wide range of top quality services in a safe work environment.

How are we achieving this growth?

We are achieving this growth organically through capital expansion and through business acquisitions.

Organic Growth

We invested $45.8 million in property, plant, and equipment during the first nine months of 2006. This investment is part of our $62 million 2006 capital expenditure program, and is allowing us to continue significant organic growth in a number of regions. The program includes acquiring over 150 new service units, including chemical and high pressure units, vacuum trucks, pressure trucks, steamer trucks, tank trucks, flush-by units, and other support equipment.

The majority of our 2006 capital expenditure program is targeting those areas where we are experiencing a significant demand for our services. In particular, we are focused on growing our market presence in the Alberta oil sands region. Our capital expenditure program includes approximately $26 million that we are planning to invest in this region in 2006. During the nine months ended September 30, 2006, we have incurred capital expenditures of $12.1 million in this region. The remainder of the capital expenditure program will be completed in the fourth quarter as we prepare for the upcoming 2007 winter season.

Other areas of focus include our oilfield equipment rental services segment where expenditures of approximately $7.0 million are planned for 2006. To September 30, 2006, capital expenditures of approximately $6.5 million have been incurred in this segment. In addition, we are planning to invest approximately $5.7 million in 2006 to significantly expand our capacity at the Pembina Area Landfill, of which approximately $4.9 million has been incurred to September 30, 2006.

In October, we revised our 2006 capital expenditure program to be $62 million, reflecting a $7 million increase from our previous capital expenditure program of $55 million. This increase was required to help meet the high demand for our services in a number of key areas. In particular, our 2006 capital expenditure program in the Alberta oil sands region increased by $4.0 million. In addition, we are planning to incur capital expenditures of approximately $1.3 million in the fourth quarter to expand our directional boring and punching service capabilities.

Business Acquisitions

We pursued a number of business acquisition opportunities in 2006 to achieve our growth strategies. To date in 2006, we have completed seventeen business acquisitions. We believe these business acquisitions are providing us with the equipment, technology, skilled personnel, and the geographic extension that we require to be the preferred service provider to our customers.

A summary of the business acquisitions we have announced or completed in the third quarter and up to the date of this MD&A are outlined below.

Industrial and Oilfield Services

Cat Tech Group of Companies

Effective July 1, 2006, we acquired the Cat Tech group of companies ("Cat Tech"). Headquartered in Houston, Texas, Cat Tech provides catalyst changeout services to major petroleum and chemical companies throughout the world. We believe this acquisition will provide a number of significant benefits to Eveready. These benefits will include:

- Significantly expanding our catalyst handling services in existing locations and in new geographic areas;

- Establishing a significant market presence for catalyst handling services in the Alberta oil sands region;

- Obtaining a market presence in a number of new international locations; and

- Consolidating an industry peer and competitor that is a recognized world leader in catalyst handling.

The majority of Cat Tech's operations are conducted in Canada and the United States. Cat Tech's US operations are based in California, Kentucky, Louisiana, New Jersey, and Texas. Cat Tech's Canadian operations are based in Sarnia, Ontario and Edmonton, Alberta and include a significant presence in the Alberta oil sands. Cat Tech has also expanded into a number of international locations including the United Kingdom, US Virgin Islands, Bahamas, and Singapore to meet the needs of its customers in these regions.

The preliminary purchase price of approximately US $29.4 million was paid via: (i) US $21.9 million in cash and (ii) US $7.5 million through the issuance of 1,246,343 units of Eveready. The final purchase price may be subject to adjustment based on Cat Tech's net equity position as of July 1, 2006.

We estimate Cat Tech could generate revenue of US $40.0 to $45.0 million and EBITDA of approximately US $6.0 to $7.0 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis.

Directional Boring and Punching Services

The demand for directional boring and punching services has been growing at a tremendous rate in western Canada and we expect that this rate of growth will continue. In addition, the supply of these services requires specialized equipment and expertise to operate. This restricts the supply of these services which, when combined with the current high level of demand, provides significant growth opportunities to those businesses that have the equipment, the expertise, and the capital to maximize their growth potential.

Given this potential, we have identified this sector as a key growth area in 2006. However, to ensure our long-term success in this sector, we needed to ensure the management and key employees of each of our acquisition targets were also committed to Eveready for the long-term. We accomplished this through the following initiatives:

- Principal Unitholder Agreements (see "Distributions - Principal Unitholder Agreement"). Approximately 50% of the total consideration paid to acquire these entities is required to be taken in units of Eveready that will be subject to our Principal Unitholder Agreement;

- The vendors (who are also key employees) of each acquisition must retain a 20% equity interest in the business; and

- The other key employees of each acquisition will participate in our Employee Unit Plan.

We believe these initiatives will allow Eveready to successfully grow in this sector, while also ensuring that we retain the knowledge and specialized expertise we need to be successful in this sector over the long-term.

We first entered this sector with our acquisition of an 80% interest in the assets and business of Red Deer Directional Boring Ltd. ("RDDB") in May 2006 for total consideration of $30.4 million. RDDB is a leading provider of directional boring and punching services to customers in a wide range of industrial sectors including the oil and gas industry. These services specialize in boring pipeline, fibre optic, cable, gas, water, and sewer lines able to traverse highways, roads, rivers, tree lines, rail lines and environmentally sensitive areas. The equipment is capable of drilling lengths up to 1,500 meters, and ream holes of up to 34 inches in diameter.

During the three months ended September 30, 2006 and up to the date of this MD&A, we completed or announced two additional business acquisitions in this sector:

a) Bullseye Directional Drilling Group of Companies

Effective September 1, 2006, we acquired an 80% interest in the assets and business of the Bullseye Directional Drilling group of companies ("Bullseye"). Servicing the oil, gas and utility sectors, Bullseye specializes in directional boring and road punching and offers a variety of solutions for the underground crossing requirements of its customers.

The preliminary purchase price of approximately $11.3 million was paid via: (i) $0.5 million in cash, (ii) $5.4 million through the issuance of 736,772 Fund units and (iii) $5.4 million through the issuance of 736,770 Rollover LP units. The final purchase price may be subject to adjustment based on Bullseye's net equity position as of September 1, 2006.

We estimate Bullseye could generate EBITDA of approximately $5.0 to $5.5 million (before non-controlling interest share) on an annual basis (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements").

In connection with the acquisition of Bullseye, we also entered into a mutual option agreement with the vendors. This agreement provides Eveready a call option to acquire the remaining 20% non-controlling interest and provides the vendors a put option to sell the remaining 20% non-controlling interest to Eveready exercisable at any time after August 31, 2009. The exercise price for each option is based on a formula that is designed to estimate the fair value of the non-controlling interest at the time the option is exercised.

b) Rodrigue's Directional Drilling Group of Companies

In August 2006, we entered into a letter of intent to acquire an 80% interest in the assets and business of the Rodrigue's Directional Drilling group of companies ("Rodrigue's). Based in Nisku, Alberta, Rodrigue's is a horizontal directional boring firm with a number of additional support services.

The letter of intent contemplates a purchase price of $8.4 million, and is payable through a combination of units and cash consideration, but subject to a minimum of 80% of the consideration being in units. The units are to be issued at a deemed price per unit equal to the lower of: (i) the ten day weighted average trading price of the units as traded on the Toronto Stock Exchange on the ten days prior to the signing of the letter of intent; and (ii) the ten day weighted average trading price of the units as traded on the Toronto Stock Exchange on the ten days prior to the effective date of the acquisition.

We estimate Rodrigue's could generate EBITDA of approximately $2.2 to $3.0 million (before non-controlling interest share) on an annual basis (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements").

In connection with the above acquisition, we will also enter into a mutual option agreement with the vendors. This agreement will provide Eveready a call option to acquire the remaining 20% non-controlling interest and provide the vendors a put option to sell the remaining 20% non-controlling interest to Eveready exercisable at any time after March 31, 2009. The exercise price for each option is based on a formula that is designed to estimate the fair value of the non-controlling interest at the time the option is exercised.

Completion of the above acquisition is subject to a number of conditions including, but not limited to, the completion of satisfactory due diligence by Eveready as well as approval of the board of trustees of Eveready. Completion of the acquisition is also subject to the receipt of any required regulatory approvals including, but not limited to, the approval of the Toronto Stock Exchange. Assuming all of these conditions are satisfied, we anticipate that this acquisition will close in November, 2006.

Pressure and Vacuum Services

a) Diversified Pressure Services Group of Companies

We continued our expansion in east-central Alberta and western Saskachewan in the third quarter by acquiring the Diversified Pressure Services group of companies ("Diversified"), effective September 1, 2006. Based in Macklin, Saskatchewan, Diversified provides a wide range of oilfield services to the oil and gas industry including vacuum truck, pressure testing, hot oiling, tank truck, steam cleaning, and flush-by services.

This acquisition represents a significant milestone in our expansion in this region. With all of our acquisitions and organic growth in this region over the past year and a half, and now with the acquisition of Diversified, we believe we have established ourselves as the leading oilfield services provider in this region.

The preliminary purchase price of $7.7 million was paid via: (i) $3.9 million in cash and (ii) $3.8 million through the issuance of 556,380 Rollover LP units. The final purchase price may be subject to adjustment based on Diversified's net working capital as of September 1, 2006.

We estimate that Diversified could generate EBITDA of approximately $2.0 to $2.5 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis.

b) D&G Water & Vacuum Services

Meeting the high demand for our services has been challenging in a number of regions in western Canada due to the strength of the energy sector. We have been committed to meeting this demand through organic growth by investing in additional equipment and personnel, but also supplementing this organic growth with business acquisitions in strategic areas.

In July 2006, we entered into a letter of intent to acquire the business and assets of D&G Water & Vacuum Services; consisting of the assets of D&G Industry Services Ltd. and NPPP Ventures Ltd. ("D&G"). Based in High Level, Alberta, D&G provides water truck and vacuum services to customers in the oil and gas industry. This acquisition will allow us to expand our operations geographically in northern Alberta and help us obtain the additional equipment and manpower resources we need to meet the demand for our services in this region.

The letter of intent contemplates a purchase price for the business and assets equal to a multiple of 3.5 times D&G's normalized earnings before interest, taxes, depreciation, and amortization for the year ended July 31, 2006. The purchase price will be satisfied via: (i) $676 thousand in units of Eveready and (ii) the remainder in cash consideration.

This acquisition will also be completed in two stages, with D&G's equipment being acquired on August 1, 2006 for cash proceeds equal to approximately $3.7 million. This value was based on the equipment's fair market value, as determined by a third party appraisal. The second stage of the acquisition is expected to close in November 2006. The estimated total consideration to complete both stages of this business acquisition is approximately $7.0 million.

We estimate that D&G could generate EBITDA of approximately $2.0 to $2.5 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis.

Completion of the above acquisition is subject to a number of conditions including, but not limited to, the completion of satisfactory due diligence by Eveready as well as approval of the board of trustees of Eveready. Completion of the acquisition is also subject to the receipt of any required regulatory approvals including, but not limited to, the approval of the Toronto Stock Exchange.

Mapping and Surveying Services

In the first quarter of 2006, we expanded our suite of services to include seismic surveying. This expansion was a natural progression for Eveready as it complimented existing seismic line clearing and heli-drilling services that we already provide. We continued this expansion in the second half of 2006 by acquiring an additional surveying business and a specialized mapping company. We believe this expansion will benefit our current customers by allowing them to obtain a complete package of mapping, surveying, seismic line clearing and heli-drilling services all at one stop. Offering a complete package of these services to our customers will help position ourselves as the preferred supplier in this sector.

Business acquisitions that we have completed in this sector during the third quarter and up to the date of this MD&A include:

a) Real Time Surveys

In September 2006, we acquired the business and assets of Real Time Surveys Inc. ("Real Time"). Real Time is a private Alberta-based company that provides surveying services to support exploration programs for oil and gas companies. The purchase price of $1.6 million was satisfied through the issuance of 236,686 Fund units.

b) Airborne Imaging

Effective October 1, 2006, we acquired 100% of the issued and outstanding shares of Airborne Imaging Inc. ("Airborne"). Airborne is a private Alberta-based company that provides comprehensive planning and mapping solutions to companies operating primarily in the oil and gas sector.

The purchase price of approximately $4.8 million, was payable through a combination of: (i) $2.6 million in cash, (ii) $1.9 million through the issuance of 262,109 Fund units, and (iii) $0.3 million through the forgiveness of a loan payable from the vendor to Eveready.

Health, Safety and Environmental Services

a) Great Lakes Carbon Treatment, Inc.

We continued to expand our health, safety, and environmental ("HSE") service capabilities in the second half of 2006. Effective October 1, 2006, we acquired 100% of the issued and outstanding shares of Great Lakes Carbon Treatment, Inc. ("Great Lakes"). Based in Michigan, USA, Great Lakes specializes in the custom design and manufacture of environmental remediation equipment. The company also provides environmental remediation services to a wide range of customers operating primarily in the chemical, petroleum, utilities, real estate and manufacturing sectors. This acquisition will build on the current filtration and environmental remediation services that we already provide to our customers.

The purchase price of US $4.0 million was paid via (i) US $2.0 million in cash and (ii) US $2.0 million through the issuance of 324,283 Fund units.

We estimate that Great Lakes could generate EBITDA of approximately US $1.0 to US $1.5 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis.



Results of Operations

Revenue

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Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2006 2005 2006 2005
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Revenue by segment:
Industrial and
oilfield $ 82,805 $ 52,709 $ 244,416 $ 147,270
Health, safety, and
environmental 7,742 3,706 17,456 8,346
Oilfield equipment
rental 2,923 - 8,380 -
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Total 93,470 56,415 270,252 155,616
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Revenue increased by $37.1 million or 66% to $93.5 million for the three months ended September 30, 2006 and by $114.6 million or 74% to 270.3 million for the nine month period ended September 30, 2006 compared to the same three and nine month periods in 2005. The demand for our services has been increasing at a significant rate due to a strong overall energy sector. This revenue growth is a direct result of the execution of our growth strategies over the past year, which has been allowing us to meet this growing demand.

Industrial and Oilfield Services

Revenue from industrial and oilfield services increased by $97.1 million to $244.4 million for the nine months ended September 30, 2006. This increase resulted from:

- Significant organic revenue growth in the Alberta oil sands region generated $66.6 million of revenue from this region during the nine month period. This represents an increase of $28.4 million or 74% compared to revenue of $38.2 million generated for the same nine month period in 2005;

- Operations in east-central Alberta and western Saskatchewan generated revenue of $51.3 million in 2006. This reflects an increase of $20.4 million or 66% compared to the same nine month period in 2005. We completed a number of business acquisitions in this region over the past year, which combined with significant investments in new equipment, have contributed to this increase;

- Revenue from seismic line clearing, heli-drilling, and surveying services generated revenue of $53.1 million in 2006. This reflects an increase of $16.3 million or 44% compared to revenue of $36.8 million for the same period in 2005. The majority of this increase was due to organic growth of existing services over the past twelve months;

- Revenue generated from our acquisition of the Cat Tech group of companies effective July 1, 2006 contributed $8.7 million to revenue;

- Organic growth from industrial and oilfield services offered in north-western Alberta and northern British Columbia generated $19.4 million of revenue in 2006. This represents an increase of $8.4 million or 76% compared to the same nine month period in 2005;

- Growth from industrial and oilfield services offered in the central Alberta region generated revenue of $17.4 million in 2006. This represents an increase of $3.7 million or 27% compared to the same nine month period in 2005;

- The business and assets purchased from the ICE Joint Venture in April 2005 and from the Pinnacle Pigging group of companies in May 2006 contributed $8.0 million of revenue to operations during the nine month period ended September 30, 2006. This compares to only $3.0 million of revenue for the same period in 2005, a $5.0 million increase; and

- The acquisition of the business and assets of RDDB effective May 1, 2006 and Bullseye effective September 1, 2006 contributed an additional $6.2 million of revenue to operations in 2006.

Health, Safety, and Environmental Services

We generated revenue of $17.5 million from this segment during the nine month period ended September 30, 2006. This reflects an increase of $9.1 million compared to the same period in 2005. A significant portion of this increase resulted from our acquisition of the Pembina Area Landfill in November 2005. To September 30, 2006, we have already generated $6.7 million of revenue from this acquisition. In addition, our Mobile Industrial Health services division generated revenue of $2.8 million in 2006, reflecting an increase of $1.8 million compared to revenue of $1.0 million for the same nine month period in 2005.

We also experienced a significant increase in revenue generated from our mechanical dredging and dewatering division during the third quarter of 2006. We generated revenue of $3.0 million during the quarter compared with revenue of only $1.1 million for the same three month period in 2005 and of only $1.0 million for the previous six months ended June 30, 2006. These services tend to be project specific, and therefore, revenue can fluctuate significantly depending on the number of projects being completed during a specific period. Projects obtained within this division during the third quarter resulted in this significant increase in revenue. Higher revenue from this division is expected to continue in the fourth quarter of 2006.

Oilfield Equipment Rental Services

We generated $8.4 million of revenue from this segment in 2006. We did not operate in this segment in 2005 until our acquisition of Canada Wide Industries Ltd. in November 2005. We continued this growth during the first half of 2006 by acquiring the business and assets of Head West Energy on March 1, 2006 and 100% of the issued and outstanding shares of Tornado Rentals Ltd., effective April 1, 2006.



Gross Profit

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Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2006 2005 2006 2005
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Amount $ 30,486 $ 16,467 $ 92,754 $ 46,645
Gross margin % 32.6% 29.2% 34.3% 30.0%
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With our revenue growth, we increased our gross profit to $30.5 million in the third quarter and $92.8 million for the nine month period ended September 30, 2006. In addition, our gross margin percentage improved to 34.3% compared to 30.0% for the same nine month period in 2005. Our recent expansions in the health, safety, and environmental services and oilfield equipment rental services segments contributed to this increase. The gross margins generated from these services are normally higher than those experienced in our industrial and oilfield services segment.

Our gross margin specific to our industrial and oilfield services segment improved to 32.5% compared with 30.3% for the same nine month period in 2005. Increased revenues in 2006 compared to 2005, which has resulted in better utilization of our equipment and people, has contributed to this increase. In addition, expansion in higher margin specialty services such as directional boring and punching have also had a positive effect on our overall gross margin in this business segment.

From quarter to quarter, our gross margins are typically higher in the first quarter compared to other quarters of the year. This difference arises from seasonality in our business. Demand for our services are generally highest in the first quarter compared to the other quarters of the year. This increased demand allows us to better utilize our people and equipment, which normally contributes to a higher gross margin. Due to this seasonality, the gross margin percentages we report for the three months ended September 30th is typically lower than the gross margin percentages we report for the nine months ended September 30th.



Administrative and General Expenses

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Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2006 2005 2006 2005
---------------------------------------------------------------------------

Amount $ 14,594 $ 8,840 $ 40,919 $ 23,231
% of revenue 15.6% 15.7% 15.1% 14.9%
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Administrative and general expenses increased significantly from the comparative periods in 2005. These increases are attributable to additional salary and wage costs and other fixed expenses required to support our increased level of revenue. This includes additional administrative support for a number of business acquisitions completed in the fourth quarter of 2005 and during the first nine months of 2006. We also incur additional administrative costs associated with being a public income fund that were not required as a private company. Eveready was converted into a public income fund in March 2005.

As a percentage of revenue, administrative and general expenses for the nine months ended September 30, 2006 increased slightly to 15.1% compared to 14.9% for the same period in 2005. This increase results from a number of factors including those factors discussed above. After becoming a public income fund in March 2005, we began to aggressively pursue additional growth opportunities. This growth requires substantial investments in operating infrastructure to ensure our growth is properly supported. We also continue to make investments in governance processes and system enhancements to meet the requirements of Bill C-198 with respect to internal controls over our financial reporting.

Higher employee bonus expenses during the first nine months of 2006 also contributed to the overall increase in administrative and general expenses. We support a broad-based employee bonus program that allows key employees, based on their contributions to our overall success, to share in the Fund's profits. The bonus plan is based on a range of criteria including profitability, safety performance, and equipment utilization. Currently, our bonus program approximates 15% of our consolidated earnings before income taxes. In addition, we implemented our Employee Unit Plan during the second quarter of 2006. Additional compensation expense of $1,557 has been recognized in 2006 pursuant to this plan and is included in administrative and general expenses.

We believe that administrative and general expenses will continue to grow during the remainder of 2006 and into 2007 due to our planned revenue growth. However, administrative and general expenses as a percentage of revenue should decrease due to the economies of scale improvements that come with growth.



Amortization

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2006 2005 2006 2005
---------------------------------------------------------------------------

Amount $ 7,275 $ 2,716 $ 18,339 $ 6,697
% of revenue 7.8% 4.8% 6.8% 4.3%
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Amortization expense increased significantly in 2006 compared to the same three and nine month periods in 2005. This increase results from significant growth in our property, plant, and equipment. Property, plant, and equipment increased to $190.2 million as of September 30, 2006 compared to $91.7 million at September 30, 2005. In addition, we acquired over $47 million of intangible assets in 2005 and during the first nine months of 2006. The majority of our intangible assets were acquired with business acquisitions and are amortized over their estimated useful lives. Amortization expense on our intangible assets was $2.3 million for the nine month period ended September 30, 2006 compared to only $60 thousand for the same period in 2005.

Amortization calculated as a percentage of revenue increased to 7.8% and 6.8% respectively for the three and nine month periods ended September 30, 2006 compared to 4.8% and 4.3% respectively for the same periods in 2005. This increase resulted from our expansion in the health, safety, and environmental services and oilfield equipment rental services business segments. Compared to our traditional industrial and oilfield services, these segments normally incur a much higher percentage of amortization expense for every dollar of revenue earned.

Amortization expense incurred within the industrial and oilfield services segment alone was 5.3% of revenue for the nine months ended September 30, 2006 compared to 4.5% for the same nine month period in 2005. The majority of this increase is attributable to increased amortization on intangible assets that were acquired with business acquisitions in 2005 and 2006. Within the industrial and oilfield services segment, if we exclude amortization of intangible assets of $1.4 million, amortization expense would have been $11.4 million in this segment or 4.7% of revenue, which is comparable to the percentage recognized for the same nine month period in 2005.

In addition, approximately $1.0 million of unusual amortization expense was recognized during the first quarter in our health, safety, and environmental services segment. This expense resulted from an increase in estimated capping costs to close some of our landfill cells once they are filled to capacity (see section entitled "Asset Retirement Obligations").

Under Canadian GAAP, changes to the estimated future cash flows required to service asset retirement obligations are capitalized to the associated long-lived asset and amortized over their estimated remaining useful life. Our landfill facilities are amortized based on the percentage of total capacity used in a reporting period. Due to the fact that some of our landfill cells were already near capacity in the first quarter, we were required to recognize a large portion of the increase as amortization expense in the nine month period.



EBITDA

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2006 2005 2006 2005
---------------------------------------------------------------------------

Amount $ 15,687 $ 7,861 $ 51,065 $ 23,546
% of revenue 16.8% 13.9% 18.9% 15.1%
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Our EBITDA (see "Non-GAAP Financial Measures") grew to $51.1 million for the nine months ended September 30, 2006. This increase reflects our strong improvement in operating results in 2006. We were able to significantly increase our revenue and also control increases in direct costs. Our ability to increase our overall gross margin in 2006 allowed us to increase our EBITDA margin from 15.1% for the nine months ended September 30, 2005 to 18.9% for the same nine month period in 2006. Our expansion in the health, safety, and environmental services and oilfield equipment rental services segments, which generally earn a higher gross margin, contributed to this increase. In addition, better equipment and people utilization, combined with the introduction of higher gross margin specialty services such as directional boring and punching have also contributed to this increase.



Interest Expense

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2006 2005 2006 2005
---------------------------------------------------------------------------

Amount $ 2,516 $ 1,315 $ 4,355 $ 3,761
% of revenue 2.7% 2.3% 1.6% 2.4%
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Interest expense increased significantly during the three months ended September 30, 2006 compared to both the same three month period in 2005 and for the previous six month period ended June 30, 2006. This increase resulted from the following factors:

- In June 2006, we completed a bought-deal financing of $50 million principal amount 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 (see "Convertible debentures" section below). These Debentures are expected to incur annual cash interest of $3.5 million. In addition, the fair value of the Debentures will accrete to their full principal amount of $50 million over the five year term. Including this accretion expense and deferred financing costs that will also be amortized over the term of the Debentures, we expect to incur annual interest expense of $5.3 million in 2007 and then rising over the term of the Debentures to approximately $5.8 million by 2010. These estimates assume that no Debentures will be converted into units or redeemed by Eveready prior to maturity. During the three months ended September 30, 2006 we incurred interest expense of $1.2 million on these Debentures; and

- Business acquisitions and capital expenditures completed during the third quarter required us to utilize more of our debt credit facilities. During the quarter, our bank indebtedness increased to $15.3 million from $nil as at June 30, 2006. In addition, we increased the amount drawn on our long-term debt credit facility to $60.0 million as at September 30, 2006 compared to $15.0 million as at June 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 2006 2005 2006 2005
---------------------------------------------------------------------------

By segment:
Industrial and
oilfield $ 4,632 $ 3,162 $ 26,389 $ 12,516
Health, safety
and environmental 812 668 245 572
Oilfield equipment
rental 736 - 2,273 -
---------------------------------------------------------------------------

Total 6,180 3,830 28,907 13,088
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Earnings before income taxes and non-controlling interest for our industrial and oilfield services segment increased significantly in 2006 compared to 2005. This improvement results from the significant rate of growth we have been experiencing in 2006.

Our health, safety, and environmental services segment also reported strong earnings during the third quarter of 2006, especially compared to the previous six month period ended June 30, 2006 where the segment actually operated in a loss position. This improvement resulted from the following factors:

- Our mechanical dredging and dewatering division. This division, whose services tend to be project specific, generated significantly higher revenues and earnings during the third quarter of 2006. During the first six months of 2006, this division operated in a loss position; and

- The Pembina Area Landfill. Unusual amortization expense of approximately $1.0 million pertaining to our operations at the Pembina Area Landfill was recognized during the first quarter. This expense resulted from revised estimated capping costs to close some of our landfill cells once they are filled to capacity (see discussion under "Amortization expense" above). This unusual expenditure was not incurred during the second or third quarters of 2006.

Our oilfield equipment rental services division commenced operations during the fourth quarter of 2005 with our acquisition of Canada Wide Industries Ltd. Therefore, we did not report any revenue or earnings from this segment in 2005.



Income Taxes

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2006 2005 2006 2005
---------------------------------------------------------------------------

Earnings before income
taxes and non
-controlling interest $ 6,180 $ 3,830 $ 28,907 $ 13,088
Income tax expense 297 146 1,211 1,192
Effective tax rate 4.8% 3.8% 4.2% 9.1%
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Income tax expense is difficult to compare to prior periods without putting the amounts into perspective. In March 2005, Eveready was converted into an income fund to qualify as a mutual fund trust. As a result, we are not currently subject to income taxes to the extent that our taxable income in a year is paid or payable to our Unitholders. Accordingly, no provision for income taxes for the Fund is made.

However, we continue to follow the liability method of accounting for any incorporated subsidiaries that are subject to income taxes. Income tax expense recognized during the nine months ended September 30, 2006 relates to operations that remain within taxable incorporated subsidiaries of the Fund. The majority of our income tax expense of $1.2 million recognized during the nine months ended September 30, 2005 resulted prior to the completion of our income fund reorganization in March 2005.

Income tax provisions, including current and future income taxes assets and liabilities, require estimates and interpretations of federal and provincial income tax rules and regulations, and judgments as to their interpretation and application to our specific situation. Although there are tax matters that have not yet been confirmed by taxation authorities, we believe that our provision for income taxes is adequate.

Proposed tax changes for Canadian income trusts

On October 31, 2006, the federal Minister of Finance announced a new tax plan that will affect the future level of taxation of income trusts and corporations. One element of the proposed plan is a tax on non-capital distributions from publicly traded income trusts and limited partnerships (other than those that hold passive real estate investments), which would make their income tax treatment more like corporations. For existing publicly traded income trusts, the federal Government is proposing a four year transitional delay in implementing the new rules.

The application of the Government's proposed new tax plan will reduce the tax efficiency of publicly traded income trusts such as Eveready. We will continue to monitor these proposed changes.

Non-controlling Interest

Earnings attributable to non-controlling interest were $0.3 million and $0.5 million respectively for the three and nine month periods ended September 30, 2006. This amount arises from our acquisition of an 80% interest in the business and assets of RDDB in May 2006 and of Bullseye in September 2006 and represents the earnings that are attributable to the 20% non-controlling interest that the RDDB and Bullseye vendors have retained in the business.



Net Earnings and Earnings per Unit

---------------------------------------------------------------------------
$ thousands, Three Months Ended Nine Months Ended
except per September 30 September 30 September 30 September 30
unit amounts 2006 2005 2006 2005
---------------------------------------------------------------------------

Net earnings $ 5,599 $ 3,684 $ 27,160 $ 11,896
---------------------------------------------------------------------------

Weighted average
number of units
outstanding - basic 65,641 40,928 60,540 34,887
Weighted average
number of units
outstanding - diluted 65,841 40,928 60,828 34,887
---------------------------------------------------------------------------

Earnings per unit
- basic $ 0.09 $ 0.09 $ 0.45 $ 0.34
Earnings per unit
- diluted 0.09 0.09 0.45 0.34
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Net earnings for the three month period ended September 30, 2006 increased by $1.9 million or 52% to $5.6 million compared to $3.7 million for the same three month period in 2005. Substantial revenue growth during the third quarter contributed to this improvement. Earnings per unit for the three month period ended September 30, 2006 was $0.09 per unit, which was equivalent to earnings per unit reported in the comparative three month period. Offsetting higher revenue and EBITDA achieved during the three month period was a significant increase in interest expense. The issuance of the $50 million Debenture financing in June 2006 combined with increased borrowings on our debt credit facilities contributed to this increase. Unfavourable weather conditions experienced during the month of September also negatively affected our net earnings.

Net earnings for the nine month period ended September 30, 2006 increased by $15.3 million or 128% to $27.2 million compared to $11.9 million for the same nine month period in 2005. Earnings per unit for the nine month period ended September 30, 2006 was $0.45 per unit, which represents an increase of $0.11 per unit or 32% compared to earnings of $0.34 per unit reported in the comparative nine month period. Revenue growth over the past year is not only increasing earnings on an absolute basis, but our growth is also providing accretive earnings growth on a per-unit basis.

Earnings per unit for the three and nine month periods ended September 30, 2006 and 2005 are calculated based on the weighted average number of units outstanding during the respective periods. Basic and diluted per unit amounts have been calculated as if all outstanding Rollover LP units have been converted into Fund units.

Diluted per unit amounts include the dilutive effect of outstanding unit options and unvested units held by the Employee Unit Plan Trust (see "Employee Unit Plan"). As at September 30, 2006, there were 220,000 unit options outstanding exercisable at $5.00 per unit and expiring on November 17, 2010. These options were initially issued to employees and trustees of the Fund on November 17, 2005 and vested immediately. The outstanding convertible debentures did not have a dilutive effect on the calculation of earnings per unit in any of the periods presented.



Summary of Quarterly Data
---------------------------------------------------------------------------
($ thousands,
except per unit Sept June March Dec Sept June March Dec
amounts) 2006 2006 2006 2005 2005 2005 2005 2004
---------------------------------------------------------------------------
Revenue 93,470 82,910 93,872 64,693 56,415 44,016 55,185 26,948
EBITDA(1) 15,687 13,395 21,984 7,575 7,861 5,007 10,679 2,489
Net earnings 5,599 6,748 14,813 2,421 3,684 1,738 6,474 169
---------------------------------------------------------------------------

Earnings per
unit - basic(2,3) 0.09 0.11 0.28 0.05 0.09 0.05 0.21 n/a
---------------------------------------------------------------------------
Earnings
per unit
- diluted(2,3) 0.09 0.11 0.27 0.05 0.09 0.05 0.21 n/a
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Notes: (1) EBITDA is identified and defined under the section "Non-GAAP
Financial Measures."
(2) Basic and diluted earnings per unit have been calculated on the
basis that all Rollover LP units have been converted into Fund
units.
(3) Per share amounts for the comparative quarter ended in 2004 has
not been calculated as the Fund's predecessor, Eveready
Industrial Group Ltd, was a privately owned company.
(4) Quarterly earnings 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.


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, our operations traditionally follow a seasonal pattern, with revenue and earnings being higher in the quarter ending March 31, 2006 compared with the other quarters of the year. However, this has not always been the case over the past eight quarters due to a number of factors, including the completion of several business acquisitions and substantial organic growth in existing locations. In addition, some of our growth has been in areas subject to less seasonality, which results in more consistent operating performance from quarter to quarter.

Revenue during the three months ended September 30, 2006 increased by $10.6 million to $93.5 million compared to revenue of $82.9 million for the previous three months ended June 30, 2006. This increase has resulted from business acquisitions completed in the second and third quarters (which are further discussed in the section "Business Acquisitions"). Offsetting this increase was weaker than expected revenues generated during the month of September due to unseasonably wet weather. These weather conditions caused work to be delayed into the fourth quarter.

EBITDA (see "Non-GAAP Financial Measures") during the third quarter was $2.3 million higher compared to the previous three months ended June 30, 2006. Higher revenues generated during the three month period contributed to this increase. However, net earnings during the three months ended September 30, 2006 declined by $1.1 million compared to the previous three month period ended June 30, 2006. This decline was attributable to higher interest charges incurred during the period. The issuance of the $50 million Debenture financing in June 2006 combined with increased borrowings on our debt credit facilities contributed to this increase. If we exclude interest expense, we would have reported higher net earnings during the three months ended September 30, 2006 compared to the previous quarter.



Financial Condition and Liquidity

---------------------------------------------------------------------------
September 30 December 31
2006 2005
---------------------------------------------------------------------------
($ thousands, except ratio amounts)

Current assets $ 107,647 $ 68,980
Total assets 421,796 227,432
---------------------------------------------------------------------------

Current liabilities 65,131 48,804
Total liabilities 169,065 100,160
---------------------------------------------------------------------------

Unitholders' equity 252,731 127,272
---------------------------------------------------------------------------

Working capital ratio(1) 1.65 1.41
Funded debt to total capital ratio(2) 0.32 0.33
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Notes: (1) Working capital ratio is calculated as current assets divided by
current liabilities (see "Non-GAAP Financial Measures").
(2) Funded debt to total capital is calculated as funded debt (bank
indebtedness, long-term debt, convertible debentures, notes
payable, and the current portions of long-term debt and notes
payable) divided by total capital (funded debt plus unitholders'
equity) - (see "Non-GAAP Financial Measures").


Working Capital

Our working capital (see "Non-GAAP Financial Measures") improved from a working capital position of $20.2 million on December 31, 2005 to a working capital position of $42.5 million as at September 30, 2006. However, our working capital declined by $1.9 million during the third quarter from a working capital position of $44.4 million as at June 30, 2006. The increase in working capital during the first six months of 2006 resulted from the following factors:

- In February 2006, we completed a bought-deal equity financing that raised $56.0 million in new capital, before issuance costs;

- In June 2006, we completed a bought-deal convertible debenture financing that raised $50.0 million in new capital, before issuance costs; and

- We continued to generate strong cash flows from operations in 2006, which also contributed to an increase in our working capital.

During the third quarter, we utilized a portion of our working capital to finance capital expenditures and business acquisitions. These expenditures resulted in a decline in our working capital position as at September 30, 2006.

In the fourth quarter, we expect our working capital position to be maintained through continued positive cash flow from operations. However, we will continue to utilize a portion of our working capital excess, along with advances on our long-term debt credit facility to complete planned capital expenditures and business acquisitions.

Cash Flow from Operations

Our cash flow from operating activities was $9.3 million for the three months ended September 30, 2006 compared to cash flow from operating activities of $1.7 million for the same period in 2005. For the nine month period ended September 30, 2006, we generated cash flow from operating activities of $33.6 million compared to $9.6 million for the same nine month period in 2005. These increases were a direct result of an increase in revenue and earnings in 2006. However, if we exclude changes in non-cash operating working capital balances, we actually generated significantly higher operating cash flows in both periods. Cash flow from operations before changes in non-cash operating working capital and asset retirement costs ("see Non-GAAP Financial Measures") was $48.5 million for the nine month period ended September 30, 2006 compared to $19.5 million for the comparative period in 2005. Our significant rate of growth has resulted in a corresponding increase to our working capital balances. For example, as our revenue grows, our accounts receivable has also increased significantly. As a result, we continue to expect our non-cash operating working capital balances to increase proportionately with our revenue growth in the future. These increases will partially offset future growth in our cash flows from operating activities.

Capital Expenditures

We acquired approximately $97.7 million in additional property, plant, and equipment during the nine months ended September 30, 2006. Of these assets, $51.9 million were acquired through business acquisitions. Capital expenditures of $45.8 million were also incurred to expand our service capabilities in existing markets. This significant investment in property, plant, and equipment is necessary to support the growing demand for the services we provide. These capital expenditures also reflect our capital expenditure program. Our capital expenditure program plans for the replacement of old equipment when it becomes cost prohibitive to operate due to high equipment and vehicle operating costs.

We plan to continue to incur significant capital expenditures during the fourth quarter of 2006. These capital expenditures will help increase our operating capacity to meet the growing demand for our services. Our total capital expenditure program for 2006 is approximately $62 million.

We will fund these capital expenditures from our existing credit facilities and from cash generated from operations, including operating cash flow retained through the Distribution Reinvestment Plan (see "Distributions - Distribution Reinvestment Plan").

Long-term Debt and Contractual Obligations

Long-term debt

Our long-term debt consists of a $60 million revolving extendible senior secured credit facility. The credit facility requires payments of interest only at the Canadian dollar one-month bankers' acceptance rate plus 3.25%. As at September 30, 2006, the effective interest rate on this credit facility was 7.58%. An additional stand-by fee calculated at a rate of 0.25% per annum is also required on the unused portion of the credit facility. The credit facility is collateralized by a first fixed charge over equipment and a second position charge over accounts receivable and inventory.

Long-term debt increased to $60.0 million as of September 30, 2006 compared to $49.9 million as of December 31, 2005 and $15.0 million as of June 30, 2006. Proceeds from our bought-deal equity financing in February 2006 and our bought-deal convertible debenture financing in June 2006 allowed us to reduce our drawings on this credit facility during the first six months of the year. During the third quarter, we utilized this credit facility to finance capital expenditures and a number of business acquisitions. These expenditures resulted in a significant increase to our long-term debt as at September 30, 2006. The credit facility can be drawn upon and repaid at any time.

Convertible debentures

On June 15, 2006, we completed a bought-deal financing of $50 million principal amount of convertible unsecured subordinated debentures (the "Debentures"). The Debentures have a face value of $1,000 per Debenture, have an annual coupon rate of 7.0%, and 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. Purchasers of the Debentures will receive interest semi-annually with the first interest payment occurring on December 31, 2006. Issuance costs of $2.3 million were incurred in connection with the financing, resulting in net proceeds of $47.7 million.

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 that 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 that are to be redeemed or repaid at maturity, by issuing units of Eveready. 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 days ending five days prior to the applicable event.

For accounting purposes, the Debentures also contain an equity component, being the holder's conversion right, which has been separately presented in the accompanying consolidated financial statements. As a result, we allocated $8.4 million ($8.0 million net of allocated issuance costs of $0.4 million) to the equity component and $41.6 million to the liability component. Interest on the liability component will be recognized by accreting the liability to its face value of $50 million over the term of the Debentures.

Our Debentures trade on the Toronto Stock Exchange under the symbol "EIS.DB".



Our contractual obligations for our debt obligations and operating leases
for each of the next five years (12 month periods ending on September 30th)
are as follows:

---------------------------------------------------------------------------
Contractual Obligations
($ in thousands) 2007 2008 2009 2010 2011 Total
---------------------------------------------------------------------------

Long-term debt - 12,000 24,000 24,000 - 60,000
Convertible debentures - - - - 50,000 50,000
Operating leases 8,262 6,369 3,289 1,711 654 20,285
---------------------------------------------------------------------------

Total 8,262 18,369 27,289 25,711 50,654 130,285
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Our long-term debt credit facility does not currently require any principal repayments. The credit facility is renewable semi-annually subject to the mutual consent of both parties. To the extent that the credit facility is not renewed, the outstanding credit facility will be subject to a 12-month interest-only phase followed by a straight line amortization period of 30 months. The above table presents the minimum principal repayments required on the credit facility if it were not renewed (the next renewal date is March 31, 2007) and we were not able to refinance the credit facility with another lender.

Asset Retirement Obligations

During the nine months ended September 30, 2006, our asset retirement obligation increased from $1.3 million to $1.8 million. The notes to the accompanying interim consolidated financial statements provide a schedule showing the changes in this balance during the period. The majority of this increase results from revising the estimated future cash flows required to cap and close our landfill cells. These revisions resulted from:

- Enhanced design requirements for capping Class II cells to meet new regulatory requirements;

- Increased labour costs due to labour shortages in Alberta; and

- Increased commodity costs for raw materials.

These obligations are estimated based upon current and proposed reclamation and closure techniques in view of current environmental laws and regulations. Although we believe these estimates are appropriate, it remains reasonably possible that the actual costs could be different from these estimates and that difference could be significant.

The above increases were offset by actual asset retirement costs incurred of $908 thousand during the nine month period. These costs are being incurred in 2006 to cap and close those cells that have already reached their maximum capacity.

Unitholders' Equity

Unitholders' Equity increased by $125.4 million to $252.7 million as of September 30, 2006 compared to $127.3 million at December 31, 2005. This increase resulted from the equity component of the Debentures we issued in June 2006, an increase in accumulated earnings, and from a significant increase in Unitholders' capital. The increase in Unitholders' capital resulted from our bought-deal equity financing in February 2006 and a number of business acquisitions that were partially financed through the issuance of units of Eveready. The notes to the accompanying interim consolidated financial statements provide a schedule showing the changes in Unitholders' capital during the nine month period.

Employee Unit Plan

In May 2006, we established the Eveready Employee Unit Plan (the "Plan"). Under this Plan, key employees and trustees of Eveready (the "Employees"), selected based on their contributions to our overall success, will be invited to join. We believe that this Plan will be a key recruiting and retention tool as it will provide our key Employees with a vested interest in Eveready's future.

Under the Plan, selected Employees are invited to subscribe for an allotted number of units from Eveready that we will issue from treasury (including through the exercise of existing unit options). The Employees will have the option of financing this purchase through a BMO Bank of Montreal unit purchase loan. Units issued from treasury (excluding those issued through the exercise of unit options) are issued at a price equal to the market value of the units at the time the allocation is made to the Employee.

Once the Employee has subscribed for their allotted units, we will then match the Employee's unit acquisition by acquiring, via the Employee Unit Plan Trust, the same number of units from the market (hereinafter referred to as the "Matching Units"). The Matching units will vest to the Employee 20% per year over five years commencing on December 31st of each fiscal period.

There are currently over 180 Employees of Eveready that have been invited to participate in this Plan for 2006. Additional Employees will be considered for participation on an annual basis. Key employees that become Employees of Eveready through a business acquisition will also be considered for participation at that time.

This Plan is in addition to our Employee Savings Plan that we implemented in December 2005. Under this Plan, we will match employee contributions up to 5% of their annual gross earnings in a savings plan that invests in Eveready units. Not only does this plan encourage employee savings, it provides our employees with a vested interest in our long-term success. There are currently approximately 600 employees that participate in our Employee Savings Plan.



Distributions

The following table summarizes our distributions during the nine months
ended September 30, 2006:

---------------------------------------------------------------------------
$ thousands,
except per unit Distribution
amounts per Distributions Net
Unit Distributions Reinvested Distributions
Record Date $ $ $ $
---------------------------------------------------------------------------

January 31, 2006 0.04 2,011 846 1,165
February 28, 2006 0.04 2,346 852 1,494
March 28, 2006 0.04 2,352 873 1,479
April 28, 2006 0.05 2,947 1,079 1,868
May 31, 2006 0.05 3,140 1,207 1,933
June 30, 2006 0.05 3,167 1,173 1,994
July 31, 2006 0.05 3,285 1,156 2,129
August 31, 2006 0.05 3,298 1,075 2,223
September 29, 2006 0.05 3,423 1,300 2,123
---------------------------------------------------------------------------

Total 0.42 25,969 9,561 16,408
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Cash distributions are normally paid by the Fund 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.

Taxation of Distributions

Our distributions consist of taxable and tax-deferred components. The taxable amount of our distributions in 2006 will be based on the actual taxable income of the Fund for the year ending December 31, 2006. 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. We currently estimate that the majority of the distributions declared in 2006 will be considered taxable amounts.

Distribution Reinvestment Plan

During the nine months ended September 30, 2006, we declared total distributions of $0.42 per unit or $26.0 million. Of this amount, there was a $9.6 million reinvestment through our Distribution Reinvestment Plan ("DRIP") resulting in the issuance of 1,416,658 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 the Canadian Depository for Securities Inc. ("CDS").

Principal Unitholder Agreement

Certain Unitholders of the Fund (the "Principal Unitholders") have signed a Principal Unitholder Agreement that requires each Principal Unitholder to reinvest immediately through the DRIP 100% of any cash distributions made by the Fund 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 twelve-month period before March 31, 2010. We believe that these agreements will ensure that the Fund has sufficient growth capital to continue to expand its operations. As of November 6, 2006 approximately 33% of the outstanding Fund units and Rollover LP units of Eveready were subject to the Principal Unitholder Agreement.

Cautionary Note Regarding our Distributions

Although we intend to continue making distributions to our Unitholders, these cash distributions are not assured, and may be reduced or suspended. 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 terms under our credit facilities, we are restricted from declaring distributions and distributing cash if the Fund is in breach of its debt covenants. These include, but are not limited to, a working capital ratio, a fixed charge coverage ratio, a minimum net worth, and a funded debt to total capital ratio. Our current financial performance is well in excess of the financial ratio covenants under our credit facilities.



Distributable Cash

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

Cash flow from operating activities $ 9,270 $ 33,572
Add: asset retirement costs incurred 626 908
Add (deduct): net change in non-cash operating
working capital 4,872 13,981
---------------------------------------------------------------------------

Cash Flow (1) 14,768 48,461
Asset retirement costs incurred (626) (908)
Maintenance capital expenditures (1) (2,214) (7,272)
---------------------------------------------------------------------------

Cash available for distribution and growth (c)(1) 11,928 40,281
Per unit - diluted (1) 0.18 0.66
---------------------------------------------------------------------------
Distributions declared (a) 10,006 25,969
Payout ratio - including DRIP (a)/(c)(1) 84% 64%
Net distributions declared (b) 6,475 16,408
Payout ratio - excluding DRIP (b)/(c)(1) 54% 41%
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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


Our distribution policy is to maintain an annual payout ratio 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 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 64% for the nine months ended September 30, 2006 is below our target annual payout ratio of 75% to 85% described above. In October 2006, we increased our monthly distribution to $0.06 per unit ($0.72 per unit on an annualized basis). This reflects an increase of 20% from our previous monthly distribution of $0.05 per unit and will assist us in meeting our targeted annual payout ratio. The lower payout ratio also reflects our reserves for seasonal fluctuations in our operating results (see "Seasonality of Operations" above).

Cash available for distribution and growth reported for the three and nine month periods ended September 30, 2006 is net of maintenance capital expenditures of $2,214 and $7,272 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 disposed of 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 capital maintenance levels increase in future periods, our cash available for distribution and growth will be negatively affected. Due to our significant rate of growth in recent years, the majority of our equipment is relatively new with a long remaining economic useful life. As a result, we currently experience relatively low levels of maintenance capital expenditures. Over time, we would expect to incur annual maintenance capital expenditures in an amount that approximates our amortization expense reported in each period, adjusted for inflationary factors. However, we do not expect to experience this level of maintenance capital expenditures for a number of years until the average age of our existing property, plant, and equipment begins to extend closer to the end of their economic useful lives.

We currently estimate our total maintenance capital expenditures for 2006 will approximate $10 to $12 million (see "Note Regarding Forward-Looking Statements"). We also estimate that our total maintenance capital expenditures for 2007 will be in the range of $15 to $20 million (see "Note Regarding Forward-Looking Statements"). These estimates are based upon our preliminary expectations for the future replacement of 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, it remains reasonably possible that our actual maintenance capital expenditures will 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 maintenance capital expenditures in the future.

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, 2005, with the following exceptions:

- During the nine month period ended September 30, 2006, we issued additional letters of credit, drawn on our demand revolving credit facility. Total outstanding letters of credit issued as of September 30, 2006 were CDN $1.7 million and US $0.5 million; and

- Under our Employee Unit Plan (see "Employee Unit Plan" section above), we have provided units held within our Employee Unit Plan Trust (the "Trust") as collateral against BMO Loans owing by certain Employees of Eveready. These units could be drawn upon by the bank if the Employee defaulted on their debt obligation and the Employee's units were not sufficient to cover the outstanding BMO Loan balance. As of September 30, 2006, the Trust held 1,280,000 units of Eveready with a fair value of $9.1 million. Units held by the Trust are recorded at cost and shown as a reduction of Unitholders' Equity in the consolidated financial statements until such time as they vest to the Employee.

Related Party Transactions

Our related party transactions are disclosed in the notes to the accompanying interim consolidated financial statements.

Outlook

Our business outlook for the fourth quarter of 2006 and winter of 2007 continues to look strong. Despite the recent downturn in oil and gas prices, the demand for our services, which are principally provided in industrial maintenance, production services, and deep gas exploration remain high. Work that was delayed in the month of September due to unseasonably wet weather is now being completed in the fourth quarter. In addition, our exposure to shallow gas exploration, which has been cut back significantly in recent months is minimal.

The challenge continues to be ensuring that we have sufficient manpower resources and equipment to meet this demand, while also ensuring our services continue to be of high quality and that safety remains our highest priority at all times, no matter how busy our business becomes.

We will continue to invest in new business acquisitions, personnel, new equipment, and employee training to ensure we will always continue to meet these customer expectations. This growth, properly managed, will be critical to achieving our vision of becoming the one-stop-shop service provider for our customers.

Our growth will be focused in the following areas during the remainder of 2006 and 2007:

- Continued consolidation of a fragmented oilfield services industry;

- Geographic expansion, both in western Canada and in the United States;

- Solidifying our position as a leading service provider in the Alberta oil sands region;

- Increasing our market presence and expanding our service offerings in the oilfield equipment rental industry;

- Increasing our customer capabilities in the environmental services area; and

- Introducing new and related services that will complement the current services we provide to our existing customer base.

This growth is expected to further increase our revenue and operating cash flows in 2007. We are now targeting to achieve revenue in excess of $500 million for the year ending December 31, 2007 (see "Note Regarding Forward-Looking Statements").

Business Risks

The business of Eveready 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 risk factors set forth in our 2005 Annual MD&A and our 2005 Annual Information Form. These business risks and risk factors are incorporated by reference herein. These documents are available on the System for Electronic Document Analysis and Retrieval ("SEDAR") web site at www.sedar.com.

Adoption of New Accounting Policy - Employee Unit Plan

In May 2006, we established the Employee Unit Plan (see discussion under "Employee Unit Plan" above). This Plan will be accounted for in accordance with the fair value based method of accounting. Under this method, compensation expense for units acquired pursuant to the Plan will be charged to compensation expense over the vesting period. Unvested units held by the Plan are recorded at cost and shown as a reduction of Unitholders' Equity until such time as they vest to the employee.



Outstanding Unit Data

---------------------------------------------------------------------------
As at: November 6
2006
---------------------------------------------------------------------------

Fund units 52,643,673
Rollover LP units 16,804,768
---------------------------------------------------------------------------

Total 69,448,441
---------------------------------------------------------------------------
---------------------------------------------------------------------------


As of November 6, 2006, we had 52,643,673 Fund units and 16,804,768 Rollover LP units outstanding totalling 69,448,441 Fund units and Rollover LP units in aggregate. The Rollover LP units were issued in conjunction with the completion of certain business acquisitions of the Fund, 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 holders of units of the Fund. The Rollover LP units are exchangeable, at the option of the holder, into units of the Fund at anytime.

As of November 6, 2006, we had 170,000 unit options outstanding, 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

This 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. These measures are provided 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. These financial measures are identified and defined 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 - diluted is calculated as EBITDA divided by the diluted 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) 2006 2005 2006 2005
---------------------------------------------------------------------------

Net earnings $ 5,599 $ 3,684 $ 27,160 $ 11,896
Add:
Income taxes 297 146 1,211 1,192
Amortization 7,275 2,716 18,339 6,697
Interest 2,516 1,315 4,355 3,761
---------------------------------------------------------------------------

EBITDA 15,687 7,861 51,065 23,546
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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

---------------------------------------------------------------------------
Sept June March Dec Sept June March Dec
($ thousands) 2006 2006 2006 2005 2005 2005 2005 2004
---------------------------------------------------------------------------

Net earnings 5,599 6,748 14,813 2,421 3,684 1,738 6,474 169
Add:
Income taxes 297 255 659 343 146 23 1,023 168
Amortization 7,275 5,442 5,622 3,781 2,716 2,089 1,892 1,294
Interest 2,516 950 890 1,030 1,315 1,157 1,290 858
---------------------------------------------------------------------------

EBITDA 15,687 13,395 21,984 7,575 7,861 5,007 10,679 2,489
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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 and asset retirement costs ("Cash Flow"), less maintenance capital expenditures and asset retirement costs. Per unit amounts refer to cash available for distribution and growth divided by the diluted 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. The definition of cash available for distribution and growth has changed from that previously presented in our 2005 annual MD&A. This definition now includes a deduction for asset retirement costs that were incurred for the first time in 2006.

The components of this supplemental measure are described below:

- "Cash Flow" is derived from the consolidated statements of cash flows and is calculated as cash provided from operating activities before changes in non-cash operating working capital and asset retirement costs. Per unit amounts refer to Cash Flow divided by the diluted weighted average number of units outstanding during the period. The definition of Cash Flow has changed from that previously presented in our 2005 annual MD&A. This definition now also adds back asset retirement costs. Asset retirement costs were incurred for the first time in 2006. We believe that Cash Flow 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 from cash provided from operating activities, as determined in accordance with GAAP, follows:



---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
$ thousands 2006 2005 2006 2005
---------------------------------------------------------------------------

Cash provided from
operating activities $ 9,270 $ 1,670 $ 33,572 $ 9,609
Asset retirement
costs incurred 626 - 908 -
Add (deduct) changes
in non-cash operating
working capital 4,872 4,563 13,981 9,937
---------------------------------------------------------------------------

Cash Flow 14,768 6,233 48,461 19,546
---------------------------------------------------------------------------
---------------------------------------------------------------------------


- "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 of 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."

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 extinguish our debt obligations as they come due. A reconciliation of how working capital was calculated for each of the periods presented in this MD&A follows:



---------------------------------------------------------------------------
As at: September 30 December 31
($ thousands) 2006 2005
---------------------------------------------------------------------------

Current assets $ 107,647 $ 68,980
Less: current liabilities 65,131 48,804
---------------------------------------------------------------------------

Working capital 42,516 20,176
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Working capital ratio (current assets divided by
current liabilities) 1.65 1.41
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Funded Debt to Total Capital

Funded debt to total capital is calculated as funded debt (bank indebtedness, long-term debt, convertible debentures, notes payable, and the current portions of long-term debt and notes payable) 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 operations that are funded from debt versus equity sources. A reconciliation of how funded debt and total capital were calculated for each of the periods presented in this MD&A follows:



---------------------------------------------------------------------------
As at: September 30 December 31
($ thousands) 2006 2005
---------------------------------------------------------------------------

Bank indebtedness $ 15,324 $ 9,034
Long-term debt 60,000 49,888
Convertible debentures 41,961 -
Notes payable - 85
Current portion of notes payable - 3,620
---------------------------------------------------------------------------

Funded debt 117,285 62,627
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Funded debt 117,285 62,627
Unitholders' equity 252,731 127,272
---------------------------------------------------------------------------

Total capital 370,016 189,899
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Funded debt to total capital ratio (funded debt
divided by total capital) 0.32 0.33
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The definition of the funded debt to total capital ratio has been changed from that previously disclosed in the 2005 annual MD&A. The definition now also includes the convertible debentures in the calculation of funded debt. The convertible debentures were issued during the second quarter of 2006.

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 the Fund or a third party expects or anticipates 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. 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, the Fund. 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.



Eveready Income Fund
Consolidated Balance Sheets
(Unaudited)
---------------------------------------------------------------------------
As at September 30 December 31
2006 2005
(thousands of Canadian dollars) $ $
---------------------------------------------------------------------------

ASSETS (note 3)
Current
Accounts receivable 93,518 59,361
Inventory 7,776 5,603
Prepaid expenses and deposits 6,353 4,016
---------------------------------------------------------------------------
107,647 68,980

Property, plant, and equipment 190,217 110,043
Intangible assets 45,287 17,894
Goodwill 75,853 28,731
Other long-term assets 2,792 1,784
---------------------------------------------------------------------------

421,796 227,432
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness (note 3) 15,324 9,034
Accounts payable and accrued liabilities 44,780 34,266
Unitholder distributions payable 2,113 1,093
Income taxes payable 1,392 46
Current portion of notes payable (note 3) - 3,620
Current portion of asset retirement obligations
(note 4) 1,522 745
---------------------------------------------------------------------------
65,131 48,804

Long-term debt (note 3) 60,000 49,888
Convertible debentures (note 3) 41,961 -
Notes payable (note 3) - 85
Asset retirement obligations (note 4) 305 512
Future income taxes 138 871
Non-controlling interest (note 5) 1,530 -
---------------------------------------------------------------------------

169,065 100,160
---------------------------------------------------------------------------
Commitments (notes 3 and 8)

Unitholders' Equity
Unitholders' capital (note 6) 240,010 116,551
Equity component of convertible debentures
(note 3) 8,030 -

Units held under Employee Unit Plan (note 8) (9,228) -
Contributed surplus (note 7) 1,847 627
Accumulated earnings 50,962 23,015
Accumulated distributions (note 9) (38,890) (12,921)
---------------------------------------------------------------------------
252,731 127,272

421,796 227,432
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(see accompanying notes)



Eveready Income Fund
Consolidated Statements of Earnings and Accumulated Earnings
(Unaudited)
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------------------------------------------------
(thousands of Canadian dollars, 2006 2005 2006 2005
except per unit amounts) $ $ $ $
---------------------------------------------------------------------------

Revenue 93,470 56,415 270,252 155,616
Direct costs 62,984 39,948 177,498 108,971
---------------------------------------------------------------------------

Gross profit 30,486 16,467 92,754 46,645
---------------------------------------------------------------------------

Expenses
Administrative and general 14,594 8,840 40,919 23,231
Amortization (note 11) 7,275 2,716 18,339 6,697
Interest (note 11) 2,516 1,315 4,355 3,761
(Gain) loss on disposal of
property, plant, and equipment (79) (234) 234 (132)
---------------------------------------------------------------------------
24,306 12,637 63,847 33,557
---------------------------------------------------------------------------

Earnings before income taxes
and non-controlling interest 6,180 3,830 28,907 13,088
---------------------------------------------------------------------------

Income taxes
Current 21 79 956 107
Future 276 67 255 1,085
---------------------------------------------------------------------------
297 146 1,211 1,192
---------------------------------------------------------------------------

Earnings before non-controlling
interest 5,883 3,684 27,696 11,896

Earnings attributable to
non-controlling interest
(note 5) 284 - 536 -
---------------------------------------------------------------------------

Net earnings 5,599 3,684 27,160 11,896

Accumulated earnings, beginning
of period 44,576 17,779 23,015 2,519
Trust reorganization
adjustments (note 13) 787 (869) 787 6,179
---------------------------------------------------------------------------

Accumulated earnings, end of
period 50,962 20,594 50,962 20,594
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Earnings per unit - basic and
diluted (note 10) 0.09 0.09 0.45 0.34
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(see accompanying notes)


Eveready Income Fund
Consolidated Statements of Cash Flows
(Unaudited)
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------------------------------------------------
2006 2005 2006 2005
(thousands of Canadian dollars) $ $ $ $
---------------------------------------------------------------------------

Operating activities
Net earnings 5,599 3,684 27,160 11,896
Items not affecting cash:
Non-controlling interest 284 - 536 -
Amortization 7,275 2,716 18,339 6,697
(Gain) loss on disposal of
property, plant, and equipment (79) (234) 234 (132)
Unit-based compensation
(note 8) 1,091 - 1,557 -

Accretion of convertible
debentures 322 - 380 -
Future income taxes 276 67 255 1,085
---------------------------------------------------------------------------
14,768 6,233 48,461 19,546
Asset retirement costs
incurred (626) - (908) -
Net change in non-cash
operating working capital
(note 12) (4,872) (4,563) (13,981) (9,937)
---------------------------------------------------------------------------

9,270 1,670 33,572 9,609
---------------------------------------------------------------------------

Investing activities
Purchase of property, plant,
and equipment (15,432) (12,973) (45,834) (19,213)
Purchase of intangible
assets (306) - (1,426) -
Proceeds on disposal of
property, plant, and
equipment 915 1,208 2,812 2,100
Business acquisitions, net
of cash acquired (note 12) (32,092) (517) (65,201) (684)
Other long-term assets - net (29) (557) 69 (445)
---------------------------------------------------------------------------

(46,944) (12,839) (109,580) (18,242)
---------------------------------------------------------------------------

Financing activities
Increase (decrease) in bank
indebtedness 10,101 2,165 764 (12,130)
Distributions, net of
distribution reinvestments (6,317) (1,813) (15,362) (2,707)
Proceeds from long-term debt 45,000 50,443 95,000 53,338
Repayment of long-term debt (10,361) (41,739) (97,522) (46,226)
Proceeds from issuance of
convertible debentures - - 47,699 -
Repayment of notes payable (3,710) - (3,704) (227)
Repayment of subordinated
debt - (3,688) - (3,813)
Proceeds from issuance of
units, net of issuance costs 3,552 - 58,159 22,300
Unit issuance costs -
acquisitions (53) - (103) (162)
Purchase of units -
Employee Unit Plan (9,228) - (9,228) -
Collection of employee share
purchase loans receivable 51 204 305 609
Repayment of advances from
unitholders - - - (2,349)
---------------------------------------------------------------------------

29,035 5,572 76,008 8,633
---------------------------------------------------------------------------

Net change in cash and cash
equivalents (8,639) (5,597) - -

Cash and cash equivalents,
beginning of period 8,639 5,597 - -
---------------------------------------------------------------------------

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

(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") provides industrial and oilfield services; health, safety and environmental services; and oilfield equipment rental services to the energy, resource, and manufacturing sectors. The Fund'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, 2006 may not be reflective of earnings on an annual basis.

These interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP") and have been prepared following the same accounting policies and methods of application as those disclosed in the annual consolidated financial statements of the Fund for the year ended December 31, 2005. 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, 2005.

New accounting policy

During the second quarter, the Fund established an Employee Unit Plan (the "Plan") that is described in more detail in note 8 to these interim consolidated financial statements. The Plan is accounted for in accordance with the fair value based method of accounting. Compensation expense is recognized by the Fund over the vesting period of the units. Unvested units held by the Plan are recorded at cost and shown as a reduction of Unitholders' Equity in the consolidated financial statements until such time as they vest to the employee.

2. Business acquisitions

The Fund completed fifteen business acquisitions during the nine month period ended September 30, 2006, as described below. The preliminary aggregate consideration given and fair values of the net assets acquired are as follows:



---------------------------------------------------------------------------
Fair value
of net Head Torn- Pinn- Cat Bulls- Divers-
assets West ado RDDB acle Tech eye ified Other Total
acquired: $ $ $ $ $ $ $ $ $
---------------------------------------------------------------------------

Current
assets - 750 5,704 437 14,728 3,166 3,051 4,106 31,942
Property,
plant, and
equipment 9,744 4,425 3,599 4,332 11,004 2,386 5,285 11,171 51,946
Intangible
assets 1,215 1,143 8,058 427 9,481 4,110 668 3,167 28,269
Other
long-term
assets - - - - - 4 59 301 364
Goodwill - 2,131 18,435 1,917 14,192 5,272 1,652 3,523 47,122
---------------------------------------------------------------------------
Total
assets 10,959 8,449 35,796 7,113 49,405 14,938 10,715 22,268 159,643
---------------------------------------------------------------------------

Current
liabilities - 2,424 4,715 - 10,165 3,230 2,237 4,016 26,787
Long-term
liabilities - - - - 5,826 - 754 1,462 8,042
Non-controlling
interest - - 684 - - 310 - - 994
---------------------------------------------------------------------------
Total
liabilities - 2,424 5,399 - 15,991 3,540 2,991 5,478 35,823
---------------------------------------------------------------------------

Net assets
acquired 10,959 6,025 30,397 7,113 33,414 11,398 7,724 16,790 123,820
---------------------------------------------------------------------------
---------------------------------------------------------------------------



---------------------------------------------------------------------------
Head Torn- Pinn- Cat Bulls- Divers-
Consideration West ado RDDB acle Tech eye ified Other Total
given: $ $ $ $ $ $ $ $ $
---------------------------------------------------------------------------

Cash 10,755 3,000 7,685 7,000 24,775 500 3,900 10,192 67,807
Fund units - 2,993 8,500 - 8,350 5,430 - 6,533 31,806
Rollover
LP units - - 14,185 - - 5,430 3,750 - 23,365
Transaction
costs 204 32 27 113 289 38 74 65 842
---------------------------------------------------------------------------

Total
consid-
eration 10,959 6,025 30,397 7,113 33,414 11,398 7,724 16,790 123,820
---------------------------------------------------------------------------
---------------------------------------------------------------------------


(i) Head West

Effective March 1, 2006, Eveready acquired the majority of the assets and business of Head West Energy ("Head West"), a private Alberta-based oilfield equipment rental company. The assets acquired include well-site units, generators, truck and trailer units, and other equipment. The purchase price of $10,755 was paid in cash. Acquisition costs of $204 were also incurred providing for aggregate consideration of $10,959. Equipment of $1,175 was then sold to a third party resulting in a net purchase price of approximately $9,580 for the assets that Eveready retained.

Intangible assets acquired with Head West consist of customer relationships that will be amortized straight-line over their estimated useful life of five years.

(ii) Tornado

Effective April 1, 2006, Eveready acquired 100% of the issued and outstanding shares of Tornado Rentals Ltd. ("Tornado"). Based in Stettler, Alberta, Tornado rents and sells a wide range of oilfield equipment. The purchase price for Tornado was approximately $5,993 and was paid via: (i) $3,000 in cash at closing, and (ii) $2,993 through the issuance of 454,177 in units of Eveready at a deemed price of $6.59 per unit. Acquisition costs of $32 were also incurred providing for aggregate consideration of $6,025.

Intangible assets acquired with Tornado consist of customer relationships ($610) and an exclusive supplier agreement ($533) that will each be amortized straight-line over their estimated useful lives of five years.

(iii) RDDB

Effective May 1, 2006, Eveready acquired an 80% interest in the assets and business of Red Deer Directional Boring Ltd. ("RDDB"). Based in Red Deer, Alberta, RDDB provides directional boring and punching services to customers in a wide range of industrial sectors including the oil and gas industry.

The purchase price of $30,370 was paid through a combination of: (i) $7,685 in cash and (ii) $22,685 through a combination of 1,214,287 Fund units and 2,026,486 Rollover LP units issued at a deemed price of $7.00 per unit. In addition, acquisition costs of $27 were incurred providing for aggregate consideration of $30,397.

In connection with the acquisition of RDDB, the Fund also entered into a mutual option agreement with the vendors. This agreement provides Eveready a call option to acquire the remaining 20% non-controlling interest and provides the vendors a put option to sell the remaining 20% non-controlling interest to Eveready exercisable at any time after March 31, 2009. The exercise price for each option is based on a formula that is designed to estimate the fair value of the non-controlling interest at the time the option is exercised.

Intangible assets acquired with RDDB include customer relationships of $7,734 and the RDDB trade name of $324. Each of these intangible assets will be amortized straight-line over their estimated useful lives of five years.

(iv) Pinnacle

On May 29, 2006, Eveready acquired the business and assets of the Pinnacle Pigging Systems group of companies ("Pinnacle") for $7,000 in cash consideration. Pinnacle specializes in providing furnace tube decoking and related industrial services to oil and gas refineries in Canada and the United States. The assets acquired included all equipment, patents, and other intangible assets used in the Pinnacle business. Acquisition costs of $113 were also incurred providing for aggregate consideration of $7,113.

Intangible assets acquired with Pinnacle consist of customer relationships ($100) and patents ($327) that will each be amortized straight-line over their estimated useful lives of five years and four years, respectively.

(v) Cat Tech

Effective July 1, 2006, Eveready acquired 100% of the issued and outstanding shares of the Cat Tech group of companies ("Cat Tech"). Headquartered in Houston, Texas, Cat Tech provides catalyst changeout services to major petroleum and chemical companies throughout the world.

Cat Tech's US operations are based in California, Kentucky, Louisiana, New Jersey, and Texas. Cat Tech's Canadian operations are based in Sarnia, Ontario and Edmonton, Alberta and include a significant presence in the Alberta oil sands. Cat Tech's international operations include locations in the United Kingdom, Virgin Islands, Bahamas, and Singapore.

The preliminary purchase price of approximately US $29,384 (CDN $33,125) was paid via: (i) US $21,884 in cash and (ii) US $7,500 through the issuance of 1,246,343 units of Eveready, issued at a deemed price of CDN $6.70 per unit. The final purchase price may be subject to adjustment based on Cat Tech's net equity as of July 1, 2006. Acquisition costs of CDN $289 were also incurred providing for aggregate consideration of CDN $33,414.

Intangible assets acquired with Cat Tech include customer relationships of $2,447 that will be amortized straight-line over their estimated useful life of ten years, catalyst handling technologies of $3,475, that will be amortized over their estimated useful life of seven years, and the Cat Tech trade name of $3,559. The Cat Tech trade name is not being amortized because it is estimated to have an indefinite life.

(vi) Bullseye

Effective September 1, 2006, Eveready acquired an 80% interest in the assets and business of the Bullseye Directional Drilling group of companies ("Bullseye"). Servicing the oil, gas and utility sectors, Bullseye specializes in directional boring and road punching and offers a variety of solutions for the underground crossing requirements of its customers.

The preliminary purchase price of approximately $11,360 was paid via: (i) $500 in cash, (ii) $5,430 through the issuance of 736,772 Fund units and (iii) $5,430 through the issuance of 736,770 Rollover LP units at a deemed price of $7.37 per unit. Acquisition costs of $38 were also incurred providing for aggregate consideration of $11,398. The final purchase price may be subject to adjustment based on Bullseye's net equity position as of September 1, 2006.

In connection with the acquisition of Bullseye, the Fund also entered into a mutual option agreement with the vendors. This agreement provides Eveready a call option to acquire the remaining 20% non-controlling interest and provides the vendors a put option to sell the remaining 20% non-controlling interest to Eveready exercisable at any time after August 31, 2009. The exercise price for each option is based on a formula that is designed to estimate the fair value of the non-controlling interest at the time the option is exercised.

Intangible assets acquired with Bullseye include customer relationships of $3,992 and the Bullseye trade name of $118. Each of these intangible assets will be amortized straight-line over their estimated useful lives of five years.

(vii) Diversified

Effective September 1, 2006, Eveready acquired 100% of the issued and outstanding shares of the Diversified Pressure Services group of companies ("Diversified"). Based in Macklin, Saskatchewan, Diversified provides a wide range of oilfield services to the oil and gas industry including vacuum truck, pressure testing, hot oiling, tank truck, steam cleaning, and flush-by services.

The preliminary purchase price of $7,650 was paid via: (i) $3,900 in cash, and (ii) $3,750 through the issuance of 556,380 Rollover LP units at a deemed price of $6.74 per unit. The final purchase price may be subject to adjustment based on Diversified's net working capital as of September 1, 2006.

Intangible assets acquired with Diversified consist of customer relationships of $668 that will be amortized straight-line over their estimated useful life of five years.

(viii) Other acquisitions

The Fund also completed eight smaller business acquisitions during the nine month period ended September 30, 2006 as follows:

- Effective February 28, 2006, Eveready acquired 100% of the issued and outstanding shares of a private Alberta-based survey company operating as Mercedes Surveys for a total purchase price of $1,606. The company provides seismic surveys that support seismic exploration programs for oil and gas companies. The purchase price was satisfied via: (i) $173 in cash and (ii) $1,433 via the issuance of 260,606 units at a deemed price of $5.50 per unit;

- On February 28, 2006, Eveready acquired the business and assets of a private Alberta-based oilfield services company operating as Mielke Way Enterprises for total cash consideration of $1,134. The company provides vacuum truck and steam cleaning services to customers in the oil and gas industry;

- Effective May 1, 2006, Eveready acquired 100% of the issued and outstanding shares of Eugene Smith Trucking Ltd. ("Eugene Smith"). Based in western Saskatchewan, Eugene Smith provides various oilfield services, including vacuum truck, flush-by, and pressure services. The purchase price of $4,500 was paid through a combination of (i) $2,000 in cash and (ii) $2,500 via the issuance of 343,879 units of Eveready at a deemed price of $7.27 per unit;

- Effective May 1, 2006, Eveready acquired 100% of the issued and outstanding common shares of Astec Safety Services Ltd. ("Astec"). With locations in Bonnyville, Fort McMurray, Lloydminster, and Provost, Alberta, Astec provides safety services, equipment and training to a wide range of industrial and oilfield companies. The purchase price of $1,000 was paid by issuing units of Eveready at a deemed price of $6.94 per unit. Prior to this acquisition, Eveready also owned $1,000 in redeemable preferred shares of Astec;

- On June 9, 2006, Eveready acquired the business and assets of Triple P Enterprises Ltd. ("Triple P") for cash consideration of $3,000. Triple P provides waste hauling services to a wide range of customers operating in the oil and gas industry;

- On August 1, 2006, Eveready acquired all of the equipment of D&G Water & Vacuum Services; consisting of the equipment of D&G Industry Services Ltd. and NPPP Ventures Ltd. ("D&G") for cash consideration of $3,695. Based in High Level, Alberta, D&G provides water truck and vacuum services to customers in the oil and gas industry. Eveready has also entered into a letter of intent to acquire the remaining business and assets of D&G (see note 16);

- On September 12, 2006, Eveready acquired the business and assets of Find It Inc. ("Find It"). Find It is a private Alberta-based company that provides leak detection services to companies operating in the oil and gas industry. The purchase price of $190 was satisfied through cash consideration; and

- On September 15, 2006, Eveready acquired the business and assets of Real Time Surveys Inc. ("Real Time"). Real Time is a private Alberta-based company that provides surveying services to support exploration programs for oil and gas companies. The purchase price of $1,600 was satisfied through the issuance of 236,686 Fund units at a deemed price of $6.76 per unit.

Of the aggregate goodwill acquired, $2,055 is estimated to be deductible for income tax purposes. Intangible assets acquired that are included in the "other acquisitions" category include customer relationships that will be amortized straight-line over their estimated useful lives of five years.

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 the Fund completes a final evaluation of the fair value of the assets and liabilities acquired.

3. Debt obligations

a) Bank indebtedness

The Fund has a demand revolving credit facility by way of bank account overdraft with a maximum principal amount of $40,000 (December 31, 2005 - $27,000). The credit facility bears interest at bank prime and is collateralized by all assets of the Fund including a first fixed charge over accounts receivable and inventory and a second position charge over equipment. As of September 30, 2006, the effective interest rate on this credit facility was 6.25%. In addition to the Fund's bank indebtedness, the Fund also utilized outstanding letters of credit of CDN $1,680 and US $500 on this credit facility as of September 30, 2006.

The credit facility agreement contains restrictive covenants, including, but not limited to, a working capital ratio, a fixed charge coverage ratio, a minimum net worth, and a funded debt to total capital ratio. The Fund was in compliance with all covenants under this agreement as of September 30, 2006.

b) Long-term debt

The Fund's long-term debt consists of a $60,000 revolving extendible senior secured credit facility. This credit facility requires payments of interest only at the Canadian dollar one-month bankers' acceptance rate plus 3.25%. As of September 30, 2006, the effective interest rate on this credit facility was 7.58%. An additional stand-by fee calculated at a rate of 0.25% per annum is also required on the unused portion of the credit facility.

The credit facility is collateralized by a first fixed charge over equipment and a second position charge over accounts receivable and inventory. The credit facility is renewable semi-annually subject to the mutual consent of both parties. To the extent that the credit facility is not renewed, the outstanding credit facility will be subject to a 12-month interest-only phase followed by a straight line amortization period of 30 months. The amount drawn on this credit facility as of September 30, 2006 was $60,000 (December 31, 2005 - $49,888).

The credit facility agreement contains restrictive covenants, including, but not limited to, a working capital ratio, a fixed charge coverage ratio, a minimum net worth, and a funded debt to total capital ratio. The Fund was in compliance with all covenants under this agreement as of September 30, 2006.

c) Convertible debentures

On June 15, 2006, the Fund completed a bought-deal financing of $50,000 principal amount of convertible unsecured subordinated debentures (the "Debentures"). The Debentures have an annual coupon rate of 7.00%, 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. Purchasers of the Debentures will receive interest semi-annually with the first interest payment occurring on December 31, 2006. Issuance costs of $2,301 were incurred in connection with the financing, resulting in net proceeds of $47,699.

After June 30, 2009 and before June 30, 2010, the Debentures may be redeemed in whole or in part at the option of the Fund at a price equal to their principal amount plus accrued interest thereon, provided that 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, the Fund has the option to redeem the Debentures in whole or in part at a price equal to their principal amount plus accrued interest. The Fund may also, at its option and subject to certain conditions, elect to satisfy its obligation to repay all or any portion of the principal amounts of the Debentures that are to be redeemed or repaid at maturity, by issuing units of Eveready. 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 days ending five days prior to the applicable event.

For accounting purposes, the Debentures also contain an equity component, being the holder's conversion option, which has been separately presented in these consolidated financial statements. The Fund has allocated the $50,000 face value of the Debentures to the liability and equity components, proportionately, based on their respective fair values. The fair value of the conversion option was measured using the Black-Scholes option pricing model, and was based on the following assumptions:



Risk free annual interest rate 4.20%
Expected life 5 years
Expected volatility 42.0%
Expected dividend yield 7.79%


The fair value of the liability component was determined by discounting the stream of future payments of interest and principal at an estimated market rate of 11.5% for a debt instrument of comparable maturity and credit quality, but excluding any conversion privilege by the holder. As a result, the Fund allocated $8,417 ($8,030 net of allocated issuance costs of $387) to the equity component of the Debentures. The value ascribed to the liability component of the Debentures was $41,582. Interest on the liability component is recognized by accreting the liability to its face value of $50,000 over the term of the Debentures. The remaining portion of Debenture issue costs of $1,914 have been included in other long-term assets and will be amortized over the term of the Debentures to interest expense.

d) Notes payable

Notes payable, bearing interest at an effective rate of 6.0%, were repaid during the quarter.

4. Asset retirement obligations

The Fund's asset retirement obligations include closure and post-closure costs related to its landfill facilities. The Fund estimates the undiscounted cash flows related to this obligation to be $1,951. Management has estimated the fair value of this obligation as of September 30, 2006 to be $1,827, using a credit adjusted discount rate of 7.0%. The majority of these obligations are expected to be incurred over an estimated period from 2006 to 2011. The Fund recorded the following activity during the nine month period ended September 30, 2006:



---------------------------------------------------------------------------
Nine Month Period Ended September 30
2006
$
---------------------------------------------------------------------------

Asset retirement obligation, beginning of period 1,257
New obligations and revised estimates 1,391
Asset retirement costs incurred (908)
Accretion expense 87
---------------------------------------------------------------------------
Asset retirement obligation, end of period 1,827
Less: costs expected to be incurred within the next 12 months (1,522)
---------------------------------------------------------------------------

305
---------------------------------------------------------------------------
---------------------------------------------------------------------------


5. Non-controlling interest

The Fund's non-controlling interest consists of the 20% non-controlling interests that the vendors retained in the acquisitions of RDDB in May 2006 and of Bullseye in September 2006 (see note 2). The Fund recorded the following activity during the nine month period ended September 30, 2006:



---------------------------------------------------------------------------
Nine Month Period Ended September 30
2006
$
---------------------------------------------------------------------------

Non-controlling interest, beginning of period -
Non-controlling interest arising from the
acquisition of RDDB (note 2) 684
Non-controlling interest arising from the
acquisition of Bullseye (note 2) 310
Earnings attributable to non-controlling interest 536
---------------------------------------------------------------------------

Non-controlling interest, end of period 1,530
---------------------------------------------------------------------------
---------------------------------------------------------------------------


6. Unitholders' capital

---------------------------------------------------------------------------
Number Amount
of Units $
---------------------------------------------------------------------------
Authorized - Unlimited number of voting units

Issued:
Balance as at December 31, 2005: 50,271,372 116,551

Activity during the nine months ended
September 30, 2006:
Units issued - acquisition of
Mercedes Surveys (note 2) 260,606 1,433
Units issued - acquisition of Tornado (note 2) 454,177 2,993
Units issued - acquisition of RDDB (note 2) 3,240,773 22,685
Units issued - acquisition of Eugene Smith (note 2) 343,879 2,500
Units issued - acquisition of Astec (note 2) 144,092 1,000
Units issued - acquisition of Cat Tech (note 2) 1,246,343 8,350
Units issued - acquisition of Bullseye (note 2) 1,473,542 10,860
Units issued - acquisition of Diversified (note 2) 556,380 3,750
Units issued - acquisition of Real Time (note 2) 236,686 1,600
Unit issuance costs - acquisitions - (101)
Units issued - bought-deal equity financing,
net of issuance costs 8,000,000 52,699
Units issued - distribution reinvestment
plan (note 9) 1,416,658 9,561
Exercise of unit options pursuant to the
Employee Unit Plan (note 8) 1,000,000 5,000
Transfer from contributed surplus for unit
options exercised (note 7) - 500
Units issued pursuant to the Employee
Unit Plan (note 8) 65,000 461
Cancellation of units pursuant to an
arrangement agreement (42,456) (137)
Collection of employee share purchase
loans receivable - 305
---------------------------------------------------------------------------

Balance as at September 30, 2006 68,667,052 240,010
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The number of Units outstanding as at September
30, 2006 consisted of the following components:
Fund units 51,862,284
Rollover LP units 16,804,768
---------------------------------------------------------------------------

68,667,052
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Rollover LP units

The Rollover LP units were issued in conjunction with the completion of certain business acquisitions of the Fund, 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 holders of units of the Fund. The Rollover LP units are exchangeable, at the option of the holder, into units of the Fund at anytime.

During the nine month period ended September 30, 2006, 2,786,030 Rollover LP units were converted into Fund units.

Bought-deal equity financing

On February 23, 2006, Eveready completed a bought-deal equity financing of 8,000,000 units priced at $7.00 per unit for gross proceeds of $56,000. The units were issued pursuant to a final prospectus dated February 13, 2006. Issuance costs of $3,301 were incurred in connection with the financing, resulting in net proceeds of $52,699.

Employee share purchase loans receivable

Offset within Unitholders' capital are employee share purchase loans receivable of $370 (December 31, 2005 - $675). These loans were issued in prior years 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 unit certificates of the Fund). These loans are non-interest bearing and are collateralized by the unit certificates issued. The market value of the units held as collateral for these loans was $2,735 as of September 30, 2006. Distributions declared on these units are applied against the principal balance of the loans receivable. As of September 30, 2006, an employee share purchase loan of $177 was due from an officer of the Fund.

Cancellation of units pursuant to an arrangement agreement

In July 2006, the Fund cancelled 42,456 units relating to unclaimed unit certificates issued as part of the Fund's initial Plan of Arrangement effective September 30, 2004. The amount of $137 allocated against Unitholders' capital represents the average per unit value within Unitholders' capital on the cancellation date. The offsetting entry was to contributed surplus. In addition, unclaimed distributions of $26 paid on the cancelled units that were subsequently returned to the Fund were also credited to contributed surplus.



7. Contributed surplus

---------------------------------------------------------------------------
Nine Month Period Ended September 30
2006
$
---------------------------------------------------------------------------

Balance, beginning of period 627
Unit-based compensation expense (note 8) 1,557
Cancellation of units pursuant to an arrangement agreement 163
Unit options exercised (500)
---------------------------------------------------------------------------

Balance, end of period 1,847
---------------------------------------------------------------------------
---------------------------------------------------------------------------


8. Unit Option Plan and Employee Unit Plan

Unit Option Plan

On November 17, 2005, 1,255,000 unit options were issued to employees and trustees of the Fund, exercisable at $5.00 per unit. These options were issued pursuant to the Fund's Unit Option Plan. The options vested immediately and are due to expire on November 17, 2010. Option activity during the nine month period ended September 30, 2006 was as follows:



---------------------------------------------------------------------------
Nine Month Period Ended September 30
(thousands) 2006
$
---------------------------------------------------------------------------

Options outstanding, beginning of period 1,255
Options exercised (1,000)
Options forfeited (35)
---------------------------------------------------------------------------

Options outstanding, end of period 220
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Subsequent to September 30, 2006, an additional 50,000 unit options were exercised.

Employee Unit Plan

In May 2006, the Fund established the Eveready Employee Unit Plan (the "Plan"). Under the Plan, key employees and trustees of Eveready (the "Employees"), selected based on their contributions to Eveready's overall success, are invited to subscribe for an allotted number of units from Eveready that will be issued from treasury (including through the exercise of existing unit options). The Employees will have the option of financing this purchase through a BMO Bank of Montreal unit purchase loan ("BMO Loan"). In accordance with the Plan, units issued from treasury, or otherwise acquired by Employees in connection with a business acquisition completed prior to the implementation of the Plan will also be eligible to participate without acquiring additional units from treasury. Units issued from treasury (excluding those issued through the exercise of unit options) are issued at a price equal to the market value of the units at the time the allocation is made to the Employee.

Once the Employee has subscribed for their allotted units, the Fund will then 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 will vest to the Employee 20% per year over five years commencing on December 31st of each fiscal period. Compensation expense will be recorded by the Fund over the vesting period. During the three and nine month periods ended September 30, 2006, compensation expense of $1,091 and $1,557, respectively, was recognized pursuant to this Plan and is included in administrative and general expenses.

To September 30, 2006, 1,065,000 units have been issued from treasury in accordance with the Plan. Of this amount, 1,000,000 units were issued through the exercise of outstanding unit options, and 65,000 units were issued at market value. Subsequent to September 30, 2006, an additional 95,000 units were issued pursuant to the Plan.

During the three months ended September 30, 2006, the Trust also acquired 1,280,000 Matching Units at a cost of $9,228. The first 20% of these Matching Units will vest to the Employees on December 31, 2006. Unvested units held by the Trust are recorded at cost and shown as a reduction of Unitholders' Equity in the consolidated financial statements until such time as they vest to the Employee. The fair value of the units held by the Trust as of September 30, 2006 was $9,075. Distributions made by the Fund with respect to unvested units held by the Trust will be paid to the Employee at the end of each fiscal year.

The BMO Loans are collateralized by the units acquired by the Employees. In addition, the unvested units held by the Trust are also provided as collateral against the BMO Loans and could be drawn upon by the bank if the Employee defaulted on their debt obligation and the Employee's units were not sufficient to cover the outstanding BMO Loan balance.

9. Distributions

Cash distributions are normally paid by the Fund on a monthly basis to Unitholders of record the last business day of each month. Distributions are payable on or about the 15th day of the month following the record date. The following table summarizes the Fund's distributions on units of record during the nine months ended September 30, 2006:



---------------------------------------------------------------------------
Distribution Distributions Net
per Unit Distributions Reinvested Distributions
Record Date $ $ $ $
---------------------------------------------------------------------------

January 31, 2006 0.04 2,011 846 1,165
February 28, 2006 0.04 2,346 852 1,494
March 28, 2006 0.04 2,352 873 1,479
April 28, 2006 0.05 2,947 1,079 1,868
May 31, 2006 0.05 3,140 1,207 1,933
June 30, 2006 0.05 3,167 1,173 1,994
July 31, 2006 0.05 3,285 1,156 2,129
August 31, 2006 0.05 3,298 1,075 2,223
September 29, 2006 0.05 3,423 1,300 2,123
---------------------------------------------------------------------------

Total 0.42 25,969 9,561 16,408
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Accumulated Distributions
---------------------------------------------------------------------------

Balance, beginning of period 12,921 6,557 6,364
Distributions declared 25,969 9,561 16,408
---------------------------------------------------------------------------

Balance, end of period 38,890 16,118 22,772
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Distribution Reinvestment Plan

During the nine months ended September 30, 2006, the Fund declared total distributions of $0.42 per unit or $25,969. Of this amount, there was a $9,561 reinvestment through the Fund's Distribution Reinvestment Plan ("DRIP"), resulting in the issuance of 1,416,658 units. The DRIP is a voluntary program that permits eligible Unitholders to reinvest monthly distributions in additional units. 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 the Canadian Depository for Securities Inc. ("CDS").

10. Earnings per unit

Earnings per unit amounts are calculated based on the weighted average number of units outstanding during the period. Basic per unit amounts have been calculated on the basis that all outstanding Rollover LP units have been converted into Fund units. Unvested units held by the Employee Unit Plan Trust (see note 8) are not treated as outstanding for purposes of calculating basic per unit amounts.

Diluted per unit amounts include the dilutive effect of outstanding unit options and unvested units held by the Employee Unit Plan Trust. The outstanding convertible debentures did not have a dilutive effect on earnings per unit in any of the periods presented. The basic and diluted weighted average number of units outstanding during the three and nine month periods ended September 30, 2006 and 2005 respectively are as follows:



---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------------

Weighted average number of
units outstanding - basic 65,640,902 40,928,042 60,540,324 34,886,813
Weighted average number of
units outstanding - diluted 65,840,595 40,928,042 60,827,763 34,886,813
---------------------------------------------------------------------------
---------------------------------------------------------------------------



11. Supplemental expenditure information

a) Amortization expense

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
$ $ $ $
---------------------------------------------------------------------------

Amortization of property,
plant, and equipment 5,949 2,672 15,950 6,637
Amortization of intangible assets 1,307 44 2,302 60
Accretion expense (note 4) 19 - 87 -
---------------------------------------------------------------------------

7,275 2,716 18,339 6,697
---------------------------------------------------------------------------
---------------------------------------------------------------------------


b) Interest expense

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
$ $ $ $
---------------------------------------------------------------------------

Interest - long-term debt 946 557 2,243 1,878
Interest - convertible debentures 1,204 - 1,414 -
Interest - subordinated debt - 158 - 499
Interest - other 366 178 698 962
Interest prepayment penalty - 422 - 422
---------------------------------------------------------------------------

2,516 1,315 4,355 3,761
---------------------------------------------------------------------------
---------------------------------------------------------------------------


12. Supplemental cash flow information

a) Changes in non-cash operating working capital:

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
$ $ $ $
---------------------------------------------------------------------------

Accounts receivable (3,370) (6,386) (7,380) (13,278)
Work in progress - (1,166) - (2,666)
Inventory (613) (479) (1,447) (870)
Prepaid expenses and deposits (955) (46) (1,346) (576)
Accounts payable and
accrued liabilities 211 3,459 (3,269) 7,381
Income taxes payable (145) 55 (539) 72
---------------------------------------------------------------------------

(4,872) (4,563) (13,981) (9,937)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


b) Non-cash investing and financing activities:

During the three and nine month periods ended September 30, 2006, distributions of $3,531 and $9,561, respectively, owing to Unitholders participating in the DRIP, were settled by issuing 522,723 units and 1,416,658 units, respectively (see note 9).



c) Interest and income taxes paid:

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
$ $ $ $
---------------------------------------------------------------------------

Income taxes paid 206 24 1,495 35
Interest paid 2,252 907 4,052 3,349
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
$ $ $ $
---------------------------------------------------------------------------

Cash consideration paid (note 2) 33,060 500 67,807 812
Transaction costs (note 2) 410 21 842 43
Less: cash acquired in
business acquisitions (1,378) (4) (3,448) (171)
---------------------------------------------------------------------------

Cash used for business
acquisitions, net of
cash acquired 32,092 517 65,201 684
---------------------------------------------------------------------------
---------------------------------------------------------------------------


13. Trust reorganization adjustments

The Fund follows the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee Abstract 107 - "Application of CICA 3465 to Mutual Funds Trusts, Real Estate Investment Trusts, Royalty Trusts and Income Trusts." Under this guidance, future income taxes are not provided for in the accounts if the trust entity qualifies as a mutual fund trust, distributes to its Unitholders all or virtually all of its taxable income that would otherwise be taxable, intends to continue to meet the requirements under the Income Tax Act (Canada) applicable to such trusts, and there is no indication that the entity will fail to meet those requirements.

As a result of a reorganization effective July 1, 2006 to transfer the assets and business of several incorporated subsidiaries of the Fund into the flow through income trust structure, the Fund's future income tax accounts were adjusted on a prospective basis to eliminate the effect of previously recognized temporary differences in these incorporated subsidiaries. As a result, the Fund's future tax liability was reduced in aggregate by $787, and its accumulated earnings were increased by $787. The reorganization adjustments recognized in the 2005 comparative figures also relate to adjustments to the Fund's future income tax accounts that resulted from Eveready's initial conversion to a mutual fund trust and the finalization of pre-reorganization tax filings of Eveready's incorporated subsidiaries.

14. Segmented reporting

The Fund operates in three business segments, segregated based on the type of services that the Fund currently provides its customers. These segments include industrial and oilfield services; health, safety, and environmental services; and oilfield equipment rental services. There are no significant inter-segment revenues.

Selected financial information by reportable segment is disclosed as follows:



---------------------------------------------------------------------------
Industrial Health, Oilfield
and safety, and equipment
oilfield environmental rental
Three Month Period Ended services services services Total
September 30, 2006 $ $ $ $
---------------------------------------------------------------------------

Revenue 82,805 7,742 2,923 93,470
Amortization expense 5,736 744 795 7,275
Interest expense 2,347 64 105 2,516
Earnings before income taxes
and non-controlling interest 4,632 812 736 6,180

Capital expenditures (excluding
business acquisitions) 11,982 1,362 2,088 15,432

---------------------------------------------------------------------------
Three Month Period Ended
September 30, 2005
---------------------------------------------------------------------------

Revenue 52,709 3,706 - 56,415
Amortization expense 2,686 30 - 2,716
Interest expense 1,315 - - 1,315
Earnings before income taxes 3,162 668 - 3,830

Capital expenditures (excluding
business acquisitions) 12,649 324 - 12,973
---------------------------------------------------------------------------
---------------------------------------------------------------------------


---------------------------------------------------------------------------
Industrial Health, Oilfield
and safety, and equipment
oilfield environmental rental
Nine Month Period Ended services services services Total
September 30, 2006 $ $ $ $
---------------------------------------------------------------------------
Revenue 244,416 17,456 8,380 270,252
Amortization expense 12,846 3,574 1,919 18,339
Interest expense 4,007 142 206 4,355
Earnings before income taxes
and non-controlling interest 26,389 245 2,273 28,907

Capital expenditures (excluding
business acquisitions) 34,268 5,095 6,471 45,834

---------------------------------------------------------------------------
Nine Month Period Ended
September 30, 2005
---------------------------------------------------------------------------

Revenue 147,270 8,346 - 155,616
Amortization expense 6,643 54 - 6,697
Interest expense 3,735 26 - 3,761
Earnings before income taxes 12,516 572 - 13,088

Capital expenditures (excluding
business acquisitions) 18,776 437 - 19,213
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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

---------------------------------------------------------------------------
Industrial Health, Oilfield
and safety, and equipment
oilfield environmental rental
services services services Total
As at September 30, 2006 $ $ $ $
---------------------------------------------------------------------------

Property, plant,
and equipment 162,531 8,963 18,723 190,217
Intangible assets 27,088 15,124 3,075 45,287
Goodwill 65,369 3,801 6,683 75,853
Total assets 356,769 31,200 33,827 421,796

---------------------------------------------------------------------------
As at December 31, 2005
---------------------------------------------------------------------------

Property, plant,
and equipment 102,128 4,805 3,110 110,043
Intangible assets 1,127 15,617 1,150 17,894
Goodwill 22,633 1,545 4,553 28,731
Total assets 185,815 24,639 16,978 227,432
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Fund's operations are conducted in the following geographic locations:

---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------------------------------------------------
2006 2005 2006 2005
$ $ $ $
---------------------------------------------------------------------------

Revenue
Canada (excluding
oilsands region) 63,657 43,895 189,109 113,889
Oilsands region(1) 18,432 11,563 66,604 38,246
United States and international 11,381 957 14,539 3,481
---------------------------------------------------------------------------

93,470 56,415 270,252 155,616
---------------------------------------------------------------------------
---------------------------------------------------------------------------


---------------------------------------------------------------------------
As at: September 30 December 31
2006 2005
$ $
---------------------------------------------------------------------------

Property, plant and equipment,
goodwill, and intangible assets
Canada 283,562 152,284
United States and international 27,795 4,384
---------------------------------------------------------------------------

311,357 156,668
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Note: (1) The oilsands region includes the Fund's operations in
north-eastern Alberta.


15. Related party transactions

a) During the three and nine month periods ended September 30, 2006, the Fund incurred $137 and $441 (September 2005 - $44 and $284), respectively, for professional fees from a partnership of which one of the trustees of the Fund is an associate.

b) During the three and nine month periods ended September 30, 2006, the Fund incurred $174 and $291 (September 2005 - $30 and $162), respectively, for professional fees from a partnership of which one of the trustees of the Fund is a partner.

c) Included in general and administrative expenses for the three and nine month periods ended September 30, 2006 are occupancy costs of $184 and $503 (September 2005 - $108 and $325), respectively, that were paid to companies controlled by certain officers and/or trustees of the Fund.

d) During the three and nine month periods ended September 30, 2006, interest expense of $nil and $26 (September 2005 - $13 and $39), respectively, was incurred on a note payable owing to an officer of the Fund and his spouse.

e) During the three and nine month periods ended September 30, 2006, the Fund earned service revenue of $8 and $88 (September 2005 - $nil), respectively, from a company of which an officer and trustee of the Fund each own a 50% beneficial interest.

f) During the comparative nine month period ended September 30, 2005, the Fund incurred camp costs and equipment rental charges of $410 paid to a company controlled by an officer and trustee of the Fund.

These related party transactions were conducted in the normal course of operations and measured at their exchange amounts, which was the consideration established and agreed to by the related parties.

16. Subsequent events and proposed business acquisitions

a) Acquisition of Airborne Imaging Inc.

Effective October 1, 2006, Eveready acquired 100% of the issued and outstanding shares of Airborne Imaging Inc. ("Airborne"). Airborne is a private Alberta-based company that provides comprehensive planning and mapping solutions to companies operating primarily in the oil and gas sector.

The purchase price of $4,790 was paid through a combination of: (i) $2,592 in cash, (ii) $1,916 through the issuance of 262,109 Fund units at a deemed price of $7.31 per unit, and (iii) $282 through the forgiveness of a loan payable from the vendor to Eveready.

b) Acquisition of Great Lakes Carbon Treatment, Inc.

Effective October 1, 2006, Eveready acquired 100% of the issued and outstanding shares of Great Lakes Carbon Treatment, Inc. ("Great Lakes"). Based in Michigan, USA, Great Lakes specializes in the custom design and manufacture of environmental remediation equipment. The Company also provides environmental remediation services to a wide range of customers operating primarily in the chemical, petroleum, utilities, real estate and manufacturing sectors.

The purchase price of US $4,000 was paid via (i) US $2,000 in cash and (ii) US $2,000 through the issuance of 324,283 Fund units at a deemed price of CDN $7.00 per unit.

c) Acquisition of the business and assets of D&G Water and Vacuum Services

In July 2006, Eveready entered into a letter of intent to acquire the business and assets of D&G Water & Vacuum Services; consisting of the assets of D&G Industry Services Ltd. and NPPP Ventures Ltd. ("D&G"). Based in northern Alberta, D&G provides water truck and vacuum services to customers in the oil and gas industry.

The letter of intent contemplates a purchase price for the business and assets equal to a multiple of 3.5 times the normalized earnings before interest, taxes, depreciation, and amortization for the year ended July 31, 2006. The purchase price will be payable through a combination of: (i) $676 in units issued at a deemed price of $6.76 per unit, and (ii) the remainder in cash consideration.

This acquisition will also be completed in two stages, with D&G's equipment being acquired on August 1, 2006 for cash proceeds equal to $3,696. This value was based on the equipment's fair market value, as determined by a third party appraisal. The second stage of the acquisition is expected to close in November 2006. The estimated total consideration to complete both stages of this acquisition is $7,022.

Completion of the above acquisition is subject to a number of conditions including, but not limited to, the completion of satisfactory due diligence by Eveready as well as approval of the board of trustees of Eveready. Completion of the acquisition is also subject to the receipt of any required regulatory approvals including, but not limited to, the approval of the Toronto Stock Exchange. Assuming all of these conditions are satisfied, it is anticipated that this acquisition will close in November, 2006.

d) Acquisition of Rodrigue's Group of Companies

In August 2006, Eveready entered into a letter of intent to acquire an 80% interest in the assets and business of the Rodrigue's Directional Drilling group of companies ("Rodrigue's). Based in Nisku, Alberta, Rodrigue's is a horizontal directional boring firm with many additional support services.

The letter of intent contemplates a purchase price of $8,423, and is payable through a combination of units and cash consideration, but subject to a minimum of 80% of the consideration being in units. The units are to be issued at a deemed price per unit equal to the lower of: (i) the ten day weighted average trading price of the units as traded on the Toronto Stock Exchange on the ten days prior to the signing of the letter of intent; and (ii) the ten day weighted average trading price of the units as traded on the Toronto Stock Exchange on the ten days prior to the effective date of the acquisition.

In connection with the above acquisition, Eveready will also enter into a mutual option agreement with the vendors. This agreement will provide Eveready a call option to acquire the remaining 20% non-controlling interest and provide the vendors a put option to sell the remaining 20% non-controlling interest to Eveready exercisable at any time after March 31, 2009. The exercise price for each option is based on a formula that is designed to estimate the fair value of the non-controlling interest at the time the option is exercised.

Completion of the above acquisition is subject to a number of conditions including, but not limited to, the completion of satisfactory due diligence by Eveready as well as approval of the board of trustees of Eveready. Completion of the acquisition is also subject to the receipt of any required regulatory approvals including, but not limited to, the approval of the Toronto Stock Exchange. Assuming all of these conditions are satisfied, it is anticipated that this acquisition will close in November, 2006.

e) Distribution increase

On October 16, 2006, Eveready announced a cash distribution of $0.06 per unit for the month of October to the Fund's Unitholders. This payment represents an increase from the previous monthly distribution of $0.05 per unit. Payment will be made on or about November 15, 2006 to Unitholders of record as of the close of business on October 31, 2006.

17. Comparative figures

Certain of the comparative figures have been reclassified 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
    John M. Stevens
    CFO
    (780) 451-6075
    (780) 451-2142 (FAX)
    Website: www.evereadyincomefund.com