EVEREADY INCOME FUND
TSX : EIS.UN

EVEREADY INCOME FUND

August 10, 2006 21:45 ET

Eveready Income Fund Reports 288% Increase in Second Quarter Earnings

EDMONTON, ALBERTA--(CCNMatthews - Aug. 10, 2006) - Eveready Income Fund (TSX:EIS.UN) ("Eveready") is pleased to announce its financial results for the quarter ended June 30, 2006. Eveready reported revenue of $82.9 million, reflecting an increase of $38.9 million or 88% compared to revenue of $44.0 million for the same three month period in 2005. Also, net earnings increased by 288% to $6.7 million compared to net earnings of $1.7 million in 2005. Significant organic growth through capital investment combined with a number of successful business acquisitions completed over the past 15 months contributed to these increases.

"We are very pleased with our financial progress to date," comments Rod Marlin, Eveready's President and Chief Executive Officer. "The successful execution of our growth strategies over the past 15 months is now beginning to show in our financial results. However, we are not stopping here. We continue to strategically expand our operations in a number of areas that we believe will establish Eveready as the preferred industrial and oilfield services provider for years to come."

Eveready's planned growth for the remainder of 2006 is expected to further increase revenue and operating cash flows in 2007. Eveready is now targeting to achieve revenue in excess of $500 million for the year ending December 31, 2007 (see "Note Regarding Forward-Looking Statements").



Selected Consolidated Financial Information:

------------------------------------------------------------------------
Three Months Ended Six Months Ended
$ thousands, June 30 June 30 June 30 June 30
except per % %
unit amounts 2006 2005 Change 2006 2005 Change
------------------------------------------------------------------------
Revenue $ 82,910 $ 44,016 88% $176,782 $ 99,201 78%

Gross profit 27,148 12,672 114% 62,488 29,944 109%
Gross margin % 32.7% 28.8% 35.3% 30.2%

EBITDA(1) 13,395 5,007 168% 35,379 15,686 126%
EBITDA margin % 16.2% 11.4% 20.0% 15.8%
Per unit - diluted 0.21 0.15 40% 0.61 0.49 24%

Net earnings 6,748 1,738 288% 21,561 8,212 163%
Per unit - diluted 0.11 0.05 120% 0.37 0.26 42%
------------------------------------------------------------------------

Cash Flow (1) 12,894 3,902 230% 33,692 13,314 153%
Per unit - diluted 0.21 0.12 75% 0.58 0.42 38%
------------------------------------------------------------------------

Weighted average
units
outstanding(2)
Basic 62,057 33,476 57,946 31,816
Diluted 62,458 33,476 58,312 31,816
------------------------------------------------------------------------
------------------------------------------------------------------------

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

(2) Basic and diluted per unit amounts have been calculated on
the basis that all rollover limited partnership units
("Rollover LP" units) have been converted into Fund units.


Highlights:

- Revenue for the second quarter was $82.9 million reflecting an increase of 88% compared to revenue of $44.0 million in 2005;

- We reported EBITDA (see "Non-GAAP Financial Measures") of $13.4 million in the second quarter. This reflects an increase of $8.4 million or 168% compared to 2005;

- We reported net earnings of $6.7 million or $0.11 per unit on a diluted basis for the second quarter compared to net earnings of $1.7 million or $0.05 per unit in 2005;

- We increased our monthly distribution by 25% to $0.05 per unit in April 2006 ($0.60 per unit on an annualized basis);

- We raised $50 million through a convertible debenture bought-deal financing in June 2006;

- In May 2006, our Unitholders approved the Eveready Employee Unit Plan. There are currently over 180 key employees of Eveready that have been invited to participate in this plan;

- We continued our expansion in the Alberta oil sands region generating $48.2 million of revenue from this region during the first six months of 2006 (compared to revenue of $26.7 million for the same period in 2005);

- In May 2006, we acquired an 80% interest in the business and assets of Red Deer Directional Boring Ltd. for $30.4 million. We continued to build on this acquisition by entering into a confidential letter of intent to acquire an 80% interest in an additional directional boring and punching business. This acquisition is expected to be effective September 1, 2006;

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

- We continued our expansion into the oilfield equipment rental segment by acquiring Tornado Rentals Ltd. in April 2006 for approximately $6.0 million. In June 2006, we entered into a confidential letter of intent to acquire an additional oilfield equipment rental business for approximately $9.0 million. This acquisition is expected to close later this month.

- We continued to aggressively expand our operations in east-central Alberta and western Saskatchewan by acquiring Eugene Smith Trucking Ltd. in May 2006 for $4.5 million. In July 2006, we entered into a letter of intent to acquire the Diversified Pressure Services group of companies for $7.5 million.

- In May 2006, we acquired the business and assets of the Pinnacle Pigging Systems group of companies for $7.0 million. This acquisition builds on our previous acquisition of the business and assets of the ICE Joint Venture in April 2005 and provides us a significant share of the furnace tube decoking market in North America.

- We also continued to achieve significant organic growth in a number of existing services lines during the second quarter. This growth was achieved through considerable investments in capital equipment and personnel.

Management's Discussion & Analysis

This Management's Discussion & Analysis ("MD&A") was prepared as of August 8, 2006 and is provided to assist readers in understanding Eveready Income Fund's ("Eveready" or the "Fund") financial performance for the three and six month periods ended June 30, 2006 and significant trends that may affect the future performance of the Fund. This MD&A should be read in conjunction with the accompanying unaudited interim consolidated financial statements for the three and six month periods ended June 30, 2006 and the notes contained therein. In addition, this MD&A should be read in conjunction with the MD&A and audited consolidated financial statements for the year ended December 31, 2005. The accompanying interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") using the Fund's reporting currency, the Canadian dollar. Eveready is a reporting issuer in each of the provinces of Canada, except Quebec. The Fund's units trade on the Toronto Stock Exchange under the symbol "EIS.UN".

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

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

Our Business

Eveready manages a group of businesses that provide industrial and oilfield services from over 40 locations across Canada, the United States, and internationally. These subsidiaries operate in three business segments: industrial and oilfield services; health, safety, and environmental services; and oilfield equipment rental services. Our customers operate in the energy, resource, and manufacturing sectors.

Our staff roster fluctuates seasonally and now exceeds over 1,400 employees during our peak seasons. The aggregate fleet of Eveready consists of approximately 575 company-owned trucks and 180 lease-operated trucks. The fleet is made up of chemical and high pressure trucks, tractors, vacuum trucks, hydro vac trucks, pressure trucks, hot oiler units, steamer trucks, tank trucks, and flush-by units. In addition, we also own over 120 additional large pieces of equipment including directional boring rigs, heli-drills, mulchers, and other specialized pieces of equipment. Our oilfield equipment rental services segment includes a wide range of oilfield rental equipment including approximately 6,800 access mats and 70 well-site units.

Overall Performance

We are very pleased with our financial results for the second quarter. We achieved revenues of almost $83 million and net earnings of $6.7 million. These results show a significant improvement compared to the same period in 2005. In 2005 and during the first six months of 2006, we invested a significant amount of capital in equipment and business acquisitions to expand our business. The earnings and cash flows being generated from this growth is now beginning to show in our financial results. The comparative figures in 2005 do not include all of our growth that occurred in the last half of 2005 and first half of 2006.

We expect this upward trend will persist as we continue to execute our growth strategies. The earnings and cash flow generated from our growth initiatives in 2006 will also begin to show their full benefit over the remainder of the year and in 2007. We believe this growth will continue to significantly increase our earnings and operating cash flows.

Traditionally, our revenue and earnings are lower during the second quarter compared to the other quarters of the year due to seasonality in some of our service lines. This seasonality results from spring thawing in the month of April, which renders many secondary roads incapable of supporting heavy equipment until the ground is dry. Our revenue in these service lines begins to recover to normal levels in the months of May and June after the thawing period is over. However, our significant rate of growth over the past year, combined with continued high customer demand for our services, has allowed us to achieve strong financial results during this quarter, despite the seasonal downturn we experienced in April.

Strategic Developments

During the first six months of 2006, we continued to achieve significant progress towards our growth strategies.

Our growth strategies include:

- Growing our existing services and adding new services to our existing customers;

- Consolidating industry peers and competitors;

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

- Geographic expansion.

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

How are we achieving this growth?

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

Organic Growth

We invested over $30.4 million in property, plant, and equipment during the first six months of 2006. This investment is part of our $55 million 2006 capital expenditure program, and is allowing us to continue significant organic growth in a number of regions. The program includes acquiring over 130 new service units, including chemical and high pressure units, vacuum trucks, pressure trucks, steamer trucks, tank trucks, flush-by units, and other support equipment.

The majority of our 2006 capital expenditure program is targeting those areas where we are experiencing a significant demand for our services. In particular, we are focused on growing our market presence in the Alberta oil sands region. Our capital expenditure program includes approximately $22 million that we are planning to invest in this region in 2006. During the six months ended June 30, 2006, we have incurred capital expenditures of $6.5 million in this region.

Other areas of focus include our oilfield equipment rental services segment where expenditures of approximately $7.0 million are planned for 2006. To June 30, 2006, capital expenditures of approximately $4.4 million have been incurred in this segment. In addition, we are planning to invest approximately $5.0 million in 2006 to significantly expand our capacity at the Pembina Area Landfill, of which approximately $3.2 million was incurred to June 30, 2006.

Business Acquisitions

We continued to pursue a number of acquisition opportunities in 2006. A summary of the business acquisitions announced or completed up to the date of this MD&A are outlined below.

1. Expansion in the Oilfield Equipment Rental Services Segment

We first established a presence in this business segment with our acquisition of Canada Wide Industries in November 2005. In 2006, we began to build on this acquisition to significantly expand the range of oilfield rental equipment that we are able to provide our customers. To date in 2006, we have completed or announced three additional business acquisitions in this segment. These acquisitions, combined with significant organic growth, are establishing Eveready as a significant participant in this sector. A summary of our acquisitions to date include:

a) Head West Energy

On March 1, 2006 we acquired the majority of the assets and business of Head West Energy, a private Alberta-based oilfield equipment rental company. The assets acquired include well-site units, generators, truck and trailer units, and other equipment. The purchase price of approximately $10.8 million was paid in cash. Equipment of $1.2 million was then sold to a third party resulting in a net purchase price of approximately $9.6 million for the assets that we retained.

We believe this acquisition could generate revenues of between $8.0 and $9.0 million and EBITDA of approximately $3.5 to $4.0 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis.

b) Tornado Rentals Ltd.

Effective April 1, 2006, we acquired 100% of the issued and outstanding shares of Tornado Rentals Ltd. ("Tornado"). Based in Stettler, Alberta, Tornado rents and sells a wide range of oilfield equipment including positive pressure production packages, positive pressure swab and test tanks, flare stacks, incinerators, sonic flares, knockouts/blowdown drums, flame and detonation arrestors, separator skids, separator/tank combo packages, storage tanks, and mobile booster compressors.

The purchase price for Tornado was approximately $6.0 million and was paid via: (i) $3.0 million in cash, and (ii) the remainder in units of Eveready issued at a deemed price of $6.59 per unit.

We estimate this acquisition could generate EBITDA of between $2.5 and $3.0 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis.

c) Additional oilfield equipment rental business

In June 2006 we signed a confidential letter of intent to acquire the business and assets of an additional oilfield equipment rental company based in northern Alberta. The letter of intent contemplates a purchase price of approximately $9.0 million, payable through a combination of: (i) $6.3 million in cash and (ii) the remainder in Rollover LP units issued at a deemed price of $6.95 per unit.

We estimate this acquisition could generate EBITDA of approximately $2.5 to $3.0 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis. This acquisition is expected to close later this month.

2. Consolidating Industry Peers and Competitors & Geographic Expansion

Cat Tech Group of Companies

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

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

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

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

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

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

The purchase price of approximately US $29.4 million was paid via: (i) US $21.9 million in cash and (ii) US $7.5 million through the issuance of 1,246,343 units of Eveready, issued at a deemed price of CDN $6.70 per unit.

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

Expansion in East-Central Alberta and Western Saskatchewan

We continued to expand our operations in east-central Alberta and western Saskatchewan during the first six months of 2006. This growth was accomplished by consolidating a number of industry peers and competitors in this region. In fact, after achieving a significant presence through our acquisition of Winterhawk Enterprises (Provost) Ltd. ("Winterhawk") in November 2004, we have completed seven additional business acquisitions in this region. These acquisitions have expanded our operations into a number of new geographic areas including Lloydminster, Stettler, and Wainright in east-central Alberta and Coleville, Macklin, Neilburg, and Waseca in western Saskatchewan.

We believe that our aggressive expansion in east-central Alberta and western Saskatchewan is benefiting Eveready in a number of ways. These benefits include:

- Satisfying the needs of our customers who require our services in a number of geographic locations in this region;

- Consolidating a number of industry peers and competitors in this region;

- Obtaining skilled and high quality employees in a tight labour market; and

- Improving operational utilization to maximize efficiencies and profitability.

Acquisitions completed and announced to date in this region in 2006 include:

a) Acquisition of Mielke Way Enterprises

Effective February 28, 2006, we acquired the business and assets of Mielke Way Enterprises for total cash consideration of approximately $1.1 million. Mielke Way Enterprises is based in Stettler, Alberta and provides vacuum truck and steam cleaning services to customers in the oil and gas industry.

b) Acquisition of Eugene Smith Trucking Ltd.

Effective May 1, 2006, we acquired 100% of the issued and outstanding shares of Eugene Smith Trucking Ltd. ("Eugene Smith"). Based in western Saskatchewan, Eugene Smith provides various oilfield services, including vacuum truck, flush-by, and pressure services. Eugene's fleet of equipment includes approximately 19 units including flush-by units, vacuum trucks, pressure trucks, and other support vehicles. The purchase price of $4.5 million was paid through a combination of (i) $2.0 million in cash and (ii) $2.5 million via the issuance of 343,879 units issued at a deemed price of $7.27 per unit. The vendors have also agreed to participate in Eveready's Principal Unitholder Agreement (see "Distributions - Principal Unitholder Agreement"). We estimate Eugene Smith could generate EBITDA of between $1.0 and $1.2 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis.

c) Diversified Pressure Services group of companies

In July 2006, we announced a letter of intent to acquire 100% of the issued and outstanding shares of the Diversified Pressure Services group of companies ("Diversified"). Based in Macklin, Saskatchewan, Diversified provides a wide range of oilfield services to the oil and gas industry including vacuum truck, pressure testing, hot oiling, tank truck, steam cleaning, and flush-by services.

The letter of intent contemplates a purchase price of approximately $7.5 million, payable through a combination of: (i) $3.75 million in cash and (ii) $3.75 million in Rollover LP units issued at a deemed price of $6.74 per Rollover LP unit. The Diversified vendors have also agreed to participate approximately 67% of their Rollover LP units in our Principal Unitholder Agreement (see "Distributions - Principal Unitholder Agreement").

We estimate this acquisition could generate EBITDA of approximately $2.0 to $2.5 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis. This acquisition is expected to be effective September 1, 2006.

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

Pinnacle Pigging Systems Group of Companies

On May 29, 2006, we acquired the business and assets of the Pinnacle Pigging Systems group of companies ("Pinnacle") for approximately $7.0 million in cash consideration. Pinnacle specializes in providing furnace tube decoking and related industrial services to oil and gas refineries in Canada and the United States. The assets acquired included all equipment, patents, and other intangible assets used in the Pinnacle business. Included in the equipment acquired were five specialized double pumper decoking units plus a number of support units and miscellaneous equipment.

This acquisition builds on our previous acquisition of the business and assets of the ICE Joint Venture in April 2005. Not only does this acquisition provide us additional equipment and personnel to grow our services, this acquisition also allowed us to eliminate a significant market competitor and achieve a significant share of the furnace tube decoking market in North America.

We estimate this acquisition could generate EBITDA of approximately $2.0 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis in the future.

Additional Industrial and Oilfield Services Business

Meeting the high demand for our services has been challenging in a number of regions in western Canada due to the strength of the energy sector. We have been committed to meeting this demand through organic growth by investing in additional equipment and personnel, but also supplementing this organic growth with business acquisitions in strategic areas. In July 2006, we entered into a letter of intent to acquire the business and assets of D&G Water & Vacuum Services; consisting of the assets of D&G Industry Services Ltd. and NPPP Ventures Ltd. ("D&G"). Based in High Level, Alberta, D&G provides water truck and vacuum services to customers in the oil and gas industry. This acquisition will allow us to expand our operations geographically in northern Alberta and help us obtain the additional equipment and manpower resources we need to meet the demand for our services in this region.

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

This acquisition will also be completed in two stages, with D&G's equipment being acquired on August 1, 2006 for cash proceeds equal to approximately $3.7 million. This value was based on the equipment's fair market value, as determined by a third party appraiser. The remainder of the acquisition is expected to close on October 2, 2006.

3. Adding New Services to our Customers

Directional Boring and Punching Services

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

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

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

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

- The other key employees of each of our acquisitions will participate in our Employee Unit Plan ("see Employee Unit Plan" section of this MD&A).

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

To date in 2006, we have completed or announced the following business acquisitions in this sector:

a) Red Deer Directional Boring Ltd.

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

These services specialize in boring pipeline, fibre optic, cable, gas, water, and sewer lines able to traverse highways, roads, rivers, tree lines, rail lines and environmentally sensitive areas. RDDB's equipment is capable of drilling lengths up to 1500 meters and ream holes of up to 34 inches in diameter.

The purchase price of approximately $30.4 million was paid through a combination of: (i) $7.7 million in cash and (ii) $22.7 million through a combination of 1,214,287 Fund units and 2,026,486 Rollover LP units issued at a deemed price of $7.00 per unit. The vendors have also agreed to participate 100% of their Rollover LP units in Eveready's Principal Unitholder Agreement (see "Distributions - Principal Unitholder Agreement").

We estimate RDDB could generate EBITDA of approximately $9.0 to $10.0 million (before minority interest share) for their 12 month period ending December 31, 2006 (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements").

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

b) Additional directional boring and punching business

In May 2006, we entered into a confidential letter of intent to acquire an 80% interest in the assets and business of an additional directional boring and punching business. The letter of intent contemplates a purchase price of approximately $11.4 million (being $14.2 million less the 20% non-controlling interest that will be retained by the vendor), payable through the issuance of units of Eveready. The units are to be issued at a deemed price per unit equal to the lower of (i) the 10 day weighted average trading price of the units as traded on the Toronto Stock Exchange on the 10 days prior to the signing of the letter of intent; and (ii) the 10 day weighted average trading price of the units as traded on the Toronto Stock Exchange on the 10 days prior to the effective date of the acquisition. The vendors may also elect to receive a portion of the unit consideration in Rollover LP units.

We estimate this acquisition could generate EBITDA of approximately $4.0 to $5.0 million (before non-controlling interest share) for their 12 month period ending December 31, 2006 (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements").

If this proposed acquisition is completed, we will also enter into a mutual option agreement with the vendors on terms similar to our mutual option agreement with the vendors of RDDB. This acquisition is expected to be effective September 1, 2006.

Mapping and Surveying Services

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

Acquisitions that we have completed or are planning to complete in 2006 include:

a) Mercedes Surveys

Effective February 28, 2006, we acquired 100% of the issued and outstanding shares of this private Alberta-based survey company for a total purchase price of approximately $1.6 million. The purchase price was satisfied via (i) $0.2 million in cash and (ii) $1.4 million via the issuance of 260,606 units issued at a deemed price of $5.50 per unit. Mercedes Surveys provides seismic surveys using state-of-the-art equipment that support seismic exploration programs for oil and gas companies.

b) Airborne Imaging

In May 2006, we entered into a letter of intent to acquire 100% of the issued and outstanding shares of Airborne Imaging Inc. ("Airborne"). Airborne is a private Alberta-based company that provides comprehensive planning and mapping solutions to companies operating primarily in the oil and gas sector.

The letter of intent contemplates a purchase price of approximately $4.8 million, payable through a combination of: (i) $1.9 million in cash and (ii) $2.9 million in units of Eveready issued at a deemed price of $7.69 per unit. We anticipate that this acquisition will be effective October 1, 2006.

c) Real Time Surveys

In July 2006, we entered into a letter of intent to acquire the business and assets of Real Time Surveys Inc. ("Real Time"). Real Time is also a private Alberta-based company that provides surveying services to support exploration programs for oil and gas companies.

The letter of intent contemplates a purchase price of approximately $1.6 million, payable through the issuance of units of Eveready at a deemed price of $6.76 per unit. We anticipate that this acquisition will be completed in September 2006.

Health, Safety and Environmental Services

We continued to expand our health, safety, and environmental ("HSE") service capabilities in the first half of 2006. Acquisitions completed or announced to the date of this MD&A include:

a) Astec Safety Services Ltd.

Effective May 1, 2006, we acquired 100% of the issued and outstanding common shares of Astec Safety Services Ltd. ("Astec"). With locations in Bonnyville, Fort McMurray, Lloydminster, and Provost, Alberta, Astec provides safety services, equipment and training to a wide range of industrial and oilfield companies. The purchase price of $1.0 million was paid by issuing units at a deemed price of $6.94 per unit. We believe this acquisition will compliment our existing industrial and oilfield services by providing our customers with additional expertise regarding the best available safety practices in the oil and gas industry.

b) Triple P Enterprises Ltd.

On June 9, 2006 we acquired the business and assets of Triple P Enterprises Ltd. ("Triple P") for cash consideration of $3.0 million. Triple P provides waste hauling services to a wide range of customers operating primarily in the oil and gas industry. This acquisition compliments our existing waste disposal services including our Pembina Area Landfill - the final destination for a large portion of the waste that Triple P hauls.

c) Environmental services company

In July 2006, we announced a confidential letter of intent to acquire 100% of the issued and outstanding shares of an environmental services company (the "Company").

Based in Michigan, USA, the Company specializes in the custom design and manufacture of environmental remediation equipment. The Company also provides environmental remediation services to a wide range of customers operating primarily in the chemical, petroleum, utilities, real estate and manufacturing sectors. This acquisition will build on the current filtration and environmental remediation services that we already provide to our customers.

The letter of intent contemplates a purchase price of approximately US $4.0 million, payable through cash consideration. We estimate the Company could generate EBITDA of approximately US $1.0 to $1.5 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward-Looking Statements") on an annual basis. We anticipate that this acquisition will be effective October 1, 2006.

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

Bought-Deal Convertible Debenture Financing

In June 2006, we completed a bought-deal financing of $50 million principal amount of convertible unsecured subordinated debentures (the "Debentures"). The debentures have a face value of $1,000 per Debenture, have an annual coupon rate of 7.0%, and mature on June 30, 2011. The Debentures are also convertible, at the holder's option, into units of Eveready at a price of $8.50 per unit. Purchasers of the Debentures will receive interest semi-annually with the first interest payment occurring on December 31, 2006. 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 the option of the Fund at a price equal to their principal amount plus accrued interest thereon, provided that the market price of the units on the date on which notice is given is not less than 125% of the conversion price of $8.50 per unit. After June 30, 2010, 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, at our option and subject to certain conditions, elect to satisfy our obligation to repay all or any portion of the principal amounts of the Debentures that are to be redeemed or repaid at maturity, by issuing units of Eveready. The number of units a holder will receive in respect of each Debenture will be determined by dividing the principal amount of the Debentures that are to be redeemed or repaid at maturity by 95% of the market price of the units. The market price of the units will be calculated as the volume weighted average trading price of the units on the Toronto Stock Exchange for the 20 consecutive days ending five days prior to the applicable event.

This financing allowed us to extinguish a large portion of our credit facilities that were drawn upon to finance recent business acquisitions and capital expenditures. The additional borrowing capacity now available from our credit facilities again provides us the financial flexibility we need to continue to expand our operations.

Employee Unit Plan

Eveready has always been committed to employee ownership. Prior to 2005, Eveready's predecessor company Eveready Industrial Group already had over 80 employee shareholders as a privately owned company. This commitment has not changed since converting to a publicly traded income fund.

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

Under the Plan, selected Employees will be invited to acquire an allotted number of units from Eveready that we will issue from treasury (including through the exercise of existing unit options). The Employees will also have the option of financing this purchase through a BMO Bank of Montreal unit purchase loan. Eveready will then match this acquisition by acquiring the same number of units on the open market. The matched units will vest to the Employees 20% per year over five years. The Employees will also earn distributions on both the units they acquired and the matching units that Eveready acquires on their behalf.

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

This Plan is in addition to our Employee Savings Plan that we implemented in December 2005. Under this plan, we will match employee contributions up to 5% of their annual gross earnings in a savings plan that invests in Eveready units. Not only does this plan encourage employee savings, it provides our employees with a vested interest in our long-term success. There are currently approximately 400 employees that participate in our Employee Savings Plan.



Results of Operations

Revenue

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
$ thousands 2006 2005 2006 2005
------------------------------------------------------------------------
Revenue by segment:
Industrial and oilfield $ 75,431 $ 41,773 $ 161,611 $ 94,561
Health, safety and environmental 4,956 2,243 9,714 4,640
Oilfield equipment rental 2,523 - 5,457 -
------------------------------------------------------------------------

Total 82,910 44,016 176,782 99,201
------------------------------------------------------------------------
------------------------------------------------------------------------


Revenue increased by $38.9 million or 88% to $82.9 million for the three months ended June 30, 2006 and by $77.6 million or 78% to $176.8 million for the six month period ended June 30, 2006 compared to the same three and six month periods in 2005. The demand for our services has been increasing at a tremendous rate in North America due to a strong overall energy sector. Our revenue growth is a direct result of the execution of our growth strategies over the past year, which has been allowing us to meet this growing demand.

Industrial and Oilfield Services

Revenue from industrial and oilfield services increased by $67.1 million to $161.6 million for the six months ended June 30, 2006. This increase resulted from:

- We achieved significant organic revenue growth in the Alberta oil sands region generating $48.2 million of revenue from this region during the six month period. This represented an increase of $21.5 million or 81% compared to revenue of $26.7 million generated for the same six month period in 2005;

- Our operations in east-central Alberta and western Saskatchewan generated revenue of $32.1 million in 2006. This reflects an increase of $13.0 million or 68% compared to the same six month period in 2005. We completed a number of business acquisitions in this region over the past year, including Allstar Oilfield Services Ltd. in July 2005, as well as a number of smaller business acquisitions during the fourth quarter of 2005 and first half of 2006. We have also made significant investments in new equipment to meet the growing demand for our services in this region;

- Revenue from seismic line clearing, heli-drilling, and surveying services in Northern Alberta and British Columbia generated revenue of $37.7 million in 2006. This reflects an increase of $14.3 million or 61% compared to revenue of $23.4 million for the same period in 2005. The majority of this increase was due to organic growth of existing services over the past 12 months;

- Organic growth from industrial and oilfield services offered in north-western Alberta and northern British Columbia generated $13.9 million of revenue in 2006. This represents an increase of $5.5 million or 65% compared to the same six month period in 2005;

- Organic growth from industrial and oilfield services offered in the central Alberta region generated revenue of $12.3 million in 2006. This represents an increase of $5.3 million or 76% compared to the same six month period in 2005;

- The business and assets purchased from the ICE Joint Venture in April 2005 and from the Pinnacle Pigging group of companies in May 2006 contributed $5.3 million of revenue to operations during the six month period ended June 30, 2006. This compares to only $1.1 million for the same period in 2005, a $4.2 million revenue increase;

- The acquisition of the business and assets of RDDB effective May 1, 2006 contributed an additional $2.5 million of revenue to operations in 2006; and

- The remaining $0.8 million increase resulted from revenue growth in some of our speciality industrial and oilfield service lines.

Health, Safety, and Environmental Services

We generated revenue of $9.7 million from this segment during the six month period ended June 30, 2006. This reflects an increase of $5.1 million compared to the same period in 2005. A significant portion of this increase resulted from our acquisition of the Pembina Area Landfill in November 2005. To June 30, 2006, we have already generated $4.8 million of revenue from this acquisition. In addition, our mobile industrial health services division generated revenue of $1.8 million in 2006, reflecting a significant increase from revenue of only $0.5 million for the same six month period in 2005.

Offsetting these increases was a decline in revenue generated from our mechanical dredging and dewatering division and other specialty environmental services. These services tend to be project specific, and therefore, revenue can fluctuate significantly depending on the number of projects being completed during a specific period.

Oilfield Equipment Rental Services

We generated $5.5 million of revenue from this segment in 2006. We did not operate in this segment in 2005 until our acquisition of Canada Wide Industries Ltd. in November 2005. We continued this growth during the first half of 2006 by acquiring the business and assets of Head West Energy on March 1, 2006 and 100% of the issued and outstanding shares of Tornado Rentals Ltd., effective April 1, 2006.



Gross Profit

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
$ thousands 2006 2005 2006 2005
------------------------------------------------------------------------
Amount $ 27,148 $ 12,672 $ 62,488 $ 29,944
Gross margin % 32.7% 28.8% 35.3% 30.2%
------------------------------------------------------------------------
------------------------------------------------------------------------


With our revenue growth, we increased our gross profit to $27.1 million in the second quarter and $62.5 million for the six month period ended June 30, 2006. In addition, our gross margin percentage improved to 35.3% compared to 30.2% for the same six month period in 2005. Our recent expansions in the health, safety and environmental services and oilfield equipment rental services segments contributed to this increase. The gross margins generated from these services are normally higher than those experienced in our industrial and oilfield services segment.

Our gross margin specific to our industrial and oilfield services segment remained consistent with that reported in the prior year. We earned a gross margin of 33.7% for both the six month period ended June 30, 2006 and the six month period ended June 30, 2005.

From quarter to quarter, our gross margins were lower in the second quarters of both periods compared to the first quarters. This difference arises from seasonality in our business. Demand for our services are generally highest in the first quarter compared to the other quarters of the year. This increased demand allows us to better utilize our people and equipment, which normally contributes to a higher gross margin.



Administrative and General Expenses

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
$ thousands 2006 2005 2006 2005
------------------------------------------------------------------------
Amount $ 13,541 $ 7,590 $ 26,543 $ 14,156
% of revenue 16.3% 17.2% 15.0% 14.3%
------------------------------------------------------------------------
------------------------------------------------------------------------


Administrative and general expenses increased significantly from the comparative periods in 2005. These increases are attributable to additional salary and wage costs and other fixed expenses required to support our increased level of revenue. This includes additional administrative support for a number of business acquisitions completed in the second half of 2005 and during the first half of 2006. We also incur additional administrative costs associated with being a public income fund that were not required as a private company. Eveready was converted into a public income fund in March 2005.

As a percentage of revenue, administrative and general expenses for the six months ended June 30, 2006 increased slightly to 15.0% compared to 14.3% for the same period in 2005. This increase results from a number of factors including those factors discussed above. After becoming a public income fund in March 2005, we began to aggressively pursue additional growth opportunities. This growth requires substantial investments in operating infrastructure to ensure our growth is properly supported. Accomplishing this requires upfront costs and resources. In 2006, we are beginning to realize some of the benefits of these investments.

Higher employee bonus expenses during the first half of 2006 also contributed to the overall increase in administrative and general expenses. We support a broad-based employee bonus program that allows key employees, based on their contributions to our overall success, to share in the Fund's profits. The bonus plan is based on a range of criteria including profitability, safety performance, and equipment utilization. Currently, our bonus program approximates 15% of our consolidated earnings before income taxes.

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



Amortization

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
$ thousands 2006 2005 2006 2005
------------------------------------------------------------------------
Amount $ 5,442 $ 2,089 $ 11,064 $ 3,982
% of revenue 6.6% 4.7% 6.3% 4.0%
------------------------------------------------------------------------
------------------------------------------------------------------------


Amortization expense increased significantly in 2006 compared to the same three and six month periods in 2005. This increase results from significant growth in our property, plant, and equipment. Property, plant, and equipment increased to $158.7 million as of June 30, 2006 compared to $77.3 million at June 30, 2005. In addition, we acquired over $32 million of intangible assets in 2005 and during the first six months of 2006. The majority of our intangible assets were acquired with business acquisitions and are amortized over their estimated useful lives. Amortization expense on our intangible assets was $1.0 million for the first six months of 2006.

Amortization calculated as a percentage of revenue increased to 6.6% and 6.3% respectively for the three and six month periods ended June 30, 2006 compared to 4.7% and 4.0% respectively for the same periods in 2005. This increase resulted from our expansion in the health, safety, and environmental services and oilfield equipment rental services business segments. Compared to our traditional industrial and oilfield services, these segments normally incur a much higher percentage of amortization expense for every dollar of revenue earned. Amortization expense incurred within the industrial and oilfield services segment alone was 4.4% of revenue for the six months ended June 30, 2006. This percentage is comparable with the 4.7% ratio that we experienced in 2005.

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

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



EBITDA

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
$ thousands 2006 2005 2006 2005
------------------------------------------------------------------------
Amount $ 13,395 $ 5,007 $ 35,379 $ 15,686
% of revenue 16.2% 11.4% 20.0% 15.8%
------------------------------------------------------------------------
------------------------------------------------------------------------


Our EBITDA (see "Non-GAAP Financial Measures") grew to $35.4 million or 20.0% of revenue for the six months ended June 30, 2006. This increase, both in amount and as a percentage of revenue, reflects our strong improvement in operating results in 2006. We were able to significantly increase our revenue and also control increases in direct costs.



Interest Expense

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
$ thousands 2006 2005 2006 2005
------------------------------------------------------------------------
Amount $ 950 $ 1,157 $ 1,840 $ 2,446
% of revenue 1.1% 2.6% 1.0% 2.5%
------------------------------------------------------------------------
------------------------------------------------------------------------


Interest expense declined significantly during the first six months of 2006 compared to the same period in 2005. This improvement was due to the fact that the majority of our growth over the past year has been financed through equity capital rather than through debt financing. In addition, in February 2006, we completed a bought-deal equity financing that raised $56.0 million in new equity capital, before issuance costs. The net proceeds of this financing allowed us to extinguish the majority of our debt credit facilities. As of June 30, 2006, $15.0 million was drawn on our long-term debt credit facility and we had no outstanding bank indebtedness.

In June 2006, we completed a bought-deal financing of $50 million principal amount of convertible unsecured subordinated debentures (the "Debentures"). The Debentures have an annual coupon rate of 7.0% and are due to mature on June 30, 2011 (see "Convertible debentures" section below). These Debentures are expected to incur annual cash interest of $3.5 million. In addition, the fair value of the Debentures will accrete to their full principal amount of $50 million over the five year term. Including this accretion expense and deferred financing costs that will also be amortized over the term of the Debentures, we expect to incur annual interest expense of $5.3 million in 2007 and then rising over the term of the Debentures to approximately $5.8 million by 2010. These estimates assume that no Debentures will be converted into units or redeemed by Eveready prior to maturity.

Earnings before income taxes and non-controlling interest



------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
$ thousands 2006 2005 2006 2005
------------------------------------------------------------------------
By segment:
Industrial and oilfield $ 7,133 $ 1,938 $ 21,757 $ 9,355
Health, safety and environmental (309) (177) (567) (97)
Oilfield equipment rental 431 - 1,537 -
------------------------------------------------------------------------
Total 7,255 1,761 22,727 9,258
------------------------------------------------------------------------
------------------------------------------------------------------------


Earnings before income taxes and non-controlling interest increased significantly in 2006 compared to 2005. This improvement resulted from our significant rate of growth in 2006.

Our health, safety, and environmental services segment reported a loss before income taxes and non-controlling interest of $567 thousand for the six months ended June 30, 2006. This loss resulted from the following factors. First, unusual amortization expense of approximately $1.0 million was recognized during the first quarter. This expense resulted from revised estimated capping costs to close some of our landfill cells once they are filled to capacity (see discussion under "Amortization expense" above). Excluding amortization expense, our health, safety, and environmental services segment would have reported earnings before income taxes of $2.3 million for the six month period ended June 30, 2006.

Also reducing our overall earnings from this segment was our mechanical dredging and dewatering division and other specialty environmental services. These services tend to be project specific, and therefore, revenue and earnings can fluctuate significantly depending on the number of projects being completed during a specific period.



Income Taxes

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
$ thousands 2006 2005 2006 2005
------------------------------------------------------------------------
Earnings before income taxes and
non controlling interest $ 7,255 $ 1,761 $ 22,727 $ 9,258
Income tax expense 255 23 914 1,046
Effective tax rate 3.5% 1.3% 4.0% 11.3%
------------------------------------------------------------------------
------------------------------------------------------------------------


Income tax expense is difficult to compare to prior periods without putting the amounts into perspective first. In March 2005, Eveready was converted into an income fund to qualify as a mutual fund trust. As a result, we are no longer subject to income taxes to the extent that our taxable income in a year is paid or payable to our Unitholders. Accordingly, no provision for income taxes for the Fund is made.

However, we continue to follow the liability method of accounting for any incorporated subsidiaries that are subject to income taxes. Income tax expense recognized during the six months ended June 30, 2006 relates to operations that remain within taxable incorporated subsidiaries of the Fund. The majority of our income tax expense of $1.0 million recognized during the six months ended June 30, 2005 resulted prior to the completion of our income fund reorganization in March 2005.

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

Non-controlling interest

Earnings attributable to non-controlling interest was $252 thousand during the three months ended June 30, 2006. This amount arises from our acquisition of an 80% interest in the business and assets of RDDB and represents the earnings of RDDB that are attributable to the 20% non-controlling interest that the RDDB vendors retained in the business.



Net earnings and earnings per unit

------------------------------------------------------------------------
Three Months Ended Six Months Ended
$ thousands, June 30 June 30 June 30 June 30
except per unit amounts 2006 2005 2006 2005
------------------------------------------------------------------------
Net earnings $ 6,748 $ 1,738 $ 21,561 $ 8,212
------------------------------------------------------------------------

Weighted average number of units
outstanding - basic 62,057 33,476 57,946 31,816
Weighted average number of units
outstanding - diluted 62,458 33,476 58,312 31,816
------------------------------------------------------------------------

Earnings per unit - basic $ 0.11 $ 0.05 $ 0.37 $ 0.26
Earnings per unit - diluted 0.11 0.05 0.37 0.26
------------------------------------------------------------------------
------------------------------------------------------------------------


Net earnings for the three months ended June 30, 2006 increased $5.0 million or 288% to $6.7 million compared to the same period in 2005. Substantial revenue growth in 2006 contributed to this improvement. In addition, our earnings per unit increased by 120% to $0.11 per unit for the three months ended June 30 2006 and increased 42% to $0.37 per unit for the six months ended June 30, 2006 compared to the same periods in 2005. Our significant rate of growth over the past year is not only increasing earnings on an absolute basis, but our growth is also providing accretive earnings growth on a per-unit basis.

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

Diluted per unit amounts include the dilutive effect of outstanding unit options. As of June 30, 2006, there were 930,000 unit options outstanding exercisable at $5.00 per unit and expiring on November 17, 2010. These options were initially issued to employees and trustees of the Fund on November 17, 2005 and vested immediately. The outstanding convertible debentures did not have a dilutive effect on the calculation of earnings per unit in any of the periods presented.



Summary of Quarterly Data

------------------------------------------------------------------------
($ thousands,
except per June March Dec Sept June March Dec Sept
unit amounts) 2006 2006 2005 2005 2005 2005 2004 2004
------------------------------------------------------------------------

Revenue 82,910 93,872 64,693 56,415 44,016 55,185 26,948 19,787
EBITDA(1) 13,395 21,984 7,575 7,861 5,007 10,679 2,489 2,326
Net earnings
(loss) 6,748 14,813 2,421 3,684 1,738 6,474 169 (295)
------------------------------------------------------------------------

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

Notes: (1) EBITDA is identified and defined under the section "Non-GAAP
Financial Measures."
(2) Basic and diluted earnings per unit have been calculated on
the basis that all Rollover LP units have been converted into
Fund units.
(3) Per share amounts for the comparative quarters ended in 2004
have not been calculated as the Fund's predecessor, Eveready
Industrial Group Ltd, was a privately owned company.
(4) Quarterly earnings per unit are not additive and may not
equal the annual earnings per unit reported. This is due to
the effect of units issued during the year on the weighted
average number of units outstanding.


Seasonality of Operations

A large portion of our operations are carried out in Western Canada where the ability to move heavy equipment is dependant on weather conditions. An example of such a condition includes thawing in the spring, which renders many secondary roads incapable of supporting heavy equipment until the ground is dry. As a result, our operations traditionally follow a seasonal pattern, with revenue and earnings being higher in the quarter ending March 31, 2006 and lower in the quarter ending June 30, 2006 compared with the other quarters of the year. However, this has not always been the case over the past eight quarters due to a number of factors, including the completion of a number of significant business acquisitions. In addition, some of our growth has been in areas subject to less seasonality, which results in more consistent operating performance from quarter to quarter.



Financial Condition and Liquidity

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

Current assets $ 91,855 $ 68,980
Total assets 339,112 227,432
------------------------------------------------------------------------

Current liabilities 47,478 48,804
Total liabilities 109,284 100,160
------------------------------------------------------------------------

Unitholders' equity 229,828 127,272
------------------------------------------------------------------------

Working capital ratio(1) 1.93 1.41
Funded debt to total capital ratio(2) 0.21 0.33
------------------------------------------------------------------------
------------------------------------------------------------------------

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


Working capital

Our working capital (see "Non-GAAP Financial Measures") improved from a working capital position of $20.2 million on December 31, 2005 to a working capital position of $44.4 million as of June 30, 2006. This significant improvement was due to the following factors:

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

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

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

We expect our working capital to remain strong during the remainder of 2006 due to continued positive cash flow from operations. However, we plan to utilize a portion of our working capital excess to pursue a number of growth strategies. These investments include acquiring additional equipment and pursuing further business acquisitions. We believe that our current working capital position provides us the flexibility we need to pursue these objectives.

Cash flow from operations

Cash flow from operating activities was $15.3 million for the three months ended June 30, 2006 compared to cash flow from operating activities of $9.7 million for the same period in 2005. In addition, we generated cash flow from operating activities of $24.3 million for the six month period ended June 30, 2006 compared to $7.9 million for the same six month period in 2005. This substantial improvement is a result of an increase in revenue and earnings in 2006. However, if we exclude changes in non-cash operating working capital balances, we actually generated significantly higher operating cash flows in both periods. Cash flow from operations before changes in non-cash operating working capital and asset retirement costs ("see Non-GAAP Financial Measures") was $33.7 million for the six month period ended June 30, 2006 compared to $13.3 million for the comparative period in 2005. Our significant rate of growth results in a corresponding increase to our working capital balances. For example, as our revenue grows, our accounts receivable will also increase. As a result, we continue to expect our non-cash operating working capital balances to increase proportionately with our revenue growth in the future.

Capital expenditures

We acquired approximately $59.4 million in additional property, plant, and equipment in the first six months of 2006. Of these assets, $29.0 million were acquired through business acquisitions. Capital expenditures of $30.4 million were also incurred to expand our service capabilities in existing markets. This significant investment in property, plant, and equipment is necessary to support the growing demand for the services we provide. These capital expenditures also reflect our capital expenditure program, which plans for the replacement of old equipment when it becomes cost prohibitive to operate due to high equipment and vehicle operating costs.

We plan to continue to incur significant capital expenditures during the remainder of 2006. These capital expenditures will help increase our operating capacity to meet the growing demand for our services, and to upgrade and replace existing capital assets. Our total capital expenditure program for 2006 is approximately $55 million.

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

Long-term debt and contractual obligations

Long-term debt

Our long-term debt consists of a $60 million revolving extendible senior secured credit facility. The credit facility requires payments of interest only at the Canadian dollar one-month bankers' acceptance rate plus 3.25% . As of June 30, 2006, the effective interest rate on this credit facility was 7.55% . An additional stand-by fee calculated at a rate of 0.25% per annum is also required on the unused portion of the credit facility. The credit facility is collateralized by a first fixed charge over equipment and a second position charge over accounts receivable and inventory.

Long-term debt decreased to $15.0 million as of June 30, 2006 compared to $49.9 million as of December 31, 2005. Proceeds from our bought-deal equity financing in February 2006 and our bought-deal convertible debenture financing in June 2006 allowed us to reduce our drawings on this credit facility. The credit facility can be drawn upon and repaid at any time.

Convertible debentures

On June 15, 2006, we completed a bought-deal financing of $50 million principal amount of convertible unsecured subordinated debentures (the "Debentures"). The Debentures have a face value of $1,000 per Debenture, have an annual coupon rate of 7.0%, and mature on June 30, 2011. The Debentures are also convertible, at the holder's option, into units of Eveready at a price of $8.50 per unit. Purchasers of the Debentures will receive interest semi-annually with the first interest payment occurring on December 31, 2006. Issuance costs of $2.3 million were incurred in connection with the financing, resulting in net proceeds of $47.7 million.

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

Notes payable

Notes payable consist of unsecured promissory notes due to various entities. Notes payable of $3.5 million bear interest at a rate of 6.0% and were repaid subsequent to the quarter. The remaining note payable of $189 thousand bears interest at an effective rate of 6.7%, and is repayable in varying instalments until October 2007. As of June 30, 2006, notes payable of $880 thousand (bearing interest at a rate of 6.0%) was owing to an officer of the Fund and his spouse.

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



------------------------------------------------------------------------
Contractual
Obligations
($ in thousands) 2007 2008 2009 2010 2011 Total
------------------------------------------------------------------------
Long-term debt - 4,500 6,000 4,500 - 15,000
Convertible debentures 50,000 50,000
Notes payable 3,620 90 - - - 3,710
Operating leases 6,267 4,742 2,725 1,235 606 15,575
------------------------------------------------------------------------

Total 9,887 9,332 8,725 5,735 50,606 84,285
------------------------------------------------------------------------
------------------------------------------------------------------------


Our long-term debt credit facility does not currently require any principal repayments. The credit facility is renewable semi-annually subject to the mutual consent of both parties. To the extent that the credit facility is not renewed, the outstanding credit facility will be subject to a 12-month interest-only phase followed by a straight line amortization period of 30 months. The above table presents the minimum principal repayments required on the credit facility if it were not renewed (the next renewal date is September 30, 2006) and we were not able to refinance the credit facility with another lender.

Asset Retirement Obligations

During the first six months of 2006, our asset retirement obligation increased from $1.3 million to $2.4 million. The notes to the accompanying interim consolidated financial statements provide a schedule showing the changes in this balance during the period. The majority of this increase results from revising the estimated future cash flows required to cap and close our landfill cells. These revisions resulted from:

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

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

- Increased commodity costs for raw materials.

These obligations are estimated based upon current and proposed reclamation and closure techniques in view of current environmental laws and regulations. Although we believe these estimates are appropriate, it remains reasonably possible that the ultimate costs could change in the future.

The above increases were offset by actual asset retirement costs incurred of $283 thousand during the second quarter. These costs are being incurred in 2006 to cap and close those cells that have already reached their maximum capacity.

Unitholders' Equity

Unitholders' Equity increased by $102.5 million to $229.8 million as of June 30, 2006 compared to $127.3 million at December 31, 2005. This increase resulted from the equity component of the Debentures we issued in June 2006, an increase in accumulated earnings, and from a significant increase in Unitholders' capital. The increase in Unitholders' capital resulted from our bought-deal equity financing in February 2006 and a number of business acquisitions that were partially financed through the issuance of units of Eveready. The notes to the accompanying interim consolidated financial statements provide a schedule showing the changes in Unitholders' capital during the six month period.



Distributions

The following table summarizes our distributions during the six months
ended June 30, 2006:

------------------------------------------------------------------------
$ thousands,
except per Distribution
unit amounts per Distributions Net
Unit Distributions Reinvested Distributions
Record Date $ $ $ $
------------------------------------------------------------------------
January 31, 2006 0.04 2,011 846 1,165
February 28, 2006 0.04 2,346 852 1,494
March 28, 2006 0.04 2,352 873 1,479
April 28, 2006 0.05 2,947 1,079 1,868
May 31, 2006 0.05 3,140 1,207 1,933
June 30, 2006 0.05 3,167 1,173 1,994
------------------------------------------------------------------------

Total 0.27 15,963 6,030 9,933
------------------------------------------------------------------------
------------------------------------------------------------------------


Cash distributions are normally paid by the Fund on a monthly basis to Unitholders of record on the last business day of each month. Distributions are payable on or about the 15th day of the month following the record date.

Taxation of Distributions

Our distributions consist of taxable and tax-deferred components. The taxable amount of our distributions in 2006 will be based on the actual taxable income of the Fund for the year ending December 31, 2006. Tax-deferred distributions are considered to be a return of capital for income tax purposes and will reduce the adjusted cost base of the units held. We currently estimate that the majority of the distributions declared in 2006 will be considered taxable amounts.

Distribution Reinvestment Plan

During the six months ended June 30, 2006, we declared total distributions of $0.27 per unit or $16.0 million. Of this amount, there was a $6.0 million reinvestment through our Distribution Reinvestment Plan ("DRIP") resulting in the issuance of 893,935 units.

The DRIP is a voluntary program that permits eligible Unitholders to automatically, and without charge, reinvest monthly distributions in additional units. Unitholders who elect to participate will see their periodic cash distributions automatically reinvested in units at a price equal to 95% of the volume-weighted average price of all units traded on the Toronto Stock Exchange on the ten trading days preceding the applicable record date. Eligible Unitholders may participate in the DRIP by directing their broker, dealer, or investment advisor holding their units to notify the plan administrator, Computershare Trust Company of Canada Ltd., through the Canadian Depository for Securities Inc. ("CDS").

Principal Unitholder Agreement

Certain Unitholders of the Fund (the "Principal Unitholders") have signed a Principal Unitholder Agreement that requires each Principal Unitholder to reinvest immediately through the DRIP 100% of any cash distributions made by the Fund on that Principal Unitholder's Fund units or Rollover LP units prior to March 31, 2010. In addition, each Principal Unitholder is restricted from selling more than 10% of their aggregate Fund units or Rollover LP units in any one twelve-month period before March 31, 2010. We believe that these agreements will ensure that the Fund has sufficient growth capital to continue to expand its operations. As of August 8, 2006 approximately 33% of the outstanding Fund units and Rollover LP units of Eveready were subject to the Principal Unitholder Agreement.

Cautionary Note Regarding our Distributions

Although we intend to continue making distributions to our Unitholders, these cash distributions are not assured, and may be reduced or suspended. Our ability to make cash distributions and the actual amount distributed will depend upon, among other things, our financial performance, our debt covenants and obligations, our ability to refinance our debt obligations on similar terms and at similar interest rates, our working capital requirements, and our future capital requirements. In addition, the market value of the units may decline if we are unable to meet our cash distribution targets in the future, and that decline may be significant.



Distributable Cash

------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
($ thousands, except per unit amounts) 2006 2006
------------------------------------------------------------------------
Cash flow from operating activities $ 15,316 $ 24,301
Add: asset retirement costs incurred 283 283
Add (deduct): net change in non-cash operating
working capital (2,705) 9,108
------------------------------------------------------------------------

Cash Flow(1) 12,894 33,692
Asset retirement costs incurred (283) (283)
Maintenance capital expenditures(1) (2,983) (5,058)
------------------------------------------------------------------------
Cash available for distribution and growth (c)(1) 9,628 28,351
Per unit - diluted(1) 0.15 0.49
------------------------------------------------------------------------
Distributions declared (a) 9,254 15,963
Payout ratio - including DRIP (a)/(c)(1) 96.1% 56.3%
Net distributions declared (b) 5,795 9,933
Payout ratio - excluding DRIP (b)/(c)(1) 60.2% 35.0%
------------------------------------------------------------------------
------------------------------------------------------------------------

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

(2) The excess of cash available for distribution and growth over
distributions declared for the six months ended June 30, 2006
reflects our reserves for such factors as seasonal
fluctuations in working capital and future growth 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, 2005, with the following exception. During the six month period ended June 30, 2006, we issued additional letters of credit, drawn on our demand revolving credit facility. Total outstanding letters of credit issued as of June 30, 2006 were CDN $830 thousand and US $500 thousand.

Related Party Transactions

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

Outlook

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

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

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

- Continued consolidation of a fragmented oilfield services industry;

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

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

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

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

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

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

Business Risks

Our business risks, including risks and uncertainties related to financial instruments, are substantially the same as those disclosed in our 2005 annual MD&A and our 2005 Annual Information Form. These documents are available on the System for Electronic Document Analysis and Retrieval ("SEDAR") web site at www.sedar.com.

Adoption of New Accounting Policy - Employee Unit Plan

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



Outstanding Unit Data

------------------------------------------------------------------------
As of: August 8
2006
------------------------------------------------------------------------
Fund units 49,679,537
Rollover LP units 16,023,184
------------------------------------------------------------------------

Total 65,702,721
------------------------------------------------------------------------
------------------------------------------------------------------------


As of August 8, 2006, we had 49,679,537 Fund units and 16,023,184 Rollover LP units outstanding totalling 65,702,721 Fund units and Rollover LP units in aggregate. The Rollover LP units were issued in conjunction with the completion of certain business acquisitions of the Fund, are units of subsidiary limited partnerships of the Fund and are designed to be, to the greatest extent practicable, the economic equivalent of Fund units. Rollover LP units are non-transferable (except to certain permitted assigns) and the holders thereof are entitled to receive distributions on a per unit basis equivalent to holders of units of the Fund. The Rollover LP units are exchangeable, at the option of the holder, into units of the Fund at anytime.

As of August 8, 2006, we had 415,000 unit options outstanding, exercisable at $5.00 per unit. All of these unit options have vested and are due to expire on November 17, 2010.

Non-GAAP Financial Measures

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

EBITDA:

EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. We believe, in addition to net earnings, EBITDA is a useful supplemental earnings measure as it provides an indication of the financial results generated by our principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions and before non-cash amortization expense.

EBITDA margin is calculated as EBITDA divided by revenue. EBITDA per unit is calculated as EBITDA divided by the weighted average number of units outstanding during the period.



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

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
$ thousands 2006 2005 2006 2005
------------------------------------------------------------------------
Net earnings $ 6,748 $ 1,738 $ 21,561 $ 8,212
Add:
Income taxes 255 23 914 1,046
Amortization 5,442 2,089 11,064 3,982
Interest 950 1,157 1,840 2,446
------------------------------------------------------------------------

EBITDA 13,395 5,007 35,379 15,686
------------------------------------------------------------------------
------------------------------------------------------------------------

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

------------------------------------------------------------------------
June March Dec Sept June March Dec Sept
($ thousands) 2006 2006 2005 2005 2005 2005 2004 2004
------------------------------------------------------------------------
Net earnings
(loss) 6,748 14,813 2,421 3,684 1,738 6,474 169 (295)
Add:
Income taxes 255 659 343 146 23 1,023 168 201
Amortization 5,442 5,622 3,781 2,716 2,089 1,892 1,294 1,136
Interest 950 890 1,030 1,315 1,157 1,290 858 1,284
------------------------------------------------------------------------

EBITDA 13,395 21,984 7,575 7,861 5,007 10,679 2,489 2,326
------------------------------------------------------------------------
------------------------------------------------------------------------


Cash Available for Distribution and Growth:

Cash available for distribution and growth is calculated as cash flow from operations before changes in non-cash operating working capital and asset retirement costs ("Cash Flow"), less maintenance capital expenditures and asset retirement costs. Per unit amounts refer to cash available for distribution and growth divided by the weighted average number of units outstanding during the period. We believe that cash available for distribution and growth is a useful supplemental measure as it provides an indication of cash available for distribution to our Unitholders. The definition of cash available for distribution and growth has changed from that previously presented in our 2006 first quarter MD&A. This definition now includes a deduction for asset retirement costs that were incurred for the first time in the second quarter.

The components of this supplemental measure are described below:

- "Cash Flow" is derived from the consolidated statements of cash flows and is calculated as cash provided from operating activities before changes in non-cash operating working capital and asset retirement costs. Per unit amounts refer to Cash Flow divided by the weighted average number of units outstanding during the period. The definition of Cash Flow has changed from that previously presented in our 2006 first quarter MD&A. This definition now also adds back asset retirement costs. Asset retirement costs were incurred for the first time in the second quarter. We believe that Cash Flow is a useful supplemental measure as it provides an indication of our ability to generate cash flow and is a useful measure in analyzing our operating performance. A reconciliation of this measure from cash provided from operating activities, as determined in accordance with GAAP, follows:



------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
$ thousands 2006 2005 2006 2005
------------------------------------------------------------------------
Cash provided from operating
activities $ 15,316 $ 9,717 $ 24,301 $ 7,940
Asset retirement costs incurred 283 - 283 -
Add (deduct) changes in non-
cash operating working capital (2,705) (5,815) 9,108 5,374
------------------------------------------------------------------------

Cash Flow 12,894 3,902 33,692 13,314
------------------------------------------------------------------------
------------------------------------------------------------------------


- "Maintenance capital expenditures" are capital expenditures incurred during the period to maintain existing levels of service. This includes capital expenditures to replace property, plant, and equipment disposed of and any costs incurred to enhance the operational life of existing property, plant, and equipment. Growth capital expenditures are excluded from this calculation. Growth capital expenditures include additions of new equipment to grow our capital asset base.

- "Payout ratio - including DRIP" is calculated as distributions declared for the period divided by cash available for distribution and growth.

- "Payout ratio - excluding DRIP" is calculated as net distributions declared for the period (excluding those distributions participating in the DRIP) divided by cash available for distribution and growth.

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

Working Capital

Working capital is calculated as current assets less current liabilities. Working capital ratio is calculated as current assets divided by current liabilities. We believe working capital is a useful supplemental measure as it provides an indication of our ability to settle our debt obligations as they come due. A reconciliation of how working capital was calculated for each of the periods presented in this MD&A follows:



------------------------------------------------------------------------
As of: June 30 December 31
($ thousands) 2006 2005
------------------------------------------------------------------------

Current assets $ 91,855 $ 68,980
Less: current liabilities 47,478 48,804
------------------------------------------------------------------------

Working capital 44,377 20,176
------------------------------------------------------------------------
------------------------------------------------------------------------

Working capital ratio (current assets divided by
current liabilities) 1.93 1.41
------------------------------------------------------------------------
------------------------------------------------------------------------


Funded Debt to Total Capital

Funded debt to total capital is calculated as funded debt (bank indebtedness, long-term debt, convertible debentures, notes payable, and the current portions of long-term debt and notes payable) divided by total capital (funded debt plus unitholders' equity). We believe funded debt to total capital is a useful supplemental measure as it provides an indication of the proportion of our operations that are funded from debt versus equity sources. A reconciliation of how funded debt and total capital were calculated for each of the periods presented in this MD&A follows:



------------------------------------------------------------------------
As of: June 30 December 31
($ thousands) 2006 2005
------------------------------------------------------------------------

Bank indebtedness $ - $ 9,034
Long-term debt 15,000 49,888
Convertible debentures 41,638 -
Notes payable 90 85
Current portion of notes payable 3,620 3,620
------------------------------------------------------------------------

Funded debt 60,348 62,627
------------------------------------------------------------------------
------------------------------------------------------------------------

Funded debt 60,348 62,627
Unitholders' equity 229,828 127,272
------------------------------------------------------------------------

Total capital 290,176 189,899
------------------------------------------------------------------------
------------------------------------------------------------------------

Funded debt to total capital ratio (funded debt
divided by total capital) 0.21 0.33
------------------------------------------------------------------------
------------------------------------------------------------------------


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

Note Regarding Forward-Looking Statements

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



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

------------------------------------------------------------------------
As at June 30 December 31
2006 2005
(thousands of Canadian dollars) $ $
------------------------------------------------------------------------

ASSETS (note 3)
Current
Cash and cash equivalents 8,639 -
Accounts receivable 71,634 59,361
Inventory 7,083 5,603
Prepaid expenses and deposits 4,499 4,016
------------------------------------------------------------------------
91,855 68,980

Property, plant, and equipment 158,667 110,043
Intangible assets 30,844 17,894
Goodwill 55,047 28,731
Other long-term assets 2,699 1,784
------------------------------------------------------------------------

339,112 227,432
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness (note 3) - 9,034
Accounts payable and accrued liabilities 38,793 34,266
Unitholder distributions payable 1,981 1,093
Income taxes payable 950 46
Current portion of notes payable (note 3) 3,620 3,620
Current portion of asset retirement obligations
(note 4) 2,134 745
------------------------------------------------------------------------
47,478 48,804

Long-term debt (note 3) 15,000 49,888
Convertible debentures (note 3) 41,638 -
Notes payable (note 3) 90 85
Asset retirement obligations (note 4) 299 512
Future income taxes 850 871
Share purchase obligation (note 2) 2,993 -
Non-controlling interest (note 5) 936 -
------------------------------------------------------------------------
109,284 100,160
------------------------------------------------------------------------
Commitments (notes 3 and 8)

Unitholders' Equity
Unitholders' capital (note 6) 205,175 116,551
Equity component of convertible debentures
(note 3) 8,030 -
Contributed surplus (note 7) 931 627
Accumulated earnings 44,576 23,015
Accumulated distributions (note 9) (28,884) (12,921)
------------------------------------------------------------------------
229,828 127,272
------------------------------------------------------------------------

339,112 227,432
------------------------------------------------------------------------
------------------------------------------------------------------------

(see accompanying notes)

Approved on behalf of the Board:
---------------- ----------------
Trustee Trustee



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

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(thousands of Canadian dollars, 2006 2005 2006 2005
except per unit amounts) $ $ $ $
------------------------------------------------------------------------

Revenue 82,910 44,016 176,782 99,201
Direct costs 55,762 31,344 114,294 69,257
------------------------------------------------------------------------

Gross profit 27,148 12,672 62,488 29,944
------------------------------------------------------------------------

Expenses
Administrative and general 13,541 7,590 26,543 14,156
Amortization (note 11) 5,442 2,089 11,064 3,982
Interest (note 11) 950 1,157 1,840 2,446
(Gain) loss on disposal of property,
plant, and equipment (40) 75 314 102
------------------------------------------------------------------------
19,893 10,911 39,761 20,686
------------------------------------------------------------------------

Earnings before income taxes and
non-controlling interest 7,255 1,761 22,727 9,258
------------------------------------------------------------------------

Income taxes
Current 285 23 935 28
Future (30) - (21) 1,018
------------------------------------------------------------------------
255 23 914 1,046
------------------------------------------------------------------------

Earnings before non-controlling
interest 7,000 1,738 21,813 8,212

Earnings attributable to
non-controlling interest (note 5) 252 - 252 -
------------------------------------------------------------------------

Net earnings 6,748 1,738 21,561 8,212

Accumulated earnings, beginning of
period 37,828 16,041 23,015 2,519
Trust reorganization adjustment - - - 7,048
------------------------------------------------------------------------

Accumulated earnings, end of period 44,576 17,779 44,576 17,779
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per unit - basic and
diluted (note 10) 0.11 0.05 0.37 0.26
------------------------------------------------------------------------
------------------------------------------------------------------------

(see accompanying notes)



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

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
(thousands of Canadian dollars) $ $ $ $
------------------------------------------------------------------------

Operating activities
Net earnings 6,748 1,738 21,561 8,212
Items not affecting cash:
Non-controlling interest 252 - 252 -
Amortization 5,442 2,089 11,064 3,982
(Gain) loss on disposal of
property, plant, and equipment (40) 75 314 102
Unit-based compensation (note 8) 466 - 466 -
Accretion of convertible debentures 56 - 56 -
Future income taxes (30) - (21) 1,018
------------------------------------------------------------------------
12,894 3,902 33,692 13,314
Asset retirement costs incurred (283) - (283) -
Net change in non-cash operating
working capital (note 12) 2,705 5,815 (9,108) (5,374)
------------------------------------------------------------------------

15,316 9,717 24,301 7,940
------------------------------------------------------------------------

Investing activities
Purchase of property, plant,
and equipment (13,180) (3,094) (30,401) (6,239)
Purchase of intangible assets (1,120) - (1,120) -
Proceeds on disposal of property,
plant, and equipment 349 115 1,897 893
Business acquisitions, net of cash
acquired (note 12) (20,819) (168) (33,109) (168)
Other long-term assets - net 54 86 98 111
------------------------------------------------------------------------

(34,716) (3,061) (62,635) (5,403)
------------------------------------------------------------------------

Financing activities
Decrease in bank indebtedness (217) (19,274) (9,337) (14,295)
Distributions, net of distribution
reinvestments (5,279) (737) (9,045) (894)
Proceeds from long-term debt 15,000 1,327 50,000 2,895
Repayment of long-term debt (37,194) (2,653) (87,162) (4,686)
Proceeds from issuance of
convertible debentures 47,699 - 47,699 -
Increase in notes payable - - 5 -
Repayment of subordinated debt - (62) - (125)
Proceeds from issuance of units 1,909 22,300 54,607 22,300
Unit issuance costs - acquisitions (45) (4) (48) (162)
Collection of employee share
purchase loans receivable 80 404 254 404
Repayment of advances from
unitholders - (2,360) - (2,377)
------------------------------------------------------------------------

21,953 (1,059) 46,973 3,060
------------------------------------------------------------------------

Net change in cash and cash
equivalents 2,553 5,597 8,639 5,597

Cash and cash equivalents,
beginning of period 6,086 - - -
------------------------------------------------------------------------

Cash and cash equivalents,
end of period 8,639 5,597 8,639 5,597
------------------------------------------------------------------------
------------------------------------------------------------------------
(see accompanying notes)



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


1. Nature of operations and significant accounting policies

Eveready Income Fund ("Eveready" or the "Fund") provides industrial and oilfield services; health, safety and environmental services; and oilfield equipment rental services to the energy, resource, and manufacturing sectors. The Fund's operations follow a seasonal pattern, with earnings traditionally being higher in the quarter ending March 31st and lower in the quarter ending June 30th compared to the other quarters of the year. Due to this seasonality, interim earnings reported for the three months ended June 30, 2006 may not be reflective of earnings on an annual basis.

These interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP") and have been prepared following the same accounting policies and methods of application as those disclosed in the annual consolidated financial statements of the Fund for the year ended December 31, 2005. The Fund has also established an Employee Unit Plan during the second quarter of 2006 that is accounted for in accordance with the fair value based method of accounting, as more fully described in note 8. Because the disclosures provided in these interim consolidated financial statements do not conform in all respects with GAAP for annual financial statements, these interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2005.

2. Business acquisitions

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



------------------------------------------------------------------------
Fair value of net Head West Tornado RDDB Pinnacle Other Total
assets acquired: $ $ $ $ $ $
------------------------------------------------------------------------

Current assets - 750 5,704 505 4,114 11,073
Property, plant, and
equipment 9,744 4,425 3,599 4,332 6,943 29,043
Intangible assets 1,215 1,102 7,939 367 2,202 12,825
Other long-term assets - - - - 98 98
Goodwill - 2,172 18,554 1,909 3,681 26,316
------------------------------------------------------------------------
Total assets 10,959 8,449 35,796 7,113 17,038 79,355
------------------------------------------------------------------------

Current liabilities - 2,424 4,715 - 5,228 12,367
Long-term liabilities - - - - 515 515
Non-controlling
interest - - 684 - - 684
------------------------------------------------------------------------
Total liabilities - 2,424 5,399 - 5,743 13,566
------------------------------------------------------------------------

Net assets acquired 10,959 6,025 30,397 7,113 11,295 65,789
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Consideration given: Head West Tornado RDDB Pinnacle Other Total
$ $ $ $ $ $
------------------------------------------------------------------------

Cash 10,755 3,000 7,685 7,000 6,307 34,747
Fund units - - 8,500 - 4,933 13,433
Rollover LP units - - 14,185 - - 14,185
Share purchase obligation - 2,993 - - - 2,993
Transaction costs 204 32 27 113 55 431
------------------------------------------------------------------------

Total consideration 10,959 6,025 30,397 7,113 11,295 65,789
------------------------------------------------------------------------
------------------------------------------------------------------------


(i) Head West

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

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

(ii) Tornado

Effective April 1, 2006, Eveready acquired 100% of the issued and outstanding shares of Tornado Rentals Ltd. ("Tornado"). Based in Stettler, Alberta, Tornado rents and sells a wide range of oilfield equipment. The purchase price for Tornado was approximately $5,993 and was paid via: (i) $3,000 in cash at closing, and (ii) $2,993 through the issuance of 454,177 in units of Eveready at a deemed price of $6.59 per unit. The unit portion of the purchase price was paid subsequent to June 30, 2006 and has been recognized as a share purchase obligation in the consolidated financial statements. Acquisition costs of $32 were also incurred providing for aggregate consideration of $6,025.

Intangible assets acquired with Tornado consist of customer relationships ($580) and an exclusive supplier agreement ($522) that will each be amortized straight-line over their estimated useful lives of five years.

(iii) RDDB

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

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

Intangible assets acquired with RDDB include customer relationships of $7,621 and the RDDB trade name of $318. Each of these intangible assets will be amortized straight-line over their estimated useful lives of five years.

(iv) Pinnacle

On May 29, 2006, Eveready acquired the business and assets of the Pinnacle Pigging Systems group of companies ("Pinnacle") for $7,000 in cash consideration. Pinnacle specializes in providing furnace tube decoking and related industrial services to oil and gas refineries in Canada and the United States. The assets acquired included all equipment, patents, and other intangible assets used in the Pinnacle business. Acquisition costs of $113 were also incurred providing for aggregate consideration of $7,113. Intangible assets acquired with Pinnacle consist of customer relationships ($103) and patents ($264) that will each be amortized straight-line over their estimated useful lives of five years and four years respectively.

(v) Other acquisitions

The Fund also completed five smaller business acquisitions during the six month period ended June 30, 2006 as follows:

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

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

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

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

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

Of the aggregate goodwill acquired, $1,829 will be deductible for income tax purposes. Intangible assets acquired that are included in the other category include customer relationships that will be amortized straight-line over their estimated useful lives of five years.

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

3. Debt obligations

a) Bank indebtedness

The Fund has a demand revolving credit facility by way of bank account overdraft with a maximum principal amount of $27,000. The credit facility bears interest at bank prime plus 0.25% and is collateralized by all assets of the Fund including a first fixed charge over accounts receivable and inventory and a second position charge over equipment. As of June 30, 2006, the effective interest rate on this credit facility was 6.25% . This credit facility was unused at June 30, 2006, except for the portion of the facility utilized by outstanding letters of credit of CDN $830 and US $500.

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

In August 2006, the credit facility was amended to increase the maximum principal amount to $40,000 from $27,000 and decrease the effective interest rate to bank prime.

b) Long-term debt

The Fund's long-term debt consists of a $60,000 revolving extendible senior secured credit facility. This credit facility requires payments of interest only at the Canadian dollar one-month bankers' acceptance rate plus 3.25% . As of June 30, 2006, the effective interest rate on this credit facility was 7.55% . An additional stand-by fee calculated at a rate of 0.25% per annum is also required on the unused portion of the credit facility.

The credit facility is collateralized by a first fixed charge over equipment and a second position charge over accounts receivable and inventory. The credit facility is renewable semi-annually subject to the mutual consent of both parties. To the extent that the credit facility is not renewed, the outstanding credit facility will be subject to a 12-month interest-only phase followed by a straight line amortization period of 30 months. The amount drawn on this credit facility as of June 30, 2006 was $15,000 (December 31, 2005 - $49,888).

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

c) Convertible debentures

On June 15, 2006, the Fund completed a bought-deal financing of $50,000 principal amount of convertible unsecured subordinated debentures (the "Debentures"). The Debentures have an annual coupon rate of 7.00%, and are due to mature on June 30, 2011. The Debentures are also convertible, at the holder's option, into units of Eveready at a price of $8.50 per unit. Purchasers of the Debentures will receive interest semi-annually with the first interest payment occurring on December 31, 2006. Issuance costs of $2,301 were incurred in connection with the financing, resulting in net proceeds of $47,699.

After June 30, 2009 and before June 30, 2010, the Debentures may be redeemed in whole or in part at the option of the Fund at a price equal to their principal amount plus accrued interest thereon, provided that the market price of the units on the date on which notice is given is not less than 125% of the conversion price of $8.50 per unit. After June 30, 2010, the Fund has the option to redeem the Debentures in whole or in part at a price equal to their principal amount plus accrued interest. The Fund may also, at its option and subject to certain conditions, elect to satisfy its obligation to repay all or any portion of the principal amounts of the Debentures that are to be redeemed or repaid at maturity, by issuing units of Eveready. The number of units a holder will receive in respect of each Debenture will be determined by dividing the principal amount of the Debentures that are to be redeemed or repaid at maturity by 95% of the market price of the units. The market price of the units will be calculated as the volume weighted average trading price of the units on the Toronto Stock Exchange for the 20 consecutive days ending five days prior to the applicable event.

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



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


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

d) Notes payable

Notes payable consist of unsecured promissory notes due to various entities. Notes payable of $3,521 bear interest at a rate of 6.0% and were repaid subsequent to June 30, 2006. The remaining note payable bears interest at an effective rate of 6.7%, and is repayable in varying instalments until October 2007. As of June 30, 2006, notes payable of $880 (bearing interest at a rate of 6.0%) was owing to an officer of the Fund and his spouse.

4. Asset retirement obligations

The Fund's asset retirement obligations include closure and post-closure costs related to its landfill facilities. The Fund estimates the undiscounted cash flows related to this obligation to be $2,860. Management has estimated the fair value of this obligation as of June 30, 2006 to be $2,433, using a credit adjusted discount rate of 7.0% . The majority of these obligations are expected to be incurred over an estimated period from 2006 to 2011. The Fund recorded the following activity during the six month period ended June 30, 2006:



------------------------------------------------------------------------
Six Month Period Ended June 30
2006
$
------------------------------------------------------------------------

Asset retirement obligation, beginning of period 1,257
New obligations and revised estimates 1,391
Asset retirement costs incurred (283)
Accretion expense 68
------------------------------------------------------------------------
Asset retirement obligation, end of period 2,433
Less: costs expected to be incurred within the next 12 months (2,134)
------------------------------------------------------------------------

299
------------------------------------------------------------------------
------------------------------------------------------------------------


5. Non-controlling interest

The Fund's non-controlling interest consists of the 20% non-controlling interest that the vendors retained in the acquisition of RDDB (note 2). The Fund recorded the following activity during the six month period ended June 30, 2006:



------------------------------------------------------------------------
Six Month Period Ended June 30
2006
$
------------------------------------------------------------------------

Non-controlling interest, beginning of period -
Non-controlling interest arising from the acquisition of RDDB
(note 2) 684
Earnings attributable to non-controlling interest 252
------------------------------------------------------------------------

Non-controlling interest, end of period 936
------------------------------------------------------------------------
------------------------------------------------------------------------

6. Unitholders' capital

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

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

Activity during the six months ended June 30, 2006:
Units issued - acquisition of Mercedes Surveys
(note 2) 260,606 1,433
Units issued - acquisition of RDDB (note 2) 3,240,773 22,685
Units issued - acquisition of Eugene Smith (note 2) 343,879 2,500
Units issued - acquisition of Astec (note 2) 144,092 1,000
Unit issuance costs - acquisitions - (48)
Units issued - bought-deal equity financing,
net of issuance costs 8,000,000 52,699
Units issued - distribution reinvestment plan
(note 9) 893,935 6,030
Exercise of unit options pursuant to the Employee
Unit Plan (note 8) 325,000 1,625
Units issued pursuant to the Employee Unit Plan
(note 8) 40,000 284
Transfer from contributed surplus for unit options
exercised (note 7) - 162
Collection of employee share purchase loans receivable - 254
------------------------------------------------------------------------

Balance as of June 30, 2006 63,519,657 205,175
------------------------------------------------------------------------
------------------------------------------------------------------------

The number of Units outstanding as of June 30, 2006
consisted of the following components:
Fund units 47,496,473
Rollover LP units 16,023,184
------------------------------------------------------------------------

63,519,657
------------------------------------------------------------------------
------------------------------------------------------------------------


Rollover LP units

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

During the six month period ended June 30, 2006, 2,274,464 Rollover LP units were converted into Fund units.

Bought-deal equity financing

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

Employee share purchase loans receivable

Offset within Unitholders' capital are employee share purchase loans receivable of $421 (December 31, 2005 -$675). These loans were issued in prior years to assist employees in acquiring shares in the capital stock of the Fund's predecessor company, Eveready Industrial Group Ltd. (which were subsequently converted into unit certificates of the Fund). These loans are non-interest bearing and are collateralized by the unit certificates issued. The market value of the units held as collateral for these loans was $3,054 as of June 30, 2006. Distributions paid on these units are applied against the principal balance of the loans receivable. As of June 30, 2006, an employee share purchase loan of $186 was due from an officer of the Fund.



7. Contributed surplus

------------------------------------------------------------------------
Six Month Period Ended June 30
2006
$
------------------------------------------------------------------------
Balance, beginning of period 627
Unit-based compensation expense (note 8) 466
Unit options exercised (162)
------------------------------------------------------------------------

Balance, end of period 931
------------------------------------------------------------------------
------------------------------------------------------------------------


8. Unit Option Plan and Employee Unit Plan

Unit Option Plan

On November 17, 2005, 1,255,000 unit options were issued to employees and trustees of the Fund, exercisable at $5.00 per unit. These options were issued pursuant to the Fund's Unit Option Plan. The options vested immediately and are due to expire on November 17, 2010. During the three months ended June 30, 2006, 325,000 unit options were exercised in connection with the Employee Unit Plan described below. As of June 30, 2006, 930,000 unit options remained outstanding. Subsequent to June 30, 2006, an additional 515,000 of these unit options were exercised in connection with the Employee Unit Plan.

Employee Unit Plan

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

The Fund will then match the Employee's unit acquisition by acquiring, via the Employee Unit Plan Trust (the "Trust") the same number of units from the market (hereinafter referred to as the "Matching Units"). The Matching units will vest to the Employee 20% per year over five years commencing on the day following the end of the fiscal year in which the respective acquisition was made. Compensation expense will be recorded by the Fund over the vesting period. During the three month period ended June 30, 2006, compensation expense included in administrative and general expenses of $466 was recognized pursuant to this Plan.

Distributions made by the Fund with respect to unvested units held by the Trust will be paid to the Employee at the end of each fiscal year. Unvested units held by the Trust will be shown as a reduction of Unitholders' Equity in the consolidated financial statements.

On June 27, 2006, 365,000 units were issued in accordance with the Plan. Of this amount, 325,000 units were issued through the exercise of outstanding unit options and 40,000 units were issued at a market price of $7.09 per unit. In July 2006, an additional 525,000 units were issued pursuant to the Plan.

In July 2006, pursuant to the terms of the Plan, the Trust also acquired 930,000 Matching Units. The first 20% of these Matching Units will vest to the Employees on January 1, 2007.

9. Distributions

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



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

January 31, 2006 0.04 2,011 846 1,165
February 28, 2006 0.04 2,346 852 1,494
March 28, 2006 0.04 2,352 873 1,479
April 28, 2006 0.05 2,947 1,079 1,868
May 31, 2006 0.05 3,140 1,207 1,933
June 30, 2006 0.05 3,167 1,173 1,994
------------------------------------------------------------------------

Total 0.27 15,963 6,030 9,933
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Accumulated Distributions
------------------------------------------------------------------------
Balance, beginning of period 12,921 6,557 6,364
Distributions declared 15,963 6,030 9,933
------------------------------------------------------------------------

Balance, end of period 28,884 12,587 16,297
------------------------------------------------------------------------
------------------------------------------------------------------------


Distribution Reinvestment Plan

During the six months ended June 30, 2006, the Fund declared total distributions of $0.27 per unit or $15,963. Of this amount, there was a $6,030 reinvestment through the Fund's Distribution Reinvestment Plan ("DRIP"), resulting in the issuance of 893,935 units. The DRIP is a voluntary program that permits eligible Unitholders to reinvest monthly distributions in additional Units. Eligible Unitholders may participate in the DRIP by directing their broker, dealer, or investment advisor holding their Units to notify the plan administrator, Computershare Trust Company of Canada Ltd., through the Canadian Depository for Securities Inc. ("CDS").

10. Earnings per unit

Earnings per unit amounts are calculated based on the weighted average number of units outstanding during the period. Basic per unit amounts have been calculated on the basis that all outstanding Rollover LP units have been converted into Fund units. Diluted per unit amounts include the dilutive effect of outstanding unit options. The outstanding convertible debentures did not have a dilutive effect on earnings per unit in any of the periods presented. The basic and diluted weighted average number of units outstanding during the three and six month periods ended June 30, 2006 and 2005 respectively are as follows:



------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
------------------------------------------------------------------------

Weighted average number of
units outstanding - basic 62,057,020 33,476,315 57,945,666 31,816,133
Weighted average number of
units outstanding
- diluted 62,458,279 33,476,315 58,311,856 31,816,133
------------------------------------------------------------------------
------------------------------------------------------------------------

11. Supplemental expenditure information

a) Amortization expense

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------

Amortization of property, plant,
and equipment 4,697 2,073 10,001 3,966
Amortization of intangible assets 699 16 995 16
Accretion expense (note 4) 46 - 68 -
------------------------------------------------------------------------

5,442 2,089 11,064 3,982
------------------------------------------------------------------------
------------------------------------------------------------------------

b) Interest expense

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------

Interest - long-term debt 671 609 1,298 1,321
Interest - convertible debentures 209 - 209 -
Interest - subordinated debt - 170 - 341
Interest - other 70 378 333 784
------------------------------------------------------------------------

950 1,157 1,840 2,446
------------------------------------------------------------------------
------------------------------------------------------------------------

12.Supplemental cash flow information

a) Changes in non-cash operating working capital:

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------

Accounts receivable 9,634 7,920 (4,009) (6,891)
Work in progress - (454) - (1,500)
Inventory 450 (434) (834) (392)
Prepaid expenses and deposits (1,699) 77 (390) (530)
Accounts payable and accrued
liabilities (4,737) (1,311) (3,481) 3,922
Income taxes payable (943) 17 (394) 17
------------------------------------------------------------------------

2,705 5,815 (9,108) (5,374)
------------------------------------------------------------------------
------------------------------------------------------------------------

b) Non-cash investing and financing activities:

During the three and six month periods ended June 30, 2006,
distributions of $3,459 and $6,030 respectively, owing to Unitholders
participating in the DRIP, were settled by issuing 893,935 units (note
9).

c) Interest and income taxes paid:

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------

Income taxes paid (recovered) 1,227 21 1,330 (10)
Interest paid 896 1,251 1,856 2,442
------------------------------------------------------------------------
------------------------------------------------------------------------

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

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------

Cash consideration paid (note 2) 22,685 313 34,747 313
Transaction costs (note 2) 203 21 431 21
Less: cash acquired in business
acquisitions (2,069) (166) (2,069) (166)
------------------------------------------------------------------------

Cash used for business
acquisitions, net of cash
acquired 20,819 168 33,109 168
------------------------------------------------------------------------
------------------------------------------------------------------------


13. Segmented reporting

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



Selected financial information by reportable segment is disclosed as
follows:

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

Revenue 75,431 4,956 2,523 82,910
Amortization expense 3,953 709 780 5,442
Interest expense 840 37 73 950
Earnings (loss) before income
taxes and non-controlling
interest 7,133 (309) 431 7,255

Capital expenditures (excluding
business acquisitions) 9,143 2,070 1,967 13,180

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

Revenue 41,773 2,243 - 44,016
Amortization expense 2,076 13 - 2,089
Interest expense 1,143 14 - 1,157
Earnings (loss) before income
taxes 1,938 (177) - 1,761

Capital expenditures (excluding
business acquisitions) 3,060 34 - 3,094
------------------------------------------------------------------------
------------------------------------------------------------------------

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

Revenue 161,611 9,714 5,457 176,782
Amortization expense 7,111 2,830 1,123 11,064
Interest expense 1,660 77 103 1,840
Earnings (loss) before income
taxes and non-controlling
interest 21,757 (567) 1,537 22,727

Capital expenditures (excluding
business acquisitions) 22,285 3,734 4,382 30,401

------------------------------------------------------------------------
Six Month Period Ended
June 30, 2005
------------------------------------------------------------------------

Revenue 94,561 4,640 - 99,201
Amortization expense 3,958 24 - 3,982
Interest expense 2,418 28 - 2,446
Earnings before income taxes 9,355 (97) - 9,258

Capital expenditures (excluding
business acquisitions) 6,126 113 - 6,239
------------------------------------------------------------------------
------------------------------------------------------------------------

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

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

Property, plant, and
equipment 133,119 8,162 17,386 158,667
Intangible assets 12,343 15,288 3,213 30,844
Goodwill 44,348 3,975 6,724 55,047
Total assets 277,994 30,534 30,584 339,112

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

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

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

------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------

Revenue
Canada (excluding oilsands region) 61,923 31,526 125,451 69,995
Oilsands region(1) 19,742 10,884 48,173 26,683
United States and international 1,245 1,606 3,158 2,523
------------------------------------------------------------------------

82,910 44,016 176,782 99,201
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
As at: June 30 December 31
2006 2005
$ $
------------------------------------------------------------------------
Property, plant and equipment, goodwill, and
intangible assets
Canada 237,734 152,284
United States and international 6,824 4,384
------------------------------------------------------------------------

244,558 156,668
------------------------------------------------------------------------
------------------------------------------------------------------------

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


14. Related party transactions

a) During the three and six month periods ended June 30, 2006, the Fund incurred $150 and $304 (June 2005 - $115 and $240) respectively for professional fees from a partnership of which one of the trustees of the Fund is an associate.

b) During the three and six month periods ended June 30, 2006, the Fund incurred $77 and $117 (June 2005 - $101 and $131) respectively for professional fees from a partnership of which one of the trustees of the Fund is a partner.

c) Included in general and administrative expenses for the three and six month periods ended June 30, 2006 are occupancy costs of $144 and $289 (June 2005 - $108 and $216) respectively that were paid to companies controlled by certain officers and/or trustees of the Fund.

d) During the three and six month periods ended June 30, 2006, interest expense of $13 and $26 (June 2005 - $13 and $26) respectively was incurred on a note payable owing to an officer of the Fund and his spouse (note 3).

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

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

15. Subsequent events and proposed business acquisitions

a) Acquisition of the Cat Tech group of companies

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

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

The purchase price of approximately US $29,384 was paid via: (i) US $21,884 in cash and (ii) US $7,500 through the issuance of 1,246,343 units of Eveready, issued at a deemed price of CDN $6.70 per unit. The final purchase may be subject to adjustment based on Cat Tech's net equity as of June 30, 2006.

b) Acquisition of a directional boring and punching business

In May 2006, Eveready entered into a confidential letter of intent to acquire an 80% interest in the assets and business of a directional boring and punching business. The letter of intent contemplates a purchase price of approximately $11,360 ($14,200 less the 20% non-controlling interest that will be retained by the vendor), payable through the issuance of units of Eveready. The units are to be issued at a deemed price per unit equal to the lower of (i) the 10 day weighted average trading price of the units as traded on the Toronto Stock Exchange on the 10 days prior to the signing of the letter of intent; and (ii) the 10 day weighted average trading price of the units as traded on the Toronto Stock Exchange on the 10 days prior to the effective date of the acquisition. The vendors may also elect to receive a portion of the unit consideration in Rollover LP units.

In connection with the above acquisition, Eveready will also enter into mutual option agreement with the vendors. This agreement will provide Eveready a call option to acquire the remaining 20% non-controlling interest and provide the vendors a put option to sell the remaining 20% non-controlling interest to Eveready exercisable at any time after July 31, 2009. The exercise price for each option is based on a formula that is designed to estimate the fair value of the non-controlling interest at the time the option is exercised. This acquisition is expected to be effective September 1, 2006.

c) Acquisition of an oilfield equipment rental company

In June, 2006, Eveready entered into a confidential letter of intent to acquire the business and assets of an oilfield equipment rental company based in northern Alberta. The letter of intent contemplates a purchase price of approximately $9,000, payable through a combination of: (i) $6,300 in cash and (ii) the remainder in Rollover LP units issued at a deemed price of $6.95 per unit. This acquisition is expected to be completed in August 2006.

d) Acquisition of the Diversified Pressure Services group of companies

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

The letter of intent contemplates a purchase price of approximately $7,500, payable through a combination of: (i) $3,750 in cash and (ii) $3,750 in Rollover LP units issued at a deemed price of $6.74 per Rollover LP unit. This acquisition is expected to be effective September 1, 2006.

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

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

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

This acquisition will also be completed in two stages, with the Company's equipment having been acquired on August 1, 2006 for cash proceeds equal to $3,696. This value was based on the equipment's fair market value, as determined by a third party appraiser. The final closing of the acquisition is expected to be in October 2006.

f) Acquisition of Airborne Imaging Inc.

In May 2006, Eveready entered into a letter of intent to acquire 100% of the issued and outstanding shares of Airborne Imaging Inc. ("Airborne"). Airborne is a private Alberta-based company that provides comprehensive planning and mapping solutions to companies operating primarily in the oil and gas sector.

The letter of intent contemplates a purchase price of approximately $4,800, payable through a combination of: (i) $1,900 in cash and (ii) $2,900 in units of Eveready issued at a deemed price of $7.69 per unit. This acquisition is expected to be effective October 1, 2006.

g) Acquisition of Real Time Surveys Inc.

In July 2006, Eveready entered into a letter of intent to acquire the business and assets of Real Time Surveys Inc. ("Real Time"). Real Time is a private Alberta-based company that provides surveying services to support exploration programs for oil and gas companies. The letter of intent contemplates a purchase price of approximately $1,600, payable through the issuance of units of Eveready at a deemed price of $6.76 per unit. This acquisition is expected to be completed in September 2006.

h) Acquisition of an environmental services company

In July 2006, Eveready entered into a confidential letter of intent to acquire 100% of the issued and outstanding shares of an environmental services company (the "Company"). Based in Michigan, USA, the Company specializes in the custom design and manufacture of environmental remediation equipment. The Company also provides environmental remediation services to a wide range of customers operating primarily in the chemical, petroleum, utilities, real estate and manufacturing sectors.

The letter of intent contemplates a purchase price of approximately US $4,000, payable through cash consideration. This acquisition is expected to be effective October 1, 2006.

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

i) Amendment to demand revolving credit facility

In August 2006, the Fund's demand revolving credit facility was amended to increase the maximum principal amount to $40,000 from $27,000 and decrease the effective interest rate to bank prime.

16. Comparative figures

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

Contact Information

  • Eveready Income Fund
    Rod Marlin
    President & CEO
    (780) 451-6075
    (780) 451-2142 (FAX)
    or
    Eveready Income Fund
    John M. Stevens
    Senior Vice President & CFO
    (780) 451-6075
    (780) 451-2142 (FAX)
    Website: www.evereadyincomefund.com