Badger Income Fund announces results for the year ended December 31, 2007



    TSX-BAD.UN

    CALGARY, March 19 /CNW/ - Badger Income Fund ("Badger" or the "Fund") is
pleased to announce its results for the year and three months ended December
31, 2007.

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

                             Three        Three
                             months       months        Year         Year
                             ended        ended        ended        ended
                          December 31, December 31, December 31, December 31,
                              2007         2006         2007         2006
                         ----------------------------------------------------
    Revenues                   33,356       25,622      117,688       98,371

    EBITDA(1)                   8,901        7,307       32,294       28,895

    Earnings before
     income taxes               5,762        4,845       20,783       19,832

    Taxes
      Current                     199          183          818          687
      Future                     (254)           3        3,242        2,648

    Net earnings                5,817        4,659       16,723       16,497

    Net earnings per
     unit - diluted              0.54         0.43         1.55         1.53

    Funds generated
     from operations(2)         8,506        6,820       31,818       27,855

    Funds generated
     from operations
     per unit - diluted          0.79         0.63         2.96         2.59

    Maintenance capital
     expenditures(3)              964            -        3,219        3,170

    Long-term debt
     repayments                    27           27          109          109

    Cash available for
     growth and
     distribution(4)            7,777        6,794       29,013       25,291

    Cash distributions
     declared                   3,390        3,389       13,558       13,246

    Growth capital
     expenditures(3)            5,573        8,650       12,758       19,304

    Total units
     outstanding           10,761,668   10,758,618   10,761,668   10,758,618
    

    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 are 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 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 December 31, 2007 Badger added
    14 units to the fleet and removed three from service. As a result, 11 of
    the units added during the three months ended December 31, 2007 represent
    growth capital expenditures, while three of the units represent
    maintenance capital expenditures. During the year ended December 31, 2007
    Badger added 59 units to the fleet, of which 10 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-and-a-half years. 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.


    Overview

    Highlights for the year are as follows:

    
    -   The Fund generated improved operating and financial results in the
        year ended December 31, 2007 over the year ended December 31, 2006.
        Revenues increased to $117.7 million in 2007 from $98.4 million in
        2006, while EBITDA increased to $32.3 million in 2007 from
        $28.9 million in 2006.

    -   EBITDA margins decreased from 29 percent in 2006 to 27 percent in
        2007. During the year Badger added personnel in several locations.
        These investments are expected to pay off in 2008.

    -   Cash available for growth and distributions increased by 15 percent
        to $29.0 million in 2007 from $25.3 million in 2006.

    -   Badger's long-term debt increased to $26.3 million at
        December 31, 2007 from $8.6 million at December 31, 2006 due to the
        acquisition of the operating assets and business of
        Benko Sewer Service, the acquisition of the service rights and
        tangible assets from certain of its Canadian Operating Partners and
        the financing of the 2007 capital expenditure program.

    -   The Fund increased its extendable, revolving credit facility from
        $20 million to $30 million as of June 2007, which provides added
        financial capacity to assist in financing Badger's growth capital
        expenditure program.

    -   The Fund added 59 hydrovac units in 2007 and removed 10 from service,
        exiting the year with 334 hydrovac units. Of the total, 216 units are
        operating in Canada and 118 in the United States. The growth in
        hydrovac units was financed from cash generated from operations and
        existing credit facilities.

    -   On October 31, 2006 the federal Minister of Finance announced a new
        tax plan that will affect the future level of taxation of income
        trusts and corporations. This tax plan was substantively enacted in
        June 2007. One element of the plan is a tax on non-capital
        distributions from publicly-traded income trusts, which would make
        their income tax treatment more like that of corporations. For
        existing publicly-traded income trusts, the federal government put in
        place a four-year transitional delay in implementing the new rules,
        which will take effect in the 2011 taxation year. The application of
        this tax plan would reduce the tax efficiency of publicly-traded
        income trusts such as Badger. The new tax measures will require
        in-depth review, examination and assessment, which Badger has
        commenced.


    Selected Annual Financial Information

    -------------------------------------------------------------------------
                                               Year ended December 31
                                       --------------------------------------
                                           2007         2006         2005
    -------------------------------------------------------------------------
    Revenues ($)                       117,687,718   98,370,896   83,331,679
    -------------------------------------------------------------------------
    Net earnings ($)                    16,722,845   16,496,455   14,780,994
    -------------------------------------------------------------------------
    Net earnings per unit -  basic ($)        1.55         1.53         1.39
    -------------------------------------------------------------------------
    Net earnings per unit -
     diluted ($)                              1.55         1.53         1.38
    -------------------------------------------------------------------------
    Total assets ($)                   110,798,162   90,192,248   74,551,335
    -------------------------------------------------------------------------
    Total long-term debt ($)(1)         26,254,010    8,625,052    1,114,843
    -------------------------------------------------------------------------
    Distributions declared ($)          13,558,421   13,246,474   11,165,792
    -------------------------------------------------------------------------

    (1) Includes the current portion of long-term debt.
    

    Business Acquisitions

    During the year Badger acquired the service rights and tangible assets
including land and buildings along with certain other equipment from certain
of its Canadian Operating Partners for approximately $5.3 million. As a result
of these acquisitions Badger will be providing the hydrovac services directly
to its customers in these areas rather than through an agent. Badger
previously indicated it will operate corporate locations in certain
geographical areas where it makes sense for market, development or other
business reasons.
    Effective April 1, 2007 Badger acquired all of the operating assets and
business of Benko Sewer Service, a well-managed Ontario-based hydrovac
excavation and sewer maintenance provider. This acquisition provides Badger
with more complete hydrovac coverage in the southern Ontario market, an
additional service offering to customers in that region and a strong addition
to Badger's management team. The purchase price of $4.1 million was settled
with a cash payment. The tangible assets acquired included three hydrovac
units, four sewer maintenance vehicles, three camera units and other
equipment.

    Overall Performance for the Year Ended December 31, 2007 Compared to the
    Year Ended December 31, 2006

    Results of Operations

    Revenues
    --------
    Revenues were $117.7 million for the year ended December 31, 2007
compared to $98.4 million for the year ended December 31, 2006. The increase
is attributable to the following:

    
           -  Canadian revenues increased by 15 percent from $68.9 million in
              2006 to $78.9 million in 2007. Western Canada revenue increased
              by 9 percent due to providing services on some major projects
              along with a general increase in activity. Eastern Canada
              revenue, excluding the added revenue from the
              Benko acquisition, increased by 10 percent year-over-year due
              to improved territorial coverage and customer development.

           -  United States revenues increased by 32 percent to $38.7 million
              in 2007 from $29.4 million in 2006. Revenue growth reflects the
              Fund's continued focus on certain geographical areas and market
              segments, which resulted in a growing customer base and
              increased demand for hydrovac services. The other major
              contributing factor was the increased activity related to oil
              field service in the United States. Oil field service-related
              revenue in the United States accounted for approximately
              57 percent of the Fund's United States hydrovac revenues in
              2007.
    

    Badger's average revenue per truck per month for 2007 was $29,300, which
is a modest decrease from the $29,600 generated during 2006. The Badger
business model works well with an overall fleet average of $25,000 per truck
per month.
    Included in revenues is $1.8 million of truck placement and franchise
fees for 2007, which is the same amount as for 2006.

    Direct Costs
    ------------
    Direct costs were $74.9 million in 2007, an increase of $12.9 million
from the $62.0 million recorded in 2006. This is consistent with the increase
in revenues.

    Gross Margin
    ------------
    Gross margin for 2007 was 36.4 percent, which is similar to 2006.

    Amortization
    ------------
    Amortization was $10.4 million in 2007 or $1.8 million higher than the
$8.6 million in 2006. The increase reflects the larger number of hydrovac
units in the fleet. Included in this figure is approximately $147,000 related
to amortization of the intangible assets acquired with Benko Sewer Service.

    Interest Expense
    ----------------
    Interest expense was $1.2 million in 2007 versus $0.4 million in 2006.
The higher interest expense is attributable to maintaining a higher balance of
debt throughout 2007 than in 2006. The increased debt was used to fund growth
capital expenditures and business acquisitions.

    Selling, General and Administrative Expenses
    --------------------------------------------
    Selling, general and administrative expenses were $2.1 million higher at
$9.7 million in 2007 compared to $7.6 million in 2006. As a percentage of
revenues, selling, general and administrative expenses were 8.2 percent in
2007 versus 7.7 percent in 2006. Overall the increased expenses are due to the
following:

    
           -  Badger hired additional personnel to support the growth of the
              business;
           -  Badger increased compensation in order to retain high-quality
              personnel in a competitive labour environment;
           -  Non-cash compensation expense was $662,000 versus $148,000 in
              2006;
           -  The Fund incurred additional costs due to the acquisition of
              the service rights from certain of its Canadian Operating
              Partners as well as added costs associated with
              Benko Sewer Service;
           -  Higher professional fees associated with the Fund's regulatory
              compliance activities; and,
           -  Overall increase in general office costs.
    

    Badger's United States selling, general and administrative expenses
increased by $0.9 million in 2007 over 2006 mainly due to the staffing of five
additional corporate locations in the Eastern United States region. The
investment is expected to begin paying off in 2008.
    Selling, general and administrative expenses include salaries and
benefits for office, field, safety and sales staff, as well as rent,
utilities, and communications. These expenses also include costs to maintain
the Fund's public listing and professional fees.

    Foreign Exchange Loss (Gain)
    ----------------------------
    The Fund incurred a foreign exchange loss for fiscal 2007 compared to a
gain in 2006, due to the United States dollar weakening against the Canadian
dollar during 2007 and an overall increase in the Fund's United States
operations, which resulted in an increase in the Fund's net monetary assets
that are denominated in United States dollars.

    Income Taxes
    ------------
    The effective tax rate for 2007 was 20 percent versus 17 percent for
2006.
    With the June 2007 substantive enactment of Bill C-52, a new 31.5 percent
tax will be applied to distributions from Canadian public trusts starting in
2011. As a result, during 2007 Badger recorded an additional $1.4 million in
future income tax expense and a corresponding future income tax liability
related to the difference between the accounting and tax basis of the Fund's
assets. Prior to this legislation, Badger's future income taxes reflected only
those temporary differences in the Fund's subsidiaries. While net earnings for
2007 were reduced by this future tax adjustment, there was no impact on cash
flow provided by operating activities or on cash available for growth capital
expenditures and distribution.
    Offsetting the impact of the above was a decrease in future income taxes
of $1.1 million due to the reduction in federal income tax rates from the
existing rate of 22.12 percent for 2007 to 15 percent for 2012.
    The minimal effective tax rate overall is due to the trust structure,
which results in tax-deductible distributions being made to unitholders.

    Liquidity

    Funds generated from operations increased to $31.8 million in 2007 from
$27.9 million in 2006 due to stronger Canadian and United States activity
levels. The Fund uses its cash to make distributions to unitholders, build
additional hydrovac units, invest in maintenance capital expenditures and
repay long-term debt.
    The Fund had working capital of $19.7 million at December 31, 2007
compared to $9.4 million at December 31, 2006. Good levels of cash flow from
operations allowed Badger to build new daylighting units while maintaining a
healthy working capital position.

    The following table outlines the cash available to fund growth and pay
distributions to unitholders in 2007 compared to 2006:

    
                                                     Year Ended   Year Ended
                                                    December 31, December 31,
                                                        2007         2006
                                                          $            $

    Cash provided by operating activities            24,432,856   27,393,449
    Add (deduct): net change in non-cash
     working capital                                  7,384,823      461,313
                                                     -----------  -----------
    Funds generated from operations                  31,817,679   27,854,762
    Add: proceeds on disposal of property, plant
     and equipment                                      523,122      714,615
    Deduct: required repayments of long-term debt      (108,768)    (108,702)
    Deduct: maintenance capital expenditures         (3,219,330)  (3,169,728)
                                                     -----------  -----------
    Cash available for growth capital expenditures
     and distributions                               29,012,703   25,290,947
                                                     -----------  -----------
                                                     -----------  -----------

    Growth capital expenditures                      12,758,244   19,303,939
                                                     -----------  -----------
                                                     -----------  -----------

    Cash distributions declared                      13,558,421   13,246,474
                                                     -----------  -----------
                                                     -----------  -----------
    

    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 number of units outstanding. It may also be
impacted by the future tax treatment of income trusts.
    The majority of the cash provided by operating activities was used to
finance maintenance and growth capital expenditures and to pay distributions
to unitholders. As outlined in the above table, cash not distributed to
unitholders was used to finance growth capital expenditures and acquisitions.
    If maintenance capital expenditures levels increase in future periods,
the Fund's cash available for growth capital expenditures and distributions
will be negatively affected. Due to Badger's growth rate in recent years, the
majority of the hydrovac units are relatively new, with an average age of
approximately four-and-a-half 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 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 MD&A the Fund is in material compliance with all debt covenants
and is able to fully utilize all existing credit facilities. Badger does not
have a stability rating.
    Currently the Fund has a $30 million extendable, revolving facility to
fund working capital requirements and finance capital expenditures, of which
$23.7 million was used at December 31, 2007. The Fund will maintain an
appropriate mix of flexible debt and equity to finance its maintenance capital
expenditures and growth initiatives.

    Capital Resources

    Investing
    ---------
    In 2007 the Fund spent $16.0 million on property, plant and equipment
compared to $22.3 million in 2006. Included in 2006 spending is $3.7 million
worth of cabs and chassis acquired in December 2006 which were used to
manufacture hydrovac units in 2007. During 2007, the Fund added 56 new
hydrovac units (excluding the three acquired on the acquisition of Benko Sewer
Service) compared to 54 new hydrovac units built in 2006. The 2007 capital
expenditures figure includes maintenance capital expenditures of $3.2 million.
Generally speaking, maintenance capital expenditures are incurred during a
period to keep the hydrovac fleet at the same number of units, which was 10
for 2007, plus any other capital expenditures required to maintain the
existing business.
    During 2007 Badger also spent $9.4 million in cash on acquisitions as
outlined above under the heading Business Acquisitions.

    Financing
    ---------
    On June 29, 2007 Badger renewed its extendable, revolving credit facility
and increased the amount of the facility from $20 million to $30 million. The
facility has been used and will continue to be used to assist in financing
Badger's capital expenditure program and general corporate activities. The
facility has no required principal repayments. It expires on June 30, 2008 and
is renewable at Badger's option for an additional 364-day period. If not
renewed, interest is payable on the facility for 364 days, after which the
entire amount must be repaid. The facility bears interest at the bank's prime
rate or bankers' acceptance rate plus 1.00 percent plus 0 to 200 basis points
depending on Badger's ratio of funded-debt-to-EBITDA.
    During December 2007 Badger obtained mortgage financing in the amount of
$1.65 million for certain property it acquired through the acquisition of
service rights and tangible assets from one of its Canadian Operating
Partners. The amount is repayable in monthly principal payments of $9,167 plus
interest until December 2022 and bears interest at bank prime plus 0.75
percent.
    During 2007 Badger repaid $0.1 million of long-term debt pursuant to
regularly scheduled repayments. As a result of these principal payments and
the proceeds received from the revolving credit facility and mortgage
financing, the Fund's long-term debt, including the current portion, was $26.3
million at year-end 2007 versus $8.6 million at year-end 2006. The increased
debt was the result of financing the various 2007 acquisitions as well as the
capital expenditure program.
    At December 31, 2007 the Fund had a long-term debt-to-equity ratio of
0.45:1 and a long-term debt-to-trailing-funds-generated-from-operations ratio
of 0.82:1. Management believes that 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.

    Contractual Obligations and Committed Capital Investment
    --------------------------------------------------------
    The Fund intends to meet its contractual obligations through funds
generated by operating activities. The Fund's contractual obligations for the
next five years relating to repayment of long-term debt (assuming the
extendable revolving credit facility is not renewed on June 30, 2008) and
lease payments for shop and office premises are as follows:

    

    ($000s)                Total       2008  2009-2010  2011-2012 Thereafter
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Long-term debt        26,254        219     24,144        438      1,453
    Shop and office
     leases                  862        374        391         97          -
                         ----------------------------------------------------
    Total contractual
     obligations          27,116        593     24,535        535      1,453
                         ----------------------------------------------------
                         ----------------------------------------------------
    

    In addition to the contractual obligations above, at year-end 2007 the
Fund had committed to certain capital expenditures totalling approximately
$4.7 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.

    Unitholders' Capital

    Unitholders' capital increased by $50,000 due to the issue of 3,050 units
to the non-management trustees as partial payment for 2007 trustee fees.
    Units outstanding at December 31, 2007 were 10,761,668. There was no
change to the balance as of March 14, 2008.

    Off-Balance-Sheet Arrangements

    At December 31, 2007 and 2006, the Fund had no off-balance-sheet
arrangements.

    Transactions with Related Parties

    Shea Nerland Calnan LLP provides legal services to Badger at market
rates. David Calnan, a Trustee and the Corporate Secretary of the Fund, is a
partner in the law firm of Shea Nerland Calnan LLP and is involved in
providing and managing Badger's legal services. The total cost of these legal
services in 2007 was $219,000 compared to $240,000 in 2006.

    
    Selected Quarterly Financial Information

    -------------------------------------------------------------------------
                                             Quarter Ended
                          ---------------------------------------------------
                                                  2007
                          ---------------------------------------------------
                             Dec. 31     Sept. 30      June 30      Mar. 31
    -------------------------------------------------------------------------
    Revenues ($)           33,356,010   31,741,950   25,015,707   27,574,051
    -------------------------------------------------------------------------
    Net earnings ($)        5,816,949    5,136,223    1,539,755    4,229,918
    -------------------------------------------------------------------------
    Net earnings per unit
     - basic ($)                 0.54         0.48         0.14         0.39
    -------------------------------------------------------------------------
    Net earnings per unit
     - diluted ($)               0.54         0.48         0.14         0.39
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                             Quarter Ended
                          ---------------------------------------------------
                                                  2006
                          ---------------------------------------------------
                             Dec. 31     Sept. 30      June 30      Mar. 31
    -------------------------------------------------------------------------
    Revenues ($)           25,621,658   25,324,030   21,696,318   25,728,890
    -------------------------------------------------------------------------
    Net earnings ($)        4,659,784    3,974,958    2,841,459    5,020,254
    -------------------------------------------------------------------------
    Net earnings per unit
     - basic ($)                 0.43         0.37         0.26         0.47
    -------------------------------------------------------------------------
    Net earnings per unit
     - diluted ($)               0.43         0.37         0.26         0.47
    -------------------------------------------------------------------------


    Fourth Quarter Highlights

    -   As a result of increased activity in Canada and the United States,
        revenue increased to $33.3 million in the three months ended
        December 31, 2007 from $25.6 million in the three months ended
        December 31, 2006. Canadian revenues increased by 33 percent due to a
        general increase in business in most areas. Badger's United States
        revenue increased to $10.6 million from $8.5 million
        quarter-over-quarter due to increased activity related to oil field
        services and performing services on some major projects.

    -   Average revenue per truck per month was $30,900 in the fourth quarter
        of 2007 compared to $29,000 per month for the same period in 2006.

    -   With the increase in revenues, earnings before income taxes increased
        by 19 percent for the fourth quarter of 2007 over the same period in
        2006.

    -   The Fund added 14 hydrovac units to the fleet and removed three from
        service.
    

    New Accounting Pronouncements

    New CICA Handbook Sections have been issued which will require additional
disclosure in the Fund's consolidated financial statements commencing January
1, 2008. 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. Handbook section 3031 "Inventories", which prescribes
the recognition, measurement, disclosure and presentation issues related to
inventories, will become effective January 1, 2008. The Fund believes the
adoption of these standards will not have a material impact on the
consolidated financial statements.

    Critical Accounting Estimates

    Management is responsible for applying judgement in preparing accounting
estimates. Certain estimates and related disclosures included within the
financial statements are particularly sensitive because of their significance
to the financial statements and because of the possibility that future events
affecting them may differ significantly from management's current judgements.
An accounting estimate is considered critical only if it requires the Fund to
make assumptions about matters that are highly uncertain at the time the
accounting estimate is made, and if different estimates the Fund could have
used would have a material impact on Badger's financial condition, changes in
financial condition or results of operations.
    While there are several estimates and assumptions made by management in
the preparation of financial statements in accordance with GAAP, the following
critical accounting estimates have been identified by management:

    Amortization of the Hydrovac Units
    ----------------------------------
    The accounting estimate that has the greatest effect on the Fund's
financial results is the amortization of the hydrovac units. Amortization of
the hydrovac units is carried out on the basis of their estimated useful
lives. The Fund currently amortizes the hydrovac units over 10 years based on
current knowledge and past experience. There is a certain amount of business
risk that newer technology or some other unforeseen circumstance could lower
this life expectation. A change in the remaining life of the hydrovac units or
the expected residual value will affect the amortization rate used to amortize
the hydrovac units and thus affect amortization expense as reported in the
Fund's statements of earnings and comprehensive income. These changes are
reported prospectively when they occur.

    Tax Pools and Their Recoverability
    ----------------------------------
    Badger has estimated its tax pools for the income tax provision. The
actual tax pools the Fund may be able to use could be materially different in
the future.

    Intangible Assets
    -----------------
    Intangible assets consist of service rights acquired from Operating
Partners, customer relationships, trade name and non-compete agreements. The
initial valuation of intangibles at the closing date of any acquisition
requires judgement and estimates by management with respect to identification,
valuation and determining the expected periods of benefit. Valuations are
based on discounted expected future cash flows and other financial tools and
models and are amortized over their expected periods of benefit or not
amortized if it is determined the intangible asset has an indefinite life.
Intangible assets are reviewed annually with respect to their useful lives or
more frequently if events or changes in circumstances indicate that the assets
might be impaired. The impairment test includes the application of a fair
value test, with an impairment loss recognized when the carrying amount of the
intangible asset exceeds its estimated fair value. Impairment provisions are
not reversed if there is a subsequent increase in the fair value of the
intangible asset.

    Goodwill
    --------
    Goodwill is the amount that results when the cost of acquired assets
exceeds their fair values at the date of acquisition. Goodwill is recorded at
cost, not amortized and tested at least annually for impairment. The
impairment test includes the application of a fair value test, with an
impairment loss recognized when the carrying amount of goodwill exceeds its
estimated fair value. Impairment provisions are not reversed if there is a
subsequent increase in the fair value of goodwill.

    Impairment of Long-lived Assets
    -------------------------------
    The carrying value of long-lived assets, which include property, plant
and equipment and intangible assets, is assessed for indications of impairment
when events or circumstances indicate that the carrying amounts may not be
recoverable from estimated cash flows. Estimating future cash flows requires
assumptions about future business conditions and technological developments.
Significant, unanticipated changes to these assumptions could require a
provision for impairment in the future.

    Collectability of Accounts Receivable
    -------------------------------------
    The Fund estimates the collectability of its accounts receivable. The
Fund continually reviews its accounts receivable balances and makes an
allowance when a receivable is deemed uncollectible. The actual collectability
of accounts receivable could differ materially from the estimate.

    Unit-based Compensation
    -----------------------
    Compensation expense associated with unit options at grant date is an
estimate based on various assumptions such as volatility, annual distribution
yield, risk-free interest rate and expected life. Badger uses the
Black-Scholes methodology to produce an estimate of the fair value of such
compensation.

    Financial and Other Instruments

    Fair Values
    -----------
    The carrying values of cash, accounts receivable, accounts payable and
accrued liabilities, income taxes payable and distributions payable
approximate the fair value of these financial instruments due to their
short-term maturities. The carrying value of the long-term debt approximates
fair value due to its floating interest rates.

    Foreign Currency Risk
    ---------------------
    In the normal course of operations the Fund is exposed to movements in
the United States dollar exchange rate relative to the Canadian dollar. Badger
has United States operations and purchases certain items in United States
dollars. Badger does not utilize hedging instruments to mitigate this risk.

    Interest-rate Risk
    ------------------
    The floating interest-rate profile of Badger's long-term debt exposes
Badger to interest-rate risk. Badger does not use hedging instruments to
mitigate this risk.

    Credit Risk
    -----------
    A substantial portion of Badger's accounts receivable is with customers
involved in the oil and natural gas industry, whose revenues may be impacted
by fluctuations in commodity prices. Although collection of these receivables
could be influenced by economic factors affecting this industry, management
considers the risk of a significant loss to be remote at this time. The Fund's
credit risk from customers is minimized by Badger's broad customer base and
the diverse industries it serves.

    Disclosure Controls and Procedures Related to Financial Reporting

    Disclosure controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported to senior
management on a timely basis, including the President and Chief Executive
Officer (CEO) and the Vice President Finance and Chief Financial Officer
(CFO). This allows appropriate decisions to be made regarding public
disclosure. As of December 31, 2007 both the CEO and the CFO have evaluated
the effectiveness of Badger's disclosure controls and procedures as defined in
Multilateral Instrument 52-109 of the Canadian Securities Administrators. They
have concluded that such disclosure controls and procedures are effective.

    Business Risks
    (Reference is also made to Badger's Annual Information Form.)

    Reliance on the Oil and Natural Gas Sector
    ------------------------------------------
    The oil and natural gas sector accounts for a significant portion of the
Fund's revenues. The petroleum service industry relies heavily on the volume
of capital expenditures made by oil and natural gas explorers and producers
and is also affected by certain adverse weather conditions. These spending
decisions are based on several factors including, but not limited to,
hydrocarbon prices; production levels of current reserves; and access to
capital - all of which can vary greatly. To minimize the impact of the oil and
natural gas industry cycles, the Fund also focuses on generating revenue from
the utility and general contracting market segments.

    Competition
    -----------
    The Fund operates in a highly competitive environment for hydrovac
services in Canada. In order to remain the leading provider of hydrovac
services in this region, Badger continually enhances its safety and
operational procedures to ensure that they meet or exceed customer
expectations. Badger also has the in-house capabilities to continuously
improve its daylighting units so that they remain the most productive and
efficient hydrovacs in the business. There can be no assurance that Badger's
competitors will not achieve greater market acceptance due to pricing,
efficiency, safety and other factors.

    United States Operations
    ------------------------
    Badger also faces risks associated with doing business in the United
States. The Fund has made a significant investment in the United States to
develop the hydrovac market. The growth rate of the United States market is
very hard to predict.

    Safety
    ------
    Safety is one of the Fund's primary concerns. Badger has implemented
programs to ensure its operations meet or exceed current hydrovac safety
standards. The Fund also employs safety advisors in each region who are
responsible for maintaining and developing the Fund's safety policies. In
addition, these regional safety advisors monitor the Fund's operations to
ensure they are operating in compliance with such policies.

    Amortization of Daylighting Units
    ---------------------------------
    The Fund currently amortizes the hydrovac units over 10 years, a policy
that is based on its current knowledge and past experience. There is a certain
amount of business risk that newer technology or some other unforeseen
circumstance could lower this life expectation.

    Dependence on Key Personnel
    ---------------------------
    Today, Badger has a strong, stable employee base. Badger relies on its
ability and the ability of its agents/franchisees to attract and retain key
personnel necessary to maintain and grow its business. Any loss of services of
key personnel could have a material adverse effect on the business and
operations of the Fund. The ability to secure the services of additional
personnel is constrained in times of strong industry activity.

    Reliance on Key Suppliers
    -------------------------
    Badger has established relationships with key suppliers. There can be no
assurance that current sources of equipment, parts, components or
relationships with key suppliers will be maintained. If these are not
maintained, Badger's ability to manufacture its hydrovac units may be
impaired.

    Fluctuations in Weather and Seasonality
    ---------------------------------------
    Badger's operating results have been, and are expected to continue to be,
subject to quarterly and other fluctuations due to a variety of factors
including changes in weather conditions and seasonality. For example, in
Western Canada Badger's results may be negatively affected if there is an
extended spring break-up period since oil and natural gas industry sites may
not be accessible during such periods. In Eastern Canada, Badger has in the
past experienced enhanced use of its equipment during cold winters, thus
improving the results of its operations during such times. The Fund may then
experience a slow period during spring thaw.
    In the Western United States, Badger has from time-to-time been
restricted by the imposition of government regulations from conducting its
work in environmentally sensitive areas during the winter mating seasons of
certain mammals and birds. This has had a negative effect on Badger's results
of operations. As such, changes in the weather and seasonality may, depending
on the location and nature of the event, have either a positive or negative
effect on Badger's results of operations.

    Fluctuations in the Economy and Political Landscape
    ---------------------------------------------------
    Operations could be adversely affected by a general economic downturn,
changes in the political landscape or limitations on spending.

    Compliance with Government Regulations
    --------------------------------------
    While Badger believes it is currently in compliance with all applicable
government standards and regulations, there can be no assurance that all of
Badger's business will be able to continue to comply with all applicable
standards and regulations.

    Access to Additional Financing
    ------------------------------
    Badger may find it necessary in the future to obtain additional debt or
equity to support ongoing operations, to undertake capital expenditures or to
undertake acquisitions or other business combination transactions. There can
be no assurance additional financing will be available to Badger when needed
or on terms acceptable to Badger. Badger's inability to raise financing to
support ongoing operations or to fund capital expenditures or acquisitions
could limit the Fund's growth and may have a material adverse effect upon the
Fund.

    Self-Insurance
    ---------------
    Due to the magnitude of insurance premiums, the Fund decided to
self-insure against any physical damage it could incur on the Canadian
hydrovac units. This decision will be re-evaluated periodically as
circumstances change. The United States hydrovac units continue to have
insurance purchased by Badger.

    Outlook

    Badger increased its hydrovac fleet by 17 percent during 2007, from
285 units at the end of 2006 to 334 units at the end of 2007. Given reasonable
market conditions these additional units should add significant revenue to
2008 results. In 2007 Badger strengthened its management team in all regions,
which will help the Fund to continue its growth. Badger is adding production
capacity at its Red Deer, Alberta facility, which is expected to be completed
by mid-year 2008 and will allow Badger to build more units as market pull
demands. With more locations in the United States the Fund believes it will
increase market penetration in this important market.

    
    BADGER INCOME FUND
    Consolidated balance sheets

                                                    December 31, December 31,
                                                        2007         2006
                                                          $            $
                                                   --------------------------

    ASSETS
      Current
      Cash                                            1,477,078    1,319,912
      Accounts receivable                            28,318,106   22,873,841
      Inventories                                     1,690,133    1,399,661
      Prepaid expenses                                1,031,513      679,675
                                                   --------------------------
                                                     32,516,830   26,273,089

      Property, plant and equipment                  71,672,820   62,367,823

      Intangible assets                               4,987,512    1,551,336

      Goodwill                                        1,621,000            -

                                                   --------------------------
                                                    110,798,162   90,192,248
                                                   --------------------------
                                                   --------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
      Current
      Accounts payable and accrued liabilities       11,269,139   14,951,723
      Income taxes payable                              212,540      671,544
      Distributions payable                           1,129,975    1,129,655
      Current portion of long-term debt                 218,768      108,768
                                                   --------------------------
                                                     12,830,422   16,861,690

      Long-term debt                                 26,035,242    8,516,284

      Future income taxes                            13,500,936   10,259,536

                                                   --------------------------
                                                     52,366,600   35,637,510
                                                   --------------------------
      Unitholders' equity
      Unitholders' capital                           43,538,255   43,488,255
      Contributed surplus                             1,636,000      973,600
      Retained earnings                              13,257,307   10,092,883
                                                   --------------------------
                                                     58,431,562   54,554,738

                                                   --------------------------
                                                    110,798,162   90,192,248
                                                   --------------------------
                                                   --------------------------



    BADGER INCOME FUND
    Consolidated statements of earnings and comprehensive income and retained
    earnings

                                                     Dec. 31/07   Dec. 31/06
                                                          $            $
                                                   --------------------------

    Revenues                                        117,687,718   98,370,896
    Direct costs                                     74,894,917   61,987,817
                                                   --------------------------

    Gross margin                                     42,792,801   36,383,079
                                                   --------------------------

    Expenses
      Amortization                                   10,427,356    8,636,268
      Loss (gain) on sale of property, plant
       and equipment                                    (94,402)      (5,580)
      Interest
        Long-term                                     1,178,295       68,525
        Current                                               -      363,882
      Selling, general and administrative             9,690,948    7,613,620
      Foreign exchange loss (gain)                      808,080     (126,004)
                                                   --------------------------
                                                     22,010,277   16,550,711
                                                   --------------------------

    Earnings before income taxes                     20,782,524   19,832,368
                                                   --------------------------

    Income taxes
      Current                                           818,279      687,480
      Future                                          3,241,400    2,648,433
                                                   --------------------------
                                                      4,059,679    3,335,913
                                                   --------------------------

    Net earnings and comprehensive income for
     the year                                        16,722,845   16,496,455

    Retained earnings, beginning of year             10,092,883    6,842,902

    Cash distributions                              (13,558,421) (13,246,474)
                                                   --------------------------

    Retained earnings, end of year                   13,257,307   10,092,883
                                                   --------------------------
                                                   --------------------------

    Net earnings per unit

    Basic                                                  1.55         1.53
                                                   --------------------------
                                                   --------------------------

    Diluted                                                1.55         1.53
                                                   --------------------------
                                                   --------------------------



    BADGER INCOME FUND
    Consolidated statements of cash flows

                                                     Dec. 31/07   Dec. 31/06
                                                          $            $
                                                   --------------------------

    Operating activities
    Net earnings for the year                        16,722,845   16,496,455
    Non-cash items:
      Amortization                                   10,427,356    8,636,268
      Future income taxes                             3,241,400    2,648,433
      Unit-based compensation                           712,400      205,190
      Foreign exchange loss (gain)                      808,080     (126,004)
      Loss (gain) on sale of property, plant and
       equipment                                        (94,402)      (5,580)
                                                   --------------------------
                                                     31,817,679   27,854,762
    Net change in non-cash working capital
     relating to operating activities                (7,384,823)    (461,313)
                                                   --------------------------
                                                     24,432,856   27,393,449
                                                   --------------------------

    Financing activities
    Proceeds from units issued                                -           59
    Proceeds from long-term debt                     17,737,726    7,618,911
    Repayment of long-term debt                        (108,768)    (108,702)
    Distributions to unitholders                    (13,558,101) (13,169,223)
    Increase (decrease) in bank indebtedness                  -   (3,497,348)
                                                   --------------------------

                                                      4,070,857   (9,156,303)
                                                   --------------------------
    Investing activities
    Purchase of Benko Sewer Service                  (4,101,000)           -
    Purchase of service rights                       (5,139,675)           -
    Purchase of intangible assets                             -     (150,000)
    Purchase of property, plant and equipment       (15,977,574) (22,323,667)
    Proceeds on disposal of property, plant and
     equipment                                          523,122      714,615
    Net change in non-cash working capital
     relating to investing activities                (3,651,420)   3,651,420
                                                   --------------------------
                                                    (28,346,547) (18,107,632)
                                                   --------------------------

    Increase (decrease) in cash during the year         157,166      129,514
    Cash, beginning of year                           1,319,912    1,190,398
                                                   --------------------------
    Cash, end of year                                 1,477,078    1,319,912
                                                   --------------------------
                                                   --------------------------

    Interest paid                                     1,199,319      411,383
                                                   --------------------------
                                                   --------------------------
    Income taxes paid (received)                      1,271,334     (421,349)
                                                   --------------------------
                                                   --------------------------



    GEOGRAPHIC SEGMENTED INFORMATION

    The Fund operates in two geographic/reportable segments providing
daylighting services to each of these segments. The following is selected
information for the year and three months ended December 31, 2007 and
December 31, 2006 based on these geographic segments:

                                          Three months ended Dec. 31, 2007
                                       --------------------------------------
                                        Canada ($)      USA ($)    Total ($)

    Revenues                            22,786,736   10,569,274   33,356,010

    Direct costs                        15,083,283    6,762,507   21,845,790

    Selling, general and
     administrative                      1,704,675      881,642    2,586,317

    EBITDA(*)                            5,941,421    2,959,428    8,900,849

    Amortization                         1,870,651      953,323    2,823,974

    Earnings before income taxes         3,767,042    1,995,247    5,762,289

    Capital expenditures                 3,532,176    3,005,788    6,537,964


                                          Three months ended Dec. 31, 2006
                                       --------------------------------------
                                        Canada ($)      USA ($)    Total ($)

    Revenues                            17,125,230    8,496,428   25,621,658

    Direct costs                        10,835,288    5,405,809   16,241,097

    Selling, general and
     administrative                      1,546,277      738,672    2,284,949

    EBITDA(*)                            4,742,266    2,564,310    7,306,576

    Amortization                         1,608,965      702,196    2,311,161

    Earnings before income taxes         2,983,620    1,861,735    4,845,355

    Capital expenditures                 6,317,701    2,332,481    8,650,182



                                          Twelve months ended Dec. 31, 2007
                                       --------------------------------------
                                        Canada ($)      USA ($)    Total ($)

    Revenues                            78,945,490   38,742,228  117,687,718

    Direct costs                        50,262,694   24,632,223   74,894,917

    Selling, general and
     administrative                      6,300,137    3,390,811    9,690,948

    EBITDA(*)                           22,424,546    9,869,227   32,293,773

    Amortization                         7,061,336    3,366,020   10,427,356

    Earnings before income taxes        14,291,471    6,491,053   20,782,524

    Property, plant and equipment       46,469,797   25,203,023   71,672,820

    Intangible assets                    4,987,512            -    4,987,512

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

    Total assets                        75,070,511   35,727,651  110,798,162

    Capital expenditures                 5,736,771   10,240,803   15,977,574


                                          Twelve months ended Dec. 31, 2006
                                       --------------------------------------
                                        Canada ($)      USA ($)    Total ($)

    Revenues                            68,940,697   29,430,199   98,370,896

    Direct costs                        43,013,050   18,974,767   61,987,817

    Selling, general and
     administrative                      5,135,903    2,477,717    7,613,620

    EBITDA(*)                           20,835,062    8,060,401   28,895,463

    Amortization                         6,267,848    2,368,420    8,636,268

    Earnings before income taxes        14,193,183    5,639,185   19,832,368

    Property, plant and equipment       44,542,937   17,824,886   62,367,823

    Intangible assets                    1,551,336            -    1,551,336

    Goodwill                                     -            -            -

    Total assets                        63,313,728   26,878,520   90,192,248

    Capital expenditures                11,572,715   10,750,952   22,323,667

    (*) 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 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).
    

    Forward-Looking Statements

    Certain statements contained in this press release 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
annual 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.

    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 used 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 provide 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.

    This press release contains forward-looking statements subject to various
risk factors and uncertainties, which may cause the actual results,
performances or achievements of Badger to be materially different from any
future results, performances or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to,
fluctuations in the market for oil and gas 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 Toronto Stock Exchange has neither approved nor disapproved the
    information contained herein.

    %SEDAR: 00020566E




For further information:

For further information: regarding this 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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