EVEREADY INCOME FUND
TSX : EIS.UN

EVEREADY INCOME FUND

May 12, 2005 09:00 ET

Eveready Income Fund Announces its Financial Results for the Three Months Ended March 31, 2005

EDMONTON, ALBERTA--(CCNMatthews - May 12, 2005) - Eveready Income Fund (TSX:EIS.UN)

Highlights

- Revenues for the first quarter of 2005 exceed $55 million reflecting an increase of 132% over the same period in 2004

- Eveready reports record first quarter net earnings of $6.5 million or $0.21 per unit on a fully diluted basis

- Eveready completes successful acquisition and reverse take over of River Valley Income Fund

- Eveready commences trading on the Toronto Stock Exchange effective May 2, 2005

- Eveready announces an increase in its monthly distributions to $0.03 per unit ($0.36 per unit on an annualized basis) for unitholders of record as at April 29, 2005

- Eveready retains First Associates Investments Inc. to act as its lead agent in connection with a proposed private placement of a minimum of CDN $10 million

- On May 2, 2005, Eveready announced the acquisition of all of the business and assets of the ICE Joint Venture operating in the United States.



SELECTED CONSOLIDATED FINANCIAL INFORMATION:

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Income Statement for the three months ended: March 31, March 31,
2005 2004
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(unaudited) (unaudited)

Revenue ($) 55,184,785 23,737,042

Gross profit ($) 18,658,422 7,786,740
Gross profit (%) 33.8% 32.8%

EBITDA ($)(1) 10,705,292 2,299,194
EBITDA margin (%) 19.4% 9.7%

Earnings before income taxes ($) 7,496,875 812,249
Income taxes ($) 1,022,598 334,091

Net earnings ($) 6,474,277 478,158
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Earnings per unit/share - basic
and diluted (2,3) 0.21 N/A
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Notes: (1) See definition of EBITDA under "Non-GAAP Earnings Measures"
(2) Basic and diluted earnings per unit have been calculated on the basis that all rollover limited partnership ("Rollover LP") units have been converted into Fund units
(3) Earnings per share for the three months ended March 31, 2004 have not been calculated as ER Group was a privately owned company during that period.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS
For the three months ended March 31, 2005

Introduction

The following Management's Discussion and Analysis ("MD&A") was prepared as of May 11, 2005 and is provided to assist readers in understanding Eveready Income Fund's ("Eveready" or the "Fund") financial performance for the three months ended March 31, 2005 and significant trends that may impact future performance of the Fund.

This MD&A should be read in conjunction with the Fund's unaudited consolidated interim financial statements for the three months ended March 31, 2005 and 2004 and the notes contained therein. In addition, this MD&A should be read in conjunction with the Joint Management Information Circular of River Valley Income Fund and Eveready Industrial Group Ltd. dated February 24, 2005.

The financial data presented in this MD&A has been prepared in accordance with Canadian generally accepted accounting principles and the Fund's reporting currency is the Canadian dollar. Eveready is a reporting issuer in Canada in the provinces of British Columbia, Alberta, and Ontario. The Fund's units trade on the Toronto Stock Exchange under the symbol "EIS.UN".

Additional information relating to the Fund, including the above Information Circular, is available on the System for Electronic Document Analysis and Retrieval ("SEDAR") web site at http://www.sedar.com.

Overview of the Business

Operating from 29 facilities located across Canada and one location in Houston, USA, Eveready Income Fund is one of Canada's leading providers of industrial cleaning, oilfield, and environmental services to the energy, resource, and manufacturing sectors. Eveready has a strong reputation for providing high quality services to customers in all heavy industrial segments including oilsands, power utilities, conventional oil, gas production and refining, pulp and paper, chemical, petrochemical, fertilizer, food processing, municipal water treatment, and hazardous waste disposal.

While the Fund currently operates within one reportable business segment, Eveready provides a broad range of services to its customers. This provides Eveready with a competitive advantage because the current trend within the oil and gas industry is to reduce the number of service providers retained by them by preferring service providers who can provide a broad range of services. A summary of the principal services provided by Eveready are as follows:



Principal Services Provided by Eveready:

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- Chemical cleaning - Hot oiling
- High pressure water blasting - Pressure testing
- Furnace tube decoking and pigging - Seismic line clearing
- Catalyst handling - Heli-Drilling
- Tank cleaning - Emergency response - services and training
- Dry ice blasting - Mobile mechanical
dredging and dewatering
- Wet & dry vacuum services - Disposal well
- Steam cleaning - Environmental services
- Fluid pumping, heating, - On stream leak sealing
and filtration & detection
- Hydro-excavation and trenching services - Mobile industrial
health services
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For more information on the principal services provided by Eveready, please visit our website at http://www.evereadyindustrial.com.

Eveready's success in providing a broad range of value added services to its customers is evidenced by the tremendous year over year growth in revenues achieved over the past 10 years. This growth has provided a significant increase in operational capability, depth, and diversity. Growth in seasonally "counter-cyclic" but related business areas have also resulted in improved staffing stability which is very critical to specialized and potentially hazardous work. Additionally, geographic and equipment expansion has resulted in a much improved capability to field several large projects simultaneously while maintaining our high level of customer service. Eveready is committed to continue this growth, both organically and through acquisition, to maximize per-unit distributable income.

A cornerstone of our high level of customer service is our commitment to safety. Eveready promotes behaviour-based safety through extensive training for our employees as well as basing management remuneration on safe work performance and safety leadership. The professionalism and motivation of our employees to work safely has resulted in an enviable safety record for Eveready.

The first quarter of 2005 was significant for Eveready in positioning itself for continued growth and expansion in the future. On March 29, 2005, the shareholders of River Valley Income Fund ("River Valley") and Eveready Industrial Group Ltd. ("ER Group") approved the Plan of Arrangement (see "Plan of Arrangement" below) to merge the businesses of River Valley and ER Group. This merger is of particular significance to Eveready in that through this merger, Eveready has reorganized into a publicly traded income fund. The reorganized structure will allow greater access to capital markets to fund the continued growth of Eveready by attracting new investors and providing a more liquid market for the units than what previously existed for ER Group shares.

The income fund structure will also allow Eveready to more efficiently handle its taxes by reducing its liability at the corporate level and thereby increasing the amount of cash available for distribution to Unitholders. The majority of the tax liability will shift from the Fund to the Unitholders.

Plan of Arrangement

Pursuant to a Plan of Arrangement dated February 24, 2005, River Valley acquired 100% of the issued and outstanding shares of the ER Group. In consideration for this purchase, River Valley issued 22,461,875 Fund units or equivalent Rollover LP units valued at $1.77 per unit to the former shareholders of ER Group. As a result of this arrangement, ER Group and all of its subsidiaries are, indirectly, wholly-owned by the Fund. Concurrent with the Plan of Arrangement, the Fund changed its name to "Eveready Income Fund".

Reverse Takeover Treatment

By issuing 22,461,875 Fund units or equivalent Rollover LP units, sufficient units of River Valley were issued so that controlling interest (approximately 74.6%) of the corporate group passed to the former shareholders of the ER Group. As a result, the acquisition has been accounted for as a reverse takeover whereby ER Group has been treated as the purchaser, effective January 1, 2005. These consolidated financial statements are a continuation of the financial statements of the accounting acquirer, ER Group, whereby the assets and liabilities of ER Group are included in the consolidated financial statements at their historical carrying amounts.

The consolidated financial statements for the three months ended March 31, 2005 consist of the consolidated operations of the ER Group and River Valley after giving effect to the reverse takeover transaction. The Comparative figures reported for the three months ended March 31, 2004 discussed in this MD&A and included in the accompanying interim financial statements are those of ER Group, the accounting acquirer.

Additional information regarding the acquisition is provided in the accompanying interim consolidated financial statements.

ANALYSIS OF OPERATING AND FINANCIAL RESULTS

Revenue

Revenue for the three months ended March 31, 2005 increased by $31.5 million or 132% to $55.2 million, from the $23.7 million reported for the three months ended March 31, 2004. These results reflect the significant growth that Eveready has been experiencing over the past year. The growth can be attributed to a number of very successful acquisitions carried out over the past 12 months as well as organic growth in the Fort McMurray region. Increases in revenue resulted from:

- Our acquisition of River Valley Income Fund contributed an additional $15.4 million of revenue to operations;

- Revenue from industrial and oilfield services in the Provost and Whitecourt region contributed $10.1 million to the increase. Operations began in these regions as a result of the acquisition of Winterhawk Enterprises (Provost) Ltd.;

- The Fort McMurray region provided more oilfield and industrial services resulting in a revenue increase of $3.3 million;

- The remaining $2.7 million in additional revenues were achieved through providing increased industrial cleaning, oilfield, and environmental services across various regions through acquisitions and the expansion of existing services.

Gross Profit

With Eveready's tremendous growth, the Fund was successful in increasing its gross profit to $18.7 million for the three month period ended March 31, 2005 from $7.8 million for the same period in 2004. On a percentage basis, the 2005 gross margin was 33.8% compared to 32.8% for the same period in 2004. The small increase in gross margin was a result of relatively no change in the rates charged to customers as well as management controlling the direct costs related to the cost of sales.

Expenses

Administrative and General

Administrative and general expenses were $8.0 million for the three month period ended March 31, 2005 compared with $5.5 million for the same period in 2004, an increase of $2.5 million. As a percentage of revenue, the administrative and general expenses for the three month period ended March 31, 2005 were 14.4% compared to 23.1% for the same period in 2004, a decrease of 8.7%. This is a tremendous improvement over the prior year and reflects Eveready's ability to expand and grow its operations efficiently by keeping overhead costs to a minimum and benefiting from the economies of scale improvements that come with a larger revenue base.

Amortization

Amortization increased to $1.9 million for the three month period ended March 31, 2005 from $0.9 million for the same period in 2004, an increase of $1.0 million. The increase in amortization is the result of additional capital expenditures during the past fiscal year. Amortization calculated as a percentage of revenue was 3.4% in 2005 compared to 3.6% for the same period in 2004 which is very comparable.

EBITDA

EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and loss (gain) on disposal of capital assets. Management believes, in addition to net earnings, EBITDA is a useful supplemental measure as it provides an indication of the cash flows generated by the Fund's principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions.

EBITDA increased by $8.4 million to $10.7 million for the three months ended March 31, 2005, compared with $2.3 million for the comparative period in 2004. Likewise, EBITDA margin (calculated as EBITDA divided by revenue) increased to 19.4% compared with 9.7% for the comparative period in 2004. These increases represent tremendous growth in the profitability of Eveready and are representative of the Fund's strong revenue growth during the quarter while also being able to control direct costs and administrative and general expenses.

Other Expenses

Interest on long-term debt and interest - other increased by $0.4 million and $0.3 million respectively compared to the comparative period. These increases reflect the increases in long term debt and the operating loan over the past 12 months which were required to support the Fund's significant growth in operating activity.

Interest on redeemable preferred shares of $44,394 reported in 2004 is with respect to preferred shares existing in the ER Group prior to the reverse takeover transaction that had a cumulative dividend rate of 4% of their redemption value. The preferred shares no longer exist in 2005 as all of the preferred shares were acquired during the reverse takeover of River Valley Income Fund.

Income Taxes

Income tax expense for the three month period ended March 31, 2005 consisted of $1.0 million in future income taxes. The tax expense was a result of a large portion of the earnings of Eveready for the three months ended March 31, 2005 being earned within a taxable subsidiary of the Fund, until the reorganization transaction was completed. It is expected that on a go-forward basis that the Fund will incur little to no income taxes within the Fund.

Under the terms of the Income Tax Act (Canada), the Fund is not subject to income taxes to the extent that its taxable income in a year is paid or payable to a Unitholder. Accordingly, no provision for current income taxes for the Fund is made. In addition, the Fund is not subject to the recommendations of CICA section 3465 "Income Taxes", as the Fund is committed to distribute to its Unitholders all or virtually all of its taxable income that would otherwise be taxable by the Fund. The Fund intends to meet these requirements under the Income Tax Act applicable to such trusts, and there is no indication that the Fund will fail to meet those requirements.

However, the Fund will continue to follow the liability method of accounting for any incorporated subsidiaries that are subject to income taxes.

Net Earnings and earnings per unit

Net earnings for the three month period ended March 31, 2005 was $6.5 million compared with $0.5 million for the comparative period in 2004. Basic and diluted earnings per unit for the three months ended March 31, 2005 was $0.21.

Earnings per unit for the three month period ending March 31, 2005 are based on the weighted average number of units outstanding during the period. Basic and diluted per unit amounts have been calculated on the basis that all outstanding Rollover LP units have been converted into Fund units. The basic and diluted weighted average number of units outstanding for the three months ended March 31, 2005 was 30,116,094.

Earnings per share for the comparative three months ended March 31, 2004 of ER Group have not been disclosed as ER Group was a privately owned company during that period.

Seasonality of Operations

The Fund's operations follow a seasonal pattern, with revenue traditionally being higher in the first quarter than in the remaining quarters. Due to this seasonality, interim earnings reported in the first quarter of the fiscal year may not be reflective of earnings on an annual basis.

Summary of Quarterly Data

Historical quarterly data for the ER Group has not been presented in this MD&A. ER Group was a privately owned company prior to the reverse takeover of River Valley, and therefore quarterly financial statements for periods prior to January 1, 2005 are not readily available.

FINANCIAL CONDITION AND LIQUIDITY

SELECTED CONSOLIDATED FINANCIAL INFORMATION:



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Balance sheet as at: March 31, 2005 December 31, 2004
(unaudited) (audited)


Current assets ($) 50,493,593 27,835,689
Total assets ($) 139,570,733 98,044,380

Current liabilities ($) 51,232,156 33,592,235
Total liabilities ($) 89,466,384 79,116,998

Unitholders' Equity ($) 50,104,349 18,927,382

Working capital ratio (1) 1.23 1.12
Funded debt to total capital ratio (2) 0.52 0.63
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Notes: (1) Working capital is calculated as current assets divided by current liabilities excluding current portions of long- term debt and subordinated debt
(2) Funded debt to total capital is calculated as funded debt (bank indebtedness, long-term debt, and subordinated debt) divided by total capital (funded debt plus unitholders' equity plus preferred shares and amounts due to unitholders)

Cash Flow from Operations

Cash used by operating activities for the three month period ended March 31, 2005 was $1.9 million compared to cash used by operating activities of $0.5 million for the same period in 2004. The negative cash flow generated from operations is entirely attributable to changes in working capital items including accounts receivable. Accounts receivable increased by $14.8 million during the three months ended March 31, 2005 compared to the balance at December 31, 2004. This increase is attributable to the significant increase in revenue generated during the period. Excluding changes in working capital items, the Fund generated positive cash flows from operations of $9.4 million compared with positive cash flow of $1.6 million in 2004.

Working Capital

Eveready's working capital position (excluding current portions of long-term debt and subordinated debt) improved from a working capital balance of $3.0 million at December 31, 2004 to a working capital balance of $9.4 million at March 31, 2005. This improvement is attributable to strong cash flows generated from operations during the quarter. Eveready expects its working capital to continue to improve in the coming quarter through continued positive cash flows from operations, a recent acquisition and through an equity financing (-see section entitled "New Developments and Outlook").

Capital Expenditures

Eveready expended a total of $2.9 million in the three month period ended March 31, 2005 which is comparable to expenditures of $3.6 million for the comparative period in 2004. These capital expenditures are reflective of the Fund's organic growth in operational capacity as well as Eveready's capital expenditure program which plans for the replacement of old equipment when it becomes cost prohibitive to operate due to high equipment and vehicle costs. Eveready estimates the cost of its annual capital expenditure program to replace old equipment to be approximately 7.5% of the values of its capital assets.

Capital expenditures incurred subsequent to the quarter included purchasing a set of heli-drills (approximately $1.0 million investment) in April 2005 to meet the strong demand for these services. The Fund is also planning to add a number of hydro-excavation units to its fleet during the remainder of the year to meet the increasing demand for hydro-excavation and daylighting services.

Long Term Debt and Contractual Obligations

Long term debt increased by $4.0 million to $38.8 million as at March 31, 2005 compared with long term debt of $34.8 million as at December 31, 2004. The majority of this increase relates to long term debt obligations acquired upon the reverse takeover acquisition of River Valley Income Fund.

The Fund's contractual obligations for the next five years (12 month periods ending on March 31st) are as follows:



Contractual
Obligations There-
(in thousands of CAD) 2006 2007 2008 2009 2010 after Total
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Long-term debt 9,878 8,947 7,934 6,540 3,599 1,912 38,810
Subordinated debt 250 250 250 3,000 - - 3,750
Operating leases 4,653 3,323 2,162 1,126 278 - 11,542
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Total 14,781 12,520 10,346 10,666 3,877 1,912 54,102
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In addition, the Fund has balances due to Unitholders of $5.8 million outstanding as at March 31, 2005. Of this balance $3.9 million is due on July 1, 2006.

Unitholders' Equity

Unitholders' Equity increased by $31.2 million to $50.1 million at March 31, 2005 compared with $18.9 million at December 31, 2004. The majority of this increase relates to the issuance of Fund units and Rollover LP units upon the reverse take over acquisition of River Valley Income Fund (- see "Plan of Arrangement" section) as well as from the increase in accumulated earnings during the quarter.

Outstanding Unit Data

As at May 11, 2005, the Fund had 14,729,795 Fund units and 18,077,169 Rollover LP units outstanding totalling 32,806,964 units on a fully diluted basis. In addition, the holders of the Rollover LP units hold one right per unit held that effectively entitles the holder to exchange one Rollover LP unit for a Fund unit at any time prior to or on March 31, 2010.

Distributable Cash and Cash Distributions

Cash distributions are paid by the Fund on a monthly basis to Unitholders of record the last business day of each month. Distributions are payable on or about the 15th day of the month following the record date. The following table summarizes the Fund's distributions on units of record during the three months ended March 31, 2005:



Net
Record Distribution Distributions Distributions
Date per Unit ($) Distributions ($) Reinvested ($) Paid ($)
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January
31, 2005 0.02 152,844 121,522 31,322
February
28, 2005 0.02 153,516 124,246 29,270
March
31, 2005 0.02 154,200 125,520 28,680
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Total 0.06 460,560 371,288 89,272
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During the three months ended March 31, 2005, monthly cash distributions of $0.02 per unit were declared by the Fund resulting in total cash distributions of $0.06 per unit or $460,560. Of this amount $371,288 was reinvested through the Fund's Distribution Reinvestment Plan ("DRIP"). In addition, $57,525 of cash distributions payable as at December 31, 2004 were reinvested resulting in the issuance of a total of 119,743 Fund units during the quarter.

The above distributions were declared and paid to Unitholders of River Valley Income Fund prior to completion of the Plan of Arrangement.

The DRIP is a voluntary program that permits eligible Unitholders to reinvest monthly distributions in additional Fund units. Eligible Unitholders may participate in the DRIP by directing their broker, dealer, or investment advisor holding their units to notify the plan administrator, Computershare Trust Company of Canada Ltd., through the Canadian Depository for Securities Inc. ("CDS").

As a term under the Plan of Arrangement agreement between ER Group and River Valley, Principal Unitholders of the Fund signed a Principal Unitholder Agreement that requires each Principle Unitholder to immediately reinvest through the DRIP, 100% of any cash distributions made by the Fund on that Principal Unitholder's Fund units or Rollover LP units prior to March 31, 2010. In addition, each Principle Unitholder is restricted from selling more than 10% of their Fund units or Rollover LP units in any one twelve month period before March 31, 2010. These agreements ensure that the Fund will have sufficient growth capital to continue to expand and grow its operations. As at March 31, 2005 Principal Unitholders owned 65% of the Fund's total outstanding Fund units and Rollover LP units.

In April 2005, the Board of Trustees increased the monthly cash distribution to Unitholders to $0.03 per unit or $0.36 per unit on an annualized basis.

Although the Fund intends to make distributions of its available cash to its Unitholders, these cash distributions are not assured and may be reduced or suspended. The ability of the Fund to make cash distributions and the actual amount distributed will be dependent upon, among other things, the financial performance of the Fund and its subsidiaries, their debt covenants and obligations, their working capital requirements, and their future capital requirements. In addition, the market value of the units may decline if the Fund is unable to meet its cash distribution targets in the future, and that decline may be significant.


New Developments and Outlook

Management is pleased with the success of Eveready during the first quarter of 2005. Recent acquisitions during the last six months of 2004 and the reverse takeover of River Valley Income Fund have contributed significantly to Eveready's tremendous growth in the first quarter. Management also believes that the Fund's outlook for the future is very positive with respect to both future revenue and earnings growth.

The greatest opportunity for revenue growth during the next 5 years is the planned expansion and development of Alberta's oilsands in the Fort McMurray region by several of the large oil and gas companies operating in that area. The planned expansions and new developments that have been announced to date are anticipated to approximately double the current regional oil and gas production within 10 years. Management's intention is to expand Eveready's regional capabilities to keep pace with this development. If this is achieved, Eveready's revenues from the Fort McMurray region will increase both in absolute terms and as a percentage of total revenues during the foreseeable future.

Other areas that will contribute to revenue growth during the remainder of fiscal 2005 include:

- Introducing complimentary services (i.e. catalyst handling, furnace tube decoking and pigging,) at existing customer sites

- Generating lateral sales of Eveready's traditional (i.e. chemical cleaning, high pressure water blasting, wet & dry vacuum services, hydro-excavation and daylighting services) services at existing customer sites

- Continue geographic expansion in Western Canada in markets Eveready does not currently serve

- Continue growth in Seismic Line Clearing and Heli Drilling

- Providing Eveready's new environmental and emergency response services and training as well as drug screening to both existing and future customers.

Current international projects include Eveready's ongoing involvement in providing specialized vessel decontamination services in Khazakstan to Tenghiz Oil. Eveready also continues to explore additional opportunities to expand its operations internationally.

Eveready management believes that there are similar opportunities for expansion into the United States in chemical cleaning and catalyst handling at customer sites that furnace tube decoking and pigging services are currently provided.

Subsequent Acquisitions

ICE Joint Venture

On May 2, 2005, Eveready was successful in acquiring all of the business and assets of a joint venture between Diamond Tree Energy Ltd. and Innovative Coke Expulsion Inc. known as the ICE Joint Venture ("ICE"). Eveready has also acquired from ICE all of the shares of its American subsidiary, Innovative Coke Expulsion (USA) Inc., which conducted all of the United States based operations of the joint venture on behalf of the joint venture.

The purchase price for the equipment, material agreement, and intangible assets of the joint venture was $6,500,000. In addition to this sum, Eveready will acquire the working capital balances of the joint venture including inventory, accounts receivable, prepaid expenses, and the assumption of accounts payable liabilities, subject to any adjustments. The estimated final aggregate purchase price, after adjustments, will not be more than $8,400,000. The majority of the purchase price was satisfied by the issuance of 2,599,179 units for deemed proceeds of $7,927,496, such units representing 17.6% of the outstanding Fund units of Eveready and 7.9% of the fully diluted outstanding Fund units and Rollover LP units of Eveready.

The joint venture operates primarily out of Houston, Texas and is in the business of industrial cleaning using pigs to de-coke furnaces at oil and gas refineries. The pigs are also used to clean pipelines and other piping and tubing in the oil and gas industry.

The acquisition of ICE represents a significant opportunity for Eveready to expand its operations into the United States. Management estimates that this acquisition could provide an additional $2.0 million EBITDA to operations on an annualized basis. It is the intention of management to continue to pursue similar opportunities that bring synergies to Eveready's existing operations in the future.

Camp Company

On May 2, 2005, Eveready entered into a letter of intent to acquire certain of the assets of a private Alberta company that provides camps and camp related equipment to customers in the oil and gas industry in Western Canada that allow such customers to house their employees and contractors at or near their work sites. The assets to be acquired include, among other items, 2 John Deere crawler tractors and three camps with an aggregate of 235 beds. The letter of intent contemplates that the purchase price for the assets will be approximately $2,855,000. The purchase price will be payable via: (i) the assumption of certain liabilities related to the assets currently estimated to be in the approximate amount of $550,000; and (ii) the balance payable via the issuance of units of Eveready, such balance and number of units currently estimated to be $2,305,000 and 755,738, respectively. The vendor may, at its option, and instead of units, choose to receive limited partnership units of an indirect wholly owned limited partnership of Eveready. Management estimates that this acquisition could provide an additional $1.0 million EBITDA to operations on an annualized basis.

Equity Financing

In April 2005, Eveready retained First Associates Investments Inc. ("First Associates") to act as its lead agent in connection with a proposed private placement of a minimum of CDN $10,000,000 of units in the capital of Eveready. The terms of the private placement, including the issuance price per unit, will be subject to negotiation and agreement between Eveready and First Associates. All sales of units will be conducted on a marketed, best efforts, public offering basis. The private placement is anticipated to close before the end of May.

This equity financing will assist Eveready in positioning itself to realize on existing and future opportunities for growth and expansion.

Off-Balance Sheet Arrangements

a) The Fund has guaranteed certain loan balances owing by key employees to a chartered bank. The loans are secured by units of the Fund that were issued to the employees with the loan proceeds. At no time may the outstanding balance of the loans exceed the share buy-back value. The principle balance of the loans guaranteed as at March 31, 2005 was $1,455,000.

b) The Fund has provided certain guarantees to GE Canada Equipment Finance ("GE") regarding financing that GE has provided to certain contractors. The loans were provided for the purchase of specific service and automotive equipment used by the contractors in providing services to the Fund. The loans are secured by the specific equipment. The total balance of the loans guaranteed by the Fund is $1,031,000.

Critical Accounting Estimates

Preparation of consolidated financial statements require that management make assumptions regarding accounting estimates for certain amounts contained within the Fund's consolidated financial statements. The most significant of these estimates relate to bad debts on accounts receivable, estimated useful lives of capital assets, impairment losses on goodwill, and estimates on various taxation matters.

Although estimates and assumptions based on information available at the time are required to be made, it is management's opinion that none of the above items identified or other items in the Fund's consolidated financial statements involve assumptions or estimates that are highly uncertain at the time they were made and that different estimates that the Fund could have used or changes in the accounting estimates that are reasonably likely to occur would have a material impact on the Fund's financial position or results of operations.

Changes in Accounting Policies

Incomes taxes

Effective January 1, 2005 and in connection with the reverse takeover of River Valley, ER Group was reorganized into an unincorporated, open ended mutual fund trust. Concurrent with the reverse takeover, ER Group prospectively adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee Abstract 107 - "Application of CICA 3465 to Mutual Fund Trusts, Real Estate Investment Trusts, Royalty Trusts and Income Trusts."

Under the terms of the Income Tax Act (Canada), the Fund is not subject to income taxes to the extent that its taxable income in a year is paid or payable to a Unitholder. Accordingly, no provision for current income taxes for the Fund is made. In addition, the Fund is not subject to the recommendations of the CICA section 3465 "Income Taxes", as the Fund is committed to distribute to its Unitholders all or virtually all of its taxable income that would otherwise be taxable by the Fund. The Fund intends to meet these requirements under the Income Tax Act applicable to such trusts, and there is no indication that the Fund will fail to meet those requirements.

The Fund continues to follow the liability method of accounting for any incorporated subsidiaries. Under this method, the Fund recognizes both the current and future income tax consequences of all transactions that have been recognized in the financial statements.

Related Party Transactions

a) During the period ended March 31, 2005, the Fund incurred $125,000 for professional fees from a partnership of which a trustee of the Fund is a partner. These fees were incurred in connection with the Plan of Arrangement with River Valley Income Fund.

b) During the period ended March 31, 2005, the Fund incurred $31,000 for professional fees from a partnership of which a different trustee of the Fund is a partner.

c) Included in general and administrative expenses for the period ending March 31, 2005 are occupancy costs of $90,980 that were paid to companies controlled by certain officers and/or trustees of the Fund.

d) During the period ended March 31, 2005, The Fund incurred camp costs and equipment rental charges of $427,305 paid to a company controlled by an officer and a trustee of the Fund. Subsequent to March 31, 2005, the Fund acquired the majority of the assets and business of the company (-see "New Developments and Outlook" section).

These related party transactions were conducted in the normal course of operations and at terms and rates that represent fair value for services provided.

Risk Factors

The financial viability of the Fund is dependent on a number of factors. These include the ability to manage and grow revenues in existing markets, expand into new markets, and manage other additional risks that the Fund faces.

Financial Instruments:

The Fund's financial instruments which include accounts receivable, bank indebtedness, accounts payable and accrued liabilities, and long-term debt obligations, are subject to various risks. These risks include the following:

Credit Risk:

- The Fund extends credit facilities to its customers which are generally unsecured. Although the Fund has a system of credit management policies and practices in place, there is a risk that some of the Fund's customers may not be able to meet their obligations when they become due. The loss of a large receivable could have an adverse effect on the Fund's profitability.

Interest Rate Risk:

- The majority of the Fund's bank indebtedness and long term debt has a floating rate, which is subject to interest rate cash flow risk. The required cash flows to service the debt will fluctuate as a result of changes in market rates.

Foreign currency Risk:

- The Fund has cash, accounts receivable, and accounts payable denominated in foreign currency, and thus is exposed to the financial risk of earnings fluctuations arising from changes in foreign exchange rates and the degree of volatility of these rates. However, in management's opinion, this exposure is not significant to the Fund's operations.

Additional business risks specific to the operations of the Fund include:



- Heavy reliance on Oil and Gas sector
- Competition
- Access to equipment and development of new technology
- Environmental liability
- Operating risks and insurance
- Asset depreciation
- Speculative nature of investment in the Fund
- Dependence on key personnel
- Fluctuations in operating results
- Impact of seasonality on labour and distribution
- Compliance with government regulations
- Market share and pricing of Heli-drilling


Additional information related to these risk factors may be obtained from the Joint Management Information Circular of River Valley Income Fund and Eveready Industrial Group Ltd. dated February 24, 2005.

Non-GAAP Earnings Measures

EBITDA

EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and loss (gain) on disposal of capital assets. EBITDA is not a recognized measure under Canadian generally accepted accounting principles ("GAAP"). Management believes, in addition to net earnings, EBITDA is a useful supplemental measure as it provides an indication of the cash flows generated by the Fund's principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions. Investors should be cautioned, however, that EBITDA should not be construed as an alternative to net earnings determined in accordance with Canadian GAAP as an indicator of the Fund's performance. Eveready's method of calculating EBITDA may differ from other entities and, accordingly, EBITDA may not be comparable to measures used by other entities. The following is a reconciliation of EBITDA to net earnings for the Fund:



Income Statement for the three months ended:

March 31, 2005 March 31, 2004
----------------------------------
(unaudited) (unaudited)
($) ($)

Net earnings 6,474,277 478,158

Add:
Income taxes 1,022,598 334,091
Amortization 1,892,189 849,032
Interest on long-term debt 712,036 328,394
Interest - other 405,683 101,221
Interest on subordinated debt 171,319 179,506
Interest on redeemable preferred
shares - 44,394
Loss (gain) on sale of capital
assets 27,190 (15,602)
----------------------------------

EBITDA 10,705,292 2,299,194
----------------------------------
----------------------------------


Note Regarding Forward Looking Statements

This MD&A focuses on key statistics from the consolidated financial statements and pertains to known risks and uncertainties relating to the oilfield service industry. This MD&A should not be considered all inclusive, as it excludes changes that may occur in general economic, political and environmental conditions. Readers are cautioned not to place undue reliance on such information.

Review of Interim Financial Statements

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The Fund's independent auditor has not performed a review of the accompanying unaudited interim consolidated financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.




Eveready Income Fund
Consolidated Balance Sheets
(unaudited)


March 31 December 31
2005 2004
$ $
---------------------------

ASSETS

Current
Accounts receivable 44,555,931 23,641,750
Work in progress 1,245,501 199,284
Inventory 3,353,886 3,396,269
Income taxes recoverable - 2,021
Prepaid expenses and deposits 1,338,275 596,365
---------------------------
50,493,593 27,835,689

Capital assets 70,082,075 58,122,577
Goodwill 17,718,746 11,805,309
Future income taxes 926,000 -
Other long-term assets 350,319 280,805
---------------------------

139,570,733 98,044,380
---------------------------
---------------------------

LIABILITIES

Current
Bank indebtedness 19,273,867 10,978,943
Accounts payable and accrued liabilities 21,757,077 13,626,886
Unitholder distributions payable 28,679 -
Due to unitholders/shareholders 44,924 230,313
Current portion of long-term debt 9,877,613 8,506,097
Current portion of subordinated debt 249,996 249,996
---------------------------
51,232,156 33,592,235

Long-term debt 28,932,060 26,280,933
Subordinated debt 3,500,008 3,562,507
Due to unitholders/shareholders 5,802,160 5,814,405
Preferred shares - 4,762,918
Future income taxes - 5,104,000
---------------------------
89,466,384 79,116,998
---------------------------

Unitholders' Equity
Unitholders' capital (note 4) 34,524,074 -
Share capital (note 4) - 16,408,510
Accumulated earnings 16,040,835 2,518,872
Accumulated distributions (460,560) -
---------------------------
50,104,349 18,927,382
---------------------------

139,570,733 98,044,380
---------------------------
---------------------------

(see accompanying notes)


Eveready Income Fund
Consolidated Statements of Earnings and Accumulated Earnings
For the three months ended
(unaudited)


March 31 March 31
2005 2004
$ $
---------------------------
(Note 2)

Revenue 55,184,785 23,737,042

Direct costs 36,526,363 15,950,302
---------------------------

Gross profit 18,658,422 7,786,740

Expenses
Administrative and general 7,953,130 5,487,546
Amortization 1,892,189 849,032
---------------------------

Earnings from operations 8,813,103 1,450,162
---------------------------

Other expenses
Interest on long-term debt 712,036 328,394
Interest - other 405,683 101,221
Interest on subordinated debt 171,319 179,506
Interest on redeemable preferred shares - 44,394
Loss (gain) on disposal of capital assets 27,190 (15,602)
---------------------------
1,316,228 637,913
---------------------------

Earnings before income taxes 7,496,875 812,249
---------------------------

Income taxes
Current 4,912 -
Future 1,017,686 334,091
---------------------------
1,022,598 334,091
---------------------------

Net earnings 6,474,277 478,158

Accumulated earnings, beginning of period 2,518,872 2,126,873
Trust reorganization adjustment (note 3) 7,047,686 -
---------------------------

Accumulated earnings, end of period 16,040,835 2,605,031
---------------------------
---------------------------

Earnings per unit/share - basic
and diluted (note 5) 0.21 N/A
---------------------------
---------------------------

(see accompanying notes)


Eveready Income Fund
Consolidated Statements of Cash Flows
For the three months ended
(unaudited)

March 31 March 31
2005 2004
$ $
---------------------------
(Note 2)

Operating activities
Net earnings for the period 6,474,277 478,158
Items not affecting cash
Amortization 1,892,189 849,032
Loss (gain) on disposal of
capital assets 27,190 (15,602)
Future income taxes 1,017,686 334,091
---------------------------

9,411,342 1,645,679

Change in non-cash working capital:
Accounts receivable (14,811,450) (5,641,227)
Work in progress (1,046,217) (124,404)
Inventory 42,383 (190,776)
Prepaid expenses and deposits (606,661) (474,300)
Accounts payable and accrued
liabilities 5,232,810 4,334,213
Unitholder distributions payable (123,844) -
---------------------------

(1,901,637) (450,815)
---------------------------

Investing activities
Purchase of capital assets (2,937,383) (3,606,818)
Purchase of capital assets
- equipment under construction (209,252) (509,011)
Proceeds on disposal of capital assets 779,455 397,325
Acquisition of subsidiaries, net of
cash acquired (3,316,065) -
Purchase of capital assets and
goodwill on acquisition of a business - (141,200)
Other long term assets - net 25,402 (19,004)
---------------------------

(5,657,843) (3,878,708)
---------------------------

Financing Activities
Distributions to unitholders (460,560) -
Proceeds from long-term debt 1,984,187 4,200,918
Repayment of long-term debt (2,032,963) (1,249,012)
Repayment of subordinated debt (62,499) (62,499)
Proceeds from issuance of
units/share capital 428,813 388,061
Redemption of preferred shares (416,270) (339,480)
Fund restructuring costs
- reverse takeover (158,212) -
Decrease in employee share loan receivable - 1,153,880
Repayment of advances from
unitholders/shareholders (17,940) (204,322)
---------------------------

(735,444) 3,887,546
---------------------------

Net decrease in cash (8,294,924) (441,977)

Bank indebtedness, beginning of period (10,978,943) (9,333,966)
---------------------------

Bank indebtedness, end of period (19,273,867) (9,775,943)
---------------------------
---------------------------

(see accompanying notes)


Eveready Income Fund
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2005


1. Nature of Operations and basis of presentation

Eveready Income Fund ("Eveready" or the "Fund") and its subsidiaries provide industrial, oilfield, and environmental services for the oil and gas, pulp and paper, petrochemical, mining, manufacturing, and utility industries.

These interim financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles and have been prepared following the same accounting policies and methods of computation as the consolidated financial statements of Eveready Industrial Group Ltd. ("ER Group") for the fiscal period ended December 31, 2004, except as noted in Note 3 below.

The disclosures provided in the interim consolidated financial statements are incremental to those included with the annual consolidated financial statements. Therefore, the interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes of ER Group for the period ended December 31, 2004 included in the Fund's Information Circular dated February 24, 2005.

2. Plan of arrangement

Pursuant to a Plan of Arrangement dated February 24, 2005, River Valley Income Fund ("River Valley") acquired 100% of the issued and outstanding shares of ER Group. In consideration for this purchase, River Valley issued 22,461,875 Fund units or equivalent rollover limited partnership ("Rollover LP") units valued at $1.77 per unit to the former shareholders of the ER Group. As a result of this arrangement, ER Group and all of its subsidiaries became, indirectly, wholly-owned by the Fund.

Reverse Takeover Treatment

By issuing 22,461,875 Fund units or equivalent Rollover LP units, sufficient units of River Valley were issued so that controlling interest (approximately 74.6%) of the corporate group passed to the former shareholders of the ER Group. As a result, the acquisition has been accounted for as a reverse takeover whereby ER Group has been treated as the purchaser, effective January 1, 2005. These consolidated financial statements are a continuation of the financial statements of the accounting acquirer, ER Group, whereby the assets and liabilities of the ER Group are included in the consolidated financial statements at their historical carrying amounts.

The consolidated financial statements for the three months ended March 31, 2005 consist of the consolidated operations of the ER Group and River Valley after giving effect to the reverse takeover transaction. The Comparative figures presented for the three months ended March 31, 2004 are those of ER Group, the accounting acquirer.

The preliminary purchase price allocation of the reverse takeover transaction was as follows:



Fair value of net assets of River Valley acquired:
Current assets $ 6,237,980
Capital assets 11,511,697
Goodwill 5,913,437
Other long term assets 94,916
---------------
Total assets 23,758,030
---------------

Current liabilities 7,644,452
Long term liabilities 2,615,262
---------------
Total liabilities 10,259,714
---------------

$ 13,498,316
---------------
---------------


Consideration given was comprised of the 7,626,167 units outstanding of River Valley prior to the reverse takeover at a computed price of $1.77 per unit. The reverse takeover transaction involved the acquisition of all classes of shares of the ER Group, including preferred shares accounted for by the ER Group as liabilities. The ER Group preferred shares have been reclassified to Unitholders' equity in these consolidated financial statements.

The above purchase price allocation is preliminary and has been allocated based upon a preliminary evaluation of the fair value of the assets and liabilities of River Valley as of January 1, 2005. The purchase price allocation will remain preliminary until the Fund is able to complete a final evaluation of the fair value of the assets and liabilities acquired.

3. New accounting policy

Effective January 1, 2005 and in connection with the reverse takeover of River Valley, ER Group was reorganized into an unincorporated, open ended mutual fund trust. Concurrent with the reverse takeover, ER Group, as the accounting acquirer, prospectively adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee Abstract 107 - "Application of CICA 3465 to Mutual Fund Trusts, Real Estate Investment Trusts, Royalty Trusts and Income Trusts."

Under the terms of the Income Tax Act (Canada), the Fund is not subject to income taxes to the extent that its taxable income in a year is paid or payable to a Unitholder. Accordingly, no provision for current income taxes for the Fund is made, except for its incorporated subsidiaries as indicated below. In addition, the Fund is not subject to the recommendations of CICA section 3465 "Income Taxes", as the Fund is committed to distribute to its Unitholders all or virtually all of its taxable income that would otherwise be taxable by the Fund. The Fund intends to meet these requirements under the Income Tax Act applicable to such trusts, and there is no indication that the Fund will fail to meet those requirements. As a result of the conversion of ER Group to a trust, the Fund's future income tax liability at January 1, 2005 was reduced by $6,337,000 with the adjustment being credited to opening accumulated earnings.

The Fund continues to follow the liability method of accounting for its incorporated subsidiaries. Under this method, the Fund recognizes both the current and future income tax consequences of all transactions that have been recognized in the financial statements. Future tax expense of $1,017,686 recognized for the three months ended March 31, 2005 was a result of a large portion of the earnings of Eveready for the three month period being earned within a taxable subsidiary of the Fund, until the reorganization transaction was completed. Upon completion of the reorganization transaction, the Fund recorded a further reduction in its future tax liability of $710,686 with the adjustment also being credited to accumulated earnings for the period. The remaining $307,000 of future tax expense recognized for the period related to on-going operations that remain within incorporated subsidiaries.

The aggregate adjustment to the future tax liability resulting from the conversion of ER Group to a trust and completion of the related reorganization was $7,047,686, with the adjustment being credited to accumulated earnings.



4. Unitholders' capital

Number of Amount
Units $
---------------------------------------------------------------------

Issued:
Opening balances:
Share capital of ER Group (accounting
acquirer) as at December 31, 2004 16,408,510
Number of units outstanding of River
Valley (legal parent) as at
December 31, 2004 7,626,167

Activity during the period:
Preferred shares of ER Group
reclassified to equity (net of
shares redeemed) - 4,346,648
Units issued upon the reverse takeover
of River Valley Income Fund (Note 2) 22,461,875 13,498,316
Fund restructuring costs - reverse
takeover - (158,213)
Units issued - dividend reinvestment plan 119,743 428,813
---------------------------

30,207,785 34,524,074
---------------------------
---------------------------

Unit equity outstanding as at
March 31, 2005 consists of the
following components:
Fund units 12,130,616 17,820,460
Rollover LP units 18,077,169 16,703,614
---------------------------

30,207,785 34,524,074
---------------------------
---------------------------


As a result of the reverse take over transaction, the amount shown as issued capital of the Fund is calculated by adding to the issued capital of the legal subsidiary, ER Group, the amount of the cost of the purchase as determined in Note 2 to these consolidated financial statements. However, the number and type of units issued appearing in the table above reflects that of the legal parent, River Valley, including the units issued to effect the reverse takeover.

Rollover LP units represent Class B units of Eveready Holdings Limited Partnership, a subsidiary of the Fund. Upon closing of the reverse take over acquisition of River Valley, the former shareholders of the ER Group were given the option of accepting either Fund units or Rollover LP units. The Rollover LP units are convertible into units of the Fund, and receive cash distributions and have voting rights equivalent to holders of Fund units. Given the terms and conditions attached to the Rollover LP units, holders of Fund units and holders of Rollover LP units are in substantially the same economic position with respect to the Fund.

5. Earnings per unit/share

Earnings per unit for the three month period ended March 31, 2005 are based on the weighted average number of units outstanding during the period. Basic and diluted per unit amounts have been calculated on the basis that all outstanding Rollover LP units have been converted into Fund units. The basic and diluted weighted average number of units outstanding for the three months ended March 31, 2005 was 30,116,094.

Earnings per share for the comparative three months ended March 31, 2004 of ER Group have not been disclosed as ER Group was a privately owned company during that period.

6. Seasonality of operations

The Fund's operations follow a seasonal pattern, with revenue traditionally being higher in the first quarter than in the remaining quarters. Due to this seasonality, interim earnings reported in the first quarter of the fiscal year may not be reflective of earnings on an annual basis.

7. Segmented reporting

Management regards the current activities of the Fund as being conducted in one reportable operating segment, that being industrial cleaning and oilfield services to customers in a wide range of heavy industry segments.

8. Subsequent events

a) Effective May 2, 2005, the Fund graduated to the Toronto Stock Exchange and commenced trading under the symbol "EIS.UN".

b) On May 2, 2005, Eveready was successful in acquiring all of the business and assets of a joint venture between Diamond Tree Energy Ltd. and Innovative Coke Expulsion Inc. known as the ICE Joint Venture ("ICE"). Eveready has also acquired from ICE all of the shares of its American subsidiary, Innovative Coke Expulsion (USA) Inc., which conducted all of the United States based operations of the joint venture on behalf of the joint venture.

The purchase price for the equipment, material agreement, and intangible assets of the joint venture was $6,500,000. In addition to this sum, Eveready will acquire the working capital balances of the joint venture including inventory, accounts receivable, prepaid expenses, and the assumption of accounts payable liabilities, subject to any adjustments. The estimated final aggregate purchase price, after adjustments, will not be more than $8,400,000. The majority of the purchase price was satisfied by the issuance of 2,599,179 units for deemed proceeds of $7,927,496, such units representing 17.6% of the outstanding Fund units of Eveready and 7.9% of the fully diluted outstanding Fund units and Rollover LP units of Eveready.

The joint venture operates primarily out of Houston, Texas and is in the business of industrial cleaning using pigs to de-coke furnaces at oil and gas refineries. The pigs are also used to clean pipelines and other piping and tubing in the oil and gas industry.

c) On May 2, 2005, Eveready entered into a letter of intent to acquire certain of the assets of a private Alberta company that provides camps and camp related equipment to customers in the oil and gas industry in Western Canada that allow such customers to house their employees and contractors at or near their work sites. The assets to be acquired include, among other items, 2 John Deere crawler tractors and three camps with an aggregate of 235 beds. The letter of intent contemplates that the purchase price for the assets will be approximately $2,855,000. The purchase price will be payable via: (i) the assumption of certain liabilities related to the assets currently estimated to be in the approximate amount of $550,000; and (ii) the balance payable via the issuance of units of Eveready, such balance and number of units currently estimated to be $2,305,000 and 755,738, respectively. The vendor may, at its option, and instead of Fund units, choose to receive limited partnership units of an indirect wholly owned limited partnership of Eveready.

d) In April 2005, Eveready retained First Associates Investments Inc. ("First Associates") to act as its lead agent in connection with a proposed private placement of a minimum of CDN $10,000,000 of units in the capital of Eveready. The terms of the private placement, including the issuance price per unit, will be subject to negotiation and agreement between Eveready and First Associates. All sales of units will be conducted on a marketed, best efforts, public offering basis. This private placement is anticipated to close before the end of May.

9. Comparative figures

Certain of the comparative figures have been reclassified to conform to the current period's presentation.

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.


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