EVEREADY INCOME FUND
TSX : EIS.UN

EVEREADY INCOME FUND

May 09, 2008 08:00 ET

Eveready Income Fund Announces 2008 First Quarter Financial Results

EDMONTON, ALBERTA--(Marketwire - May 9, 2008) - Eveready Income Fund (TSX:EIS.UN) -



Selected Consolidated Financial Information

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Three Months Ended March 31 March 31
$ thousands, except per unit amounts 2008 2007 % Change
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Revenue $ 184,721 $ 143,972 28%

Gross profit 56,971 45,547 25%
Gross margin 30.8% 31.6%

EBITDA(1) 36,469 24,942 46%
EBITDA margin(1) 19.7% 17.3%
Per unit(1,2) 0.42 0.34 24%

Net earnings 18,734 11,733 60%
Per unit - basic(2) 0.21 0.16 31%
Per unit - diluted(2) 0.20 0.16 25%
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Cash (used in) provided by operating
activities (6,019) 2,875 -309%
Funds from operations(1) 31,762 22,723 40%
Per unit(1,2) 0.36 0.31 16%

Distributions declared 15,351 13,080 17%
Per unit 0.18 0.18 0%
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Basic weighted average units outstanding(2) 87,703 74,384 18%
Units outstanding at March 31 89,387 73,716 21%
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Total assets 666,943 503,650 32%
Total liabilities 363,074 235,144 54%
Unitholders' equity 303,869 268,506 13%
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Notes: (1) These financial measures are identified and defined under the
section "Non-GAAP Financial Measures."
(2) Comparative unit and per unit amounts for the three months ended
March 31, 2007 were restated to reflect the dilutive effect of
the "in-kind" distribution declared to unitholders of record on
March 31, 2008.
(3) Certain of the comparative figures were reclassified from
statements previously presented to conform to the current
period's presentation.


Quarter Overview:

- Revenue for the three months ended March 31, 2008 was approximately $185 million reflecting an increase of 28% from 2007;

- We continued our expansion in the Alberta oil sands region generating revenue of approximately $80 million from operations located in this area compared to approximately $45 million in 2007. This represented 43% (2007 - 31%) of our total revenue;

- We reported EBITDA (see "Non-GAAP Financial Measures") of $36.5 million in the first quarter. This reflects an increase of 46% from EBITDA of $24.9 million in 2007;

- We reported record net earnings of $18.7 million or $0.21 per unit in the first quarter compared to net earnings of $11.7 million or $0.16 per unit in 2007;

- We invested $24.9 million (2007 - $21.8 million) in property, plant and equipment during the first quarter, including $22.5 million in growth capital expenditures to expand our service offerings in several areas. These expenditures are part of our $78 million 2008 capital expenditure program. A large portion of our 2008 capital expenditure program is being incurred to support further revenue and earnings growth in 2009; and

- 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 distributions of $0.06 per unit ($0.72 per unit on an annualized basis) were eliminated and replaced with a quarterly "in-kind" distribution of $0.18 per unit ($0.72 per unit on an annualized basis). In March 2008, we declared an "in-kind" distribution of $0.18 per unit to unitholders of record on March 31, 2008.

Management's Discussion & Analysis

This Management's Discussion & Analysis ("MD&A") was prepared as of May 7, 2008 and is provided to assist readers in understanding Eveready Income Fund's ("Eveready" or the "Fund") consolidated financial performance for the three months ended March 31, 2008 and significant trends that may affect Eveready's future performance. This MD&A should be read in conjunction with the accompanying interim consolidated financial statements for the three months ended March 31, 2008 and the notes contained therein. In addition, this MD&A should be read in conjunction with the MD&A and audited consolidated financial statements for the year ended December 31, 2007. 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 dated March 25, 2008, is available on the System for Electronic Document Analysis and Retrieval ("SEDAR") web site at www.sedar.com.

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

Our Business

We are a growth oriented income fund providing 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 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. We provide our services within the following four business segments:

- Oil sands, industrial and production services;

- Lodging and rentals;

- Exploration services; and

- Environmental services.

Overall Performance

In the first quarter of 2008 we generated record financial results. We achieved revenue of $184.7 million compared to revenue of $144.0 million in 2007, an increase of 28%. Likewise, we increased our EBITDA (see "Non-GAAP Financial Measures") by 46% to $36.5 million from $24.9 million in 2007 and increased Funds from operations (see "Non-GAAP Financial Measures") by 40% to $31.8 million from $22.7 million in 2007. Finally, we reported record net earnings of $18.7 million during the quarter reflecting an increase of 60% over 2007. These financial results reflect the on-going execution of our growth strategies.

Breaking down our financial results, we were very pleased with the growth in our lodging and rentals segment in the first quarter. We generated revenue of $21.8 million in 2008, representing an increase of $18.6 million from 2007. Our acquisition of Denman Industrial Trailers Ltd. ("Denman") on May 1, 2007 contributed to the majority of this increase. However, a portion of the revenue increase was also attributable to our capital expenditure program over the past year, which has further expanded our lodging services in the Alberta oil sands region.

Within our oil sands, industrial and production services segment, we also achieved significant growth, increasing our revenue by $19.7 million to $132.1 million for the three months ended March 31, 2008 from $112.4 million in 2007. However on the negative side, this revenue growth was offset by a lower gross margin, and did not translate into higher cash flows during the quarter. The decrease in our gross margin within this segment resulted from lower margin services provided in the Alberta oil sands region. These services were negatively affected by higher labour and operating costs as well as operating inefficiencies as we attempted to manage our significant growth in the region. We continue to experience the challenges associated with rapid growth in the oil sands including shortages of qualified local labour pools, lack of infrastructure, and inflationary cost pressures. However, we believe our gross margin in the region will significantly improve in the future as our rate of growth stabilizes and we improve the utilization of our equipment and manpower.

Within our exploration services segment, we generated revenue of $21.7 million during the first quarter compared to revenue of $19.1 million in 2007. Despite an overall downturn in oil and gas exploration activity in western Canada over the past year, we continue to achieve good contributions from our exploration services segment due to our strong competitive position in this sector. Results within our environmental services segment were also comparable to the prior year, generating revenue of $9.1 million in 2008 compared to revenue of $9.3 million in 2007.

Our overall outlook for the remainder of 2008 and 2009 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 and 2009 from this region. A significant amount of this growth will also come from expanding our industrial lodge facilities in the region. We also expect to show modest growth in 2008 and 2009 from our industrial maintenance and production services as well as our exploration services throughout North America.

Over the longer term, we continue to see significant growth opportunity for Eveready as we expect substantial investment in exploration and infrastructure within the Alberta oil sands to continue for at least the next 10 years. In addition, several new upgrader projects are currently being planned or are under construction in the Fort McMurray and greater Edmonton areas to support oil sands production. These facilities will require substantial on-going industrial maintenance services over their life span and we believe Eveready is well positioned to capture a significant portion of this work.

We continue to estimate 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.



Results of Operations

Revenue

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Three Months Ended March 31 March 31
$ thousands 2008 2007
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Revenue by segment:
Oil sands, industrial and production services $ 132,090 $ 112,424
Lodging and rentals 21,780 3,168
Exploration services 21,747 19,120
Environmental services 9,104 9,260
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Total 184,721 143,972
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Oil sands, industrial and production services

Revenue from oil sands, industrial and production services increased by $19.7 million or 18% to $132.1 million for the three months ended March 31, 2008 from $112.4 million in 2007. The majority of this increase resulted from significant organic revenue growth in the Alberta oil sands region of north-eastern Alberta. The acquisition of the truck division of Wellco Energy Services Trust in October 2007 also contributed to a portion of the increase.

Lodging and rentals

During the first quarter of 2008 we generated $21.8 million of revenue from our lodging and rentals segment compared to revenue of only $3.2 million in 2007, an increase of $18.6 million. Our acquisition of Denman on May 1, 2007 caused this increase, generating revenue of $19.0 million in 2008. A portion of our revenue increase in this segment was also attributable to our capital expenditure program over the past year, which has further expanded our lodging services in the Alberta oil sands region.

Exploration services

Revenue from exploration services increased by $2.6 million to $21.7 million during the three months ended March 31, 2008 from $19.1 million in 2007. In the quarter, we achieved organic revenue growth from several service lines in this segment including track drilling, seismic surveying and geospatial data imaging services.

Environmental services

We generated revenue of $9.1 million from this segment in the first quarter of 2008, representing a slight decline from 2007. We experienced revenue increases from landfill solid waste disposal services and filtration services, which were offset by revenue declines in waste hauling and other specialty environmental services.



Gross Profit

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Three Months Ended March 31 March 31
$ thousands 2008 2007
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Amount $ 56,971 $ 45,547
Gross margin % 30.8% 31.6%
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Note: (1) Certain expenses, previously included in general and
administrative expenses, were reclassified to direct costs and
other expense categories to better reflect the nature of those
expenses. The comparative figures in 2007 were reclassified to
conform to the current period's presentation.


Our significant revenue growth in the first quarter contributed to a corresponding increase in gross profit. However, our gross margin declined slightly to 30.8% from 31.6% in 2007. This decrease resulted from lower margin industrial and oilfield services provided in the Alberta oil sands region. These services were negatively affected by higher labour and operating costs as well as operating inefficiencies as we attempted to manage our significant growth in the region. We continue to experience the challenges associated with rapid growth in the oil sands including shortages of qualified local labour pools, lack of infrastructure, and inflationary cost pressures. However, we believe our gross margin in the region will significantly improve in the future as our rate of growth stabilizes and we improve the utilization of our equipment and manpower.

Offsetting a large portion of the gross margin decline in 2008 was significant growth in our lodging and rentals segment. Our lodging services typically earn a higher gross margin than our traditional industrial and oilfield services.



General and Administrative Expenses

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Three Months Ended March 31 March 31
$ thousands 2008 2007
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Amount $ 19,699 $ 18,884
% of revenue 10.7% 13.1%
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Note: (1) Certain expenses, previously included in general and
administrative expenses, were reclassified to direct costs and
other expense categories to better reflect the nature of those
expenses. The comparative figures in 2007 were reclassified to
conform to the current period's presentation.


General and administrative expenses increased by $0.8 million to $19.7 million in the first quarter of 2008 from $18.9 million in 2007. As a percentage of revenue, general and administrative expenses declined to 10.7% from 13.1% in 2007. Although our operations continue to expand at a significant rate, we are now beginning to achieve some of the economies of scale associated with our general and administrative expenses that come with revenue growth. In 2008, we were able to achieve the majority of our revenue growth without adding a significant amount of general and administrative expenses.

The increase of $0.8 million in general and administrative expenses during the quarter was caused from an increase in accrued bonus expense resulting from higher earnings in 2008 compared to 2007.



Other Expenses

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Three Months Ended March 31 March 31
$ thousands 2008 2007
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Unit-based compensation $ 740 $ 950
(Gain) loss on foreign exchange (289) 93
Loss on disposal of property, plant and equipment 75 79
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During the three months ended March 31, 2008, unit-based compensation declined by $0.2 million. Forfeitures by participants in 2007 and in the first quarter of 2008 caused this decline. In addition, no additional participants were invited into the Employee Unit Plan in 2008.

The gain on foreign exchange during the quarter resulted from our operations situated in the United States where the value of the US dollar appreciated versus the Canadian dollar.



EBITDA

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Three Months Ended March 31 March 31
$ thousands 2008 2007
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EBITDA by segment:
Oil sands, industrial and production services $ 19,684 $ 20,325
Lodging and rentals 11,035 1,277
Exploration services 6,679 6,268
Environmental services 1,445 870
Corporate costs, gain (loss) on foreign
exchange, and non-controlling interest (2,374) (3,798)
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Total 36,469 24,942
% of revenue 19.7% 17.3%
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For the three months ended March 31, 2008, our EBITDA (see "Non-GAAP Financial Measures") grew to $36.5 million from $24.9 million in 2007. This increase is directly attributable to higher revenues during the quarter. In addition, our EBITDA margin increased to 19.7% from 17.3% in 2007. This improvement was caused from both achieving revenue growth and also limiting increases in our general and administrative expenses. Further discussion of our operating results by segment is provided under "Segment Contribution" below.



Amortization

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Three Months Ended March 31 March 31
$ thousands 2008 2007
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Amortization of property, plant
and equipment and assets under capital lease $ 9,681 $ 7,198
Amortization of intangible assets 2,220 1,681
Accretion on asset retirement obligations 37 15
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Total 11,938 8,894
% of revenue 6.5% 6.2%
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During the three months ended March 31, 2008, amortization increased by $3.0 million or 34% to $11.9 million from $8.9 million in 2007. As a percent of revenue, amortization also increased slightly from 6.2% to 6.5%. The following two factors caused this increase:

- Significant growth in our property, plant and equipment. Property, plant and equipment increased to $321.4 million at March 31, 2008 from $227.3 million at March 31, 2007, a 41% increase; and

- Intangible assets. Amortization expense related to intangible assets was $2.2 million in the first quarter of 2008 compared to $1.7 million in 2007. Customer relationships and other intangible assets acquired with the acquisition of Denman on May 1, 2007 and additions to our data image library throughout 2007 caused this increase.



Interest Expense

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Three Months Ended March 31 March 31
$ thousands 2008 2007
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Amount $ 5,696 $ 3,500
% of revenue 3.1% 2.4%
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Interest costs increased from 2007, both in absolute terms and as a percentage of revenue, due to increased use of our debt credit facilities. Business acquisitions and capital expenditures completed in 2007 and the first quarter of 2008 required us to utilize more of our debt credit facilities. At March 31, 2008, our long-term debt, and obligations under capital lease were $245.5 million compared to $127.2 million at March 31, 2007.



Segment Contribution

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Three Months Ended March 31 March 31
$ thousands 2008 2007
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Contribution by segment:
Oil sands, industrial and production services $ 13,957 $ 15,661
Lodging and rentals 9,389 671
Exploration services 5,285 5,005
Environmental services 494 190
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Total segment contribution 29,125 21,527
Less unallocated items:
Corporate costs 2,386 3,106
Amortization of intangible assets 2,220 1,681
Interest expense 5,696 3,500
(Gain) loss on foreign exchange (289) 93
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Earnings before income taxes and
non-controlling interest 19,112 13,147
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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

During the three months ended March 31, 2008, contribution from our oil sands, industrial and production services segment declined by $1.7 million to $14.0 million from $15.7 million in 2007. Despite strong revenue growth during the quarter, this revenue growth was offset by a lower gross margin. This was especially the case in our Alberta oil sands operations where we incurred higher labour and operating costs as well as operating inefficiencies as we attempted to manage our significant growth in the region. Factors that negatively affected our performance included: overstaffing of migrant workers during periods of extreme cold weather and when customer project work was delayed; increased use of lease operators and sub-contractors during busy periods; and higher labour and operating costs due to shortages of qualified local labour pools and other inflationary pressures in the region.

We believe our gross margin in the Alberta oil sands region will significantly improve in the future as our rate of growth stabilizes and we improve the utilization of our equipment and manpower.

Lodging and rentals

We generated positive contribution of $9.4 million from our lodging and rentals segment in the first quarter of 2008 compared to $0.7 million in 2007. This significant increase resulted from our acquisition of Denman on May 1, 2007. In addition, we incurred several capital expenditures over the past year to further expand our lodging services in the Alberta oil sands region. These expenditures also contributed to the increase.

Exploration services

Our exploration services segment's contribution increased slightly to $5.3 million in the first quarter of 2008 from $5.0 million in 2007. Despite an overall downturn in oil and gas exploration activity in western Canada over the past year, we continue to achieve good contributions from this segment due to our strong competitive position in this sector.

Environmental services

Contribution from our environmental services segment increased to $0.5 million in the first quarter of 2008 from $0.2 million in 2007. Higher revenue generated in 2008 from solid waste disposal services, which earn higher gross margins than many of our other environmental services, contributed to the majority of this increase.

Earnings before Income Taxes and Non-controlling Interest

Earnings before income taxes and non-controlling interest for the three months ended March 31, 2008 was $19.1 million compared to $13.1 million in 2007, an increase of $6.0 million. This improvement is directly attributable to the 28% increase in revenue we achieved in 2008.

Income Taxes

As an income fund, we are not 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 of $1.0 million and $0.8 million, for the respective three months ended March 31, 2008 and 2007, relate 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 "SIFTs"), 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.

Our future income tax recovery of $0.9 million for the three months ended March 31, 2008 resulted from changes in our estimate of temporary differences expected to reverse after January 1, 2011 as well as changes in our future income tax liabilities held within our incorporated subsidiaries situated in the United States.

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 the ultimate value of Eveready's income tax assets and liabilities could change in the future and changes to these amounts could have a material effect on our consolidated financial statements.

Non-controlling Interest

Earnings attributable to non-controlling interest was $0.3 million during the three months ended March 31, 2008 compared to $0.6 million in 2007. The non-controlling interest represents earnings attributable to the 20% non-controlling interests that vendors retained from three business acquisitions in 2006.



Net Earnings and Earnings per Unit

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Three Months Ended March 31 March 31
$ thousands, except per unit amounts 2008 2007
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Net earnings (numerator for basic
earnings per unit) $ 18,734 $ 11,733
Interest - convertible debentures 1,333 1,263
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Numerator for diluted earnings per unit 20,067 12,996
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Basic weighted average number of units(1) 87,703 74,384
Dilutive effect of outstanding unit options - 13
Dilutive effect of convertible debentures 12,740 8,443
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Diluted weighted average number of units(1) 100,443 82,840
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Earnings per unit - basic(1) $ 0.21 $ 0.16
Earnings per unit - diluted(1) 0.20 0.16
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Note: (1) Comparative unit and per unit amounts for the three months ended
March 31, 2007 were restated to reflect the dilutive effect of
the "in-kind" distribution declared to unitholders of record on
March 31, 2008.


Basic earnings per unit in 2008 increased to $0.21 per unit from $0.16 per unit in 2007 due to an increase in net earnings during the period. However, the increase in earnings per unit was partially offset by an increase in the weighted average number of units outstanding. In the first quarter of 2008, the basic weighted average number of units outstanding increased to 87.7 million units from 74.4 million units in 2007. The completion of an equity financing for 8.1 million units in June 2007 and on-going participation in the Distribution Reinvestment Plan ("DRIP") throughout 2007 caused the majority of this increase.



Summary of Quarterly Data

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($ thousands,
except per March Dec Sept June March Dec Sept June
unit amounts) 2008 2007 2007 2007 2007 2006 2006 2006
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Revenue 184,721 137,152 126,767 111,005 143,972 109,441 93,470 82,910
EBITDA(1) 36,469 18,331 20,378 14,771 24,942 13,624 15,687 13,395
Net earnings
(loss) 18,734 2,747 4,551 (5,405) 11,733 2,741 5,599 6,748
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Earnings
(loss) per
unit
- basic(2,3) 0.21 0.03 0.05 (0.07) 0.16 0.04 0.08 0.10
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Earnings
(loss) per
unit
- diluted(2,3) 0.20 0.03 0.05 (0.07) 0.16 0.04 0.08 0.10
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Notes: (1) EBITDA is identified and defined under the section "Non-GAAP
Financial Measures."
(2) Quarterly earnings per unit are not additive and may not equal
the annual earnings per unit reported. This is due to the effect
of units issued during the year on the weighted average number
of units outstanding.
(3) Comparative quarterly per unit amounts have been restated to
reflect the dilutive effect of the "in-kind" distributions
declared to unitholders of record on March 31, 2008.


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 of each fiscal year compared to the other quarters of the year.

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 (see discussion under "Income Taxes" above).



Financial Condition and Liquidity

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March 31 December 31
($ thousands, except ratio amounts) 2008 2007
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Current assets $ 182,742 $ 146,266
Total assets 666,943 618,531
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Current liabilities 90,892 66,526
Total liabilities 363,074 333,669
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Unitholders' equity 303,869 284,862
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Working capital(1) 91,850 79,740
Working capital ratio(1) 2.01 2.20
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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 $79.7 million at December 31, 2007 to $91.9 million at March 31, 2008. The majority of this improvement resulted from an increase in our accounts receivable. Due to our significant increase in revenue in the first quarter, accounts receivable increased to $168.4 million at March 31, 2008 from $122.2 million at December 31, 2007. The majority of the increase in our accounts receivable was financed by our credit facilities, which are primarily presented as long-term liabilities.

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 (Used In) Provided by Operating Activities and Funds from Operations

During the three months ended March 31, 2008, we generated negative cash provided by operating activities of $6.0 million compared to positive cash provided by operating activities of $2.9 million in 2007. The negative cash flow reflects the seasonality of our business where we typically generate a higher amount of revenue in the first quarter than the other quarters of the year. However, the majority of this revenue is not collected until the second quarter, while our payroll and operating costs are typically paid much sooner. As an example, accounts receivable increased by $46.2 million in the first quarter, while accounts payable and accrued liabilities increased by only $6.6 million.

If we exclude changes in non-cash operating working capital balances and asset retirement costs, we actually generated substantially higher operating cash flows in 2008. Funds from operations (see "Non-GAAP Financial Measures") were $31.8 million in 2008 compared to $22.7 million in 2007, a $9.1 million increase. Increases in revenue and EBITDA (see "Non-GAAP Financial Measures") in 2008 caused a corresponding increase in our Funds from operations.

Capital Expenditures

We acquired $24.9 million in property, plant and equipment during the first quarter. Of these assets, $0.6 million was acquired through obligations under capital lease and the remaining $24.3 million was from cash expenditures. Capital expenditures consisted of $2.4 million in maintenance capital expenditures and $22.5 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.

For 2008, we are forecasting a capital expenditure program of $78 million. This program is comprised of growth capital expenditures of $62 million and maintenance capital expenditures of $16 million. 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. A large amount of these expenditures will be used to expand our industrial lodge facilities in the region.

We plan to fund these capital expenditures from our credit facilities and from cash generated from operations.

Debt and Contractual Obligations

Long-term debt

Our long-term debt relates to credit facilities of $250 million with a syndicate of lenders led by a Canadian affiliate of GE Energy Financial Services. The credit facilities consist of a $100 million revolving, renewable credit facility and a $150 million term loan. Amounts borrowed under these 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 Eveready's and the lending syndicate's 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 were 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 interim consolidated financial statements. In April 2008, the Revolver was extended for an additional 364 day period with the next renewal date being April 24, 2009. The term loan ("Term") requires fixed monthly payments of $125 thousand and a balloon payment of $142.5 million due May 2012. We may prepay all or part of the term loan at any time, subject to the payment of a breakage fee.

In February 2008, we received an additional short-term over advance loan ("Advance") of $20 million from the syndicate of lenders for general working capital purposes. The Advance is repayable on May 31, 2008 and bears interest at the same rates as the Revolver and Term facilities.

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 March 31, 2008, the effective interest rate on the credit facilities was 6.70% (December 31, 2007 - 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. Eveready was in compliance with all financial covenants under this agreement at March 31, 2008.

Obligations under capital lease

Obligations under capital lease substantially relate to industrial lodging facilities purchased with the Denman acquisition in May 2007. During the three months ended March 31, 2008, we financed additional industrial lodge facilities through sale-leasebacks of $8.0 million. These obligations bear interest at prime plus 0.25% per annum and are repayable in monthly blended principal and interest payments of $428 thousand. Maturing at dates ranging from August 2012 to March 2015, these obligations may be repaid in full without penalty two years after lease inception. At March 31, 2008, the effective rate of interest was 5.50% (December 31, 2007 - 6.25%).

All of our obligations under capital lease are collateralized by equipment with a $27.1 million net book value at March 31, 2008.

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 were 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 an "in-kind" distribution. Our "in-kind" distribution declared to unitholders of record on March 31, 2008 resulted in an adjustment to the conversion price of the Debentures to $8.109 per unit. The Debentures trade on the Toronto Stock Exchange under the symbol "EIS.DB".

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

At March 31, 2008, our contractual obligations for the next five years
(12 month periods ending on March 31(st)) and thereafter are as follows:

----------------------------------------------------------------------------
Contractual
Obligations
($ in
thousands) 2009 2010 2011 2012 2013 Thereafter Total
----------------------------------------------------------------------------

Long-term
debt $ 21,500 $ 1,500 $26,479 $28,750 $144,896 $ - $ 223,125
Obligations
under
capital
lease
(including
imputed
interest) 5,402 5,400 5,341 5,143 4,694 4,233 30,213
Convertible
debentures - - - 50,000 - - 50,000
Operating
leases 13,281 8,883 5,291 2,506 1,279 2,528 33,768
----------------------------------------------------------------------------

Total 40,183 15,783 37,111 86,399 150,869 6,761 337,106
----------------------------------------------------------------------------
----------------------------------------------------------------------------


In April 2008, the Revolver was extended for an additional 364 day period. The table above presents the minimum principal repayments required on the Revolver if it were not renewed (the next renewal date is April 24, 2009) and we were not able to refinance this credit facility with another lender.

Unitholders' Equity

Unitholders' equity increased by $19.0 million to $303.9 million at March 31, 2008 compared to $284.9 million at December 31, 2007. The majority of this change resulted from net earnings of $18.7 million achieved during the quarter. "In-kind" distributions of $15.4 million declared during the quarter did not have an overall impact on unitholders' equity as substantially all of the distribution was settled through the issuance of 4,111,750 units.

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.

During the three months ended March 31, 2008, we purchased for cancellation 41,600 units at an average cost of $3.37 per unit for total cash consideration of $140 thousand.

Distributions

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 replaced 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.

Our first "in-kind" distribution of $0.18 per unit was declared to unitholders of record as of the close of business on March 31, 2008 and consisted of 4,111,750 units issued at a deemed price of $3.7243 per unit.

In conjunction with implementing the new distribution policy, we cancelled the DRIP.

Taxation of Distributions

Our distributions can consist of taxable and tax-deferred components. The taxable amount of our distributions in 2008 will be based on the actual taxable income of the Fund for the year ended December 31, 2008. 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 at any time. Our ability to make cash distributions also depends on factors such as 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 (excluding "in-kind" distributions) 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 March 31, 2008.



Distributable Cash

----------------------------------------------------------------------------
Three Months Ended March 31 March 31
($ thousands, except per unit amounts) 2008 2007
----------------------------------------------------------------------------

Cash (used in) provided by operating activities $ (6,019) $ 2,875
Add (deduct):
Net change in non-cash operating working capital 37,658 19,846
Scheduled principal repayments of debt(1) (1,619) -
Maintenance capital expenditures(1) (2,386) (4,472)
----------------------------------------------------------------------------

Cash available for distribution and growth(1) 27,634 18,249
Per unit(1) 0.32 0.25
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Note: (1) These terms are identified and defined under the section
"Non-GAAP Financial Measures."
(2) Comparative per unit amounts for the three months ended March 31,
2007 were restated to reflect the dilutive effect of the "in-kind"
distribution declared to unitholders of record on March 31, 2008.


Although cash available for distribution and growth remains a useful supplemental measure to provide an indication of cash available for distribution to our unitholders, 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. "In-kind" distributions are being declared to allow us to take advantage of the tax deferral on income trusts until 2011 (see discussion under "Distributions" above).

Cash available for distribution and growth reported for the three months ended March 31, 2008 and 2007 are net of maintenance capital expenditures of $2.4 million and $4.5 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.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements are substantially the same as disclosed in our MD&A for the year ended December 31, 2007, except for the cancellation of a US $500 thousand letter of credit in January 2008 drawn under our Revolver credit facility, and a $168 thousand reduction in third party financings we guaranteed. In addition, we entered into long-term operating leases with various vendors to provide office space and equipment in our normal course of operations. Our commitments under operating leases are disclosed under the section "Debt and Contractual Obligations."

Related Party Transactions

Our related party transactions are disclosed in the notes to the accompanying interim consolidated financial statements. Except for the disposal of property, plant and equipment for proceeds of $233, all related party transactions occurred in the normal course of operations and were measured at their exchange amounts, which were established and agreed to by the related parties. The proceeds received on disposal of property, plant and equipment were measured at the disposed asset's carrying amount, which also equalled the exchange amount.

Outlook

Our overall outlook for the remainder of 2008 and 2009 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 and 2009 from this region. A significant amount of this growth will also come from expanding our industrial lodge facilities in the region. In addition, we expect to show modest growth in 2008 and 2009 from our industrial maintenance and production services as well as our exploration services throughout North America.

Over the longer term, we continue to see significant growth opportunity for Eveready as we expect substantial investment in exploration and infrastructure within the Alberta oil sands to continue for at least the next 10 years. In addition, several new upgrader projects are currently being planned or are under construction in the Fort McMurray and greater Edmonton areas to support oil sands production. These facilities will require substantial on-going industrial maintenance services over their life span and we believe Eveready is well positioned to capture a significant portion of this work.

We continue to estimate 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 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 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 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.

Lodging and rentals

Overall, we expect this segment to experience significant growth in 2008 and 2009. We 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 our lodging services.

We also expect to achieve modest revenue growth from production equipment rentals throughout the remainder of 2008 through expansion of our rental fleet. In addition, demand for our oilfield rental equipment dependant on conventional exploration and drilling activity could also improve in the latter part of the year and into 2009 as higher natural gas prices drive higher drilling activity levels.

Exploration services

Throughout the remainder of 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.

Environmental services

Although our outlook for our environmental services for the remainder of 2008 is positive, this segment continues to experience some volatility. This is most notably due to our mechanical dewatering and dredging services whose revenues tend to be project-specific and can fluctuate significantly depending on the number of projects being completed during a specific period. Results from our waste hauling and landfill solid waste disposal services will also continue to be affected by changes in industry activity levels throughout the remainder of 2008.

Business Risks

Our business is subject to certain risks and uncertainties. Prior to making any investment decision regarding Eveready, investors should carefully consider, among other things, the risks described within this MD&A and the business risks and factors set forth in our 2007 Annual MD&A and our 2007 Annual Information Form. These business risks and factors are incorporated by reference herein. These documents are available on the System for Electronic Document Analysis and Retrieval ("SEDAR") website at www.sedar.com. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business and operations.

Adoption of New Accounting Policies

Effective January 1, 2008, we adopted the new recommendations of the Canadian Institute of Chartered Accountants ("CICA") under CICA Handbook Section 1535 Capital Disclosures, Section 3031 Inventory, Section 3862 Financial Instruments - Disclosures, and Section 3863 Financial Instruments - Presentation. These Sections apply to fiscal years beginning on or after October 1, 2007, except for Section 3031, which applies to fiscal years beginning on or after January 1, 2008.

Capital Disclosures

Under Section 1535 Capital Disclosures, an entity discloses its objectives, policies, and processes for managing capital, including quantitative data about capital and whether it has complied with any externally imposed capital requirements. The adoption of this section did not have any material impact on our financial position or results of operations.

Inventory

Section 3031, which replaces Section 3030 Inventories, increases guidance regarding the scope, measurement, and allocation of costs to inventories. Under Section 3031, 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. Costs shall be assigned using the first-in, first-out (FIFO) or weighted average cost formula. Further, Section 3031 allows the reversal of previous write-downs of inventory to net realizable value when economic changes support an increased value to inventory. The adoption of this standard had no material impact on our consolidated financial statements during the period ended March 31, 2008. Inventory is comprised primarily of materials, parts, and supplies consumed in rendering services to customers. We value our inventory at the lower of weighted average cost and net realizable value.

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

Section 3862 establishes standards for risk disclosures, specifically the risk associated with both recognized and unrecognized financial instruments and how those risks are managed. Section 3863 carries forward the former presentation standards. These new accounting standards supersede Section 3861 Financial Instruments - Disclosure and Presentation, which we adopted on January 1, 2007. The adoption of Sections 3862 and 3863 had no material impact on our financial position or results of operations.

Recent Accounting Pronouncements Issued but not yet Adopted

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 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 will adopt this new standard for our fiscal year commencing January 1, 2009 and do not expect the adoption to have a material impact on our financial position or results of operations.

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

During the three months ended March 31, 2008, we did not make any changes to our internal controls over disclosure and financial reporting that would have materially affected, or would likely materially affect, such controls.



Outstanding Unit Data

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

Fund units 82,454,378 71,610,833
Rollover LP units 6,932,982 13,706,377
----------------------------------------------------------------------------

Total 89,387,360 85,317,210
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

On April 7, 2008, our Board of Trustees granted 745,000 unit options to employees and 150,000 unit options to non-employee officers and trustees of Eveready. The unit options vest 20% per year over four years, with the first 20% vesting on the grant date. The unit options granted to employees are exercisable at $3.60 per unit, which equalled the market value of our units at the grant date. The unit options granted to non-employee officers and trustees are exercisable at $3.96 per unit, or a 10% premium to the market value of our units at the grant date. The unit options granted are due to expire on April 7, 2013.

We had a total of 950,000 (December 31, 2007 - 55,000) unit options outstanding at May 7, 2008.

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 (used in) provided by 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 net earnings to EBITDA for each of the
periods presented in this MD&A:

----------------------------------------------------------------------------
Three Months Ended March 31 March 31
$ thousands 2008 2007
----------------------------------------------------------------------------

Net earnings $ 18,734 $ 11,733
Add:
Interest 5,696 3,500
Income tax expense 101 815
Amortization 11,938 8,894
----------------------------------------------------------------------------

EBITDA 36,469 24,942
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

----------------------------------------------------------------------------
March Dec Sept June March Dec Sept June
($ thousands) 2008 2007 2007 2007 2007 2006 2006 2006
----------------------------------------------------------------------------
Net earnings
(loss) 18,734 2,747 4,551 (5,405) 11,733 2,741 5,599 6,748
Add / deduct:
Interest 5,696 5,841 4,933 4,603 3,500 3,306 2,516 950
Income tax
expense
(recovery) 101 (1,993) (386) 5,599 815 (537) 297 255
Amortization 11,938 11,736 11,280 9,974 8,894 8,114 7,275 5,442
----------------------------------------------------------------------------

EBITDA 36,469 18,331 20,378 14,771 24,942 13,624 15,687 13,395
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Funds from operations

Funds from operations is derived from the consolidated statements of cash flows and is calculated as cash (used in) provided by operating activities before asset retirement costs incurred and changes in non-cash operating working capital. Per unit amounts refer to funds from operations divided by the basic weighted average number of units outstanding during the period. We believe 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 cash (used in) provided by operating activities to funds
from operations follows:

----------------------------------------------------------------------------
Three Months Ended March 31 March 31
($ thousands) 2008 2007
----------------------------------------------------------------------------

Cash (used in) provided by operating activities $ (6,019) $ 2,875
Asset retirement costs incurred 123 2
Add (deduct) changes in non-cash operating working
capital 37,658 19,846
----------------------------------------------------------------------------

Funds from operations 31,762 22,723
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Cash Available for Distribution and Growth

Cash available for distribution and growth is calculated as cash (used in) 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.

- "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.

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

Working Capital

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



----------------------------------------------------------------------------
As at March 31 December 31
($ thousands) 2008 2007
----------------------------------------------------------------------------

Current assets $ 182,742 $ 146,266
Less: current liabilities 90,892 66,526
----------------------------------------------------------------------------

Working capital 91,850 79,740
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Working capital ratio 2.01 2.20
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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 estimate 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. These factors include the demand for our services, the level of overall demand for oil, and the feasibility of current and future oil sands projects for our customers.



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


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


----------------------------------------------------------------------------
March 31 December 31
As at 2008 2007
(thousands of Canadian dollars) $ $
----------------------------------------------------------------------------

ASSETS
Current
Cash 237 8,092
Accounts receivable 168,365 122,214
Income taxes recoverable - 19
Inventory 12,446 13,242
Prepaid expenses and deposits 1,694 2,699
----------------------------------------------------------------------------
182,742 146,266

Property, plant and equipment 321,430 307,560
Intangible assets 50,429 52,458
Goodwill 110,746 110,746
Other long-term assets 1,596 1,501
----------------------------------------------------------------------------

666,943 618,531
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 65,098 58,452
Unitholder distributions payable 38 3,438
Income taxes payable 305 -
Current portion of long-term debt (note 4) 21,300 1,500
Current portion of obligations under capital
lease (note 5) 4,000 2,880
Current portion of asset retirement obligations 151 256
----------------------------------------------------------------------------
90,892 66,526

Long-term debt (note 4) 198,684 199,836
Obligations under capital lease (note 5) 21,533 15,292
Convertible debentures 42,701 42,244
Asset retirement obligations 2,242 2,222
Future income taxes 3,725 4,545
Non-controlling interest 3,297 3,004
----------------------------------------------------------------------------
363,074 333,669
----------------------------------------------------------------------------

Unitholders' Equity
Unitholders' capital (note 6) 343,148 327,991
Units held under Employee Unit Plan (note 7) (10,924) (13,601)
Equity component of convertible debentures 8,030 8,030
Contributed surplus (note 8) 1,478 3,688
Deficit (37,863) (41,246)
----------------------------------------------------------------------------
303,869 284,862
----------------------------------------------------------------------------
666,943 618,531
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(see accompanying notes)


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


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


----------------------------------------------------------------------------
Three Months Ended March 31 March 31
(thousands of Canadian dollars, except per unit 2008 2007
amounts) $ $
----------------------------------------------------------------------------

Revenue 184,721 143,972
Direct costs 127,750 98,425
----------------------------------------------------------------------------

Gross profit 56,971 45,547
----------------------------------------------------------------------------
Expenses
General and administrative 19,699 18,884
Amortization (note 11) 11,938 8,894
Interest (note 11) 5,696 3,500
Unit-based compensation (note 7) 740 950
(Gain) loss on foreign exchange (289) 93
Loss on disposal of property, plant and equipment 75 79
----------------------------------------------------------------------------
37,859 32,400
----------------------------------------------------------------------------

Earnings before income taxes and non-controlling
interest 19,112 13,147
----------------------------------------------------------------------------

Income tax expense (recovery)
Current 956 844
Future (855) (29)
----------------------------------------------------------------------------
101 815
----------------------------------------------------------------------------

Earnings before non-controlling interest 19,011 12,332

Earnings attributable to non-controlling interest 277 599
----------------------------------------------------------------------------

Net earnings and comprehensive income 18,734 11,733

(Deficit) retained earnings, beginning of period (41,246) 2,175
Distributions (note 9) (15,351) (13,080)
----------------------------------------------------------------------------

(Deficit) retained earnings, end of period (37,863) 828
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per unit -- basic (note 10) 0.21 0.16
Earnings per unit -- diluted (note 10) 0.20 0.16
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(see accompanying notes)


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


----------------------------------------------------------------------------
March 31 March 31
Three Months Ended 2008 2007
(thousands of Canadian dollars) $ $
----------------------------------------------------------------------------

Operating activities
Net earnings 18,734 11,733
Items not affecting cash:
Amortization 11,938 8,894
Unit-based compensation 740 950
Loss on disposal of property, plant and equipment 75 79
Amortization of deferred costs 212 94
Accretion of long-term debt 149 -
Accretion of convertible debentures 457 403
Future income taxes (855) (29)
Foreign exchange on future income taxes 35 -
Earnings attributable to non-controlling interest 277 599
----------------------------------------------------------------------------
31,762 22,723
Asset retirement costs incurred (123) (2)
Net change in non-cash operating working capital
(note 12) (37,658) (19,846)
----------------------------------------------------------------------------

Cash (used in) provided by operating activities (6,019) 2,875
----------------------------------------------------------------------------

Investing activities
Purchase of property, plant and equipment (24,258) (21,847)
Purchase of intangible assets (195) (92)
Proceeds on disposal of property, plant and
equipment 1,245 1,451
Other long term-assets - net (207) 70
Business acquisitions, net of cash acquired - (510)
----------------------------------------------------------------------------

Cash used in investing activities (23,415) (20,928)
----------------------------------------------------------------------------

Financing activities
Increase in bank indebtedness - 1,284
Distributions, net of distribution reinvestments (3,438) (8,356)
Proceeds from the issuance of long-term debt 29,200 25,000
Repayment of long-term debt (10,799) -
Proceeds from sale-leasebacks (note 5) 7,997 -
Repayment of obligations under capital lease (1,244) -
Repurchase of units for cancellation (141) -
Collection of employee share purchase loans
receivable 4 67
Unit issuance costs - acquisitions - (6)
Proceeds from issuance of units - Employee Unit
Plan - 4,592
Purchase of units - Employee Unit Plan - (4,528)
----------------------------------------------------------------------------

Cash provided by financing activities 21,579 18,053
----------------------------------------------------------------------------

Net change in cash (7,855) -

Cash, beginning of period 8,092 -
----------------------------------------------------------------------------

Cash, end of period 237 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental cash flow information (note 12)

(see accompanying notes)


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


1. Nature of operations and significant accounting policies

Eveready Income Fund ("Eveready" or the "Fund") is an unincorporated open-ended mutual fund trust governed by the laws of the province of Alberta. The business of Eveready, held in subsidiaries and limited partnerships, provides industrial and oilfield maintenance and production services to the energy, resource, and industrial sectors. Eveready's operations follow a seasonal pattern, with earnings traditionally being higher in the quarter ending March 31st compared to the other quarters of the year. Due to this seasonality, interim earnings reported for the three months ended March 31, 2008 may not be reflective of earnings on an annual basis.

These interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP") and are presented in Canadian dollars rounded to the nearest thousand ($000), except where otherwise indicated. Except as described in note 2 below, these interim consolidated financial statements have been prepared following the same accounting policies and application methods as those disclosed in Eveready's annual consolidated financial statements for the year ended December 31, 2007. Because the disclosures provided in these interim consolidated financial statements do not conform in all respects with GAAP for annual financial statements, these interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2007.

2. New accounting policies

Effective January 1, 2008, Eveready adopted the new recommendations of the Canadian Institute of Chartered Accountants ("CICA") under CICA Handbook Section 1535 Capital Disclosures, Section 3031 Inventory, Section 3862 Financial Instruments - Disclosures, and Section 3863 Financial Instruments - Presentation. These Sections apply to fiscal years beginning on or after October 1, 2007, except for Section 3031, which applies to fiscal years beginning on or after January 1, 2008.

Capital Disclosures

Under Section 1535 Capital Disclosures, an entity discloses its objectives, policies, and processes for managing capital, including quantitative data about capital and whether it has complied with any externally imposed capital requirements (note 15). The adoption of this section did not have any material impact on Eveready's financial position or results of operations.

Inventory

Section 3031, which replaces Section 3030 Inventories, increases guidance regarding the scope, measurement, and allocation of costs to inventories. Under Section 3031, 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. Costs shall be assigned using the first-in, first-out (FIFO) or weighted average cost formula. Further, Section 3031 allows the reversal of previous write-downs of inventory to net realizable value when economic changes support an increased value to inventory. The adoption of this standard had no material impact on Eveready's consolidated financial statements during the period ended March 31, 2008. Inventory is comprised primarily of materials, parts, and supplies consumed in rendering services to customers. Eveready values its inventory at the lower of weighted average cost and net realizable value.

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

Section 3862 establishes standards for risk disclosures, specifically the risk associated with both recognized and unrecognized financial instruments and how those risks are managed. Section 3863 carries forward the former presentation standards. These new accounting standards supersede Section 3861 Financial Instruments - Disclosure and Presentation, which Eveready adopted on January 1, 2007. The adoption of Sections 3862 and 3863 had no material impact on Eveready's financial position or results of operations.

3. Recent accounting pronouncements issued but not yet adopted

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 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. Eveready will adopt this new standard for its fiscal year commencing January 1, 2009 and does not expect the adoption to have a material impact on its financial position or results of operations.

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. Eveready is currently evaluating the impact this new framework will have on its consolidated financial statements.

4. Long-term debt

Eveready's long-term debt relates to credit facilities of $250,000 with a syndicate of lenders led by a Canadian affiliate of GE Energy Financial Services. The credit facilities consist of a $100,000 revolving, renewable credit facility and a $150,000 term loan. Amounts borrowed under these 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 Eveready's and the lending syndicate's 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 were 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 these interim 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.

In February 2008, Eveready received an additional short-term over advance loan ("Advance") of $20,000 from the syndicate of lenders for general working capital purposes. The Advance is repayable on May 31, 2008 and is classified within the current portion of long-term debt in these consolidated financial statements. Amounts borrowed under the Advance bear interest at the same rates as the Revolver and Term facilities. Transaction costs of $300 have been applied against the carrying amount of the Advance and are being amortized to interest expense, using the effective interest rate method, over its term.

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 March 31, 2008, the carrying amount of Eveready's assets was $666,943 and the effective interest rate on the credit facilities was 6.70% (December 31, 2007 - 7.41%).

For the period ended March 31, 2008, total interest expense recognized under Eveready's credit facilities was $3,963 (2007 - $2,162). Eveready's long-term debt consists of the following components:



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

Revolver 54,500 55,000
Term 148,625 149,000
Advance 20,000 -
----------------------------------------------------------------------------
223,125 204,000
Less: unamortized transaction costs (3,141) (2,664)
----------------------------------------------------------------------------
219,984 201,336
Less: current portion of long-term debt (21,300) (1,500)
----------------------------------------------------------------------------

198,684 199,836
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The 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 ("EBITDA") ratios, a minimum net worth, and a maximum distribution payout ratio, each calculated on a quarterly basis. Eveready was in compliance with all financial covenants under this agreement at March 31, 2008. The required minimum principal repayments on the credit facilities at March 31, 2008 are as follows:



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

2009 21,500
2010 1,500
2011 26,479
2012 28,750
2013 144,896
----------------------------------------------------------------------------

223,125
----------------------------------------------------------------------------
----------------------------------------------------------------------------


In April 2008, the Revolver was extended for an additional 364 day period. The table above presents the minimum principal repayments required on the Revolver if it were not renewed (the next renewal date is April 24, 2009) and Eveready were not able to refinance this credit facility with another lender.

5. Obligations under capital lease

Obligations under capital lease substantially relate to industrial lodging facilities purchased with the Denman Industrial Trailers Ltd. acquisition in May 2007. During the three months ended March 31, 2008, Eveready financed additional industrial lodge facilities through sale-leasebacks of $7,997. These obligations bear interest at prime plus 0.25% per annum and are repayable in monthly blended principal and interest payments of $428. Maturing at dates ranging from August 2012 to March 2015, these obligations may be repaid in full without penalty two years after lease inception. At March 31, 2008, the effective rate of interest was 5.50% (December 31, 2007 - 6.25%).

All of Eveready's obligations under capital lease are collateralized by equipment with a $27,119 net book value at March 31, 2008 (December 31, 2007 - $19,058). For the three month period ended March 31, 2008, interest expense related to all obligations under capital lease was $367 (2007 - $nil).

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



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

2009 5,402
2010 5,400
2011 5,341
2012 5,143
2013 4,694
Thereafter 4,233
----------------------------------------------------------------------------
Total minimum lease payments 30,213
Less: amounts representing imputed interest at rates ranging from
4.50% to 15.00% (4,680)
----------------------------------------------------------------------------
Balance of obligations under capital lease 25,533
Less: current portion of obligations under capital lease (4,000)
----------------------------------------------------------------------------

21,533
----------------------------------------------------------------------------
----------------------------------------------------------------------------


6. Unitholders' capital

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

Units issued and to be issued:
Balance as at December 31, 2007 85,317,210 327,991

Activity during the three months ended March 31,
2008:
Units repurchased and cancelled (41,600) (160)
Units to be issued - "in-kind" distribution
(note 9) 4,111,750 15,313
Collection of employee share purchase loans
receivable - 4
----------------------------------------------------------------------------

Balance as at March 31, 2008 89,387,360 343,148
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The number of units issued and to be issued as
at March 31, 2008 consisted of:
Fund units 75,842,628
Rollover LP units 9,432,982
Units to be issued - "in-kind" distribution
(note 9) 4,111,750
----------------------------------------------------------------------------

89,387,360
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Rollover LP units

The Rollover LP units issued in conjunction with certain business acquisitions, are units of subsidiary limited partnerships of the Fund, and are designed to be, to the greatest extent practicable, the economic equivalent of Fund units. Rollover LP units are non-transferable (except to certain permitted assigns) and the holders thereof are entitled to receive distributions on a per unit basis equivalent to unitholders of the Fund. The Rollover LP units are exchangeable, at the option of the holder, into units of the Fund at anytime. During the three month period ended March 31, 2008, 4,273,395 Rollover LP units were exchanged into Fund units.

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.

During the three months ended March 31, 2008, Eveready repurchased and cancelled 41,600 units at an average cost of $3.37 per unit for total cash consideration of $141. Unitholders' capital has been reduced by the stated value of the units amounting to $160 with the excess over the total cash consideration being credited to contributed surplus (note 8).

7. Employee Unit Plan and Unit Option Plan

Employee Unit Plan

During the three months ended March 31, 2008, unit-based compensation expense of $740 (2007 - $950) was recognized pursuant to the Employee Unit Plan (the "Plan") with an offsetting credit to contributed surplus (note 8).

No units were issued from treasury or acquired from the market pursuant to the Plan during the three months ended March 31, 2008. The following table summarizes changes in the number of units held under the Plan during the period:



----------------------------------------------------------------------------
Three Months Ended March 31, 2008 Number of Amount
units $
----------------------------------------------------------------------------

Units held under Employee Unit Plan, beginning of
period 2,075,000 13,601
Vested units transferred to participants (453,000) (2,969)
"In-kind" distribution earned on units held under
Employee Unit Plan (note 9) 78,395 292
----------------------------------------------------------------------------

Units held under Employee Unit Plan, end of period 1,700,395 10,924
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The fair value of the units held by the Plan at March 31, 2008 was $6,104. At March 31, 2008, the Plan held 1,242,000 matching units of Eveready, with a fair value of $4,459, as collateral over BMO Bank of Montreal unit purchase loans owing by certain Employees. These loans were issued in connection with the Employee's participation in the Plan. The collateralized matching units can 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.

Unit Option Plan

As at March 31, 2008, there were 55,000 unit options (December 31, 2007 - 55,000) outstanding, issued pursuant to Eveready's Unit Option Plan in 2005. The unit options vested immediately, are exercisable at $5.00 per unit, and are due to expire on November 17, 2010.

On April 7, 2008, Eveready's Board of Trustees granted 745,000 unit options to employees and 150,000 unit options to non-employee officers and trustees of Eveready. The unit options vest 20% per year over four years, with the first 20% vesting on the grant date. The unit options granted to employees are exercisable at $3.60 per unit, which equalled the market value of Eveready's units at the grant date. The unit options granted to non-employee officers and trustees are exercisable at $3.96 per unit, or a 10% premium to the market value of Eveready's units at the grant date. The unit options granted are due to expire on April 7, 2013.

The aggregate number of units reserved for issuance pursuant to the above compensation plans shall not exceed 10% of the outstanding units of Eveready from time to time.



8. Contributed surplus

----------------------------------------------------------------------------
Three Months Ended March 31
2008
$
----------------------------------------------------------------------------

Balance, beginning of period 3,688
Unit-based compensation expense (note 7) 740
Units transferred to participants pursuant to the Employee Unit
Plan (note 7) (2,969)
Units cancelled pursuant to normal course issuer bid (note 6) 19
----------------------------------------------------------------------------

Balance, end of period 1,478
----------------------------------------------------------------------------
----------------------------------------------------------------------------


9. Distributions

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. In the past, Eveready declared cash distributions on a monthly basis to unitholders of record on the last business day of each month. Under its new distribution policy, Eveready declared a quarterly "in-kind" distribution of $0.18 per unit ($0.72 per unit on an annualized basis) to unitholders of record as of the close of business on March 31, 2008. The "in-kind" distribution was issued on April 15, 2008 and consisted of 4,111,750 units issued at a deemed price of $3.7242 per unit, which was equal to the volume-weighted average price of all units traded on the Toronto Stock Exchange on the ten trading days preceding the record date.

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

Future quarterly "in-kind" distributions will always be 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 cash at any time. Eveready's ability to make cash distributions 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.

The following table summarizes Eveready's distributions on units of record during the three months ended March 31, 2008:



----------------------------------------------------------------------------
Distribution Total Cash "In-kind"
per unit Distributions Distributions (1) Distributions
Record Date $ $ $ $
----------------------------------------------------------------------------

March 31, 2008 0.18 15,351 38 15,313
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Total Cash "In-kind"
Distributions Distributions (1) Distributions (2)
Accumulated distributions $ $ $
----------------------------------------------------------------------------

Balance, beginning of
period 108,575 68,627 39,948
"In-kind" distributions
declared in 2008 15,351 38 15,313
----------------------------------------------------------------------------

Balance, end of period 123,926 68,665 55,261
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Notes: (1) Cash distributions declared in 2008 consisted of fractional unit
distributions and non-resident withholding taxes.
(2) The beginning balance of "in-kind" distributions represents
distributions reinvested through Eveready's DRIP in prior
periods.


Adjustment to the conversion price of convertible debentures

Eveready's convertible debentures consist of $50,000 principle convertible unsecured subordinated debentures (the "Debentures") with an annual coupon rate of 7.00%, payable semi-annually. The Debentures are due to mature on June 30, 2011 and are convertible, at the holder's option, into Fund units.

Pursuant to the terms of the Debenture agreement, an adjustment to the conversion price is required when units are issued to unitholders by way of an "in-kind" distribution. The "in-kind" distribution declared March 31, 2008 resulted in an adjustment to the Debentures' conversion price from $8.50 per unit to $8.109 per unit.

10. Earnings per unit



Three Months Ended March 31 March 31
2008 2007 (1)
$ $
----------------------------------------------------------------------------

Net earnings (numerator for basic earnings per
unit) 18,734 11,733
Interest - convertible debentures 1,333 1,263
----------------------------------------------------------------------------
Numerator for diluted earnings per unit 20,067 12,996
----------------------------------------------------------------------------

Basic weighted average number of units (1) 87,703,422 74,383,930
Dilutive effect of outstanding unit options - 12,728
Dilutive effect of convertible debentures 12,739,493 8,443,521
----------------------------------------------------------------------------
Diluted weighted average number of units (1) 100,442,915 82,840,179
----------------------------------------------------------------------------

Earnings per unit - basic (1) 0.21 0.16
Earnings per unit - diluted (1) 0.20 0.16
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note: (1) Comparative unit and per unit amounts for the three months ended
March 31, 2007 were restated to reflect the dilutive effect of the
"in-kind" distribution declared to unitholders of record on March
31, 2008.


Basic per unit amounts have been calculated on the basis that all outstanding Rollover LP units have been converted into Fund units. Units issued pursuant to Eveready's "in-kind" distribution (note 9) were deemed to be outstanding at the beginning of the period for purposes of calculating basic per unit amounts. Unvested units held by the Employee Unit Plan are not treated as outstanding for purposes of calculating basic per unit amounts.

For the three months ended March 31, 2008, diluted per unit amounts included the dilutive effect of the convertible debentures. The outstanding unit options and unvested units held by the Employee Unit Plan did not have a dilutive effect on earnings per unit in the current period.

For the three months ended March 31, 2007, diluted per unit amounts included the dilutive effect of outstanding unit options, and convertible debentures. The unvested units held by the Employee Unit Plan did not have a dilutive effect on earnings per unit in the comparative period.



11. Supplemental expenditure information

a) Amortization expense

----------------------------------------------------------------------------
Three Months Ended March 31 March 31
2008 2007
$ $
----------------------------------------------------------------------------

Amortization of property, plant and equipment 9,056 7,198
Amortization of assets under capital lease 625 -
Amortization of intangible assets 2,220 1,681
Accretion on asset retirement obligations 37 15
----------------------------------------------------------------------------

11,938 8,894
----------------------------------------------------------------------------
----------------------------------------------------------------------------

b) Interest expense

----------------------------------------------------------------------------
Three Months Ended March 31 March 31
2008 2007
$ $
----------------------------------------------------------------------------

Interest - long-term debt 3,963 2,162
Interest - obligations under capital lease 367 -
Interest - convertible debentures 1,333 1,263
Interest - other 33 75
----------------------------------------------------------------------------

5,696 3,500
----------------------------------------------------------------------------
----------------------------------------------------------------------------

12. Supplemental cash flow information

a) Changes in non-cash operating working capital:

----------------------------------------------------------------------------
Three Months Ended March 31 March 31
2008 2007
$ $
----------------------------------------------------------------------------

Accounts receivable (46,132) (24,431)
Inventory 796 (1,886)
Properties held for sale - 1,977
Prepaid expenses and deposits 1,005 (458)
Accounts payable and accrued liabilities 6,349 4,542
Income taxes recoverable / payable 324 410
----------------------------------------------------------------------------

(37,658) (19,846)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


b) Non-cash investing and financing activities:

- During the three months ended March 31, 2008, distributions of $15,313 owing to unitholders, were settled by issuing 4,111,750 units "in-kind" (note 9). For the comparative three months ended March 31, 2007, distributions of $4,626 were settled by issuing 823,743 units to individuals participating in the DRIP;

- During the three months ended March 31, 2008, Eveready acquired $611 (March 2007 - $nil) of equipment through obligations under capital lease (note 5).



----------------------------------------------------------------------------
Three Months Ended March 31 March 31
2008 2007
$ $
----------------------------------------------------------------------------

Income taxes paid 618 434
Interest paid 4,192 1,701
----------------------------------------------------------------------------
----------------------------------------------------------------------------


13. 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; lodging and rentals; exploration services; and environmental services. In total, Eveready provides over 80 different services to its customers. With such a wide range of services, it is impractical to provide a revenue breakdown of each service provided.

The oil sands, industrial and production services segment serves 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, fluid hauling, flush-by and coil tubing, high and ultra-high pressure water blasting, hot oiling, hydro-excavation, pressure testing, steam cleaning, tank cleaning, and wet and dry vacuuming.

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.

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

The environmental services segment provides 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.

Accounting policies for each of these business segments are the same as those disclosed in Eveready's annual consolidated financial statements for the year ended December 31, 2007, except for those explained 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 business segment 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 figures in the first quarter of 2007 have been reclassified to conform to the new presentation.



Selected financial information by reportable segment is disclosed as
follows:

----------------------------------------------------------------------------
Three Months Ended Oil
March 31, 2008 sands,
industrial
and Lodging
production and Exploration Environmental
services rentals services services Consolidated
$ $ $ $ $
----------------------------------------------------------------------------

Revenue 132,090 21,780 21,747 9,104 184,721
Amortization expense 5,727 1,646 1,394 951 9,718
Segment contribution 13,957 9,389 5,285 494 29,125
Unallocated items:
Corporate costs 2,386
Amortization of
intangible assets 2,220
Interest expense 5,696
Gain on foreign
exchange (289)
----------------------------------------------------------------------------
Earnings before
income taxes and
non-controlling
interest 19,112

Capital expenditures
(excluding business
acquisitions) 21,551 1,281 1,778 259 24,869

----------------------------------------------------------------------------
Three Months Ended
March 31, 2007
----------------------------------------------------------------------------

Revenue 112,424 3,168 19,120 9,260 143,972
Amortization expense 4,664 606 1,263 680 7,213
Segment contribution 15,661 671 5,005 190 21,527
Unallocated items:
Corporate costs 3,106
Amortization of
intangible assets 1,681
Interest expense 3,500
Loss on foreign
exchange 93
----------------------------------------------------------------------------
Earnings before
income taxes and
non-controlling
interest 13,147

Capital expenditures
(excluding business
acquisitions) 17,226 1,165 2,981 475 21,847
Acquisition of
goodwill 1,853 - - - 1,853
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

----------------------------------------------------------------------------
As at March 31, 2008 Oil
sands,
industrial
and Lodging
production and Exploration Environmental
services rentals services services Consolidated
$ $ $ $ $
----------------------------------------------------------------------------

Property, plant
and equipment 211,358 67,438 29,426 13,208 321,430
Intangible assets 23,338 8,850 3,821 14,420 50,429
Goodwill 66,695 29,752 10,211 4,088 110,746
Total assets 425,179 130,344 70,641 40,779 666,943

----------------------------------------------------------------------------
As at December 31, 2007
----------------------------------------------------------------------------

Property, plant
and equipment 196,440 68,361 29,153 13,606 307,560
Intangible assets 24,406 9,283 4,165 14,604 52,458
Goodwill 66,695 29,752 10,211 4,088 110,746
Total assets 388,536 122,725 66,912 40,358 618,531
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

----------------------------------------------------------------------------
Three Months Ended March 31 March 31
2008 2007
$ $
----------------------------------------------------------------------------

Revenue
Canada 171,482 127,633
United States and international 13,239 16,339
----------------------------------------------------------------------------

184,721 143,972
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
As at March 31 December 31
2008 2007
$ $
----------------------------------------------------------------------------
Property, plant and equipment, goodwill,
and intangibles
Canada 445,829 434,495
United States and international 36,776 36,269
----------------------------------------------------------------------------

482,605 470,764
----------------------------------------------------------------------------
----------------------------------------------------------------------------


14. Related party transactions

a) During the three months ended March 31, 2008, Eveready incurred professional fees of $109 (March 2007 - $118) from a partnership of which an Eveready officer is a partner;

b) During the three months ended March 31, 2008, Eveready incurred professional fees of $39 (March 2007 - $37) from a partnership of which an Eveready trustee is a partner;

c) Included in general and administrative expenses for the three months ended March 31, 2008 are occupancy costs of $430 (March 2007 - $349) paid to companies controlled or influenced by certain officers and/or trustees of Eveready;

d) During the three months ended March 31, 2008, Eveready incurred equipment rental and repair costs of $80 (March 2007 - $56) from companies controlled or influenced by certain officers and/or trustees of Eveready;

e) During the three months ended March 31, 2008, Eveready acquired service equipment of $1,745 (March 2007 - $1,072) from companies controlled or influenced by certain officers and/or trustees of Eveready;

f) During the three months ended March 31, 2008, Eveready earned service revenue of $53 (March 2007 - $nil) from companies controlled or influenced by certain officers and/or trustees of Eveready; and

g) During the three months ended March 31, 2008, Eveready disposed of property, plant and equipment for proceeds of $233 (March 31, 2007 - $nil) to a company influenced by an Eveready trustee.

As at March 31, 2008, outstanding amounts collectible from or owing to related parties included accounts receivable of $205 (December 31, 2007 - $2,004) and accounts payable and accrued liabilities of $192 (December 31, 2007 - $108). Except for item 'g' above, 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. The proceeds received on disposal of property, plant and equipment were measured at the disposed asset's carrying amount, which also equalled the exchange amount.

15. Capital management

Eveready uses a combination of debt and equity to finance its operations and growth strategies while also limiting risk to an acceptable level to maximize unitholder value. The mix of each component may change under certain economic conditions. This capital mix is also aligned with externally imposed capital requirements on Eveready's debt and equity.

Capital is defined by Eveready to include all funded debt (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. The calculation of funded debt and total capital are as follows:



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

Current portion of long-term debt 21,300 1,500
Current portion of obligations under capital lease 4,000 2,880
Long-term debt 198,684 199,836
Obligations under capital lease 21,533 15,292
Convertible debentures 42,701 42,244
----------------------------------------------------------------------------

Funded debt 288,218 261,752
Unitholder's equity 303,869 284,862
----------------------------------------------------------------------------

Total capital 592,087 546,614
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Debt management

Under its long-term credit facilities, Eveready must operate in the normal course of business while managing a number of financial covenants on a quarterly basis. These covenants include, but are not limited to, a fixed charge coverage ratio, funded debt to EBITDA ratios, and a maximum distribution payout ratio, which are calculated on a trailing twelve-month basis and adjusted on a pro-forma basis for certain business acquisitions. The definition of these measures are in accordance with the lending agreement and are calculated based on the lender's interpretation, which may not be equal to individual financial statement figures presented in these consolidated financial statements.



The following summarizes the financial covenants calculated in accordance
with the lending agreement:

----------------------------------------------------------------------------
As at March 31, 2008 December 31, 2007
Required Actual Required Actual
----------------------------------------------------------------------------
greater greater
Fixed charge coverage ratio than 1.50 1.73 than 1.50 1.64
less than 2.60 less than
Funded senior debt to EBITDA 2.75 2.50 2.39
less than 3.05 less than
Funded debt to EBITDA 3.25 3.00 2.85
less than 42.7% less than
Maximum distribution payout ratio 80% 80% 55.9%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Equity management

In 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. Under the SIFT rules, Eveready can maintain its flow-through status for income tax purposes until January 1, 2011 as long as its equity experiences "normal growth" and experiences no "undue expansion." If these requirements were violated, Eveready could suffer adverse tax consequences earlier than 2011. "Normal growth," as defined by the Canadian Federal Department of Finance, includes equity growth that must be within certain "safe harbour" limits. These limits are measured by reference to Eveready's market capitalization at October 31, 2006 and limit the amount of equity growth to 40% or $149,224 between November 1, 2006 and December 31, 2007 and to 20% or $74,612 in each of the years ended December 31, 2008, 2009, and 2010. These limits are cumulative in nature so that any unused limit can be carried over to a subsequent period.

At March 31, 2008, Eveready had an unused "safe harbour" growth limit remaining of $272,438 (December 31, 2007 - $287,751).

Eveready's capital management objectives and evaluation measures have remained unchanged over the periods presented. As at March 31, 2008, Eveready was in compliance with all externally imposed capital requirements on its debt and equity.

16. Financial instruments

a) 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 values of the current and long-term portions of 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 March 31, 2008 was $49,111 compared to its carrying value of $42,701. 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.

b) 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's revenues are normally invoiced with payment terms of 30 days. At March 31, 2008, $87,214 (December 31, 2007 - $74,824) of Eveready's gross receivables were over 30 days. In Eveready's industry, customers typically pay invoices within 30 to 90 days. The average time to collect Eveready's outstanding accounts receivable was approximately 80 days at March 31, 2008 (December 31, 2007 - 80 days) and no outstanding customer balance represented more than 10% of total accounts receivable. Eveready targets an average collection time of 75 days.

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. For the three months ended March 31, 2008, all customer balances provided as bad debts were specifically identified. Eveready recorded the following activity in its allowance for doubtful accounts during the three months ended March 31, 2008:



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Three Months Ended March 31
2008
$
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Balance, beginning of period 3,691
Provision for bad debts, net of recoveries 239
Amounts written off as uncollectible (93)
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Balance, end of period 3,837
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Eveready is also exposed to credit risk associated with its guarantees. Eveready's maximum exposure to such guarantees is the same as disclosed in Eveready's annual consolidated financial statements for the year ended December 31, 2007 except for the cancellation of a US $500 letter of credit in January 2008 that had been drawn under Eveready's Revolver credit facility, and a $168 reduction in third party financings guaranteed by Eveready.

c) 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 financial obligations and to sustain operations. Eveready controls its liquidity risk by managing its working capital, cash flows, and the availability of borrowing facilities.

At March 31, 2008, Eveready's contractual obligations for the next five years and thereafter are as follows:



At March 31, 2008, Eveready's contractual obligations for the next five
years and thereafter are as follows:

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$ in thousands 2009 2010 2011 2012 2013 Thereafter Total
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Long-term debt
(note 4) 21,500 1,500 26,479 28,750 144,896 - 223,125
Obligations under
capital lease
(including imputed
interest) 5,402 5,400 5,341 5,143 4,694 4,233 30,213
Convertible
debentures - - - 50,000 - - 50,000
Operating leases 13,281 8,883 5,291 2,506 1,279 2,528 33,768
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Total 40,183 15,783 37,111 86,399 150,869 6,761 337,106
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In April 2008, the Revolver was extended for an additional 364 day period. The table above presents the minimum principal repayments required on the Revolver if it were not renewed (the next renewal date is April 24, 2009) and Eveready were not able to refinance this credit facility with another lender.

d) Interest rate risk

Eveready's cash flow is exposed to changes in interest rates on its long-term debt and obligations under capital lease, 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 interest rates. Based on Eveready's outstanding long-term debt and obligations under capital lease at March 31, 2008, a one percent increase or decrease in market interest rates would impact Eveready's annual interest expense by approximately $2,480. 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. 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 $1,496.

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

e) Foreign currency risk

Eveready is primarily exposed to foreign currency fluctuations in relation to its US and international operations. Therefore, there is 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 three months ended March 31, 2008, Eveready incurred a gain on foreign exchange of $289 (March 31, 2007 - loss on foreign exchange of $93). Based on Eveready's monetary assets and liabilities held in its US operations at March 31, 2008, a five percent increase or decrease in exchange rates would impact Eveready's annual foreign exchange (gain) loss by approximately $444. Eveready does not currently use derivative financial instruments to reduce its exposure to foreign currency risk.

17. Subsequent events

On April 7, 2008, Eveready's Board of Trustees granted 895,000 unit options to employees and non-employee officers and trustees (note 7).

18. Comparative figures

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

Contact Information

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