Badger Income Fund Announces a 32 Percent Increase in Revenues and Results for the Second Quarter Ended June 30, 2008



    TSX-BAD.UN

    CALGARY, Aug. 13 /CNW/ - Badger Income Fund (the "Fund" or "Badger") is
pleased to announce its financial and operating results for the quarter ended
June 30, 2008. Overall revenues for the three months ended June 30, 2008
increased by approximately 32 percent to $33.1 million from $25.0 million for
the same period in 2007, due to a 29 percent increase in Canadian revenues and
a 39 percent increase in United States revenues. As a result of the increase
in revenues, the Fund's EBITDA and funds generated from operations also
increased proportionately over the same period of 2007. Badger's EBITDA
increased to $8.8 million for the three months ended June 30, 2008 from
$6.3 million in the same quarter of 2007, while funds generated from
operations increased to $8.5 million in the second quarter of 2008 from
$6.5 million in the comparable quarter of 2007. Similarly positive results
were also recorded for the six months ended June 30, 2008, compared to the
first half of 2007.
    Badger invested $13.5 million in growth capital expenditures in the
second quarter of 2008, an increase of 359 percent over the comparable period
of 2007. Included in growth capital expenditures is the addition of 22 new
daylighting units, $4.3 million in purchases of land and buildings and certain
plant expenditures incurred on the Red Deer facility. Two daylighting units
were retired in the quarter.
    Badger had 372 daylighting units at the end of the second quarter of
2008, reflecting the addition of 40 daylighting units to the fleet to date in
2008 and the retirement of two units. The Fund had 334 daylighting units at
December 31, 2007.
    Cash distributions remained flat quarter-over-quarter and for the
comparable first-half periods, and the distribution rate per unit remained
consistent at $0.105 per unit monthly. The Fund did not issue units in the
public equity markets during the 2008 period.

    
    FINANCIAL HIGHLIGHTS

    ($ thousands, except per unit results and total units outstanding
    information)

                                   Three Months Ended       Six Months Ended
                                         June 30                 June 30
                                     2008        2007        2008       2007
                                     ---------------------------------------

    Revenues                       33,143      25,016      67,917     52,590
    EBITDA (1)                      8,820       6,342      18,866     14,191
    Earnings before income
     taxes                          5,367       3,577      12,145      8,795
    Taxes
      Current                         160         136         415        323
      Future                        1,200       1,901       2,440      2,702
    Net earnings                    4,007       1,540       9,290      5,770
    Net earnings per
     unit - diluted ($)              0.37        0.14        0.86       0.54
    Funds generated from
     operations(2)                  8,510       6,509      18,198     14,093
    Funds generated from
     operations per
     unit - diluted ($)              0.78        0.60        1.68       1.31
    Maintenance capital
     expenditures(3)                  631         964         631      1,631
    Required long-term debt
     repayments                        55          27         109         54
    Cash available for growth
     and distribution(4)            8,254       5,679      18,221     12,694
    Cash distributions declared     3,397       3,390       6,788      6,779
    Growth capital
     expenditures(3)               13,488       2,937      18,940      5,090
    Total units outstanding,
     end of period             10,790,744  10,761,668  10,790,744 10,761,668
    

    The following financial measures do not have any standardized meaning
prescribed by Canadian generally accepted accounting principles (GAAP) and may
not be comparable to similar measures as presented by other funds or entities:

    (1) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is a measure of the Fund's operating profitability and is therefore
useful to management and investors. EBITDA provides an indication of the
results generated by the Fund's principal business activities prior to how
these activities are financed, assets are amortized or how the results are
taxed in various jurisdictions. EBITDA is calculated from the Consolidated
Statements of Earnings and Comprehensive Income and Retained Earnings as gross
margin less selling, general and administrative costs and foreign exchange
loss (gain).

    (2) Funds generated from operations is used to assist management and
investors in analyzing operating performance and leverage. It is not intended
to represent operating cash flow or operating profits for the period nor
should it be viewed as an alternative to cash flow from operating activities,
net earnings or other measures of financial performance calculated in
accordance with GAAP. Funds generated from operations is calculated from the
Consolidated Statements of Cash Flows and is defined as cash provided by
operating activities before changes in non-cash working capital.

    (3) Maintenance capital expenditures is defined as the amount incurred
during the period to keep the Fund's daylighting fleet at the same number of
units, plus any other capital expenditures required to maintain the existing
business. It also includes any costs incurred to enhance the operational life
of a daylighting unit. This amount will fluctuate from period-to-period
depending on the number of units retired from the fleet. During the
three-month period ended June 30, 2008, Badger added 22 units to the fleet and
removed two from service. As a result, 20 of the units added during the three
months ended June 30, 2008 represent growth capital expenditures, while two of
the units added represent maintenance capital expenditures. During the six
months ended June 30, 2008 Badger added 40 units to the fleet, of which two
have been reflected as maintenance capital expenditures. The economic life of
a Badger hydrovac is approximately 10 years. The average age of the fleet is
approximately four years. During the quarter growth capital expenditures
include the purchase of land and buildings, as well as certain capital plant
expenditures incurred on the Red Deer facility. Growth capital expenditures
exclude acquisitions made during the period.

    (4) Cash available for growth and distribution is used by management to
supplement cash flow as a measure of operating performance and leverage. The
objective of this measure is to calculate the amount which is available for
distribution to unitholders. It is defined as funds generated from operations
less required debt repayments and maintenance capital expenditures, plus any
proceeds received on the disposal of assets.

    INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS

    This Management's Discussion and Analysis (MD&A) should be read in
conjunction with the attached unaudited interim consolidated financial
statements of Badger Income Fund (the "Fund" or "Badger"). Readers should also
refer to the audited consolidated financial statements and MD&A included in
Badger Income Fund's 2007 Annual Report. Additional information is also
available on the Fund's website (www.badgerinc.com) and all previous public
filings, including the most recently filed Annual Information Form, are
available through SEDAR (www.sedar.com).
    Revenue and expense variance analysis in the MD&A focuses primarily on
the year-over-year changes during the second quarter. However, unless
otherwise indicated, year-over-year variances for the six months ended June
30, 2008 and 2007 are explained by the same general factors, which contributed
to the second quarter variance.
    This MD&A has been prepared taking into consideration information
available to August 12, 2008.

    Disclaimer

    Certain statements contained in the quarterly report, including
statements contained in the MD&A, constitute forward-looking statements. These
statements relate to future events or Badger's future performance. All
statements other than statements of historical fact may be forward-looking
statements. These statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results or events to differ
materially from those anticipated in such forward-looking statements. Other
factors include, but are not limited to: the future tax treatment of income
trusts; supply-demand fluctuations for oil and natural gas and related
products and services; political and economic conditions; the demand for
services provided by Badger; industry competition; and Badger's ability to
attract and retain key personnel. The Fund believes that the expectations
reflected in these forward-looking statements are reasonable; however, no
assurance can be given that these expectations will prove to be correct and
such forward-looking statements included in this quarterly report should not
be unduly relied upon. In addition, these forward-looking statements relate to
the date on which they are made. Badger disclaims any intention or obligation
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.

    Results of Operations

    Revenues

    Revenues were $33.1 million for the three months ended June 30, 2008, 32
percent higher than the $25.0 million generated during the comparable period
of 2007. The increase is attributable to the following:

    
    (1) In the United States revenues increased to $12.3 million from
        $8.9 million over the comparative periods. This 39 percent increase
        was due to Badger's continued focus in certain geographical areas and
        market segments, which has resulted in an increased customer base and
        demand for hydrovac services. Other factors included increased
        oilfield services activity in the Western United States and good
        project work in the Eastern United States.
    (2) Good growth continued in Western Canada during the second quarter of
        2008 with an increase of hydrovac revenue of 25 percent over the
        second quarter of 2007. Although Badger is pleased with the results,
        it should be noted that the second quarter of 2007 was a weak quarter
        for Badger. The prolonged wet weather in the spring of 2008 slowed
        activity in some areas, but good project work and, in general, a good
        activity level in the field allowed Badger to increase revenue.
    (3) The slow winter in Eastern Canada was followed by a good level of
        activity in the second quarter. Badger grew revenues by 29 percent in
        the second quarter of 2008 over the second quarter of 2007.
    

    Badger's average revenue per truck per month during the three months
ended June 30, 2008 was $27,100 versus $25,200 for the three months ended June
30, 2007. This brings the average revenue per truck per month to $28,700 for
the six months ended June 30, 2008 from $27,500 for the six months ended June
30, 2007. The Badger business model works well at an overall fleet average of
$25,000 or more per truck per month.
    Included in revenues is approximately $410,000 of truck placement and
franchise fees for the three months ended June 30, 2008, versus $390,000 for
the three months ended June 30, 2007.

    Direct Costs

    Direct costs for the quarter ended June 30, 2008 were $21.7 million
compared to $16.3 million for the quarter ended June 30, 2007. This is
consistent with the increase in revenues. During the first quarter of 2008
Badger reclassified certain United States expenses, previously included in
selling, general and administrative expenses, to direct costs to better
reflect the nature of those expenses. The comparative figures for each of the
six and three months ended June 30, 2007 have also been reclassified to
conform to the current period's presentation.

    Gross Margin

    Gross margin was 34.4 percent for the quarter ended June 30, 2008,
virtually unchanged from the 34.7 percent for the quarter ended June 30, 2007.

    Amortization

    Amortization of property, plant and equipment was $3.1 million for the
three months ended June 30, 2008, or $0.5 million higher than the $2.6 million
for the three months ended June 30, 2007. This increase reflects the larger
number of hydrovac units in the fleet. Included in this figure is
approximately $49,000 related to amortization of intangible assets with a
limited life.

    Interest Expense

    Interest expense was $394,000 for the quarter ended June 30, 2008 versus
$217,000 for the quarter ended June 30, 2007. The higher interest expense is
attributable to maintaining a higher balance of debt during the second quarter
of 2008 than in the second quarter of 2007. The increased debt was used to
fund growth capital expenditures and business acquisitions made during 2007.

    Selling, General and Administrative Expenses

    Selling, general and administrative expenses were $2.7 million for the
quarter ended June 30, 2008 compared to $2.0 million for the quarter ended
June 30, 2007. As a percentage of revenues, selling, general and
administrative expenses were virtually flat at 8.1 percent for the second
quarter of 2008 versus 8.0 percent recorded for the second quarter of 2007.
The numerical increase was due to incurring non-cash compensation expense
related to the grant of options of $284,000 for the second quarter ended 2008
versus $139,000 in the second quarter of 2007, to added costs due to the
acquisition of service rights from certain of the Canadian Operating Partners
in the second and fourth quarters of 2007, to added employee incentive
compensation expenses and to higher general office costs to support the growth
in business.

    Foreign Exchange Loss (Gain)

    The foreign exchange loss or gain results from converting the balance
sheet and earnings statement related to United States operations into Canadian
currency. The foreign exchange gain was $89,000 in the second quarter of 2008
versus a $332,000 loss in the same period of 2007. The main reason for the
period-over-period change was the appreciation of the Canadian dollar in the
second quarter of 2007 versus the almost unchanged value of the United States
dollar to the Canadian dollar during the second quarter of 2008.

    Income Taxes

    Badger recorded tax expenses of $1.4 million in the second quarter of
2008, resulting in an effective tax rate of 25 percent, versus $2.0 million in
the second quarter of 2007, resulting in an effective tax rate of 57 percent.
The 2007 second quarter expense reflected the impact of the October 31, 2006
trust tax announcement, which later became new federal tax legislation. For
the remainder of 2008 the Fund anticipates an effective tax rate of
25 percent.
    The low effective tax rate overall is due to the trust structure, which
results in tax-deductible distributions being made to unitholders.

    Liquidity and Capital Resources

    Funds generated from operations for the quarter ended June 30, 2008
increased to $8.5 million from $6.5 million for the comparable period in 2007,
due to stronger Canadian and United States activity levels.
    The Fund had working capital of $22.1 million at June 30, 2008 compared
to $19.7 million at December 31, 2007. The increase was predominantly due to
increased revenues resulting in an increase in the Fund's accounts receivable
balance. Good levels of cash flow from operations allowed Badger to build new
daylighting units while maintaining a healthy working capital position.
    In May 2008, the Fund's extendable, revolving credit facility was renewed
and amended to increase the maximum principal amount to $40 million from
$30 million. The facility, of which $30.1 million was drawn at June 30, 2008,
is used to fund working capital requirements and finance capital expenditures.
The Fund will utilize an appropriate mix of debt and equity to finance its
maintenance capital expenditures and growth initiatives.
    During June 2008 Badger obtained mortgage financing in the amount of
$3.2 million for certain land and buildings acquired in May 2008 for cash
consideration of $4.3 million. The amount is repayable in monthly principal
payments of $17,917 plus interest until June 2023 and bears interest at the
bank's prime rate plus 0.25 percent.
    The Fund spent $14.1 million (including $4.3 million on land and
buildings) on property, plant and equipment for the three months ended
June 30, 2008 compared to $3.9 million for the three months ended June 30,
2007. The Fund built 22 daylighting units in the second quarter of 2008,
compared to 15 built in the second quarter of 2007. The costs to build a
daylighting unit were relatively consistent comparing the three months ended
June 30, 2008 to the three months ended June 30, 2007.
    In addition to the above, as at June 30, 2008 the Fund had committed to
certain capital expenditures totalling approximately $8.1 million. These
capital expenditures will be financed with existing credit facilities and
funds generated from operations, as well as alternative sources of financing
as required. There are no set terms for remitting payment for these financial
obligations.
    Management believes the Fund's healthy balance sheet and unutilized
borrowing capacity, combined with funds generated from operations, will
provide sufficient capital to fund ongoing operations, make distributions to
unitholders, finance future capital expenditures and execute its strategic
plan for the foreseeable future.

    Number of Daylighting Units

    During the three-month period ended June 30, 2008 Badger added 10 units
to the Canadian fleet, removed two from service and transferred two to the
United States, bringing the total to 226 units operating in Canada as at June
30, 2008. In the United States, Badger added 12 units and received two, which
were transferred from Canada, bringing the total number of units in the United
States to 146 at June 30, 2008.

    Distributions

    The following table outlines the cash available to fund growth and pay
distributions to unitholders for the three and six months ended June 30, 2008:

    
                                                 Three Months     Six Months
                                                        Ended          Ended
                                                June 30, 2008  June 30, 2008

    Cash provided by operating activities          $9,010,010    $15,826,388
    Add (deduct): net change in non-cash
     working capital                                 (499,706)     2,371,396
                                                     ---------     ---------
    Funds generated from operations                 8,510,304     18,197,784
    Add: proceeds on disposal of property,
     plant and equipment                              429,102        763,572
    Deduct: required repayments of long-term debt     (54,693)      (109,386)
    Deduct: maintenance capital expenditures(*)      (630,736)      (630,736)
                                                     ------------------------

    Cash available for growth capital expenditures
     and distributions                             $8,253,977    $18,221,234
                                                   -------------------------
                                                   -------------------------

    Growth capital expenditures(*)                $13,488,343    $18,939,812
                                                  --------------------------
                                                  --------------------------

    Cash distributions declared                    $3,397,265     $6,788,424
                                                  --------------------------
                                                  --------------------------

    (*) Total maintenance and growth capital expenditures for the three and
        six months ended June 30, 2008 were $14,119,079 and $19,570,548,
        respectively.
    

    In determining cash available for distributions the Fund excludes
non-cash working capital changes for the period as well as growth capital
expenditures. Changes in non-cash working capital items have been excluded so
as to remove the effects of timing differences in cash receipts and
disbursements, which generally reverse themselves and can vary significantly
between fiscal quarters. Growth capital expenditures have been excluded so as
to include only the maintenance capital expenditures required for the
sustainability of the existing asset base.

    The following table outlines the excess or shortfall of cash provided by
operating activities and net earnings over cash distributions declared during
the six months ended June 30, 2008 and 2007 and the year ended December 31,
2007:

    
                                          Six Months  Six Months        Year
                                               Ended       Ended       Ended
                                             June 30,    June 30,   December
                                                2008        2007    31, 2007
                                                   $           $           $
    Cash provided by operating
     activities                           15,826,388  13,650,591  24,432,856
    Net earnings                           9,289,685   5,769,673  16,722,845
    Cash distributions declared            6,788,424   6,778,568  13,558,421
    Excess of cash provided by operating
     activities over cash distributions
     declared                              9,037,964   6,872,023  10,874,435
    Excess (shortfall) of net earnings
     over cash distributions declared      2,501,261  (1,008,895)  3,164,424
    

    The Fund makes regular monthly cash distributions to unitholders. These
cash distributions may be reduced, increased or suspended entirely by the
trustees depending on the operations of Badger and the performance of its
assets. The actual cash flow available for distribution to holders of Fund
units is a function of numerous factors, including: the Fund's financial
performance; debt covenants and obligations; working capital requirements;
maintenance and growth capital expenditure requirements for the purchase of
property, plant and equipment; and the number of units outstanding. It may
also be impacted by the future tax treatment of income trusts.
    The Fund maintains a strong balance sheet and has sufficient debt
facilities to manage short-term funding needs as well as planned equipment
additions. Part of the debt management strategy involves retaining sufficient
funds from available distributable cash to finance maintenance capital
expenditures as well as working capital needs. Growth capital expenditures
will generally be financed through existing debt facilities or cash retained
from operating activities. The majority of the cash provided by operating
activities was used to finance maintenance and growth capital expenditures and
to pay distributions to unitholders.
    If maintenance capital expenditures increase in future periods, the
Fund's cash available for growth capital expenditures and distribution will be
negatively affected. Due to Badger's growth rate in recent years, the majority
of the Fund's hydrovac units are relatively new, with an average age of
approximately four years. As a result, Badger is currently experiencing
relatively low levels of maintenance capital expenditures. Over time, Badger
would expect to incur annual maintenance capital expenditures in an amount
that approximates the amortization expense reported in the year. Badger
expects that continued increases in cash provided by operations and cash
available for growth capital expenditures and distributions will be sufficient
to fund the maintenance capital expenditures in the future.
    Badger is restricted from declaring distributions and distributing cash
if it is in breach of the covenants under its credit facilities. As at the
date of this quarterly report the Fund is in compliance with all debt
covenants and is able to fully utilize all existing credit facilities. Badger
does not have a stability rating.

    Unitholders' Capital

    Unitholders' capital increased during the six months ended June 30, 2008
due to the issue of 2,325 units to the non-management trustees as partial
payment for 2008 trustee fees, the issue of 11,751 units from the long-term
incentive plan as payment for 2007 performance bonuses payable to management
and the issue of 15,000 units to certain employees who exercised options
pursuant to the unit option plan.
    The total units outstanding at June 30, 2008 were 10,790,744. There was
no change to the balance as of August 12, 2008.

    
    Selected Quarterly Financial Information

    -------------------------------------------------------------------------
                                             Quarter Ended
    -------------------------------------------------------------------------
                                      2008                      2007
    -------------------------------------------------------------------------
                              June 30      Mar. 31      Dec. 31     Sept. 30
    -------------------------------------------------------------------------
    Revenues ($)           33,142,814   34,774,334   33,356,010   31,741,950
    -------------------------------------------------------------------------
    Net earnings ($)        4,006,788    5,282,897    5,816,949    5,136,223
    -------------------------------------------------------------------------
    Net earnings per
     unit - basic ($)            0.37         0.49         0.54         0.48
    -------------------------------------------------------------------------
    Net earnings per
     unit - diluted ($)          0.37         0.49         0.54         0.48
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                             Quarter Ended
    -------------------------------------------------------------------------
                                      2007                      2006
    -------------------------------------------------------------------------
                              June 30      Mar. 31      Dec. 31     Sept. 30
    -------------------------------------------------------------------------
    Revenues ($)           25,015,707   27,574,051   25,621,658   25,324,030
    -------------------------------------------------------------------------
    Net earnings ($)        1,539,755    4,229,918    4,659,784    3,974,958
    -------------------------------------------------------------------------
    Net earnings per
     unit - basic ($)            0.14         0.39         0.43         0.37
    -------------------------------------------------------------------------
    Net earnings per
     unit - diluted ($)          0.14         0.39         0.43         0.37
    -------------------------------------------------------------------------

    Changes in Accounting Policies

    As of January 1, 2008, the Fund prospectively adopted the following
sections from the Handbook of the Canadian Institute of Chartered Accountants
(CICA):

    -  Section 1535 "Capital Disclosures" requires the disclosure of
       qualitative and quantitative information about the Fund's objectives,
       policies and processes for managing capital;

    -  Sections 3862 "Financial Instruments - Disclosures" and 3863
       "Financial Instruments - Presentation" will replace Section 3861 to
       prescribe the requirements for presentation and disclosure of
       financial instruments; and

    -  Section 3031 "Inventories", which prescribes the recognition,
       measurement, disclosure and presentation issues related to
       inventories.
    

    There is no material impact to the Fund's consolidated financial
statements as a result of implementing the new standards.
    On May 13, 2008 the Fund established a long-term incentive plan entitled
the Performance Trust Units Plan (PTU), which is described in Note 3(d). The
Fund determines compensation expense based on the estimated fair values of the
PTUs, the cost of which is recognized in net earnings over the vesting periods
of the PTUs.
    For a detailed discussion about the accounting policies adopted, refer to
Note 2 to the interim consolidated financial statements for the six- and
three-month periods ended June 30, 2008.

    Internal Control Over Financial Reporting

    Internal control over financial reporting (ICFR) is designed to provide
reasonable assurance regarding the reliability of the Fund's financial
reporting and its compliance with Canadian GAAP in its financial statements.
The President and CEO and the VP Finance and CFO have evaluated whether there
were any changes to the Fund's ICFR during the three months ended June 30,
2008 that have materially affected or are reasonably likely to materially
affect the ICFR. No such changes were identified through their evaluation.

    Business Risks

    The MD&A for the year ended December 31, 2007, which is included in the
Fund's 2007 Annual Report, includes an overview of business risks associated
with the Fund. Those business risks remain in effect. Reference should also be
made to Badger's 2007 Annual Information Form.

    OUTLOOK

    Badger is pleased with its results to date in 2008 and believes that
growth will continue in 2008 given continued reasonable market conditions. The
Fund believes its Canadian operations will be strong for the rest of the year
now that the wet weather appears concluded in Western Canada and the
construction season is in full operation in the east.
    The United States currently has strong oil and gas activity levels in the
west, which help keep utilization levels strong, along with several good
projects in the east. Badger plans to continue to build new daylighting units
at a rate of approximately six units per month.

    REVIEW OF INTERIM FINANCIAL STATEMENTS

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



    
    BADGER INCOME FUND
    Unaudited Consolidated Balance Sheets

                                                    June 30,     December 31,
                                                      2008          2007
                                                        $             $
                                                  ---------------------------

    ASSETS
      Current
      Cash                                           1,447,713     1,477,078
      Accounts receivable                           30,578,525    28,318,106
      Inventories                                    2,437,480     1,690,133
      Prepaid expenses                                 726,699     1,031,513
                                                  ---------------------------

                                                    35,190,417    32,516,830

      Property, plant and equipment                 84,633,963    71,672,820

      Intangible assets                              4,889,512     4,987,512

      Goodwill                                       1,621,000     1,621,000

                                                  ---------------------------
                                                   126,334,892   110,798,162
                                                  ---------------------------
                                                  ---------------------------


    LIABILITIES AND UNITHOLDERS' EQUITY
      Current
      Accounts payable and accrued liabilities      11,522,429    11,269,139
      Income taxes payable                              16,572       212,540
      Distributions payable                          1,133,028     1,129,975
      Current portion of long-term debt                433,768       218,768
                                                  ---------------------------
                                                    13,105,797    12,830,422

      Long-term debt                                35,310,686    26,035,242

      Future income taxes                           15,940,936    13,500,936

                                                  ---------------------------
                                                    64,357,419    52,366,600
                                                  ---------------------------
      Unitholders' equity
      Unitholders' capital (note 3(a))              44,183,155    43,538,255
      Contributed surplus (note 3(c))                2,035,750     1,636,000
      Retained earnings                             15,758,568    13,257,307
                                                  ---------------------------
                                                    61,977,473    58,431,562

                                                  ---------------------------
                                                   126,334,892   110,798,162
                                                  ---------------------------
                                                  ---------------------------

    See accompanying notes



    BADGER INCOME FUND
    Unaudited Consolidated Statements of Earnings and Comprehensive Income
    and Retained Earnings

                          Three         Three          Six           Six
                         Months        Months        Months        Months
                          Ended         Ended         Ended         Ended
                       June 30/08    June 30/07    June 30/08    June 30/07
                            $             $             $             $
                      -------------------------------------------------------

    Revenues            33,142,814    25,015,707    67,917,148    52,589,758
    Direct costs        21,728,569    16,347,041    43,830,591    33,917,218
                      -------------------------------------------------------

    Gross margin        11,414,245     8,668,666    24,086,557    18,672,540
                      -------------------------------------------------------

    Expenses
      Amortization       3,123,473     2,564,165     6,015,152     4,955,996
      Loss (gain) on
       sale of property,
       plant and
       equipment           (65,126)      (16,939)      (71,319)       (3,820)
      Interest -
       long-term           394,384       217,029       777,061       443,979
      Selling, general
       and
       administrative    2,682,848     1,995,117     5,261,316     4,063,166
      Foreign exchange
       loss (gain)         (88,781)      331,929       (40,384)      418,636
                      -------------------------------------------------------
                         6,046,798     5,091,301    11,941,826     9,877,957
                      -------------------------------------------------------

    Earnings before
     income taxes        5,367,447     3,577,365    12,144,731     8,794,583
                      -------------------------------------------------------
    Income taxes
      Current              160,659       136,260       415,046       322,910
      Future             1,200,000     1,901,350     2,440,000     2,702,000
                      -------------------------------------------------------
                         1,360,659     2,037,610     2,855,046     3,024,910
                      -------------------------------------------------------

    Net earnings and
     comprehensive
     income for the
     period              4,006,788     1,539,755     9,289,685     5,769,673

    Retained earnings,
     beginning of
     period             15,149,045    10,933,837    13,257,307    10,092,883

    Cash distributions  (3,397,265)   (3,389,604)   (6,788,424)   (6,778,568)
                      -------------------------------------------------------

    Retained earnings,
     end of period      15,758,568     9,083,988    15,758,568     9,083,988
                      -------------------------------------------------------

    Net earnings per
     unit (note 4)

    Basic                     0.37          0.14          0.86          0.54
                      -------------------------------------------------------

    Diluted                   0.37          0.14          0.86          0.54
                      -------------------------------------------------------

    See accompanying notes



    BADGER INCOME FUND
    Unaudited Consolidated Statements of Cash Flows

                          Three         Three          Six           Six
                         Months        Months        Months        Months
                          Ended         Ended         Ended         Ended
                       June 30/08    June 30/07    June 30/08    June 30/07
                            $             $             $             $
                      -------------------------------------------------------

    Operating activities

    Net earnings and
     comprehensive
     income for the
     period              4,006,788     1,539,755     9,289,685     5,769,673
    Add (deduct) items
     not involving cash:
      Amortization       3,123,473     2,564,165     6,015,152     4,955,996
      Future income
       taxes             1,200,000     1,901,350     2,440,000     2,702,000
      Unit-based
       compensation        333,950       188,600       564,650       251,000
      Foreign exchange
       loss (gain)         (88,781)      331,929       (40,384)      418,636
      Loss (gain) on
       sale of property,
       plant and
       equipment           (65,126)      (16,939)      (71,319)       (3,820)
                      -------------------------------------------------------
                         8,510,304     6,508,860    18,197,784    14,093,485

    Net change in
     non-cash working
     capital relating
     to operating
     activities            499,706     1,514,048    (2,371,396)     (442,894)
                      -------------------------------------------------------
                         9,010,010     8,022,908    15,826,388    13,650,591
                      -------------------------------------------------------

    Financing activities

    Proceeds received
     on the exercise
     of unit options       246,150             -       246,150             -
    Proceeds from
     long-term debt      7,901,532    10,161,810     9,599,830    12,022,981
    Repayment of
     long-term debt        (54,693)      (27,192)     (109,386)      (54,384)
    Distributions to
     unitholders        (3,395,446)   (3,389,284)   (6,785,371)   (6,778,248)
                      -------------------------------------------------------
                         4,697,543     6,745,334     2,951,223     5,190,349
                      -------------------------------------------------------

    Investing activities

    Purchase of property,
     plant and
     equipment         (14,119,079)   (3,900,594)  (19,570,548)   (6,720,578)
    Purchase of Benko
     Sewer Service               -    (4,101,000)            -    (4,101,000)
    Purchase of
     service rights              -    (3,994,007)            -    (3,994,007)
    Proceeds on disposal
     of property,
     plant and
     equipment             429,102       160,697       763,572       285,442
    Net change in
     non-cash working
     capital relating to
     investing activities        -    (2,712,986)            -    (3,651,420)
                      -------------------------------------------------------
                       (13,689,977)  (14,547,890)  (18,806,976)  (18,181,563)
                      -------------------------------------------------------

    Increase (decrease)
     in cash during
     the period             17,576       220,352       (29,365)      659,377
    Cash, beginning
     of period           1,430,137     1,758,937     1,477,078     1,319,912
                      -------------------------------------------------------
    Cash, end of
     period              1,447,713     1,979,289     1,447,713     1,979,289
                      -------------------------------------------------------
                      -------------------------------------------------------

    See accompanying notes



    Notes to the Consolidated Financial Statements
    (unaudited)

    1.  Basis of Presentation and Summary of Significant Accounting Policies

    The unaudited interim consolidated financial statements include the
    accounts of Badger Income Fund (the "Fund" or "Badger") and its wholly-
    owned subsidiaries and have been prepared by management in accordance
    with Canadian generally accepted accounting principles (GAAP). These
    unaudited interim consolidated financial statements for the six and three
    months ended June 30, 2008 and 2007 have been prepared following the same
    accounting policies and methods of application as the audited
    consolidated financial statements of the Fund for the fiscal year ended
    December 31, 2007, except as noted below in Note 2. The disclosures
    provided below are incremental to those included in the Fund's annual
    audited consolidated financial statements. The unaudited interim
    consolidated financial statements and the related notes should be read in
    conjunction with the audited consolidated financial statements and the
    related notes in the Fund's Annual Report for the year ended December 31,
    2007.

    Accounting measurements at interim dates inherently involve greater
    reliance on estimates than at year-end and the results of operations for
    the interim periods shown in these statements are not necessarily
    indicative of results to be expected for the fiscal year. In the opinion
    of management, the accompanying unaudited interim consolidated financial
    statements include all adjustments (of a normal recurring nature)
    necessary to present fairly the consolidated results of the Fund's
    operations and cash flows for the six and three months ended June 30,
    2008 and 2007.

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

    2.  Changes in Accounting Policies

    As of January 1, 2008 the Fund adopted the Canadian Institute of
    Chartered Accountants (CICA) Handbook Section 1535 "Capital Disclosures",
    Section 3862 "Financial Instruments - Disclosures", Section 3863
    "Financial Instruments - Presentation" and Section 3031 "Inventories".
    The provisions have been adopted and included in these consolidated
    financial statements in Notes 5 and 6. As required by the new standards,
    prior periods have not been restated.

    The adoption of these standards has had no material impact on the Fund's
    net earnings or cash flows. The other effects of the implementation of
    the new standards are discussed below.

    On May 13, 2008 the Fund established a long-term incentive plan entitled
    the Performance Trust Units Plan (PTU), which is described in Note 3(d).
    The Fund determines compensation expense based on the estimated fair
    values of the PTUs, the cost of which is recognized in net earnings over
    the vesting periods of the PTUs.

    3.  Unitholders' Equity

    (a) Unitholders' Capital
                                                         Units     Amount ($)
                                                  ---------------------------

    December 31, 2007                               10,761,668    43,538,255
    Units issued under the Incentive Plan               14,076       283,850
    Units issued pursuant to unit option plan           15,000       246,150
    Compensation expense related to unit
     options exercised                                       -       114,900
                                                  ---------------------------
    June 30, 2008                                   10,790,744    44,183,155
                                                  ---------------------------

    The Fund declared distributions of $0.105 per unit for each of the months
    of January through June for a total of $6,788,424.

    (b) Unit Option Plan

    A summary of the unit option transactions for the six months ended
    June 30, 2008 is as follows:

    -------------------------------------------------------------------------
                                                            Six Months Ended
                                                               June 30, 2008
                                                                    Weighted
                                                                     average
                                                              exercise price
                                                         Units             $
    -------------------------------------------------------------------------
    Outstanding at beginning of period                 505,000         16.86
    Granted                                            131,375         22.45
    Exercised                                          (15,000)        16.41
    Forfeited                                                -             -
    -------------------------------------------------------------------------
    Outstanding at end of period                       621,375         18.05
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
              Options Outstanding                 Options Exercisable
                             Weighted
                              average     Weighted       Number     Weighted
                            remaining      average  exercisable      average
          Outstanding at  contractual     exercise   at June 30,    exercise
    Price  June 30, 2008         life        price         2008        price
    -------------------------------------------------------------------------
    $17.50       160,000          2.9       $17.50      106,666       $17.50
    -------------------------------------------------------------------------
    $17.45        50,000          3.1       $17.45       16,666       $17.45
    -------------------------------------------------------------------------
    $16.41       280,000          3.9       $16.41       93,333       $16.41
    -------------------------------------------------------------------------
    $22.45       131,375          4.9       $22.45            -            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        In May 2008 the Fund granted 131,375 fund unit options at an exercise
        price of $22.45.

        The estimated weighted average fair value of fund unit options
        granted for the six months ended June 30, 2008 was $9.74 per unit
        option. The fair value of each unit option grant was estimated on the
        date of the grant, as determined by using the Black-Scholes option-
        pricing model with the following assumptions:

    -------------------------------------------------------------------------
    Weighted average assumptions              Six Months Ended June 30, 2008
    -------------------------------------------------------------------------
    Dividend yield                                                     5.61%
    Discount for forfeiture                                                0
    Risk-free interest rate                                            3.50%
    Expected life of options                                         5 years
    Expected volatility factor of the future
     expected market price of fund units                                 76%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (c) Contributed Surplus
                                                                           $
    December 31, 2007                                              1,636,000

    Unit-based compensation expense                                  514,650

    Compensation expense related to unit options exercised          (114,900)
                                                                  -----------
    June 30, 2008                                                  2,035,750
                                                                  -----------

    (d) Performance Trust Units Plan

        On May 13, 2008 the Fund established the PTU referenced in Note 2 to
        reward officers and employees. The number of fund units earned is
        dependent upon the achievement of certain financial targets over a
        three-year period. The PTUs are earned over the same three-year
        period and vest on the third anniversary of the grant, at which time
        the holder is entitled to cash equal to the aggregate current market
        value of the number of fund units subject to the PTUs. Distributions
        per PTU are added to the entitlement after the PTUs are earned.
        Compensation expense is based on the fair value of the award
        determined by the Fund's closing price at the end of the quarter
        (June 30, 2008 - $23.60) and recognized on a straight-line basis
        throughout the term of the vesting period, with a corresponding
        increase to accrued liabilities. On May 13, 2008 the Fund granted
        awards pursuant to the plan and recorded $26,000 as compensation
        expense for the six months ended June 30, 2008 as part of selling,
        general and administrative expenses.

    4.  Net Earnings per Unit

    Basic per unit calculations for the six and three months ended June 30,
    2008 were based on the weighted average number of units outstanding of
    10,771,174 and 10,779,906, respectively. Basic per unit calculations for
    the six and three months ended June 30, 2007 were based on the weighted
    average number of units outstanding of 10,759,258 and 10,759,892,
    respectively. Diluted per unit calculations for the six and three months
    ended June 30, 2008 were based on the weighted average number of units
    outstanding of 10,862,558 and 10,871,290, respectively. Diluted per unit
    calculations for the six and three months ended June 30, 2007 were based
    on the weighted average number of units outstanding of 10,759,258 and
    10,759,892, respectively. The difference between the basic and diluted
    units was attributable to the dilutive effect of the unit options
    outstanding.

    5.  Capital Management

    The Fund's strategy is to carry a capital base to maintain investor,
    creditor and market confidence and to sustain future development of the
    business. The Fund considers the capital structure to consist of net debt
    and unitholders' equity. Badger considers net debt to be total long-term
    debt less cash. The Fund seeks to maintain a balance between the level of
    net debt and unitholders' equity to ensure access to capital markets to
    fund growth and working capital. On a historical basis, the Fund has
    maintained a conservative ratio of net debt to net debt plus
    unitholders' equity. The Fund may occasionally need to increase these
    levels to facilitate acquisition or expansion activities. As at June 30,
    2008 and December 31, 2007 this ratio was as follows:

                                                       June 30,  December 31,
                                                          2008          2007

    Long-term debt                                 $35,744,454   $26,254,010
    Cash                                            (1,447,713)   (1,477,078)
                                                  -------------  ------------
    Net debt                                        34,296,741    24,776,932
    Unitholders' equity                             61,977,473    58,431,562
                                                  -------------  ------------
    Total capitalization                           $96,274,214   $83,208,494
                                                  -------------  ------------
                                                  -------------  ------------

    Net debt to total capitalization (%)                    36%           30%
                                                           ----          ----
                                                           ----          ----

    The Fund sets the amounts of its various forms of capital in proportion
    to risk. The Fund manages the capital structure and makes adjustments to
    it in light of changes in economic conditions and the risk
    characteristics of the underlying assets. In order to maintain or adjust
    the capital structure, the Fund may adjust the amount of distributions to
    unitholders, return capital to unitholders, issue new units, or sell
    assets to reduce net debt.

    The Fund is bound by certain financial and non-financial covenants as
    defined by its bank. If the Fund is in violation of any of these
    covenants its ability to pay distributions may be inhibited. The Fund
    monitors these covenants to ensure it remains in compliance. Throughout
    2007 and year-to-date 2008, and as at June 30, 2008, the Fund was in
    compliance with all of these covenants.

    As a result of the Canadian trust taxation legislation passed in June
    2007 and effective January 1, 2011, the Fund is subject to certain
    capital growth restrictions referred to as "normal growth" equity rules.
    These rules limit the amount of unitholders' capital that can be issued
    by the Fund in each of the next three years, based on the Fund's market
    capitalization on October 31, 2006. Badger is constrained by a non-
    cumulative capacity of $50 million per year until 2010 plus approximately
    $8 million capacity from debt outstanding at October 31, 2006.

    If the maximum allowed equity growth is exceeded, the Fund may be subject
    to the trust taxation prior to 2011.

    In addition to growth capital restrictions, the Fund also monitors its
    foreign ownership levels to the extent possible given the practical
    limitations regarding beneficial ownership information. The Fund
    Declaration of Trust, under which the Fund was created, provides that no
    more than 49 percent of the units of the Fund can be held by non-Canadian
    residents. The potential impact of breaching this threshold may be the
    loss of mutual fund trust status, which may significantly adversely
    impact the valuation of the units. At June 30, 2008, the Fund's best
    estimate of the foreign ownership level was 23 percent.

    There were no changes in the Fund's approach to capital management during
    the quarter.

    6.  Financial Instruments and Risk Management

    Fair Values

    The Fund's financial instruments recognized on the interim consolidated
    balance sheet consist of cash, accounts receivable, accounts payable,
    income taxes payable, distributions payable and long-term debt. The fair
    values of these recognized financial instruments, excluding long-term
    debt, approximate their carrying value due to their short-term maturity.
    The carrying value of the long-term debt approximates fair value because
    each of the long-term facilities has a floating interest rate.

    Credit Risk

    Credit risk arises when a failure by counter parties to discharge their
    obligations could reduce the amount of future cash inflows from financial
    assets on hand at the balance sheet date. A substantial portion of the
    Fund's accounts receivable balance is with customers in the petroleum and
    utility industries and is subject to normal industry credit risks. The
    Fund manages its exposure to credit risk through standard credit granting
    procedures and short payment terms. The Fund attempts to monitor
    financial conditions of its customers and the industries in which they
    operate.

    Liquidity Risk

    Liquidity risk is the risk that, as a result of operational liquidity
    requirements, the Fund will not have sufficient funds to settle a
    transaction on the due date, will be forced to sell financial assets at a
    price which is less than what they are worth, or will be unable to settle
    or recover a financial asset.

    The Fund's operating cash requirements are continuously monitored by
    management. As factors impacting cash requirements change, liquidity
    risks may necessitate the need for the Fund to raise capital by issuing
    equity or obtaining additional debt financing. The Fund also mitigates
    liquidity risk by maintaining an insurance program to minimize exposure
    to insurable losses.

    At June 30, 2008, the Fund had available $9.9 million of authorized
    borrowing capacity on the extendable revolving facility. The Fund
    believes it has sufficient funding through operations and the use of this
    facility to meet foreseeable financial obligations.

    Market Risk

    The significant market risk exposures affecting the financial instruments
    held by the Fund are those related to interest rates and foreign currency
    exchange rates which are explained as follows:

    Interest Rate Risk

    The Fund is exposed to interest rate risk in relation to interest expense
    on its long-term debt. Interest is calculated at prime to prime plus for
    certain of its borrowing facilities. The prime interest rate is subject
    to change. The Fund does not currently use interest rate hedges or fixed
    interest rate contracts to manage the Fund's exposure to interest rate
    fluctuations.

    Foreign Exchange Risk

    The Fund has United States operations and its Canadian operations
    purchase certain products in United States dollars. As a result,
    fluctuations in the value of the Canadian dollar relative to the United
    States dollar can result in foreign exchange gains and losses. The Fund
    does not currently have any agreements to fix the exchange rate of the
    Canadian dollar to the United States dollar.

    7.  Comparative Figures

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

    8.  Segmented Information

    The Fund operates in two geographic/reportable segments, providing
    daylighting services in each of these segments. The following is selected
    information for the six-month and three-month periods ended June 30, 2008
    and 2007 based on these geographic segments:

        GEOGRAPHICALLY SEGMENTED INFORMATION


                                          Three months ended June 30, 2008
                                        -------------------------------------
                                         Canada ($)    U.S. ($)    Total ($)

        Revenues                         20,831,129  12,311,685   33,142,814

        Direct costs                     13,510,526   8,218,043   21,728,569

        Selling, general and
         administrative                   2,045,020     637,828    2,682,848

        EBITDA((*))                       5,259,388   3,560,790    8,820,178

        Amortization                      1,909,279   1,214,194    3,123,473

        Earnings before income taxes      3,121,310   2,246,137    5,367,447

        Capital expenditures              9,811,468   4,307,611   14,119,079


                                          Three months ended June 30, 2007
                                        -------------------------------------
                                         Canada ($)    U.S. ($)    Total ($)

        Revenues                         16,143,373   8,872,334   25,015,707

        Direct costs                     10,542,604   5,804,437   16,347,041

        Selling, general and
         administrative                   1,357,547     637,570    1,995,117

        EBITDA((*))                       4,320,482   2,021,138    6,341,620

        Amortization                      1,757,198     806,967    2,564,165

        Earnings before income taxes      2,364,492   1,212,873    3,577,365

        Capital expenditures              1,556,844   2,343,750    3,900,594


                                           Six months ended June 30, 2008
                                        -------------------------------------
                                         Canada ($)    U.S. ($)    Total ($)

        Revenues                         44,300,741  23,616,407   67,917,148

        Direct costs                     28,127,568  15,703,023   43,830,591

        Selling, general and
         administrative                   3,959,290   1,302,026    5,261,316

        EBITDA((*))                      12,198,649   6,666,976   18,865,625

        Amortization                      3,783,319   2,231,833    6,015,152

        Earnings before income taxes      7,812,678   4,332,053   12,144,731

        Property, plant and equipment    53,531,080  31,102,883   84,633,963

        Intangible assets                 4,889,512           -    4,889,512

        Goodwill                          1,621,000           -    1,621,000

        Total assets                     82,877,018  43,457,874  126,334,892

        Capital expenditures             11,855,984   7,714,564   19,570,548


                                           Six months ended June 30, 2007
                                        -------------------------------------
                                         Canada ($)    U.S. ($)    Total ($)

        Revenues                         34,291,036  18,298,722   52,589,758

        Direct costs                     21,845,656  12,071,562   33,917,218

        Selling, general and
         administrative                   2,761,004   1,302,162    4,063,166

        EBITDA((*))                       9,747,493   4,443,245   14,190,738

        Amortization                      3,418,850   1,537,146    4,955,996

        Earnings before income taxes      5,892,292   2,902,291    8,794,583

        Property, plant and equipment    46,570,532  21,349,251   67,919,783

        Intangible assets                 3,956,343           -    3,956,343

        Goodwill                          1,621,000           -    1,621,000

        Total assets                     69,829,998  31,587,635  101,417,633

        Capital expenditures              1,835,709   4,884,869    6,720,578


        ((*)) Earnings before interest, taxes, depreciation and amortization
        (EBITDA) is a measure of the Fund's operating profitability and is
        therefore useful to management and investors. EBITDA provides an
        indication of the results generated by the Fund's principal business
        activities prior to how these activities are financed, assets are
        amortized or how the results are taxed in various jurisdictions.
        EBITDA is calculated from the Consolidated Statements of Earnings and
        Retained Earnings as gross margin, less selling, general and
        administrative costs and foreign exchange loss (gain).
    

    Badger Income Fund is an open-ended trust that is North America's largest
provider of non-destructive excavating services. Badger traditionally works
for contractors and facility owners in the utility and petroleum industries.
Our key technology is the Badger Hydrovac, which is primarily for safe digging
in congested grounds and challenging conditions. The Badger Hydrovac uses a
pressurized water stream to liquefy the soil cover, which is then removed with
a powerful vacuum system and deposited into a storage tank. Badger
manufactures its truck-mounted hydrovac units.

    Badger Income Fund's business model involves the provision of excavating
services through two distinct entities: the Operating Partners (franchisees in
the United States and agents in Canada), and Badger Corporate. Badger
Corporate works with its Operating Partners to provided hydrovac service to
the end user. In this partnership, Badger provides the expertise, the trucks,
and North American marketing and administration support. The Operating
Partners deliver the service by operating the equipment and developing their
local markets. All work is invoiced by Badger and then shared with the
Operating Partner based upon a revenue sharing formula. In certain locations
Badger has established corporate run operations to market and deliver the
service in the local area.

    
    The Toronto Stock Exchange has neither approved nor disapproved the
    information contained herein.
    

    %SEDAR: 00020566E




For further information:

For further information: regarding the Press Release, please contact Tor
Wilson, President and CEO, 2820, 715 - 5th Avenue SW, Calgary, Alberta, T2P
2X6; Greg Kelly, CA, Vice-President Finance and CFO, Phone (403) 264-8500, Fax
(403) 228-9773

Organization Profile

BADGER INCOME FUND

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