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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K/A
 
Amendment No. 2 to
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): July 31, 2009
 
CLEAN HARBORS, INC.
(Exact name of registrant as specified in its charter)
 
Massachusetts	 	001-34223	 	04-2997780	
(State or other jurisdiction
of incorporation)	 	(Commission
File Number)	 	(IRS Employer
Identification No.)	
 	 	 	 	 	
42 Longwater Drive, Norwell,
Massachusetts	 	02061-9149	
(Address of principal executive offices)	 	(Zip Code)	
 
(781) 792-5000
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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Explanatory Note
 
On August 3, 2009, Clean Harbors, Inc. (the “Company” or “Clean Harbors”) filed with the Securities and Exchange Commission a Current Report on Form 8-K (the “Initial 8-K Report”) reporting, among other matters, the Company’s acquisition on July 31, 2009 of all of the outstanding shares of Eveready Inc., an Alberta corporation (“Eveready”).  On September 21, 2009, the Company filed with the Commission Amendment No. 1 to the Initial 8-K Report in order to update one of the Exhibits filed with the Initial 8-K Report.
 
In accordance with Item 9.01(a) of Form 8-K, the Initial 8-K Report did not include the historical financial statements of Eveready or the unaudited pro forma condensed combined financial information of the Company (collectively, the “Financial Information”) and instead contained an undertaking to file the Financial Information with the Commission in an amendment to the Initial 8-K Report not later than 71 days after the due date for the filing of the Initial 8-K Report. This Amendment is being filed to satisfy the Registrant’s undertaking to file the Financial Information required by Item 9.01 of Form 8-K, and this Amendment should be read in conjunction with the Initial 8-K Report, as previously amended by Amendment No. 1 thereto.
 
Item 9.01        Financial Statements and Exhibits.
 
 	 	Page	
(a) Financial Statements of Business Acquired	 	 	
 	 	 	
Audited Consolidated Financial Statements of Eveready Inc. and Subsidiaries:	 	 	
 	 	 	
Auditors’ Report	 	2	
Consolidated Balance Sheets as of December 31, 2008 and 2007	 	3	
Consolidated Statements of (Loss) Earnings and Comprehensive (Loss) Income and Deficit for the Three Years Ended December 31, 2008	 	4	
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2008	 	5	
Notes to Consolidated Financial Statements	 	6	
 	 	 	
Unaudited Consolidated Financial Statements of Eveready Inc. and Subsidiaries:	 	 	
 	 	 	
Unaudited Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008	 	68	
Unaudited Consolidated Statements of (Loss) Earnings and Comprehensive (Loss) Income and Deficit for the Six Months Ended June 30, 2009 and 2008	 	69	
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008	 	70	
Notes to the Unaudited Consolidated Financial Statements	 	71	
 	 	 	
(b)  Pro Forma Financial Information	 	 	
 	 	 	
Unaudited Pro Forma Condensed Combined Financial Statements:	 	 	
 	 	 	
Unaudited Pro Forma Condensed Combined Financial Information	 	94	
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2009	 	96	
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2008	 	98	
Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 2009	 	99	
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements	 	100	
 	 	 	
(c)  Exhibits	 	 	
 	 	 	
23.2         Auditors’ Consent - Ernst & Young LLP	Filed herewith	

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AUDITORS’ REPORT
 
To the Directors of
Eveready Inc.
 
We have audited the consolidated balance sheets of Eveready Inc. as at December 31, 2008 and 2007 and the consolidated statements of (loss) earnings and comprehensive (loss) income and deficit, and cash flows for each of the years in the three-year period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with Canadian generally accepted auditing standards and with auditing standards generally accepted in the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
 
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2008 and 2007 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2008 in accordance with Canadian generally accepted accounting principles.
 
(SIGNED) “Ernst & Young LLP”

Edmonton, Canada
June 15, 2009	 	
 	Chartered Accountants	
 
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Eveready Inc.
Consolidated Balance Sheets
See Nature of operations and basis of presentation (note 1)
 
As at December 31	 	2008	 	2007	 	
 	 	$	 	$	 	
 	 	(thousands of
Canadian dollars)	 	
ASSETS	 	 	 	 	 	
Current	 	 	 	 	 	
Cash	 	5,858	 	8,092	 	
Accounts receivable	 	153,389	 	122,214	 	
Income taxes recoverable	 	—	 	19	 	
Inventory	 	11,516	 	13,242	 	
Prepaid expenses and deposits	 	3,201	 	2,699	 	
 	 	173,964	 	146,266	 	
Property, plant and equipment (note 7)	 	330,831	 	303,344	 	
Intangible assets (note 8)	 	46,738	 	56,674	 	
Goodwill (note 9)	 	23,069	 	110,746	 	
Other long-term assets (note 10)	 	1,602	 	1,501	 	
 	 	576,204	 	618,531	 	
LIABILITIES AND SHAREHOLDERS’ EQUITY	 	 	 	 	 	
Current	 	 	 	 	 	
Accounts payable and accrued liabilities	 	60,705	 	58,452	 	
Distributions payable	 	3,671	 	3,438	 	
Income taxes payable (note 22)	 	691	 	—	 	
Current portion of long-term debt (note 11)	 	1,500	 	1,500	 	
Current portion of obligations under capital lease (note 12)	 	4,619	 	2,880	 	
Current portion of asset retirement obligations (note 14)	 	584	 	256	 	
 	 	71,770	 	66,526	 	
Long-term debt (note 11)	 	213,363	 	199,836	 	
Obligations under capital lease (note 12)	 	18,787	 	15,292	 	
Convertible debentures (note 13)	 	44,132	 	42,244	 	
Asset retirement obligations (note 14)	 	2,419	 	2,222	 	
Future income taxes (note 22)	 	10,095	 	4,545	 	
Non-controlling interest (note 15)	 	2,760	 	3,004	 	
 	 	363,326	 	333,669	 	
Commitments, contingencies, and guarantees (note 27)	 	 	 	 	 	
Shareholders’ Equity	 	 	 	 	 	
Shareholders’ capital (note 16)	 	352,523	 	—	 	
Unitholders’ capital (note 16)	 	—	 	327,991	 	
Shares held under Employee Unit Plan (note 17)	 	(11,230	)	(13,601	)	
Equity component of convertible debentures (note 13)	 	8,030	 	8,030	 	
Contributed surplus (note 18)	 	6,941	 	3,688	 	
Deficit	 	(143,386	)	(41,246	)	
 	 	212,878	 	284,862	 	
 	 	576,204	 	618,531	 	
 
(see accompanying notes)
 
Approved on behalf of the Board:	 	(SIGNED) “Peter Lacey”	 	(SIGNED) “J. W. Bruce Picton”	
 	 	Peter Lacey
Director	 	J. W. Bruce Picton
Director	
 
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Eveready Inc.
Consolidated Statements of (Loss) Earnings and Comprehensive (Loss) Income and Deficit
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
 	 	(thousands of
Canadian dollars,
except per share amounts)	 	
Revenue	 	650,628	 	518,896	 	379,693	 	
Direct costs	 	465,940	 	367,862	 	259,418	 	
Gross profit	 	184,688	 	151,034	 	120,275	 	
Expenses	 	 	 	 	 	 	 	
General and administrative	 	76,603	 	66,961	 	52,160	 	
Amortization (note 21)	 	50,424	 	41,884	 	26,453	 	
Interest (note 21)	 	21,160	 	18,877	 	7,662	 	
Stock-based compensation (note 17)	 	3,110	 	3,069	 	2,629	 	
(Gain) loss on foreign exchange	 	(1,539	)	1,644	 	(652	)	
Loss (gain) on disposal of property, plant and equipment	 	240	 	(19	)	691	 	
Impairment of intangible assets and goodwill (notes 8 and 9)	 	90,343	 	—	 	—	 	
 	 	240,341	 	132,416	 	88,943	 	
(Loss) earnings before income taxes and non-controlling interest	 	(55,653	)	18,618	 	31,332	 	
Income taxes (note 22)	 	 	 	 	 	 	 	
Current	 	1,430	 	184	 	564	 	
Future	 	5,534	 	3,851	 	110	 	
 	 	6,964	 	4,035	 	674	 	
(Loss) earnings before non-controlling interest	 	(62,617	)	14,583	 	30,658	 	
Earnings attributable to non-controlling interest (note 15)	 	820	 	957	 	757	 	
Net (loss) earnings and comprehensive (loss) income	 	(63,437	)	13,626	 	29,901	 	
(Deficit) retained earnings, beginning of year	 	(41,246	)	2,175	 	10,094	 	
Distributions (note 19)	 	(38,703	)	(57,047	)	(38,607	)	
Trust reorganization adjustments (note 22)	 	—	 	—	 	787	 	
Deficit (retained earnings), end of year	 	(143,386	)	(41,246	)	2,175	 	
(Loss) earnings per share — basic (note 20)	 	(3.47	)	0.80	 	2.18	 	
(Loss) earnings per share — diluted (note 20)	 	(3.47	)	0.80	 	2.16	 	
 
(see accompanying notes)
 
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Eveready Inc.
Consolidated Statements of Cash Flows
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
 	 	(thousands of Canadian
dollars)	 	
Operating activities	 	 	 	 	 	 	 	
Net (loss) earnings	 	(63,437	)	13,626	 	29,901	 	
Items not affecting cash:	 	 	 	 	 	 	 	
Amortization	 	50,424	 	41,884	 	26,453	 	
Stock-based compensation	 	3,110	 	3,069	 	2,629	 	
Loss (gain) on disposal of property, plant and equipment	 	240	 	(19	)	691	 	
Impairment of intangible assets and goodwill	 	90,343	 	—	 	—	 	
Amortization of deferred costs	 	959	 	424	 	509	 	
Accretion of long-term debt	 	670	 	361	 	—	 	
Accretion of convertible debentures	 	1,888	 	1,671	 	695	 	
Future income taxes	 	5,534	 	3,851	 	110	 	
Foreign exchange on future income taxes	 	15	 	(66	)	—	 	
Earnings attributable to non-controlling interest	 	820	 	957	 	757	 	
 	 	90,566	 	65,758	 	61,745	 	
Asset retirement costs incurred (note 14)	 	(130	)	(629	)	(1,137	)	
Net change in non-cash operating working capital (note 23)	 	(27,780	)	(9,310	)	(14,316	)	
Cash provided by operating activities	 	62,656	 	55,819	 	46,292	 	
Investing activities	 	 	 	 	 	 	 	
Purchase of property, plant and equipment	 	(64,146	)	(76,790	)	(68,823	)	
Purchase of intangible assets	 	(1,774	)	(5,896	)	(2,190	)	
Proceeds on disposal of property, plant and equipment	 	3,800	 	6,288	 	3,823	 	
Business acquisitions, net of cash acquired (note 23)	 	(7,440	)	(65,196	)	(72,950	)	
Other long-term assets — net	 	(758	)	(173	)	(180	)	
Cash used in investing activities	 	(70,318	)	(141,767	)	(140,320	)	
Financing activities	 	 	 	 	 	 	 	
Proceeds from issuance of long-term debt	 	73,382	 	171,048	 	105,000	 	
Repayment of long-term debt	 	(60,511	)	(53,500	)	(104,201	)	
Proceeds from sale-leasebacks (note 12)	 	8,880	 	—	 	—	 	
Repayment of obligations under capital lease	 	(4,313	)	(1,835	)	—	 	
Distributions, net of “in-kind” distributions/distribution reinvestments	 	(7,222	)	(37,169	)	(22,724	)	
Repurchase of units for cancellation (note 16)	 	(3,758	)	—	 	—	 	
Distribution of non-controlling interest (note 15)	 	(1,064	)	(346	)	—	 	
Proceeds from unit options exercised (note 17)	 	29	 	—	 	—	 	
Collection of employee share purchase loans receivable	 	5	 	303	 	368	 	
Proceeds from issuance of units, net of issuance costs	 	—	 	41,014	 	52,699	 	
(Decrease) increase in bank indebtedness	 	—	 	(26,049	)	22,473	 	
Proceeds from issuance of units — Employee Unit Plan	 	—	 	5,768	 	7,191	 	
Purchase of units — Employee Unit Plan	 	—	 	(5,188	)	(10,643	)	
Unit issuance costs — acquisitions	 	—	 	(6	)	(129	)	
Proceeds of issuance of convertible debentures, net of issuance costs	 	—	 	—	 	47,699	 	
Repayment of notes payable	 	—	 	—	 	(3,705	)	
Cash provided by financing activities	 	5,428	 	94,040	 	94,028	 	
Net change in cash	 	(2,234	)	8,092	 	—	 	
Cash, beginning of year	 	8,092	 	—	 	—	 	
Cash, end of year	 	5,858	 	8,092	 	—	 	
 
Supplemental cash flow information (note 23)
 
(see accompanying notes)
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
1. Nature of operations and basis of presentation
 
Eveready Inc. (“Eveready”) was incorporated on October 27, 2008 under the laws of the Province of Alberta. The business of Eveready, held in its subsidiaries and limited partnerships, provides industrial and oilfield maintenance and production services to the energy, resource, and industrial sectors. Eveready was formed pursuant to the provisions of the Business Corporations Act  (Alberta) to participate in a plan of arrangement involving, among others, Eveready’s predecessor Eveready Income Fund (the “Fund”), Eveready and the security holders of the Fund (the “Conversion”). Effective December 31, 2008, the Conversion restructured the Fund from an unincorporated open-ended mutual fund trust to Eveready Inc., a publicly listed corporation ( note 2 ).
 
These consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) and are presented in Canadian dollars rounded to the nearest thousand ($000), except where otherwise indicated.
 
Included in these consolidated financial statements are the accounts of Eveready and its predecessor, the Fund, (collectively hereinafter referred to as “Eveready” or the “Company”) and all of its subsidiary limited partnerships and incorporated companies. Certain of these entities have non-controlling interests presented separately in these consolidated financial statements. The results of acquired business operations are included in these consolidated financial statements from their effective dates of acquisition. All significant inter-entity balances and transactions have been eliminated.
 
These consolidated financial statements have been prepared, for the purpose of inclusion, through incorporation by reference, in the Management Information Circular to be dated June 15, 2009. In addition, these consolidated financial statements have been prepared subsequent to the release of Eveready’s interim consolidated financial statements for the three months ended March 31, 2009 filed on the System for Electronic Document Analysis and Retrieval website at  www.sedar.com.  As a result, these consolidated financial statements have been revised retroactively, to give effect to the adoption of the Canadian Institute of Chartered Accounts (“CICA”) Handbook Section 3064 Goodwill and Intangible Assets ( note 4 ) and Eveready’s revised business segment composition ( note 24 ).
 
2. Corporate conversion
 
On December 11, 2008, unitholders of the Fund voted in favour of converting the Fund into a corporation, Eveready, pursuant to a statutory plan of arrangement. The Conversion was completed on December 31, 2008. As a result of the Conversion, unitholders of the Fund received one common share (“share”) of Eveready for each five units of the Fund. Eveready assumed the assets and liabilities, previously held, directly or indirectly, by the Fund. All of the covenants and obligations of the Fund in respect of the outstanding convertible unsecured subordinated debentures (the “Debentures”) were also assumed by Eveready.
 
The Conversion has been accounted for as a continuity of interests of the Fund since there has been no change of control and since Eveready will continue to operate the business of the Fund. These consolidated financial statements reflect Eveready as a corporation at December 31,
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
2. Corporate conversion (Continued)
 
2008 and as Eveready Income Fund prior thereto. All references to “shares” refer collectively to Eveready’s shares on and subsequent to December 31, 2008 and to Fund units prior to the Conversion. All references to “shareholders” refer collectively to holders of Eveready’s shares on and subsequent to December 31, 2008 and to Fund unitholders prior to the Conversion.
 
As a result of the Conversion, in which each five units were exchanged for one share, the Debentures became convertible into shares of Eveready and the Debentures’ conversion price was adjusted from $7.7508 per unit to $38.754 per share ( note 13 ).
 
Effective December 31, 2008, Eveready established a Share Option Plan under which options will be granted to directors, officers, employees and consultants of Eveready, and its subsidiaries, in order to provide an opportunity for these individuals to increase their proprietary interest in Eveready’s long-term success. The Share Option Plan replaced the Unit Option Plan of the Fund. In accordance with the Conversion, in which each five units were exchanged for one share, participants of the Unit Option Plan were entitled to receive, for the same aggregate consideration, share options for outstanding unit options held as at the Conversion date ( note 17 ). References to the “Share Option Plan” should be read as references to the “Unit Option Plan” for all periods prior to December 31, 2008. In addition, references to “stock-based compensation” under the Share Option Plan should be read as references to “unit-based compensation” under the Unit Option Plan for all periods prior to December 31, 2008.
 
Upon completion of the Conversion, all outstanding Employee Unit Plan Matching Units held by the Employee Unit Plan Trust ( note 17 ) were consolidated into Matching Shares, where each five Matching Units were exchanged for one Matching Share. References to “Matching Shares” or “Shares” under the Employee Unit Plan should be read as references to “Matching Units” or “Units” under the Employee Unit Plan for all periods prior to December 31, 2008. In addition, references to “stock-based compensation” under the Employee Unit Plan should be read as references to “unit-based compensation” under the Employee Unit Plan for all periods prior to December 31, 2008.
 
3. Summary of significant accounting policies
 
Eveready’s accounting policies are in accordance with Canadian GAAP and are consistent with generally accepted accounting principles in the United States in all material respects except as outlined in Note 29.
 
Use of estimates
 
The timely preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions. These estimates will affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates used in the preparation of these financial statements include: estimated provision for bad debts on accounts receivable; estimated useful lives for intangible assets and property, plant and equipment; the fair value of property, plant and equipment and identifiable
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
3. Summary of significant accounting policies (Continued)
 
intangible assets acquired in business acquisitions; the fair value of stock-based compensation; the fair value of asset retirement obligations; the fair value of convertible debentures; the fair value of long-term debt; future cash flows used to estimate the fair value of reporting units for goodwill impairment evaluation purposes and for the impairment of long-lived assets; and estimates on various taxation amounts. Actual results may differ from these estimates. These financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below.
 
Cash
 
Cash includes cash on hand and balances with banks. Bank borrowings, including bank overdrafts, are normally not of a temporary nature and are therefore not included in cash.
 
Property, plant and equipment
 
Property, plant and equipment is recorded at cost less accumulated amortization. Costs incurred to extend the useful life or to increase the future benefit of property, plant and equipment are capitalized. Costs to repair or maintain property, plant and equipment are expensed as incurred.
 
Property, plant and equipment are amortized over their estimated useful lives (net of salvage value) at the following annual rates:
 
Service equipment (light)	 	20%	 	declining balance	
Service equipment (heavy)	 	5 to 15 years	 	straight-line	
Automotive equipment (light)	 	30%	 	declining balance	
Automotive equipment (heavy)	 	5 to 12 years	 	straight-line	
Camps and rental equipment	 	5 to 15 years	 	straight-line	
Rental equipment (other)	 	4 to 20%	 	declining balance	
Shop and other equipment	 	20 to 50%	 	declining balance	
Building	 	5 to 10%	 	declining balance	
Leasehold improvements	 	5 years	 	straight-line	
 
Landfill facilities are amortized based on the percentage of estimated total capacity used in a reporting period. Assets under capital lease are amortized using the applicable annual rates above. Property, plant and equipment under construction are not amortized until the assets are available for use.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
3. Summary of significant accounting policies (Continued)
 
Intangible assets
 
Acquired intangible assets with finite lives are recorded at cost less accumulated amortization. Costs incurred to increase the future benefit of intangible assets are capitalized. Intangible assets are amortized over their estimated lives at the following annual rates:
 
Customer relationships	 	5 to 10 years	 	straight-line	
Patents and technology	 	4 to 7 years	 	straight-line	
Provincial license — landfill	 	25 years	 	straight-line	
Data image library	 	3 to 5 years	 	straight-line	
Licenses and agreements	 	5 to 10 years	 	straight-line	
Leases	 	8 to 20 years	 	straight-line	
Trade names — finite life	 	1 to 5 years	 	straight-line	
 
Once an intangible asset is fully amortized, the gross carrying amount and the related accumulated amortization are removed from the accounts. Intangible assets with indefinite lives are not subject to amortization and are tested for impairment annually or when an event or change in circumstances may indicate impairment. Impairment of an indefinite life intangible asset is recognized in an amount equal to the difference between the carrying value and the fair value of the related intangible asset.
 
Goodwill
 
Goodwill results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the assets acquired, less the liabilities assumed, based on their fair values. Goodwill is allocated as of the business acquisition date to Eveready’s reporting units expected to benefit from the business acquisition. A reporting unit comprises a business operation with similar economic characteristics and strategies.
 
Goodwill is not amortized, but is evaluated annually for impairment, or more frequently if events or changes in circumstances indicate the asset may be impaired. The impairment test is carried out in two steps. In the first step, the carrying value of a reporting unit is compared to its respective fair value, which is determined on a discounted after-tax cash flow basis. If the carrying value of the reporting unit were to exceed its fair value, Eveready would then complete the second step of the impairment test. The second step compares the reporting unit’s carrying value of goodwill to its implied fair value with any excess being recognized as an impairment loss.
 
Long-lived assets
 
Management assesses the carrying value of long-lived assets, which include property, plant and equipment and intangible assets with finite lives, for indications of impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable from estimated future cash flows. Indications of impairment include items such as an ongoing lack of profitability and significant changes in technology. An impairment loss would be recognized if the carrying value of the long-lived asset were to exceed its fair value.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
3. Summary of significant accounting policies (Continued)
 
Leases
 
Eveready accounts for its leases as either operating or capital. Capital leases are those that substantially transfer the benefits and risks of ownership to the lessee. Assets acquired under capital lease are amortized over their estimated useful lives. Obligations under capital lease are measured at the present value of future minimum lease payments. Imputed interest on the lease payments is charged against income. Leases not meeting the capital criteria are treated as operating and are recorded as an expense in the period paid or payable.
 
Asset retirement obligations
 
Eveready recognizes asset retirement obligations associated with its landfill facilities. The fair value of the asset retirement obligations is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. To estimate the fair value of the asset retirement obligations, Eveready discounts the expected future cash flows to settle the asset retirement obligation at its credit-adjusted risk-free interest rate. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and then amortized over its estimated useful life.
 
In subsequent periods, the asset retirement obligations are adjusted for the passage of time (through accretion expense) and for changes in the amount or timing of the underlying future cash flows. Actual expenditures are charged against the provision when incurred.
 
Transaction costs
 
Costs associated with the issuance or modification of revolving credit facilities are deferred and amortized to interest expense over the term of the revolving credit facility using the straight-line method. Transaction costs directly associated with issuing new long-term debt obligations are applied against the fair value of the related financial liability and amortized to interest expense using the effective interest rate method.
 
Revenue and cost recognition
 
Eveready’s services are provided based on purchase orders or contracts with the customer. They include fixed or determinable prices based upon daily, hourly, or job rates for equipment, materials, and personnel. Revenue is recognized when these services are rendered and the related costs are incurred. Waste disposal revenue is recognized when the waste material is received from the customer. Lodging and rental revenues are recognized in the period the lodging or equipment is used by the customer based on the related rental agreements. Revenue from the sale of product is recognized when title passes to the customer, which is generally at the time the product is shipped and when reasonable assurance exists regarding the measurement of the consideration received. Revenue from all services is recognized only when collection of the revenue is reasonably assured.
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
3. Summary of significant accounting policies (Continued)
 
Direct costs include direct material and labour costs and those indirect costs related to performance, such as supplies, tools, and repair costs. General and administrative costs are charged to expense as incurred.
 
Foreign currency translation
 
Transactions denominated in a foreign currency and the financial statements of integrated foreign subsidiaries included in the consolidated financial statements are translated as follows: monetary assets and liabilities at the rate of exchange in effect at the balance sheet date; non-monetary items at historical exchange rates; and revenue and expense items (except amortization, which is translated at historical exchange rates) at the average exchange rate for the period. Any resulting gains or losses are included in earnings in the period incurred.
 
Stock-based compensation
 
Eveready’s Employee Unit Plan (the “Plan”) is described further in note 17 of these consolidated financial statements. The Plan is accounted for in accordance with the fair-value based method of accounting. Stock-based compensation expense is recognized over the vesting period of the shares with an offsetting credit to contributed surplus. Shares held by the Plan are recorded at the cost paid by Eveready to purchase the shares and are shown as a reduction of shareholders’ equity in these consolidated financial statements.
 
Eveready’s Share Option Plan is described further in note 17 of these consolidated financial statements. Share options are accounted for in accordance with the fair-value based method of accounting. The fair value of share options is measured at the grant date using the Black-Scholes valuation model and is recorded as stock-based compensation expense over the option’s vesting period with an offsetting credit to contributed surplus. Upon exercise of share options, the associated amount of contributed surplus is reclassified to shareholders’ capital. The consideration paid by employees upon exercise of share options is also credited to shareholders’ capital.
 
Income taxes
 
Eveready follows the liability method of accounting for income taxes. Under this method, Eveready recognizes both the current and future income tax consequences of all transactions that have been recognized in the financial statements. Future income tax assets and liabilities are determined based on differences between the financial reporting and the tax bases of assets and liabilities and are measured using the substantively enacted tax rates and laws that are expected to be in effect when these differences are expected to reverse.
 
(Loss) earnings per share
 
Basic (loss) earnings per share is computed based on the weighted average number of shares outstanding during the period. Unvested shares held by the Employee Unit Plan are not treated as outstanding for purposes of calculating basic per share amounts. The calculation of diluted (loss) earnings per share includes the potential dilutive effect of outstanding share options,
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
3. Summary of significant accounting policies (Continued)
 
unvested shares held by the Employee Unit Plan and the conversion of outstanding convertible debentures. Anti-dilutive securities are not considered in computing diluted (loss) earnings per share.
 
The dilutive effect of outstanding share options and unvested shares held by the Employee Unit Plan is computed using the treasury stock method. This method assumes that deemed proceeds received on the issuance of shares are applied to purchase shares at the average price during the period and that the difference between the shares issued and the number of shares obtainable under this computation, on a weighted average basis, is added to the number of shares outstanding.
 
The dilutive effect of the convertible debentures is computed using the “if converted” method. Under this method, income charges applicable to the convertible debentures are added back to the numerator. The convertible debentures are then assumed to have been converted into shares at the beginning of the period (or at time of issuance, if later), and the resulting shares are included in the denominator.
 
Financial Instruments
 
All financial instruments are classified into one of five categories: held for trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments and derivatives are initially measured at fair value. Subsequent measurement and changes in fair value will depend on an instrument’s initial classification. Held for trading financial instruments are measured at fair value and changes in fair value are recognized in net (loss) earnings. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive (loss) income until the instrument is derecognized or impaired. Loans and receivables, held-to-maturity investments, and other financial liabilities are measured at amortized cost using the effective interest rate method, with any change in fair value being recognized in net (loss) earnings when the asset or liability is derecognized or impaired.
 
Eveready classifies its financial instruments as follows:
 
a)                                     Held for trading
 
Cash is classified as a financial asset held for trading as it represents the medium of exchange in which all other transactions are measured and recognized. Any interest income arising from cash is recognized in net (loss) earnings in the period it arises.
 
b)                                    Loans and receivables
 
Accounts receivable, net of allowance for doubtful accounts, are classified as receivables and are measured at their amortized cost using the effective interest rate method. Interest income recognized under the effective interest rate method is included in net (loss) earnings when it arises. As accounts receivable are short-term in nature, the recognition of interest income under the effective interest rate method in these consolidated financial statements would be immaterial.
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
3. Summary of significant accounting policies (Continued)
 
c)                                     Other financial liabilities
 
Accounts payable and accrued liabilities, distributions payable, long-term debt, and convertible debentures are classified as other financial liabilities, all of which are measured at amortized cost using the effective interest rate method. Interest expense recognized under the effective interest rate method is deducted from net (loss) earnings in the period it arises.
 
4. New accounting policies
 
Effective January 1, 2008, Eveready adopted the new recommendations of the CICA under CICA Handbook Section 1535 Capital Disclosures, Section 3031 Inventories, Section 3862 Financial Instruments — Disclosures, and Section 3863 Financial Instruments — Presentation. These Sections apply to fiscal years beginning on or after October 1, 2007, except for Section 3031, which applies to fiscal years beginning on or after January 1, 2008. Eveready also applied the guidance in Emerging Issues Committee — 170 Conversion of an Unincorporated Entity to an Incorporated Entity to account for its Conversion from an income trust to a corporation. In addition, as these consolidated financial statements have been prepared subsequent to the release of Eveready’s interim consolidated financial statements for the three months ended March 31, 2009, Eveready applied Section 3064 Goodwill and Intangible Assets retrospectively.
 
Capital Disclosures
 
Under Section 1535 Capital Disclosures, an entity discloses its objectives, policies, and processes for managing capital, including quantitative data about capital and whether it has complied with any externally imposed capital requirements ( note 26 ). The adoption of this section did not have any material impact on Eveready’s financial position or results of operations.
 
Inventories
 
Section 3031 Inventories, which replaces Section 3030 Inventories, provides increased guidance regarding the scope, measurement, and allocation of costs to inventories. Under Section 3031, inventory is measured at the lower of cost and net realizable value. Net realizable value approximates the estimated selling price less all estimated costs of completion and necessary costs to complete the sale. Costs shall be assigned using the first-in, first-out (FIFO) or weighted average cost formula. Further, Section 3031 allows the reversal of previous write-downs of inventory to net realizable value when economic changes support an increased value to inventory. The adoption of this standard had no material impact on Eveready’s consolidated financial statements during the year ended December 31, 2008. Inventory is comprised primarily of materials, parts, and supplies consumed in rendering services to customers. Eveready values its inventory at the lower of weighted average cost and net realizable value. Inventories expensed in direct costs for the year ended December 31, 2008 approximated $28,000 (December 31, 2007 — $23,000). For the years ended December 31, 2008, December 31, 2007, and December 31, 2006 there were no material write-downs or reversals of write-downs that were taken in previous periods.
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
4. New accounting policies (Continued)
 
CICA Section 3862 Financial Instruments — Disclosures and Section 3863 Financial Instruments — Presentation
 
Section 3862 establishes standards for risk disclosures, specifically the risk associated with both recognized and unrecognized financial instruments and how those risks are managed. Section 3863 carries forward the former presentation standards. These new accounting standards supersede Section 3861 Financial Instruments — Disclosure and Presentation, which Eveready adopted on January 1, 2007. The adoption of Sections 3862 and 3863 had no material impact on Eveready’s financial position or results of operations.
 
EIC — 170 Conversion of an Unincorporated Entity to an Incorporated Entity
 
In April 2008, the Emerging Issues Committee of the CICA issued EIC — 170 Conversion of an Unincorporated Entity to an Incorporated Entity. This EIC clarifies accounting issues related to conversions, when there has been no change of control. The guidance specifies, among others: such a transaction is to be treated as a change in business form and accounted for as a continuity of interests; any changes in tax balances are to be included in income tax expense in the conversion period; any transaction costs incurred are to be expensed in the period incurred; and all comparative information would be that of the pre-conversion entity, as previously reported. Note 2 to these consolidated financial statements explains Eveready’s conversion from an unincorporated open-ended mutual fund trust to a publicly listed corporation.
 
CICA Section 3064 Goodwill and Intangible Assets
 
In February 2008, the CICA issued Handbook Section 3064 Goodwill and Intangible Assets that supersedes Sections 3062 Goodwill and Other Intangible Assets and 3450 Research and Development Costs. Section 3064 provides additional guidance on when expenditures qualify for recognition as intangible assets and requires that costs be deferred only when relating to an item meeting the asset definition. This new accounting standard is effective for interim and annual financial statements relating to fiscal years beginning on or after October 31, 2008. Upon adoption of this section retrospectively ( note 1 ), Eveready reclassified $4,755 (2007 — $4,216) of certain software and technology assets from property, plant and equipment to intangible assets in both the current and comparative periods. The retrospective adoption of this section had no impact on Eveready’s opening equity or net (loss) earnings and comprehensive (loss) income in any of the periods presented.
 
5. Recent accounting pronouncements issued and not yet adopted
 
International Financial Reporting Standards
 
In February 2008, the Canadian Accounting Standards Board (AcSB) confirmed that Canadian public enterprises will need to adopt International Financial Reporting Standards (IFRS) in 2011. Eveready will adopt IFRS as the basis for preparing its consolidated financial statements effective January 1, 2011, with the quarter ending March 31, 2011 being the first set of consolidated financial
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
5. Recent accounting pronouncements issued and not yet adopted (Continued)
 
statements prepared under IFRS. Comparative data for the quarter ending March 31, 2010 will also be presented on an IFRS basis, including an opening balance sheet as at January 1, 2010.
 
In preparation of its transition to IFRS, Eveready has developed a changeover plan. Eveready is currently in its diagnostic phase which involves reviewing differences between current Canadian GAAP and IFRS as well as analyzing alternatives available upon adoption. Once complete, Eveready will assess the impact of IFRS on other key elements including among others, accounting policies, financial reporting disclosures, information technology, internal control over financial reporting and business activities. As such, Eveready is currently evaluating the impact these new accounting standards will have on its future consolidated financial statements.
 
CICA Section 1582 Business Combinations
 
In January 2009, the CICA, in the pursuit of aligning with IFRS, issued Handbook Section 1582 Business Combinations, which is mostly converged with International Financial Reporting Standard 3, Business Combinations. This section supersedes Section 1581 Business Combinations and establishes principles and requirements for recognizing, measuring and disclosing business combinations under the acquisition method. Section 1582 is to be applied prospectively for all business combinations for which the acquisition date is on or after January 1, 2011, with earlier adoption allowed. There will be no impact to Eveready’s accounting for business acquisitions preceding the adoption of this Section.
 
CICA Section 1601 Consolidated Financial Statements and Section 1602 Non-controlling Interests
 
In January 2009, the CICA issued Section 1601 Consolidated Financial Statements and Section 1602 Non-controlling Interests which together supersede Section 1600 Consolidated Financial Statements. Section 1601 establishes standards for preparation of consolidated financial statements. Section 1602 establishes standards for accounting for non-controlling interests in consolidated financial statements subsequent to a business combination. Section 1602 is the Canadian equivalent to International Accounting Standards 27 Consolidated and Separate Financial Statements. As a result of adopting Section 1602, Eveready’s non-controlling interests will be reclassified in its consolidated balance sheet from long-term liabilities to a separate component of shareholders’ equity. Net earnings will be calculated without deducting non-controlling interest but will be allocated on the face of the Consolidated Statement of Earnings between controlling and non-controlling interests.
 
These new accounting standards are effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011, with earlier adoption allowed.
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
6. Business acquisitions
 
Business acquisitions are accounted for using the purchase method with the results of the acquired businesses being included in the consolidated financial statements since their effective acquisition dates. During 2008, Eveready completed two business acquisitions as described below. The fair values of the net assets acquired and aggregate consideration given are as follows:
 
Fair value of net assets acquired	 	Key
Environmental	 	Kodiak	 	Total	 	
 	 	$	 	$	 	$	 	
Prepaid expenses and deposits	 	—	 	310	 	310	 	
Property, plant and equipment	 	3,244	 	3,886	 	7,130	 	
Net assets acquired	 	3,244	 	4,196	 	7,440	 	
Consideration given	 	 	 	 	 	 	 	
Cash	 	3,225	 	4,175	 	7,400	 	
Acquisition costs	 	19	 	21	 	40	 	
Total consideration	 	3,244	 	4,196	 	7,440	 	
 
a)                                     Key Environmental
 
Effective July 7, 2008, Eveready acquired the business and assets of Key Environmental Services Ltd. (“Key Environmental”), a private Saskatchewan-based oilfield services company. The purchase price of $3,225 was paid in cash.
 
In addition, acquisition costs of $19 were incurred providing for aggregate consideration of $3,244.
 
b)                                    Kodiak
 
Effective September 19, 2008, Eveready acquired the business and assets of Kodiak Energy Services Inc. (“Kodiak”), a private Saskatchewan-based oilfield services company. The purchase price of $4,175 was paid in cash. Acquisition costs of $21 where also incurred resulting in aggregate consideration of $4,196.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
6. Business acquisitions  (Continued)
 
Fiscal 2007
 
Eveready completed three business acquisitions in 2007. The fair values of the net assets acquired and aggregate consideration given are as follows:
 
Fair value of net assets acquired	 	Compass	 	Denman	 	Wellco	 	Total	 	
 	 	$	 	$	 	$	 	$	 	
Current assets	 	—	 	11,848	 	—	 	11,848	 	
Property, plant and equipment	 	556	 	47,251	 	5,036	 	52,843	 	
Intangible assets	 	601	 	7,741	 	—	 	8,342	 	
Goodwill	 	1,853	 	23,069	 	—	 	24,922	 	
Total assets	 	3,010	 	89,909	 	5,036	 	97,955	 	
Current liabilities	 	—	 	13,140	 	—	 	13,140	 	
Long-term liabilities	 	—	 	17,119	 	—	 	17,119	 	
Total liabilities	 	—	 	30,259	 	—	 	30,259	 	
Net assets acquired	 	3,010	 	59,650	 	5,036	 	67,696	 	
Consideration given	 	 	 	 	 	 	 	 	 	
Cash	 	500	 	59,533	 	5,004	 	65,037	 	
Fund units	 	2,500	 	—	 	—	 	2,500	 	
Acquisition costs	 	10	 	117	 	32	 	159	 	
Total consideration	 	3,010	 	59,650	 	5,036	 	67,696	 	
 
a)                                     Compass
 
Effective March 1, 2007, Eveready acquired the business and assets of Compass Horizontal Drilling Inc. (“Compass”). Compass was a private Alberta-based company providing directional boring services to customers primarily in the oil and gas industry. The purchase price of $3,000 was paid through a combination of: (i) $500 in cash and (ii) $2,500 through the issuance of 413,223 units at a value of $6.05 per unit. In addition, acquisition costs of $10 were incurred resulting in aggregate consideration of $3,010.
 
Intangible assets acquired with Compass consist of customer relationships that are being amortized on a straight-line basis over their estimated useful life of five years. Of the goodwill acquired, $1,390 is deductible for income tax purposes.
 
b)                                    Denman
 
Effective May 1, 2007, Eveready acquired 100% of the issued and outstanding shares of Denman Industrial Trailers Ltd. (“Denman”), a private Alberta-based company. Denman supplies industrial lodges and drill camps to the oil and gas industry and has a significant market presence in the Alberta oil sands region. The purchase price of $59,533 was paid through cash
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
6. Business acquisitions  (Continued)
 
consideration. Acquisition costs of $117 were also incurred resulting in aggregate consideration of $59,650.
 
Intangible assets acquired with Denman include: customer relationships of $7,203 that are being amortized on a straight-line basis over their estimated useful life of ten years; provincial land leases of $269 that are being amortized on a straight-line basis over their estimated useful life of eight years; and the Denman trade name of $269, which was fully amortized at December 31, 2008. The acquired property, plant and equipment include $19,745 of assets under capital lease that will be amortized over their respective estimated useful lives. The goodwill acquired with Denman is not deductible for income tax purposes.
 
c)                                     Wellco
 
Effective October 5, 2007, Eveready acquired the Truck division of Wellco Energy Services Trust (“Wellco”). The acquired assets include a 25-unit fleet of vacuum trucks, hydro-excavation trucks, and water trucks, along with additional support equipment. The purchase price of $5,004 was paid through cash consideration. Acquisition costs of $32 were also incurred resulting in aggregate consideration of $5,036.
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
6. Business acquisitions (Continued)
 
Fiscal 2006
 
Eveready completed eighteen business acquisitions in 2006. The fair value of the net assets acquired and aggregate consideration given are as follows:
 
Fair value of net assets
acquired	 	Head
West	 	Tornado	 	RDDB	 	Pinnacle	 	Cat
Tech	 	Bullseye	 	Diversified	 	D&G	 	Rodrigue’s	 	Other	 	Total	 	
 	 	$	 	$	 	$	 	$	 	$	 	$	 	$	 	$	 	$	 	$	 	$	 	
Current assets	 	—	 	750	 	5,704	 	437	 	14,253	 	3,166	 	3,055	 	—	 	4,159	 	8,858	 	40,382	 	
Property, plant and equipment	 	9,744	 	4,425	 	3,599	 	4,332	 	11,250	 	2,386	 	5,285	 	3,695	 	3,604	 	11,566	 	59,886	 	
Intangible assets	 	1,215	 	1,143	 	8,058	 	427	 	9,252	 	4,093	 	625	 	347	 	2,008	 	5,376	 	32,544	 	
Other assets	 	—	 	—	 	—	 	—	 	—	 	4	 	56	 	—	 	—	 	301	 	361	 	
Goodwill	 	—	 	2,131	 	18,435	 	1,917	 	14,521	 	5,289	 	1,704	 	2,995	 	2,414	 	6,451	 	55,857	 	
Total assets	 	10,959	 	8,449	 	35,796	 	7,113	 	49,276	 	14,938	 	10,725	 	7,037	 	12,185	 	32,552	 	189,030	 	
Current liabilities	 	—	 	2,424	 	4,715	 	—	 	9,981	 	3,230	 	2,240	 	—	 	3,015	 	8,858	 	34,463	 	
Long-term liabilities	 	—	 	—	 	—	 	—	 	5,881	 	—	 	761	 	—	 	64	 	1,205	 	7,911	 	
Non-controlling interest	 	—	 	—	 	684	 	—	 	—	 	310	 	—	 	—	 	642	 	—	 	1,636	 	
Total liabilities	 	—	 	2,424	 	5,399	 	—	 	15,862	 	3,540	 	3,001	 	—	 	3,721	 	10,063	 	44,010	 	
Net assets acquired	 	10,959	 	6,025	 	30,397	 	7,113	 	33,414	 	11,398	 	7,724	 	7,037	 	8,464	 	22,489	 	145,020	 	
Consideration given	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash	 	10,755	 	3,000	 	7,685	 	7,000	 	24,775	 	500	 	3,900	 	6,346	 	1,685	 	11,641	 	77,287	 	
Fund units	 	—	 	2,993	 	8,500	 	—	 	8,350	 	5,430	 	—	 	676	 	6,738	 	10,719	 	43,406	 	
Rollover LP units	 	—	 	—	 	14,185	 	—	 	—	 	5,430	 	3,750	 	—	 	—	 	—	 	23,365	 	
Acquisition costs	 	204	 	32	 	27	 	113	 	289	 	38	 	74	 	15	 	41	 	129	 	962	 	
Total consideration	 	10,959	 	6,025	 	30,397	 	7,113	 	33,414	 	11,398	 	7,724	 	7,037	 	8,464	 	22,489	 	145,020	 	
 
a)                                     Head West
 
Effective March 1, 2006, Eveready acquired the business of Head West Energy (“Head West”), a private Alberta-based oilfield equipment rental company. The acquired assets included wellsite units, generators, truck and trailer units, and other equipment. The purchase price of $10,755 was paid in cash. Acquisition costs of $204 were also incurred resulting in aggregate consideration of $10,959. Equipment of $1,175 was then sold to a third party resulting in a net purchase price of $9,580 for the assets Eveready retained.
 
Intangible assets acquired with Head West consist of customer relationships of $1,215 that are being amortized on a straight-line basis over their estimated useful life of five years.
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
6. Business acquisitions (Continued)
 
b)                                    Tornado
 
Effective April 1, 2006, Eveready acquired 100% of the issued and outstanding shares of Tornado Rentals Ltd. (“Tornado”). Based in Stettler, Alberta, Tornado rented and sold a wide range of oilfield equipment. The purchase price for Tornado was $5,993 and was paid via: (i) $3,000 in cash, and (ii) $2,993 through the issuance of 454,177 units at a value of $6.59 per unit. Acquisition costs of $32 were also incurred resulting in aggregate consideration of $6,025.
 
Intangible assets acquired with Tornado consist of customer relationships ($610) and an exclusive supplier agreement ($533) that are each being amortized straight-line over their estimated useful lives of five years.
 
c)                                     RDDB
 
Effective May 1, 2006, Eveready acquired an 80% interest in the assets and business of Red Deer Directional Boring Ltd. (“RDDB”). Based in Red Deer, Alberta, RDDB provided directional boring and punching services to customers in a wide range of industrial sectors including the oil and gas industry.
 
The purchase price of $30,370 was paid through a combination of: (i) $7,685 in cash and (ii) $22,685 through a combination of 1,214,287 Fund units and 2,026,486 Rollover LP units issued at a value of $7.00 per unit. In addition, acquisition costs of $27 were incurred resulting in aggregate consideration of $30,397.
 
Intangible assets acquired with RDDB include customer relationships of $7,734 that are being amortized on a straight-line basis over their estimated life of five years and the RDDB trade name of $324, which was fully amortized at December 31, 2007.
 
In connection with the acquisition of RDDB, Eveready also entered into a mutual option agreement with the vendors. This agreement provides Eveready a call option to acquire the remaining 20% non-controlling interest and provides the vendors a put option to sell the remaining 20% non-controlling interest to Eveready, exercisable at any time after March 31, 2009. The exercise price for each option is based on a formula that is designed to estimate the fair value of the non-controlling interest at the time the option is exercised ( note 15 ).
 
d)                                    Pinnacle
 
On May 29, 2006, Eveready acquired the business and assets of the Pinnacle Pigging Systems group of companies (“Pinnacle”) for $7,000 in cash consideration. Pinnacle specialized in providing furnace tube decoking and related industrial services to oil and gas refineries in Canada and the United States. The assets acquired included all equipment, patents, and other intangible assets used in the Pinnacle business. Acquisition costs of $113 were also incurred resulting in aggregate consideration of $7,113.
 
Intangible assets acquired with Pinnacle consist of customer relationships ($100) and patents ($327) that are each being amortized on a straight-line basis over their estimated useful lives of five and four years, respectively.
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
6. Business acquisitions (Continued)
 
e)                                     Cat Tech
 
Effective July 1, 2006, Eveready acquired 100% of the issued and outstanding shares of the Cat Tech group of companies (“Cat Tech”). Headquartered in Houston, Texas, Cat Tech provided catalyst changeout services to major petroleum and chemical companies throughout the world.
 
Cat Tech’s US operations are based in California, Kentucky, Louisiana, New Jersey, and Texas. Cat Tech’s Canadian operations are based in Sarnia, Ontario and Edmonton, Alberta and include a significant presence in the Alberta oil sands. Cat Tech’s international operations include locations in the United Kingdom and Singapore.
 
The purchase price of US $29,384 (CDN $33,125) was paid via: (i) US $21,884 in cash, and (ii) US $7,500 through the issuance of 1,246,343 units at a value of CDN $6.70 per unit. Acquisition costs of CDN $289 were also incurred resulting in aggregate consideration of CDN $33,414.
 
Intangible assets acquired with Cat Tech include customer relationships of $2,222 that are being amortized straight-line over their estimated useful life of ten years, catalyst handling technologies of $3,471 that are being amortized over their estimated useful life of seven years, and the Cat Tech trade name of $3,559. The Cat Tech trade name is not being amortized because it is estimated to have an indefinite life.
 
f)                                       Bullseye
 
Effective September 1, 2006, Eveready acquired an 80% interest in the assets and business of the Bullseye Directional Drilling group of companies (“Bullseye”). Servicing the oil, gas, and utility sectors, Bullseye specialized in directional boring and road punching and offered a variety of solutions for the underground crossing requirements of its customers.
 
The purchase price of $11,360 was paid via: (i) $500 in cash, (ii) $5,430 through the issuance of 736,772 Fund units, and (iii) $5,430 through the issuance of 736,770 Rollover LP units at a value of $7.37 per unit. Acquisition costs of $38 were also incurred resulting in aggregate consideration of $11,398.
 
Intangible assets acquired with Bullseye include customer relationships of $3,975 that are being amortized straight-line over their estimated life of five years and the Bullseye trade name of $118, which was fully amortized at December 31, 2007.
 
In connection with the acquisition of Bullseye, Eveready also entered into a mutual option agreement with the vendors. This agreement provides Eveready a call option to acquire the remaining 20% non-controlling interest and provides the vendors a put option to sell the remaining 20% non-controlling interest to Eveready, exercisable at any time after August 31, 2009. The exercise price for each option is based on a formula that is designed to estimate the fair value of the non-controlling interest at the time the option is exercised ( note 15 ).
 
g)                                    Diversified
 
Effective September 1, 2006, Eveready acquired 100% of the issued and outstanding shares of the Diversified Pressure Services group of companies (“Diversified”). Based in Macklin,
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
6. Business acquisitions (Continued)
 
Saskatchewan, Diversified provided a wide range of oilfield services to the oil and gas industry including vacuum truck, pressure testing, hot oiling, tank truck, steam cleaning, and flush-by services.
 
The purchase price of $7,650 was paid via: (i) $3,900 in cash, and (ii) $3,750 through the issuance of 556,380 Rollover LP units at a value of $6.74 per unit. Acquisition costs of $74 were also incurred resulting in aggregate consideration of $7,724.
 
Intangible assets acquired with Diversified consist of customer relationships of $625 that are being amortized on a straight-line basis over their estimated useful life of five years.
 
h)                                    D&G
 
On November 22, 2006, Eveready acquired the business and assets of D&G Water & Vacuum Services; consisting of the assets of D&G Industry Services Ltd. and NPPP Ventures Ltd. (collectively “D&G”). Based in High Level, Alberta, D&G provided water truck and vacuum services to customers in the oil and gas industry.
 
The purchase price of $7,022 was paid via: (i) 6,346 in cash and (ii) $676 through the issuance of 100,000 units at a value of $6.76 per unit. In addition, acquisition costs of $15 were incurred resulting in aggregate consideration of $7,037.
 
Intangible assets acquired with D&G consist of customer relationships of $347 that are being amortized on a straight-line basis over their estimated useful life of five years.
 
i)                                        Rodrigue’s
 
Effective December 1, 2006, Eveready acquired an 80% interest in the assets and business of the Rodrigue’s Directional Drilling group of companies (“Rodrigue’s). Based in Nisku, Alberta, Rodrigue’s was a horizontal directional boring firm with many additional support services.
 
The purchase price of $8,423 was paid via (i) $1,685 in cash and (ii) $6,738 through the issuance of 1,085,046 units at a value of $6.21 per unit. In addition, acquisition costs of $41 were incurred providing for aggregate consideration of $8,464.
 
Intangible assets acquired with Rodrigue’s include customer relationships of $1,894 that are being amortized over their estimated useful life of five years and the Rodrigue’s trade name of $114, which was fully amortized at December 31, 2007.
 
In connection with the acquisition of Rodrigue’s, Eveready also entered into a mutual option agreement with the vendors. This agreement provides Eveready a call option to acquire the remaining 20% non-controlling interest and provides the vendors a put option to sell the remaining 20% non-controlling interest to Eveready, exercisable at any time after November 30, 2009. The exercise price for each option is based on a formula that is designed to estimate the fair value of the non-controlling interest at the time the option is exercised ( note 15 ).
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
6. Business acquisitions (Continued)
 
j)                                        Other acquisitions
 
Eveready also completed nine smaller business acquisitions during the year ended December 31, 2006 as follows:
 
·                 Effective February 28, 2006, Eveready acquired 100% of the issued and outstanding shares of a private, Alberta-based survey company operating as Mercedes Surveys for a total purchase price of $1,606. The company provided seismic surveys that support seismic exploration programs for oil and gas companies. The purchase price was satisfied via: (i) $173 in cash and (ii) $1,433 through the issuance of 260,606 units at a value of $5.50 per unit;
 
·                 On February 28, 2006, Eveready acquired the business and assets of a private, Alberta-based oilfield services company operating as Mielke Way Enterprises for total cash consideration of $1,134. The company provided vacuum truck and steam cleaning services to customers in the oil and gas industry;
 
·                 Effective May 1, 2006, Eveready acquired 100% of the issued and outstanding shares of Eugene Smith Trucking Ltd. (“Eugene Smith”). Based in western Saskatchewan, Eugene Smith provided various oilfield services, including vacuum truck, flush-by, and pressure services. The purchase price of $4,500 was paid through a combination of: (i) $2,000 in cash and (ii) $2,500 through the issuance of 343,879 units at a value of $7.27 per unit;
 
·                 Effective May 1, 2006, Eveready acquired 100% of the issued and outstanding common shares of Astec Safety Services Ltd. (“Astec”). With locations in Bonnyville, Fort McMurray, Lloydminster, and Provost, Alberta, Astec provided safety services, equipment and training to a wide range of industrial and oilfield companies. The purchase price of $1,000 was paid by issuing 144,092 units at a value of $6.94 per unit. Prior to this acquisition, Eveready also owned $1,000 in redeemable preferred shares of Astec;
 
·                 On June 9, 2006, Eveready acquired the business and assets of Triple P Enterprises Ltd. (“Triple P”) for cash consideration of $3,000. Triple P provided waste hauling services to a wide range of customers operating in the oil and gas industry;
 
·                 On September 12, 2006, Eveready acquired the business and assets of Find It Inc. (“Find It”). Find It was a private Alberta-based company that provided leak detection services to companies operating in the oil and gas industry. The purchase price of $190 was satisfied through cash consideration;
 
·                 On September 15, 2006, Eveready acquired the business and assets of Real Time Surveys Inc. (“Real Time”). Real Time was a private Alberta-based company that provided surveying services to support exploration programs for oil and gas companies. The purchase price of $1,600 was satisfied through the issuance 236,686 units at a value of $6.76 per unit;
 
·                 Effective October 1, 2006, Eveready acquired 100% of the issued and outstanding shares of Airborne Imaging Inc. (“Airborne”). Airborne was a private Alberta-based company that
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
6. Business acquisitions (Continued)
 
provided comprehensive planning and mapping solutions to companies operating primarily in the oil and gas sector. The purchase price of $4,790 was paid through a combination of: (i) $2,592 in cash, (ii) $1,916 through the issuance of 262,106 units at a value of $7.31 per unit, and (iii) $282 through the forgiveness of a loan payable from the vendor to Eveready; and
 
·                 Effective October 1, 2006, Eveready acquired 100% of the issued and outstanding shares of Great Lakes Carbon Treatment, Inc. (“Great Lakes”). Based in Michigan, USA, Great Lakes specialized in the custom design and manufacture of environmental remediation equipment. Great Lakes also provided environmental remediation services to a wide range of customers operating primarily in the chemical, petroleum, utilities, real estate and manufacturing sectors. The purchase price of US $4,000 (CDN $4,540) was paid via (i) US $2,000 in cash and (ii) US $2,000 through the issuance of 324,283 units at a value of CDN $7.00 per unit.
 
Of the aggregate goodwill acquired in 2006, $7,087 is deductible for income tax purposes. Intangible assets acquired that are included in the “other acquisitions” category include customer relationships of $3,940, a data image library of $1,159 and an indefinite life trade name of $277. The customer relationships and data image library are being amortized on a straight-line basis over their estimated useful lives of five years.
 
7. Property, plant and equipment
 
As at December 31, 2008	 	Cost	 	Accumulated
amortization	 	Net book
value	 	
 	 	$	 	$	 	$	 	
Service equipment	 	227,747	 	68,065	 	159,682	 	
Automotive equipment	 	89,367	 	23,203	 	66,164	 	
Camps and rental equipment	 	85,158	 	14,844	 	70,314	 	
Shop and other equipment	 	8,775	 	5,269	 	3,506	 	
Land, building and improvements	 	9,869	 	2,070	 	7,799	 	
Landfill facilities	 	13,001	 	5,336	 	7,665	 	
Property, plant and equipment under construction	 	15,701	 	—	 	15,701	 	
 	 	449,618	 	118,787	 	330,831	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
7. Property, plant and equipment (Continued)
 
As at December 31, 2007	 	Cost	 	Accumulated
amortization	 	Net book
value	 	
 	 	$	 	$	 	$	 	
Service equipment	 	194,489	 	47,169	 	147,320	 	
Automotive equipment	 	73,379	 	16,410	 	56,969	 	
Camps and rental equipment	 	79,767	 	7,811	 	71,956	 	
Shop and other equipment	 	7,605	 	4,435	 	3,170	 	
Land, building and improvements	 	9,043	 	1,558	 	7,485	 	
Landfill facilities	 	10,040	 	3,602	 	6,438	 	
Property, plant and equipment under construction	 	10,006	 	—	 	10,006	 	
 	 	384,329	 	80,985	 	303,344	 	
 
Included in property, plant and equipment are assets under capital lease with a cost of $30,123 (2007 — $19,909) and accumulated amortization of $3,177 (2007 — $851).
 
8. Intangible assets
 
As at December 31, 2008	 	Cost	 	Accumulated
amortization	 	Net book
value	 	
 	 	$	 	$	 	$	 	
Customer relationships	 	32,633	 	13,572	 	19,061	 	
Patents and technology	 	12,206	 	2,626	 	9,580	 	
Provincial license — landfill	 	15,400	 	1,900	 	13,500	 	
Data image library	 	3,387	 	1,512	 	1,875	 	
Licenses and agreements	 	1,937	 	683	 	1,254	 	
Leases	 	369	 	71	 	298	 	
Trade names — indefinite life	 	1,170	 	—	 	1,170	 	
 	 	67,102	 	20,364	 	46,738	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
8. Intangible assets (Continued)
 
As at December 31, 2007	 	Cost	 	Accumulated
amortization	 	Net book
value	 	
 	 	$	 	$	 	$	 	
Customer relationships	 	32,633	 	7,988	 	24,645	 	
Patents and technology	 	10,827	 	1,593	 	9,234	 	
Provincial license — landfill	 	15,400	 	1,283	 	14,117	 	
Data image library	 	3,387	 	504	 	2,883	 	
Licenses and agreements	 	1,937	 	404	 	1,533	 	
Leases	 	369	 	33	 	336	 	
Trade names — finite life	 	269	 	179	 	90	 	
Trade names — indefinite life	 	3,836	 	—	 	3,836	 	
 	 	68,658	 	11,984	 	56,674	 	
 
Included in patents and technology are intangible assets of $3,386 (2007 — $2,440) not yet subject to amortization.
 
During the year ended December 31, 2008, Eveready acquired intangible assets subject to amortization of $827, developed intangible assets not subject to amortization of $946, and recognized an impairment of $2,666 related to its indefinite life trade names ( note 9 ).
 
During the comparative year ended December 31, 2007, Eveready acquired intangible assets subject to amortization of $11,880, developed intangible assets not subject to amortization of $2,357, and acquired intangible assets with indefinite lives of $nil.
 
By retrospectively adopting CICA Section 3064, Eveready reclassified $4,755 (2007 — $4,216) of certain software and technology assets from property, plant and equipment to intangible assets ( notes 1 and 4 ).
 
9. Goodwill
 
Years Ended December 31	 	2008	 	2007	 	
 	 	$	 	$	 	
Balance, beginning of year	 	110,746	 	85,584	 	
Business acquisitions (note 6)	 	—	 	24,922	 	
Purchase price adjustments	 	—	 	240	 	
Impairment of goodwill	 	(87,677	)	—	 	
Balance, end of year	 	23,069	 	110,746	 	
 
Due to a continuing deterioration in overall economic conditions, reduced activity levels within the oil and gas industry and changes in the market causing Eveready’s market capitalization to be substantially lower than its carrying value, Eveready performed an assessment of the fair value of its indefinite life intangible assets and goodwill as at December 31, 2008. Eveready also substantially increased the discount rates it applied to its estimated future cash flows to better align its
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
9. Goodwill (Continued)
 
calculated fair value with its substantially reduced market capitalization at December 31, 2008. As a result, Eveready concluded that the carrying value of its indefinite life intangible assets and goodwill were impaired and recognized a $2,666 impairment loss on its indefinite intangible assets ( note 8 ) and a goodwill impairment loss of $87,677.
 
10. Other long-term assets
 
As at December 31	 	2008	 	2007	 	
 	 	$	 	$	 	
Deferred transaction costs	 	1,527	 	1,351	 	
Other	 	75	 	150	 	
 	 	1,602	 	1,501	 	
 
Deferred transaction costs include costs incurred in establishing and renewing Eveready’s revolving credit facility ( note 11 ). These costs are amortized on a straight-line basis to interest expense over the term of the revolving credit facility. The deferred transaction costs at December 31, 2008 are net of accumulated amortization of $923 (2007 — $270).
 
11. Long-term debt
 
Eveready’s long-term debt relates to credit facilities of $250,000 with a syndicate of lenders led by a Canadian affiliate of GE Energy Financial Services. The credit facilities consist of a $100,000 revolving, renewable credit facility and a $150,000 term loan. Amounts borrowed under these credit facilities bear interest, at Eveready’s option, at bank prime or bankers’ acceptance rates, plus a credit spread based on a sliding scale, which is determined by the ratio of funded senior debt to earnings before interest, taxes, depreciation, and amortization (“EBITDA”).
 
The revolving credit facility (“Revolver”) requires payments of interest only and is renewable annually, subject to Eveready’s and the lending syndicate’s consent. A stand-by fee is calculated at a rate of 0.25% per annum on the unused portion of the Revolver. If the Revolver were not renewed, the outstanding credit facility is subject to a 12-month interest-only phase, followed by a 24-month straight-line amortization period. As a result, the Revolver is classified as long-term debt in these consolidated financial statements. The term loan (“Term”) requires fixed monthly payments of $125 and a balloon payment of $142,500 due May 2012. Eveready may prepay all or part of the term loan at any time, subject to the payment of a breakage fee.
 
In February 2008 Eveready received, from the syndicate of lenders, an additional short-term over advance loan of $20,000, which was repaid during the second quarter of 2008.
 
The credit facilities are collateralized by substantially all of Eveready’s assets, including Eveready’s accounts receivable, inventory, and property, plant and equipment. At December 31, 2008, the carrying amount of Eveready’s assets was $576,204 and the effective interest rate on the credit facilities was 5.21% (December 31, 2007 — 7.41%).
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
11. Long-term debt (Continued)
 
For the year ended December 31, 2008, total interest expense recognized under Eveready’s long-term debt credit facilities was $14,341 (2007 — $12,756 and 2006 — $3,778). Eveready’s long-term debt consists of the following components:
 
As at December 31	 	2008	 	2007	 	
 	 	$	 	$	 	
Revolver	 	70,282	 	55,000	 	
Term	 	147,500	 	149,000	 	
 	 	217,782	 	204,000	 	
Less: unamortized transaction costs	 	(2,919	)	(2,664	)	
 	 	214,863	 	201,336	 	
Less: current portion of long-term debt	 	(1,500	)	(1,500	)	
 	 	213,363	 	199,836	 	
 
The credit facilities contain financial covenants, including, but not limited to, a working capital ratio, a fixed charge coverage ratio, funded debt to EBITDA ratios, a maximum distribution payout ratio, and a minimum net worth, each calculated on a quarterly basis. Eveready was in compliance with all financial covenants under this agreement at December 31, 2008. If the Revolver were not renewed (the next renewal date is April 24, 2009) and Eveready were not able to refinance this credit facility with another lender, the required minimum principal repayments on the credit facilities at December 31, 2008 would be as follows:
 
 	 	Amount	 	
 	 	$	 	
2009	 	1,500	 	
2010	 	24,927	 	
2011	 	36,641	 	
2012	 	154,714	 	
2013	 	—	 	
 	 	217,782	 	
 
Effective December 31, 2008, Eveready established an Amended and Restated Credit Agreement among its syndicate of lenders led by a Canadian affiliate of GE Energy Financial Services. Among other items, the amending agreement was updated to reflect the Fund’s structural change to a corporation. Such changes had no impact on the committed amounts, maturity dates, or interest rates applicable to the Revolver and Term Loan. In April 2009, the Revolver was renewed for an additional 364 day period ( note 30 ).
 
Subsequent to December 31, 2008, Eveready repaid $40,000 on its Revolver.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
12. Obligations under capital lease
 
Obligations under capital lease substantially relate to industrial lodging facilities purchased with the Denman Industrial Trailers Ltd. acquisition in May 2007 ( note 6 ). During 2008, Eveready financed additional industrial lodge facilities through sale-leasebacks of $8,880. These obligations bear interest at prime plus 0.25% per annum and are repayable in monthly blended principal and interest payments of $435. Maturing at dates ranging from August 2012 to September 2015, these obligations may be repaid in full without penalty two years after lease inception. At December 31, 2008, the effective rate of interest was 3.75% (December 31, 2007 — 6.25%).
 
All of Eveready’s obligations under capital lease are collateralized by equipment with a $26,946 net book value at December 31, 2008 (December 31, 2007 — $19,058). For the year ended December 31, 2008, interest expense related to all obligations under capital lease was $1,286 (2007 — $841 and 2006 — $nil).
 
Future minimum lease payments required over the next five years and thereafter for all obligations under capital lease are as follows:
 
 	 	Amount	 	
 	 	$	 	
2009	 	5,834	 	
2010	 	5,498	 	
2011	 	5,260	 	
2012	 	5,042	 	
2013	 	3,562	 	
Thereafter	 	1,915	 	
Total minimum lease payments	 	27,111	 	
Less: amounts representing imputed interest at rates ranging from 3.00% to 15.00%	 	(3,705	)	
Balance of obligations under capital lease	 	23,406	 	
Less: current portion of obligations under capital lease	 	(4,619	)	
 	 	18,787	 	
 
Subsequent to December 31, 2008, Eveready financed truck, trailer and support equipment through sale-leasebacks of $2,469. These obligations will mature in January 2014 and are collateralized by the respective equipment acquired.
 
13. Convertible debentures
 
On June 15, 2006, Eveready completed a financing of $50,000 principal amount of convertible unsecured subordinated debentures (the “Debentures”). Pursuant to the Conversion ( note 2 ), Eveready assumed all of the covenants and obligations of the Fund in respect of the outstanding Debentures such that the Debentures will be convertible into Eveready shares rather than Fund units. Upon completion of the Conversion, in which each five units were exchanged for one share, the conversion price of the Debentures was adjusted, in accordance with the Debenture agreement,
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
13. Convertible debentures (Continued)
 
to $38.754 per share. There were no other changes to the Debentures’ terms resulting from the Conversion.
 
The Debentures have an annual coupon rate of 7.00%, payable semi-annually, mature on June 30, 2011 and are convertible, at the holder’s option, into common shares of Eveready. The Debentures trade on the Toronto Stock Exchange under the symbol “EIS.DB”.
 
After June 30, 2009 and before June 30, 2010, the Debentures may be redeemed in whole or in part, at Eveready’s option, at a price equal to their principal amount plus accrued interest thereon, provided the market price of the shares on the date on which notice is given is not less than 125% of the conversion price of $38.754 per share. After June 30, 2010, Eveready has the option to redeem the Debentures in whole or in part at a price equal to their principal amount plus accrued interest. Eveready may also, at its option and subject to certain conditions, elect to satisfy its obligation to repay all or any portion of the principal amounts of the Debentures that are to be redeemed or repaid at maturity, by issuing shares. The number of shares 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 shares. The market price of the shares will be calculated as the volume weighted average trading price of the shares on the Toronto Stock Exchange for the 20 consecutive days ending five days prior to the applicable event.
 
For accounting purposes, the $50,000 face value of the Debentures was allocated to the liability and equity components, proportionately, based on their respective fair values at the time of the financing. The holder’s conversion option was allocated $8,417 ($8,030 net of allocated issuance costs of $387) and has been separately presented in these consolidated financial statements as a component of equity. The value originally ascribed to the liability component of the Debentures was $41,583. Any deferred financing costs included in the Debentures’ carrying value are amortized to interest expense over the remaining term of the Debentures using the effective interest rate method.
 
2008 adjustments to the conversion price
 
Eveready issued the Debentures with an initial conversion price of $8.50 per unit. Pursuant to the terms of the Debenture agreement, an adjustment to the specified conversion price is required, when shares are consolidated into a smaller number of shares or when shares are issued to shareholders by way of a stock dividend (“in-kind” distribution). The “in-kind” distribution ( note 19 ) declared to Fund unitholders of record on March 31, 2008 resulted in an adjustment to the Debentures’ initial conversion price from $8.50 per unit to $8.109 per unit. The “in-kind” distribution declared to unitholders of record on June 30, 2008 ( note 19 ) resulted in another adjustment to the Debentures’ conversion price to $7.7508 per unit. Upon completion of the Conversion ( note 2 ), in which each five units were exchanged for one share, the conversion price of the Debentures was adjusted from $7.7508 per unit to $38.754 per share.
 
Subsequent to year-end, Eveready received regulatory approval from the Toronto Stock Exchange to enter into a normal course issuer bid to purchase for cancellation its issued and outstanding Debentures ( note 30 ).
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
14. Asset retirement obligations
 
Eveready’s asset retirement obligations relate to closure and post-closure costs concerning the Pembina Area Landfill waste disposal facility. Each waste cell must be capped and closed in accordance with environmental regulations once it is filled to capacity. Eveready estimates the undiscounted, inflation-adjusted cash flows required to settle these obligations at December 31, 2008 to be $4,239 (2007 — $3,605). Management has estimated the fair value of this obligation at December 31, 2008 to be $3,003 (2007 — $2,478), using a credit adjusted discount rate of 7.00% (2007 — 7.00%). These obligations are expected to be incurred over an estimated period from 2009 to 2015.
 
These estimates are based upon current and proposed reclamation and closure techniques in view of current environmental laws and regulations. Therefore, it is possible the costs could change in the future and changes to these estimates could have a significant effect on Eveready’s consolidated financial statements. Eveready recorded the following activity during the year:
 
Years Ended December 31	 	2008	 	2007	 	
 	 	$	 	$	 	
Asset retirement obligations, beginning of year	 	2,222	 	1,265	 	
New obligations and revised estimates	 	753	 	1,745	 	
Asset retirement costs incurred	 	(130	)	(629	)	
Accretion expense	 	158	 	97	 	
Asset retirement obligations, end of year	 	3,003	 	2,478	 	
Less: costs expected to be incurred within the next fiscal year	 	(584	)	(256	)	
 	 	2,419	 	2,222	 	
 
15. Non-controlling interest
 
Eveready’s non-controlling interest consists of the 20% non-controlling interests vendors retained in the acquisitions of RDDB, Bullseye, and Rodrigue’s in 2006 ( note 6 ). In connection with the acquisitions of these subsidiaries, Eveready also entered into a mutual option agreement with the vendors. This agreement provides Eveready a call option to acquire the remaining 20% non-controlling interest and provides the vendors a put option to sell the remaining 20% non-controlling interest to Eveready, exercisable at any time after March 31, 2009, August 31, 2009, and November 30, 2009 for the RDDB, Bullseye, and Rodrigue’s vendors, respectively.
 
The exercise price for each option is based on a formula designed to estimate the fair value of the non-controlling interest at the time the option is exercised. Using this formula, the calculated value pursuant to the put and call options approximated $11,200 at December 31, 2008. Of this amount, approximately $3,450 would be settled in cash, approximately $3,450 would be settled by issuing shares, and approximately $4,300 would be settled, at Eveready’s discretion, in either cash or by issuing shares. The number of shares to issue will be determined by a deemed price per share, which equals the 10 day weighted average trading price of the shares on the Toronto Stock Exchange on the day immediately preceding the date of notice of exercise of the put or call option.
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
15. Non-controlling interest (Continued)
 
The payment of cash or shares must be settled within 367 days from the date of the notice of exercise of the put or call option.
 
Subsequent to December 31, 2008, one of the mutual option agreements was amended and the related put option exercised. As a result of the amendment, Eveready will now settle the full value of the put option in cash. The option price related to that mutual option agreement was also adjusted.
 
Eveready recorded the following activity during the year:
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
Non-controlling interest, beginning of year	 	3,004	 	2,393	 	—	 	
Non-controlling interest arising from the acquisition of RDDB (note 6)	 	—	 	—	 	684	 	
Non-controlling interest arising from the acquisition of Bullseye (note 6)	 	—	 	—	 	310	 	
Non-controlling interest arising from the acquisition of Rodrigue’s (note 6)	 	—	 	—	 	642	 	
Distributions to non-controlling interest holders	 	(1,064	)	(346	)	—	 	
Earnings attributable to non-controlling interest	 	820	 	957	 	757	 	
Non-controlling interest, end of year	 	2,760	 	3,004	 	2,393	 	
 
16. Shareholders’ capital
 
a)                                     Shareholders’ capital
 
Authorized — Unlimited number of voting common shares
without nominal or par value
Authorized — Unlimited number of preferred shares	 	Number of
Shares	 	Amount	 	
 	 	 	 	$	 	
Issued — common shares	 	 	 	 	 	
Opening balance as at October 27, 2008	 	—	 	—	 	
Activity during the period ended December 31, 2008:	 	 	 	 	 	
Shares issued pursuant to the Conversion (note 2)	 	 	 	 	 	
Exchange of Fund units	 	17,095,613	 	326,981	 	
Exchange of Rollover LP units	 	1,259,925	 	25,542	 	
Balance as at December 31, 2008	 	18,355,538	 	352,523	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
16. Shareholders’ capital (Continued)
 
b)                                    Unitholders’ capital
 
Authorized — Unlimited number of voting units	 	Number
of Units	 	Amount	 	
 	 	 	 	$	 	
Issued:	 	 	 	 	 	
Opening balance at January 1, 2006	 	50,271,372	 	116,551	 	
 	 	 	 	 	 	
Activity during the year ended December 31, 2006:	 	 	 	 	 	
Units issued — acquisition of Mercedes Surveys (note 6)	 	260,606	 	1,433	 	
Units issued — acquisition of Tornado (note 6)	 	454,177	 	2,993	 	
Units issued — acquisition of RDDB (note 6)	 	3,240,773	 	22,685	 	
Units issued — acquisition of Eugene Smith (note 6)	 	343,879	 	2,500	 	
Units issued — acquisition of Astec (note 6)	 	144,092	 	1,000	 	
Units issued — acquisition of Cat Tech (note 6)	 	1,246,343	 	8,350	 	
Units issued — acquisition of Bullseye (note 6)	 	1,473,542	 	10,860	 	
Units issued — acquisition of Diversified (note 6)	 	556,380	 	3,750	 	
Units issued — acquisition of Real Time (note 6)	 	236,686	 	1,600	 	
Units issued — acquisition of Airborne (note 6)	 	262,106	 	1,916	 	
Units issued — acquisition of Great Lakes (note 6)	 	324,283	 	2,270	 	
Units issued — acquisition of D&G (note 6)	 	100,000	 	676	 	
Units issued — acquisition of Rodrigue’s (note 6)	 	1,085,046	 	6,738	 	
Units issued — purchase price adjustment	 	264,352	 	1,137	 	
Unit issuance costs — acquisitions	 	—	 	(129	)	
Units issued — equity financing, net of issuance costs	 	8,000,000	 	52,699	 	
Units issued — distribution reinvestment plan (note 19)	 	2,175,636	 	14,220	 	
Exercise of unit options pursuant to the Employee Unit Plan (note 17)	 	1,140,000	 	5,700	 	
Transfer from contributed surplus for unit options exercised (note 18)	 	—	 	570	 	
Units issued for cash pursuant to the Employee Unit Plan (note 17)	 	210,000	 	1,491	 	
Cancellation of units pursuant to an arrangement agreement	 	(42,456	)	(137	)	
Collection of employee share purchase loans receivable	 	—	 	368	 	
Balance as at December 31, 2006	 	71,746,817	 	259,241	 	
 	 	 	 	 	 	
Activity during the year ended December 31, 2007:	 	 	 	 	 	
Units issued — acquisition of Compass (note 6)	 	413,223	 	2,500	 	
Unit issuance costs — acquisition	 	—	 	(6	)	
Units issued — equity financing, net of issuance costs	 	8,130,900	 	41,014	 	
Units issued — distribution reinvestment plan (note 19)	 	4,106,270	 	19,171	 	
Units issued for cash pursuant to the Employee Unit Plan (note 17)	 	920,000	 	5,768	 	
Collection of employee share purchase loans receivable	 	—	 	303	 	
Balance as at December 31, 2007	 	85,317,210	 	327,991	 	
 	 	 	 	 	 	
Activity during the year ended December 31, 2008:	 	 	 	 	 	
Units repurchased and cancelled	 	(1,790,230	)	(6,879	)	
Units issued — “in-kind” distribution (note 19)	 	8,242,710	 	31,367	 	
Unit options exercised (note 17)	 	8,000	 	39	 	
Collection of employee share purchase loans receivable	 	—	 	5	 	
Balance as at December 31, 2008, prior to Conversion	 	91,777,690	 	352,523	 	
Units exchanged for Eveready shares (note 2)	 	 	 	 	 	
Exchange of Fund units	 	(85,478,063	)	(326,981	)	
Exchange of Rollover LP units	 	(6,299,627	)	(25,542	)	
Balance as at December 31, 2008	 	—	 	—	 	
 
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Table of Contents
 
Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
16. Shareholders’ capital (Continued)
 
Pursuant to the Conversion (note 2), Fund unitholders received one share of Eveready for each five Fund units held at December 31, 2008.
 
Rollover LP units
 
The Rollover LP units were issued in conjunction with certain business acquisitions, were units of subsidiary limited partnerships of Eveready, and were designed to be, to the greatest extent practicable, the economic equivalent of Fund units. Rollover LP units were non-transferable (except to certain permitted assigns) and the holders thereof were entitled to receive distributions on a per unit basis equivalent to unitholders of the Fund. The Rollover LP units were exchangeable, at the option of the holder, into units of the Fund at any time. During the year ended December 31, 2008, but prior to the Conversion ( note 2 ), a total of 7,406,750 (2007 — 2,999,412) Rollover LP units were converted into Fund units. As an effect of the Conversion ( note 2 ), Rollover LP unitholders received one common share of Eveready for each five Rollover LP units held so that 6,299,627 Rollover LP units were exchanged for 1,259,925 shares.
 
Equity financings
 
On June 5, 2007, Eveready completed an equity financing of 8,130,900 units at a price of $5.35 per unit for gross proceeds of $43,500. The units were issued pursuant to Eveready’s short form prospectus dated May 28, 2007. Issuance costs of $2,486 were incurred relating to the financing, resulting in net proceeds of $41,014.
 
Normal course issuer bid
 
On January 25, 2008, Eveready received regulatory approval from the Toronto Stock Exchange to purchase for cancellation, from time to time as Eveready considered advisable, its issued and outstanding Fund units. Pursuant to the normal course issuer bid (“the Bid”), Eveready could purchase for cancellation up to a maximum of 5,090,401 Fund units, being approximately 10% of Eveready’s “public float.” The Bid commenced January 29, 2008 and terminated on January 28, 2009.
 
During the twelve months ended December 31, 2008, Eveready repurchased and cancelled 1,790,230 units at an average cost of $2.10 per unit for total cash consideration of $3,758. Unitholders’ capital was reduced by the stated value of the units amounting to $6,879 with the excess over the total cash consideration being credited to contributed surplus ( note 18 ).
 
Under the Conversion (note 2), where every five Fund units were exchanged for one Eveready share, a total of 660,034 shares were eligible to be acquired under the remaining Bid based on a new maximum of 1,018,080 shares. Subsequent to year-end and before termination of the Bid, Eveready repurchased and cancelled 8,388 shares at an average cost of $5.57 per share for total cash consideration of $47.
 
Subsequent to year-end, Eveready received regulatory approval from the Toronto Stock Exchange to enter into a new normal course issuer bid to purchase for cancellation its issued and outstanding common shares ( note 30 ).
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
17. Employee Unit Plan and Share Option Plan
 
Employee Unit Plan
 
Under Eveready’s former Employee Unit Plan (the “Plan”), key employees, officers and directors of Eveready (the “Employees”) were invited to subscribe for an allotted number of units issued from treasury (including through the exercise of existing unit options). Units issued from treasury (excluding those issued through the exercise of unit options) were issued at a price equal to the market value of the units at the time the allocation was made to the Employee.
 
Once the Employee had subscribed for their allotted units, Eveready matched 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” or “Matching Shares”). The Matching Shares vest to the Employee 20% per year over five years. Pursuant to the Conversion ( note 2 ), all outstanding Employee Unit Plan Matching Units held by the Employee Unit Plan Trust were consolidated into Matching Shares, where each five Matching Units were exchanged for one Matching Share.
 
Compensation expense is measured based on the fair value of the Matching Shares on the grant date and is recognized as stock-based compensation expense over the vesting period. During the year ended December 31, 2008, stock-based compensation expense of $2,718 (2007- $3,069 and 2006 — $2,629) was recognized pursuant to this Plan with an offsetting credit to contributed surplus ( note 18 ).
 
No units were issued from treasury or acquired from the market pursuant to the Plan during the year ended December 31, 2008. During the comparative years ended December 31, 2007 and December 31, 2006, 920,000 units and 1,350,000 units were issued from treasury pursuant to the Plan for total proceeds of $5,768 and $7,191, respectively. In addition, the Trust acquired 874,000 Matching Units and 1,520,000 Matching Units from market at a cost of $5,188 and $10,643 in the same respective comparative periods. Shares held by the Trust are recorded at the cost paid by Eveready to purchase the shares and are shown as a reduction of shareholders’ equity in the consolidated financial statements until such time they vest and are transferred to the Employee. The fair value of the shares held by the Trust at December 31, 2008 was $1,975 (December 31, 2007 — $8,279 and December 31, 2006 — $9,652).
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
17. Employee Unit Plan and Share Option Plan (Continued)
 
Eveready recorded the following changes in the number of Matching Shares held under the Plan:
 
 	 	Number
of shares
(units)	 	Amount	 	
 	 	 	 	$	 	
Opening balance of Matching Units as at January 1, 2006	 	—	 	—	 	
Activity during the year ended December 31, 2006:	 	 	 	 	 	
Purchase of Matching Units from the market	 	1,520,000	 	10,643	 	
Balance of Matching Units as at December 31, 2006	 	1,520,000	 	10,643	 	
 	 	 	 	 	 	
Activity during the year ended December 31, 2007:	 	 	 	 	 	
Purchase of Matching Units from the market	 	874,000	 	5,188	 	
Vested units transferred to participants	 	(319,000	)	(2,230	)	
Balance of Matching Units as at December 31, 2007	 	2,075,000	 	13,601	 	
 	 	 	 	 	 	
Activity during the year ended December 31, 2008:	 	 	 	 	 	
Vested units transferred to participants	 	(453,000	)	(2,969	)	
“In-kind” distributions earned on units held under the Plan	 	157,152	 	598	 	
Balance of Matching Units, prior to Conversion	 	1,779,152	 	11,230	 	
Units exchanged for Eveready shares (note 2)	 	(1,779,152	)	(11,230	)	
Shares issued pursuant to the Conversion (note 2)	 	355,830	 	11,230	 	
Balance of Matching Shares as at December 31, 2008	 	355,830	 	11,230	 	
 
On December 31, 2008, 80,600 Matching Shares and 26,344 “in-kind” distributions earned on Matching Units vested and were distributed to Employees in January 2009. Cash dividends/distributions made by Eveready with respect to unvested shares held by the Trust are also paid to the Employee at the end of each fiscal year.
 
Employees had the option of financing their unit purchase through a BMO Bank of Montreal unit purchase loan (“BMO Loan”). The BMO Loan is collateralized by the units acquired by the Employee. In addition, the Matching Shares held by the Trust for that Employee are also collateral against the BMO Loan and could be drawn upon by the bank if the Employee defaulted on the debt obligation and the Employee’s shares were not sufficient to cover the outstanding BMO Loan balance. At December 31, 2008, 213,514 Matching Shares (2007 — 1,596,000 Matching Units and 2006 — 1,030,000 Matching Units) with a fair value of $1,185 (2007 — $6,368 and 2006 — $6,541) were provided as collateral against Employees’ outstanding BMO Bank of Montreal share purchase loans.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
17. Employee Unit Plan and Share Option Plan (Continued)
 
Share Option Plan
 
Effective December 31, 2008, Eveready established a Share Option Plan under which options may be granted to directors, officers, employees and consultants of Eveready, in order to provide an opportunity for these individuals to increase their proprietary interest in Eveready’s long-term success. The Share Option Plan replaced the Unit Option Plan of the Fund where all terms of the Unit Option Plan will be governed by the Share Option Plan.
 
On November 17, 2005, the Fund’s Board of Trustees granted 1,255,000 unit options under the Unit Option Plan. The options vested in 2005, were exercisable at $5.00 per unit, and expire on November 17, 2010.
 
On April 7, 2008, the Fund’s Board of Trustees granted 745,000 unit options to employees and 150,000 unit options to non-employee officers and trustees of the Fund. The unit options granted to employees were exercisable at $3.60 per unit, which equalled the market value of the Fund’s units at the grant date. The unit options granted to non-employee officers and trustees were exercisable at $3.96 per unit, or a 10% premium to the market value of the Fund’s units at the grant date. These unit options expire on April 7, 2013.
 
On May 15, 2008 an additional 25,000 unit options were granted to a new Fund trustee, were exercisable at $4.28 per unit, and expire on May 15, 2013.
 
All unit options granted in 2008 vest 20% per year over four years, with the first 20% vesting on the grant date.
 
In accordance with the Conversion (note 2), in which each five units were exchanged for one share, participants of the Unit Option Plan were entitled to receive, for the same aggregate consideration, share options for outstanding unit options held as at the Conversion date. The following table summarizes the consolidation by grant date:
 
 	 	Prior to Conversion	 	After Conversion	 	
Grant Date	 	Number of
Unit Options
outstanding	 	Exercise
price(1)	 	Number of
Share Options
outstanding	 	Exercise
price	 	
November 17, 2005	 	55,000	 	$	5.0000	 	11,000	 	$	25.000	 	
April 7, 2008	 	640,000	 	$	3.4410	 	128,000	 	$	17.205	 	
April 7, 2008	 	150,000	 	$	3.7851	 	30,000	 	$	18.926	 	
May 15, 2008	 	25,000	 	$	4.0910	 	5,000	 	$	20.455	 	

Note:
 
(1)                                 The exercise price of outstanding unit options granted in 2008 reflects an adjustment due to the “in-kind” distribution declared to unitholders of record on June 30, 2008 ( note 19 ).
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
17. Employee Unit Plan and Share Option Plan (Continued)
 
Eveready recorded the following Share Option activity during the years ended December 31, 2008, 2007 and 2006:
 
 	 	Number of
Share (Unit)
Options	 	Weighted
average
exercise price	 	
 	 	 	 	($)	 	
Opening balance unit options outstanding as at January 1, 2006	 	1,255,000	 	5.00	 	
Activity during the year ended December 31, 2006:	 	 	 	 	 	
Unit options exercised	 	(1,140,000	)	5.00	 	
Unit options forfeited or cancelled	 	(30,000	)	5.00	 	
Unit options outstanding and exercisable as at December 31, 2006	 	85,000	 	5.00	 	
Activity during the year ended December 31, 2007:	 	 	 	 	 	
Unit options forfeited or cancelled	 	(30,000	)	5.00	 	
Unit options outstanding and exercisable as at December 31, 2007	 	55,000	 	5.00	 	
Activity during the year ended December 31, 2008:	 	 	 	 	 	
Unit options granted	 	920,000	 	3.68	 	
Unit options exercised	 	(8,000	)	3.60	 	
Unit options forfeited or cancelled	 	(97,000	)	3.50	 	
Unit options outstanding, prior to Conversion(1)	 	870,000	 	3.62	 	
Unit options exchanged for Eveready share options (note 2)	 	(870,000	)	(3.62	)	
Share options issued pursuant to the Conversion (note 2)(2)	 	174,000	 	18.09	 	
Share options outstanding as at December 31, 2008(2)	 	174,000	 	18.09	 	
Share options exercisable as at December 31, 2008(2)	 	43,600	 	19.48	 	

Note:
 
(1)                                The weighted average exercise price of outstanding unit options forfeited or cancelled after June 30, 2008 reflect an adjustment due to the “in-kind” distribution declared to unitholders of record on June 30, 2008 ( note 19 ).
 
(2)                                The weighted average exercise price of outstanding share options reflect the Conversion consolidation adjustment, in which each five units were exchanged for one share.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
17. Employee Unit Plan and Share Option Plan (Continued)
 
The following summarizes the outstanding and exercisable share options, reflective of the Conversion adjustment, at December 31, 2008:
 
Outstanding	 	Exercisable	 	
Weighted average
exercise price	 	Number of
share options	 	Weighted average
life remaining	 	Weighted average
exercise price	 	Number of
share options	 	
($)	 	 	 	(years)	 	($)	 	 	 	
17.205	 	128,000	 	4.25	 	17.205	 	25,600	 	
18.926	 	30,000	 	4.25	 	18.926	 	6,000	 	
20.455	 	5,000	 	4.33	 	20.455	 	1,000	 	
25.000	 	11,000	 	1.92	 	25.000	 	11,000	 	
18.088	 	174,000	 	4.10	 	19.483	 	43,600	 	
 
Share options are accounted for in accordance with the fair value based method of accounting. The fair value of share options is measured at the grant date using the Black-Scholes valuation model and is recorded as stock-based compensation expense over the option’s vesting period with an offsetting credit to contributed surplus. Upon exercise of share options, the associated amount of contributed surplus is reclassified to shareholders’ capital. The consideration paid by employees upon exercise of share options is also credited to shareholders’ capital.
 
The Black-Scholes valuation model was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting restrictions. In addition, option valuation models require the input of highly subjective assumptions, including expected share price volatility. Eveready’s share options have characteristics significantly different from those of freely traded options. Also, changes in subjective input assumptions can materially affect the fair value estimate.
 
The following weighted-average assumptions were used to calculate the estimated fair value of unit options granted in 2008:
 
Risk-free interest rate	 	3.0	%	
Expected life	 	4.5 years	 	
Annualized volatility	 	38.0	%	
Distribution yield	 	Nil	%	
 
 	 	Weighted average
grant date
fair value	 	
Unit options granted equal to unit market price	 	1.304	 	
Unit options granted in excess of unit market price	 	1.175	 	
Total unit options granted in 2008	 	1.283	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
17. Employee Unit Plan and Share Option Plan (Continued)
 
During the year ended December 31, 2008, stock-based compensation expense of $392 (2007 — $nil and 2006 — $nil) was recognized pursuant to Eveready’s Share Option Plan with an offsetting credit to contributed surplus ( note 18 ). During 2008, $39 was credited to Unitholder’s capital ( note 16 ) for unit options exercised.
 
2008 adjustment to the exercise price of granted unit options
 
Pursuant to the terms of the Share Option Plan, the exercise price of share options may be adjusted by the Board of Directors when shares are issued to shareholders by way of a stock dividend/”in-kind” distribution in order to prevent dilution of any outstanding share options. For the “in-kind” distribution declared to unitholders of record on June 30, 2008 ( note 19 ), the Fund’s Board of Trustees amended the initial exercise prices for outstanding unit options granted in 2008 as follows:
 
Grant Date	 	Initial grant date
exercise price	 	Adjusted exercise price
after June 30, 2008
“in-kind” distributions	 	
April 7, 2008	 	$	3.60	 	$	3.4410	 	
April 7, 2008	 	$	3.96	 	$	3.7851	 	
May 15, 2008	 	$	4.28	 	$	4.0910	 	
 
The adjusted exercise prices from the June 30, 2008 “in-kind” distribution were used in calculating the revised exercise prices pursuant to the Conversion ( note 2 ).
 
The aggregate number of shares reserved for issuance pursuant to the above compensation plans shall not exceed 10% of Eveready’s outstanding shares from time to time.
 
18. Contributed surplus
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
Balance, beginning of year	 	3,688	 	2,849	 	627	 	
Stock-based compensation expense (note 17)	 	3,110	 	3,069	 	2,629	 	
Units transferred to participants pursuant to the Employee Unit Plan (note 17)	 	(2,969	)	(2,230	)	—	 	
Units cancelled pursuant to normal course issuer bid (note 16)	 	3,122	 	—	 	—	 	
Cancellation of units pursuant to an arrangement agreement	 	—	 	—	 	163	 	
Unit options exercised (note 17)	 	(10	)	—	 	(570	)	
Balance, end of year	 	6,941	 	3,688	 	2,849	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
19. Distributions
 
In January 2008, the Fund’s Board of Trustees unanimously approved amendments to the Fund’s distribution policy to maximize the retention of operating cash flow to re-invest in growth. In the past, the Fund declared cash distributions on a monthly basis to unitholders of record on the last business day of each month. Under the new distribution policy announced in January, the Fund declared quarterly “in-kind” distributions of $0.18 per unit ($0.72 per unit on an annualized basis) to unitholders of record as of the close of business on March 31, 2008 and June 30, 2008. The “in-kind” distributions were issued at a deemed price equal to $3.7242 per unit and $3.8862 per unit for the March 31, 2008 and June 30, 2008 “in-kind” distributions, respectively.
 
On September 11, 2008, the Fund’s Board of Trustees replaced the quarterly “in-kind” distribution of $0.18 per unit by declaring a quarterly cash distribution of $0.04 per unit for the third quarter of 2008 ($0.16 per unit on an annualized basis). This cash distribution was paid on October 15, 2008 to unitholders of record as of the close of business on September 30, 2008. On December 15, 2008, the Fund’s Board of Trustees declared a cash distribution of $0.04 per unit for the fourth quarter of 2008 ($0.16 per unit on an annualized basis). The fourth quarter distribution was paid on January 15, 2009 to unitholders of record as of the close of business on December 29, 2008.
 
Future quarterly dividends of Eveready will be reviewed by Eveready’s Board of Directors and adjusted from time to time to reflect current business conditions. The ability of Eveready to pay dividends and the actual amount of such dividends will be dependent upon, among other things, the financial performance of Eveready and its subsidiaries, its debt covenants and obligations, its ability to refinance debt obligations on similar terms and at similar interest rates, its working capital requirements, its future tax obligations, and its future capital requirements.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
19. Distributions (Continued)
 
The following table summarizes Eveready’s distributions on units of record during the years ended December 31, 2008, 2007 and 2006:
 
Record Date	 	Distribution
per unit	 	Total
Distributions	 	Cash
Distributions(1)	 	“In-kind”
Distributions(2)	 	
 	 	$	 	$	 	$	 	$	 	
January 31, 2006	 	0.04	 	2,011	 	1,165	 	846	 	
February 28, 2006	 	0.04	 	2,346	 	1,494	 	852	 	
March 31, 2006	 	0.04	 	2,352	 	1,479	 	873	 	
April 28, 2006	 	0.05	 	2,947	 	1,868	 	1,079	 	
May 31, 2006	 	0.05	 	3,140	 	1,933	 	1,207	 	
June 30, 2006	 	0.05	 	3,167	 	1,994	 	1,173	 	
July 31, 2006	 	0.05	 	3,285	 	2,129	 	1,156	 	
August 31, 2006	 	0.05	 	3,298	 	2,223	 	1,075	 	
September 29, 2006	 	0.05	 	3,423	 	2,123	 	1,300	 	
October 31, 2006	 	0.06	 	4,161	 	2,604	 	1,557	 	
November 30, 2006	 	0.06	 	4,188	 	2,632	 	1,556	 	
December 29, 2006	 	0.06	 	4,289	 	2,743	 	1,546	 	
Total 2006	 	0.60	 	38,607	 	24,387	 	14,220	 	
January 31, 2007	 	0.06	 	4,320	 	2,828	 	1,492	 	
February 28, 2007	 	0.06	 	4,353	 	2,785	 	1,568	 	
March 30, 2007	 	0.06	 	4,406	 	2,841	 	1,565	 	
April 30, 2007	 	0.06	 	4,428	 	2,868	 	1,560	 	
May 31, 2007	 	0.06	 	4,448	 	2,746	 	1,702	 	
June 29, 2007	 	0.06	 	4,958	 	3,197	 	1,761	 	
July 31, 2007	 	0.06	 	4,981	 	3,434	 	1,547	 	
August 31, 2007	 	0.06	 	5,002	 	3,527	 	1,475	 	
September 28, 2007	 	0.06	 	5,024	 	3,527	 	1,497	 	
October 31, 2007	 	0.06	 	5,045	 	3,340	 	1,705	 	
November 30, 2007	 	0.06	 	5,068	 	3,422	 	1,646	 	
December 31, 2007	 	0.06	 	5,014	 	3,361	 	1,653	 	
Total 2007	 	0.72	 	57,047	 	37,876	 	19,171	 	
March 31, 2008	 	0.18	 	15,351	 	38	 	15,313	 	
June 30, 2008	 	0.18	 	16,091	 	37	 	16,054	 	
September 30, 2008	 	0.04	 	3,710	 	3,710	 	—	 	
December 29, 2008	 	0.04	 	3,551	 	3,551	 	—	 	
Total 2008	 	0.44	 	38,703	 	7,336	 	31,367	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
19. Distributions (Continued)
 
Accumulated distributions	 	Distributions	 	Cash
Distributions(1)	 	“In-kind”
Distributions(2)	 	
 	 	$	 	$	 	$	 	
Beginning balance, January 1, 2006	 	12,921	 	6,364	 	6,557	 	
Distributions declared in 2006	 	38,607	 	24,387	 	14,220	 	
Balance as at December 31, 2006	 	51,528	 	30,751	 	20,777	 	
Distributions declared in 2007	 	57,047	 	37,876	 	19,171	 	
Balance as at December 31, 2007	 	108,575	 	68,627	 	39,948	 	
Distributions declared in 2008	 	38,703	 	7,336	 	31,367	 	
Balance as at December 31, 2008	 	147,278	 	75,963	 	71,315	 	

Notes:
 
(1)	The cash distributions component of the “in-kind” distributions declared in the first and second quarters of 2008 consist of fractional unit distributions and non-resident withholding taxes.	
 	 	
(2)	The 2007 and 2006 comparative balances of “in-kind” distributions represents distributions reinvested through Eveready’s former Distribution Reinvestment Plan.	
 
Distribution Reinvestment Plan
 
During the comparative years ended December 31, 2007 and December 31, 2006, Eveready declared total distributions of $0.72 per unit or $57,047 and $0.60 per unit or $38,607, respectively. Of this amount, $19,171 and $14,220 were reinvested through Eveready’s former Distribution Reinvestment Plan (“DRIP”) for the respective comparative years ended December 31, 2007 and December 31, 2006. The DRIP was a voluntary program that permitted eligible unitholders to automatically, and without charge, reinvest monthly distributions in additional units. Unitholders who elected to participate saw their periodic cash distributions automatically reinvested in units at a price equal to 95% of the volume-weighted average price of all units traded on the Toronto Stock Exchange on the ten trading days preceding the applicable record date. In conjunction with implementing the new distribution policy in January 2008, Eveready cancelled its Distribution Reinvestment Plan (“DRIP”).
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
20. (Loss) earnings per share
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
Net (loss) earnings (numerator for basic and diluted earnings per share)	 	(63,437	)	13,626	 	29,901	 	
Basic weighted average number of shares(1)	 	18,275,902	 	16,958,016	 	13,730,836	 	
Dilutive effect of outstanding share options	 	—	 	—	 	42,561	 	
Dilutive effect of unvested shares held by the Employee Unit Plan Trust(1)	 	—	 	—	 	41,229	 	
Dilutive effect of contingently issuable shares(1)	 	—	 	—	 	52,436	 	
Diluted weighted average number of shares(1)	 	18,275,902	 	16,958,016	 	13,867,062	 	
 	 	 	 	 	 	 	 	
(Loss) earnings per share — basic(1)	 	(3.47	)	0.80	 	2.18	 	
(Loss) earnings per share — diluted(1)	 	(3.47	)	0.80	 	2.16	 	

Note:
 
(1)          Comparative share and per share amounts for the years ended December 31, 2007 and December 31, 2006 were restated to reflect the dilutive effect of “in-kind” distributions declared in the first and second quarters of 2008 and the Conversion consolidation adjustment in which each five units were exchanged for one share.
 
Units issued pursuant to Eveready’s “in-kind” distributions declared in the first and second quarters of 2008 ( note 19 ) were deemed to be outstanding at the beginning of each period presented for purposes of calculating basic per share amounts. Similarly as a result of the Conversion ( note 2 ), the consolidation of each five units into one share was deemed to be outstanding at the beginning of each period presented for purposes of calculating basic per share amounts. Unvested shares held by the Employee Unit Plan are not treated as outstanding for purposes of calculating basic per share amounts. Prior to the Conversion ( note 2 ), basic per share amounts were calculated on the basis that all outstanding Rollover LP units were converted into Fund units.
 
The outstanding share options, unvested shares held by the Employee Unit Plan Trust, and convertible debentures did not have a dilutive effect on (loss) earnings per share for the years ended December 31, 2008 and December 31, 2007.
 
For the year ended December 31, 2006, diluted per share amounts include the dilutive effect of outstanding share options, unvested shares held by the Employee Unit Plan Trust, and shares that were issued as contingent consideration in connection with a 2005 business acquisition. The outstanding convertible debenture did not have a dilutive effect on earnings per shares for the December 31, 2006 comparative year.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
21. Supplemental expense information
 
Amortization expense
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
Amortization of property, plant and equipment	 	38,896	 	32,426	 	22,061	 	
Amortization of assets under capital lease	 	2,326	 	850	 	—	 	
Amortization of intangible assets	 	9,044	 	8,511	 	4,290	 	
Accretion on asset retirement obligations (note 14)	 	158	 	97	 	102	 	
 	 	50,424	 	41,884	 	26,453	 	
 
Interest expense
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
Interest — long-term debt	 	14,341	 	12,756	 	3,778	 	
Interest — obligations under capital lease	 	1,286	 	841	 	—	 	
Interest — convertible debentures	 	5,388	 	5,161	 	2,613	 	
Interest — other	 	145	 	119	 	1,271	 	
 	 	21,160	 	18,877	 	7,662	 	
 
22. Income taxes
 
Prior to the Conversion (note 2), the Fund, a publicly traded income trust, qualified for special income tax treatment that allowed tax deductions for distributions paid to unitholders. However on June 12, 2007, the Government of Canada enacted legislation to impose additional income taxes on publicly traded income trusts and limited partnerships (Specified Investment Flow-Through Entities or “SIFT”), including the Fund, effective January 1, 2011. Prior to June 2007, the Fund estimated the future income tax on certain temporary differences between amounts recorded on its balance sheet for book and income tax purposes at a nil effective income tax rate. Under this new legislation (and updated legislation enacted in June 2008), the Fund estimated the effective income tax rate on the post 2010 reversal of these temporary differences to range from 28.0% to 29.5%. Temporary differences reversing before 2011 still gave rise to $nil future income taxes.
 
In prior periods, Eveready planned to maximize the amount of income tax pools that could be carried forward to reduce and defer, as much as possible, its income tax exposure beginning in 2011. To achieve this objective, Eveready intended to maximize the taxable components of all distributions, including its “in-kind” distributions, declared until 2010. Eveready expected this distribution policy to eliminate all of its cash taxes payable and to reverse a substantial portion of its taxable temporary differences associated with its assets and liabilities prior to January 1, 2011. As the new legislation first gave rise to a change in Eveready’s future income tax liability within the year ended December 31, 2007, the Fund recognized an additional future income tax liability of
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
22. Income taxes (Continued)
 
$4,667 in 2007 relating to net taxable temporary differences expected to reverse after January 1, 2011.
 
In September 2008, Eveready replaced its quarterly $0.18 per unit “in-kind” distribution with a quarterly $0.04 per unit cash distribution ( note 19 ). Consequently, the $0.14 per unit decrease in quarterly distribution would have required Eveready to utilize more of its tax pools in 2009 and 2010 to reduce its cash income taxes payable in these fiscal years. Utilizing the tax pools earlier resulted in a substantial portion of Eveready’s taxable temporary differences not expected to reverse prior to January 1, 2011. As a result, Eveready incurred an additional future income tax expense of $8,821 in the three months ended September 30, 2008.
 
As a result of the Conversion (note 2), Eveready was required to recognize any remaining differences in tax legislation between an income trust and a corporation effective December 31, 2008.
 
The following is a reconciliation of income taxes, calculated at the statutory Canadian combined federal and provincial tax rate, to the income tax provision (effective tax rate) included in the consolidated statement of (loss) earnings for each of the years presented:
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
(Loss) earnings before income taxes and non-controlling interest	 	(55,653	)	18,618	 	31,332	 	
Allocation to unitholders	 	51,555	 	(23,229	)	(30,153	)	
Loss applicable to Eveready and its incorporated subsidiaries	 	(4,098	)	(4,611	)	1,179	 	
 	 	 	 	 	 	 	 	
Provision for income taxes at statutory tax rate of 29.5% (2007 — 32.1% and 2006 — 32.5%)	 	(1,209	)	(1,481	)	383	 	
Increase related to:	 	 	 	 	 	 	 	
SIFT future income taxes	 	6,703	 	4,667	 	—	 	
Expenses not deductible for tax and other adjustments	 	1,346	 	203	 	35	 	
Jurisdictional tax rate differences	 	38	 	92	 	—	 	
Changes in tax rates impacting future income tax balances	 	41	 	40	 	—	 	
Change in valuation allowance	 	45	 	514	 	256	 	
Income tax expense at effective tax rate of negative 12.5% (2007 — 21.7% and 2006 — 2.2%)	 	6,964	 	4,035	 	674	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
22. Income taxes (Continued)
 
Eveready’s future income tax liability is comprised of the following components:
 
As at December 31	 	2008	 	2007	 	
 	 	$	 	$	 	
Carrying value of property, plant and equipment in excess of tax value	 	8,104	 	722	 	
Carrying value of intangible assets and goodwill in excess of tax value	 	3,356	 	4,830	 	
Loss carry-forwards, net of valuation allowance of $1,048 (2007 — $1,003)	 	(214	)	(907	)	
Other	 	(1,151	)	(100	)	
Future income tax liability	 	10,095	 	4,545	 	
 
Eveready’s incorporated subsidiaries have loss carry-forwards at December 31, 2008 of approximately $4,946 (2007 — $6,204). These loss carry-forwards are available to reduce taxable income in future years and expire in years ranging from 2013 to 2027, depending on the year and in what jurisdiction they were incurred.
 
Income tax provisions, including current and future income tax assets and liabilities, require estimates and interpretations of federal and provincial income tax rules and regulations, and judgments as to their interpretation and application to Eveready’s specific situation. The amount and timing of reversals of temporary differences will also depend on Eveready’s future operating results, acquisitions and dispositions of assets and liabilities. Therefore, it is possible that the ultimate value of Eveready’s income tax assets and liabilities could change in the future and that changes to these amounts could have a material effect on these consolidated financial statements.
 
Trust reorganization adjustments
 
During the comparative year ended December 31, 2006, Eveready’s future income tax liability was reduced by $787 with an offsetting increase to retained earnings. This adjustment resulted from a trust reorganization effective July 1, 2006 to transfer the assets and businesses of several incorporated subsidiaries of Eveready into the flow-through income trust structure. As a result, the previously recognized temporary differences in these incorporated subsidiaries were eliminated on a prospective basis.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
23. Supplemental cash flow information
 
a)                                     Changes in non-cash operating working capital:
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
Accounts receivable	 	(31,175	)	(11,165	)	(7,110	)	
Inventory	 	1,726	 	(1,913	)	(4,550	)	
Properties held for sale	 	—	 	1,977	 	(2,963	)	
Prepaid expenses and deposits	 	(502	)	317	 	2,178	 	
Accounts payable and accrued liabilities	 	1,461	 	2,792	 	(102	)	
Income taxes recoverable/payable	 	710	 	(1,318	)	(1,769	)	
 	 	(27,780	)	(9,310	)	(14,316	)	
 
b)                                    Non-cash investing and financing activities:
 
·                 During the year ended December 31, 2008, “in-kind” distributions of $31,367 owing to unitholders, were settled by issuing units ( note 19 ). For the comparative years ended December 31, 2007 and December 31, 2006, distributions of $19,171 and $14,220, respectively, were settled by issuing units to individuals participating in the Fund’s former DRIP ( note 19 );
 
·                 During the year ended December 31, 2008, Eveready acquired $666 (2007 — $154 and 2006 — $nil), of equipment through obligations under capital lease ( note 12 ); and
 
·                 During the comparative years ended December 31, 2007 and 2006, units of $2,500 and units of $66,771, respectively, were issued as partial consideration in conjunction with the completion of business acquisitions ( note 6 ).
 
c)                                     Income taxes and interest paid:
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
Income taxes paid	 	725	 	1,444	 	2,323	 	
Interest paid	 	18,051	 	15,581	 	6,929	 	
 
d)                                    Cash used in business acquisitions, net of cash acquired:
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
Cash consideration paid (note 6)	 	7,400	 	65,037	 	77,287	 	
Acquisition costs (note 6)	 	40	 	159	 	962	 	
Less: cash acquired in business acquisitions	 	—	 	—	 	(5,299	)	
Cash used in business acquisitions, net of cash acquired	 	7,440	 	65,196	 	72,950	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
24. Segmented reporting
 
Eveready operates in three business segments, segregated based on the types of services provided. These segments include: industrial maintenance and production services; lodging services; and exploration services. In total, Eveready provides over 80 different services to its customers. With such a wide range of services, it is impractical to provide a revenue breakdown of each service provided.
 
The industrial maintenance and production services segment serves a variety of customers in the energy, resource, and industrial sectors. They include, among other services, catalyst handling, chemical cleaning and decontamination, decoking and pigging, directional boring, disposal well services, fluid hauling, filters and filtration services, flush-by and coil tubing, high and ultra-high pressure water blasting, hot oiling, hydro-excavation, industrial health services, landfill solid waste disposal, mechanical dewatering and dredging, pressure testing, rental, sale, and supply of a wide variety of oilfield equipment, safety training and services, steam cleaning, tank cleaning, waste hauling, and wet and dry vacuuming.
 
Eveready’s lodging services consists of industrial lodges and drill camp accommodations.
 
Eveready’s exploration services segment supports exploration programs for oil and gas companies. Services include geospatial data imaging, heli-portable and track drilling, land development, line clearing, and seismic surveying.
 
Accounting policies for each of these business segments are the same as those disclosed in notes 3 and 4 to these consolidated financial statements. General and administrative expenses directly related to the three business segments are included as operating expenses for those segments. There are no significant inter-segment revenues. Segment contribution represents earnings before income taxes and non-controlling interest for each of Eveready’s business segments prior to unallocated items. Eveready uses segment contribution as a key measure to analyze the financial performance of its business segments.
 
In the first quarter of 2009, Eveready revised its business segment composition and related disclosure to include three reportable segments to more appropriately classify the range of services Eveready offers its customers. Previously, Eveready disclosed four reportable segments. The figures in these consolidated financial statements have been reclassified to conform to the new presentation.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
24. Segmented reporting (Continued)
 
Selected financial information by reportable segment is disclosed as follows:
 
Year Ended December 31, 2008	 	Industrial
maintenance
and production
services	 	Lodging
services	 	Exploration
services	 	Consolidated	 	
 	 	$	 	$	 	$	 	$	 	
Revenue	 	524,159	 	63,121	 	63,348	 	650,628	 	
Amortization expense	 	29,658	 	5,305	 	6,417	 	41,380	 	
Segment contribution	 	43,024	 	25,070	 	5,886	 	73,980	 	
Less unallocated items:	 	 	 	 	 	 	 	 	 	
Corporate costs	 	 	 	 	 	 	 	10,625	 	
Amortization of intangible assets	 	 	 	 	 	 	 	9,044	 	
Interest expense	 	 	 	 	 	 	 	21,160	 	
Gain on foreign exchange	 	 	 	 	 	 	 	(1,539	)	
Impairment of intangible assets and goodwill (note 9)	 	 	 	 	 	 	 	90,343	 	
Loss before income taxes and non-controlling interest	 	 	 	 	 	 	 	(55,653	)	
 	 	 	 	 	 	 	 	 	 	
Capital expenditures (excluding business acquisitions)	 	44,795	 	10,982	 	9,035	 	64,812	 	
Impairment of intangible assets (note 8)	 	2,576	 	—	 	90	 	2,666	 	
Impairment of goodwill (note 9)	 	77,466	 	—	 	10,211	 	87,677	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
24. Segmented reporting (Continued)
 
Year Ended December 31, 2007	 	Industrial
maintenance
and production
services	 	Lodging
services	 	Exploration
services	 	Consolidated	 	
 	 	$	 	$	 	$	 	$	 	
Revenue	 	428,226	 	31,149	 	59,521	 	518,896	 	
Amortization expense	 	25,279	 	2,894	 	5,200	 	33,373	 	
Segment contribution	 	38,685	 	11,363	 	8,276	 	58,324	 	
Less unallocated items:	 	 	 	 	 	 	 	 	 	
Corporate costs	 	 	 	 	 	 	 	10,674	 	
Amortization of intangible assets	 	 	 	 	 	 	 	8,511	 	
Interest expense	 	 	 	 	 	 	 	18,877	 	
Loss on foreign exchange	 	 	 	 	 	 	 	1,644	 	
Earnings before income taxes and non-controlling interest	 	 	 	 	 	 	 	18,618	 	
 	 	 	 	 	 	 	 	 	 	
Capital expenditures (excluding business acquisitions)	 	59,342	 	7,604	 	9,998	 	76,944	 	
Acquisition of goodwill	 	1,853	 	23,069	 	—	 	24,922	 	
 
Year Ended December 31, 2006	 	Industrial
maintenance
and production
services	 	Lodging
services	 	Exploration
services	 	Consolidated	 	
 	 	$	 	$	 	$	 	$	 	
Revenue	 	311,370	 	—	 	68,323	 	379,693	 	
Amortization expense	 	18,021	 	—	 	4,142	 	22,163	 	
Segment contribution	 	38,253	 	—	 	14,082	 	52,335	 	
Unallocated items:	 	 	 	 	 	 	 	 	 	
Corporate costs	 	 	 	 	 	 	 	9,703	 	
Amortization of intangible assets	 	 	 	 	 	 	 	4,290	 	
Interest expense	 	 	 	 	 	 	 	7,662	 	
Gain on foreign exchange	 	 	 	 	 	 	 	(652	)	
Earnings before income taxes and non-controlling interest	 	 	 	 	 	 	 	31,332	 	
 	 	 	 	 	 	 	 	 	 	
Capital expenditures (excluding business acquisitions)	 	59,662	 	—	 	9,161	 	68,823	 	
Acquisition of goodwill	 	52,883	 	—	 	2,974	 	55,857	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
24. Segmented reporting (Continued)
 
Selected balance sheet information by reportable segment is disclosed as follows:
 
Year Ended December 31, 2008	 	Industrial
maintenance
and production
services	 	Lodging
services	 	Exploration
services	 	Consolidated	 	
 	 	$	 	$	 	$	 	$	 	
Property, plant and equipment	 	238,712	 	60,902	 	31,217	 	330,831	 	
Intangible assets	 	37,165	 	6,775	 	2,798	 	46,738	 	
Goodwill	 	—	 	23,069	 	—	 	23,069	 	
Total assets	 	409,246	 	109,382	 	57,576	 	576,204	 	
 
As at December 31, 2007	 	 	 	 	 	 	 	 	 	
Property, plant and equipment	 	222,229	 	51,962	 	29,153	 	303,344	 	
Intangible assets	 	45,416	 	7,093	 	4,165	 	56,674	 	
Goodwill	 	77,466	 	23,069	 	10,211	 	110,746	 	
Total assets	 	459,962	 	91,657	 	66,912	 	618,531	 	
 
Eveready’s operations are conducted in the following geographic locations:
 
Years Ended December 31	 	2008	 	2007	 	2006	 	
 	 	$	 	$	 	$	 	
Revenue	 	 	 	 	 	 	 	
Canada	 	587,142	 	467,992	 	350,359	 	
United States and international	 	63,486	 	50,904	 	29,334	 	
 	 	650,628	 	518,896	 	379,693	 	
 
As at December 31	 	2008	 	2007	 	
 	 	$	 	$	 	
Property, plant and equipment, intangible assets, and goodwill	 	 	 	 	 	
Canada	 	373,434	 	434,495	 	
United States and international	 	27,204	 	36,269	 	
 	 	400,638	 	470,764	 	
 
25. Related party transactions
 
a)                                     During the year ended December 31, 2008, Eveready incurred professional fees of $611 (2007 — $483 and 2006 — $589) from a partnership of which an Eveready officer is a partner;
 
b)                                    During the year ended December 31, 2008, Eveready incurred professional fees of $206 (2007 — $186 and 2006 — $398) from a partnership of which an Eveready director/trustee is a partner;
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
25. Related party transactions (Continued)
 
c)                                     Included in general and administrative expenses for the year ended December 31, 2008 are occupancy costs of $2,361 (2007 — $1,587 and 2006 — $927) paid to companies controlled or influenced by certain officers and/or directors/trustees of Eveready;
 
d)                                    During the year ended December 31, 2008, Eveready incurred equipment rental and repair costs of $370 (2007 — $134 and 2006 — $nil), from companies controlled or influenced by certain officers and/or directors/trustees of Eveready;
 
e)                                     During the year ended December 31, 2008, Eveready acquired service equipment of $1,745 (2007 — $3,206 and 2006 — $3,410) from a company controlled by an Eveready officer (2007 and 2006 — companies controlled or influenced by certain officers and/or directors/trustees of Eveready);
 
f)                                       During the year ended December 31, 2008, Eveready earned service revenue of $3,042 (2007 — $3,650 and 2006 — $88) from companies controlled or influenced by certain officers and/or directors/trustees of Eveready; and
 
g)                                    During the year ended December 31, 2008, Eveready disposed of property, plant and equipment for proceeds of $233 (2007 — $nil and 2006 — $nil), to a company influenced by an Eveready director/trustee.
 
As at December 31, 2008, outstanding amounts collectible from or owing to related parties included accounts receivable of $2,178 (December 31, 2007 — $2,004) and accounts payable and accrued liabilities of $550 (December 31, 2007 — $108). Except for item ‘g’ above, all transactions occurred in the normal course of operations and were measured at their exchange amounts, which were established and agreed to as consideration by the related parties. The proceeds received on disposal of property, plant and equipment were measured at the disposed asset’s carrying amount, which also equalled its exchange amount.
 
26. Capital management
 
Eveready’s overall capital management objectives are: (i) to finance its operations and growth strategies; and (ii) to limit risk to an acceptable level to maximize shareholder value. To accomplish these objectives, Eveready uses a combination of debt and equity. The mix of each component is reviewed and adjusted appropriately as changes in economic conditions arise. This capital mix is also regularly monitored to ensure all externally imposed capital requirements on Eveready’s debt, such as certain financial covenants, are maintained.
 
Capital is defined by Eveready to include all funded debt (long-term debt, obligations under capital lease, convertible debentures, and the current portions of long-term debt and obligations under capital lease) and shareholders’ equity.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
26. Capital management (Continued)
 
The calculations of funded debt and total capital are as follows:
 
As at December 31	 	2008	 	2007	 	
 	 	$	 	$	 	
Current portion of long-term debt	 	1,500	 	1,500	 	
Current portion of obligations under capital lease	 	4,619	 	2,880	 	
Long-term debt	 	213,363	 	199,836	 	
Obligations under capital lease	 	18,787	 	15,292	 	
Convertible debentures	 	44,132	 	42,244	 	
Funded debt	 	282,401	 	261,752	 	
Shareholders’/unitholders’ equity	 	212,878	 	284,862	 	
Total capital	 	495,279	 	546,614	 	
 
Debt management
 
Under its long-term credit facilities, Eveready must operate in the normal course of business while managing a number of financial covenants on a quarterly basis. These covenants include, but are not limited to, a fixed charge coverage ratio, funded debt to EBITDA ratios, a maximum distribution payout ratio and minimum net worth, each of which are calculated quarterly on a trailing twelve-month basis and adjusted on a pro-forma basis for certain business acquisitions. The definitions of these measures are in accordance with the lending agreement and are calculated based on the lender’s interpretation, which may not be equal to individual financial statement figures presented in these consolidated financial statements.
 
The following summarizes the financial covenants calculated in accordance with the lending agreement:
 
 	 	2008	 	2007	 	
As at December 31	 	Required	 	Actual	 	Required	 	Actual	 	
Fixed charge coverage ratio	 	> 1.50	 	3.07	 	> 1.50	 	1.64	 	
Funded senior debt to EBITDA	 	< 2.50	 	2.24	 	< 2.50	 	2.39	 	
Funded debt to EBITDA	 	< 3.00	 	2.66	 	< 3.00	 	2.85	 	
Maximum distribution payout ratio	 	< 80	%	12	%	< 80	%	56	%	
Minimum net worth	 	>$	170,636	 	$	233,941	 	>$	264,632	 	$	327,105	 	

Equity management
 
As a result of the Conversion from a publicly traded income trust to a publicly traded corporation (note 2), Eveready no longer is subject to equity limitations of “normal growth” or “undue expansion” to maintain its income trust flow-through status for income tax purpose. Prior to the Conversion, if Eveready were to have violated these requirements, it would have suffered
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
26. Capital management (Continued)
 
adverse tax consequences earlier than 2011. As a corporation, Eveready has no externally imposed restrictions or limitations on its equity.
 
Eveready’s capital management objectives and evaluation measures have remained unchanged over the periods presented. As at December 31, 2008, Eveready was in compliance with all externally imposed capital requirements on its debt.
 
27. Commitments, contingencies, and guarantees
 
Commitments
 
Eveready has entered into operating leases for office and shop premises, vehicles, and equipment that provide for minimum annual lease payments as follows:
 
 	 	Amount	 	
 	 	$	 	
2009	 	16,775	 	
2010	 	11,001	 	
2011	 	5,469	 	
2012	 	2,430	 	
2013	 	1,302	 	
 	 	36,977	 	
 
Included above are lease commitments of $4,043 relating to premises owned by certain Eveready officers and directors. Eveready has also approved its 2009 capital expenditure program of approximately $15,000. These expenditures are expected to be incurred throughout 2009. Eveready is normally not contractually committed to acquire property, plant and equipment until delivery of the asset occurs.
 
Contingencies
 
From time to time Eveready is subject to claims and lawsuits arising in the ordinary course of operations. In the opinion of management, the ultimate resolution of such pending legal proceedings will not have a material adverse effect on Eveready’s financial position.
 
Guarantees
 
a)                                     Eveready has provided certain guarantees to financial institutions for financing obtained by contractors to purchase specific service and automotive equipment for use in supplying services to Eveready. As at December 31, 2008, the total balance of all outstanding third party payments guaranteed by Eveready was $1,402. These financings are collateralized by the specific equipment purchased and are due to mature between 2011 and 2012. Eveready would be required to settle these guarantees if a contractor were to default on the obligation
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
27. Commitments, contingencies, and guarantees (Continued)
 
and the collateral held by the financial institutions was not sufficient to repay the balances due;
 
b)                                    Eveready had outstanding letters of credit at December 31, 2008 of $2,225, drawn under the Revolver (note 11). These letters of credit were issued to comply with certain environmental regulations and other contractual agreements. Eveready could be required to settle these letters of credit in the future if requirements under the environmental regulations and contractual agreements were not met;
 
c)                                     Matching Shares held within Eveready’s Employee Unit Plan Trust (note 17) are provided as collateral against bank loans owing by certain Employees that were issued in connection with their participation in the Plan. These shares could be drawn upon by the bank if the Employee were to default on the debt obligation and the Employee’s shares were not sufficient to cover the outstanding loan balance. At December 31, 2008, the Trust held 213,514 Matching Shares of Eveready with a fair value of $1,185 as collateral over such bank loans. Shares held by the Trust are recorded at cost and shown as a reduction of shareholders’ equity in the consolidated financial statements until such time as they vest and are transferred to the participant; and
 
d)                                    In the normal course of business, Eveready enters into agreements that include indemnities in favour of third parties such as engagement letters with advisors and consultants, and service agreements. Eveready has also agreed to indemnify its directors, officers, and employees in accordance with Eveready’s constating documents and bylaws. Certain agreements do not contain any limits on Eveready’s liability and therefore it is not possible to estimate Eveready’s potential liability under these indemnities. In certain cases, Eveready has recourse against third parties with respect to these indemnities. In addition, Eveready maintains insurance policies that may provide coverage against certain claims under these indemnities.
 
Eveready believes it would be able to satisfy all of the guaranteed obligations above without disrupting normal business operations.
 
28. Financial Instruments
 
a)                                     Fair value of financial instruments
 
The carrying amounts of cash, accounts receivable, accounts payable and accrued liabilities, and distributions payable approximate their fair values given the short-term maturity of these instruments.
 
The fair value of financial instruments actively traded in markets is determined by reference to current market value as at the balance sheet date. For financial instruments not traded in an active market, Eveready uses a discounted cash flow valuation technique. In applying the discounted cash flow valuation technique, Eveready estimates a current market interest rate for the same or similar financial instrument. If the credit quality of similar instruments is undeterminable, Eveready will assume no changes in the credit quality have taken place.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
28. Financial Instruments (Continued)
 
The estimated fair value of Eveready’s Debentures at December 31, 2008 was $35,750 compared to its carrying value of $44,132. The fair value of the Debentures was determined by reference to their current market value as at December 31, 2008. As the convertible debentures are other financial liabilities and are measured at amortized cost, no gain or loss has been recognized in net loss relating to the difference between the Debentures’ fair value and carrying value.
 
Due to the recent volatility in the overall North American credit markets, Eveready expects that if it were to refinance its long-term debt at December 31, 2008, it would be subject to a higher credit spread applied to its variable interest rate. As a result, Eveready believes the carrying value of its long-term debt exceeds its fair value. Eveready estimated its fair value of long-term debt, including its current portion, before any unamortized transaction costs, at December 31, 2008 to be $209,931 compared to its aggregate carrying value, before unamortized transaction costs, of $217,782. The fair value of long-term debt was determined by reference to Eveready’s best estimate of a current market interest rate of 6.39% as at December 31, 2008 (compared to its actual interest rate of 5.21%). As long-term debt and its respective current portion are both other financial liabilities and are measured at amortized cost, no gain or loss has been recognized in net loss reflecting the difference between the fair value and carrying value.
 
The actual interest rate available to Eveready if it were to refinance its long-term debt could be substantially different than its estimated rate at December 31, 2008 as it would remain subject to negotiation and acceptance by lenders willing to provide equivalent debt financing on similar terms and conditions as Eveready’s current long-term debt facilities.
 
b)                                    Credit risk
 
By granting credit sales to customers, it is possible these entities, to which Eveready provides services, may experience financial difficulty and be unable to fulfill their obligations. A substantial amount of Eveready’s revenue is generated from customers in the oil and gas industry. This results in a concentration of credit risk from customers in this industry. A significant decline in economic conditions within this industry would increase the risk customers could experience financial difficulty and be unable to fulfill their obligations to Eveready. Eveready’s exposure to credit risk arising from granting credit sales is limited to the carrying value of accounts receivable. Eveready’s revenues are normally invoiced with payment terms of 30 days. However in Eveready’s industry, customers typically pay invoices within 30 to 90 days. At December 31, 2008, $93,460 (December 31, 2007 — $74,824) of Eveready’s gross receivables were over 30 days. The average time to collect Eveready’s outstanding accounts receivable was approximately 86 days at December 31, 2008 (December 31, 2007 — 80 days). Eveready targets an average collection time of 75 days.
 
Included in the carrying value of accounts receivable at December 31, 2008 was $9,490 or 6% of total accounts receivable owing from one customer. Approximately $5,500 of this amount has been outstanding for more than 90 days skewing Eveready’s average time to collect its outstanding accounts receivable as indicated above. If Eveready were to exclude this one customer balance, the average time to collect its outstanding accounts receivable would be approximately 81 days. Eveready has not established a provision relating to this customer balance as it expects to collect the outstanding balance in the first and second quarters of 2009. Subsequent to year-end,
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
28. Financial Instruments (Continued)
 
Eveready collected the full balance at December 31, 2008, which had been outstanding for more than 90 days. Eveready continues to do business with this customer and is closely monitoring any outstanding balances to ensure a more timely collection occurs.
 
At December 31, 2008, no outstanding customer balance represented more than 10% of total accounts receivable.
 
With uncertainties arising from a decline in overall economic conditions and reduced levels of activity in the oil and gas industry, Eveready’s exposure to credit risk from its customers has increased during the fourth quarter of 2008. Eveready mitigates its credit risk by assessing the credit worthiness of its customers on an ongoing basis. Eveready also closely monitors the amount and age of balances outstanding. Eveready establishes a provision for bad debts based on specific customers’ credit risk, historical trends, and other economic information. For the year ended December 31, 2008, all customer balances provided as bad debts were specifically identified. Eveready recorded the following activity in its allowance for doubtful accounts during the year ended December 31, 2008:
 
Year ended December 31	 	2008	 	
 	 	$	 	
Balance, beginning of period	 	3,691	 	
Provision for bad debts, net of recoveries	 	1,851	 	
Amounts written off as uncollectible	 	(680	)	
Balance, end of period	 	4,862	 	
 
Eveready is also exposed to credit risk associated with its guarantees. Eveready’s maximum exposure to such guarantees is discussed further in note 27.
 
c)                                     Liquidity risk
 
Eveready’s exposure to liquidity risk is dependant on the collection of accounts receivable and the ability to raise funds to meet purchase commitments and financial obligations and to sustain operations. Eveready controls its liquidity risk by managing its working capital, cash flows, and by monitoring the availability of its borrowing facilities.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
28. Financial Instruments (Continued)
 
At December 31, 2008, Eveready’s contractual obligations for the next five years (12 month periods ending on December 31 st ) and thereafter are as follows:
 
$ in thousands	 	2009	 	2010	 	2011	 	2012	 	2013	 	Thereafter	 	Total	 	
Long-term debt (note 11)	 	1,500	 	24,927	 	36,641	 	154,714	 	—	 	—	 	217,782	 	
Obligations under capital lease (including imputed interest) ( note 12 )	 	5,834	 	5,498	 	5,260	 	5,042	 	3,562	 	1,915	 	27,111	 	
Convertible debentures (note 13)	 	—	 	—	 	50,000	 	—	 	—	 	—	 	50,000	 	
Asset retirement obligations (note 14)	 	584	 	—	 	516	 	—	 	—	 	1,903	 	3,003	 	
Operating leases (note 27)	 	16,775	 	11,001	 	5,469	 	2,430	 	1,302	 	2,950	 	39,927	 	
Total	 	24,693	 	41,426	 	97,886	 	162,186	 	4,864	 	6,768	 	337,823	 	
 
The table above presents the minimum principal repayments required on the Revolver if it were not renewed (the next renewal date is April 24, 2009) and if Eveready were not able to refinance this credit facility with another lender. The estimated timing and amount of Eveready’s asset retirement obligations could change in the future or could be incurred in different periods from those indicated above.
 
d)                                    Interest rate risk
 
Eveready’s cash flow is exposed to changes in interest rates on its long-term debt and obligations under capital lease, which bear interest based on variable rates. The cash flow required to service these liabilities will fluctuate as a result of changes in market interest rates. Based on Eveready’s outstanding long-term debt and obligations under capital lease at December 31, 2008, a one percent increase or decrease in market interest rates would impact Eveready’s annual interest expense by approximately $2,406. Eveready has not entered into any derivative agreements to mitigate this risk.
 
Eveready is also exposed to interest rate price risk on its convertible debentures, which incur fixed interest payments. The discount rate used in determining the fair value of the convertible debentures’ future cash flows will fluctuate as a result of changes in market interest rates available to Eveready for the same or similar instrument. As at December 31, 2008 assuming a one percent change in market interest rates, the fair value of the convertible debentures could change by $740.
 
Eveready’s other financial instruments are not exposed to interest rate risk.
 
e)                                     Foreign currency risk
 
Eveready is primarily exposed to foreign currency fluctuations in relation to its US and international operations. Therefore, there is risk of earnings fluctuations arising from changes in and the degree of volatility of foreign exchange rates arising on foreign monetary assets and liabilities. Although the majority of Eveready’s operations are in Canada, Eveready continues to expand its operations outside Canada, which increases its exposure to foreign currency risk. During the year ended December 31, 2008, Eveready incurred a gain on foreign exchange of $1,539 (2007 — loss on foreign exchange of $1,644 and 2006 — gain of $652). In 2008 and 2006, Eveready experienced
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
28. Financial Instruments (Continued)
 
gains on foreign exchange as the value of the US dollar appreciated compared to the Canadian dollar. In 2007, the value of the US dollar depreciated considerably versus the Canadian dollar resulting in losses on foreign exchange.
 
Based on Eveready’s monetary assets and liabilities held in its US operations at December 31, 2008, a five percent increase or decrease in exchange rates would impact Eveready’s annual foreign exchange (gain) loss by approximately $610. Eveready does not currently use derivative financial instruments to reduce its exposure to foreign currency risk.
 
29. United States Generally Accepted Accounting Principles
 
These consolidated financial statements have been prepared in accordance with Canadian GAAP (note 1), which in most respects conform to generally accepted accounting principles in the United States (“US GAAP”). Any differences in accounting principles between Canadian GAAP and US GAAP to Eveready are not material, except as described below. The following adjustments reflect measurement differences only and do not reflect any differences in disclosures existing between Canadian GAAP and US GAAP.
 
These consolidated financial statements are being issued subsequent to the release of the interim consolidated financial statements for the three months ended March 31, 2009. Accordingly, accounting pronouncements under US GAAP adopted in the interim consolidated financial statements for the three months ended March 31, 2009 have been reflected on a retrospective basis in this note to the consolidated financial statements.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
29. United States Generally Accepted Accounting Principles (Continued)
 
Consolidated Balance Sheets
 
The application of US GAAP would have the following impact on Eveready’s consolidated balance sheets as at December 31, 2008 and 2007:
 
 	 	 	 	2008	 	2007	 	
As at December 31	 	Notes	 	Canadian GAAP
(As reported)	 	US GAAP	 	Canadian GAAP
(As reported)	 	US GAAP	 	
 	 	 	 	$	 	$	 	$	 	$	 	
Intangible assets	 	a	 	46,738	 	44,260	 	56,674	 	54,334	 	
Goodwill	 	c	 	23,069	 	23,069	 	110,746	 	121,648	 	
Convertible debentures	 	b	 	44,132	 	48,736	 	42,244	 	48,299	 	
Future income taxes	 	e	 	10,095	 	8,314	 	4,545	 	3,680	 	
Non-controlling interest	 	c	 	2,760	 	—	 	3,004	 	—	 	
Other long-term liabilities	 	d) iii	 	—	 	—	 	—	 	1,893	 	
Temporary equity	 	 	 	 	 	 	 	 	 	 	 	
Non-controlling interest	 	c	 	—	 	13,662	 	—	 	13,906	 	
Unitholders’capital	 	d) i	 	—	 	—	 	—	 	311,119	 	
Units held under Employee Unit Plan	 	d) ii	 	—	 	—	 	—	 	(7,567	)	
Employee Unit Plan vested	 	d) iii	 	—	 	—	 	—	 	578	 	
 	 	 	 	—	 	13,662	 	—	 	318,036	 	
Shareholders’capital	 	d) iv	 	352,523	 	102,298	 	—	 	—	 	
Unitholders’capital	 	d) i	 	—	 	—	 	327,991	 	—	 	
Shares / units held under Employee Unit Plan	 	d) iv	 	(11,230	)	(1,975	)	(13,601	)	—	 	
Equity component of convertible debentures	 	b	 	8,030	 	—	 	8,030	 	—	 	
Contributed surplus	 	d) iv	 	6,941	 	764	 	3,688	 	—	 	
(Deficit) retained earnings	 	a, b, c, d, e	 	(143,386	)	96,073	 	(41,246	)	(28,691	)	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
29. United States Generally Accepted Accounting Principles (Continued)
 
Net (loss) earnings and comprehensive (loss) income
 
The application of US GAAP would have the following impact on Eveready’s consolidated statements of (loss) earnings and comprehensive (loss) income for the years ended December 31, 2008 and 2007:
 
Years Ended December 31	 	Notes	 	2008	 	2007	 	
 	 	 	 	$	 	$	 	
(Loss) earnings before non-controlling interest — as reported under Canadian GAAP	 	 	 	(62,617	)	14,583	 	
Adjustments under US GAAP:	 	 	 	 	 	 	 	
Research and development expense	 	a	 	(139	)	(2,256	)	
Interest	 	b	 	1,450	 	1,264	 	
Stock-based compensation	 	d) iii	 	4,391	 	2,433	 	
Impairment of intangible assets and goodwill	 	c	 	(10,902	)	—	 	
Income tax effect related to above adjustments	 	e	 	915	 	835	 	
Net (loss) earnings and comprehensive (loss) income — as reported under US GAAP	 	 	 	(66,902	)	16,859	 	
Net earnings attributable to non-controlling interest	 	c	 	(820	)	(957	)	
Net (loss) earnings and comprehensive (loss) income attributable to Eveready — as reported under US GAAP	 	 	 	(67,722	)	15,902	 	
(Loss) earnings per share — basic and diluted — as reported under Canadian GAAP ( note 20 )	 	 	 	(3.47	)	0.80	 	
(Loss) earnings per share attributable to Eveready — basic and diluted — as reported under US GAAP(1)	 	 	 	(3.63	)	0.94	 	

Note:
 
(1)                                 The predominant change in calculating basic and dilutive (loss) earnings per share attributable to Eveready shareholders between Canadian GAAP and US GAAP is the starting component of net (loss) earnings attributable to Eveready as noted in the above reconciliation. In addition under US GAAP, Eveready has calculated its (loss) earnings per share using the two-class method related to both its outstanding units and its Matching Units held by the Employee Unit Plan Trust. Under this method, Eveready’s (loss) earnings per share, as noted above, related to its outstanding units has been reduced by eight cents (2007 — nil cents).
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
29. United States Generally Accepted Accounting Principles (Continued)
 
Consolidated Statements of Cash Flows
 
The application of US GAAP would have the following impact on Eveready’s consolidated statements of cash flows for the years ended December 31, 2008 and 2007:
 
 	 	 	 	2008	 	2007	 	
Years Ended
December 31	 	Notes	 	Canadian GAAP
(As reported)	 	US GAAP	 	Canadian GAAP
(As reported)	 	US GAAP	 	
 	 	 	 	$	 	$	 	$	 	$	 	
Cash provided by operating activities	 	a	 	62,656	 	62,517	 	55,819	 	53,563	 	
Cash used in investing activities	 	a	 	(70,318	)	(70,179	)	(141,767	)	(139,511	)	
Cash provided by financing activities	 	 	 	5,428	 	5,428	 	94,040	 	94,040	 	
 
In addition, Canadian GAAP permits a subtotal in the statements of cash flows following the reconciliation of net (loss) earnings and items not affecting cash. This subtotal is not permitted under US GAAP.
 
Notes to US GAAP reconciliations above
 
a)                                     Deferred development costs
 
According to CICA Handbook Section 3064 Goodwill and Intangible Assets, the costs of research must be expensed in the period incurred and development costs meeting prescribed criteria should be deferred to future periods. Under US GAAP, pursuant to Statement of Financial Accounting Standards (“SFAS”) No.2 Accounting for Research and Development Costs, research and development costs are expensed as they are incurred, unless covered by separate standards.
 
Certain of Eveready’s technology related assets included in intangible assets are under development and meet the appropriate criteria specified under Section 3064 for deferral. However, such development costs are to be expensed when incurred under US GAAP.
 
b)                                    Convertible debentures
 
Under CICA Handbook Section 3863 Financial Instruments — Presentation, financial instruments with both liability and equity components are required to be classified into their respective component parts of debt or equity in accordance with the substance of the contractual arrangement on initial recognition. Interest paid is charged to interest expense on a basis consistent with the classification of the underlying instrument. US GAAP generally requires convertible debt to be classified as debt on the balance sheet.
 
Upon issuance of its Debentures, Eveready allocated the $50,000 face value of the Debentures to liability and equity components, proportionately, based on their respective fair values. Eveready then recorded an interest charge to accrete the liability recorded to its maturity value over the term of the Debenture. In addition, Eveready applied financing costs to the carrying value of the
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
29. United States Generally Accepted Accounting Principles (Continued)
 
Debentures’ liability and equity components proportionately, in accordance with Section 3863. The costs applied to the Debentures’ liability component are amortized to interest expense over the remaining term of the Debentures using the effective interest rate method. To reconcile to US GAAP, the equity component of the Debentures, including its respective financing costs applied, was reclassified to the liability component. The calculation of interest expense was adjusted to only include the effect of financing costs.
 
c)                                     Non-controlling interest
 
In accordance with Canadian GAAP, Eveready has assigned no value to put options associated with the 20% non-controlling interests vendors retained in the acquisitions of RDDB, Bullseye, and Rodrigue’s ( note 15 ). Under US GAAP, the put options are an embedded feature that results in the non-controlling interest being deemed a redeemable security and subject to the requirements of Emerging Issues Task Force (“EITF”) D-98 Classification and Measurement of Redeemable Securities. Under EITF D-98, the redeemable security is to be classified as temporary equity upon inception at its fair value. In subsequent reporting periods, the non-controlling interest is measured at fair value and adjusted upwards if warranted. The amount may be decreased in subsequent periods only to the extent of any increase previously recorded to fair value. The initial recognition of the put option at acquisition increased the amount recorded to goodwill by $10,902. In 2008, goodwill recorded on the initial measurement of the non-controlling interest was written off as impaired.
 
d)                                    Redeemable Fund units (outstanding until December 31, 2008 when replaced with shares)
 
i)                The Fund units of Eveready’s predecessor were redeemable at the option of the unitholder, at which time all rights with respect to such units would have been cancelled. Eveready’s predecessor also had exchangeable Fund units (“Rollover LP units”) that were designed to be the economic equivalent of Fund units ( note 16 ). Under Canadian GAAP, Eveready classified its Fund units and Rollover LP units as unitholders’ equity. Under US GAAP, the Fund units and Rollover LP units, which are redeemable at the option of the unitholder, must be valued at their redemption amount and presented as temporary equity in the consolidated balance sheet. The redemption value of the Fund units and Rollover LP units is calculated by a trading value based formula. Adjustments to the redemption value of these units are charged or credited to (deficit) retained earnings.
 
ii)             As described in Note 17, Eveready classified its Matching Units held by the Employee Unit Plan Trust (“Trust”) as a reduction of unitholders’ equity until such time they vest and are transferred to the Employee. Such units held by the Trust were recorded at the cost paid by Eveready to purchase the units in accordance with Canadian GAAP. Under US GAAP, the net units outstanding, being those issued less units held by the Trust, would be classified as temporary equity and recorded at an amount equal to the redemption value of the Fund units with any adjustments to the redemption value of these units being charged or credited to (deficit) retained earnings.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
29. United States Generally Accepted Accounting Principles (Continued)
 
iii)          Compensation expense for the Employee Unit Plan is measured in accordance with Canadian GAAP based on the fair value of the Matching Units on the grant date and recognized as stock-based compensation expense over the vesting period ( note 17 ). Because the Fund units issued upon vesting of the Matching Units were redeemable, under US GAAP compensation expense for the Employee Unit Plan is to be accounted for as a liability based award. The liability is re-measured, until settlement of the Employee Unit Plan, at the end of each reporting period with the change being charged or credited to stock-based compensation expense. The portion of the liability representing the amount of Matching Units vested to Employees is reclassified to temporary equity at the time when the employees are considered, under US GAAP, to assume the risks and rewards of ownership of the units.
 
Eveready had a Unit Option Plan, which was replaced by the Share Option Plan pursuant to the Conversion (note 2), under which unit options were granted to directors, officers, employees and consultants of Eveready ( note 17 ). Because Fund units issued upon settlement of unit options were redeemable, under US GAAP the unit options are to be accounted for as a liability based award. The liability is re-measured, until settlement of the unit options, at the end of each reporting period with the change being charged or credited to stock-based compensation expense.
 
iv)         Pursuant to the Conversion (note 2), Fund unitholders received one share of Eveready for each five Fund units held at December 31, 2008. All outstanding Employee Unit Plan Matching Units held by the Trust were consolidated into Matching Shares, where each five Matching Units were exchanged for one Matching Share. Further, participants of the Unit Option Plan were entitled to receive, for the same aggregated consideration, share options for outstanding unit options held at the Conversion date ( note 17 ). In accordance with US GAAP, shareholders’ capital associated with Eveready’s shares is shown within shareholders’ equity and Matching Shares held by the Trust is shown as a reduction of shareholders’ equity. Shareholders’ capital and Matching Shares held by the Trust are measured at their respective temporary equity carrying values immediately prior to the Conversion. The liability based awards associated with the Employee Unit Plan and Share Option Plan are reclassified to contributed surplus and shown within shareholders’ equity. Any temporary equity associated with vested Matching Shares of the Employee Unit Plan is reclassified to shareholders’ capital.
 
v)            During 2008, the redemption value of the Fund units declined significantly, resulting in a decrease to temporary equity and an increase in deficit of $230,557, immediately prior to the conversion.
 
e)                                     Income tax effect related to US GAAP adjustments
 
The income tax adjustment relates to the income tax effect on the preceding US GAAP adjustments.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
29. United States Generally Accepted Accounting Principles (Continued)
 
Recent US GAAP accounting pronouncements issued but not yet adopted
 
Business Combinations
 
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.141R), Business Combinations effective for fiscal years beginning after December 15, 2008. The statement establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquiree, and any goodwill acquired. This statement also establishes certain disclosure requirements, which will enable users of the acquiring company’s financial statements to evaluate the nature and financial effects of its business combinations. Eveready has adopted the standard in financial statements issued in subsequent periods with no effect on the US GAAP reconciliation above.
 
Non-controlling Interests
 
In December 2007, the FASB issued SFAS No.160 Non-Controlling Interests in Consolidated Financial Statements — An Amendment of Accounting Research Bulletin No.51 (“SFAS No.160”). This statement changes the accounting and reporting for ownership interests in subsidiaries held by parties other than the parent. These non-controlling interests are to be classified as a separate component of equity and measured initially at fair value. The amount of consolidated net earnings attributable to the parent and to the non-controlling interest is to be clearly identified and presented on the face of the consolidated statements of (loss) earnings and comprehensive (loss) income. SFAS No.160 also establishes standards for a change in a parent’s ownership interest in a subsidiary and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. This statement is effective for fiscal years beginning after December 15, 2008. The guidance in this statement is to be applied prospectively, except for the presentation and disclosure requirements, which are to be applied retrospectively for all periods presented. The presentation requirements have been adopted retrospectively in the US GAAP reconciliations above.
 
Fair Value Measurement
 
In February 2008, the FASB issued FASB Staff Position SFAS No.157-2, Effective Date of FASB Statement No.157, which delays the effective date of SFAS No.157 Fair Value Measurements, for non-financial assets and non-financial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis. Eveready has adopted the standard in financial statements issued in subsequent periods with no effect on the US GAAP reconciliation above.
 
Intangible Assets
 
In April 2008, the FASB issued FASB Staff Position SFAS No.142-3 Determination of the Useful Life of Intangible Assets (“FSP SFAS No.142-3”) effective for fiscal years beginning after December 15, 2008. FSP SFAS No.142-3 amends the factors an entity should consider in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No.142 Goodwill and Other Intangible Assets. The intent of FSP SFAS No.142-3 is to improve the consistency between the useful life of a recognized intangible asset and
 
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Eveready Inc.
Notes to the Consolidated Financial Statements (Continued)
(thousands of Canadian dollars, except share and per share amounts)
December 31, 2008
 
29. United States Generally Accepted Accounting Principles (Continued)
 
the period of expected cash flows used to measure the fair value of the asset. Eveready has adopted the standard in financial statements issued in subsequent periods with no effect on the US GAAP reconciliation above.
 
30. Subsequent events
 
a)                                     Normal course issuer bid
 
On January 28, 2009, Eveready received regulatory approval from the Toronto Stock Exchange to purchase for cancellation, from time to time, as Eveready considers advisable, its issued and outstanding common shares and Debentures. Pursuant to the normal course issuer bid (“the New Bid”), Eveready may purchase for cancellation up to a maximum of 1,352,305 shares and a maximum of 5,000 Debentures (maximum principal amount of $5,000,000), being approximately 10% of Eveready’s “public float” of issued and outstanding shares and Debentures, respectively. The New Bid commenced January 29, 2009 and will terminate on January 28, 2010 or such earlier time as the New Bid is completed or terminated at Eveready’s option.
 
b)                                    Renewal of revolving credit facility
 
In April 2009, Eveready renewed the Revolver for an additional 364 day period with the next renewal date being in April 2010 ( note 11 ). As part of the renewal, the total amount available under the Revolver was slightly reduced to $95,000 from $100,000 previously. If the Revolver is not renewed in April 2010, the outstanding credit facility would be then subject to a 12-month interest only phase followed by a 12-month straight-line amortization period. Concurrent with the renewal, the credit spreads applicable to Eveready’s credit facilities increased by between 200 and 225 basis points. A stand-by fee calculated at a rate of 0.50% per annum also applies to the unused portion of the Revolver (compared to a rate of 0.25% per annum previously).
 
c)                                     Acquisition of Eveready by Clean Harbors, Inc.
 
On April 29, 2009, Eveready signed a definitive acquisition agreement (the “Acquisition Agreement”) to be acquired by Clean Harbors, Inc. (“Clean Harbors”). The acquisition is subject to the approval of not less than 66 2 / 3 % of the votes cast by Eveready shareholders and is also subject to regulatory and lender approvals. Under the terms of the Acquisition Agreement, Clean Harbors will acquire 100% of Eveready’s outstanding common shares through a combination of cash and stock. The acquisition is expected to be completed during the third quarter of 2009.
 
The Acquisition Agreement also provides for the sale, subject to regulatory and lender approvals, of certain assets to Clean Harbors for cash proceeds approximating $53,000 in the event that certain conditions to completing the entire transaction are not met.
 
If the Acquisition Agreement is terminated under certain circumstances, because of a breach by Eveready of the terms and conditions of the Acquisition Agreement, Eveready could be required to pay an $8,000 termination fee plus reimbursement of certain of Clean Harbors’ expenses, not to exceed $5,000.
 
31. Comparative figures
 
Certain of the comparative figures were reclassified from statements previously presented to conform to the current year’s presentation.
 
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Eveready Inc.
Consolidated Balance Sheets
(Unaudited)
 
As at
(thousands of Canadian dollars)	 	June 30
2009	 	December 31
2008	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
ASSETS	 	 	 	 	 	
Current	 	 	 	 	 	
Cash	 	4,727	 	5,858	 	
Accounts receivable	 	106,916	 	153,389	 	
Inventory	 	10,796	 	11,516	 	
Prepaid expenses and deposits	 	3,146	 	3,201	 	
 	 	125,585	 	173,964	 	
 	 	 	 	 	 	
Property, plant and equipment	 	314,238	 	330,831	 	
Intangible assets	 	42,487	 	46,738	 	
Goodwill	 	28,450	 	23,069	 	
Other long-term assets	 	1,576	 	1,602	 	
 	 	 	 	 	 	
 	 	512,336	 	576,204	 	
 	 	 	 	 	 	
LIABILITIES AND SHAREHOLDERS’ EQUITY	 	 	 	 	 	
Current	 	 	 	 	 	
Accounts payable and accrued liabilities	 	47,993	 	60,705	 	
Distributions payable	 	—	 	3,671	 	
Income taxes payable	 	571	 	691	 	
Current portion of long-term debt (note 5)	 	1,500	 	1,500	 	
Current portion of obligations under capital lease (note 6)	 	4,821	 	4,619	 	
Current portion of asset retirement obligations	 	584	 	584	 	
 	 	55,469	 	71,770	 	
 	 	 	 	 	 	
Long-term debt (note 5)	 	168,416	 	213,363	 	
Obligations under capital lease (note 6)	 	18,427	 	18,787	 	
Convertible debentures	 	45,167	 	44,132	 	
Asset retirement obligations	 	2,502	 	2,419	 	
Future income taxes	 	10,639	 	10,095	 	
Non-controlling interest (note 7)	 	705	 	2,760	 	
 	 	301,325	 	363,326	 	
 	 	 	 	 	 	
Shareholders’ Equity	 	 	 	 	 	
Shareholders’ capital (note 8)	 	352,362	 	352,523	 	
Shares held under Employee Unit Plan (note 9)	 	(7,894	)	(11,230	)	
Equity component of convertible debentures	 	8,030	 	8,030	 	
Contributed surplus (note 10)	 	5,617	 	6,941	 	
Deficit	 	(147,104	)	(143,386	)	
 	 	211,011	 	212,878	 	
 	 	 	 	 	 	
 	 	512,336	 	576,204	 	
 
(see accompanying notes)
 
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Eveready Inc.
Consolidated Statements of (Loss) Earnings and Comprehensive (Loss) Income and Deficit
(Unaudited)
 
 	 	Six Months Ended	 	
(thousands of Canadian dollars,	 	June 30	 	June 30	 	
except per share amounts)	 	2009	 	2008	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
Revenue	 	279,149	 	327,592	 	
Direct costs	 	204,790	 	233,267	 	
 	 	 	 	 	 	
Gross profit	 	74,359	 	94,325	 	
 	 	 	 	 	 	
Expenses	 	 	 	 	 	
General and administrative	 	35,943	 	37,254	 	
Amortization (note 12)	 	27,761	 	23,749	 	
Interest (note 12)	 	8,548	 	11,161	 	
Stock-based compensation (note 9)	 	1,413	 	1,689	 	
Loss (gain) on foreign exchange	 	673	 	(91	)	
(Gain) loss on disposal of property, plant and equipment	 	(194	)	165	 	
Loss on redeemable put option (note 7)	 	2,687	 	—	 	
 	 	76,831	 	73,927	 	
 	 	 	 	 	 	
(Loss) earnings before income taxes and non-controlling interest	 	(2,472	)	20,398	 	
 	 	 	 	 	 	
Income tax expense (recovery)	 	 	 	 	 	
Current	 	555	 	1,228	 	
Future	 	501	 	(1,047	)	
 	 	1,056	 	181	 	
 	 	 	 	 	 	
(Loss) earnings before non-controlling interest	 	(3,528	)	20,217	 	
 	 	 	 	 	 	
Earnings attributable to non-controlling interest	 	190	 	275	 	
 	 	 	 	 	 	
Net (loss) earnings and comprehensive (loss) income	 	(3,718	)	19,942	 	
 	 	 	 	 	 	
Deficit, beginning of period	 	(143,386	)	(41,246	)	
Distributions	 	—	 	(31,442	)	
 	 	 	 	 	 	
Deficit, end of period	 	(147,104	)	(52,746	)	
 	 	 	 	 	 	
(Loss) earnings per share – basic(note 11)	 	(0.21	)	1.09	 	
(Loss) earnings per share – diluted(note 11)	 	(0.21	)	1.08	 	
 
(see accompanying notes)
 
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Eveready Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 	 	Six Months Ended	 	
 	 	June 30	 	June 30	 	
(thousands of Canadian dollars)	 	2009	 	2008	 	
 	 	$	 	$	 	
Operating activities	 	 	 	 	 	
Net (loss) earnings	 	(3,718	)	19,942	 	
Items not affecting cash:	 	 	 	 	 	
Amortization	 	27,761	 	23,749	 	
Stock-based compensation	 	1,413	 	1,689	 	
(Gain) loss on disposal of property, plant and equipment	 	(194	)	165	 	
Loss on redeemable put option	 	2,687	 	—	 	
Amortization of deferred costs	 	314	 	577	 	
Accretion of long-term debt	 	458	 	314	 	
Accretion of convertible debentures	 	1,035	 	915	 	
Future income taxes	 	501	 	(1,047	)	
Foreign exchange on future income taxes	 	43	 	27	 	
Earnings attributable to non-controlling interest	 	190	 	275	 	
 	 	30,490	 	46,606	 	
Asset retirement costs incurred	 	(20	)	(127	)	
Net change in non-cash operating working capital (note 13)	 	30,834	 	(15,169	)	
 	 	 	 	 	 	
Cash provided by operating activities	 	61,304	 	31,310	 	
 	 	 	 	 	 	
Investing activities	 	 	 	 	 	
Purchase of property, plant and equipment	 	(7,044	)	(40,361	)	
Purchase of intangible assets	 	(443	)	(798	)	
Proceeds on disposal of property, plant and equipment	 	906	 	2,448	 	
Other long-term assets - net	 	(288	)	(562	)	
Business acquisitions (note 7)	 	(4,593	)	—	 	
 	 	 	 	 	 	
Cash used in investing activities	 	(11,462	)	(39,273	)	
 	 	 	 	 	 	
Financing activities	 	 	 	 	 	
Proceeds from issuance of long-term debt	 	25,393	 	52,891	 	
Repayment of long-term debt	 	(71,064	)	(49,761	)	
Proceeds from sale-leasebacks (note 6)	 	2,352	 	7,997	 	
Repayment of obligations under capital lease	 	(2,549	)	(2,264	)	
Distribution of non-controlling interest	 	(1,387	)	—	 	
Distributions	 	(3,671	)	(3,475	)	
Repurchase of shares for cancellation	 	(47	)	(141	)	
Proceeds from share options exercised	 	—	 	29	 	
Collection of employee share purchase loans receivable	 	—	 	4	 	
 	 	 	 	 	 	
Cash (used in) provided by financing activities	 	(50,973	)	5,280	 	
 	 	 	 	 	 	
Net change in cash	 	(1,131	)	(2,683	)	
Cash, beginning of period	 	5,858	 	8,092	 	
 	 	 	 	 	 	
Cash, end of period	 	4,727	 	5,409	 	
 
Supplemental cash flow information (note 13)
(see accompanying notes)
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
1.             Nature of operations and significant accounting policies
 
Eveready Inc. (“Eveready” or the “Company”) was incorporated on October 27, 2008 under the laws of the Province of Alberta.  The business of Eveready, held in its subsidiaries and limited partnerships, provides industrial maintenance and oilfield production services to the energy, resource, and industrial sectors.  Eveready was formed pursuant to the provisions of the  Business Corporations Act  (Alberta) to participate in a plan of arrangement involving, among others, Eveready’s predecessor Eveready Income Fund (the “Fund”), Eveready and the securityholders of the Fund (the “Conversion”).  Effective December 31, 2008, the Conversion restructured the Fund from an unincorporated open-ended mutual fund trust to Eveready Inc., a publicly listed corporation ( note 2 ).
 
Eveready’s operations traditionally follow a seasonal pattern, with revenue and earnings being higher in the quarter ending March 31 st  and lower in the quarter ending June 30 th , compared to the other quarters of the year.  Due to this seasonality, interim earnings reported for the six months ended June 30, 2009 may not be reflective of earnings on an annual basis.
 
These interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”) and are presented in Canadian dollars rounded to the nearest thousand ($000), except where otherwise indicated.  Except as described in note 3 below, these interim consolidated financial statements have been prepared following the same accounting policies and application methods as those disclosed in Eveready’s annual consolidated financial statements for the year ended December 31, 2008.  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, 2008.
 
2.             Corporate conversion
 
As a result of the Conversion completed on December 31, 2008, unitholders of the Fund received one common share (“share”) of Eveready for each five units of the Fund.   Eveready assumed the assets and liabilities previously held, directly or indirectly, by the Fund.  All of the covenants and obligations of the Fund in respect of the outstanding convertible unsecured subordinated debentures (the “Debentures”) were also assumed by Eveready.
 
The Conversion was accounted for as a continuity of interests of the Fund since there was no change of control and since Eveready continues to operate the business of the Fund.  These interim consolidated financial statements reflect Eveready as a corporation subsequent to December 31, 2008 and as Eveready Income Fund prior thereto.  All references to “shares” refer collectively to Eveready’s shares on and subsequent to December 31, 2008 and to Fund units prior to the Conversion.  All references to “shareholders” refer collectively to holders of Eveready’s shares on and subsequent to December 31, 2008 and to Fund unitholders prior to the Conversion.  References to the “Share Option Plan” should be read as references to the “Unit Option Plan” for all periods prior to December 31, 2008.  References to “Matching Shares” or “Shares” under the Employee Unit Plan should be read as references to “Matching Units” or “Units” under the Employee Unit Plan for all periods prior to December 31, 2008.  In addition, references to “stock-based compensation” under the Stock Option Plan and Employee Unit Plan should be read as references to “unit-based compensation” under the Unit Option Plan and Employee Unit Plan, respectively, for all periods prior to December 31, 2008.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
3.             New accounting policy
 
Effective January 1, 2009, Eveready adopted the new recommendations of the Canadian Institute of Chartered Accountants (“CICA”) under CICA Handbook Section 3064 Goodwill and Intangible Assets.  This Section applies to interim and annual financial statements relating to fiscal years beginning on or after October 31, 2008.
 
Section 3064 supersedes Sections 3062 Goodwill and Other Intangible Assets and 3450 Research and Development Costs.  This new accounting standard provides additional guidance on when expenditures qualify for recognition as intangible assets and requires that costs be deferred only when relating to an item meeting the asset definition.  Upon adoption of this section retrospectively, Eveready reclassified $4,755 of certain software and technology assets from property, plant and equipment to intangible assets in both the current and comparative periods.  The retrospective adoption of the section had no impact on Eveready’s opening equity or net earnings and comprehensive income in any of the periods presented.
 
4.             Recent accounting pronouncements issued but not yet adopted
 
International Financial Reporting Standards
 
In February 2008, the Canadian Accounting Standards Board (AcSB) confirmed that Canadian public enterprises will need to adopt International Financial Reporting Standards (IFRS) in 2011.  Eveready would adopt IFRS as the basis for preparing its consolidated financial statements effective January 1, 2011, with the quarter ending March 31, 2011 being the first set of consolidated financial statements prepared under IFRS.  Comparative data for the quarter ending March 31, 2010 would also be presented on an IFRS basis, including an opening balance sheet as at January 1, 2010.
 
CICA Section 1582 Business Combinations
 
In January 2009, the CICA, in the pursuit of aligning with IFRS, issued Handbook Section 1582 Business Combinations, which is mostly converged with International Financial Reporting Standard 3, Business Combinations.  This section supersedes Section 1581 Business Combinations and establishes principles and requirements for recognizing, measuring and disclosing business combinations under the acquisition method.  Section 1582 is to be applied prospectively for all business combinations for which the acquisition date is on or after January 1, 2011, with earlier adoption allowed.  There would be no impact to Eveready’s accounting for business acquisitions preceding the adoption of this Section.
 
CICA Section 1601 Consolidated Financial Statements and Section 1602 Non-controlling Interests
 
In January 2009, the CICA issued Section 1601 Consolidated Financial Statements and Section 1602 Non-controlling Interests which together supersede Section 1600 Consolidated Financial Statements.  Section 1601 establishes standards for preparation of consolidated financial statements.  Section 1602 establishes standards for accounting for non-controlling interests in consolidated financial statements subsequent to a business combination.  Section 1602 is the Canadian equivalent to International Accounting Standards 27 Consolidated and Separate Financial Statements.  As a result of adopting Section 1602, Eveready’s non-controlling interests would be reclassified in its consolidated balance sheet from long-term liabilities to a separate component of shareholders’ equity.  Net earnings would be calculated without deducting non-controlling interest but would be allocated on the face of the Consolidated Statement of Earnings between controlling and non-controlling interests.
 
These new accounting standards are effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011, with earlier adoption allowed.
 
5.             Long-term debt
 
Eveready’s long-term debt relates to credit facilities of $245,000 with a syndicate of lenders led by the Canadian Imperial Bank of Commerce.  The credit facilities consist of a $95,000 revolving, renewable credit facility and a $150,000 term loan.  Amounts borrowed under these credit facilities bear interest, at Eveready’s option, at bank prime or bankers’ acceptance rates, plus a credit spread based on a sliding scale, which is determined by the ratio of funded senior debt to earnings before interest, taxes, depreciation, and amortization (“EBITDA”).
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
5.     Long-term debt(continued)
 
The revolving credit facility (“Revolver”) requires payments of interest only and is renewable annually, subject to Eveready’s and the lending syndicate’s consent.  In April 2009, the Revolver was renewed for an additional 364 day period.  As part of the renewal, the total amount available under the Revolver was slightly reduced to $95,000 from $100,000.  In addition, the stand-by fee calculated on the unused portion of the Revolver increased to a rate of 0.50% per annum from 0.25% per annum previously.  If the Revolver were not renewed in April 2010, the outstanding credit facility is subject to a 12-month interest-only phase, followed by a 12-month straight-line amortization period. As a result, the Revolver is classified as long-term debt in these interim consolidated financial statements.  The term loan (“Term”) continues to require fixed monthly payments of $125 and a balloon payment of $142,500 due May 2012.  Eveready may prepay all or part of the term loan at any time, subject to the payment of a breakage fee.  Concurrent with the renewal, the credit spreads applicable to Eveready’s credit facilities increased by between 200 and 225 basis points.
 
The credit facilities are collateralized by substantially all of Eveready’s assets, including Eveready’s accounts receivable, inventory, and property, plant and equipment.  At June 30, 2009, the carrying amount of Eveready’s assets was $512,336 and the stated interest rate on the credit facilities was 5.15% (December 31, 2008 - 5.21%).
 
For the six months ended June 30, 2009, total interest expense recognized under Eveready’s credit facilities was $5,188 (2008 - $7,774).  Eveready’s long-term debt consists of the following components:
 
As at	 	June 30
2009	 	December 31
2008	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
Revolver	 	25,675	 	70,282	 	
Term	 	146,750	 	147,500	 	
 	 	172,425	 	217,782	 	
Less: unamortized transaction costs	 	(2,509	)	(2,919	)	
 	 	169,916	 	214,863	 	
Less: current portion of long-term debt	 	(1,500	)	(1,500	)	
 	 	 	 	 	 	
 	 	168,416	 	213,363	 	
 
The credit facilities contain financial covenants, including, but not limited to, a working capital ratio, a fixed charge coverage ratio, funded debt to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) ratios, and a minimum net worth, each calculated on a quarterly basis.  Eveready was in compliance with all financial covenants under this agreement at June 30, 2009.
 
If the Revolver were not renewed (the next renewal date is April 23, 2010) and Eveready were not able to refinance this credit facility with another lender, the required minimum principal repayments on the credit facilities at June 30, 2009 were as follows:
 
 	 	Amount	 	
 	 	$	 	
 	 	 	 	
2010	 	1,500	 	
2011	 	5,779	 	
2012	 	165,146	 	
2013	 	—	 	
2014	 	—	 	
 	 	 	 	
 	 	172,425	 	
 
Subsequent to June 30, 2009, Eveready drew an additional $10,000 under its Revolver.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
6.             Obligations under capital lease
 
Obligations under capital lease substantially relate to industrial lodging facilities.  These obligations bear interest at prime plus 0.25% per annum and are repayable in monthly blended principal and interest payments of $435.  Maturing at dates ranging from August 2012 to September 2015, these obligations may be repaid in full without penalty two years after lease inception.  At June 30, 2009, the stated rate of interest was 2.50% (December 31, 2008 - 3.75%).
 
During the six months ended June 30, 2009,Eveready financed truck, trailer and support equipment through sale-leasebacks of $2,352.  This new obligation will mature in February 2014 and is collateralized by the respective equipment acquired.  All of Eveready’s obligations under capital lease are collateralized by equipment with a $28,494 net book value at June 30, 2009 (December 31, 2008 - $26,946).  For the six months ended June 30, 2009, interest expense related to all obligations under capital lease was $452 (2008 - $679).
 
Future minimum lease payments required over the next five years and thereafter (12 month periods ending on June 30th) for all obligations under capital lease are as follows:
 
 	 	Amount	 	
 	 	$	 	
 	 	 	 	
2010	 	6,109	 	
2011	 	5,976	 	
2012	 	5,822	 	
2013	 	4,976	 	
2014	 	2,939	 	
Thereafter	 	921	 	
Total minimum lease payments	 	26,743	 	
Less: amounts representing imputed interest at rates ranging from 2.50% to 15.00%	 	(3,495	)	
Balance of obligations under capital lease	 	23,248	 	
Less: current portion of obligations under capital lease	 	(4,821	)	
 	 	 	 	
 	 	18,427	 	
 
7.             Non-controlling interest
 
At June 30, 2009, Eveready’s non-controlling interest consists of the 20% non-controlling interests vendors retained in the acquisitions of Bullseye Directional Drilling group of companies (“Bullseye”) and Rodrigue’s Directional Drilling group of companies (“Rodrigue’s”) in 2006.  In connection with the acquisitions of these subsidiaries, Eveready also entered into a mutual option agreement with the vendors.  These agreements 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 August 31, 2009 and November 30, 2009 for the Bullseye, and Rodrigue’s vendors, respectively.
 
In April 2009, the mutual option agreement associated with the non-controlling interest retained in the original acquisition of Red Deer Directional Boring Ltd. (“RDDB”) in 2006, was amended and the related put option exercised.  As a result of the amendment, Eveready acquired the remaining 20% non-controlling interest retained in the original acquisition of RDDB for a purchase price of $9,021.  Of the total purchase price, $4,593 was paid in cash during the six months ended June 30, 2009 with the remaining balance to be settled in cash through four equal monthly installments of $1,107.  At the time the related put option was exercised, the fair value of the 20% non-controlling interest held was less than the purchase price pursuant to the put option exercised.  As a result, Eveready recognized a loss on redeemable put option of $2,687 for the RDDB, Bullseye and Rodrique’s put options.  Goodwill of $5,381 associated with the additional interest acquired was also recognized with no further adjustment to carrying value of the assets and liabilities at the date the put option was exercised.  The goodwill recognized is preliminary and will remain preliminary until Eveready completes a final evaluation of its purchase price allocation.  Of the goodwill acquired, none is deductible for income tax purposes.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
7.     Non-controlling interest(continued)
 
The exercise price for the remaining options not yet exercised is based on a formula designed to estimate the fair value of the non-controlling interest at the time the option is exercised.  Using this formula, the calculated value pursuant to the put and call options approximated $4,386 at June 30, 2009, which would be settled at Eveready’s discretion, in either cash or by issuing shares.  The number of shares to issue will be determined by a deemed price per share, which equals the 10 day weighted average trading price of the shares on the Toronto Stock Exchange on the day immediately preceding the date of notice of exercise of the put or call option.  The payment of cash or shares must be settled within 367 days from the date of the notice of exercise of the remaining put or call options.
 
Eveready recorded the following activity during the year:
 
Six Months Ended	 	June 30
2009	 	
 	 	$	 	
 	 	 	 	
Non-controlling interest, beginning of year	 	2,760	 	
Distributions to non-controlling interest holders	 	(1,387	)	
Earnings attributable to non-controlling interest	 	190	 	
Exercise of RDDB put option	 	(858	)	
 	 	 	 	
 	 	705	 	
 
8.             Shareholders’ capital
 
Authorized - Unlimited number of voting common shares without nominal or par value
Authorized - Unlimited number of preferred shares	 	Number of
shares	 	Amount	 	
 	 	 	 	$	 	
 	 	 	 	 	 	
Issued - common shares	 	 	 	 	 	
Balance as at December 31, 2008	 	18,355,543	 	352,523	 	
 	 	 	 	 	 	
Activity during the six months ended June 30, 2009:	 	 	 	 	 	
Shares repurchased and cancelled	 	(8,388	)	(161	)	
 	 	 	 	 	 	
Balance as at June 30, 2009	 	18,347,155	 	352,362	 	
 
Normal course issuer bid
 
On January 28, 2009, Eveready received regulatory approval from the Toronto Stock Exchange to purchase for cancellation, from time to time, as Eveready considers advisable, its issued and outstanding common shares and Debentures.  Pursuant to the normal course issuer bid (“the Bid”), Eveready may purchase for cancellation up to a maximum of 1,352,305 shares and a maximum of 5,000 Debentures (maximum principal amount of $5,000,000), being approximately 10% of Eveready’s “public float” of issued and outstanding shares and Debentures, respectively.  The Bid commenced January 29, 2009 and will terminate on January 28, 2010 or such earlier time as the Bid is completed or terminated at Eveready’s option.  No shares or Debentures were repurchased under the Bid during the six months ended June 30, 2009.
 
During the six months ended June 30, 2009, Eveready repurchased and cancelled 8,388 shares under its previous normal course issuer bid, which commenced January 29, 2008 and terminated on January 28, 2009.  The shares were repurchased at an average cost of $5.57 per share for total cash consideration of $47.  Shareholders’ capital was reduced by the stated value of the shares amounting to $161 with the excess over the total cash consideration being credited to contributed surplus ( note 10 ) .
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
9.             Employee Unit Plan and Share Option Plan
 
Employee Unit Plan
 
During the six months ended June 30, 2009, stock-based compensation expense of $1,313 (2008 - $1,398) was recognized pursuant to the Employee Unit Plan (the “Plan”) with an offsetting credit to contributed surplus ( note 10 ).
 
The following table summarizes changes in the number of Matching Shares held under the Plan during the period:
 
Six Months Ended June 30, 2009	 	Number
of shares	 	Amount	 	
 	 	 	 	$	 	
 	 	 	 	 	 	
Balance of Matching Shares, beginning of period	 	355,830	 	11,230	 	
Vested Matching Shares transferred to participants	 	(80,792	)	(2,550	)	
Vested “in-kind” distributions on Matching Shares transferred to participants	 	(24,911	)	(786	)	
 	 	 	 	 	 	
Balance of Matching Shares, end of period	 	250,127	 	7,894	 	
 
The fair value of the Matching Shares held by the Plan at June 30, 2009 was $2,701.  At June 30, 2009, 148,914 Matching Shares with a fair value of $1,608 were provided as collateral against outstanding BMO Bank of Montreal share purchase loans owing by certain Employees.  These loans were issued in connection with Employees’ participation in the Plan.  The collateralized Matching Shares can be drawn upon by the bank if the Employee were to default on the debt obligation and the Employee’s shares were not sufficient to cover the outstanding loan balance.
 
Subsequent to June 30, 2009, Eveready provided guarantees over outstanding BMO Bank of Montreal share purchase loans owing by certain Employees ( note 19 ).
 
Share Option Plan
 
Eveready recorded the following share option activity during the six months ended June 30, 2009:
 
 	 	Number of
share
options	 	Weighted
average
exercise price	 	
 	 	 	 	($)	 	
 	 	 	 	 	 	
Opening balance share options outstanding as at January 1, 2009	 	174,000	 	18.09	 	
 	 	 	 	 	 	
Activity during the six months ended June 30, 2009:	 	 	 	 	 	
Share options forfeited or cancelled	 	(8,000	)	(19.15	)	
 	 	 	 	 	 	
Share options outstanding as at June 30, 2009	 	166,000	 	18.04	 	
 	 	 	 	 	 	
Share options exercisable as at June 30, 2009	 	71,800	 	18.56	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
9.             Employee Unit Plan and Share Option Plan(continued)
 
The following summarizes the outstanding and exercisable share options at June 30, 2009:
 
Outstanding	 	Exercisable	
Weighted average
exercise price ($)	 	Number of share
options	 	Weighted average
life remaining
(years)	 	Weighted average
exercise price ($)	 	Number of share
options	 	
 	 	 	 	 	 	 	 	 	 	
17.205	 	122,000	 	3.75	 	17.205	 	48,800	 	
18.926	 	30,000	 	3.75	 	18.926	 	12,000	 	
20.455	 	5,000	 	3.83	 	20.455	 	2,000	 	
25.000	 	9,000	 	1.42	 	25.000	 	9,000	 	
 	 	 	 	 	 	 	 	 	 	
18.036	 	166,000	 	3.63	 	18.560	 	71,800	 	
 
During the six months ended June 30, 2009, stock-based compensation expense of $100 (2008 - $291) was recognized pursuant to Eveready’s Share Option Plan with an offsetting credit to contributed surplus ( note 10 ).
 
The aggregate number of shares reserved for issuance pursuant to the above compensation plans shall not exceed 10% of the outstanding shares of Eveready from time to time.
 
10.      Contributed surplus
 
Six Months Ended	 	June 30
2009	 	
 	 	$	 	
 	 	 	 	
Balance, beginning of period	 	6,941	 	
Stock-based compensation expense (note 9)	 	1,413	 	
Matching Shares transferred to participants pursuant to the Employee Unit Plan (note 9)	 	(2,851	)	
Shares cancelled pursuant to normal course issuer bid (note 8)	 	114	 	
 	 	 	 	
Balance, end of period	 	5,617	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
11.      (Loss) earnings per share
 
 	 	Six Months Ended	 	
 	 	June 30
2009	 	June 30
2008(1)	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
Net (loss) earnings (numerator for basic earnings per share)	 	(3,718	)	19,942	 	
Interest - convertible debentures	 	—	 	2,665	 	
Numerator for diluted earnings per share	 	(3,718	)	22,607	 	
 	 	 	 	 	 	
Basic weighted average number of shares	 	18,096,642	 	18,349,594	 	
Dilutive effect of outstanding share options	 	—	 	5,527	 	
Dilutive effect of convertible debentures	 	—	 	2,547,899	 	
Diluted weighted average number of shares	 	18,096,642	 	20,903,020	 	
 	 	 	 	 	 	
(Loss) earnings per share - basic	 	(0.21	)	1.09	 	
(Loss) earnings per share - diluted	 	(0.21	)	1.08	 	

Note:                  (1)   Comparative share and per share amounts for the six months ended June 30, 2008 were restated to reflect the dilutive effect of the December 31, 2008 Conversion consolidation adjustment, in which each five units were exchanged for one share.
 
Units issued pursuant to Eveready’s “in-kind” distributions declared in the first and second quarters of 2008 were deemed to be outstanding at the beginning of the comparative period presented for purposes of calculating basic per share amounts.  Similarly as a result of the Conversion ( note 2 ), the consolidation of each five units into one share was deemed to be outstanding at the beginning of the comparative period presented for purposes of calculating basic per share amounts.  Unvested Matching Shares held by the Employee Unit Plan are not treated as outstanding for purposes of calculating basic per share amounts.
 
For the six months ended June 30, 2009, the convertible debentures and outstanding share options had no dilutive effect on loss per share.  For the six months ended June 30, 2008, diluted per share amounts included the dilutive effect of outstanding share options and convertible debentures.  The unvested Matching Shares held by the Employee Unit Plan did not have a dilutive effect on (loss) earnings per share during any of the periods presented.
 
12.      Supplemental expense information
 
a)     Amortization
 
 	 	Six Months Ended	 	
 	 	June 30
2009	 	June 30
2008	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
Amortization of property, plant and equipment	 	21,753	 	17,938	 	
Amortization of assets under capital lease	 	1,219	 	1,171	 	
Amortization of intangible assets	 	4,686	 	4,564	 	
Accretion on asset retirement obligations	 	103	 	76	 	
 	 	 	 	 	 	
 	 	27,761	 	23,749	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
12. Supplemental expense information(continued)
 
b)    Interest
 
 	 	Six Months Ended	 	
 	 	June 30
2009	 	June 30
2008	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
Interest - long-term debt	 	5,188	 	7,774	 	
Interest - obligations under capital lease	 	452	 	679	 	
Interest - convertible debentures	 	2,784	 	2,665	 	
Interest - other	 	124	 	43	 	
 	 	 	 	 	 	
 	 	8,548	 	11,161	 	
 
13.      Supplemental cash flow information
 
a)     Changes in non-cash operating working capital:
 
 	 	Six Months Ended	 	
 	 	June 30
2009	 	June 30
2008	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
Accounts receivable	 	46,473	 	(13,831	)	
Inventory	 	720	 	1,038	 	
Prepaid expenses and deposits	 	103	 	(205	)	
Accounts payable and accrued liabilities	 	(16,342	)	(2,760	)	
Income taxes recoverable / payable	 	(120	)	589	 	
 	 	 	 	 	 	
 	 	30,834	 	(15,169	)	
 
b)     Non-cash investing and financing activities:
 
·                 During the six months ended June 30, 2009, Eveready acquired $41 (2008 - $633) of equipment through obligations under capital lease ( note 6 ); and
 
·                 During the comparative six months ended June 30, 2008, distributions of $31,442 owing to unitholders, were settled by issuing units.
 
c)     Income taxes and interest paid:
 
 	 	Six Months Ended	 	
 	 	June 30
2009	 	June 30
2008	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
Income taxes paid	 	677	 	625	 	
Interest paid	 	7,663	 	9,728	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
14.      Segmented reporting
 
Eveready operates in three business segments, segregated based on the types of services provided.  These segments include: industrial maintenance and production services; lodging services; and exploration services.  In total, Eveready provides over 80 different services to its customers.  With such a wide range of services, it is impractical to provide a revenue breakdown of each service provided.
 
The industrial maintenance and production services segment serves a variety of customers in the energy, resource, and industrial sectors.  They include, among other services, catalyst handling, chemical cleaning and decontamination, decoking and pigging, directional boring, disposal well services, fluid hauling, filters and filtration services, flush-by and coil tubing, high and ultra-high pressure water blasting, hot oiling, hydro-excavation, industrial health services, landfill solid waste disposal, mechanical dewatering and dredging, pressure testing, rental, sale, and supply of a wide variety of oilfield equipment, safety training and services, steam cleaning, tank cleaning, waste hauling, and wet and dry vacuuming.
 
Eveready’s lodging services segment consists of industrial lodges and drill camp accommodations.
 
Eveready’s exploration services segment supports exploration programs for oil and gas companies.  Services include geospatial data imaging, heli-portable and track drilling, land development, line clearing, and seismic surveying.
 
Accounting policies for each of these business segments are the same as those disclosed in Eveready’s annual consolidated financial statements for the year ended December 31, 2008, except as explained in note 3 to these interim consolidated financial statements.  General and administrative expenses directly related to the three business segments are included as operating expenses for those segments.  There are no significant inter-segment revenues.  Segment contribution represents earnings before income taxes and non-controlling interest for each business segment prior to unallocated items.  Eveready uses segment contribution as a key measure to analyze the financial performance of its business segments.
 
In the first quarter of 2009, Eveready revised its business segment composition and related disclosure to include three reportable segments to more appropriately classify the range of services Eveready offers its customers.  Previously, Eveready disclosed four reportable segments.  The comparative figures have been reclassified to conform to the new presentation.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
14.   Segmented reporting (continued)
 
Selected financial information by reportable segment is disclosed as follows:
 
Six Months Ended
June 30, 2009	 	Industrial
maintenance
and production
services	 	Lodging
services	 	Exploration
services	 	Consolidated	 	
 	 	$	 	$	 	$	 	$	 	
 	 	 	 	 	 	 	 	 	 	
Revenue	 	235,853	 	24,789	 	18,507	 	279,149	 	
Amortization	 	16,099	 	3,201	 	3,775	 	23,075	 	
Loss on redeemable put option	 	2,687	 	—	 	—	 	2,687	 	
Segment contribution	 	9,343	 	7,584	 	(374	)	16,553	 	
Unallocated items:	 	 	 	 	 	 	 	 	 	
Corporate costs	 	 	 	 	 	 	 	5,118	 	
Amortization of intangible assets	 	 	 	 	 	 	 	4,686	 	
Interest	 	 	 	 	 	 	 	8,548	 	
Loss on foreign exchange	 	 	 	 	 	 	 	673	 	
Loss before income taxes and non-controlling interest	 	 	 	 	 	 	 	(2,472	)	
 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	4,440	 	1,128	 	1,517	 	7,085	 	
Acquisition of goodwill	 	5,381	 	—	 	—	 	5,381	 	
 
Six Months Ended
June 31, 2008	 	Industrial
maintenance
and production
services	 	Lodging
services	 	Exploration
services	 	Consolidated	 	
 	 	$	 	$	 	$	 	$	 	
 	 	 	 	 	 	 	 	 	 	
Revenue	 	262,942	 	34,256	 	30,394	 	327,592	 	
Amortization	 	13,828	 	2,527	 	2,830	 	19,185	 	
Segment contribution	 	23,696	 	13,941	 	3,491	 	41,128	 	
Unallocated items:	 	 	 	 	 	 	 	 	 	
Corporate costs	 	 	 	 	 	 	 	5,096	 	
Amortization of intangible assets	 	 	 	 	 	 	 	4,564	 	
Interest	 	 	 	 	 	 	 	11,161	 	
Gain on foreign exchange	 	 	 	 	 	 	 	(91	)	
Earnings before income taxes and non-controlling interest	 	 	 	 	 	 	 	20,398	 	
 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	34,331	 	3,699	 	2,964	 	40,994	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
14. Segmented reporting (continued)
 
Selected balance sheet information by reportable segment is disclosed as follows:
 
As at June 30, 2009	 	Industrial
maintenance
and production
services	 	Lodging
services	 	Exploration
services	 	Consolidated	 	
 	 	$	 	$ 	 	$	 	$	 	
 	 	 	 	 	 	 	 	 	 	
Property, plant and equipment	 	227,054	 	58,268	 	28,916	 	314,238	 	
Intangible assets	 	33,826	 	6,485	 	2,176	 	42,487	 	
Goodwill	 	5,381	 	23,069	 	—	 	28,450	 	
Total assets	 	373,777	 	96,246	 	42,313	 	512,336	 	
 
As at December 31, 2008	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Property, plant and equipment	 	238,712	 	60,902	 	31,217	 	330,831	 	
Intangible assets	 	37,165	 	6,775	 	2,798	 	46,738	 	
Goodwill	 	—	 	23,069	 	—	 	23,069	 	
Total assets	 	409,246	 	109,382	 	57,576	 	576,204	 	
 
Eveready’s operations are conducted in the following geographic locations:
 
 	 	Six Months Ended	 	
 	 	June 30
2009	 	June 30
2008	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
Revenue	 	 	 	 	 	
Canada	 	246,916	 	297,347	 	
United States and international	 	32,233	 	30,245	 	
 	 	 	 	 	 	
 	 	279,149	 	327,592	 	
 
As at	 	June 30
2009	 	December 31
2008	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
Property, plant and equipment, intangible assets, and goodwill	 	 	 	 	 	
Canada	 	360,299	 	373,434	 	
United States and international	 	24,876	 	27,204	 	
 	 	 	 	 	 	
 	 	385,175	 	400,638	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
15.      Related party transactions
 
a)             During the six months ended June 30, 2009, Eveready incurred professional fees of $328 (2008 - $160) from a partnership of which an Eveready officer is a partner;
 
b)            During the six months ended June 30, 2009, Eveready incurred professional fees of $102 (2008 - $116) from a partnership of which an Eveready director is a partner;
 
c)             Included in general and administrative expenses for the six months ended June 30, 2009 are occupancy costs of $1,211 (2008 - $905) paid to companies controlled or influenced by certain officers and/or directors of Eveready;
 
d)            During the six months ended June 30, 2009, Eveready incurred equipment rental and repair costs of $97 (2008 - $125) from companies controlled or influenced by certain officers and/or directors of Eveready;
 
e)             During the six months ended June 30, 2009, Eveready earned service revenue of $110 (2008 - $1,220) from companies controlled or influenced by certain officers and/or directors of Eveready;
 
f)               During the comparative six months ended June 30, 2008, Eveready acquired service equipment of $1,745 from a company controlled by an Eveready officer; and
 
g)            During the comparative six months ended June 30, 2008, Eveready disposed of property, plant and equipment for proceeds of $233 to a company influenced by an Eveready director.
 
As at June 30, 2009, outstanding amounts collectible from or owing to related parties included accounts receivable of $52 (December 31, 2008 - $2,178) and accounts payable and accrued liabilities of $321 (December 31, 2008 - $550).  Except for item ‘g’ above, all transactions occurred in the normal course of operations and were measured at their exchange amounts, which were established and agreed to as consideration by the related parties.  The proceeds received on disposal of property, plant and equipment were measured at the disposed asset’s carrying amount, which also equalled its exchange amount.
 
16.      Capital management
 
Eveready’s overall capital management objectives are: (i) to finance its operations and growth strategies; and (ii) to limit risk to an acceptable level to maximize shareholder value.  To accomplish these objectives, Eveready uses a combination of debt and equity.  The mix of each component is reviewed and adjusted appropriately as changes in economic conditions arise.  This capital mix is also regularly monitored to ensure all externally imposed capital requirements on Eveready’s debt, such as certain financial covenants, are maintained.
 
Capital is defined by Eveready to include all funded debt (long-term debt, obligations under capital lease, convertible debentures, and the current portions of long-term debt and obligations under capital lease) and shareholders’ equity.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
16.      Capital management (continued)
 
The calculations of funded debt and total capital are as follows:
 
As at	 	June 30
2009	 	December 31
2008	 	
 	 	$	 	$	 	
 	 	 	 	 	 	
Current portion of long-term debt	 	1,500	 	1,500	 	
Current portion of obligations under capital lease	 	4,821	 	4,619	 	
Long-term debt	 	168,416	 	213,363	 	
Obligations under capital lease	 	18,427	 	18,787	 	
Convertible debentures	 	45,167	 	44,132	 	
 	 	 	 	 	 	
Funded debt	 	238,331	 	282,401	 	
Shareholders’ equity	 	211,011	 	212,878	 	
 	 	 	 	 	 	
Total capital	 	449,342	 	495,279	 	
 
Under its long-term credit facilities, Eveready must operate in the normal course of business while managing a number of financial covenants on a quarterly basis.  These covenants include, but are not limited to, a fixed charge coverage ratio, funded debt to EBITDA ratios, and a minimum net worth, each of which are calculated on a trailing twelve-month basis and adjusted on a pro-forma basis for certain business acquisitions.  The definition of these measures are in accordance with the lending agreement and are calculated based on the lender’s interpretation, which may not be equal to individual financial statement figures presented in these interim consolidated financial statements.
 
The following summarizes the financial covenants calculated in accordance with the lending agreement:
 
 	 	June 30, 2009	 	December 31, 2008	 	
As at	 	Required	 	Actual	 	Required	 	Actual	 	
 	 	 	 	 	 	 	 	 	 	
Fixed charge coverage ratio	 	> 1.50	 	2.68	 	> 1.50	 	3.07	 	
Funded senior debt to EBITDA	 	< 2.50	 	2.19	 	< 2.50	 	2.24	 	
Funded debt to EBITDA	 	< 3.00	 	2.70	 	< 3.00	 	2.66	 	
Minimum net worth	 	>$	176,861	 	$	227,728	 	>$	170,636	 	$	233,941	 	

Eveready’s capital management objectives and evaluation measures have remained unchanged over the periods presented.  Eveready has no externally imposed restrictions or limitations on its equity for any of the periods presented.  As at June 30, 2009, Eveready was in compliance with all externally imposed capital requirements on its debt.
 
17.      Financial instruments
 
a)             Fair value
 
The carrying amounts of cash, accounts receivable, and accounts payable and accrued liabilities approximate their fair values given the short-term maturity of these instruments.  The carrying values of the current and long-term portions of debt approximate fair value because the applicable interest rates on these liabilities are based on variable prevailing market rates.
 
The fair value of financial instruments actively traded in markets is determined by reference to current market value as at the balance sheet date.  For financial instruments not traded in an active market, Eveready uses a discounted cash flow valuation technique.  In applying the discounted cash flow valuation technique, Eveready estimates a current market interest rate for the same or similar financial instrument.  If the credit quality of similar instruments is undeterminable, Eveready will assume no changes in the credit quality have taken place.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
17.      Financial instruments(continued)
 
The estimated fair value of Eveready’s Debentures at June 30, 2009 was $49,500 compared to its carrying value of $45,167 (December 31, 2008 - fair value of $35,750 compared to carrying value $44,132).  The fair value of the Debentures was determined by reference to their current market value as at June 30, 2009.  As the convertible debentures are other financial liabilities and are measured at amortized cost, no gain or loss has been recognized in net (loss) earnings relating to the difference between the Debentures’ fair value and carrying value.
 
b)            Credit risk
 
By granting credit sales to customers, it is possible these entities, to which Eveready provides services, may experience financial difficulty and be unable to fulfill their obligations.  A substantial amount of Eveready’s revenue is generated from customers in the oil and gas industry.  This results in a concentration of credit risk from customers in this industry.  A significant decline in economic conditions within this industry would increase the risk customers could experience financial difficulty and be unable to fulfill their obligations to Eveready.  Eveready’s exposure to credit risk arising from granting credit sales is limited to the carrying value of accounts receivable.  Eveready’s revenues are normally invoiced with payment terms of 30 days.  However in Eveready’s industry, customers typically pay invoices within 30 to 90 days.  At June 30, 2009, $51,671 (December 31, 2008 - $93,460) of Eveready’s gross receivables were over 30 days.  The average time to collect Eveready’s outstanding accounts receivable was approximately 83 days at June 30, 2009 (December 31, 2008 - 86 days).
 
Included in the carrying value of accounts receivable at June 30, 2009 was $5,569 or 5% of total accounts receivable owing from one customer.  Approximately $5,200 of this amount has been outstanding for more than 90 days skewing Eveready’s average time to collect its outstanding accounts receivable as indicated above.  Eveready expects to collect the outstanding balance in the second half of 2009.
 
At June 30, 2009, no outstanding customer balance represented more than 10% of total accounts receivable.
 
With uncertainties arising from a decline in overall economic conditions and reduced levels of activity in the oil and gas industry, Eveready’s exposure to credit risk from its customers has increased during the first six months of 2009.  Eveready mitigates its credit risk by assessing the credit worthiness of its customers on an ongoing basis.  Eveready also closely monitors the amount and age of balances outstanding.  Eveready establishes a provision for bad debts based on specific customers’ credit risk, historical trends, and other economic information.  For the six months ended June 30, 2009, all customer balances provided as bad debts were specifically identified.  Eveready recorded the following activity in its allowance for doubtful accounts during the six months ended June 30, 2009:
 
Six Months Ended	 	June 30
2009	 	
 	 	$	 	
 	 	 	 	
Balance, beginning of period	 	4,862	 	
Provision for bad debts, net of recoveries	 	1,533	 	
Amounts written off as uncollectible	 	(1,343	)	
 	 	 	 	
Balance, end of period	 	5,052	 	
 
Eveready is also exposed to credit risk associated with its guarantees.  Eveready’s maximum exposure to such guarantees is the same as disclosed in Eveready’s annual consolidated financial statement for the year ended December 31, 2008 except for a $242 reduction in third party financings guaranteed by Eveready.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
17.      Financial instruments(continued)
 
c)     Liquidity risk
 
Eveready’s exposure to liquidity risk is dependant on the collection of accounts receivable and the ability to raise funds to meet purchase commitments and financial obligations and to sustain operations.  Eveready controls its liquidity risk by managing its working capital, cash flows, and by monitoring the availability of its borrowing facilities.
 
At June 30, 2009, Eveready’s contractual obligations for the next five years (12 month periods ending on June 30th) and thereafter are as follows:
 
$ in thousands	 	2010	 	2011	 	2012	 	2013	 	2014	 	Thereafter	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Long-term debt (note 5)	 	1,500	 	5,779	 	165,146	 	—	 	—	 	—	 	172,425	 	
Obligations under capital lease (including imputed interest)( note 6 )	 	6,109	 	5,976	 	5,822	 	4,976	 	2,939	 	921	 	26,743	 	
Convertible debentures (note 19)	 	—	 	50,000	 	—	 	—	 	—	 	—	 	50,000	 	
Asset retirement obligations	 	584	 	—	 	533	 	—	 	—	 	1,969	 	3,086	 	
Operating leases	 	15,515	 	9,315	 	4,319	 	2,301	 	1,329	 	2,633	 	35,412	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	23,708	 	71,070	 	175,820	 	7,277	 	4,268	 	5,523	 	287,666	 	
 
The table above presents the minimum principal repayments required on the Revolver if it were not renewed (the next renewal date is April 23, 2010) and Eveready were not able to refinance this credit facility with another lender.  In addition to the contractual obligations above, Eveready is also subject to commitments under certain mutual option agreements ( note 7 ).
 
The estimated timing and amount of Eveready’s asset retirement obligations could change in the future or could be incurred in different periods from those indicated above.  The Debentures’ repayment noted above is based on the principal amount of $50,000 and the respective maturity date of June 30, 2011.  Upon the occurrence of a change of control over Eveready, each Debentureholder may require Eveready to repurchase, within 30 days following the notice of the change of control, the whole or any part of such holder’s Debentures at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of change of control.  As such, the estimated timing and amount of the Debentures’ repayment could change in the future if a change of control were to occur ( note 19 ).
 
d)            Interest rate risk
 
Eveready’s cash flow is exposed to changes in interest rates on its long-term debt and obligations under capital lease, which bear interest based on variable rates.  The cash flow required to service these financial liabilities will fluctuate as a result of changes in market interest rates.  Based on Eveready’s outstanding long-term debt and obligations under capital lease at June 30, 2009, a 100 basis point increase or decrease in market interest rates would impact Eveready’s annual interest expense by approximately $1,930.  Eveready has not entered into any derivative agreements to mitigate this risk.
 
Eveready is also exposed to interest rate price risk on its convertible debentures, which incur fixed interest payments.  The discount rate used in determining the fair value of the convertible debentures’ future cash flows will fluctuate as a result of changes in market interest rates available to Eveready for the same or similar instrument.  As at June 30, 2009 assuming a 100 basis point change in market interest rates, the fair value of the convertible debentures could change by $907.
 
Eveready’s other financial instruments are not exposed to interest rate risk.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
17.      Financial instruments(continued)
 
e)             Foreign currency risk
 
Eveready is primarily exposed to foreign currency fluctuations in relation to its US and international operations.   Therefore, there is risk of earnings fluctuations arising from changes in and the degree of volatility of foreign exchange rates arising on foreign monetary assets and liabilities.  Although the majority of Eveready’s operations are in Canada, Eveready continues to expand its operations outside Canada, which increases its exposure to foreign currency risk.  During the six months ended June 30, 2009, Eveready incurred a loss on foreign exchange of $673 (2008 - gain on foreign exchange of $91).  Based on Eveready’s monetary assets and liabilities held in its US operations at June 30, 2009, a five percent increase or decrease in exchange rates would impact Eveready’s annual foreign exchange loss (gain) by approximately $625.  Eveready does not currently use derivative financial instruments to reduce its exposure to foreign currency risk.
 
18.      United States Generally Accepted Accounting Principles
 
These interim consolidated financial statements have been prepared in accordance with Canadian GAAP (note 1), which in most respects conform to generally accepted accounting principles in the United States (“US GAAP”).  Any differences in accounting principles between Canadian GAAP and US GAAP to Eveready are not material, except as described below.  The following adjustments reflect measurement differences only and do not reflect any differences in disclosures existing between Canadian GAAP and US GAAP.
 
Consolidated Balance Sheets
 
The application of US GAAP would have the following impact on Eveready’s consolidated balance sheets as at June 30, 2009 and December 31, 2008:
 
 	 	 	 	June 30, 2009	 	December 31, 2008	 	
As at	 	Notes	 	Canadian
GAAP (As
reported)	 	US GAAP	 	Canadian
GAAP (As
reported)	 	US GAAP	 	
 	 	 	 	$	 	$	 	$	 	$	 	
Intangible assets	 	a	 	42,487	 	39,899	 	46,738	 	44,260	 	
Goodwill	 	c	 	28,450	 	23,069	 	23,069	 	23,069	 	
Convertible debentures	 	b	 	45,167	 	48,969	 	44,132	 	48,736	 	
Future income taxes	 	e	 	10,639	 	8,975	 	10,095	 	8,314	 	
Non-controlling interest	 	c	 	705	 	—	 	2,760	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Temporary equity	 	 	 	 	 	 	 	 	 	 	 	
Non-controlling interest	 	c	 	—	 	4,578	 	—	 	13,662	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Shareholders’ capital	 	d) iv	 	352,362	 	102,251	 	352,523	 	102,298	 	
Shares held under Employee Unit Plan	 	d) iv	 	(7,894	)	(1,388	)	(11,230	)	(1,975	)	
Equity component of convertible debentures	 	b	 	8,030	 	—	 	8,030	 	—	 	
Contributed surplus	 	d) iv	 	5,617	 	386	 	6,941	 	764	 	
(Deficit) retained earnings	 	a, b, c, d, e	 	(147,104	)	95,781	 	(143,386	)	96,073	 	
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
18.      United States Generally Accepted Accounting Principles(continued)
 
Net (loss) earnings and comprehensive (loss) income
 
The application of US GAAP would have the following impact on Eveready’s interim consolidated statements of earnings and comprehensive income for the six months ended June 30, 2009 and 2008:
 
 	 	 	 	Six Months Ended	 	
 	 	 	 	June 30	 	June 30	 	
 	 	Notes	 	2009	 	2008	 	
 	 	 	 	$	 	$	 	
(Loss) earnings before non-controlling interest - as reported under Canadian GAAP	 	 	 	(3,528	)	20,217	 	
Adjustments under US GAAP:	 	 	 	 	 	 	 	
Research and development expense	 	a	 	(110	)	(103	)	
Interest	 	b	 	802	 	700	 	
Stock-based compensation	 	d) iii	 	1,204	 	1,178	 	
Loss on redeemable put option	 	c	 	2,687	 	—	 	
Income tax effect related to above adjustments	 	e	 	(117	)	38	 	
 	 	 	 	 	 	 	 	
Net earnings and comprehensive (loss) income - as reported under US GAAP	 	 	 	938	 	22,030	 	
Net earnings attributable to non-controlling interest	 	c	 	190	 	275	 	
Net earnings and comprehensive (loss) income attributable to Eveready - as reported under US GAAP	 	 	 	748	 	21,755	 	
 	 	 	 	 	 	 	 	
(Loss) earnings per share - basic - as reported under Canadian GAAP ( note 11 )	 	 	 	(0.21	)	1.09	 	
(Loss) earnings per share - diluted - as reported under Canadian GAAP ( note 11 )	 	 	 	(0.21	)	1.08	 	
 	 	 	 	 	 	 	 	
Earnings per share attributable to Eveready - basic - as reported under US GAAP (1)	 	 	 	0.04	 	1.17	 	
Earnings per share attributable to Eveready - diluted - as reported under US GAAP (1)	 	 	 	0.04	 	1.12	 	

Note:                  (1)   The predominant change in calculating basic earnings per share attributable to Eveready shareholders between Canadian GAAP and US GAAP is the starting component of net earnings attributable to Eveready as noted in the above reconciliation. In addition under US GAAP, Eveready has calculated its earnings per share using the two-class method related to both its outstanding shares and its Matching Shares held by the Employee Unit Plan Trust.  Under this method, Eveready’s earnings per share, as noted above, related to its outstanding shares has been reduced by nil cents for the six months ended June 30, 2009 (June 30, 2008 — two cents).  In the comparative six months ended June 30, 2008, diluted earnings per share was also adjusted for the dilutive effect of the convertible debentures and unvested Matching Units held by the Employee Unit Plan Trust.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
18.      United States Generally Accepted Accounting Principles(continued)
 
Consolidated Statements of Cash Flows
 
The application of US GAAP would have the following impact on Eveready’s interim consolidated statements of cash flows for the six months ended June 30, 2009:
 
 	 	 	 	Six Months Ended	 	
 	 	 	 	June 30, 2009	 	
 	 	 	 	Canadian GAAP	 	 	 	
 	 	Notes	 	(As reported)	 	US GAAP	 	
 	 	 	 	$	 	$	 	
Cash provided by operating activities	 	a	 	61,304	 	61,194	 	
Cash used in investing activities	 	a	 	(11,462	)	(11,352	)	
Cash used in by financing activities	 	 	 	(50,973	)	(50,973	)	
 
The application of US GAAP would have the following impact on Eveready’s interim consolidated statements of cash flows for the comparative six months ended June 30, 2008:
 
 	 	 	 	Six Months Ended	 	
 	 	 	 	June 30, 2008	 	
 	 	 	 	Canadian GAAP	 	 	 	
 	 	Notes	 	(As reported)	 	US GAAP	 	
 	 	 	 	$	 	$	 	
Cash provided by operating activities	 	a	 	31,310	 	31,207	 	
Cash used in investing activities	 	a	 	(39,273	)	(39,170	)	
Cash provided by financing activities	 	 	 	5,280	 	5,280	 	
 
In addition, Canadian GAAP permits a subtotal in the statements of cash flows following the reconciliation of net (loss) earnings and items not affecting cash.  This subtotal is not permitted under US GAAP.
 
Notes to US GAAP reconciliations above
 
a)             Deferred development costs
 
According to CICA Handbook Section 3064 Goodwill and Intangible Assets, the costs of research must be expensed in the period incurred and development costs meeting prescribed criteria should be deferred to future periods. Under US GAAP, pursuant to Statement of Financial Accounting Standards (“SFAS”) No.2 Accounting for Research and Development Cost, research and development costs are expensed as they are incurred, unless covered by separate standards.
 
Certain of Eveready’s technology related assets included in intangible assets are under development and meet the appropriate criteria specified under Section 3064 for deferral.  However, such development costs are to be expensed when incurred under US GAAP.
 
b)            Convertible debentures
 
Under CICA Handbook Section 3863 Financial Instruments - Presentation, financial instruments with both liability and equity components are required to be classified into their respective component parts of debt or equity in accordance with the substance of the contractual arrangement on initial recognition.  Interest paid is charged to interest expense on a basis consistent with the classification of the underlying instrument.  US GAAP generally requires convertible debt to be classified as debt on the balance sheet.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
18.      United States Generally Accepted Accounting Principles(continued)
 
Upon issuance of its Debentures, Eveready allocated the $50,000 face value of the Debentures to liability and equity components, proportionately, based on their respective fair values.  Eveready then recorded an interest charge to accrete the liability recorded to its maturity value over the term of the Debenture.  In addition, Eveready applied financing costs to the carrying value of the Debentures’ liability and equity components proportionately, in accordance with Section 3863.  The costs applied to the Debentures’ liability component are amortized to interest expense over the remaining term of the Debentures using the effective interest rate method.  To reconcile to US GAAP, the equity component of the Debentures, including its respective financing costs applied, was reclassified to the liability component.  The calculation of interest expense was adjusted to only include the effect of financing costs.
 
c)     Non-controlling interest
 
In accordance with Canadian GAAP, Eveready only assigns a value to its put options associated with the 20% non-controlling interests vendors retained in the acquisitions of RDDB, Bullseye, and Rodrigue’s when they have an intrinsic value ( note 7 ).  During the six months ended June 30, 2009, the deemed fair value of the 20% non-controlling interests held was less than the price of the respective put options.  As a result, Eveready recognized a loss on redeemable put option of $2,687.  Under US GAAP, the put options are an embedded feature that results in the non-controlling interest being deemed a redeemable security and subject to the requirements of Emerging Issues Task Force (“EITF”) D-98 Classification and Measurement of Redeemable Securities.  Under EITF D-98, the redeemable security is to be classified as temporary equity upon inception at its fair value.  In subsequent reporting periods, the non-controlling interest is measured at fair value and adjusted upwards if warranted.  The amount may be decreased in subsequent periods only to the extent of any increase previously recorded to fair value.  The initial recognition of the put option at acquisition increased the amount recorded to goodwill by $10,902.  In December, 2008, goodwill recorded on the initial measurement of the non-controlling interest was written off as impaired.
 
During the six months ended June 30, 2009, Eveready acquired the remaining 20% non-controlling interest retained in the original acquisition of RDDB for a purchase price of $9,021 ( note 7 ).  Under Canadian GAAP, Eveready accounted for this acquisition using the purchase method and recognized goodwill of $5,381.  Under US GAAP, Eveready is to account for this acquisition as an equity transaction and as a result recognized a charge to deficit of $1,039 with no impact to goodwill.
 
d)    Redeemable Fund units (outstanding until December 31, 2008 when replaced with shares)
 
i)                The Fund units of Eveready’s predecessor were redeemable at the option of the unitholder, at which time all rights with respect to such units would have been cancelled.  Eveready’s predecessor also had exchangeable Fund units (“Rollover LP units”) that were designed to be the economic equivalent of Fund units.  Under Canadian GAAP, Eveready classified its Fund units and Rollover LP units as unitholders’ equity.  Under US GAAP, the Fund units and Rollover LP units, which are redeemable at the option of the unitholder, must be valued at their redemption amount and presented as temporary equity in the consolidated balance sheet.  The redemption value of the Fund units and Rollover LP units is calculated by a trading value based formula.  Adjustments to the redemption value of these units are charged or credited to (deficit) retained earnings.
 
ii)             Eveready classified its Matching Units held by the Employee Unit Plan Trust (“Trust”) as a reduction of unitholders’ equity until such time they vest and are transferred to the Employee.  Such units held by the Trust were recorded at the cost paid by Eveready to purchase the units in accordance with Canadian GAAP.  Under US GAAP, the net units outstanding, being those issued less units held by the Trust, would be classified as temporary equity and recorded at an amount equal to the redemption value of the Fund units with any adjustments to the redemption value of these units being charged or credited to (deficit) retained earnings.
 
iii)          Compensation expense for the Employee Unit Plan is measured in accordance with Canadian GAAP based on the fair value of the Matching Units on the grant date and recognized as stock-based compensation expense over the vesting period.  Because the Fund units issued upon vesting of the Matching Units were redeemable, under US GAAP compensation expense for the Employee Unit Plan is to be accounted for as a liability based award.  The liability is re-measured, until settlement of the Employee Unit Plan, at the end of each reporting period with the change being charged or credited to stock-based compensation expense.  The portion of the liability representing the amount of Matching Units vested to Employees is reclassified to temporary equity at the time when the employees are considered, under US GAAP, to assume the risks and rewards of ownership of the units.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
18.      United States Generally Accepted Accounting Principles(continued)
 
Eveready had a Unit Option Plan, which was replaced by the Share Option Plan pursuant to the Conversion (note 2), under which unit options were granted to directors, officers, employees and consultants of Eveready ( note 9 ).   Because Fund units issued upon settlement of unit options were redeemable, under US GAAP the unit options are to be accounted for as a liability based award.  The liability is re-measured, until settlement of the unit options, at the end of each reporting period with the change being charged or credited to stock-based compensation expense.
 
iv)         Pursuant to the Conversion (note 2), Fund unitholders received one share of Eveready for each five Fund units held at December 31, 2008.  All outstanding Employee Unit Plan Matching Units held by the Trust were consolidated into Matching Shares, where each five Matching Units were exchanged for one Matching Share.  Further, participants of the Unit Option Plan were entitled to receive, for the same aggregated consideration, share options for outstanding unit options held at the Conversion date.  In accordance with US GAAP, shareholders’ capital associated with Eveready’s shares is shown within shareholders’ equity and Matching Shares held by the Trust is shown as a reduction of shareholders’ equity.  Shareholders’ capital and Matching Shares held by the Trust are measured at their respective temporary equity carrying values immediately prior to the Conversion.  The liability based awards associated with the Employee Unit Plan and Share Option Plan are reclassified to contributed surplus and shown within shareholders’ equity.  Any temporary equity associated with vested Matching Shares of the Employee Unit Plan is reclassified to shareholders’ capital.
 
v)            During 2008, the redemption value of the Fund units declined significantly, resulting in a decrease to temporary equity and an increase in deficit of $230,557, immediately prior to the conversion.
 
e)             Income tax effect related to US GAAP adjustments
 
The income tax adjustment relates to the income tax effect on the preceding US GAAP adjustments.
 
New US GAAP accounting pronouncements adopted
 
Business Combinations
 
Effective January 1, 2009, Eveready applied the new recommendations of the Financial Accounting Standards Board (“FASB”) SFAS No.141(R), Business Combinations.  The statement establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquiree, and any goodwill acquired.  This statement also establishes certain disclosure requirements, which will enable users of the acquiring company’s financial statements to evaluate the nature and financial effects of its business combinations.  The application of this standard has no net effect on the US GAAP reconciliations above.
 
Non-controlling Interests
 
Effective January 1, 2009, Eveready applied the new recommendations of SFAS No.160 Non-Controlling Interests in Consolidated Financial Statements — An Amendment of Accounting Research Bulletin No.51 (“SFAS No.160”).  This statement changes the accounting and reporting for ownership interests in subsidiaries held by parties other than the parent.  These non-controlling interests are to be classified as a separate component of equity and measured initially at fair value.  The amount of consolidated net earnings attributable to the parent and to the non-controlling interest is to be clearly identified and presented on the face of the consolidated statements of earnings and comprehensive income.  SFAS No.160 also establishes standards for a change in a parent’s ownership interest in a subsidiary and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated.  The guidance in this statement is to be applied prospectively, except for the presentation and disclosure requirements, which are to be applied retrospectively for all periods presented.  The presentation requirements have been adopted retrospectively in the US GAAP reconciliations above.  Eveready also applied the guidance for a change in a parent’s ownership interest during the six months ended June 30, 2009.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
18.      United States Generally Accepted Accounting Principles(continued)
 
Fair Value Measurement
 
Effective January 1, 2009, Eveready applied the new recommendations of FASB Staff Position SFAS No.157-2, Effective Date of FASB Statement No.157 (“FSP SFAS No.157-2”).  FSP SFAS No.157-2 delays the effective date of SFAS No.157, Fair Value Measurements, for non-financial assets and non-financial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis.  This standard had no impact on the US GAAP reconciliations above.
 
During the six months ended June 30, 2009, Eveready also applied the new recommendations of FASB Staff Position SFAS No. 107-1 and Accounting Principles Board (“APB”) 28-1 (“FSP SFAS No. 107-1”).  FSP SFAS No. 107-1 expands the fair value disclosure required for all financial instruments for interim disclosures.  This standard had no impact on the US GAAP reconciliations above.
 
Intangible Assets
 
Effective January 1, 2009, Eveready applied the new recommendations of FASB Staff Position SFAS No.142-3 Determination of the Useful Life of Intangible Assets (“FSP SFAS No.142-3”).  FSP SFAS No.142-3 amends the factors an entity should consider in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No.142 Goodwill and Other Intangible Assets.  The intent of FSP SFAS No.142-3 is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset.  This standard had no impact on the US GAAP reconciliations above.
 
Subsequent Events
 
In May 2009, the FASB issued Staff Position SFAS No. 165 Subsequent Events (“FSP SFAS 165”), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before issuance of financial statements.  Eveready applied the new recommendations of SFAS 165 during the three months ended June 30, 2009.  This standard had no impact on the US GAAP reconciliations above.
 
Accounting Standards Codification
 
In June 2009, the FASB approved its Accounting Standards Codification (“Codification”) effective for interim or annual financial periods ending after September 15, 2009.  The Codification changes the referencing of all prior financial standards and will be the single source of authoritative United States accounting and reporting standards.  The Codification is not intended to change or alter existing US GAAP and thus will not have any impact to Eveready’s US GAAP reconciliations above.
 
19.      Subsequent events
 
a)     Acquisition of Eveready by Clean Harbors, Inc.
 
Effective July 31, 2009 Eveready completed a plan of arrangement (the “Plan of Arrangement”) with Clean Harbors, Inc.  (“Clean Harbors”) whereby a wholly owned subsidiary of Clean Harbors acquired 100% of Eveready’s outstanding common shares through a combination of cash and stock.  Following completion of that acquisition, Eveready was amalgamated with the wholly-owned subsidiary of Clean Harbors.
 
Pursuant to the Plan of Arrangement, holders of common shares of Eveready received in respect of each Eveready common share held (i) CAD $3.30 in cash; and (ii) 0.1304 of a share of Clean Harbors common stock.  All of Eveready’s outstanding 7.00% convertible, unsecured subordinated debentures (the “Debentures”) were repurchased for $1,010 for each $1,000 aggregate face amount of such Debentures held, plus accrued interest to, but excluding July 31, 2009.  Thereafter, all Debentures were cancelled and terminated. In addition pursuant to the Plan of Arrangement, Eveready’s Share Option Plan ( note 9 ) was terminated and any outstanding share options under the Share Option Plan were cancelled.
 
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Eveready Inc.
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
 
19.      Subsequent events(continued)
 
In connection with the acquisition of Eveready, Clean Harbors executed a consent agreement with the Competition Bureau where it agreed to dispose of its interest in the Pembina Area Landfill, a wholly owned subsidiary of Eveready, since Clean Harbors operates the only other Class I hazardous waste site in Alberta.  The sale of the Pembina Area Landfill will be completed subsequent to the Plan of Arrangement.
 
Eveready and Clean Harbors also made arrangements with Eveready’s syndicate of lenders (note 5), which allowed Clean Harbors to acquire Eveready on July 31, 2009 and for Eveready to repurchase its Debentures.  Subsequent to the acquisition of Eveready, Clean Harbors repaid all amounts outstanding under Eveready’s credit facilities and certain obligations under capital leases (note 6).  Eveready’s credit facilities were terminated in connection with the repayment of all amounts outstanding thereunder.
 
b)            Guarantee of Employees’ share purchase loans
 
In July 2009, Eveready provided guarantees over outstanding BMO Bank of Montreal share purchase loans owing by certain Employees that were issued in connection with their participation in the Employee Unit Plan ( note 9 ).  Eveready’s liability under this guarantee is limited to a maximum aggregate principal amount of $7,700.  Eveready would be required to settle these guarantees if an Employee were to default on its debt obligation and the Employee’s shares and respective Matching Shares held within Eveready’s Employee Unit Plan Trust, were not sufficient to repay the balances due.
 
20.      Comparative figures
 
Certain of the comparative figures were reclassified from statements previously presented to conform to the current period’s presentation.
 
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
 
On July 31, 2009, Clean Harbors, Inc. (the “Company” or “Clean Harbors”) acquired all of the outstanding shares of Eveready Inc. (“Eveready”), an Alberta corporation headquartered in Edmonton, Alberta, for a total purchase price of approximately U.S. $408 million.  Eveready provides industrial maintenance and production, lodging, and exploration services to the oil and gas, chemical, pulp and paper, manufacturing and power generation industries.  The purchase price included approximately U.S. $56 million in cash, U.S. $118 million in Clean Harbors’ common stock consisting of 2.4 million shares valued at $49.50 per share (the closing price on the New York Stock Exchange on the day prior to the acquisition), and the Company’s assumption and/or payment of approximately U.S. $235 million of Eveready debt.  The Company anticipates that this acquisition will enhance the Company’s presence in the industrial services market, broaden the range of services the Company can offer customers of both companies, and advance the Company’s position in the Canadian marketplace.
 
In connection with the acquisition, the Company agreed with the Canadian Commissioner of Competition to divest Eveready’s Pembina Area Landfill, located near Drayton Valley, Alberta, due to its proximity to Clean Harbors’ existing landfill in the region. The Pembina Area Landfill represented less than two percent of Eveready’s revenue in 2008.
 
Upon consummation of the acquisition, Eveready was amalgamated into a new wholly-owned indirect subsidiary of the Company named Clean Harbors Industrial Services Canada, Inc.
 
The following unaudited pro forma condensed combined financial statements for Clean Harbors and Eveready as a combined company give effect, using the purchase method of accounting, to the Company’s (i) acquisition of Eveready on July 31, 2009, (ii) issuance on August 14, 2009 of $300.0 million principal amount of 7 5 / 8 % senior secured notes due 2016 (the “notes”), (iii)  repayment of substantially all of the Company’s and Eveready’s outstanding debt (excluding certain capital leases) using a portion of the Company’s available cash and the proceeds from the sale of the notes, and (iv) payment of related fees and expenses (collectively, the “Transactions”). The unaudited pro forma condensed combined balance sheet as of June 30, 2009 is presented as if the Transactions had been completed on June 30, 2009. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2008 and for the six months ended June 30, 2009 are presented as if the Transactions had been completed on January 1, 2008, the first day of the Company’s 2008 fiscal year.
 
The following unaudited pro forma condensed combined financial statements are based on the historical financial statements of the Company which appear in the Company’s previously filed annual report on Form 10-K for the year ended December 31, 2008 and quarterly report on Form 10-Q for the quarter ended June 30, 2009, and Eveready’s historical financial statements which appear in this amendment to the Company’s current report on Form 8-K. The Company’s consolidated financial statements were prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).  Eveready’s consolidated historical financial statements were prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which differ in certain respects from U.S. GAAP.  As described in Note 5 to the unaudited pro forma condensed combined financial statements, Eveready’s historical consolidated financial statements have been reconciled to U.S. GAAP for material measurement differences between Canadian and U.S. GAAP, and certain material additional conforming presentation adjustments have also been made to Eveready’s financial statements to conform with the Company’s presentation under U.S. GAAP.
 
Unless otherwise specified with respect to certain amounts stated in Canadian dollars (“Cdn $”), all dollar amounts in the following unaudited pro forma condensed combined financial statements are in U.S. dollars (“$”). As set forth in Eveready’s historical consolidated financial statements, Eveready’s financial statements have been reported in Cdn $. For purposes of the unaudited pro forma condensed combined financial statements, certain numerical information reported by Eveready in Cdn $ has been converted into U.S. $.  Information derived from Eveready’s consolidated balance sheet as of June 30, 2009 has been converted based on the Thomson Reuters closing exchange rate of 1.163200 Cdn $ to one U.S. $ on June 30, 2009.  Information derived from Eveready’s consolidated statements of (loss) earnings and comprehensive (loss) income and deficit for the year ended December 31, 2008 and for the six months ended June 30, 2009 has been converted based on average Thomson Reuters exchange rates of 1.059922 Cdn $ to one U.S. $ during the year ended December 31, 2008, and 1.204426 Cdn $ to one U.S. $ during the six months ended June 30, 2009, respectively. All numerical information in this document derived from Eveready’s historical financial statements but stated in U.S. $ is unaudited.
 
The following unaudited pro forma condensed combined financial statements do not purport to represent what the Company’s results of operations or financial position would actually have been had the Transactions occurred on the dates described above or to project the Company’s results of operations or financial position for any future date or period. The statements do not reflect cost savings, operating synergies or revenue enhancements expected to result from the Company’s acquisition of Eveready or the costs to achieve any such cost savings, operating synergies or revenue enhancements. The
 
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statements reflect the Company’s preliminary estimates of the allocation of the purchase price for the acquisition of Eveready based upon available information and certain assumptions that the Company believes are reasonable under the circumstances, and actual results could differ materially from these anticipated results. The final allocation of the purchase price will be determined after completion of the acquisition and will be based on the final purchase price, as it may be adjusted in accordance with the acquisition agreement, and the valuation of Eveready’s tangible and identifiable intangible assets acquired and liabilities assumed.
 
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CLEAN HARBORS
 
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
 
ASSETS
 
AS OF JUNE 30, 2009
 
(U.S. dollars in thousands)
 
 	 	Clean
Harbors	 	Eveready	 	Pro Forma
Adjustments	 	Note 3	 	Pro Forma	 	
 	 	 	 	(see Note 5)	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	 255,407	 	$	 4,064	 	$	 (31,408	)	(a)	 	$	 228,063	 	
Marketable securities	 	484	 	—	 	—	 	 	 	484	 	
Accounts receivable, net	 	148,610	 	91,915	 	(4,841	)	(b)	 	235,684	 	
Unbilled accounts receivable	 	6,381	 	—	 	4,841	 	(b)	 	11,222	 	
Deferred costs	 	5,691	 	—	 	—	 	 	 	5,691	 	
Prepaid expenses and other current assets	 	10,402	 	2,706	 	—	 	 	 	13,108	 	
Supplies inventories	 	27,938	 	9,281	 	—	 	 	 	37,219	 	
Deferred tax asset	 	12,324	 	—	 	—	 	 	 	12,324	 	
Total current assets	 	467,237	 	107,966	 	(31,408	)	 	 	543,795	 	
Property, plant and equipment, net	 	312,637	 	270,149	 	—	 	 	 	582,786	 	
Other assets:	 	 	 	 	 	 	 	 	 	 	 	
Long-term investments	 	6,483	 	—	 	—	 	 	 	6,483	 	
Deferred financing costs	 	2,308	 	—	 	8,232	 	(b),(c)	 	10,540	 	
Goodwill	 	30,580	 	19,832	 	608	 	(d)	 	51,020	 	
Permits and other intangibles, net	 	71,056	 	34,301	 	—	 	 	 	105,357	 	
Deferred tax assets	 	5,726	 	—	 	—	 	 	 	5,726	 	
Other	 	2,553	 	1,355	 	(1,290	)	(b)	 	2,618	 	
Total other assets	 	118,706	 	55,488	 	7,550	 	 	 	181,744	 	
Total assets	 	$	 898,580	 	$	 433,603	 	$	 (23,858	)	 	 	$	 1,308,325	 	
 
See accompanying notes to unaudited pro forma condensed combined financial statements.
 
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CLEAN HARBORS
 
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
AS OF JUNE 30, 2009
 
(U.S. dollars in thousands)
 
 	 	Clean Harbors	 	Eveready	 	Pro Forma
Adjustments	 	Note 3	 	Pro Forma	 	
 	 	 	 	(see Note 5)	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	 	 	
Uncashed checks	 	$	 5,019	 	$	 —	 	$	 —	 	 	 	$	 5,019	 	
Current portion of long-term debt	 	52,889	 	1,290	 	(54,179	)	(g)	 	—	 	
Current portion of capital lease obligations	 	176	 	4,145	 	(2,600	)	(h)	 	1,721	 	
Accounts payable	 	54,939	 	41,259	 	(10,176	)	(b),(h)	 	86,022	 	
Deferred revenue	 	23,566	 	—	 	—	 	 	 	23,566	 	
Accrued expenses	 	55,911	 	—	 	15,109	 	(b),(e)	 	71,020	 	
Current portion of closure, post-closure and remedial liabilities	 	22,400	 	502	 	—	 	 	 	22,902	 	
Income taxes payable	 	—	 	491	 	—	 	 	 	491	 	
Total current liabilities	 	214,900	 	47,687	 	(51,846	)	 	 	210,741	 	
Other liabilities:	 	 	 	 	 	 	 	 	 	 	 	
Closure and post-closure liabilities, less current portion	 	24,982	 	2,151	 	—	 	 	 	27,133	 	
Remedial liabilities, less current portion	 	133,456	 	—	 	—	 	 	 	133,456	 	
Long-term obligations, less current maturities	 	—	 	144,787	 	147,320	 	(b),(g)	 	292,107	 	
Capital lease obligations, less current portion	 	259	 	15,842	 	(8,987	)	(h)	 	7,114	 	
Convertible debentures	 	—	 	42,099	 	(42,099	)	(f)	 	—	 	
Unrecognized tax benefits and other long-term liabilities	 	76,792	 	7,714	 	—	 	 	 	84,506	 	
Total other liabilities	 	235,489	 	212,593	 	96,234	 	 	 	544,316	 	
Non-controlling interest	 	—	 	3,936	 	—	 	 	 	3,936	 	
Stockholders’ equity:	 	 	 	 	 	 	 	 	 	 	 	
Common stock	 	355,264	 	87,905	 	30,952	 	(i)	 	474,121	 	
Treasury stock	 	(1,893	)	—	 	—	 	 	 	(1,893	)	
Shares held under employee participation plan	 	—	 	(1,193	)	(1,131	)	(i)	 	(2,324	)	
Contributed surplus	 	—	 	332	 	(332	)	(i)	 	—	 	
Accumulated other comprehensive income	 	4,042	 	—	 	—	 	 	 	4,042	 	
Accumulated earnings (deficit)	 	90,778	 	82,343	 	(97,735	)	(i),(h)	 	75,386	 	
Total Clean Harbors and Eveready stockholders’ equity	 	448,191	 	169,387	 	(68,246	)	 	 	549,332	 	
Total liabilities, non-controlling interest and stockholders’ equity	 	$	 898,580	 	$	 433,603	 	$	 (23,858	)	 	 	$	 1,308,325	 	
 
See accompanying notes to unaudited pro forma condensed combined financial statements.
 
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CLEAN HARBORS
 
UNAUDITED PRO FORMA CONDENSED
 
COMBINED STATEMENT OF OPERATIONS
 
FOR THE YEAR ENDED DECEMBER 31, 2008
 
(U.S. dollars in thousands, except per share data)
 
 	 	Clean Harbors	 	Eveready	 	Pro Forma
Adjustments	 	Note 4	 	Pro Forma	 	
 	 	(Audited)	 	(Unaudited — see
Note 5)	 	 	 	 	 	 	 	
Revenues	 	$	 1,030,713	 	$	 613,845	 	$	 (210	)	(j)	 	$	 1,644,348	 	
Costs of revenues (exclusive of items shown separately below)	 	707,820	 	439,599	 	(210	)	(j)	 	1,147,209	 	
Selling, general and administrative expenses	 	159,674	 	72,403	 	(901	)	(k),(l)	 	231,176	 	
Accretion of environmental liabilities	 	10,776	 	—	 	149	 	(k)	 	10,925	 	
Depreciation and amortization	 	44,471	 	47,573	 	(149	)	(k)	 	91,895	 	
Income from operations	 	107,972	 	54,270	 	901	 	 	 	163,143	 	
Other expense	 	(119	)	—	 	(226	)	(k)	 	(345	)	
Loss on disposal of property, plant and equipment	 	—	 	(226	)	226	 	(k)	 	—	 	
Stock-based compensation	 	—	 	1,209	 	(1,209	)	(k)	 	—	 	
Gain on foreign exchange	 	—	 	1,452	 	(1,452	)	(k)	 	—	 	
Loss on early extinguishment of debt	 	(5,473	)	—	 	—	 	 	 	(5,473	)	
Impairment of long-lived assets	 	—	 	(95,522	)	—	 	 	 	(95,522	)	
Interest expense, net	 	(8,403	)	(18,596	)	1,881	 	(m)	 	(25,118	)	
Income (loss) before provision for income taxes and non-controlling interest	 	93,977	 	(57,413	)	121	 	 	 	36,685	 	
Provision for income taxes	 	36,491	 	5,706	 	40	 	(n)	 	42,237	 	
Net income (loss)	 	57,486	 	(63,119	)	81	 	 	 	(5,552	)	
Income attributable to non-controlling interest	 	—	 	774	 	—	 	 	 	774	 	
Net income (loss) attributable to Clean Harbors and Eveready	 	$	 57,486	 	$	 (63,893	)	$	 81	 	 	 	$	 (6,326	)	
 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) per share	 	 	 	 	 	 	 	 	 	 	 	
Basic income (loss) attributable to common stockholders	 	$	 2.56	 	$	 (3.42	)	$	 —	 	 	 	$	 (0.25	)	
Diluted income (loss) attributable to common stockholders	 	$	 2.51	 	$	 (3.42	)	$	 —	 	 	 	$	 (0.25	)	
 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding	 	22,465	 	18,276	 	(15,882	)	 	 	24,859	 	
Weighted average common shares outstanding plus potentially dilutive common shares	 	22,866	 	18,276	 	(15,882	)	 	 	25,260	 	
 
See accompanying notes to unaudited pro forma condensed combined financial statements.
 
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CLEAN HARBORS
 
UNAUDITED PRO FORMA CONDENSED
 
COMBINED STATEMENT OF OPERATIONS
 
FOR THE SIX MONTHS ENDED JUNE 30, 2009
 
(U.S. dollars in thousands, except per share data)
 
 	 	Clean Harbors	 	Eveready	 	Pro Forma
Adjustments	 	Note 4	 	Pro Forma	 	
 	 	 	 	(see Note 5)	 	 	 	 	 	 	 	
Revenues	 	$	 421,643	 	$	 231,769	 	$	 (50	)	(j)	 	$	 653,362	 	
Costs of revenues (exclusive of items shown separately below)	 	289,767	 	170,031	 	(50	)	(j)	 	459,748	 	
Selling, general and administrative expenses	 	75,147	 	29,932	 	812	 	(k),(l)	 	105,891	 	
Accretion of environmental liabilities	 	5,284	 	—	 	86	 	(k)	 	5,370	 	
Depreciation and amortization	 	24,302	 	23,049	 	(86	)	(k)	 	47,265	 	
Income from operations	 	27,143	 	8,757	 	(812	)	 	 	35,088	 	
Other income	 	44	 	—	 	161	 	(k)	 	205	 	
Gain on disposal of property, plant and equipment	 	—	 	161	 	(161	)	(k)	 	—	 	
Stock-based compensation	 	—	 	(174	)	174	 	(k)	 	—	 	
Loss on foreign exchange	 	—	 	(559	)	559	 	(k)	 	—	 	
Interest expense, net	 	(2,989	)	(6,431	)	(4,620	)	(k)	 	(14,040	)	
Income before provision for income taxes	 	24,198	 	1,754	 	(4,699	)	 	 	21,253	 	
Provision for income taxes	 	10,619	 	974	 	(1,546	)	(n)	 	10,047	 	
Net income	 	13,579	 	780	 	(3,153	)	 	 	11,206	 	
Income attributable to non-controlling interest	 	—	 	158	 	—	 	 	 	158	 	
Net income attributable to Clean Harbors and Eveready	 	$	 13,579	 	$	 622	 	$	 (3,153	)	 	 	$	 11,048	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per share	 	 	 	 	 	 	 	 	 	 	 	
Basic income attributable to common stockholders	 	$	 0.57	 	$	 0.03	 	$	 —	 	 	 	$	 0.42	 	
Diluted income attributable to common stockholders	 	$	 0.57	 	$	 0.03	 	$	 —	 	 	 	$	 0.42	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding	 	23,763	 	18,097	 	(15,705	)	 	 	26,155	 	
Weighted average common shares outstanding plus potentially dilutive common shares	 	23,876	 	18,097	 	(15,705	)	 	 	26,268	 	
 
See accompanying notes to unaudited pro forma condensed combined financial statements.
 
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
(amounts in U.S. dollars except where otherwise indicated)
 
1. The Arrangement
 
On July 31, 2009, Clean Harbors acquired Eveready through an arrangement approved by a court under the Alberta Business Corporation Act (the “Arrangement”). Under the terms of the acquisition agreement, Clean Harbors acquired 100% of the outstanding Eveready common shares in exchange for $55.9 million in cash (approximately $3.04 for each Eveready common share), 2.4 million shares (a ratio of 0.1304 shares of Clean Harbors common stock for each Eveready common share) of Clean Harbors common stock having a per share value at the July 30, 2009 New York Stock Exchange closing price of $49.50, and the assumption and/or payment of approximately $235.2 million of existing Eveready debt. The approximately $235.2 million of Eveready debt assumed or paid in connection with the acquisition is calculated based on the exchange rate and debt balances in effect as of July 30, 2009, the date prior to the consummation of the acquisition.
 
The following table summarizes the components of the estimated total consideration included in the pro forma condensed combined financial statements as if the acquisition had been completed on June 30, 2009 (in thousands):
 
2.4 million shares of Clean Harbors common stock issued for Eveready common shares(1)	 	$	118,427	 	
Cash paid for Eveready common shares	 	52,051	 	
Shares held in the Eveready employee participation plan(2)	 	(1,894	)	
Eveready deferred shares assumed(3)	 	95	 	
Eveready credit facility assumed	 	148,233	 	
Capital lease obligations assumed(3)	 	19,986	 	
Eveready debentures assumed(3)	 	43,415	 	
Estimated total purchase price	 	$	380,313	 	

(1)                The value of Clean Harbors common stock used ($49.50) was the closing price of Clean Harbors common stock on the New York Stock Exchange on July 30, 2009.
 
(2)                The Eveready employee participation plan included 250,127 Eveready common shares that were held in the Eveready employee participation plan trust. The Eveready employee participation plan consideration is reflected in the shares of Clean Harbors common stock and cash paid for Eveready common shares, and therefore the amount still to be earned by the plan participants has been shown as a reduction of the estimated total purchase price. Upon completion of the Arrangement, the Eveready common shares held by the Eveready employee participation plan trust were exchanged for the same amount of cash and ratio of shares of Clean Harbors common stock as the other outstanding Eveready common shares and will vest as they are earned in future periods in accordance with the current terms and conditions.  The amount presented is net of the value of shares vested as of June 30, 2009.
 
(3)                The outstanding Eveready deferred shares and Eveready debentures were paid off on July 31, 2009. The redemption price of the outstanding Eveready debentures was equal to the 101% of the principal amount plus accrued interest.  Certain capital lease obligations aggregating $11.6 million were paid off on August 14, 2009.
 
Clean Harbors has not yet determined the fair value of the tangible and identifiable assets acquired and liabilities assumed in the Arrangement; therefore, the estimated total consideration has been allocated to the book value of the assets on the closing date. Clean Harbors’ management continues to review the characteristics and useful lives of Eveready’s tangible and intangible assets acquired and has excluded from the pro forma statements any potential adjustments affecting depreciation and amortization. Changes to Eveready’s useful lives could result in significantly different depreciation and amortization expense and could affect the allocation between recorded goodwill and other tangible and intangible assets.
 
The preliminary allocation of the purchase consideration, which is subject to change based on obtaining additional information regarding tax assets, tax liabilities and tax attributes as well as a final valuation of the assets acquired and liabilities assumed and/or repaid as of the closing date, will be finalized after the completion of the Arrangement. The final valuation may be significantly different from the preliminary allocation presented below (in thousands):
 
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Estimated total purchase price	 	$	380,313	 	
Less book value of Eveready’s net assets acquired as of June 30, 2009(4)	 	359,873	 	
Goodwill	 	$	20,440	 	

(4)                                 Net assets excludes Eveready debentures, long-term debt, capital lease obligations and existing Eveready goodwill.
 
In accordance with the acquisition agreement, each Eveready option, if any, that had not been exercised prior to the effective time of the Arrangement and that had an exercise price less than the consideration value was to be cancelled in exchange for a cash payment in an amount equal to the difference between the consideration value and the exercise price. As of the acquisition date there were no outstanding Eveready options with an exercise price less than the consideration value, and therefore all of the then outstanding Eveready options were cancelled without any such cash payments.
 
2. Financing
 
In connection with the Arrangement, the Company was required to obtain waivers from the lenders under the Company’s and Eveready’s respective existing credit agreements to allow for the completion of the acquisition and the repayment of Eveready’s existing 7% convertible subordinated debentures, and also concurrently with or following the acquisition to secure financing sufficient to pay off or restructure substantially all of the remaining Eveready indebtedness, including certain capital leases. The Company obtained the necessary waivers prior to the close of the acquisition and subsequently met the financing requirement on August 14, 2009, by issuing $300.0 million aggregate principal amount of 7 5 / 8 % senior secured notes to certain initial purchasers for a purchase price of $286.1 million.   The initial purchasers then resold the notes to investors at 97.369% of their principal amount, resulting in a yield to maturity for the investors of 8.125% per annum. The notes were issued pursuant to an indenture dated as of August 14, 2009, among the Company, as issuer, substantially all of the Company’s domestic subsidiaries, as guarantors, and U.S. Bank National Association, as trustee and notes collateral agent.   The gross proceeds from the issuance of the notes, after deducting the original issue discount, or “OID,” were $292.1 million.  On August 14, 2009, the Company used approximately $175.0 million of the net proceeds to repay all amounts outstanding under Eveready’s existing credit facility and certain capital leases to which Eveready and its subsidiaries were party at the time the Company acquired, on July 31, 2009, all of the outstanding shares of Eveready, and to pay certain fees, expenses and other costs relating the repayment of such outstanding Eveready debt.  The Eveready credit facility was terminated in connection with the repayment of all amounts outstanding thereunder.
 
3. Pro Forma Balance Sheet Adjustments
 
The pro forma adjustments included in the unaudited condensed combined balance sheet are as follows:
 
a)                                     Represents an adjustment to reflect the use of the net proceeds from the offering of the notes and existing cash to pay the cash portion of the Eveready purchase price, repay substantially all of Clean Harbors’ and Eveready’s outstanding debt (other than certain capital leases), and pay related transaction fees and expenses (in thousands):
 
 	 	Increase
(Decrease)	 	
Gross offering proceeds	 	$	292,107	 	
Cash paid for Eveready common shares	 	(52,051	)	
Payment of existing Eveready 7% convertible subordinated debentures	 	(43,415	)	
Payment to holders of Eveready deferred shares	 	(95	)	
Payment of Clean Harbors’ term loan due 2010 (variable rate)(i)	 	(30,000	)	
Redemption of Clean Harbors’ 111/4%senior secured notes due 2012(ii)	 	(24,868	)	
Extinguishment of Eveready outstanding credit facility debt due 2012 (variable rate)(iii)	 	(150,398	)	
Payment of certain Eveready capital lease obligations(iv)	 	(12,064	)	
Payment of accrued letter of credit and revolving facility fees	 	(84	)	
Transaction fees	 	(10,540	)	
 	 	$	(31,408	)	

(i)           The term loan bore interest, at the Company’s option, at either a Eurodollar rate plus 2.5% or a base rate plus 1.5%.
 
(ii)          Includes a prepayment premium of $0.7 million and accrued interest of $1.2 million as of June 30, 2009.
 
(iii)         Includes a prepayment penalty of $2.2 million.  At June 30, 2009, the interest rate on the credit facilities was 5.15%. 
 
(iv)         Includes a prepayment penalty of $0.5 million.
 
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b)                                    Represents reclassifications to conform to Clean Harbors’ financial statement presentation (in thousands):
 
 	 	Increase
(Decrease)	 	
Accounts receivable, net	 	$	 (4,841	)	
Unbilled accounts receivable	 	4,841	 	
 	 	 	 	
Deferred financing costs	 	$	 3,447	 	
Other	 	(1,290	)	
Long-term obligations	 	(2,157	)	
 	 	 	 	
Accounts payable	 	$	(16,297	)	
Accrued expenses	 	16,297	 	
 
c)                                     Represents an adjustment to write off Clean Harbors and Eveready deferred financing costs of $2.3 million and $3.4 million, respectively, in connection with the extinguishment of outstanding debt (including certain capital leases), and record $10.5 million in new transaction fees incurred in connection with the offering of the notes.
 
d)                                    Represents an adjustment to record goodwill. Fair market value has not yet been established for the Eveready net assets, and therefore all assets and liabilities are recorded at book value with the residual purchase price allocation adjusting goodwill (in thousands):
 
 	 	Increase
(Decrease)	 	
Eliminate existing Eveready goodwill	 	$	(19,832	)	
Record acquisition goodwill	 	20,440	 	
 	 	$	 608	 	
 
e)                                     Represents an adjustment of approximately $6.1 million to record direct transaction costs, which consist of legal and accounting fees and other external costs directly related to the Arrangement incurred by Clean Harbors and Eveready, and the payment of $1.2 million of accrued interest.
 
f)                                       Represents an adjustment to repurchase the outstanding Eveready debentures at the redemption price of 101% of the principal amount (in thousands):
 
Repurchase of Eveready debentures	 	$	(42,985	)	
Deferred financing costs	 	886	 	
Convertible debentures	 	$	(42,099	)	
 
g)                                    Represents an adjustment to reflect the extinguishment of Clean Harbors and Eveready existing outstanding debt of $52.9 million and $148.2 million (including current portion), respectively, and record the gross proceeds of $292.1 million from the note offering.
 
h)                                    Represents adjustment to reflect the payment of certain Eveready capital leases, including a prepayment penalty of $0.6 million.
 
i)                                        Represents adjustments to eliminate Eveready’s historical equity of $169.4 million; record the issuance of $118.4 million of new Clean Harbors common stock; record the fair value ($1.9) million of Eveready common shares held by a trust for the benefit of and for distribution to the participants in the Eveready employee participation plan in accordance with its current terms; and a reduction to accumulated earnings for approximately $6.1 million of legal and accounting fees related to the acquisition of Eveready, $5.7 million for the write-off of deferred financing fees in connection with the extinguishment of substantially all of Clean Harbors’ and Eveready’s outstanding debt, $2.7 million prepayment penalty in connection with the extinguishment of Eveready’s outstanding debt (including certain capital leases), and
 
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$0.8 million loss on the redemption of the senior secured notes, which includes the $0.7 million premium and the write-off of the remaining $0.1 million discount.
 
4. Pro Forma Statement of Operations Adjustments
 
The unaudited pro forma condensed combined statements of operations do not include any non-recurring charges that will arise as a result of the Arrangement described above.
 
j)                                        Represents an adjustment to reduce revenues and expenses for intercompany transactions between Clean Harbors and Eveready.
 
k)                                     Represents reclassifications to conform to Clean Harbors’ presentation, as follows (in thousands):
 
 	 	Increase
(Decrease)	 	
Year ended December 31, 2008	 	 	 	
Selling, general and administrative expenses	 	$	(901	)	
Gain on foreign exchange	 	1,452	 	
Stock-based compensation	 	(551	)	
 	 	 	 	
Accretion of environmental liabilities	 	$	149	 	
Depreciation and amortization	 	(149	)	
 	 	 	 	
Other expense	 	$	226	 	
Loss on disposal of property, plant and equipment	 	(226	)	
 	 	 	 	
Six-months ended June 30, 2009	 	 	 	
Selling, general and administrative expenses	 	$	812	 	
Loss on foreign exchange	 	559	 	
Stock-based compensation	 	253	 	
 	 	 	 	
Accretion of environmental liabilities	 	$	86	 	
Depreciation and amortization	 	(86	)	
 	 	 	 	
Other income	 	$	161	 	
Gain on disposal of property, plant and equipment	 	(161	)	
 
l)                                        Represents the following adjustments to stock-based compensation expense:
 
1.                                      Eliminate Eveready’s stock-based compensation gain of approximately $1.2 million and expense of $0.2 million for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively. All of the Eveready options that were not exercised or settled prior to the effective date of the Arrangement were terminated. The Eveready employee participation plan was not terminated in connection with the Arrangement and the vesting terms and conditions will remain the same.
 
2.                                      Record stock-based compensation expense of $0.6 million and $0.3 million for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively. The adjustment to stock-based compensation expense reflects the expense incurred related to the Eveready employee participation plan after revaluing the shares as of January 1, 2008, the first day of Clean Harbors’ fiscal 2008.
 
m)                                  Represents the following adjustments to interest expense, net:
 
1.                                      Record an adjustment to interest expense related to the issuance of the notes at the stated interest rate of 7.625% and OID of 2.631%, which decreased interest expense by $1.2 million for the year ended December 31, 2008 and increased interest expense by $5.0 million for the six months ended June 30, 2009, respectively, assuming extinguishment of substantially all of Clean Harbors’ and Eveready’s previously outstanding debt (excluding certain capital leases).
 
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2.                                      Record an adjustment to interest expense to eliminate interest expense of $0.7 million and $0.4 million for the year ended December 31, 2008 and six months ended June 30, 2009, respectively, related to certain Eveready capital leases that were extinguished.
 
n)                                    Represents the pro forma tax effect of the above adjustments at an estimated combined statutory tax rate of 33.0% and 32.9% for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively.
 
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5. Financial Statement Information Relating to Eveready
 
EVEREADY CONSOLIDATED BALANCE SHEET
 
AS OF JUNE 30, 2009
 
(U.S. dollars in thousands)
 
 	 	Canadian
GAAP	 	U.S. GAAP
Adjustments	 	Notes	 	Adjusted	 	
 	 	(Unaudited)	 	(Unaudited)	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	 4,064	 	$	 —	 	 	 	$	 4,064	 	
Accounts receivable, net	 	91,915	 	—	 	 	 	91,915	 	
Prepaid expenses and other current assets	 	2,706	 	—	 	 	 	2,706	 	
Supplies inventories	 	9,281	 	—	 	 	 	9,281	 	
Total current assets	 	107,966	 	—	 	 	 	107,966	 	
Property, plant and equipment, net	 	270,149	 	—	 	 	 	270,149	 	
Other assets:	 	 	 	 	 	 	 	 	 	
Goodwill	 	24,458	 	(4,626	)	(c)	 	19,832	 	
Permits and other intangibles, net	 	36,526	 	(2,225	)	(a)	 	34,301	 	
Other	 	1,355	 	—	 	 	 	1,355	 	
 	 	62,339	 	(6,851	)	 	 	55,488	 	
Total assets	 	$	440,454	 	$	(6,851	)	 	 	$	433,603	 	
 	 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	
Current portion of long-term debt	 	$	1,290	 	$	—	 	 	 	$	1,290	 	
Current portion of capital lease obligations	 	4,145	 	—	 	 	 	4,145	 	
Accounts payable	 	41,259	 	—	 	 	 	41,259	 	
Current portion of closure, post-closure and remedial liabilities	 	502	 	—	 	 	 	502	 	
Income taxes payable	 	491	 	—	 	 	 	491	 	
Total current liabilities	 	47,687	 	—	 	 	 	47,687	 	
Other liabilities:	 	 	 	 	 	 	 	 	 	
Closure and post-closure liabilities, less current portion	 	2,151	 	—	 	 	 	2,151	 	
Long-term obligations, less current maturities	 	144,787	 	—	 	 	 	144,787	 	
Capital lease obligations, less current portion	 	15,842	 	—	 	 	 	15,842	 	
Convertible debentures	 	38,830	 	3,269	 	(b)	 	42,099	 	
Unrecognized tax benefits and other long-term liabilities	 	9,145	 	(1,431	)	(c)	 	7,714	 	
Non-controlling interest	 	606	 	(606	)	(d)	 	—	 	
Total other liabilities	 	211,361	 	1,232	 	 	 	212,593	 	
Non-controlling interest	 	—	 	3,936	 	(d),(e)	 	3,936	 	
Shareholders’ equity:	 	 	 	 	 	 	 	 	 	
Shareholders’ capital	 	302,925	 	(215,020	)	(f)	 	87,905	 	
Shares held under Eveready employee participation plan	 	(6,786	)	5,593	 	(f)	 	(1,193	)	
Equity component of convertible debentures	 	6,903	 	(6,903	)	(b)	 	—	 	
Contributed surplus	 	4,829	 	(4,497	)	(f)	 	332	 	
Accumulated (deficit) earnings	 	(126,465	)	208,808	 	(a),(b),(c),(d),(f)	 	82,343	 	
Total shareholders’ equity (deficit)	 	181,406	 	(12,019	)	 	 	169,387	 	
Total liabilities, non-controlling interest and shareholders’ equity (deficit)	 	$	 440,454	 	$	 (6,851	)	 	 	$	 433,603	 	
 
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EVEREADY CONSOLIDATED STATEMENT OF LOSS AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2008
 
(in U.S. dollars, in thousands)
 
 	 	Canadian
GAAP	 	U.S. GAAP
Adjustments	 	Notes	 	Adjusted	 	
 	 	(Unaudited)	 	(Unaudited)	 	 	 	 	 	
Revenues	 	$	 613,845	 	$	 —	 	 	 	$	 613,845	 	
Costs of revenues	 	439,599	 	—	 	 	 	439,599	 	
Selling, general and administrative expenses	 	72,272	 	131	 	(a)	 	72,403	 	
Depreciation and amortization	 	47,573	 	—	 	 	 	47,573	 	
Income from operations	 	54,401	 	(131	)	 	 	54,270	 	
Loss on disposal of property, plant and equipment	 	(226	)	—	 	 	 	(226	)	
Stock-based compensation	 	(2,934	)	4,143	 	(f)	 	1,209	 	
Gain on foreign exchange	 	1,452	 	—	 	 	 	1,452	 	
Impairment of long-lived assets	 	(85,236	)	(10,286	)	(d)	 	(95,522	)	
Interest expense, net	 	(19,964	)	1,368	 	(b)	 	(18,596	)	
Loss before income taxes and non-controlling interest	 	(52,507	)	(4,906	)	 	 	(57,413	)	
Provision for income taxes	 	6,570	 	(864	)	(c)	 	5,706	 	
Net loss	 	(59,077	)	(4,042	)	(e)	 	(63,119	)	
Earnings attributable to non-controlling interest	 	774	 	—	 	(e)	 	774	 	
Net loss and comprehensive loss attributable to Eveready	 	$	 (59,851	)	$	 (4,042	)	(e)	 	$	 (63,893	)	
 
EVEREADY CONSOLIDATED STATEMENT OF (LOSS) EARNINGS AND COMPREHENSIVE (LOSS)
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2009
 
(in U.S. dollars, in thousands)
 
 	 	Canadian
GAAP	 	U.S. GAAP
Adjustments	 	Notes	 	Adjusted	 	
 	 	(Unaudited)	 	(Unaudited)	 	 	 	 	 	
Revenues	 	$	 231,769	 	$	 —	 	 	 	$	 231,769	 	
Costs of revenues	 	170,031	 	—	 	 	 	170,031	 	
Selling, general and administrative expenses	 	29,842	 	90	 	(a)	 	29,932	 	
Depreciation and amortization	 	23,049	 	—	 	 	 	23,049	 	
Income from operations	 	8,847	 	(90	)	 	 	8,757	 	
Gain on disposal of property, plant and equipment	 	161	 	—	 	 	 	161	 	
Stock-based compensation	 	(1,173	)	999	 	(f)	 	(174	)	
Loss on foreign exchange	 	(559	)	—	 	 	 	(559	)	
Interest expense, net	 	(7,097	)	666	 	(b)	 	(6,431	)	
Loss on redeemable put option	 	(2,231	)	2,231	 	(d)	 	—	 	
(Loss) earnings before income taxes and non-controlling interest	 	(2,052	)	3,806	 	 	 	1,754	 	
Provision for income taxes	 	877	 	97	 	(c)	 	974	 	
Net (loss) earnings	 	(2,929	)	3,709	 	(e)	 	780	 	
Earnings attributable to non-controlling interest	 	158	 	—	 	(e)	 	158	 	
Net (loss) earnings and comprehensive income attributable to Eveready	 	$	 (3,087	)	$	 3,709	 	(e)	 	$	 622	 	
 
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Notes to the financial statement information relating to Eveready:
 
a)                                     Deferred development costs
 
According to the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3064 Goodwill and Intangible Assets, the costs of research must be expensed in the period incurred and development costs meeting prescribed criteria should be deferred to future periods. Under U.S. GAAP, pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 2, Accounting for Research and Development Costs, research and development costs are expensed as they are incurred, unless covered by separate standards.
 
Certain of Eveready’s technology-related assets included in permits and other intangibles are under development and meet the appropriate criteria specified under Section 3064 for deferral. However, such development costs are to be expensed when incurred under U.S. GAAP.
 
b)                                    Convertible debentures
 
Under CICA Handbook Section 3863 Financial Instruments — Presentation, financial instruments with both liability and equity components are required to be classified into their respective component parts of debt or equity in accordance with the substance of the contractual arrangement on initial recognition. Interest paid is charged to interest expense on a basis consistent with the classification of the underlying instrument. U.S. GAAP generally requires convertible debt to be classified as debt on the balance sheet.
 
Upon issuance of the Eveready debentures, Eveready allocated the Cdn $50.0 million face value of the debentures to liability and equity components, proportionately, based on their respective fair values. Eveready then recorded an interest charge to accrete the liability recorded to its maturity value over the term of the debenture. In addition, Eveready applied financing costs to the carrying value of the debentures’ liability and equity components proportionately, in accordance with Section 3863. The costs applied to the debentures’ liability component was amortized to interest expense over the remaining term of the debentures using the effective interest rate method. To reconcile to U.S. GAAP, the equity component of the debentures, including its respective financing costs applied, was reclassified to the liability component. The calculation of interest expense was adjusted to only include the effect of financing costs.
 
c)                                     Income tax effect related to U.S. GAAP adjustments
 
The income tax adjustment relates to the income tax effect on the preceding U.S. GAAP adjustments.
 
d)                                    Non-controlling interest
 
In accordance with Canadian GAAP, Eveready assigned no value to put options associated with the 20% non-controlling interests vendors retained in the acquisitions of Red Deer Directional Boring Ltd. (“RDDB”), Bullseye Directional Drilling group of companies, and Rodrigue’s Directional Drilling group of companies.  During the six months ended June 30, 2009, the deemed fair value of the 20% non-controlling interests held was less than the price of the respective put options.  As a result, Eveready recognized a loss on redeemable put option of $2.2 million.  Under U.S. GAAP, the put options are an embedded feature that results in the non-controlling interest being deemed a redeemable security and subject to the requirements of Emerging Issues Task Force (“EITF”) D-98 Classification and Measurement of Redeemable Securities. Under EITF D-98, the redeemable security is to be classified as temporary equity upon inception at its fair value. In subsequent reporting periods, the non-controlling interest is measured at fair value and adjusted upwards if warranted. The amount may be decreased in subsequent periods only to the extent of any increase previously recorded to fair value. The initial recognition of the put option at acquisition increased the amount recorded to goodwill by $10.3 million. In December 2008, goodwill recorded on the initial measurement of the non-controlling interest was written off as impaired.
 
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During the six months ended June 30, 2009, Eveready acquired the remaining 20% non-controlling interest retained in the original acquisition of RDDB for a purchase price of $7.8 million.  Under Canadian GAAP, Eveready accounted for this acquisition using the purchase method and recognized goodwill of $4.6 million.  Under U.S. GAAP, Eveready is to account for this acquisition as an equity transaction and as a result recognized a charge to accumulated deficit of $0.9 million with no impact to goodwill.
 
e)                                     Presentation of non-controlling interest
 
In December 2007, the FASB issued SFAS No. 160 Non-Controlling Interests in Consolidated Financial Statements — An Amendment of Accounting Research Bulletin No. 51. This statement changes the accounting and reporting for ownership interests in subsidiaries held by parties other than the parent. These non-controlling interests are to be classified as a separate component of equity and measured initially at fair value. The amount of consolidated net earnings attributable to the parent and to the non-controlling interest is to be clearly identified and presented on the face of the consolidated statements of (loss) earnings and comprehensive (loss) income. SFAS No. 160 also establishes standards for a change in a parent’s ownership interest in a subsidiary and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. This statement is effective for fiscal years beginning after December 15, 2008. The guidance in this statement is to be applied prospectively, except for the presentation and disclosure requirements, which are to be applied retrospectively for all periods presented. The presentation requirements have been adopted retrospectively in the U.S. GAAP reconciliations above.  Eveready also applied the guidance for the change in a parent’s ownership interest during the six months ended June 30, 2009.
 
f)                                       Redeemable Fund units (outstanding until December 31, 2008 when replaced with Eveready common shares)
 
i)                                        The units of Eveready’s predecessor (the “Fund”) were redeemable at the option of the unitholder, at which time all rights with respect to such units would have been cancelled. The Fund also had exchangeable Fund units (“Rollover LP units”) that were designed to be the economic equivalent of Fund units. Under Canadian GAAP, Eveready classified its Fund units and Rollover LP units as unitholders’ equity. Under U.S. GAAP, the Fund units and Rollover LP units, which were redeemable at the option of the unitholder, must be valued at their redemption amount and presented as temporary equity in the consolidated balance sheet. The redemption value of the Fund units and Rollover LP units is calculated by a trading value based formula. Adjustments to the redemption value of these units are charged or credited to accumulated (deficit) earnings.
 
ii)                                     Eveready classified its matching units held by the Eveready employee participation plan trust as a reduction of unitholders’ equity until the time they vest and are transferred to the employee. Such units held by the Eveready employee participation plan trust were recorded at the cost paid by Eveready to purchase the units in accordance with Canadian GAAP. Under U.S. GAAP, the net units outstanding, being those issued less units held by the Eveready employee participation plan trust, would be classified as temporary equity and recorded at an amount equal to the redemption value of the Fund units with any adjustments to the redemption value of these units being charged or credited to accumulated (deficit) earnings.
 
iii)                                  Compensation expense for the Eveready employee participation plan is measured in accordance with Canadian GAAP based on the fair value of the matching units on the grant date and recognized as stock-based compensation expense over the vesting period. Because the Fund units issued upon vesting of the matching units were redeemable, under U.S. GAAP compensation expense for the Eveready employee participation plan is to be accounted for as a liability based award. The liability is re-measured, until settlement of the Eveready employee participation plan, at the end of each reporting period with the change being charged or credited to stock-based compensation expense. The portion of the liability representing the amount of matching units
 
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vested to employees is reclassified to temporary equity at the time when the employees are considered, under U.S. GAAP, to assume the risks and rewards of ownership of the units.
 
Eveready had a unit option plan, which was replaced by the Eveready share option plan pursuant to the conversion of the Fund into Eveready (the “Conversion”), under which unit options were granted to directors, officers, employees and consultants of Eveready. Because Fund units issued upon settlement of unit options were redeemable, under U.S. GAAP the unit options are to be accounted for as a liability based award. The liability is re-measured, until settlement of the unit options, at the end of each reporting period with the change being charged or credited to stock-based compensation expense.
 
iv)                                 Pursuant to the Conversion, Fund unitholders received one Eveready common share for each five Fund units held at December 31, 2008. All outstanding matching units held by the Eveready employee participation plan trust were consolidated into matching shares, where each five matching units were exchanged for one matching share. Further, participants of the unit option plan were entitled to receive, for the same aggregated consideration, Eveready options for outstanding unit options held at the Conversion date. In accordance with U.S. GAAP, shareholders’ capital associated with Eveready’s common shares is shown within shareholders’ equity and matching shares held by the Eveready employee participation plan trust is shown as a reduction of shareholders’ equity. Shareholders’ capital and matching shares held by the Eveready employee participation plan trust are measured at their respective temporary equity carrying values immediately prior to the Conversion. The liability based awards associated with Eveready’s employee participation plan and the Eveready share option plan are reclassified to contributed surplus and shown within shareholders’ equity. Any temporary equity associated with vested matching shares of the Eveready employee participation plan is reclassified to shareholders’ capital.
 
v)                                    During 2008, the redemption value of the Fund units declined significantly, resulting in a decrease to temporary equity and an increase in accumulated deficit of $188.4 million, immediately prior to the Conversion.
 
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Table of Contents
 
SIGNATURES
 
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this Amendment No. 2 to its current report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.
 
 	 	Clean Harbors, Inc.	
 	 	(Registrant)	

September 30, 2009	 	/s/ James M. Rutledge	
 	 	Executive Vice President and	
 	 	Chief Financial Officer	
 
110

EXHIBIT 23.2
 
AUDITORS’ CONSENT
 
We consent to the incorporation by reference in the Registration Statements Nos. 33-60187, 333-46159, 333-63662, 333-134381, and 333-134382 on Form S-8 and Registration No. 333-150296 on Form S-3 of Clean Harbors, Inc. and subsidiaries, of our report dated June 15, 2009, relating to the financial statements of Eveready Inc. which appear in this Amendment No. 2 to the Current Report on Form 8-K/A of Clean Harbors, Inc.
 
 	(SIGNED) “Ernst & Young LLP”	
 	 	
Edmonton, Canada
September 30, 2009	 	
 	Chartered Accountants