September 11, 2008 08:00 ET

Eveready Income Fund Announces Conversion Into a Growth Oriented, Dividend Paying Corporation

EDMONTON, ALBERTA--(Marketwire - Sept. 11, 2008) - Eveready Income Fund ("Eveready" or the "Fund") (TSX:EIS.UN) is pleased to announce its intention to convert into a growth oriented corporation (the "Conversion"), subject to the receipt of all necessary unitholder, court and regulatory approvals.

In connection with this announcement, the board of trustees of Eveready (the "Board") has also declared a cash distribution of $0.04 per unit for the third quarter of 2008 ($0.16 per unit on an annualized basis). The cash distribution replaces Eveready's "in-kind" distribution and will be paid on or about October 15, 2008 to unitholders of record as of the close of business on September 30, 2008.

Eveready also intends to declare a cash distribution of $0.04 per unit for the fourth quarter of 2008. Upon completion of the Conversion, Eveready plans to continue with a quarterly cash dividend of $0.04 per common share ($0.16 on an annualized basis). This represents a current yield of 5.7% based on the volume-weighted average price of all Fund Units traded on the Toronto Stock Exchange on the ten trading days preceding September 11, 2008.

If approved, the Conversion will be undertaken pursuant to a statutory plan of arrangement under the Business Corporations Act (Alberta) with an anticipated effective date of January 1, 2009. Pursuant to the Conversion, unitholders will receive one common share of the corporation for each unit held as at the Conversion's effective date.

Conversion Rationale

Eveready believes the proposed corporate structure better aligns its core business model of growth and capital appreciation for unitholders. With the federal government's October 31, 2006 announcement and subsequent legislation to impose additional income taxes on publicly traded income trusts and limited partnerships, the value enhancement of the trust structure was eliminated. As a result, management of Eveready (the "Management") and the Board believe the best opportunity to create unitholder value is to continue to reinvest a significant portion of Eveready's cash flow back into the business and to focus on overall per common share earnings and cash flow growth, as well as debt reduction. At the same time, Management and the Board recognize many of Eveready's existing unitholders require or prefer an element of cash yield from their investment. By converting into a growth oriented, dividend paying corporation, Management and the Board believe Eveready will be better positioned to aggressively pursue identified growth opportunities while providing a cash yield to existing Eveready unitholders, who have supported the Fund in the past.

The Board has unanimously determined the Conversion is in Eveready and its unitholders' best interest. In reaching this conclusion, Management and the Board believe the proposed corporate structure is the most prudent response to the challenges facing the Fund's value creation strategy. Further, the Conversion will position Eveready to capitalize on the tremendous growth opportunities that lie ahead. In 2008, Eveready believes its revenue could exceed $640 million, which if achieved, will represent revenue growth of 23% from 2007. In addition, Eveready is targeting to achieve $1 billion in revenue by 2011.

The conversion to a public corporation and establishment of a quarterly cash dividend is expected to:

- Better position Eveready to pursue significant opportunities for growth and expansion that are expected to arise and allow Eveready to strengthen its execution strategy for creating investor value;

- Provide, in the aggregate, a more active and attractive market for the corporation's common shares than currently exists for the Fund's units;

- Result in a higher equity valuation, as its financial and operational performance would be more easily valued relative to its common share peers;

- Maximize Eveready's overall earnings and cash flow growth on a per common share basis with the elimination of Eveready's "in-kind" distribution;

- Attract new investors, including non-resident investors;

- Remove the federal government's "normal growth" and "undue expansion" limitations, which currently apply to income trusts and limit the Fund's flexibility in making acquisitions in furtherance of its strategy to create value through growth; and

- Reduce the tax obligation of unitholders by paying out eligible dividends instead of fully taxable distributions.

Previously, Eveready declared to its unitholders "in-kind" distributions, which were intended to maximize the amount of tax pools Eveready could carry forward until 2011. During the first six months of 2008, Eveready's "in-kind" distributions allowed the Fund to eliminate its cash income taxes payable for the fiscal year. In addition, Eveready increased its net tax pools by approximately $12 million to help shelter future cash income taxes payable. Management and the Board believe the current price of Eveready's units is not reflecting the value of the tax savings created through the quarterly "in-kind" distribution. This is evidenced by the fact that Eveready's EV/EBITDA multiple is at a substantial discount to those of its peers. Eliminating the "in-kind" distribution eliminates the dilutive impact of issuing units at such low multiples.

With the announced change in Eveready's distribution policy, Eveready will now begin to utilize its tax pools in 2009 and 2010 to reduce its cash taxes payable. In 2009 and 2010, Eveready expects the majority of its cash taxes payable will be shielded by its available tax pools. However, as a result of the reduction in the estimated tax pools available to the corporation in 2011, Eveready expects to recognize future income tax expense of approximately $10 million in the third quarter of 2008.

The Mechanics of the Conversion

If all approvals are received, including the approval of Eveready's unitholders, the Conversion will result in a reorganization of the Fund's trust structure into a publicly listed corporation that would own all of the units of the Fund. Pursuant to the Conversion, unitholders will receive one common share of the corporation for each unit held, as at the Conversion's effective date. The Conversion is expected to be completed on a tax free "rollover" basis for Canadian income tax purposes. Following the issuance by the federal Minister of Finance on July 14, 2008 of proposed rules governing the conversion of income trusts into corporations, unitholders should be able to defer any capital gain resulting from the exchange of their Fund units in consideration for common shares of the corporation without the need to complete and file income tax elections. In the event that the proposed conversion rules are not timely enacted into law, eligible unitholders will be given the right to make income tax elections with the new corporation to defer the gain on the transfer of their units.

Further, pursuant to the Conversion, the resulting public corporation will assume all obligations of the Fund including the outstanding convertible debentures.

The Conversion is subject to the approval of not less than two-thirds of the votes cast by the unitholders voting in person or by proxy at a special unitholder meeting anticipated to be held in mid-December. Eveready anticipates a management information circular, providing further information with respect to the Conversion, will be mailed to unitholders and filed on SEDAR in mid-November. The Conversion is also subject to the receipt of all necessary court and regulatory approvals, including the approval of the Toronto Stock Exchange to the listing of the resulting public corporation's common shares on that exchange. Approximately 28% of Eveready's outstanding units are held by officers and trustees who have advised Management of their intention to vote in favour of the Conversion.

Following the Conversion, the composition of the board of directors of the resulting public corporation would be the same as the current board of trustees.

Cormark Securities Inc. is acting as strategic advisor to Eveready in connection with the Conversion.

About Eveready

Eveready is a growth oriented income fund that provides industrial and oilfield maintenance and production services to the energy, resource, and industrial sectors. Operating from 79 locations in Canada, the United States, and internationally, Eveready currently employs over 2,700 employees and operates a service fleet of over 1,300 trucks. Eveready is a leading provider of infrastructure services in Alberta's fast growing oil sands sector. The Fund Units of Eveready trade on the Toronto Stock Exchange under the trading symbol "EIS.UN".

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

Investors are cautioned that quarterly distributions are always subject to approval of Eveready's board of trustees and may be increased, decreased or suspended by the board of trustees at any time.

Contact Information

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