EVEREADY INCOME FUND
TSX : EIS.UN

EVEREADY INCOME FUND

March 10, 2008 08:00 ET

Eveready Income Fund Announces 2007 Fourth Quarter and Year End Financial Results

CALGARY, ALBERTA--(Marketwire - March 10, 2008) - Eveready Income Fund (TSX:EIS.UN):



Selected Consolidated Financial Information:

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Three Month Periods Ended Years Ended
December December December December
$ thousands, except 31 31 % 31 31 %
per unit amounts 2007 2006 Change 2007 2006 Change
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Revenue $137,152 $109,441 25% $518,896 $379,693 37%

Gross profit 34,692 32,214 8% 151,034 120,275 26%
Gross margin 25.3% 29.4% 29.1% 31.7%

EBITDA(1) 18,331 13,624 35% 78,422 64,690 21%
EBITDA margin(1) 13.4% 12.4% 15.1% 17.0%
Per unit(1) 0.22 0.20 10% 1.01 1.03 -2%

Net earnings 2,747 2,741 0% 13,626 29,901 -54%
Per unit - basic 0.03 0.04 -25% 0.18 0.48 -63%
Per unit - diluted 0.03 0.04 -25% 0.18 0.47 -62%
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Cash provided by
operating activities 16,001 12,396 29% 55,819 46,292 21%
Funds from
Operations(1) 14,074 12,960 9% 65,758 61,745 6%
Per unit(1) 0.17 0.19 -11% 0.85 0.99 -14%

Distributions declared 15,127 12,638 20% 57,047 38,607 48%
Per unit 0.18 0.18 0% 0.72 0.60 20%
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Weighted average units
Basic 82,427 68,725 20% 77,317 62,603 24%
Diluted 82,427 69,245 19% 77,317 63,284 22%
Units outstanding at
December 31 85,317 71,746 19%
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Total assets 618,531 466,181 33%
Total liabilities 333,669 204,529 63%
Unitholders' equity 284,862 261,652 9%
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Notes:

(1) These financial measures are identified and defined under the section
"Non-GAAP Financial Measures."
(2) Certain of the comparative figures were reclassified from MD&As
previously presented to conform to the current year's presentation.


2007 Overview:

- Revenue for the year ended December 31, 2007 was approximately $519 million reflecting an increase of 37% from 2006;

- We continued our expansion in the Alberta oil sands region generating revenue of approximately $170 million from operations located in this area compared to approximately $95 million in 2006. This represents 33% (2006 - 25%) of our total revenue. During the year we also announced that we were awarded significant long-term service contracts in the Alberta oil sands region with several large customers. The contracts range in length from two to five years and will utilize a number of Eveready's services. We expect these contracts could generate approximately $400 million in revenue over the next three years (see "Note Regarding Forward-Looking Statements");

- We generated EBITDA (see "Non-GAAP Financial Measures") of $78.4 million in 2007. This reflects an increase of 21% from EBITDA of $64.7 million in 2006;

- We reported net earnings of $13.6 million or $0.18 per unit in 2007 compared to net earnings of $29.9 million or $0.48 per unit in 2006. The decrease in net earnings was caused by a decline in our gross margin and increases in amortization, interest, and general and administrative expenses. Net earnings in 2007 were also negatively affected by future income tax expense of $4.7 million caused by the enactment of new legislation to impose additional income taxes on publicly traded income trusts and limited partnerships, including Eveready, effective January 1, 2011;

- We invested $79.1 million in property, plant and equipment in 2007, including $64.3 million in growth capital expenditures to grow our services in a number of locations including the Alberta oil sands region;

- We declared distributions of $57.0 million or $0.72 per unit in 2007, compared to distributions of $38.6 million or $0.60 per unit in 2006;

- In April 2007, we completed a long-term debt financing of $250 million. The financing consisted of a $150 million term loan and a $100 million revolving credit facility. The financing amended and increased our previous long-term debt credit facility and replaced our demand revolving credit facility;

- On May 1, 2007, we acquired Denman Industrial Trailers Ltd. ("Denman"), our largest business acquisition to date, for cash consideration of $59.5 million. Denman is a premier supplier of industrial lodges to the Alberta oil sands region;

- In June 2007, we raised gross proceeds of $43.5 million through an equity financing of 8,130,900 units at a price of $5.35 per unit. Issuance costs of $2.5 million were incurred relating to the financing, resulting in net proceeds of $41.0 million. We used the net proceeds to reduce our outstanding debt arising from the acquisition of Denman;

- On June 12, 2007, the Government of Canada enacted legislation to impose additional income taxes on publicly traded income trusts and limited partnerships, including Eveready, effective January 1, 2011. These proposals were originally announced by the Government of Canada on October 31, 2006;

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

- In January 2008, we approved a capital expenditure program of $78 million for 2008. The program is comprised of growth capital expenditures of $62 million and maintenance capital expenditures of $16 million;

- In January 2008, we announced strategic changes to our distribution policy to maximize the retention of operating cash flow to re-invest in growth. Eveready's monthly cash distribution of $0.06 per unit ($0.72 per unit on an annualized basis) has been eliminated and will be replaced with a quarterly "in-kind" distribution of $0.18 per unit ($0.72 per unit on an annualized basis). We anticipate the first "in-kind" distribution will be paid on or about April 15, 2008 to unitholders of record as of the close of business on March 31, 2008; and

- In January 2008, we received approval from the Toronto Stock Exchange to establish a Normal Course Issuer Bid to purchase for cancellation, from time to time, as we consider advisable, our issued and outstanding units up to a maximum of 5,090,401 units. Although it is not our long-term objective to purchase units for cancellation, if our market price were to experience abnormal weakness in the near future, such purchases would increase the proportionate interest of, and be advantageous to, all remaining unitholders.

This Management's Discussion & Analysis ("MD&A") was prepared as of March 7, 2008 to assist readers in understanding Eveready Income Fund's ("Eveready" or the "Fund") consolidated financial performance for the year ended December 31, 2007 and significant trends that may affect Eveready's future performance. This MD&A should be read together with the accompanying consolidated financial statements for the year ended December 31, 2007 and the notes contained therein. The accompanying consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") using Eveready's reporting currency, the Canadian dollar. Eveready is a reporting issuer in each of the provinces of Canada, except Quebec. Eveready's units trade on the Toronto Stock Exchange under the symbol "EIS.UN."

Additional information relating to Eveready, including our 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 Eveready's performance. Non-GAAP financial measures do not have any standard meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures are identified and described under the section "Non-GAAP Financial Measures."

Overall Performance

We generated revenue of $518.9 million during the year ended December 31, 2007 compared to revenue of $379.7 million in 2006, an increase of 37%. Likewise, we increased our EBITDA (see "Non-GAAP Financial Measures") by 21% to $78.4 million from $64.7 million in 2006 and increased Funds from Operations (see "Non-GAAP Financial Measures") by 6% to $65.8 million from $61.7 million in 2006. However, net earnings declined to $13.6 million in 2007 from $29.9 million in 2006.

We experienced mixed results in 2007 with some areas of our business growing at a substantial rate and other areas of our business declining. On the positive side, we continued to see growth in our core business - the provision of essential industrial maintenance and production services to companies operating in the energy, resource and industrial sectors. The majority of this growth was generated from our operations located in the Alberta oil sands region. In addition, in May 2007 we acquired Denman, a company providing workforce accommodations to companies operating in the Alberta oil sands region. To date, Denman has exceeded our original expectations and we plan to continue to expand our industrial lodge facilities in 2008 to meet the increasing demand for these services.

On the negative side, our services dependant on conventional oil and gas exploration and drilling were negatively affected by the downturn in industry activity in 2007. In addition certain specialty environmental services, including our safety services and mechanical dewatering and dredging divisions, operated in loss positions in 2007, which negatively impacted our overall financial results.

We also experienced an overall decline in our gross margin to 29.1% in 2007 from 31.7% in 2006. This decline was partially caused by a change in our sales mix. In 2007, we experienced a decline in revenue from many of our high margin services dependant on conventional oil and gas exploration and drilling activity and an increase in revenue from many of our lower margin services. This was apparent in our Alberta oil sands operations. To meet the demand for our services in this region, we were required to utilize third party contractors and lease operators to supplement the services provided by our own equipment and personnel. Services provided by third party contractors and lease operators earn a lower gross margin than services provided through our own equipment and personnel. In addition, as we prepared for further growth in the Alberta oil sands region in 2008, we also incurred additional payroll and training costs, which further hampered our gross margin. These costs are necessary to fulfill our long-term service commitments to our customers.

Our net earnings were also negatively affected by higher amortization costs in 2007 due to the significant growth in our property, plant and equipment over the past year. Also included in amortization expense in 2007 was amortization of intangible assets of $8.1 million compared to $3.9 million in 2006. The majority of our intangible assets were acquired with business acquisitions over the past two years. Interest expense also increased by $11.2 million in 2007 as we utilized our debt credit facilities to fund our growth. Finally, net earnings were negatively affected by future income tax expense of $4.7 million caused by the enactment of new legislation to impose additional income taxes on publicly traded income trusts and limited partnerships, including Eveready, effective January 1, 2011.

Our overall outlook for 2008 is positive. We will continue to increase our exposure to the growing infrastructure development in the Alberta oil sands and expect to achieve the majority of our organic growth in 2008 from this region. In addition, we expect demand for our industrial maintenance and production services throughout North America will continue to show modest growth. However, we anticipate lower demand for our services dependant on conventional oil and gas exploration and drilling to continue into 2008.

We estimate revenue for the year ended December 31, 2008 will exceed $600 million (see "Note Regarding Forward-Looking Statements"). If achieved, this will represent revenue growth of over 15% from 2007.

Our Business

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

Our fleet consists of chemical and high pressure trucks, vacuum trucks, hydro-excavation trucks, pressure trucks, hot oiler units, steamer trucks, tank trucks, and flush-by units. In addition, we also own hundreds of additional pieces of large equipment including directional boring rigs, heli-portable drills, mulchers, catalyst handling and support systems, and other specialized pieces of equipment. Our lodging services include 18 portable camps and six industrial lodges. All six industrial lodges and the majority of our portable camps are currently located in the Alberta oil sands region.

We provide over 80 different services to our customers. The common thread in the wide range of services we provide is our customer. We believe that our customers place great value on those providers who are able to deliver a broad, top-quality offering composed of many different services to support their operations. Many of our customers use several of the services we offer.

In 2007, we revised the segmentation of our financial reporting into four business segments to better differentiate the range of services we offer our customers.

Oil Sands, Industrial and Production Services

Oil sands, industrial and production services account for the largest portion of our business. These services include a wide range of industrial maintenance services provided at plants, refineries, and other industrial facilities as well as production support services for oil and gas companies. Many of these services are provided within Alberta's oil sands region. Some of the main services we offer within this segment include:



Catalyst handling Hot oiling
Chemical cleaning and decontamination Hydro-excavation
Decoking and pigging Pressure testing
Directional boring and punching Steam cleaning
Fluid hauling Tank cleaning
Flush-by and coil tubing Wet and dry vacuuming
High and ultra-high pressure water
cleaning


Exploration Services

We provide a variety of services to support exploration programs for oil and gas companies. Some of the core services we offer within this segment include:



Geospatial data imaging Line clearing
Heli-portable and track drilling Seismic surveying
Land development


Environmental Services

This segment includes a wide range of health, safety and environmental services to help our customers operate in a safe and environmentally responsible manner. These services include:



Disposal well services Mechanical dewatering and dredging
Filters and filtration services Safety training and services
Industrial health services Waste hauling services
Landfill solid waste disposal


Lodging and Rentals

Our lodging and rentals segment primarily consists of premier industrial lodges and drill camp accommodations for companies operating in the Alberta oil sands region. In addition, we also offer for rental or sale a variety of oilfield equipment including access rentals, well-site units, and production equipment.

Vision, Mission and Strategy

Our Vision

Our vision is to be the one-stop service provider for our customers.

Our major customers require diverse services to meet their business needs. We believe these customers prefer to deal with suppliers capable of providing a wide range of top quality services that meet a variety of their needs.

Our Mission

Our mission gives us direction on how we operate, guides our actions for day-to-day business, and forms the backbone for our decision making.

Our mission is to be the preferred supplier to our customers. We plan to achieve this mission by providing the greatest value, not only to our customers but also to our employees, unitholders, communities and the environment. We are committed to sustaining our success in achieving this mission through:

- Employee safety, pride, integrity, and growth;

- Responsiveness to customer needs;

- Continuous improvement and innovation; and

- Corporate growth and profitability.

Our Strategy

To achieve our mission we must grow. This means expanding our range of services, our geographic presence and the capacity of our existing services. The following initiatives are central to our strategy:

- Growing our existing services;

- Adding new services to our existing customer base;

- Consolidating industry peers and competitors;

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

- Geographic expansion.

Further, these aggressive initiatives will be supported by:

- Improving yield management and operational utilization;

- Diligent cash management and integration of processes;

- Maintaining a robust workforce by attracting and retaining great people; and

- Unifying Eveready through employee ownership.

Successfully executing our growth strategies is critical in order to achieve our mission of becoming the preferred supplier to our customers. Throughout this MD&A, we will discuss the execution of our business strategies in 2007 and our plans for 2008. We will also discuss some of the risks that may prevent us from successfully executing our business strategies and achieving our mission.

Executing Our Growth Strategies in 2007

In 2007, we focused our growth initiatives on expanding our market presence in the Alberta oil sands region. With this strategy, we completed our largest business acquisition to date and executed our largest ever capital expenditure program. We believe these investments will help position Eveready as a leading provider of oil sands infrastructure services in the future.



Organic Growth through Capital Expansion

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Strategy: Growing our existing services
Positioning ourselves as a leading provider of oil sands
infrastructure services
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We invested $79.1 million in property, plant and equipment in 2007 (2006 - $68.9 million). This investment included $64.3 million in growth capital expenditures and $14.8 in maintenance capital expenditures. Our 2007 capital expenditures were invested primarily in the following areas:

- $26.8 million in new equipment to grow our Alberta oil sands infrastructure services;

- $8.9 million to expand our industrial lodging facilities in the Alberta oil sands;

- $10.0 million to acquire new equipment to support and expand the range of services offered within our exploration services segment; and

- $7.9 million in new equipment to support our production services in east-central Alberta and western Saskatchewan.

We have also approved a capital expenditure program of $78 million for 2008. This program is comprised of growth capital expenditures of $62 million and maintenance capital expenditures of $16 million. The capital additions will consist of approximately 120 new service units as well as approximately $20 million to expand our industrial lodging services in the Alberta oil sands region. Delivery of the capital equipment is expected throughout the year with a large portion of the expenditures being incurred to support planned revenue and earnings growth in 2009.

Our robust capital expenditure program for 2008 is required to help meet the growing demand for our services, especially in the Alberta oil sands region of north-eastern Alberta. In 2007, we were awarded significant long-term service contracts in the Alberta oil sands region with several large customers. The contracts range in length from two to five years and include Suncor Energy Inc., Nexen Inc., Canadian Natural Resources Limited, Petro Canada, and Syncrude Canada Ltd. These contracts could generate approximately $400 million in revenue over the next three years (see "Note Regarding Forward-Looking Statements").

Approximately 75% of our planned growth capital expenditures in 2008 have been earmarked for the Alberta oil sands region.

Business Acquisitions



Denman

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

Operating six industrial lodges and 18 portable camps with a total capacity of approximately 2,000 rooms, Denman generates the majority of its revenue from the Alberta oil sands region. We will continue to expand Denman's lodging facilities in the future to keep pace with the growing needs of our customers in this region. We believe the demand for workforce accommodations in the Alberta oil sands region could increase by up to 50% over the next three to five years, which represents significant opportunity for Denman.



Truck Division of Wellco Energy Services Trust

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



Compass Horizontal Drilling

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Strategy: Growing our existing services
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Effective March 1, 2007, we acquired the business and assets of Compass Horizontal Drilling Inc. ("Compass"). Compass was a private, Alberta-based company that provided directional boring services to customers operating in the oil and gas sector. The purchase price of $3.0 million was paid through a combination of: (i) $0.5 million in cash and (ii) $2.5 million through the issuance of 413,223 units at a deemed price of $6.05 per unit. This acquisition expands our directional boring capabilities and builds on our previous acquisition of three directional boring companies in 2006.

Supporting Our Growth Strategies

To achieve our growth strategies, our growth must be properly supported. We have identified the following performance drivers that are critical to our future success:

Attracting and Retaining Quality Employees

Our employees are critical to our long-term success and viability. Our industry continues to experience a strong demand for quality employees and labourers, which remain in short supply. Our success in the future depends heavily on our ability to attract and retain key personnel. Should we fail to meet our workforce needs, Eveready's long-term success could be threatened.

To attract and retain quality employees, we need to make sure our employees enjoy competitive wages and opportunities for growth, and have a vested interest in Eveready's future. We differentiate ourselves from many other companies in our field by making our employees owners, which ensures our employees have a vested interest in Eveready's performance. Since the beginning, Eveready has always been employee-owned and this approach to ownership still holds true today. Even before we became a public company in 2005, we already had over 80 employee shareholders. This core structure has not changed since becoming a public income fund.

Management and Trustee ownership

As at December 31, 2007 our senior officers and trustees owned approximately 28% of Eveready's outstanding units. We believe this is important because it ensures management's interests are aligned with those of our unitholders. Furthermore, upon becoming a public income fund certain unitholders (the "Principal Unitholders") signed a Principal Unitholder Agreement. This agreement required that Principal Unitholders reinvest 100% of their monthly cash distributions in additional units and prevents them from selling more than 10% of their units in any 12-month period prior to March 31, 2010. This is important because it ensures the Principal Unitholders, many of whom are also employees or trustees of Eveready, are committed to our long-term success. Subsequently, additional participants have signed onto the Principal Unitholder Agreement in connection with various business acquisitions completed by Eveready whereby units were issued as part of the purchase consideration. At December 31, 2007, approximately 27% of Eveready's total outstanding units were subject to the Principal Unitholder Agreement.

Employee Unit Plan

Eveready established an Employee Unit Plan (the "Plan") for key employees and trustees of Eveready (the "Employees"). Under the Plan, Employees, selected based on their contributions to our overall success, were invited to acquire an allotted number of units from Eveready that we issued from treasury. The Employees also had the option of financing this purchase through a BMO Bank of Montreal unit purchase loan. Eveready then matched this acquisition by acquiring the same number of units from the market. The matched units vest to the Employees 20% per year over five years. The Employees also earn distributions on both the units they acquired and the matching units Eveready acquires on their behalf. There are currently approximately 200 Employees participating in the Plan.

Employee savings plan

We have also established an Employee Savings Plan for our employees. Under this plan, Eveready matches the employees' 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 also makes a large number of our employees unitholders and provides them with a vested interest in our long-term success. There are approximately 500 employees currently participating in the Employee Savings Plan.

Employee bonus program

We have established a formal bonus plan that rewards our key employees for excellent performance, but also ensures the interests of our employees are aligned with those of our unitholders. Bonus amounts are based on meeting performance based targets and pre-established levels of cash flow return.

Making Safety a Priority

A cornerstone of our customer service is our commitment to safety. We promote behaviour-based safety through extensive training for our employees. We also base management remuneration on safe work performance and safety leadership. Continuing to make safety a priority for our employees and customers is critical to meeting our long-term objectives. Without a strong safety record, we will not achieve our mission of being the preferred supplier for our customers.

Key elements of our safety strategy include:

- Regular, documented safety meetings dedicated to issues on the ground, including pre-project and tailgate meetings;

- Critical activity safe work plans;

- A safety awards program that rewards behaviour-based safety;

- Manager remuneration based on safe work performance and safety leadership; and

- Advanced automated equipment and personal protective equipment.

Ensuring that Our Growth is Properly Financed

To realize our growth opportunities, we must have sufficient capital. Without sufficient capital, no matter how good the opportunities, we may not be able to sustain our potential level of growth. To fund growth, we require cash generated from both internal and external sources. We obtain this financing through operating cash flows that we retain, the public sale of units, and debt financing. In 2007, we financed our growth through the following initiatives:

Debt credit facilities

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

In addition, we utilized capital leases to assist in the acquisition of equipment. At December 31, 2007, our obligations under capital lease substantially related to industrial lodging facilities purchased with the acquisition of Denman in May 2007.

Public offering - June 2007

On June 5, 2007, we completed an equity financing of 8,130,900 units priced at $5.35 per unit for gross proceeds of $43.5 million. The units were issued pursuant to a short form prospectus dated May 28, 2007. Issuance costs of $2.5 million were incurred relating to the financing, resulting in net proceeds of $41.0 million.

Distribution reinvestment plan

Our Distribution Reinvestment Plan ("DRIP") provided us with significant financial flexibility to grow our business by retaining cash flow. The DRIP was a voluntary program that permitted eligible unitholders to automatically and without charge reinvest monthly distributions in additional units. Unitholders who elected to participate saw 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. Participation in our DRIP approximated 34% of our total outstanding units in 2007 and resulted in the retention of $19.2 million (2006 - $14.2 million) in cash flows.

In conjunction with the change in our distribution policy in January 2008 discussed below, we cancelled our DRIP.

Looking ahead to 2008 - change in distribution policy

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

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

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

- Due to our current market price, we are experiencing a very high cost of capital. The new policy will reduce our reliance on the public markets to fund our growth initiatives; and

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

We believe our current credit facilities, combined with the retention of 100% of our operating cash flows, will be sufficient to completely fund our 2008 capital expenditure program without raising additional external equity (see "Note Regarding Forward-Looking Statements").



Selected Annual Financial Information

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Years Ended December December December
$ thousands, except 31 31 31 June 30 June 30
per unit amounts 2007 2006 2005 2004 2003
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Revenue $518,896 $379,693 $220,309 $ 78,944 $ 57,103

EBITDA(1) 78,422 64,690 31,122 7,103 5,388
EBITDA margin(1) 15.1% 17.0% 14.1% 9.0% 9.4%
Per unit(1,2) 1.01 1.03 0.83 n/a n/a

Net earnings 13,626 29,901 14,317 783 1,420
Per unit - basic(2) 0.18 0.48 0.38 n/a n/a
Per unit - diluted(2) 0.18 0.47 0.38 n/a n/a
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Cash provided by (used in)
operating activities 55,819 46,292 9,958 3,456 (2,303)
Funds from operations(1) 65,758 61,745 26,633 5,136 3,868
Per unit (1,2) 0.85 0.99 0.71 n/a n/a

Distributions declared 57,047 38,607 12,921 n/a n/a
Per unit(2) 0.72 0.60 0.36 n/a n/a
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Weighted average units
Basic 77,317 62,603 37,436 n/a n/a
Diluted 77,317 63,284 37,452 n/a n/a
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Total assets 618,531 466,181 227,432 65,556 47,648
Long-term liabilities 267,143 125,784 51,356 31,862 23,422
Unitholders' equity 284,862 261,652 127,272 12,759 8,212
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Notes:

(1) These financial measures are identified and defined under the section
"Non-GAAP Financial Measures."
(2) Per unit amounts for the comparative years in 2004 and 2003 have not
been calculated as Eveready's predecessor, Eveready Industrial Group
Ltd. was a privately owned company during those periods.
(3) Certain of the comparative figures were reclassified from MD&As
previously presented to conform to the current year's presentation.


Results of Operations

Revenue

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Years Ended December 31 2007 2006
$ thousands
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Revenue by segment:
Oil sands, industrial and production services $375,939 $262,759
Exploration services 59,521 68,323
Environmental services 42,066 37,303
Lodging and rentals 41,370 11,308
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Total 518,896 379,693
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Oil sands, industrial and production services

Revenue from oil sands, industrial and production services increased by $113.1 million or 43% to $375.9 million during the year ended December 31, 2007 from $262.8 million in 2006. The majority of this change resulted from:

- Alberta oil sands operations. Significant organic revenue growth in the Alberta oil sands region generated revenue of $131.4 million during the year ended December 31, 2007. This represents an increase of $43.9 million or 50% from revenue of $87.5 million in 2006;

- Operations in east-central Alberta and western Saskatchewan. Production services in this region generated revenue of $97.9 million during the year ended December 31, 2007. This reflects an increase of $22.6 million or 30% from revenue of $75.3 million in 2006. The acquisition of a number of service companies in 2006 and investments in new equipment were the primary drivers of this increase;

- Directional boring and punching services. We generated revenue of $27.3 million from directional boring and punching services during 2007. This compares to revenue of $12.2 million in 2006, a $15.1 million or 124% increase. This increase resulted from the acquisition of three directional boring companies in 2006;

- Decoking and pigging services. We generated revenue of $19.4 million during 2007 compared to revenue of $12.2 million in 2006, a $7.2 million or 59% increase. A 2006 business acquisition and organic growth in our decoking and pigging operations in both Canada and the United States caused this increase; and

- Catalyst handling services. Revenue generated from our acquisition of the Cat Tech group in July 2006 contributed $40.8 million to revenue in 2007 compared to $18.8 million in 2006, a $22.0 million increase.

Exploration services

Revenue from exploration services declined by $8.8 million or 13% to $59.5 million during the year ended December 31, 2007 from $68.3 million in 2006. We experienced weaker demand for seismic exploration services in 2007 due to smaller exploration programs for oil and gas companies. Partially offsetting the overall decline in revenue in this segment was an increase in revenue of $5.0 million from surveying and geospatial data imaging services, which resulted from business acquisitions completed in 2006.

Environmental services

For the year ended December 31, 2007, revenue from environmental services increased by $4.8 million to $42.1 million from revenue of $37.3 million in 2006. The majority of this change resulted from our waste hauling services. We generated revenue of $8.5 million from these services in 2007 compared to revenue of $2.3 million in 2006, a $6.2 million increase. This increase was offset by declines in revenue generated from other specialty environmental services such as mechanical dewatering and dredging services, whose revenues tend to be project-specific, and therefore can fluctuate significantly depending on the number of projects being completed during a specific period.

Lodging and rentals

During the year ended December 31, 2007, we generated revenue of $41.4 million from the lodging and rentals segment, representing an increase of $30.1 million from 2006. The acquisition of Denman on May 1, 2007 caused this increase, generating revenue of $31.2 million in 2007. This increase was slightly offset by a decline in revenue generated from the rental of access rentals and well-site units. The demand for access rentals and well-site units continues to be negatively affected by lower industry drilling and exploration activity.



Gross Profit

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ thousands
----------------------------------------------------------------------------

Amount $151,034 $120,275
Gross margin % 29.1% 31.7%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Our significant revenue increase in 2007 contributed to a corresponding increase in gross profit. However, our gross margin declined by 2.6% in 2007. The majority of this decrease resulted from changes in our sales mix from 2006. Factors affecting our sales mix included:

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

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

Offsetting a portion of the gross margin decline in 2007 was the acquisition of Denman in May 2007. Our lodging services typically earn a higher gross margin than our traditional industrial and oilfield services.



General and Administrative Expenses

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ thousands
----------------------------------------------------------------------------

Amount $ 66,961 $ 52,160
% of revenue 12.9% 13.7%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Note:

(1) In 2007, we reclassified certain expenses, previously included in
general and administrative expenses, to direct costs and other expense
categories to better reflect the nature of those expenses. The
comparative figures in 2006 have also been reclassified to conform to
the current year's presentation.


General and administrative expenses increased by $14.8 million to $67.0 million in 2007 from $52.2 million in 2006. This increase resulted primarily from additional salary and wage costs, occupancy costs, and other administrative expenses related to business acquisitions completed in 2007. In addition, we also incurred additional general and administrative expenses to support our organic growth in several locations.

The majority of the increase in 2007 consisted of the following components:

- Administrative wages and benefits - $7.8 million increase;

- Occupancy costs - $3.2 million increase;

- Bad debt provisions - $1.9 million increase;

- Sales and marketing costs - $1.8 million increase;

- Office and telecommunications - $1.7 million increase; and

- Information technology costs - $0.8 million increase.

Offsetting the increase in general and administrative expenses was a decline in accrued bonus expense of $2.2 million due to lower overall earnings in 2007.

In 2007, we adopted a more conservative approach in establishing our allowance for doubtful accounts. During the year ended December 31, 2007, we incurred bad debt provisions of $2.8 million. This compares to a $0.9 million expense in 2006. Based on our strong collections history and blue-chip customer base, we expect the majority of our 2007 bad debt provision will not be a recurring expense in the future.

As a percent of revenue, general and administrative expenses declined to 12.9% in 2007 from 13.7% in 2006. Although we have incurred additional general and administrative expenses over the past year to support our business acquisitions, we are also working on a number of measures to reduce our general and administrative expenses and streamline our existing structure. In 2008, we expect general and administrative expenses to continue to decrease as a percentage of revenue due to the economies of scale improvements that come with growth.



Other Expenses

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ thousands
----------------------------------------------------------------------------

Unit-based compensation $ 3,069 $ 2,629
Loss (gain) on foreign exchange 1,644 (652)
(Gain) loss on disposal of property, plant and
equipment (19) 691
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the year ended December 31, 2007, unit-based compensation expense increased by $0.4 million to $3.1 million. Additional participants invited into the Employee Unit Plan in 2007 caused this increase.

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

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



EBITDA

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ thousands
----------------------------------------------------------------------------

Amount $ 78,422 $ 64,690
% of revenue 15.1% 17.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


For the year ended December 31, 2007, our EBITDA (see "Non-GAAP Financial Measures") grew to $78.4 million from $64.7 million in 2006. This increase is directly attributable to higher revenue achieved in 2007. However, our EBITDA margin declined to 15.1% in 2007 from 17.0% in 2006. This decline is mainly attributable to the decrease in our overall gross margin in 2007 (see discussion under "Gross Profit" above).



Amortization

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ thousands
----------------------------------------------------------------------------

Amortization of property, plant and equipment and
assets under capital lease $ 33,676 $ 22,461
Amortization of intangible assets 8,111 3,890
Accretion on asset retirement obligations 97 102
----------------------------------------------------------------------------

Total 41,884 26,453
% of revenue 8.1% 7.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Amortization increased by $15.4 million or 58% to $41.9 million during the year ended December 31, 2007. As a percent of revenue, amortization also increased from 7.0% to 8.1%. The following two factors caused this increase:

- Significant growth in our property, plant and equipment. Property, plant and equipment increased to $307.6 million at December 31, 2007 from $212.9 million at December 31, 2006, a 44% increase; and

- Intangible assets. The majority of our intangible assets were acquired with business acquisitions and are amortized over their estimated useful lives. They include items such as customer relationships, patents, licenses, and supplier agreements. Amortization expense related to intangible assets was $8.1 million in 2007 compared to $3.9 million in 2006.

If we exclude amortization of intangible assets, amortization as a percentage of revenue for the year ended December 31, 2007 increased only slightly to 6.5% from 5.9% in 2006.



Interest Expense

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ thousands
----------------------------------------------------------------------------

Amount $ 18,877 $ 7,662
% of revenue 3.6% 2.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Interest costs increased significantly compared to 2006, both in absolute terms and as a percentage of revenue. This increase resulted from the following factors:

- Increased use of debt credit facilities. Business acquisitions and capital expenditures completed in 2007 required us to utilize more of our debt credit facilities. At December 31, 2007, our bank indebtedness, long-term debt, and obligations under capital lease were $219.5 million compared to $101.9 million at December 31, 2006; and

- Convertible debentures. In June 2006, we completed a $50 million financing of convertible unsecured subordinated debentures (the "Debentures"). The Debentures have an annual coupon rate of 7.0% and are due to mature on June 30, 2011. During the year ended December 31, 2007, we incurred interest expense on these Debentures of $5.2 million (2006 - $2.6 million), including $1.7 million (2006 - $0.7 million) in non-cash accretion expense.



Segment Contribution

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ thousands
----------------------------------------------------------------------------

Contribution by segment:
Oil sands, industrial and production services $ 35,256 $ 28,326
Exploration services 8,276 14,082
Environmental services 1,714 5,800
Lodging and rentals 12,678 3,727
----------------------------------------------------------------------------

Total segment contribution 57,924 51,935
Less unallocated items:
Corporate costs 10,674 9,703
Amortization of intangible assets 8,111 3,890
Interest expense 18,877 7,662
Loss (gain) on foreign exchange 1,644 (652)
----------------------------------------------------------------------------

Earnings before income taxes and non-controlling
interest 18,618 31,332
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Segment contribution represents earnings before income taxes and non-controlling interest for each of our business segments prior to unallocated items. We use segment contribution as a key measure to analyze the financial performance of our business segments.

Oil sands, industrial and production services

Contribution from our oil sands, industrial and production services segment increased by $7.0 million or 25% to $35.3 million for the year ended December 31, 2007 from $28.3 million in 2006. The majority of this increase resulted from our organic growth in the Alberta oil sands region. In addition, business acquisitions completed in 2006 also contributed to this increase.

Exploration services

Our exploration services segment's contribution declined by $5.8 million to $8.3 million in 2007 from $14.1 million in 2006. This decrease was caused by an overall industry downturn in oil and gas exploration activity in western Canada. In 2006, we were experiencing very high demand for our exploration services.

Environmental services

Contribution from our environmental services segment declined considerably to $1.7 million in 2007 from $5.8 million in 2006. A reduction in revenue generated from landfill solid waste disposal services and operating losses incurred within our mechanical dewatering and dredging services and safety services divisions caused this decrease. Services provided within our mechanical dewatering and dredging division tend to be project specific, and therefore, revenue and earnings can fluctuate significantly depending on the number of projects being completed during a specific period.

Lodging and rentals

We generated positive contribution of $12.7 million from our lodging and rentals segment in 2007 compared to $3.7 million in 2006. The Denman acquisition on May 1, 2007 caused this increase. The overall increase in contribution from this segment was slightly offset by lower utilization of our access rentals and well-site unit equipment.

Earnings before Income Taxes and Non-controlling Interest

Earnings before income taxes and non-controlling interest were $18.6 million in 2007 compared to $31.3 million in 2006, reflecting a decrease of $12.7 million. Offsetting the overall increase in contribution from our operating segments were significantly higher interest costs and amortization on intangible assets. Higher interest costs were caused from utilizing more of our debt credit facilities to support our revenue growth in 2007. In addition, with business acquisitions completed over the past three years, we were required to recognize several intangible assets at their estimated fair value and then amortize those values to expense over their estimated useful lives.

Income Taxes

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

Enacted tax changes for Canadian income trusts

On June 12, 2007, the Government of Canada enacted legislation, originally announced on October 31, 2006, to impose additional income taxes on publicly traded income trusts and limited partnerships (Specified Investment Flow-Through Entities or "SIFT"), including Eveready, effective January 1, 2011. Prior to June 2007, we estimated the future income tax on certain temporary differences between amounts recorded on our balance sheet for book and tax purposes at a nil effective tax rate. Under this new legislation, we now estimate the effective tax rate on the post 2010 reversal of these temporary differences to range from 28.0% to 29.5%. Temporary differences reversing before 2011 will still give rise to $nil future income taxes.

Based on our assets and liabilities at December 31, 2007, we estimated the amount of our temporary differences, which were previously not subject to tax, and the periods in which these differences will reverse. We plan to maximize the amount of tax pools that can be carried forward to reduce and defer, as much as possible, our income tax exposure beginning in 2011. To achieve this objective, we plan to maximize the taxable component of all distributions declared in 2008 through 2010. We believe the application of this policy will reverse all of the current taxable temporary differences associated with our property, plant and equipment prior to January 1, 2011. We expect this policy will also build up deductible temporary differences that will result in the recognition of a future income tax asset in the future.

However, net taxable temporary differences of $16.5 million related to intangible assets, goodwill, and financing costs are expected to reverse after January 1, 2011. As a result of these reversing temporary differences, we recognized an additional future income tax liability of $4.7 million at December 31, 2007. As the legislation gave rise to a change in our estimated future income tax liability in the current year, the recognition of the additional liability was accounted for prospectively.

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

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

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

Non-controlling Interest

Earnings attributable to non-controlling interest were $1.0 million during the year ended December 31, 2007 compared to $0.8 million in 2006. The non-controlling interest represents earnings attributable to the 20% non-controlling interests that vendors retained from three business acquisitions in 2006.



Net Earnings and Earnings per Unit

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ thousands
----------------------------------------------------------------------------

Net earnings (numerator for basic and diluted
earnings per unit) $ 13,626 $ 29,901
----------------------------------------------------------------------------

Basic weighted average number of units 77,317 62,603
Dilutive effect of outstanding unit options - 213
Dilutive effect of unvested units acquired pursuant
to the Employee Unit Plan - 206
Dilutive effect of contingently issuable units - 262
----------------------------------------------------------------------------
Diluted weighted average number of units 77,317 63,284
----------------------------------------------------------------------------

Earnings per unit - basic $ 0.18 $ 0.48
Earnings per unit - diluted 0.18 0.47
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Basic earnings per unit in 2007 declined to $0.18 per unit from $0.48 per unit in 2006. In addition to a decline in net earnings, earnings per unit were also negatively affected by an increase in the weighted average number of units outstanding. In 2007, the basic weighted average number of units outstanding increased to 77.3 million units from 62.6 million units in 2006. Units issued in connection with various business acquisitions in 2006 and the completion of an equity financing for 8.1 million units in June 2007 caused the majority of this increase.



Summary of Quarterly Data

----------------------------------------------------------------------------
$ thousands,
except per Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
unit amounts 2007 2007 2007 2007 2006 2006 2006 2006
----------------------------------------------------------------------------
Revenue 137,152 126,767 111,005 143,972 109,441 93,470 82,910 93,872
EBITDA(1) 18,331 20,378 14,771 24,942 13,624 15,687 13,395 21,984
Net earnings
(loss) 2,747 4,551 (5,405) 11,733 2,741 5,599 6,748 14,813
----------------------------------------------------------------------------
Earnings (loss)
per unit
- basic 0.03 0.06 (0.07) 0.17 0.04 0.09 0.11 0.28
----------------------------------------------------------------------------
Earnings (loss)
per unit
- diluted 0.03 0.06 (0.07) 0.16 0.04 0.09 0.11 0.27
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Notes:

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


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

In 2007, our reported revenue and earnings have followed this general seasonal trend. Our highest revenue quarter in 2007 was the first quarter and our lowest revenue quarter was the second quarter. In 2006, our quarterly revenue was affected by the significant number of business acquisitions we completed. As a result, our revenue in 2006 continued to increase in both the third and fourth quarters as additional business acquisitions were completed.

The net loss reported in the second quarter of 2007 was caused from SIFT future income tax expense of $5.8 million. The SIFT future income tax expense was caused from the Government of Canada enacting legislation to impose additional income taxes on publicly traded income trusts and limited partnerships, including Eveready, effective January 1, 2011.



Analysis of Operations for the Fourth Quarter of 2007

----------------------------------------------------------------------------
Three Month Periods Ended December 31 2007 2006
$ thousands, except per unit amounts
----------------------------------------------------------------------------

Revenue $ 137,152 $ 109,441
Direct costs 102,460 77,227
----------------------------------------------------------------------------

Gross profit 34,692 32,214
Gross margin 25.3% 29.4%
----------------------------------------------------------------------------

Expenses
General and administrative 15,238 17,376
Amortization 11,736 8,114
Interest expense 5,841 3,306
Unit-based compensation 660 1,076
Loss (gain) on foreign exchange 386 (537)
(Gain) loss on disposal of property, plant and
equipment (78) 457
----------------------------------------------------------------------------
33,783 29,792
----------------------------------------------------------------------------

Earnings before income taxes and non-controlling
interest 909 2,422
----------------------------------------------------------------------------

Income tax recovery
Current (248) (394)
Future (1,745) (143)
----------------------------------------------------------------------------
(1,993) (537)
----------------------------------------------------------------------------

Earnings before non-controlling interest 2,902 2,959

Earnings attributable to non-controlling interest 155 218
----------------------------------------------------------------------------

Net earnings and comprehensive income 2,747 2,741
Per unit - basic and diluted 0.03 0.04
----------------------------------------------------------------------------
----------------------------------------------------------------------------

EBITDA(1) 18,331 13,624
EBITDA margin(1) 13.4% 12.4%
Per unit(1) 0.22 0.20
----------------------------------------------------------------------------

Cash provided by operating activities 16,001 12,396
Funds from operations(1) 14,074 12,960
Per unit(1) 0.17 0.19
----------------------------------------------------------------------------

Distributions declared 15,127 12,638
Per unit 0.18 0.18
----------------------------------------------------------------------------

Weighted average units
Basic 82,427 68,725
Diluted 82,427 69,245
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Notes:

(1) These financial measures are identified and defined under the section
"Non-GAAP Financial Measures."
(2) Certain of the comparative figures were reclassified from MD&As
previously presented to conform to the current period's presentation.


Revenue

----------------------------------------------------------------------------
Three Month Periods Ended December 31 2007 2006
$ thousands
----------------------------------------------------------------------------
Revenue by segment:
Oil sands, industrial and production services $ 94,202 $ 77,484
Exploration services 18,114 15,211
Environmental services 10,791 13,818
Lodging and rentals 14,045 2,928
----------------------------------------------------------------------------

Total 137,152 109,441
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Oil sands, industrial and production services

Revenue from oil sands, industrial and production services increased by $16.7 million or 22% to $94.2 million during the three months ended December 31, 2007 from $77.5 million in 2006. The majority of this change resulted from organic revenue growth within the Alberta oil sands region, which generated revenue of $36.6 million during the three months ended December 31, 2007. This represents an increase of $15.5 million or 73% from revenue of $21.1 million in 2006.

Exploration services

Revenue from exploration services increased by $2.9 million or 19% to $18.1 million during the three months ended December 31, 2007 from $15.2 million in 2006. The majority of this increase resulted from an increase in revenue from track drilling and line clearing services in the fourth quarter.

Environmental services

For the three months ended December 31, 2007 revenue decreased by $3.0 million to $10.8 million from revenue of $13.8 million in 2006. A decrease in revenue from our mechanical dewatering and dredging services division caused the majority of this decline. This division's revenues tend to be project-specific, and therefore, revenue can fluctuate significantly depending on the number of projects being completed during a specific period. In particular, this division completed a large project in the fourth quarter of 2006, which was not repeated in 2007.

Lodging and rentals

During the three months ended December 31, 2007, we generated revenue of $14.0 million from this segment, representing an increase of $11.1 million from 2006. The acquisition of Denman on May 1, 2007 caused this increase, generating revenue of $11.8 million during the fourth quarter.

Gross Profit

In the fourth quarter, our gross margin declined to 25.3% from 29.4% in 2006. This decline was partially due to a shift in our sales mix to lower gross margin services, as discussed earlier in this MD&A. However, this decline was also attributable to additional recruiting, payroll and training costs incurred within our operations located in the Alberta oil sands region to prepare for the upcoming busy winter season. Although we normally incur these additional costs in the fourth quarter of each year (which generally results in our fourth quarter gross margin being lower than the remainder of the year), we continue to incur incrementally more costs each year to support our continued growth. We expect these additional costs will begin to decline once our annual revenue growth begins to stabilize in this region.

General and Administrative Expenses

General and administrative expenses decreased by $2.1 million or 12% to $15.2 million for the three months ended December 31, 2007 compared to the same three month period in 2006. As a percentage of revenue, general and administrative expenses were 11.1% compared to 15.9% in 2006. Although our operations continue to expand at a significant rate, we are now beginning to achieve some of the economies of scale associated within our general and administrative expenses that come with revenue growth. In addition, bonus plan expense declined by $1.1 million in the fourth quarter of 2007 compared to the same three month period in 2006 due to our lower overall net earnings in 2007.

Amortization

Amortization expense increased by $3.6 million or 44% to $11.7 million during the three months ended December 31, 2007 from $8.1 million in 2006. Significant increases in our property, plant and equipment in 2007 caused this increase. Property, plant and equipment increased by $94.7 million or 44% to $307.6 million at December 31, 2007 from $212.9 million at December 31, 2006.

Other Expenses

During the three month period ended December 31, 2007, unit-based compensation expense decreased by $0.4 million to $0.6 million. Forfeitures by participants in 2007 caused the majority of this decline. The loss on foreign exchange during the fourth quarter of 2007 resulted from our operations situated in the United States where the value of the US dollar has declined considerably versus the CDN dollar. Gains and losses on the disposal of property, plant and equipment were not significant in any of the periods presented.

Interest Expense

Interest expense increased by $2.5 million or 77% to $5.8 million in the fourth quarter compared to the same three month period in 2006. This change was caused by an increase in our debt credit facilities in 2007 to fund our capital expenditure program and complete business acquisitions.



Segment Contribution

----------------------------------------------------------------------------
Three Month Periods Ended December 31 2007 2006
$ thousands
----------------------------------------------------------------------------

Contribution by segment:
Oil sands, industrial and production services $ 5,275 $ 3,742
Exploration services 2,138 391
Environmental services 77 3,370
Lodging and rentals 3,949 755
----------------------------------------------------------------------------

Total segment contribution 11,439 8,258
Less unallocated items:
Corporate costs 1,962 1,513
Amortization of intangible assets 2,341 1,554
Interest expense 5,841 3,306
Loss (gain) on foreign exchange 386 (537)
----------------------------------------------------------------------------

Earnings before income taxes and non-controlling
interest 909 2,422
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Oil sands, industrial and production services

Contribution from our oil sands, industrial and production services segment increased by $1.5 million or 41% to $5.3 million for the three months ended December 31, 2007. A large part of this increase was caused from higher revenues generated at our locations within the Alberta oil sands region.

Exploration services

Our exploration services segment contribution improved to $2.1 million in the quarter ended December 31, 2007 compared to $0.4 million in 2006. Higher revenues from track drilling and line clearing services in the fourth quarter of 2007 caused this increase.

Environmental services

We generated substantially less contribution from this segment in 2007 due to operating losses incurring within our mechanical dewatering and dredging services and safety services divisions.

Lodging and rentals

We generated positive contribution of $3.9 million from our lodging and rentals segment in the fourth quarter of 2007 compared to $0.8 million in 2006. The Denman acquisition on May 1, 2007 caused this increase.

Income Taxes

During the three months ended December 31, 2007, we recognized an income tax recovery of $2.0 million compared to an income tax recovery of $0.5 million in 2006. This recovery resulted from losses incurred within certain incorporated subsidiaries during the quarter, a reduction in the enacted income tax rates applicable to our future income tax liability, and changes to our estimate of the post-2010 reversal of existing temporary differences within the Fund and our subsidiary limited partnerships (see discussion under "Enacted tax changes for Canadian income trusts" above).

Net Earnings

Net earnings for the three months ended December 31, 2007 was $2.7 million or $0.03 per unit, compared to $2.7 million or $0.04 per unit in 2006. Although we generated strong revenues during the quarter, these revenues were offset by higher operating costs and increases in amortization and interest expense.



Financial Condition and Liquidity

----------------------------------------------------------------------------
As at December 31 2007 2006
($ thousands, except ratio amounts)
----------------------------------------------------------------------------

Current assets $ 146,266 $ 116,510
Total assets 618,531 466,181
----------------------------------------------------------------------------

Current liabilities 66,526 78,745
Total liabilities 333,669 204,529
----------------------------------------------------------------------------

Unitholders' equity 284,862 261,652
----------------------------------------------------------------------------

Working capital(1) 79,740 37,765
Working capital ratio(1) 2.20 1.48
Funded debt to total capital ratio(1) 0.48 0.36
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Note:

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


Working Capital

Our working capital (see "Non-GAAP Financial Measures") position improved from $37.8 million at December 31, 2006 to $79.7 million at December 31, 2007. The majority of this improvement resulted from refinancing our demand revolving credit facility, which is now presented on a long-term basis (see "Debt and Contractual Obligations" below). We expect our working capital to remain strong in 2008 as we will continue to use our long-term debt credit facilities to support our working capital requirements.

Cash Provided by Operating Activities and Funds from Operations

Cash provided by operating activities for the year ended December 31, 2007 increased to $55.8 million from $46.3 million in 2006, a $9.5 million increase. If we exclude changes in non-cash operating working capital balances and asset retirement costs, we actually generated higher operating cash flows in both 2007 and 2006. Funds from Operations (see "Non-GAAP Financial Measures") were $65.8 million in 2007 compared to $61.7 million in 2006, a $4.1 million increase.

Both our cash provided by operating activities and Funds from Operations have increased in 2007 from 2006 due to higher revenue and growth in our operations. However, offsetting our cash provided by operating activities in both years were higher working capital balances associated with our on-going growth. For example, as our revenue grows, our accounts receivable also increase. As a result, we continue to see our non-cash operating working capital balances increase proportionately to our revenue growth. We expect future increases in our cash provided by operating activities will continue to be partially offset by increases in our accounts receivable and other working capital balances.

Capital Expenditures

We acquired $131.9 million in additional property, plant and equipment during 2007. Of these assets, $52.8 million were acquired through business acquisitions and the remaining $79.1 million were from capital expenditures. Capital expenditures consisted of $14.8 million in maintenance capital expenditures and $64.3 million in growth capital expenditures. We believe capital expenditures are necessary to support the growing demand for our services and to achieve our growth strategies. These expenditures also reflect our capital maintenance program. We designed our capital maintenance program to keep our equipment efficient and profitable by replacing our equipment when it is cost prohibitive to operate due to high maintenance and operating costs. Property, plant and equipment acquired through business acquisitions consisted principally of industrial lodges and portable camps acquired with the Denman acquisition in May 2007.

We have also approved a capital expenditure program of $78 million for 2008. This program is comprised of growth capital expenditures of $62 million and maintenance capital expenditures of $16 million. The capital additions will consist of approximately 120 new service units as well as approximately $20 million to expand our industrial lodging services in the Alberta oil sands region. Delivery of the capital equipment is expected throughout the year with a large portion of the expenditures being incurred to support planned revenue and earnings growth in 2009.

Approximately 75% of our planned growth capital expenditures in 2008 have been earmarked for the Alberta oil sands region.

We plan to fund these capital expenditures from our credit facilities and from cash provided by operating activities.

Debt and Contractual Obligations

Long-term debt

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

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

The revolving credit facility ("Revolver") requires payments of interest only and is renewable annually, subject to both parties' consent. A stand-by fee is calculated at a rate of 0.25% per annum on the unused portion of the Revolver. If the Revolver is not renewed, the outstanding credit facility is subject to a 12-month interest-only phase, followed by a 24-month straight-line amortization period. As a result, the Revolver is classified as long-term debt in the accompanying consolidated financial statements. The term loan ("Term") requires fixed monthly payments of $125 thousand and a balloon payment at maturity of $142.5 million due May 2012. Eveready may prepay all or part of the term loan at any time, subject to the payment of a breakage fee. Both of the credit facilities are collateralized by substantially all of our assets. As at December 31, 2007, the effective interest rate on the Revolver and Term facilities was 7.41%.

The credit facilities contain financial covenants, including, but not limited to, a working capital ratio, a fixed charge coverage ratio, funded debt to EBITDA ratios, a minimum net worth, and a maximum distribution payout ratio, each calculated on a quarterly basis. We were in compliance with all financial covenants under this agreement at December 31, 2007.

Subsequent to December 31, 2007, we borrowed an additional $9.5 million under our Revolver. In February 2008, we also received an additional short-term advance loan of $20.0 million. The short-term advance loan is repayable on May 31, 2008.

Obligations under capital lease

Our obligations under capital lease substantially relate to industrial lodging facilities purchased with the Denman acquisition in May 2007. The obligations bear interest at prime plus 0.25% per annum and are repayable in monthly blended principal and interest payments of $318 thousand. At December 31, 2007, the effective rate of interest was 6.25%. Maturing at dates ranging from August 2012 to April 2014, these obligations are collateralized by equipment with an $18.9 million net book value at December 31, 2007 and may be repaid in full without penalty two years after lease inception.

Convertible debentures

Convertible debentures consist of $50 million principal amount of convertible unsecured subordinated debentures (the "Debentures"). The Debentures have an annual coupon rate of 7.00%, payable semi-annually, and are due to mature on June 30, 2011. The Debentures are also convertible, at the holder's option, into units of Eveready at a price of $8.50 per unit. Under the terms of the Debenture agreement, an adjustment to the conversion price is required when units are issued to unitholders by way of distribution. Due to our recent change in distribution policy, future "in-kind" distributions will result in an adjustment to the conversion price of the Debentures. The Debentures trade on the Toronto Stock Exchange under the symbol "EIS.DB."

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

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



Contractual obligations

Our contractual obligations for the next five years are as follows:

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$ in thousands 2008 2009 2010 2011 2012 Total
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Long-term debt 1,500 19,833 29,000 10,667 143,000 204,000
Obligations under capital
lease (including interest) 3,866 3,866 3,848 3,831 3,614 19,025
Convertible debentures - - - 50,000 - 50,000
Operating leases 13,914 8,994 5,678 2,969 1,284 32,839
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Total 19,280 32,693 38,526 67,467 147,898 305,864
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The table above presents the minimum principal repayments required on the Revolver outstanding as at December 31, 2007 if it were not renewed (the next renewal date is April 25, 2008) and we were not able to refinance the credit facility with another lender. In the foreseeable future we expect to renew our Revolver each year, which would reduce our contractual obligations by $55.0 million over the years 2009 through 2011.

In addition, we have approved our 2008 capital expenditure program of approximately $78 million. As stated earlier, these expenditures are expected to be incurred throughout 2008. Normally, we are not contractually committed to acquire property, plant and equipment until delivery of the asset is complete.

Funded debt to total capital

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

As at December 31, 2007, our funded debt to total capital ratio was 0.48 (see "Non-GAAP Financial Measures") compared to a ratio of 0.36 at December 31, 2006. This ratio is a useful supplemental measure to analyze the proportion of our capital funded from debt versus equity. This ratio increased in 2007 due to increases in our long-term debt to fund capital expenditures and business acquisitions. Due to market conditions over the past year, we have elected to utilize more debt financing to support our growth strategies rather than raising equity on the public markets.

We plan to continue utilizing debt financing to support our growth strategies in 2008. However, as a result of our new distribution policy (see "Distributions" section below), we will also be able to finance a large amount of our 2008 capital expenditures using internal cash provided by operating activities. Our new distribution policy should allow us to maintain or improve our funded debt to capital ratio in 2008.

Unitholders' Equity

Unitholders' equity increased by $23.2 million to $284.9 million at December 31, 2007 compared to $261.7 million at December 31, 2006. The majority of this change resulted from an increase in unitholders' capital whereby units were issued pursuant to an equity financing in June 2007 for net proceeds, after issuance costs, of $41.0 million. In addition, units issued pursuant to our Distribution Reinvestment Plan ("DRIP"), Employee Unit Plan, and the acquisition of Compass Horizontal Drilling Inc. in March 2007 also contributed to the increase. The notes to the accompanying consolidated financial statements provide a schedule showing the changes in unitholders' capital during the year.

Offsetting the increase in unitholders' equity was a reduction of $3.0 million due to an increase in the number of units held under the Eveready Employee Unit Plan. These units are recorded at cost and shown as a reduction of unitholders' equity until they vest and are transferred to the participant. In addition, year-to-date distributions in excess of net earnings of $43.4 million created a deficit of $41.2 million at December 31, 2007.

Normal course issuer bid

In January 2008, we received regulatory approval from the Toronto Stock Exchange to purchase for cancellation, from time to time, as we consider advisable, our issued and outstanding units. Pursuant to the normal course issuer bid (the "Bid"), we may purchase for cancellation up to a maximum of 5.1 million units, being approximately 10% of our outstanding "public float". The Bid commenced January 29, 2008 and will terminate on January 28, 2009 or such earlier time as the Bid is completed or terminated at our option.

Subsequent to December 31, 2007 and before the release of this MD&A, we purchased for cancellation 41,600 units at an average cost of $3.37 per unit for total cash consideration of $140 thousand.

Distributions

In 2007, we declared cash distributions on a monthly basis to unitholders of record on the last business day of each month. Distributions were payable on or about the 15th day of the month following the record date. Distributions on units of record during the year ended December 31, 2007 were as follows:



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

January 31, 2007 0.06 4,320 1,492 2,828
February 28, 2007 0.06 4,353 1,568 2,785
March 30, 2007 0.06 4,406 1,565 2,841
April 30, 2007 0.06 4,428 1,560 2,868
May 31, 2007 0.06 4,448 1,702 2,746
June 29, 2007 0.06 4,958 1,761 3,197
July 31, 2007 0.06 4,981 1,547 3,434
August 31, 2007 0.06 5,002 1,475 3,527
September 28, 2007 0.06 5,024 1,497 3,527
October 31, 2007 0.06 5,045 1,705 3,340
November 30, 2007 0.06 5,068 1,646 3,422
December 31, 2007 0.06 5,014 1,653 3,361
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Total 0.72 57,047 19,171 37,876
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Strategic changes to distribution policy for 2008

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

Distribution Reinvestment Plan

During the year ended December 31, 2007, we declared total distributions of $0.72 per unit or $57.1 million (2006 - $0.60 per unit or $38.6 million). Of this amount, there was a $19.2 million (2006 - $14.2 million) reinvestment through our DRIP resulting in the issuance of 4.1 million (2006 - 2.2 million) units.

Taxation of distributions

Our distributions can consist of taxable and tax-deferred components. The taxable amount of our distributions in 2007 was based on the actual taxable income of the Fund for the year ended December 31, 2007. Tax-deferred distributions are considered to be a return of capital for income tax purposes and will reduce the adjusted cost base of the units held. In 2007, 100% of our distributions were considered taxable amounts.

As explained earlier, on June 12, 2007, the Government of Canada enacted legislation to impose additional income taxes on publicly traded income trusts and limited partnerships, including Eveready, effective January 1, 2011. In anticipation of these tax changes, we plan to maximize the amount of tax pools we can carry forward to reduce and defer, as much as possible, our income tax exposure beginning in 2011. To achieve this objective we plan to maximize the taxable components of all distributions we declare in 2008 through to 2010. Therefore, we also anticipate 100% of our 2008 distributions will be considered taxable amounts. However, we will continue to monitor future changes in tax legislation and adjust our strategy as needed.

Cautionary note regarding our distributions

Although we intend to make "in-kind" distributions to our unitholders in the future, distributions are always subject to approval by our Board of Trustees, who at any time can increase, decrease or suspend the distributions. The Board of Trustees may also convert the distributions entirely to cash or units at any time. Our ability to make 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.

As per the terms of our credit facilities, we are restricted from declaring distributions and distributing cash if we are in breach of our financial covenants. These include, but are not limited to, a working capital ratio, a fixed charge coverage ratio, funded debt to EBITDA ratios, a minimum net worth, and a maximum distribution payout ratio, each calculated on a quarterly basis. Our maximum distribution payout ratio limits our cash distributions (net of distributions participating in our DRIP) to an amount equal to 80% of our annualized Excess Cash Flow. Excess Cash Flow, as defined in our credit facilities agreement, is substantially the same as Funds from Operations, as defined in this MD&A (see "Non-GAAP Financial Measures"). We were in compliance with all financial covenants under our credit facilities at December 31, 2007.



Distributable Cash

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Three Months Ended Years Ended
December December December December
31 31 31 31
$ thousands, except per unit amounts 2007 2006 2007 2006
----------------------------------------------------------------------------

Cash provided by operating activities $16,001 $12,396 $55,819 $ 46,292
Add (deduct):
Net change in non-cash operating
working capital (2,536) 335 9,310 14,316
Scheduled principal repayments of
debt(1) (1,135) - (2,835) -
Maintenance capital expenditures(1) (3,624) (4,988) (14,844) (12,260)
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Cash available for distribution
and growth (c)(1) 8,706 7,743 47,450 48,348
Per unit(1) 0.11 0.11 0.61 0.77
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Distributions declared (a) 15,127 12,638 57,047 38,607
Payout ratio
- including DRIP (a)/(c)(1) 174% 163% 120% 80%

Net distributions declared (b) 10,123 7,979 37,876 24,387
Payout ratio
- excluding DRIP (b)/(c)(1) 116% 103% 80% 50%
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Note:

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


Our previous distribution policy was to maintain an annual payout ratio - including DRIP of approximately 75% to 85% of our cash available for distribution and growth. Our payout ratio - including DRIP of 120% for the year ended December 31, 2007 was significantly above our targeted annual payout ratio. Our payout ratio - excluding DRIP for the year ended December 31, 2007 was 80%. Cash flow retained through participation in our DRIP was used to fund capital expenditures and working capital needs.

Our new distribution policy in 2008 is no longer based on the amount of our cash available for distribution and growth. We plan to maximize the retention of our operating cash flows to re-invest in growing our business. Future "in-kind" distributions will be declared to allow us to take advantage of the tax deferral on income trusts until 2011.

Cash available for distribution and growth reported for the years ended December 31, 2007 and 2006 was net of maintenance capital expenditures of $14.8 million and $12.3 million, respectively. Maintenance capital expenditures are capital expenditures incurred during the period to maintain existing levels of service. This includes capital expenditures to replace property, plant and equipment and any costs incurred to enhance the operational life of existing property, plant and equipment. Maintenance capital expenditures can fluctuate from period to period depending on our needs to upgrade or replace existing property, plant and equipment.

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

For 2008, we estimate our total maintenance capital expenditures will approximate $16 million to $18 million (see "Note Regarding Forward-Looking Statements"). We based this estimate on our replacement expectations for property, plant and equipment. The actual timing of future capital replacements will always be subject to a number of variables that cannot be accurately predicted. Although we believe these estimates are appropriate, our actual maintenance capital expenditures may be materially different from our current estimates.

We expect that our internally generated cash provided by operating activities will be sufficient to fund our future maintenance capital expenditures.

Additional Distribution Information

Although in 2007 our distribution policy was based on the non-GAAP measure "Cash available for distribution and growth," we provided the following required comparisons of our distributions declared to cash provided by operating activities and net earnings, as determined in accordance with GAAP, to further assist investors in assessing our cash distributions in 2007:



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

Cash provided by operating activities $16,001 $55,819 $46,292 $ 9,958
Net earnings 2,747 13,626 29,901 14,317
Distributions declared
- including DRIP 15,127 57,047 38,607 12,921
Net distributions declared
- excluding DRIP 10,123 37,876 24,387 6,364
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Excess (shortfall) of cash provided
by operating activities over
distributions declared including DRIP 874 (1,228) 7,685 (2,963)
Excess of cash provided by operating
activities over distributions declared
- excluding DRIP 5,878 17,943 21,905 3,594
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(Shortfall) excess of net earnings
over distributions declared
- including DRIP (12,380) (43,421) (8,706) 1,396
(Shortfall) excess of net earnings
over distributions declared
- excluding DRIP (7,376) (24,250) 5,514 7,953
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----------------------------------------------------------------------------


Although our total distributions declared in 2007 slightly exceeded our cash provided by operating activities, distributions excluding those participating in our DRIP were less than our cash provided by operating activities. Cash provided by operating activities not distributed in 2007 was used to help fund our capital expenditure program.

In 2007, our distributions (both including and excluding the DRIP) have exceeded our net earnings. We have never based our distributions on net earnings as net earnings includes a number of non-cash items such as amortization, unit-based compensation, accretion expense, and future income taxes that do not affect our ability to make distributions to our unitholders. However, since our distributions exceeded net earnings, a portion of our distributions could be deemed an economic return of capital.

In January 2008, we eliminated our cash distributions (see "Distributions" above) to maximize the retention of operating cash flow to re-invest in growing our business.

Off-Balance Sheet Arrangements

a) We have provided certain guarantees to financial institutions for financing obtained by contractors to purchase specific service and automotive equipment for use in supplying services to Eveready. As at December 31, 2007, the total balance of all third party financings we guaranteed was $2.1 million. These financings are collateralized by the specific equipment purchased. We would be required to settle these guarantees if a contractor were to default on the obligation and the collateral held by the financial institutions was not sufficient to repay the balances due;

b) As at December 31, 2007, we had outstanding letters of credit of CDN $2.2 million and US $500 thousand, drawn on our Revolver credit facility. These letters of credit were issued to comply with certain environmental regulations and other contractual agreements. We could be required to settle the letters of credit in the future if requirements under the environmental regulations and contractual agreements were not met. Subsequent to year-end, the letter of credit of US $500 thousand was cancelled;

c) Matching Units held within our Employee Unit Plan Trust have been provided as collateral against bank loans owing by certain employees that were issued in connection with their participation in the Employee Unit Plan. These units could be drawn upon by the bank if a participant were to default on the debt obligation and the participant's units were not sufficient to cover the outstanding loan balance. At December 31, 2007, the Employee Unit Plan Trust held 1.6 million units with a fair value of $6.4 million as collateral over such bank loans;

d) In the normal course of business, we enter into agreements that include indemnities in favour of third parties. These include engagement letters with advisors and consultants, and service agreements. We have also agreed to indemnify our trustees, directors, officers and employees in accordance with the Fund's constating documents and bylaws. Certain agreements do not contain any limits on the Fund's liability and therefore it is not possible to estimate the Fund's potential liability under these indemnities. In certain cases, the Fund has recourse against third parties with respect to these indemnities. In addition, we maintain insurance policies that may provide coverage against certain claims under these indemnities; and

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

We believe we would be able to satisfy all guaranteed obligations above without disrupting normal business operations.

Related Party Transactions

a) During the year ended December 31, 2007, we incurred professional fees of $0.5 million (2006 - $0.6 million) from a partnership of which an officer is a partner;

b) During the year ended December 31, 2007, we incurred professional fees of $0.2 million (2006 - $0.4 million) from a partnership of which a trustee is a partner;

c) Included in general and administrative expenses for the year ended December 31, 2007 are occupancy costs of $1.6 million (2006 - $0.9 million) that were paid to companies controlled or influenced by certain officers and/or trustees;

d) During the year ended December 31, 2007, we acquired service equipment of $3.2 million (2006 - $3.4 million) from companies controlled or influenced by certain officers and/or trustees;

e) During the year ended December 31, 2007, we incurred equipment rental and repair costs of $0.1 million (2006 - $nil) from companies controlled or influenced by certain officers and/or trustees; and

f) During the year ended December 31, 2007, we earned service revenue of $3.7 million (2006 - $0.1 million) from companies controlled or influenced by certain officers and/or trustees.

As at December 31, 2007, outstanding amounts related to the above transactions collectible from or owing to related parties included accounts receivable of $2.0 million (2006 - $nil) and accounts payable and accrued liabilities of $0.1 million (2006 - $0.7 million). All of the above transactions occurred in the normal course of operations and were measured at their exchange amounts, which were established and agreed to as consideration by the related parties.

Outlook for 2008

Our overall outlook for 2008 is positive. We will continue to increase our exposure to the growing infrastructure development in the Alberta oil sands region and expect to achieve the majority of our organic growth in 2008 from this region. In addition, we expect demand for our industrial maintenance and production services throughout North America will continue to show modest growth. However, we anticipate lower demand for our services dependant on conventional oil and gas exploration and drilling to continue into 2008.

We estimate that our revenue for the year ended December 31, 2008 will exceed $600 million (see "Note Regarding Forward-Looking Statements"). If achieved, this will represent revenue growth of over 15% from 2007.

Oil sands, industrial and production services

We expect to generate significant revenue and earnings growth from this segment in 2008, with the majority of this growth coming from the Alberta oil sands region. We continue to experience significant demand for our services from our customers in this region. Our capital expenditure programs in both 2007 and 2008 are helping us meet this demand. We also expect to achieve revenue and earnings growth from a number of our specialty industrial services in 2008 that we provide to customers throughout North America.

Our biggest challenge in this segment will be ensuring that our tremendous revenue growth in the Alberta oil sands also translates into strong earnings growth. To achieve this objective, we will need to manage our growth carefully to ensure that we have sufficient manpower and equipment to meet the demand for our services, while also ensuring our services continue to be profitable and of high quality. In addition, we will need to ensure that safety remains our highest priority at all times, no matter how busy our business becomes.

Exploration services

In 2008, we expect this segment to experience overall activity levels comparable to 2007. However, we also expect to see a shift in our revenue base from gas exploration towards oil exploration and to additional revenue in north-eastern British Columbia and the United States due to the downturn in gas exploration activity in Alberta.

While we expect this segment will continue to operate in 2008 at levels significantly off of its peak in 2006, we continue to be pleased with our competitive position in this sector and believe the long-term outlook for our exploration services is positive.

Environmental services

Although 2007 was a disappointing year for our environmental services segment, we expect to see a turnaround in 2008. Through restructuring efforts already completed in 2007, we have downsized or eliminated certain loss divisions. In addition, we are working in 2008 to return our mechanical dewatering and dredging services and safety services divisions to profitable levels.

Lodging and rentals

Overall, we expect this segment to experience significant growth in 2008. We will achieve a full year of operating results from our acquisition of Denman in May 2007 and expect to generate additional revenue growth from the on-going expansion of our lodging facilities in the Alberta oil sands region and through general rate increases. Industry analysts predict the demand for workforce accommodations in the Alberta oil sands region could increase by up to 50% over the next three to five years, which represents significant opportunity for Denman.

We also expect to achieve modest revenue growth from production equipment rentals in 2008. However, demand for rental equipment dependant on conventional exploration and drilling activity levels will continue to be weak in 2008.

Business Risks

We face a number of business risks that could cause our actual results to differ materially from those disclosed in our forward-looking statements (See "Note Regarding Forward-Looking Statements"). Investors and the public should carefully consider our business risks, other uncertainties and potential events as well as the inherent uncertainty of forward-looking statements when making investment decisions with respect to Eveready. If any of the business risks described below were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected. In such case, the trading price of our units could decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business and operations. Additional information regarding our business risks is provided throughout this MD&A and in our Annual Information Form available on the SEDAR web site at www.sedar.com.

Dependence on the Oil and Gas Industry

We generate a large portion of our revenue from customers operating in the oil and gas industry in western Canada. As a result, we are susceptible to changes in the general economic conditions in this sector. A decline in general oil and gas production could affect our business. Declines in this industry could be triggered by a number of events, including a decline in commodity prices for oil and gas, technological changes, regulatory changes, and other changes in industry and worldwide economic and political conditions.

To the extent possible, we have designed our business practices to protect Eveready from sudden changes in the general economic conditions of the oil and gas industry. Some of these practices include:

- Industrial maintenance and production exposure. The majority of the services we provide in the oil and gas sector relate to industrial maintenance and production services versus exploration. Production and maintenance services are less volatile than services offered in oil and gas exploration;

- Non-oil and gas sectors. We service a number of industries other than the oil and gas sector. These include the forestry, mining, and industrial sectors. These industries require a number of the same services we currently provide to customers in the oil and gas sector; and

- Geographic diversification. We have geographically diversified our operations into the United States. Not only does this expansion introduce a number of growth opportunities for Eveready, but it also reduces our exposure to a sharp decline in economic activity in one geographic area.

These practices help to mitigate our dependency on the oil and gas industry in western Canada. However, due to the nature of our business and the services we provide, our future success depends on the general health of the oil and gas industry in North America.

Alberta Oil Sands Exposure

We generate a significant amount of our revenue from the Alberta oil sands region. As one of our core growth strategies, we are committed to positioning ourselves as a leading provider of oil sands infrastructure services. While we believe this strategy will provide Eveready with significant growth opportunities in the future, it also increases our risk exposure to this geographic area. If future economic activity in the Alberta oil sands were to decline considerably in the future, our business would be adversely affected. One significant factor that could cause such a decline is future changes in environmental restrictions and regulations. However, we believe this risk could be mitigated by the wide range of environmental services we currently offer. Other factors that could cause a decline in economic activity in this region include a prolonged decline in the price of oil, technological changes, regulatory changes, and other changes in industry and worldwide economic and political conditions.

Workforce Availability

Our ability to provide high quality services to our customers depends on our ability to attract and retain well-trained, experienced employees. Our industry continues to experience a very high demand for and a corresponding shortage of quality employees. We need to attract and retain quality employees, or our long-term success and ability to take full advantage of growth opportunities could be threatened.

We have established a number of human resource initiatives and compensation strategies to address this risk. Additional information regarding these initiatives is discussed under the section "Supporting our Growth Strategies" above.

Competition

We compete with a number of companies that provide the same or similar services as Eveready. These companies range from small service operators to large public companies. Industry competition could negatively affect our ability to grow or even to sustain our current revenue and profit levels in the future. We have aligned our vision, mission and growth strategies to allow us to effectively compete with our existing and future competitors.

Safety

Our employees often work in a potentially hazardous work environment. We must maintain a solid safety record if we wish to remain a preferred supplier in our field. To achieve our safety objectives, we have instituted a safety program supported by constant practice and continual learning. Many of our large customers require robust safety programs from their suppliers. Should our safety record deteriorate, our ability to grow and achieve our financial objectives could be threatened. Additional information regarding our safety initiatives is discussed under the section "Supporting our Growth Strategies" above.

Weather and Seasonality

A large portion of our operations are carried out in western Canada where the ability to move heavy equipment is dependent on weather conditions. An example of such a condition includes thawing in the spring, which renders many secondary roads incapable of supporting heavy equipment. In addition, wet weather during any season can significantly limit our ability to move heavy equipment and provide timely service. As a result, our operating performance can be negatively impacted by weather conditions from period to period.

Availability of Future Debt and Equity Financing

As a growth oriented income fund, we continue to invest in property, plant and equipment to grow our operations. This investment requires adequate financing that we obtain through both internal operating cash flows and external debt and equity financings. Although we have secured credit facilities to meet our current growth requirements, there can be no assurance that additional financing will be available in the future when needed or on terms acceptable to Eveready. The inability to access financing to support future growth opportunities could limit our future growth and have a material adverse impact on Eveready.

Failure to Realize Anticipated Benefits of Acquisitions

We complete business acquisitions in the ordinary course of our business. Achieving the benefits of business acquisitions depends, in part, on successfully consolidating functions and integrating operations, equipment and procedures in a timely and efficient manner. Although our management has extensive experience in successfully completing and integrating acquisitions, failure to successfully integrate acquisitions in the future may have an adverse effect on Eveready.

Operational and Insurance Risk

Our business is subject to risks inherent in our operations such as equipment defects, malfunctions, failures, and natural disasters. These risks could expose Eveready to substantial liability for personal injury, loss of life, business interruption, property damage or destruction, pollution and other environmental damages. We minimize our exposure to operational risk through comprehensive vehicle and equipment maintenance programs designed to prevent failure and maximize the useful life of the related assets. Eveready also maintains insurance against certain of its risks. However, such insurance is subject to coverage limits and no assurance can be given that such insurance will be adequate to cover all of our liabilities or will be generally available in the future or, if available, that premiums will be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur such liability at a time when we were not able to obtain liability insurance, our business, results of operations and financial condition could be materially adversely affected.

Regulatory and Statutory Developments

Our business is subject to several regulatory and legislative requirements. Changes to regulatory and legislative requirements in the future could have a materially adverse affect on our financial condition and results of operations. In addition, our ability to continue to hold licenses and permits applicable to our business is generally subject to maintaining satisfactory compliance with regulatory and safety guidelines, policies and regulations. Although we are very committed to compliance and safety, there is no assurance we will be in full compliance at all times with such policies, guidelines and regulations. Consequently, at some future time, we could be required to incur significant costs to maintain or improve our compliance record.

Financial Instrument Risks

a) Credit risk

By granting credit sales to customers, it is possible these entities, to which we provide services, may experience financial difficulty and be unable to fulfill their obligations. A substantial amount of our revenue is generated from customers in the oil and gas industry. This results in a concentration of credit risk from customers in this industry. A significant decline in economic conditions within this industry would increase the risk that customers will experience financial difficulty and be unable to fulfill their obligations to Eveready. Our exposure to credit risk arising from granting credit sales is limited to the carrying value of accounts receivable.

We mitigate credit risk by assessing the credit worthiness of our customers on an ongoing basis. We also closely monitor the amount and age of balances outstanding and establish a provision for bad debts based on specific customers' credit risk, historical trends, and other economic information. We are also exposed to credit risk associated with guarantees, which are discussed further under the section "Off-Balance Sheet Arrangements."

b) Liquidity risk

Our exposure to liquidity risk is dependant on the collection of accounts receivable and the ability to raise funds to meet purchase commitments and to sustain operations. We control liquidity risk by managing our working capital, cash flows, and the availability of borrowing facilities.

c) Interest rate risk

Our cash flow is exposed to changes in interest rates on long-term debt, which bear interest based on variable rates. The cash flow required to service these financial liabilities will fluctuate as a result of changes in market rates. Based on our outstanding long-term debt at December 31, 2007, a one percent increase or decrease in market interest rates would impact our annual interest expense by approximately $2.0 million. We have not entered into any derivative agreements to mitigate this risk.

We are also exposed to interest rate price risk on our convertible debentures, which incur fixed interest payments. The discount rate used in determining the fair value of the convertible debentures' future cash flows will fluctuate as a result of changes in market interest rates available to us for the same or similar instrument. Assuming a one percent change in market interest rates, the fair value of the convertible debentures could change by $1.5 million.

d) Foreign currency risk

We are primarily exposed to foreign currency fluctuations in relation to our US and international operations. Therefore, there is financial risk of earnings fluctuations arising from changes in and the degree of volatility of foreign exchange rates arising on foreign monetary assets and liabilities. Although the majority of our operations are in Canada, we continue to expand our operations outside Canada, which increases our exposure to foreign currency risk. During the year ended December 31, 2007, we incurred a loss on foreign exchange of $1.6 million (2006 - gain of $0.7 million). We do not currently use derivative financial instruments to reduce our exposure to foreign currency risk.

Critical Accounting Estimates

Preparation of consolidated financial statements requires we make assumptions regarding accounting estimates for certain amounts contained within the consolidated financial statements. Significant accounting estimates applied in 2007 included: estimated bad debts on accounts receivable; estimated useful lives of intangible assets and property, plant and equipment; the fair value of property, plant and equipment and identifiable intangible assets acquired in business combinations; the fair value of asset retirement obligations; future cash flows used to estimate the fair value of reporting units for goodwill impairment purposes and for the impairment of long-lived assets; and estimates on various taxation amounts. We believe that each of our assumptions and estimates is appropriate to the circumstances and represents the most likely future outcome. However, because of the uncertainties inherent in making assumptions and estimates regarding unknown future outcomes, future events may result in significant differences between estimates and actual results.

Provision for doubtful accounts receivable

We perform ongoing credit evaluations of our customers and grant credit based upon past payment history, financial condition, and anticipated industry conditions. Customer payments are regularly monitored and a provision for doubtful accounts is established based upon specific situations and overall industry conditions. However, given the cyclical nature of the energy industry in which many of our customers operate, a customer's ability to fulfill its payment obligations can change suddenly and without notice.

Useful lives of intangible assets and property, plant and equipment

We amortize our intangible assets and property, plant and equipment based upon estimated useful lives and salvage values. We review our historical experience with similar assets to help ensure these amortization rates are appropriate. However, the actual useful life of the assets may differ from our original estimate due to factors such as technological obsolescence and maintenance activity.

Fair value of assets and liabilities acquired in business combinations

The value of acquired assets and liabilities on the acquisition date require the use of estimates to determine the purchase price allocation. Estimates are made as to the valuation of property, plant and equipment, intangible assets, and goodwill, among other items. In certain circumstances, such as the valuation of property, plant and equipment and intangible assets acquired, we rely on independent third party valuators.

Asset retirement obligations

We are required to recognize our future obligations to restore our landfill facility (the Pembina Area Landfill) to an acceptable condition, as determined by regulatory authorities. We have estimated these future costs based upon current and proposed reclamation and closure techniques in view of current environmental laws and regulations. The ultimate costs could change in the future.

Asset impairment

We assess goodwill for impairment at least annually. This assessment includes a comparison of the carrying value of the reporting unit to the estimated fair value to ensure that the fair value is greater than the carrying value. We arrive at the estimated fair value of a reporting unit using valuation methods such as discounted cash flow analysis. These valuation methods employ a variety of assumptions, including future revenue growth, expected earnings, and earnings multiples. Estimating the fair value of a reporting unit is a subjective process and requires the use of our best estimates. If our estimates or assumptions change from those used in our current valuation, we may be required to recognize an impairment loss in future periods.

We assess the carrying value of long-lived assets, which include property, plant and equipment and intangible assets subject to amortization, for indications of impairment when events or circumstances indicate that the carrying amounts may not be recoverable from estimated future cash flows. Estimating future cash flows requires assumptions about future business conditions and technological developments. Significant, unanticipated changes to these assumptions could require a provision for impairment in the future.

Taxation amounts

Income tax provisions, including current and future income tax assets and liabilities, may 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. Therefore, it is possible that the ultimate value of our tax assets and liabilities could change in the future and that changes to these amounts could have a material effect on our consolidated financial statements.

Adoption of New Accounting Policies

Effective January 1, 2007, we adopted the new recommendations of the Canadian Institute of Chartered Accountants ("CICA") under CICA Handbook Section 1506 Accounting Changes, Section 1530 Comprehensive Income, Section 3251 Equity, Section 3855 Financial Instruments - Recognition and Measurement, Section 3861 Financial Instruments -Disclosure and Presentation, and Section 3865 Hedges.

Accounting Changes

Section 1506 specifies that an entity can change an accounting policy only when it is required by a primary GAAP source, or when the change would enhance the relevance and reliability or comparability of financial statement presentation. The standard requires additional disclosures of changes in accounting policies, changes in estimates, corrections of errors, and a description and impact of a newly issued primary source of GAAP not yet adopted by an entity. The adoption of this new section did not impact our financial position or results of operations.

Comprehensive Income and Equity

Section 1530 establishes standards for reporting and displaying comprehensive income. The section defines other comprehensive income to include revenue, expenses, and gains and losses which, in accordance with primary sources of GAAP, are recognized in comprehensive income but excluded from net earnings. The section does not address issues of recognition or measurement for comprehensive income and its components. The adoption of Section 1530 did not have any impact on our financial statement presentation during the year ended December 31, 2007.

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

Financial Instruments

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

As a result of adopting Section 3855, we classified our financial instruments as follows:

a) Held for trading

Cash is classified as a financial asset held for trading as it represents the medium of exchange in which all other transactions are measured and recognized. Any interest income arising from cash is recognized in net earnings in the period it arises.

b) Loans and receivables

Accounts receivable, net of allowance for doubtful accounts, are classified as receivables and are measured at their amortized cost using the effective interest rate method. Interest income recognized under the effective interest rate method is included in net earnings when it arises. As accounts receivable are short-term in nature, the recognition of interest income under the effective interest rate method in the accompanying consolidated financial statements would be immaterial.

c) Other financial liabilities

Bank indebtedness, accounts payable and accrued liabilities, unitholder distributions payable, long-term debt, and convertible debentures are classified as other financial liabilities, all of which are measured at amortized cost using the effective interest rate method. Interest expense recognized under the effective interest rate method is deducted from net earnings in the period it arises.

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

Section 3861 - Financial Instruments - Disclosure and Presentation replaces Section 3860 - Disclosure and Presentation and provides presentation standards and incremental disclosures for financial instruments and non-financial derivatives. The adoption of this section had no material impact on our consolidated financial statements.

Hedges

Section 3865 extends existing requirements for hedge accounting and comprehensively specifies how hedge accounting should be performed. As we do not currently utilize hedges, the adoption of this Section had no impact on the accompanying consolidated financial statements.

Recent Accounting Pronouncements Issued but not yet Adopted

Effective January 1, 2008, we will be required to adopt the following accounting standards:

CICA Section 1535 - Capital Disclosures

In December 2006, the CICA issued Handbook Section 1535 - Capital Disclosures. Under this section, an entity discloses its objectives, policies, and processes for managing capital, as well as quantitative data about capital and whether it has complied with externally imposed capital requirements. We do not expect the adoption of this standard will have a material impact on our consolidated financial statements.

CICA Section 3031 - Inventory

In June 2007, the CICA issued Handbook Section 3031 - Inventories. This standard replaces Section 3030 by increasing guidance regarding the scope, measurement, and allocation of costs to inventories. Under this section, inventory is to be measured at the lower of cost and net realizable value. Net realizable value approximates the estimated selling price less all estimated costs of completion and necessary costs to complete the sale. Cost shall be assigned using the first-in, first-out (FIFO) or weighted average cost formula. Further, Section 3031 requires the reversal of previous write-downs of inventory when economic changes support an increased value. We do not expect the adoption of this standard will have a material impact on our consolidated financial statements.

CICA Section 3862 - Financial Instruments - Disclosures and Section 3863 - Financial Instruments - Presentation

In December 2006, the CICA issued Handbook Sections 3862 and 3863 that place increased emphasis on risk disclosures, specifically the risk associated with both recognized and unrecognized financial instruments and how those risks are managed. These new accounting standards supersede Section 3861 Financial Instruments - Disclosure and Presentation, which we adopted on January 1, 2007. We do not expect the adoption of this standard will have a material impact on our consolidated financial statements.

We will also be required to adopt the following accounting standards in future periods.

CICA Section 3064 - Goodwill and Intangible Assets

In February 2008, the CICA issued Handbook Section 3064 - Goodwill and Intangible Assets that supersedes Sections 3062 - Goodwill and Other Intangible Assets and 3450 - Research and Development Costs. Section 3064 provides additional guidance on when expenditures qualify for recognition as intangible assets and that costs can be deferred only when relating to an item meeting the asset definition. This new accounting standard is effective for interim or annual financial statements relating to fiscal years beginning on or after October 31, 2008. We do not expect the adoption of this standard will have a material impact on our consolidated financial statements.

International Financial Reporting Standards

In February 2008, the Canadian Accounting Standards Board (AcSB) confirmed that Canadian public enterprises will need to adopt International Financial Reporting Standards (IFRS), effective for years beginning on or after January 1, 2011. We are currently evaluating the impact this new framework will have on our consolidated financial statements.

Internal Controls over Disclosure and Financial Reporting

Management is responsible for designing and maintaining internal controls to provide reasonable assurance regarding the reliability of financial information. Although our Chief Executive Officer and Chief Financial Officer are responsible for certifying the design of internal controls, a large number of our employees contribute to reliable financial reporting through timely communication and accurate compilation of financial information.

Our risk-based approach to internal control is based on the integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). We are using this framework to improve entity wide controls, internal communication, and controls over the collection and review of financial information.

Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures at December 31, 2007 and have concluded that such disclosure controls and procedures, as defined in Canada by Multilateral Instrument 52-109 "Certification of Disclosure in Issuers' Annual and Interim Filings", were operating effectively at December 31, 2007. This certification is supported by documented policies and procedures designed to mitigate our disclosure risks. We also tested the effectiveness of these policies and procedures in 2007 and in the first quarter of 2008.

Internal Control over Financial Reporting

Management is responsible for the effective design of internal controls over financial reporting ("ICFR"). During the year, we continued to enhance our ICFR to improve the reliability and accuracy of our financial information. This process included assessing financial reporting risks, implementing controls to mitigate those risks, and testing the operating effectiveness of our key internal controls.

We designed our control environment to achieve a balance of preventative and detective controls as well as manual and automated controls. In 2007, we relied on the design of key controls to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements in accordance with GAAP. In 2008, we plan to continue improving the operation of certain preventative and detective controls to achieve an efficient operating mix of controls within our ICFR.

We have also established an internal audit function responsible for ongoing quality assurance and supervision of the implementation and operation of internal controls. This function is also accountable for testing and reporting on the effectiveness of ICFR to senior management and to the Audit Committee.

During the fourth quarter of 2007, we did not make any changes to our ICFR that would have materially affected, or would likely materially affect, such controls.

Limitations on the Effectiveness of Disclosure Controls and Procedures, and ICFR

Notwithstanding the foregoing, we do not expect that our disclosure controls and procedures, and ICFR will prevent all error and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within an entity are detected. The inherent limitations include the reality that judgements in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of some persons, by collusion of two or more people or by management override of the controls. Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



Outstanding Unit Data

----------------------------------------------------------------------------
As at March 7 December 31
2008 2007
----------------------------------------------------------------------------

Fund units 72,609,145 71,610,833
Rollover LP units 12,708,065 13,706,377
----------------------------------------------------------------------------

Total 85,317,210 85,317,210
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

We also had 55,000 unit options outstanding at March 7, 2008, exercisable at $5.00 per unit. All of these unit options vested and are due to expire on November 17, 2010.

Non-GAAP Financial Measures

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

EBITDA

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



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

----------------------------------------------------------------------------
Years Ended December December December
31 31 31 June 30 June 30
($ thousands) 2007 2006 2005 2004 2003
----------------------------------------------------------------------------

Net earnings $ 13,626 $ 29,901 $ 14,317 $ 783 $ 1,420
Add:
Interest 18,877 7,662 4,791 2,349 1,175
Income tax expense 4,035 674 1,535 641 614
Amortization 41,884 26,453 10,479 3,330 2,179
----------------------------------------------------------------------------

EBITDA 78,422 64,690 31,122 7,103 5,388
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

----------------------------------------------------------------------------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
($ thousands) 2007 2007 2007 2007 2006 2006 2006 2006
----------------------------------------------------------------------------

Net earnings
(loss) 2,747 4,551 (5,405) 11,733 2,741 5,599 6,748 14,813
Add/deduct:
Interest 5,841 4,933 4,603 3,500 3,306 2,516 950 890
Income tax
(recovery)
expense (1,993) (386) 5,599 815 (537) 297 255 659
Amortization
11,736 11,280 9,974 8,894 8,114 7,275 5,442 5,622
----------------------------------------------------------------------------

EBITDA 18,331 20,378 14,771 24,942 13,624 15,687 13,395 21,984
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Funds from Operations

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



A reconciliation of this measure to cash provided by operating activities,
as determined in accordance with GAAP, is as follows:

----------------------------------------------------------------------------
Years Ended December December December
31 31 31 June 30 June 30
($ thousands) 2007 2006 2005 2004 2003
----------------------------------------------------------------------------

Cash provided by (used in)
operating activities $ 55,819 $ 46,292 $ 9,958 3,456 (2,303)
Asset retirement costs
incurred 629 1,137 - - -
Add (deduct) changes in
non-cash operating
working capital 9,310 14,316 16,675 1,680 6,171
----------------------------------------------------------------------------

Funds from Operations 65,758 61,745 26,633 5,136 3,868
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The following is a reconciliation of Funds from Operations to cash provided
by operating activities for each of the fourth quarters presented in this
MD&A.

----------------------------------------------------------------------------
Three Month Periods Ended December 31 2007 2006
($ thousands)
----------------------------------------------------------------------------

Cash provided by operating activities $ 16,001 $ 12,396
Asset retirement costs incurred 609 229
Add (deduct) changes in non-cash operating
working capital (2,536) 335
----------------------------------------------------------------------------

Funds from Operations 14,074 12,960
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----------------------------------------------------------------------------


Cash Available for Distribution and Growth

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

- "Scheduled principal repayments of debt" are required principal repayments on our long-term debt and obligations under capital lease. This component was added to the calculation of cash available for distribution and growth in 2007. Prior to establishing new credit facilities in April 2007, there were no scheduled principal repayments required on our debt facilities.

- "Maintenance capital expenditures" are capital expenditures incurred during the period to maintain existing levels of service. These include 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."

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

Working Capital

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



----------------------------------------------------------------------------
As at December 31 2007 2006
($ thousands)
----------------------------------------------------------------------------

Current assets $146,266 $116,510
Less: current liabilities 66,526 78,745
----------------------------------------------------------------------------

Working capital 79,740 37,765
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Working capital ratio 2.20 1.48
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Funded Debt to Total Capital

Funded debt to total capital is calculated as funded debt (bank indebtedness, long-term debt, obligations under capital lease, convertible debentures, and the current portions of long-term debt and obligations under capital lease) divided by total capital (funded debt plus unitholders' equity). We believe funded debt to total capital is a useful supplemental measure as it provides an indication of the proportion of our capital that is funded from debt versus equity sources. The calculation of funded debt to total capital in 2007 now also includes obligations under capital lease and the current portions of long-term debt and obligations under capital lease. In 2006, we did not have any obligations under capital lease or current portions of long-term debt on our balance sheet. Our calculations of funded debt and total capital are provided in the table below:



----------------------------------------------------------------------------
As at December 31 2007 2006
($ thousands)
----------------------------------------------------------------------------

Bank indebtedness $ - $ 21,932
Current portion of long-term debt 1,500 -
Current portion of obligations under capital lease 2,880 -
Long-term debt 199,836 80,000
Obligations under capital lease 15,292 -
Convertible debentures 42,244 42,277
----------------------------------------------------------------------------
Funded debt 261,752 144,209
----------------------------------------------------------------------------

Funded debt 261,752 144,209
Unitholders' equity 284,862 261,652
----------------------------------------------------------------------------
Total capital 546,614 405,861
----------------------------------------------------------------------------

Funded debt to total capital ratio 0.48 0.36
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Note Regarding Forward-Looking Statements

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

In this MD&A we estimated our revenue will exceed $600 million for the year ending December 31, 2008. This estimate is based on our internal forecasts. Achieving our internal revenue forecasts for 2008 is dependant on a number of factors beyond our control including the demand for our services from our customers. We have also estimated that significant long-term contracts recently awarded to us from a number of large customers in the Alberta oil sands region could generate approximately $400 million in revenue over the next three years. This estimate is based on current expectations from these customers. These expectations may materially change in the future due to a number of factors outside our control, including the demand for our services, the level of overall demand for oil, and the feasibility of current and future oil sands projects for our customers.



Eveready Income Fund
Consolidated Balance Sheets

----------------------------------------------------------------------------

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

ASSETS
Current
Cash 8,092 -
Accounts receivable 122,214 99,279
Income taxes recoverable 19 -
Inventory 13,242 11,312
Properties held for sale - 2,963
Prepaid expenses and deposits 2,699 2,956
----------------------------------------------------------------------------
146,266 116,510

Property, plant and equipment (note 6) 307,560 212,903
Intangible assets (note 7) 52,458 48,655
Goodwill (note 8) 110,746 85,584
Other long-term assets (note 9) 1,501 2,529
----------------------------------------------------------------------------

618,531 466,181
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness (note 10) - 21,932
Accounts payable and accrued liabilities 58,452 52,855
Unitholder distributions payable 3,438 2,731
Income taxes payable - 316
Current portion of long-term debt (note 11) 1,500 -
Current portion of obligations under capital
lease (note 12) 2,880 -
Current portion of asset retirement
obligations (note 14) 256 911
----------------------------------------------------------------------------
66,526 78,745

Long-term debt (note 11) 199,836 80,000
Obligations under capital lease (note 12) 15,292 -
Convertible debentures (note 13) 42,244 42,277
Asset retirement obligations (note 14) 2,222 354
Future income taxes (note 22) 4,545 760
Non-controlling interest (note 15) 3,004 2,393
----------------------------------------------------------------------------
333,669 204,529
----------------------------------------------------------------------------
Commitments, contingencies, and guarantees (note 26)

Unitholders' Equity
Unitholders' capital (note 16) 327,991 259,241
Units held under Employee Unit Plan (note 17) (13,601) (10,643)
Equity component of convertible
debentures (note 13) 8,030 8,030
Contributed surplus (note 18) 3,688 2,849
(Deficit) retained earnings (41,246) 2,175
----------------------------------------------------------------------------
284,862 261,652
----------------------------------------------------------------------------

618,531 466,181
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(see accompanying notes)



Eveready Income Fund
Consolidated Statements of Earnings and Comprehensive Income and Deficit

----------------------------------------------------------------------------

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
(thousands of Canadian dollars,
except per unit amounts) $ $
----------------------------------------------------------------------------

Revenue 518,896 379,693
Direct costs 367,862 259,418
----------------------------------------------------------------------------

Gross profit 151,034 120,275
----------------------------------------------------------------------------

Expenses
General and administrative 66,961 52,160
Amortization (note 21) 41,884 26,453
Interest (note 21) 18,877 7,662
Unit-based compensation (note 17) 3,069 2,629
Loss (gain) on foreign exchange 1,644 (652)
(Gain) loss on disposal of property,
plant and equipment (19) 691
----------------------------------------------------------------------------
132,416 88,943
----------------------------------------------------------------------------

Earnings before income taxes and
non-controlling interest 18,618 31,332
----------------------------------------------------------------------------

Income taxes (note 22)
Current 184 564
Future 3,851 110
----------------------------------------------------------------------------
4,035 674
----------------------------------------------------------------------------

Earnings before non-controlling interest 14,583 30,658

Earnings attributable to non-controlling
interest (note 15) 957 757
----------------------------------------------------------------------------

Net earnings and comprehensive income 13,626 29,901

Retained earnings, beginning of year (note 3) 2,175 10,094
Distributions (note 19) (57,047) (38,607)
Trust reorganization adjustments (note 22) - 787
----------------------------------------------------------------------------

(Deficit) retained earnings, end of year (41,246) 2,175
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings per unit - basic (note 20) 0.18 0.48
Earnings per unit - diluted (note 20) 0.18 0.47
----------------------------------------------------------------------------

(see accompanying notes)



Eveready Income Fund
Consolidated Statements of Cash Flows

----------------------------------------------------------------------------

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
(thousands of Canadian dollars) $ $
----------------------------------------------------------------------------

Operating activities
Net earnings 13,626 29,901
Items not affecting cash:
Amortization 41,884 26,453
Unit-based compensation 3,069 2,629
(Gain) loss on disposal of property,
plant and equipment (19) 691
Amortization of deferred costs 424 509
Accretion of long-term debt 361 -
Accretion of convertible debentures 1,671 695
Future income taxes 3,851 110
Foreign exchange on future income taxes (66) -
Earnings attributable to non-controlling interest 957 757
----------------------------------------------------------------------------

65,758 61,745
Asset retirement costs incurred (note 14) (629) (1,137)
Net change in non-cash operating working capital
(note 23) (9,310) (14,316)
----------------------------------------------------------------------------

Cash provided by operating activities 55,819 46,292
----------------------------------------------------------------------------

Investing activities
Purchase of property, plant and equipment (79,148) (68,906)
Purchase of intangible assets (3,538) (2,107)
Proceeds on disposal of property,
plant and equipment 6,288 3,823
Business acquisitions,
net of cash acquired (note 23) (65,196) (72,950)
Other long term assets - net (173) (180)
----------------------------------------------------------------------------

Cash used in investing activities (141,767) (140,320)
----------------------------------------------------------------------------

Financing activities
(Decrease) increase in bank indebtedness (26,049) 22,473
Distributions, net of distribution reinvestments (37,169) (22,724)
Proceeds from issuance of long-term debt 171,048 105,000
Repayment of long-term debt (53,500) (104,201)
Repayment of obligations under capital lease (1,835) -
Distributions to non-controlling interest
holders (note 15) (346) -
Proceeds of issuance of convertible debentures,
net of issuance costs (note 13) - 47,699
Repayment of notes payable - (3,705)
Proceeds from issuance of units,
net of issuance costs (note 16) 41,014 52,699
Unit issuance costs - acquisitions (6) (129)
Proceeds from issuance of units
- Employee Unit Plan (note 16) 5,768 7,191
Purchase of units - Employee Unit Plan (note 17) (5,188) (10,643)
Collection of employee share purchase
loans receivable (note 16) 303 368
----------------------------------------------------------------------------

Cash provided by financing activities 94,040 94,028
----------------------------------------------------------------------------

Net change in cash 8,092 -

Cash, beginning of year - -
----------------------------------------------------------------------------

Cash, end of year 8,092 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental cash flow information (note 23)
(see accompanying notes)



Eveready Income Fund
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except unit and per unit amounts)
December 31, 2007
----------------------------------------------------------------------------


1. Nature of operations and basis of presentation

Eveready Income Fund ("Eveready" or the "Fund") is an unincorporated open-ended mutual fund trust governed by the laws of the province of Alberta. The business of Eveready, held in subsidiaries and limited partnerships, provides industrial and oilfield maintenance and production services to the energy, resource, and industrial sectors.

These consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP") and are presented in Canadian dollars rounded to the nearest thousand ($000), except where otherwise indicated.

Included in these consolidated financial statements are the accounts of Eveready and all of its subsidiary limited partnerships and incorporated companies. Certain of these entities have non-controlling interests presented separately in these consolidated financial statements. The results of subsidiaries' operations acquired during the year are included in these consolidated financial statements from their effective dates of acquisition. All significant inter-entity balances and transactions have been eliminated.

2. Summary of significant accounting policies

Use of estimates

The timely preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates will affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates used in the preparation of these financial statements include: estimated bad debts on accounts receivable; estimated useful lives for intangible assets and property, plant and equipment; the fair value of property, plant and equipment and identifiable intangible assets acquired in business acquisitions; the fair value of unit-based compensation; the fair value of asset retirement obligations; the fair value of convertible debentures; future cash flows used to estimate the fair value of reporting units for goodwill impairment evaluation purposes; and estimates on various taxation amounts. Actual results may differ from these estimates. These financial statements have, in management's opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below.

Cash

Cash includes cash on hand and balances with banks. Bank borrowings, including bank overdrafts, are normally not of a temporary nature and are therefore not included in cash.

Inventory

Inventory is comprised primarily of materials, parts, and supplies consumed in rendering services to customers. Inventory is valued at the lower of average cost and net realizable value.

Properties held for sale

Properties held for sale are recorded at the lower of cost and fair value.

Property, plant and equipment

Property, plant and equipment is recorded at cost less accumulated amortization. Costs incurred to extend the useful life or to increase the future benefit of property, plant and equipment are capitalized. Costs incurred to repair or maintain property, plant and equipment are expensed as incurred.

Property, plant and equipment are amortized over their estimated useful lives (net of salvage value) at the following annual rates:



Service equipment (light) 20% declining balance
Service equipment (heavy) 5 to 15 years straight-line
Automotive equipment (light) 30% declining balance
Automotive equipment (heavy) 5 to 12 years straight-line
Camps and rental equipment 5 to 15 years straight-line
Rental equipment (other) 4 to 20% declining balance
Shop and other equipment 20 to 50% declining balance
Building and improvements 5 to 10% declining balance


Landfill facilities are amortized based on the percentage of estimated total capacity used in a reporting period. Assets under capital lease are amortized using the applicable annual rates above. Property, plant and equipment under construction are not amortized until the assets are available for use.

Intangible assets

Acquired intangible assets with finite lives are recorded at cost less accumulated amortization. Costs incurred to increase the future benefit of intangible assets are capitalized. Intangible assets are amortized over their estimated lives at the following annual rates:



Customer relationships 5 to 10 years straight-line
Patents and technology 4 to 7 years straight-line
Provincial license - landfill 25 years straight-line
Data image library 3 to 5 years straight-line
Licenses and agreements 5 to 10 years straight-line
Leases 8 to 20 years straight-line
Trade names - finite life 1 to 5 years straight-line


Once an intangible asset is fully amortized, the gross carrying amount and the related accumulated amortization are removed from the accounts. Intangible assets with indefinite lives are not subject to amortization and are tested for impairment annually or when an event or change in circumstances may indicate impairment. Impairment of an indefinite life intangible asset is recognized in an amount equal to the difference between the carrying value and the fair value of the related intangible asset.

Goodwill

Goodwill results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the assets acquired, less the liabilities assumed, based on their fair values. Goodwill is allocated as of the business combination date to Eveready's reporting units expected to benefit from the business combination. Goodwill is not amortized, but is evaluated annually for impairment by comparing the fair value of the reporting unit, determined on a discounted after-tax cash flow basis, to the carrying value. If the carrying value of the reporting unit were to exceed its fair value, Eveready would compare the implied fair value of the reporting unit's goodwill to its carrying amount and any excess would be recognized as an impairment loss.

Long-lived assets

Management assesses the carrying value of long-lived assets, which include property, plant and equipment and intangible assets with finite lives, for indications of impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable from estimated future cash flows. Indications of impairment include items such as an on-going lack of profitability and significant changes in technology. An impairment loss would be recognized if the carrying value of the long-lived asset were to exceed its fair value.

Leases

Eveready accounts for its leases as either operating or capital. Capital leases are those that substantially transfer the benefits and risks of ownership to the lessee. Assets acquired under capital lease are amortized over their estimated useful lives. Obligations under capital lease are measured at the present value of future minimum lease payments. Imputed interest on the lease payments is charged against income. Leases not meeting the capital criteria are treated as operating and are recorded as an expense in the period paid or payable.

Asset retirement obligations

Eveready recognizes asset retirement obligations associated with its landfill facilities. The fair value of the asset retirement obligations is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. To estimate the fair value of the asset retirement obligations, Eveready discounts the expected future cash flows to settle the asset retirement obligation at its credit-adjusted risk-free interest rate. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and then amortized over its estimated useful life.

In subsequent periods, the asset retirement obligations are adjusted for the passage of time (through accretion expense) and for changes in the amount or timing of the underlying future cash flows. Actual expenditures are charged against the provision when incurred.

Transaction costs

Costs associated with the issuance or modification of revolving credit facilities are deferred and amortized to interest expense over the term of the revolving credit facility using the straight-line method. Transaction costs directly associated with issuing new long-term debt obligations are applied against the fair value of the related financial liability and amortized to interest expense using the effective interest rate method.

Revenue and cost recognition

Eveready's services are provided based on purchase orders or contracts with the customer. They include fixed or determinable prices based upon daily, hourly, or job rates for equipment, materials, and personnel. Revenue is recognized when these services are rendered and the related costs are incurred. Waste disposal revenue is recognized when the waste material is received from the customer. Lodging and rental revenues are recognized in the period the lodging or equipment is used by the customer based on the related rental agreements. Revenue from the sale of product is recognized when title passes to the customer, which is generally at the time the product is shipped and when reasonable assurance exists regarding the measurement of the consideration received. Revenue from all services is recognized only when collection of the revenue is reasonably assured.

Direct costs include direct material and labour costs and those indirect costs related to performance, such as supplies, tools, and repair costs. General and administrative costs are charged to expense as incurred.

Foreign currency translation

Transactions denominated in a foreign currency and the financial statements of integrated foreign subsidiaries included in the consolidated financial statements are translated as follows: monetary assets and liabilities at the rate of exchange in effect at the balance sheet date; non-monetary items at historical exchange rates; and revenue and expense items (except amortization, which is translated at historical exchange rates) at the average exchange rate for the period. Any resulting gains or losses are included in earnings in the period incurred.

Unit-based compensation

Eveready's Employee Unit Plan (the "Plan") is described further in note 17 of these consolidated financial statements. The Plan is accounted for in accordance with the fair-value based method of accounting. Unit-based compensation expense is recognized over the vesting period of the units with an offsetting credit to contributed surplus. Units held by the Plan are recorded at the cost paid by Eveready to purchase the units and are shown as a reduction of unitholders' equity in the consolidated financial statements.

Eveready's Unit Option Plan is described further in note 17 of these consolidated financial statements. Unit options are accounted for in accordance with the fair-value based method of accounting. The fair value of unit options is measured at the grant date using the Black-Scholes valuation model and is recorded as unit-based compensation expense over the option's vesting period with an offsetting credit to contributed surplus. Upon exercise of unit options, the associated amount of contributed surplus is reclassified to unit capital. The consideration paid by employees upon exercise of unit options is also credited to unit capital.

Income taxes

Eveready follows the liability method of accounting for income taxes. Under this method, Eveready recognizes both the current and future income tax consequences of all transactions that have been recognized in the financial statements. Future income tax assets and liabilities are determined based on differences between the financial reporting and the tax bases of assets and liabilities and are measured using the substantively enacted tax rates and laws that are expected to be in effect when these differences are expected to reverse.

Earnings per unit

Basic earnings per unit is computed based on the weighted average number of units outstanding during the period and is calculated on the basis that all outstanding Rollover LP units have been converted into units. Unvested units held by the Employee Unit Plan are not treated as outstanding for purposes of calculating basic per unit amounts. The calculation of diluted earnings per unit includes the potential dilutive effect of outstanding unit options, unvested units held by the Employee Unit Plan, contingently issuable units, and the conversion of outstanding convertible debentures. Anti-dilutive securities are not considered in computing diluted earnings per unit.

The dilutive effect of outstanding unit options and unvested units held by the Employee Unit Plan are computed using the treasury stock method. This method assumes that deemed proceeds received on the issuance of units are applied to purchase units at the average price during the period and that the difference between the units issued and the number of units obtainable under this computation, on a weighted average basis, is added to the number of units outstanding.

The dilutive effect of the convertible debentures is computed using the "if converted" method. Under this method, income charges applicable to the convertible debentures are added back to the numerator. The convertible debentures are then assumed to have been converted into units at the beginning of the period (or at time of issuance, if later), and the resulting units are included in the denominator.

3. New accounting policies

Effective January 1, 2007, Eveready adopted the new recommendations of the Canadian Institute of Chartered Accountants ("CICA") under CICA Handbook Section 1506 Accounting Changes, Section 1530 Comprehensive Income, Section 3251 Equity, Section 3855 Financial Instruments - Recognition and Measurement, Section 3861 Financial Instruments -Disclosure and Presentation, and Section 3865 Hedges.

Accounting Changes

Section 1506 specifies that an entity can change an accounting policy only when it is required by a primary GAAP source, or when the change would enhance the relevance and reliability or comparability of financial statement presentation. The standard requires additional disclosures of changes in accounting policies, changes in estimates, corrections of errors, and a description and impact of a newly issued primary source of GAAP not yet adopted by an entity. The adoption of this new section did not impact Eveready's financial position or results of operations.

Comprehensive Income and Equity

Section 1530 establishes standards for reporting and displaying comprehensive income. The section defines other comprehensive income to include revenue, expenses, and gains and losses which, in accordance with primary sources of GAAP, are recognized in comprehensive income but excluded from net earnings. The section does not address issues of recognition or measurement for comprehensive income and its components. The adoption of Section 1530 did not have any impact on Eveready's financial statement presentation during the year ended December 31, 2007 as Eveready currently has no other comprehensive income components.

Section 3251 establishes standards for the presentation of equity and changes in equity during the reporting period. The requirements in this section are in addition to those of Section 1530 and recommend an enterprise present separately the following components of equity: retained earnings, accumulated other comprehensive income, the total of retained earnings and accumulated other comprehensive income, contributed surplus, share capital, and reserves. As a result of the adoption of Section 3251, Eveready combined its presentation of accumulated earnings and accumulated distributions within retained earnings (deficit). Each of these was previously presented as separate components within unitholders' equity.

Financial Instruments

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

As a result of adopting Section 3855, Eveready classified its financial instruments as follows:

d) Held for trading

Cash is classified as a financial asset held for trading as it represents the medium of exchange in which all other transactions are measured and recognized. Any interest income arising from cash is recognized in net earnings in the period it arises.

e) Loans and receivables

Accounts receivable, net of allowance for doubtful accounts, are classified as receivables and are measured at their amortized cost using the effective interest rate method. Interest income recognized under the effective interest rate method is included in net earnings when it arises. As accounts receivable are short-term in nature, the recognition of interest income under the effective interest rate method in these consolidated financial statements would be immaterial.

f) Other financial liabilities

Bank indebtedness, accounts payable and accrued liabilities, unitholder distributions payable, long-term debt, and convertible debentures are classified as other financial liabilities, all of which are measured at amortized cost using the effective interest rate method. Interest expense recognized under the effective interest rate method is deducted from net earnings in the period it arises.

Section 3855 also provides guidance on determining policies relating to transaction costs incurred upon the issuance of debt instruments or modification of other financial liabilities. Transaction costs directly associated with issuing new debt obligations are applied against the fair value of the related financial liability and amortized to interest expense using the effective interest rate method. As a result of applying Section 3855, deferred financing costs of $1,704 were reclassified against the convertible debentures' carrying value (note 13). These costs were previously included in other long-term assets and amortized to interest expense using the straight-line method. The adoption of this standard did not materially impact Eveready's opening retained earnings as at January 1, 2007.

Section 3861 - Financial Instruments - Disclosure and Presentation replaces Section 3860 - Disclosure and Presentation and provides presentation standards and incremental disclosures for financial instruments and non-financial derivatives. The adoption of this section had no material impact on these consolidated financial statements.

Hedges

Section 3865 extends existing requirements for hedge accounting and comprehensively specifies how hedge accounting should be performed. As Eveready does not currently utilize hedges, the adoption of this Section had no impact on these consolidated financial statements.

4. Recent accounting pronouncements issued and not yet adopted

Effective January 1, 2008, Eveready will be required to adopt the following accounting standards:

CICA Section 1535 - Capital Disclosures

In December 2006, the CICA issued Handbook Section 1535 - Capital Disclosures. Under this section, an entity discloses its objectives, policies, and processes for managing capital, as well as quantitative data about capital and whether it has complied with externally imposed capital requirements. Eveready does not expect the adoption of this standard will have a material impact on its consolidated financial statements.

CICA Section 3031 - Inventory

In June 2007, the CICA issued Handbook Section 3031 - Inventories. This standard replaces Section 3030 by increasing guidance regarding the scope, measurement, and allocation of costs to inventories. Under this section, inventory is to be measured at the lower of cost and net realizable value. Net realizable value approximates the estimated selling price less all estimated costs of completion and necessary costs to complete the sale. Cost shall be assigned using the first-in, first-out (FIFO) or weighted average cost formula. Further, Section 3031 requires the reversal of previous write-downs of inventory when economic changes support an increased value. Eveready does not expect the adoption of this standard will have a material impact on its consolidated financial statements.

CICA Section 3862 - Financial Instruments - Disclosures and Section 3863 - Financial Instruments - Presentation

In December 2006, the CICA issued Handbook Sections 3862 and 3863 that place increased emphasis on risk disclosures, specifically the risk associated with both recognized and unrecognized financial instruments and how those risks are managed. These new accounting standards supersede Section 3861 Financial Instruments - Disclosure and Presentation, which Eveready adopted on January 1, 2007. Eveready does not expect the adoption of this standard will have a material impact on its consolidated financial statements.

Eveready will also be required to adopt the following accounting standards in future periods:

CICA Section 3064 - Goodwill and Intangible Assets

In February 2008, the CICA issued Handbook Section 3064 - Goodwill and Intangible Assets that supersedes Sections 3062 - Goodwill and Other Intangible Assets and 3450 - Research and Development Costs. Section 3064 provides additional guidance on when expenditures qualify for recognition as intangible assets and requires that costs can be deferred only when relating to an item meeting the definition of an asset. This new accounting standard is effective for interim or annual financial statements relating to fiscal years beginning on or after October 31, 2008. Eveready does not expect the adoption of this standard will have a material impact on its consolidated financial statements.

International Financial Reporting Standards

In February 2008, the Canadian Accounting Standards Board (AcSB) confirmed that Canadian public enterprises will need to adopt International Financial Reporting Standards (IFRSs), effective for years beginning on or after January 1, 2011. Eveready is currently evaluating the impact this new framework will have on its consolidated financial statements.

5. Business acquisitions

Business acquisitions are accounted for using the purchase method. The results of acquired businesses have been included in the consolidated financial statements since their effective acquisition dates.

Fiscal 2007

Eveready completed three business acquisitions in 2007. The preliminary fair values of the net assets acquired and aggregate consideration given are as follows:



----------------------------------------------------------------------------
Fair value of net assets acquired Compass Denman Wellco Total
$ $ $
----------------------------------------------------------------------------

Current assets - 11,848 - 11,848
Property, plant and equipment 556 47,251 5,036 52,843
Intangible assets 601 7,741 - 8,342
Goodwill 1,853 23,069 - 24,922
----------------------------------------------------------------------------
Total assets 3,010 89,909 5,036 97,955
----------------------------------------------------------------------------

Current liabilities - 13,140 - 13,140
Long-term liabilities - 17,119 - 17,119
----------------------------------------------------------------------------
Total liabilities - 30,259 - 30,259
----------------------------------------------------------------------------

Net assets acquired 3,010 59,650 5,036 67,696
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consideration given
----------------------------------------------------------------------------

Cash 500 59,533 5,004 65,037
Fund units 2,500 - - 2,500
Acquisition costs 10 117 32 159
----------------------------------------------------------------------------

Total consideration 3,010 59,650 5,036 67,696
----------------------------------------------------------------------------
----------------------------------------------------------------------------


a) Compass

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

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

b) Denman

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

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

c) Wellco

Effective October 5, 2007, Eveready acquired the Truck division of Wellco Energy Services Trust ("Wellco"). The acquired assets include a 25-unit fleet of vacuum trucks, hydro-excavation trucks, and water trucks, along with additional support equipment. The purchase price of $5,004 was paid through cash consideration. Acquisition costs of $32 were also incurred resulting in aggregate consideration of $5,036.

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

Fiscal 2006

Eveready completed eighteen business acquisitions in 2006. The fair value of the net assets acquired and aggregate consideration given are as follows:



----------------------------------------------------------------------------
Fair value of Head Cat
net assets West Tornado RDDB Pinnacle Tech
acquired $ $ $ $ $
----------------------------------------------------------------------------

Current assets - 750 5,704 437 14,253
Property, plant
and equipment 9,744 4,425 3,599 4,332 11,250
Intangible
assets 1,215 1,143 8,058 427 9,252
Other assets - - - - -
Goodwill - 2,131 18,435 1,917 14,521
----------------------------------------------------------------------------
Total assets 10,959 8,449 35,796 7,113 49,276
----------------------------------------------------------------------------

Current
liabilities - 2,424 4,715 - 9,981
Long-term
liabilities - - - - 5,881
Non-controlling
interest - - 684 - -

----------------------------------------------------------------------------
Total liabilities - 2,424 5,399 - 15,862
----------------------------------------------------------------------------

Net assets
acquired 10,959 6,025 30,397 7,113 33,414
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Consideration given
----------------------------------------------------------------------------


Cash 10,755 3,000 7,685 7,000 24,775

Fund units - 2,993 8,500 - 8,350
Rollover LP
units - - 14,185 - -
Acquisition
costs 204 32 27 113 289
----------------------------------------------------------------------------

Total
consideration 10,959 6,025 30,397 7,113 33,414
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Fair value of Divers-
net assets Bullseye ified D&G Rodrigue's Other Total
acquired $ $ $ $ $ $
----------------------------------------------------------------------------

Current assets 3,166 3,055 - 4,159 8,858 40,382
Property, plant
and equipment 2,386 5,285 3,695 3,604 11,566 59,886
Intangible
assets 4,093 625 347 2,008 5,376 32,544
Other assets 4 56 - - 301 361
Goodwill 5,289 1,704 2,995 2,414 6,451 55,857
----------------------------------------------------------------------------
Total assets 14,938 10,725 7,037 12,185 32,552 189,030
----------------------------------------------------------------------------

Current
liabilities 3,230 2,240 - 3,015 8,858 34,463
Long-term
liabilities - 761 - 64 1,205 7,911
Non-controlling
interest 310 - - 642 - 1,636
----------------------------------------------------------------------------
Total liabilities 3,540 3,001 - 3,721 10,063 44,010
----------------------------------------------------------------------------
Net assets
acquired 11,398 7,724 7,037 8,464 22,489 145,020
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Consideration given
----------------------------------------------------------------------------
Cash 500 3,900 6,346 1,685 11,641 77,287
Fund units 5,430 - 676 6,738 10,719 43,406
Rollover LP
units 5,430 3,750 - - - 23,365
Acquisition
costs 38 74 15 41 129 962
----------------------------------------------------------------------------
Total
consideration 11,398 7,724 7,037 8,464 22,489 145,020
----------------------------------------------------------------------------
----------------------------------------------------------------------------


a) Head West

Effective March 1, 2006, Eveready acquired the business of Head West Energy ("Head West"), a private Alberta-based oilfield equipment rental company. The acquired assets included wellsite 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 resulting in aggregate consideration of $10,959. Equipment of $1,175 was then sold to a third party resulting in a net purchase price of $9,580 for the assets Eveready retained.

Intangible assets acquired with Head West consist of customer relationships of $1,215 that are being amortized on a straight-line basis over their estimated useful life of five years.

b) Tornado

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

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

c) 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 provided 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 value of $7.00 per unit. In addition, acquisition costs of $27 were incurred resulting in aggregate consideration of $30,397.

Intangible assets acquired with RDDB include customer relationships of $7,734 that are being amortized on a straight-line basis over their estimated life of five years and the RDDB trade name of $324, which was fully amortized at December 31, 2007.

In connection with the acquisition of RDDB, Eveready 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.

d) 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 specialized 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 resulting in aggregate consideration of $7,113.

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

e) 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 provided 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 and Singapore.

The purchase price of 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 at a value of CDN $6.70 per unit. Acquisition costs of CDN $289 were also incurred resulting in aggregate consideration of CDN $33,414.

Intangible assets acquired with Cat Tech include customer relationships of $2,222 that are being amortized straight-line over their estimated useful life of ten years, catalyst handling technologies of $3,471 that are being 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.

f) 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 specialized in directional boring and road punching and offered a variety of solutions for the underground crossing requirements of its customers.

The purchase price of $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 value of $7.37 per unit. Acquisition costs of $38 were also incurred resulting in aggregate consideration of $11,398.

Intangible assets acquired with Bullseye include customer relationships of $3,975 that are being amortized straight-line over their estimated life of five years and the Bullseye trade name of $118, which was fully amortized at December 31, 2007.

In connection with the acquisition of Bullseye, Eveready 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.

g) 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 provided 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 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 value of $6.74 per unit. Acquisition costs of $74 were also incurred resulting in aggregate consideration of $7,724.

Intangible assets acquired with Diversified consist of customer relationships of $625 that are being amortized on a straight-line basis over their estimated useful life of five years.

h) D&G

On November 22, 2006, Eveready acquired the business and assets of D&G Water & Vacuum Services; consisting of the assets of D&G Industry Services Ltd. and NPPP Ventures Ltd. (collectively "D&G"). Based in High Level, Alberta, D&G provided water truck and vacuum services to customers in the oil and gas industry.

The purchase price of $7,022 was paid via: (i) 6,346 in cash and (ii) $676 through the issuance of 100,000 units at a value of $6.76 per unit. In addition, acquisition costs of $15 were incurred resulting in aggregate consideration of $7,037.

Intangible assets acquired with D&G consist of customer relationships of $347 that are being amortized on a straight-line basis over their estimated useful life of five years.

i) Rodrigue's

Effective December 1, 2006, Eveready acquired 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 was a horizontal directional boring firm with many additional support services.

The purchase price of $8,423 was paid via (i) $1,685 in cash and (ii) $6,738 through the issuance of 1,085,046 units at a value of $6.21 per unit. In addition, acquisition costs of $41 were incurred providing for aggregate consideration of $8,464.

Intangible assets acquired with Rodrigue's include customer relationships of $1,894 that are being amortized over their estimated useful life of five years and the Rodrigue's trade name of $114, which was fully amortized at December 31, 2007.

In connection with the acquisition of Rodrigue's, Eveready 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 November 30, 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.

j) Other acquisitions

Eveready also completed nine smaller business acquisitions during the year ended December 31, 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 provided 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 through the issuance of 260,606 units at a value 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 provided 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 provided 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 through the issuance of 343,879 units at a value 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 provided safety services, equipment and training to a wide range of industrial and oilfield companies. The purchase price of $1,000 was paid by issuing 144,092 units at a value 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 provided waste hauling services to a wide range of customers operating in the oil and gas industry;

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

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

- Effective October 1, 2006, Eveready acquired 100% of the issued and outstanding shares of Airborne Imaging Inc. ("Airborne"). Airborne was a private Alberta-based company that provided 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 262,106 units at a value of $7.31 per unit, and (iii) $282 through the forgiveness of a loan payable from the vendor to Eveready; and

- 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 specialized in the custom design and manufacture of environmental remediation equipment. Great Lakes also provided 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 (CDN $4,540) was paid via (i) US $2,000 in cash and (ii) US $2,000 through the issuance of 324,283 units at a value of CDN $7.00 per unit.

Of the aggregate goodwill acquired in 2006, $7,087 is deductible for income tax purposes. Intangible assets acquired that are included in the "other acquisitions" category include customer relationships of $3,940, a data image library of $1,159 and an indefinite life trade name of $277. The customer relationships and data image library are being amortized on a straight-line basis over their estimated useful lives of five years.



6. Property, plant and equipment

----------------------------------------------------------------------------
December 31, 2007 Accumulated Net book
Cost amortization value
$ $ $
----------------------------------------------------------------------------

Service equipment 194,489 47,169 147,320
Automotive equipment 73,379 16,410 56,969
Camps and rental equipment 79,767 7,811 71,956
Shop and other equipment 9,781 4,835 4,946
Land, building and improvements 9,043 1,558 7,485
Landfill facilities 10,753 3,602 7,151
Property, plant and equipment under
construction 11,733 - 11,733
----------------------------------------------------------------------------

388,945 81,385 307,560
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
December 31, 2006 Accumulated Net book
Cost amortization value
$ $ $
----------------------------------------------------------------------------

Service equipment 151,839 30,059 121,780
Automotive equipment 55,803 10,906 44,897
Camps and rental equipment 23,538 2,885 20,653
Shop and other equipment 8,941 4,221 4,720
Land, building and improvements 5,774 1,002 4,772
Landfill facilities 8,970 2,638 6,332
Property, plant and equipment under
construction 9,749 - 9,749
----------------------------------------------------------------------------

264,614 51,711 212,903
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Included in property, plant and equipment are assets under capital lease
with a cost of $19,909 (2006 - $nil) and accumulated amortization of $851
(2006 - $nil).

7. Intangible assets

----------------------------------------------------------------------------
December 31, 2007 Accumulated Net book
Cost amortization value
$ $ $
----------------------------------------------------------------------------
Customer relationships 32,633 7,988 24,645
Patents and technology 6,211 1,193 5,018
Provincial license - landfill 15,400 1,283 14,117
Data image library 3,387 504 2,883
Licenses and agreements 1,937 404 1,533
Leases 369 33 336
Trade names - finite life 269 179 90
Trade names - indefinite life 3,836 - 3,836
----------------------------------------------------------------------------
64,042 11,584 52,458
----------------------------------------------------------------------------
----------------------------------------------------------------------------

During the year ended December 31, 2007, Eveready acquired total intangible
assets subject to amortization of $11,880 (2006 - $30,815) and acquired
intangible assets with indefinite lives of $nil (2006 - $3,836).

----------------------------------------------------------------------------
December 31, 2006 Accumulated Net book
Cost amortization value
$ $ $
----------------------------------------------------------------------------
Customer relationships 24,829 2,692 22,137
Patents and technology 5,183 418 4,765
Provincial license - landfill 15,400 667 14,733
Data image library 1,159 52 1,107
Licenses and agreements 1,652 172 1,480
Leases 100 5 95
Trade names - finite life 555 53 502
Trade names - indefinite life 3,836 - 3,836
----------------------------------------------------------------------------
52,714 4,059 48,655
----------------------------------------------------------------------------
----------------------------------------------------------------------------

8. Goodwill

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Balance, beginning of year 85,584 28,731
Business acquisitions (note 5) 24,922 55,857
Purchase price adjustments 240 996
----------------------------------------------------------------------------
Balance, end of year 110,746 85,584
----------------------------------------------------------------------------
----------------------------------------------------------------------------

9. Other long-term assets

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

Deferred transaction costs 1,351 2,322
Other 150 207
----------------------------------------------------------------------------
1,501 2,529
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Deferred transaction costs include costs incurred in establishing Eveready's revolving credit facility (note 11). These costs are amortized on a straight-line basis to interest expense over the term of the revolving credit facility. By adopting Section 3855 effective January 1, 2007 (note 3), deferred transaction costs of $1,704 outstanding at December 31, 2006 were reclassified against the convertible debentures' carrying value in 2007 (note 13).

The deferred transaction costs at December 31, 2007 are net of accumulated amortization of $270 (2006 - $491).

10. Bank indebtedness

The comparative bank indebtedness balance at December 31, 2006 consisted of a demand revolving credit facility by way of bank account overdraft bearing interest at bank prime. At December 31, 2006, the effective interest rate on this credit facility was 6.00%. In April 2007, Eveready replaced its demand revolving credit facility with new long-term debt credit facilities (note 11).

11. Long-term debt

In April 2007, Eveready established credit facilities of $250,000 with a syndicate of lenders led by a Canadian affiliate of GE Energy Financial Services. The financing replaced Eveready's demand revolving credit facility (note 10), and amended and increased Eveready's existing long-term debt credit facility. The credit facilities consist of a $100,000 revolving, renewable credit facility and a $150,000 term loan. Amounts borrowed under the credit facilities bear interest, at Eveready's option, at bank prime or bankers' acceptance rates, plus a credit spread based on a sliding scale.

The revolving credit facility ("Revolver") requires payments of interest only and is renewable annually, subject to both parties' consent. A stand-by fee is calculated at a rate of 0.25% per annum on the unused portion of the Revolver. If the Revolver is not renewed, the outstanding credit facility is subject to a 12-month interest-only phase, followed by a 24-month straight-line amortization period. As a result, the Revolver is classified as long-term debt in the consolidated financial statements. The term loan ("Term") requires fixed monthly payments of $125 and a balloon payment of $142,500 due May 2012. Eveready may prepay all or part of the term loan at any time, subject to the payment of a breakage fee. Both of the credit facilities are collateralized by substantially all of Eveready's assets, including a first charge on Eveready's accounts receivable, inventory, and property, plant and equipment. At December 31, 2007, the carrying amount of Eveready's assets was $618,531. At December 31, 2007, the effective interest rate on the Revolver and Term facilities was 7.41%.

Transaction costs of $3,952 were incurred in establishing the above credit facilities. These costs (plus pre-existing deferred transaction costs of $661) have been allocated to the Revolver and Term facilities based on their respective borrowing capacities. Transaction costs of $1,587 allocated to the Revolver are included in other long-term assets (note 9) and are amortized to interest expense over the Revolver's commitment term of 48 months. Transaction costs of $3,026 allocated to the Term facility have been recorded as a reduction to the liability's carrying amount. These costs are amortized to interest expense, using the effective interest rate method, by accreting the Term liability to its face value of $142,500 over its 61-month term.

The comparative long-term debt consisted of an $80,000 revolving extendible senior secured credit facility, which required payments of interest only at the Canadian dollar one-month bankers' acceptance rate plus 3.25%. At December 31, 2006, the effective interest rate on this credit facility was 7.58% with an additional 0.25% per annum stand-by fee calculated on any unused portion of the credit facility.

For the year ended December 31, 2007, total interest expense recognized under Eveready's long-term debt credit facilities was $12,756 (2006 - $3,778). Eveready's long-term debt consists of the following components:



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

Revolver 55,000 80,000
Term 149,000 -
----------------------------------------------------------------------------
204,000 80,000
Less: unamortized transaction costs (2,664) -
----------------------------------------------------------------------------
201,336 80,000
Less: current portion of long-term debt (1,500) -
----------------------------------------------------------------------------
199,836 80,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The new credit facilities contain financial covenants, including, but not limited to, a working capital ratio, a fixed charge coverage ratio, funded debt to earnings before interest, taxes, depreciation, and amortization ratios, a minimum net worth, and a maximum distribution payout ratio, each calculated on a quarterly basis. Eveready was in compliance with all financial covenants under this agreement at December 31, 2007. If the Revolver were not renewed (the next renewal date is April 25, 2008), the minimum annual principal repayments of the Revolver and Term facilities would be as follows:



----------------------------------------------------------------------------
Amount
$
----------------------------------------------------------------------------
2008 1,500
2009 19,833
2010 29,000
2011 10,667
2012 143,000
----------------------------------------------------------------------------

204,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Subsequent to December 31, 2007, Eveready borrowed an additional $9,500 under its Revolver. In February 2008, Eveready also received an additional short-term advance loan of $20,000. The short-term advance loan is repayable on May 31, 2008.

12. Obligations under capital lease

Obligations under capital lease substantially relate to industrial lodging facilities purchased with the Denman acquisition (note 5). These obligations bear interest at prime plus 0.25% per annum and are repayable in monthly blended principal and interest payments of $318. At December 31, 2007, the effective rate of interest was 6.25%. Maturing at dates ranging from August 2012 to April 2014, these obligations are collateralized by equipment with an $18,911 net book value at December 31, 2007 and may be repaid in full without penalty two years after lease inception. For the year ended December 31, 2007, interest expense related to all obligations under capital lease was $841 (2006 - $nil).

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



----------------------------------------------------------------------------
Amount
$
----------------------------------------------------------------------------

2008 3,866
2009 3,866
2010 3,848
2011 3,831
2012 3,614
Thereafter 2,353
----------------------------------------------------------------------------
Total minimum lease payments 21,378
Less: amounts representing imputed interest at rates ranging
from 4.50% to 7.50% (3,206)
----------------------------------------------------------------------------
Balance of obligations under capital lease 18,172
Less: current portion of obligations under capital lease (2,880)
----------------------------------------------------------------------------

15,292
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Subsequent to December 31, 2007, Eveready financed new industrial lodge facilities through obligations under capital lease of $5,286. This obligation will mature in January 2015 and is collateralized by the respective property, plant and equipment acquired.

13. Convertible debentures

On June 15, 2006, Eveready completed a financing of $50,000 principal amount of convertible unsecured subordinated debentures (the "Debentures"). The Debentures have an annual coupon rate of 7.00%, payable semi-annually, and are due to mature on June 30, 2011. The Debentures are also convertible, at the holder's option, into Fund units at a price of $8.50 per unit. Issuance costs of $2,301 were incurred in connection with the financing, resulting in net proceeds of $47,699. The Debentures trade on the Toronto Stock Exchange under the symbol "EIS.DB".

After June 30, 2009 and before June 30, 2010, the Debentures may be redeemed in whole or in part, at Eveready's 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, Eveready has the option to redeem the Debentures in whole or in part at a price equal to their principal amount plus accrued interest. Eveready 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 Fund units. The number of units a holder will receive in respect of each Debenture will be determined by dividing the principal amount of the Debentures that are to be redeemed or repaid at maturity by 95% of the market price of the units. The market price of the units will be calculated as the volume weighted average trading price of the units on the Toronto Stock Exchange for the 20 consecutive days ending five days prior to the applicable event.

For accounting purposes the holder's conversion option has been separately presented in these consolidated financial statements as a component of equity. Eveready 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, Eveready 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. On January 1, 2007, deferred financing costs of $1,704 were reclassified from other long-term assets to the carrying value of the convertible debentures in accordance with Section 3855 (note 3). These costs are amortized to interest expense over the remaining term of the Debentures using the effective interest rate method.

14. Asset retirement obligations

Eveready's asset retirement obligations relate to closure and post-closure costs concerning the Pembina Area Landfill waste disposal facility. Each waste cell must be capped and closed in accordance with environmental regulations once it is filled to capacity. Eveready estimates the undiscounted, inflation-adjusted cash flows required to settle these obligations at December 31, 2007 to be $3,605 (2006 - $1,340). Management has estimated the fair value of this obligation at December 31, 2007 to be $2,478 (2006 - $1,265), using a credit adjusted discount rate of 7.00% (2006 - 7.00%). These obligations are expected to be incurred over an estimated period from 2008 to 2015.

These estimates are based upon current and proposed reclamation and closure techniques in view of current environmental laws and regulations. Therefore, it is possible the costs could change in the future and that changes to these estimates could have a significant effect on our consolidated financial statements. Eveready recorded the following activity during the year:



----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Asset retirement obligations, beginning of year 1,265 1,257
New obligations and revised estimates 1,745 1,043
Asset retirement costs incurred (629) (1,137)
Accretion expense 97 102
----------------------------------------------------------------------------
Asset retirement obligations, end of year 2,478 1,265
Less: costs expected to be incurred within the
next fiscal year (256) (911)
----------------------------------------------------------------------------
2,222 354
----------------------------------------------------------------------------
----------------------------------------------------------------------------


15. Non-controlling interest

Eveready's non-controlling interest consists of the 20% non-controlling interests that the vendors retained in the acquisitions of RDDB in May 2006, Bullseye in September 2006, and Rodrigue's in December 2006 (note 5). Eveready recorded the following activity during the year:



----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Non-controlling interest, beginning of year 2,393 -
Non-controlling interest arising from the
acquisition of RDDB (note 5) - 684
Non-controlling interest arising from the
acquisition of Bullseye (note 5) - 310
Non-controlling interest arising from the
acquisition of Rodrigue's (note 5) - 642
Distributions to non-controlling interest holders (346) -
Earnings attributable to non-controlling interest 957 757
----------------------------------------------------------------------------

Non-controlling interest, end of year 3,004 2,393
----------------------------------------------------------------------------
----------------------------------------------------------------------------

16. Unitholders' capital

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

Issued:
Opening balance at January 1, 2006 50,271,372 116,551

Activity during the year ended December 31, 2006:
Units issued - acquisition of Mercedes Surveys (note 5) 260,606 1,433
Units issued - acquisition of Tornado (note 5) 454,177 2,993
Units issued - acquisition of RDDB (note 5) 3,240,773 22,685
Units issued - acquisition of Eugene Smith (note 5) 343,879 2,500
Units issued - acquisition of Astec (note 5) 144,092 1,000
Units issued - acquisition of Cat Tech (note 5) 1,246,343 8,350
Units issued - acquisition of Bullseye (note 5) 1,473,542 10,860
Units issued - acquisition of Diversified (note 5) 556,380 3,750
Units issued - acquisition of Real Time (note 5) 236,686 1,600
Units issued - acquisition of Airborne (note 5) 262,106 1,916
Units issued - acquisition of Great Lakes (note 5) 324,283 2,270
Units issued - acquisition of D&G (note 5) 100,000 676
Units issued - acquisition of Rodrigue's (note 5) 1,085,046 6,738
Units issued - purchase price adjustment 264,352 1,137
Unit issuance costs - acquisitions - (129)
Units issued - equity financing,
net of issuance costs 8,000,000 52,699
Units issued - distribution reinvestment
plan (note 19) 2,175,636 14,220
Exercise of unit options pursuant to the
Employee Unit Plan (note 17) 1,140,000 5,700
Transfer from contributed surplus for unit options
exercised (note 18) - 570
Units issued for cash pursuant to the Employee Unit
Plan (note 17) 210,000 1,491
Cancellation of units pursuant to an arrangement
agreement (42,456) (137)
Collection of employee share purchase loans receivable - 368

----------------------------------------------------------------------------

Balance as at December 31, 2006 71,746,817 259,241

Activity during the year ended December 31, 2007:
Units issued - acquisition of Compass (note 5) 413,223 2,500
Unit issuance costs - acquisition - (6)
Units issued - equity financing,
net of issuance costs 8,130,900 41,014
Units issued - distribution reinvestment
plan (note 19) 4,106,270 19,171
Units issued for cash pursuant to the Employee Unit
Plan (note 17) 920,000 5,768
Collection of employee share purchase loans receivable - 303
----------------------------------------------------------------------------

Balance as at December 31, 2007 85,317,210 327,991
----------------------------------------------------------------------------
The number of units outstanding as at December
31, 2007 consisted of the following:
Fund units 71,610,833
Rollover LP units 13,706,377
----------------------------------------------------------------------------
85,317,210
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Rollover LP units

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

a) Series 1

A total of 18,077,169 Series 1 Rollover LP units and 18,077,169 Rights were issued on March 31, 2005. Each Rollover LP unit is redeemable at the option of the applicable subsidiary limited partnership at any time on or before March 31, 2010 at a redemption price of $1.77 per unit. Each Right entitles the holder to acquire one unit of the Fund at an exercise price of $1.77 per unit at any time on or before March 31, 2010. Upon the exercise of any of the aforementioned Rights, the applicable subsidiary limited partnership has an obligation to promptly redeem from the exercising holder, or that person's permitted assigns, a number of Rollover LP units equal to the number of Rights so exercised. The Rollover LP units issued on March 31, 2005 also carry the right to one vote per unit held at each meeting of the unitholders of the Fund.

An additional 755,738 Series 1 Rollover LP units and 755,738 Rights were issued on May 20, 2005 in connection with a business acquisition.

b) Series 2

A total of 3,319,636 Series 2 Rollover LP units were issued in conjunction with the completion of various business acquisitions in fiscal 2006. These Rollover LP units are exchangeable, at the option of the holder, into Fund units at any time for a period of up to five years.

During the year ended December 31, 2007, a total of 2,999,412 (2006 - 2,885,009) Rollover LP units were converted into Fund units. As at December 31, 2007, 13,706,377 Rollover LP units remained outstanding.

Employee share purchase loans receivable

Offset within unitholders' capital are employee share purchase loans receivable of $4 (December 31, 2006 - $307). Issued in prior years, these loans were to assist employees in acquiring shares in the capital stock of Eveready's predecessor company, Eveready Industrial Group Ltd. (which were subsequently converted into Fund units). The employee share purchase loans receivable are non-interest bearing and are collateralized by the unit certificates issued. The market value of the collateralized units for these loans was $404 at December 31, 2007. Distributions paid on these units were applied against the principal balance of the loans receivable. During 2007, an employee share purchase loan of $158 was repaid by a former Eveready officer.

Equity financings

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

On February 23, 2006, Eveready completed an 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 short form prospectus dated February 13, 2006. Issuance costs of $3,301 were incurred relating to the financing, resulting in net proceeds of $52,699.

17. Employee Unit Plan and Unit Option Plan

Employee Unit Plan

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

Compensation expense is measured based on the fair value of the Matching Units on the grant date and is recognized as unit-based compensation expense over the vesting period. During the year ended December 31, 2007, unit-based compensation expense of $3,069 (2006 - $2,629) was recognized pursuant to this Plan with an offsetting credit to contributed surplus.

During the year ended December 31, 2007, 920,000 units (December 31, 2006 - 1,350,000 units) were issued from treasury pursuant to the Plan for total proceeds of $5,768 (2006 - $7,191). In addition, the Trust acquired 874,000 Matching Units (2006 - 1,520,000 Matching Units) from market at a cost of $5,188 (2006 - $10,643). Units held by the Trust are recorded at the cost paid by Eveready to purchase the units and are shown as a reduction of unitholders' equity in the consolidated financial statements until such time they vest and are transferred to the Employee. The fair value of the units held by the Trust at December 31, 2007 was $8,279 (December 31, 2006 - $9,652).



Eveready recorded the following changes in the number of matching units
held under the Plan:

----------------------------------------------------------------------------
Number Amount
of units $
----------------------------------------------------------------------------

Opening balance at January 1, 2006 - -

Activity during the year ended December 31, 2006:
Purchase of Matching Units from the market 1,520,000 10,643
----------------------------------------------------------------------------

Balance as at December 31, 2006 1,520,000 10,643

Activity during the year ended December 31, 2007:
Purchase of Matching Units from the market 874,000 5,188
Vested units transferred to participants (319,000) (2,230)
----------------------------------------------------------------------------

Balance as at December 31, 2007 2,075,000 13,601
----------------------------------------------------------------------------
----------------------------------------------------------------------------


On December 31, 2007, 453,000 Matching Units vested and were distributed to Employees in January 2008. Distributions made by the Fund with respect to unvested units held by the Trust are paid to the Employee at the end of each fiscal year.

The Employee has the option of financing their unit purchase through a BMO Bank of Montreal unit purchase loan ("BMO Loan"). The BMO Loan is collateralized by the units acquired by the Employee. In addition, the Matching Units held by the Trust for that Employee are also collateral against the BMO Loan and could be drawn upon by the bank if the Employee defaulted on the debt obligation and the Employee's units were not sufficient to cover the outstanding BMO Loan balance. At December 31, 2007, 1,596,000 Matching Units (2006 - 1,030,000 Matching Units) with a fair value of $6,368 (2006 - $6,541) were provided as collateral against Employees' outstanding BMO Bank of Montreal unit purchase loans.

Unit Option Plan

Pursuant to Eveready's Unit Option Plan, The Board of Trustees may designate which trustees, officers, and employees of Eveready are to be granted options. The expiry date, vesting conditions, and price payable upon the exercise of any option granted are fixed by the Board of Trustees at the time of grant, subject to regulatory requirements. Options are only granted at exercise prices equal to or greater than the fair market value at the grant date.

On November 17, 2005, the Board of Trustees granted 1,255,000 options to approximately 141 employees and 6 trustees of Eveready under Eveready's Unit Option Plan. The options vested in 2005, are exercisable at $5.00 per unit, and are due to expire on November 17, 2010. At December 31, 2007, there were 55,000 (December 31, 2006 - 85,000) options outstanding. During 2007, 30,000 options were forfeited.

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

18. Contributed surplus



----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Balance, beginning of year 2,849 627
Matching units vested under employee unit plan
(note 17) (2,230) -
Unit-based compensation expense (note 17) 3,069 2,629
Cancellation of units pursuant to an arrangement agreement - 163
Unit options exercised - (570)
----------------------------------------------------------------------------

Balance, end of year 3,688 2,849
----------------------------------------------------------------------------
----------------------------------------------------------------------------


19. Distributions

In 2007 and 2006, cash distributions were declared by Eveready on a monthly basis to unitholders of record on the last business day of each month. Distributions were payable on or about the 15th day of the month following the record date. Distributions are always subject to approval by Eveready's Board of Trustees, who at any time can increase, decrease or suspend the distributions. The Board of Trustees may also convert the distributions entirely to units or cash at any time. Eveready's ability to make distributions and the actual amount distributed also depends on factors such as Eveready's financial performance, debt covenants and obligations, ability to refinance debt obligations on similar terms and at similar interest rates, working capital requirements, future tax obligations, and future capital requirements.



Distributions on units of record during the years ended December 31, 2007
and 2006 are summarized as follows:

----------------------------------------------------------------------------
Distribution 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 31, 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
October 31, 2006 0.06 4,161 1,557 2,604
November 30, 2006 0.06 4,188 1,556 2,632
December 29, 2006 0.06 4,289 1,546 2,743
----------------------------------------------------------------------------

Total 2006 0.60 38,607 14,220 24,387
----------------------------------------------------------------------------

January 31, 2007 0.06 4,320 1,492 2,828
February 28, 2007 0.06 4,353 1,568 2,785
March 30, 2007 0.06 4,406 1,565 2,841
April 30, 2007 0.06 4,428 1,560 2,868
May 31, 2007 0.06 4,448 1,702 2,746
June 29, 2007 0.06 4,958 1,761 3,197
July 31, 2007 0.06 4,981 1,547 3,434
August 31, 2007 0.06 5,002 1,475 3,527
September 28, 2007 0.06 5,024 1,497 3,527
October 31, 2007 0.06 5,045 1,705 3,340
November 30, 2007 0.06 5,068 1,646 3,422
December 31, 2007 0.06 5,014 1,653 3,361
----------------------------------------------------------------------------

Total 2007 0.72 57,047 19,171 37,876
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Distributions Net
Distributions reinvested distributions
Accumulated distributions $ $ $
----------------------------------------------------------------------------

Beginning balance, January 1, 2006 12,921 6,557 6,364
Distributions declared in 2006 38,607 14,220 24,387
----------------------------------------------------------------------------

Balance as at December 31, 2006 51,528 20,777 30,751
Distributions declared in 2007 57,047 19,171 37,876
----------------------------------------------------------------------------

Balance as at December 31, 2007 108,575 39,948 68,627
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Distribution Reinvestment Plan

During the year ended December 31, 2007, Eveready declared total distributions of $0.72 per unit or $57,047 (2006 - 0.60 per unit or $38,607). Of this amount, $19,171 (2006 - $14,220) was reinvested through Eveready's Distribution Reinvestment Plan ("DRIP"). The DRIP was a voluntary program that permitted eligible unitholders to automatically, and without charge, reinvest monthly distributions in additional units. Unitholders who elected to participate saw 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.

Principal Unitholder Agreement

Certain Eveready unitholders (the "Principal Unitholders") have signed a Principal Unitholder Agreement. This required each Principal Unitholder to reinvest immediately through the DRIP 100% of Eveready's cash distributions on that Principal Unitholder's Fund units or Rollover LP units prior to March 31, 2010. In addition, each Principal Unitholder is restricted from selling more than 10% of their aggregate Fund units or Rollover LP units in any one 12-month period before March 31, 2010. As at December 31, 2007 approximately 27% (2006 - 33%) of Eveready's outstanding Fund units and Rollover LP units were subject to the Principal Unitholder Agreement.

Subsequent to year-end, Eveready's Board of Trustees approved strategic changes to the Fund's distribution policy (note 28). In conjunction with implementing the new distribution policy, Eveready cancelled its DRIP.

20. Earnings per unit



----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Net earnings (numerator for basic and diluted
earnings per unit) 13,626 29,901
----------------------------------------------------------------------------

Basic weighted average number of units 77,316,985 62,603,242
Dilutive effect of outstanding unit options - 212,804
Dilutive effect of unvested units acquired pursuant
to the Employee Unit Plan - 206,146
Dilutive effect of contingently issuable units - 262,179
----------------------------------------------------------------------------
Diluted weighted average number of units 77,316,985 63,284,371
----------------------------------------------------------------------------

Earnings per unit - basic 0.18 0.48
Earnings per unit - diluted 0.18 0.47
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Eveready calculates basic per unit amounts as if all outstanding Rollover LP units were converted into Fund units. Unvested units held by the Employee Unit Plan Trust are not treated as outstanding for purposes of calculating basic per unit amounts.

For the year ended December 31, 2007, the outstanding unit options, unvested units held by the Employee Unit Plan Trust, and convertible debentures did not have a dilutive effect on earnings per unit.

For the year ended December 31, 2006, diluted per unit amounts include the dilutive effect of outstanding unit options, unvested units held by the Employee Unit Plan Trust, and units that were issued as contingent consideration in connection with a 2005 business acquisition. The outstanding convertible debenture did not have a dilutive effect on earnings per unit in the comparative year.

21. Supplemental expenditure information



Amortization expense

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Amortization of property, plant and equipment 32,826 22,461
Amortization of assets under capital lease 850 -
Amortization of intangible assets 8,111 3,890
Accretion on asset retirement obligations (note 14) 97 102
----------------------------------------------------------------------------

41,884 26,453
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Interest expense

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Interest - long-term debt 12,756 3,778
Interest - obligations under capital lease 841 -
Interest - convertible debentures 5,161 2,613
Interest - other 119 1,271
----------------------------------------------------------------------------

18,877 7,662
----------------------------------------------------------------------------
----------------------------------------------------------------------------


22. Income taxes

On June 12, 2007, the Government of Canada enacted legislation to impose additional income taxes on publicly traded income trusts and limited partnerships (Specified Investment Flow-Through Entities or "SIFT"), including Eveready, effective January 1, 2011. Prior to June 2007, Eveready estimated the future income tax on certain temporary differences between amounts recorded on its balance sheet for book and income tax purposes at a nil effective income tax rate. Under this new legislation, Eveready now estimates the effective income tax rate on the post 2010 reversal of these temporary differences to range from 28.0% to 29.5%. Temporary differences reversing before 2011 will still give rise to $nil future income taxes. The new legislative changes have no effect on how Eveready accounts for temporary differences within its incorporated subsidiaries.

Based on its assets and liabilities at December 31, 2007, Eveready estimated the amount of its temporary differences, which were previously not subject to income tax, and the periods in which these differences will reverse. Eveready plans to maximize the amount of income tax pools that can be carried forward to reduce and defer, as much as possible, its income tax exposure beginning in 2011. To achieve this objective, Eveready plans to maximize the taxable components of all distributions declared in 2008 through 2010. Eveready expects the application of this policy will reverse all of the taxable temporary differences associated with its property, plant and equipment prior to January 1, 2011. However, net taxable temporary differences related to intangible assets, goodwill, and financing costs of $16,512 are expected to reverse after January 1, 2011. As a result of these reversing temporary differences, Eveready recognized an additional future income tax liability of $4,667 at December 31, 2007. As the legislation gave rise to a change in Eveready's estimated future income tax liability within the year ended December 31, 2007, the recognition of the additional liability was accounted for prospectively.

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

The following is a reconciliation of income taxes, calculated at the Canadian combined federal and provincial tax rate, to the income tax provision included in the consolidated statement of earnings for each of the years presented:



----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Earnings before income taxes and non-controlling interest 18,618 31,332
Earnings allocable to unitholders (23,229) (30,153)
----------------------------------------------------------------------------

(Loss) earnings applicable to incorporated subsidiaries (4,611) 1,179
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Provision for income taxes at 32.12% (2006 - 32.50%) (1,481) 383
Increase related to:
SIFT future income taxes 4,667 -
Expenses not deductible for tax and other adjustments 203 35
Jurisdictional tax rate differences 92 -
Changes in tax rates impacting future income tax balances 40 -
Change in valuation allowance 514 256
----------------------------------------------------------------------------

Income tax expense 4,035 674
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Eveready's future income tax liability is comprised of the following
components:

----------------------------------------------------------------------------
As at December 31 2007 2006
$ $
----------------------------------------------------------------------------
Carrying value of property, plant and equipment in excess
of tax value 722 766
Carrying value of intangible assets and goodwill in
excess of tax value 4,830 109
Loss carry-forwards, net of valuation allowance of $1,003
(2006 - $489) (907) (108)
Other (100) (7)
----------------------------------------------------------------------------

Future income tax liability 4,545 760
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Eveready's incorporated subsidiaries had loss carry-forwards at December 31, 2007 of approximately $6,204 (2006 - $1,849). These loss carry-forwards are available to reduce taxable income in future years and expire in years ranging from 2013 to 2026, depending on the year and in what jurisdiction they were incurred.

At December 31, 2007, the reported amount of assets and liabilities held within the Fund and its subsidiary limited partnerships exceeded their tax basis by $57,163 (2006 - $62,245). These temporary differences are comprised of the following components:



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

Carrying value of property, plant and equipment in
excess of tax value 30,970 35,743
Carrying value of intangible assets and goodwill in
excess of tax value 35,900 33,842
Asset retirement obligations (2,478) (1,265)
Unit issue and other financing costs (7,229) (6,075)
----------------------------------------------------------------------------

Total temporary differences related to the Fund and
its subsidiary limited partnerships 57,163 62,245
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As discussed above, all but $16,512 of these temporary differences are expected to reverse prior to January 1, 2011.

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

Trust reorganization adjustments

During the comparative year ended December 31, 2006, Eveready's future income tax liability was reduced by $787 with an offsetting increase to retained earnings. This adjustment resulted from a trust reorganization effective July 1, 2006 to transfer the assets and businesses of several incorporated subsidiaries of Eveready into the flow-through income trust structure. As a result, the previously recognized temporary differences in these incorporated subsidiaries were eliminated on a prospective basis.

23. Supplemental cash flow information



a) Changes in non-cash operating working capital:

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Accounts receivable (11,165) (7,110)
Inventory (1,913) (4,550)
Properties held for sale 1,977 (2,963)
Prepaid expenses and deposits 317 2,178
Accounts payable and accrued liabilities 2,792 (102)
Income taxes recoverable/payable (1,318) (1,769)
----------------------------------------------------------------------------

(9,310) (14,316)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


b) Non-cash investing and financing activities:

- During the year ended December 31, 2007, distributions of $19,171 (2006 - $14,220), owing to unitholders participating in the DRIP, were settled by issuing 4,106,270 (2006 - 2,175,636) units (note 19);

- During the year ended December 31, 2007, Fund units of $2,500 (2006 - $43,406) and Rollover LP units of $nil (2006 - $23,365) were issued as partial consideration in conjunction with the completion of various business acquisitions (note 5); and

- During the year ended December 31, 2007, Eveready acquired $154 (2006 - $nil) of equipment through obligations under capital lease (note 12).

c) Income taxes and interest paid:



----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Income taxes paid 1,444 2,323
Interest paid 15,581 6,929
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Cash consideration paid (note 5) 65,037 77,287
Acquisition costs (note 5) 159 962
Less: cash acquired in business acquisitions - (5,299)
----------------------------------------------------------------------------

Cash used for business acquisitions, net of cash
acquired 65,196 72,950
----------------------------------------------------------------------------
----------------------------------------------------------------------------


24. Segmented reporting

Eveready operates in four business segments, segregated based on the types of services provided. These segments include: oil sands, industrial and production services; exploration services; environmental services; and lodging and rentals. In total, Eveready provides over 80 different services to its customers. With such a wide range of services, it is impractical to provide a revenue breakdown of each service provided.

Oil sands, industrial and production services source a variety of customers in the energy, resource, and industrial sectors. They include, among other services, catalyst handling, chemical cleaning and decontamination, decoking and pigging, directional boring and punching, fluid hauling, flush-by and coil tubing, high and ultra-high pressure water cleaning, hot oiling, hydro-excavation, pressure testing, steam cleaning, tank cleaning, and wet and dry vacuuming.

Eveready's exploration services support exploration programs for oil and gas companies. Services include geospatial data imaging, heli-portable and track drilling, land development, line clearing, and seismic surveying.

Environmental services include disposal well services, filters and filtration services, industrial health services, landfill solid waste disposal, mechanical dewatering and dredging, safety training and services, and waste hauling.

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

Accounting policies for each of these business segments are the same as those disclosed in note 2. General and administrative expenses directly related to the four business segments are included as operating expenses for those segments. There are no significant inter-segment revenues. Segment contribution represents earnings before income taxes and non-controlling interest for each of Eveready's business segments prior to unallocated items. Eveready uses segment contribution as a key measure to analyze the financial performance of its business segments.

In the fourth quarter of 2007, Eveready revised its business segment composition and related disclosure to include four reportable segments in order to better differentiate the range of services Eveready offers its customers. Previously, Eveready disclosed three reportable segments. The comparative 2006 figures were reclassified from statements previously presented to conform to the new composition.



Selected financial information by reportable segment is disclosed as
follows:

Oil sands,
industrial
and
Year Ended production Exploration Environmental Lodging and
December 31, services services services rentals Consolidated
2007 $ $ $ $ $
----------------------------------------------------------------------------
Revenue 375,939 59,521 42,066 41,370 518,896
Amortization
expense 20,468 5,200 3,045 5,060 33,773
Segment
contribution 35,256 8,276 1,714 12,678 57,924
Unallocated items:
Corporate
costs 10,674
Amortization of
intangible
assets 8,111
Interest expense 18,877
Loss on foreign
exchange 1,644
----------------------------------------------------------------------------
Earnings before
income taxes
and non-
controlling
interest 18,618

Capital
expenditures
(excluding
business
acquisitions) 57,730 9,998 1,944 9,476 79,148
Acquisition of
goodwill 1,853 - - 23,069 24,922

----------------------------------------------------------------------------
Year Ended
December 31, 2006
----------------------------------------------------------------------------

Revenue 262,759 68,323 37,303 11,308 379,693
Amortization
expense 12,872 4,142 3,441 2,108 22,563
Segment
contribution 28,326 14,082 5,800 3,727 51,935
Unallocated items:
Corporate costs 9,703
Amortization of
intangible
assets 3,890
Interest expense 7,662
Gain on foreign
exchange (652)
----------------------------------------------------------------------------
Earnings before
income taxes
and non-
controlling
interest 31,332

Capital
expenditures
(excluding
business
acquisitions) 49,075 9,161 6,941 3,729 68,906
Acquisition of
goodwill 48,280 2,974 2,472 2,131 55,857
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

----------------------------------------------------------------------------
Oil sands,
industrial
and
As at production Exploration Environmental Lodging and
December 31, services services services rentals Consolidated
2007 $ $ $ $ $
----------------------------------------------------------------------------
Property, plant
and equipment 196,440 29,153 13,606 68,361 307,560
Intangible
assets 24,406 4,165 14,604 9,283 52,458
Goodwill 66,695 10,211 4,088 29,752 110,746
Total assets 388,536 66,912 40,358 122,725 618,531

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

Property, plant
and equipment 157,718 25,215 12,981 16,989 212,903
Intangible
assets 27,763 2,657 15,336 2,899 48,655
Goodwill 64,602 10,211 4,088 6,683 85,584
Total assets 335,255 54,143 40,703 36,080 466,181
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

----------------------------------------------------------------------------
Years Ended December 31 2007 2006
$ $
----------------------------------------------------------------------------

Revenue
Canada 467,992 350,359
United States and international 50,904 29,334
----------------------------------------------------------------------------

518,896 379,693
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

Property, plant and equipment, intangible assets, and goodwill
Canada 434,495 314,608
United States and international 36,269 32,534
----------------------------------------------------------------------------

470,764 347,142
----------------------------------------------------------------------------
----------------------------------------------------------------------------


25. Related party transactions

g) During the year ended December 31, 2007, Eveready incurred professional fees of $483 (2006 - $589) from a partnership of which an Eveready officer is a partner;

h) During the year ended December 31, 2007, Eveready incurred professional fees of $186 (2006 - $398) from a partnership of which an Eveready trustee is a partner;

i) Included in general and administrative expenses for the year ended December 31, 2007 are occupancy costs of $1,587 (2006 - $927) paid to companies controlled or influenced by certain officers and/or trustees of Eveready;

j) During the year ended December 31, 2007, Eveready acquired service equipment of $3,206 (2006 - $3,410) from companies controlled or influenced by certain officers and/or trustees of Eveready;

k) During the year ended December 31, 2007, Eveready incurred equipment rental and repair costs of $134 (2006 - $nil), from companies controlled or influenced by certain officers and/or trustees of Eveready; and

l) During the year ended December 31, 2007, Eveready earned service revenue of $3,650 (2006 - $88) from companies controlled or influenced by certain officers and/or trustees of Eveready.

As at December 31, 2007, outstanding amounts related to the above transactions collectible from or owing to related parties included accounts receivable of $2,004 (2006 - $ nil) and accounts payable and accrued liabilities of $108 (2006 - $722). All transactions occurred in the normal course of operations and were measured at their exchange amounts, which were established and agreed to as consideration by the related parties.

26. Commitments, contingencies, and guarantees

Commitments

Eveready has entered into operating leases for office and shop premises, vehicles, and equipment that provide for minimum annual lease payments as follows:



----------------------------------------------------------------------------
$
----------------------------------------------------------------------------

2008 13,914
2009 8,994
2010 5,678
2011 2,969
2012 1,284
Thereafter 2,676
----------------------------------------------------------------------------

35,515
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Included above are lease commitments of $5,403 that relate to premises owned by certain Eveready officers and trustees. Eveready has also approved its 2008 capital expenditure program of approximately $78,000. These expenditures are expected to be incurred throughout 2008. Eveready is normally not contractually committed to acquire property, plant and equipment until delivery of the asset is complete.

Contingencies

From time to time Eveready is subject to claims and lawsuits arising in the ordinary course of operations. In the opinion of management, the ultimate resolution of such pending legal proceedings will not have a material adverse effect on Eveready's financial position.

Guarantees

a) Eveready has provided certain guarantees to financial institutions for financing obtained by contractors to purchase specific service and automotive equipment for use in supplying services to Eveready. As at December 31, 2007, the total balance of all third party financings guaranteed by Eveready was $2,075. These financings are collateralized by the specific equipment purchased. Eveready would be required to settle these guarantees if a contractor were to default on the obligation and the collateral held by the financial institutions was not sufficient to repay the balances due;

b) Eveready had outstanding letters of credit at December 31, 2007 of CDN $2,225 and US $500, drawn under the Revolver (note 11). These letters of credit were issued to comply with certain environmental regulations and other contractual agreements. Eveready could be required to settle these letters of credit in the future if requirements under the environmental regulations and contractual agreements were not met. Subsequent to year-end, the letter of credit of US $500 was cancelled.

c) Matching Units held within Eveready's Employee Unit Plan Trust (note 17) are provided as collateral against bank loans owing by certain Employees that were issued in connection with their participation in the Plan. These units could be drawn upon by the bank if the Employee were to default on the debt obligation and the Employee's units were not sufficient to cover the outstanding loan balance. At December 31, 2007, the Trust held 1,596,000 Matching Units of Eveready with a fair value of $6,368 as collateral over such bank loans. 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 and are transferred to the participant.

d) In the normal course of business, Eveready enters into agreements that include indemnities in favour of third parties such as engagement letters with advisors and consultants, and service agreements. Eveready has also agreed to indemnify its trustees, directors, officers, and employees in accordance with Eveready's constating documents and bylaws. Certain agreements do not contain any limits on Eveready's liability and therefore it is not possible to estimate Eveready's potential liability under these indemnities. In certain cases, Eveready has recourse against third parties with respect to these indemnities. In addition, Eveready maintains insurance policies that may provide coverage against certain claims under these indemnities.

Eveready believes it would be able to satisfy all guaranteed obligations above without disrupting normal business operations.

27. Financial Instruments

e) Fair value of financial instruments

The carrying amounts of cash, accounts receivable, accounts payable and accrued liabilities, and unitholder distributions payable, approximate their fair values given the short-term maturity of these instruments. The carrying value of bank indebtedness, current portion of long-term debt, and long-term debt approximate fair value because the applicable interest rates on these liabilities are based on variable prevailing market rates.

The fair value of financial instruments actively traded in markets is determined by reference to current market quotes as at the balance sheet date. For financial instruments not traded in an active market, Eveready uses a discounted cash flow valuation technique. In applying the discounted cash flow, Eveready estimates a current market interest rate for the same or similar financial instrument. If the credit quality of similar instruments is undeterminable, Eveready will assume no changes in the credit quality have taken place.

By applying the above valuation techniques, the estimated fair value of Eveready's convertible debentures at December 31, 2007 was $48,432 compared to its carrying value of $42,244. As the convertible debentures are other financial liabilities and are measured at amortized cost, no gain or loss has been recognized in net earnings relating to the difference between the debentures' fair value and carrying value.

f) Credit risk

By granting credit sales to customers, it is possible these entities, to which Eveready provides services, may experience financial difficulty and be unable to fulfill their obligations. A substantial amount of Eveready's revenue is generated from customers in the oil and gas industry. This results in a concentration of credit risk from customers in this industry. A significant decline in economic conditions within this industry would increase the risk customers will experience financial difficulty and be unable to fulfill their obligations to Eveready. Eveready's exposure to credit risk arising from granting credit sales is limited to the carrying value of accounts receivable.

Eveready mitigates its credit risk by assessing the credit worthiness of its customers on an ongoing basis. Eveready also closely monitors the amount and age of balances outstanding. Eveready establishes a provision for bad debts based on specific customers' credit risk, historical trends, and other economic information.

Eveready is also exposed to credit risk associated with its guarantees. Eveready's maximum exposure to such guarantees is discussed further in note 26.

g) Liquidity risk

Eveready's exposure to liquidity risk is dependant on the collection of accounts receivable and the ability to raise funds to meet purchase commitments and to sustain operations. Eveready controls its liquidity risk by managing its working capital, cash flows, and the availability of borrowing facilities.

h) Interest rate risk

Eveready's cash flow is exposed to changes in interest rates on its long-term debt, which bear interest based on variable rates. The cash flow required to service these financial liabilities will fluctuate as a result of changes in market rates. Based on Eveready's outstanding long-term debt at December 31, 2007, a one percent increase or decrease in market interest rates would impact Eveready's annual interest expense by approximately $2,013. Eveready has not entered into any derivative agreements to mitigate this risk.

Eveready is also exposed to interest rate price risk on its convertible debentures, which incur fixed interest payments (note 13). The discount rate used in determining the fair value of the convertible debentures' future cash flows will fluctuate as a result of changes in market interest rates available to Eveready for the same or similar instrument. Assuming a one percent change in market interest rates, the fair value of the convertible debentures could change by $1,471.

Eveready's other financial instruments are not exposed to interest rate risk.

i) Foreign currency risk

Eveready is primarily exposed to foreign currency fluctuations in relation to its US and international operations. Therefore, there is financial risk of earnings fluctuations arising from changes in and the degree of volatility of foreign exchange rates arising on foreign monetary assets and liabilities. Although the majority of Eveready's operations are in Canada, Eveready continues to expand its operations outside Canada, which increases its exposure to foreign currency risk. During the year ended December 31, 2007, Eveready incurred a loss on foreign exchange of $1,644 (2006 - gain of $652). Eveready does not currently use derivative financial instruments to reduce its exposure to foreign currency risk.

28. Subsequent events

a) Strategic changes to Distribution Policy

In January 2008, Eveready's Board of Trustees unanimously approved amendments to the Fund's distribution policy to maximize the retention of operating cash flow to re-invest in growth. Eveready's monthly cash distribution of $0.06 per unit ($0.72 per unit on an annualized basis) was eliminated and will be replaced with a quarterly "in-kind" distribution of $0.18 per unit ($0.72 per unit on an annualized basis), which will be settled in additional Fund units instead of cash. Eveready anticipates that the next distribution will be paid on or about April 15, 2008 to unitholders of record as of the close of business on March 31, 2008.

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

b) Normal course issuer bid

On January 25, 2008, Eveready received regulatory approval from the Toronto Stock Exchange to purchase for cancellation, from time to time, as Eveready considers advisable, its issued and outstanding Fund units. Pursuant to the normal course issuer bid ("the Bid"), Eveready may purchase for cancellation up to a maximum of 5,090,401 Fund units, being approximately 10% of Eveready's "public float." The Bid commenced January 29, 2008 and will terminate on January 28, 2009 or such earlier time as the Bid is completed or terminated at Eveready's option.

Subsequent to December 31, 2007 and before the release of these consolidated financial statements, Eveready purchased for cancellation 41,600 Fund Units at an average cost of $3.37 per unit for a total cash consideration of $140.

29. Comparative figures

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

Contact Information

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