Badger Income Fund Announces Third Quarter 2007 Results, Which Includes a 25 Percent Quarterly Increase in Revenues



    TSX-BAD.UN

    CALGARY, Nov. 13 /CNW/ - Badger Income Fund (the "Fund" or "Badger") is
pleased to announce its results for the third quarter of 2007. Overall
revenues increased by approximately 25 percent to $31.7 million for the three
months ended September 30, 2007 from $25.3 million for the same period in
2006, due to a 29 percent increase in Canadian revenues and an 18 percent
increase in United States revenues. As a result of the increase in revenues,
EBITDA and funds generated from operations also increased over the same period
of 2006. Badger's EBITDA increased to $9.2 million in the third quarter from
$7.5 million in the same quarter of 2006.

    FINANCIAL HIGHLIGHTS

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

                                Three Months Ended         Nine Months Ended
                                   September 30              September 30
                                 2007         2006         2007         2006
                          ---------------------------------------------------
    Revenues                   31,742       25,324       84,332       72,749
    EBITDA(1)                   9,202        7,504       23,393       21,589
    Earnings before income
     taxes                      6,225        5,281       15,020       14,987
    Taxes
      Current                     296          194          619          504
      Future                      793        1,112        3,495        2,646
    Net earnings                5,136        3,975       10,906       11,837
    Net earnings per unit -
     diluted ($)                 0.48         0.37         1.01         1.10
    Funds generated from
     operations(2)              9,219        7,269       23,312       21,035
    Funds generated from
     operations per unit -
     diluted ($)                 0.86         0.68         2.17         1.96
    Maintenance capital
     expenditures(3)              624        1,272        2,255        3,170
    Long-term debt
     repayments                    27           27           82           82
    Cash available for
     growth and
     distribution(4)            8,567        6,153       21,236       18,497
    Cash distributions
     declared                   3,390        3,388       10,168        9,858
    Growth capital
     expenditures(3)            2,120        2,870        7,185       10,653
    Total units
     outstanding, end of
     period                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 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 are 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 September 30, 2007, Badger added 12
    units to the fleet and removed two from service. As a result, ten of the
    units added during the three months ended September 30, 2007 represent
    growth capital expenditures, while two of the units added represent
    maintenance capital expenditures. During the nine months ended
    September 30, 2007 Badger added 45 units to the fleet, of which seven
    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. 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.


    OPERATIONAL SUMMARY - THIRD QUARTER 2007

        1.  Badger's Western Canada operations experienced a good level of
            activity with improved weather conditions and infrastructure
            projects resulting in a strong increase of revenue in the
            quarter. Corporate operations have benefited from increased
            management focus.

        2.  In Eastern Canada Badger saw improved revenue in the quarter
            leading to acceptable results but less than what was originally
            forecast.

        3.  The United States continued its revenue growth in the third
            quarter. During the year Badger added four more corporate
            locations in the eastern part of the United States, which the
            Fund anticipates will help growth in 2008.

        4.  Monthly revenue per hydrovac truck was $30,600 in the third
            quarter of 2007, compared to $30,200 for the same period of 2006.
            Badger budgets an overall fleet average of $25,000 per truck per
            month.

        5.  Badger had 323 daylighting units at the end of the third quarter
            of 2007, reflecting the addition of 45 units to the fleet during
            the first three quarters of 2007 and the retirement of seven
            units. The Fund had 285 units at December 31, 2006.
    


    INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS

    This Management's Discussion and Analysis 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 Management's Discussion and
Analysis included in Badger Income Fund's 2006 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 Management's Discussion and
Analysis focuses primarily on the year-over-year changes during the third
quarter. However, unless otherwise indicated, year-over-year variances for the
nine months ended September 30, 2007 and 2006 are explained by the same
general factors, which contributed to the third quarter variance.
    This Management's Discussion and Analysis has been prepared taking into
consideration information available to November 12, 2007.

    Disclaimer

    This quarterly report contains forward-looking statements subject to
various risk factors and uncertainties, which may cause the actual results,
performance or achievements of Badger to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such 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 the
quarterly report should not be 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 of $31.7 million for the three months ended September 30, 2007
were 25 percent higher than the $25.3 million in revenues generated during the
comparable period of 2006. This increase is attributable to the following:

    
        1.  In the United States revenues increased to $9.9 million from
            $8.4 million period-over-period. This 18 percent increase was due
            to Badger's continued focus in 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
            55 percent of the Fund's total United States revenue generated
            during the nine months ended September 30, 2007.

        2.  Western Canada hydrovac revenue increased by $2.6 million or
            22 percent in the third quarter of 2007 over the third quarter of
            2006. The main reason was pent-up demand from the second quarter
            when wet weather delayed work in certain areas. Also during the
            third quarter Badger provided services on some major projects.

        3.  Eastern Canada revenue, excluding the added revenue from the
            Benko acquisition, increased by 10 percent due to improved
            territorial coverage and customer development.
    

    Badger's average monthly revenue per hydrovac truck during the three
months ended September 30, 2007 was $30,600, versus $30,200 for the three
months ended September 30, 2006. This brought average monthly revenue per
truck to $28,700 for the nine months ended September 30, 2007, versus $29,900
for the nine months ended September 30, 2006.
    Included in revenues was approximately $555,000 of truck placement and
franchise fees for the three months ended September 30, 2007, versus $276,000
of such fees for the three months ended September 30, 2006.

    Direct Costs

    Direct costs for the quarter ended September 30, 2007 were $19.6 million
compared to $16.0 million for the quarter ended September 30, 2006. This was
an increase of 23 percent, versus the 25 percent increase in revenues,
resulting in an increased gross margin during the third quarter of 2007
compared to the third quarter of 2006.

    Gross Margin

    Gross margin was 38.2 percent for the quarter ended September 30, 2007
versus 36.8 percent for the quarter ended September 30, 2006. The main reasons
for the increase in gross margin were the increase in revenues and the running
of a larger number of corporate locations in Canada, which resulted from the
acquisition of service rights from certain Canadian Operating Partners.

    Amortization

    Amortization was $2.6 million for the three months ended September 30,
2007, or $0.4 million higher than the $2.2 million for the three months ended
September 30, 2006. The increase reflects a larger number of hydrovac units in
the fleet. Included in this figure is approximately $49,000 related to the
amortization of the intangible assets acquired with Benko Sewer Service.

    Interest Expense

    Interest expense was $285,000 for the quarter ended September 30, 2007
versus $108,000 for the quarter ended September 30, 2006. The higher interest
expense is attributable to maintaining a higher balance of debt during the
third quarter of 2007 than in the third quarter of 2006. The increased debt
was used to fund growth capital expenditures and business acquisitions.

    Selling, General and Administrative

    Selling, general and administrative expenses were $2.5 million for the
quarter ended September 30, 2007 compared to $1.8 million for the quarter
ended September 30, 2006. As a percentage of revenues, selling, general and
administrative expenses were 8.0 percent for the third quarter of 2007 versus
7.2 percent for the third quarter of 2006. The increase was due to hiring
additional personnel to manage growth in the United States, compensation
increases required to retain quality personnel in a competitive labour
environment, additional costs associated with the acquisition of Benko Sewer
Service and higher general office costs to support the growth in business. The
amount for the three months ended September 30, 2007 also included a $231,000
charge for non-cash compensation expense related to unit options granted
versus $58,000 for the comparable period in 2006.

    Foreign Exchange Loss (Gain)

    The Fund's foreign exchange loss increased to $366,000 in the third
quarter of 2007 from $9,000 in the same quarter in 2006 due to the United
States dollar weakening against the Canadian dollar to a larger extent in the
third quarter of 2007 than in the third quarter of 2006 and an overall
increase in the Fund's United States operations, which resulted in an increase
in the Fund's net monetary assets denominated in United States dollars. The
foreign exchange loss is a non-cash expense which does not impact cash
available for growth capital expenditures and distributions.

    Income Taxes

    Badger recorded an income tax expense of $1.1 million in the third
quarter of 2007 versus $1.3 million in the third quarter of 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, in the second quarter of 2007 Badger recorded an additional
$1.6 million in future income tax expense and a corresponding future income
tax liability related to the differences 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 in the second quarter of 2007 were reduced significantly 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.

    Liquidity

    Funds generated from operations for the quarter ended September 30, 2007
increased to $9.2 million from $7.3 million for the comparable period in 2006
due to stronger Canadian and United States activity levels.
    The Fund had working capital of $19.2 million at September 30, 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 for the three
and nine months ended September 30, 2007:

    
                                                  Three Months   Nine Months
                                                      Ended         Ended
                                                  September 30, September 30,
                                                      2007          2007
    -------------------------------------------------------------------------
                                                        $             $

    Cash provided by operating activities            3,059,986    16,710,577
    Add (deduct): net change in non-cash
     working capital                                 6,158,569     6,601,463
                                                  ---------------------------
    Funds generated from operations                  9,218,555    23,312,040
    Add: proceeds on disposal of property,
     plant and equipment                                     -       260,639
    Less: required repayments of long-term debt        (27,192)      (81,576)
    Less: maintenance capital expenditures(*)         (623,961)   (2,254,861)
                                                  ---------------------------
    Cash available for growth capital
     expenditures and distributions                  8,567,402    21,236,242
                                                  ---------------------------
                                                  ---------------------------
    Growth capital expenditures(*)                   2,119,874     7,184,749
                                                  ---------------------------
                                                  ---------------------------
    Cash distributions declared                      3,389,926    10,168,494
                                                  ---------------------------
                                                  ---------------------------

    (*) Total maintenance and growth capital expenditures for the three and
    nine months ended September 30, 2007 were $2,743,835 and $9,439,610,
    respectively.
    


    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; 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 chart above, cash not distributed to
unitholders was used to finance growth capital expenditures.
    If maintenance capital expenditures 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 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 cash provided by operations will be sufficient to fund
the maintenance capital expenditures in the future.
    Badger's cash available for growth capital expenditures has been
negatively impacted by the weakening of the United States dollar relative to
the Canadian dollar so the funds generated from operations have been reduced.
On the positive side, approximately one-third of the capital cost incurred to
build the hydrovac units is denominated in United States dollars thereby
reducing the costs of manufacturing the hydrovac units.
    Badger is restricted from declaring distributions and distributing cash
if it is in breach of the covenants under its credit facility. 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.
    The revolving credit facility is used to fund working capital
requirements and finance capital expenditures, of which $22.4 million was used
at September 30, 2007. The Fund will maintain an appropriate mix of flexible
debt and equity to finance its maintenance capital expenditures and growth
initiatives.

    Capital Resources

    The Fund spent $2.7 million on property, plant and equipment for the
three months ended September 30, 2007 compared to $4.1 million for the three
months ended September 30, 2006. The Fund added 12 hydrovac units to the fleet
in the third quarter of 2007, compared to 12 units in the third quarter of
2006. The decrease of $1.4 million in capital expenditures was due to Badger
incurring certain costs prior to the commencement of the third quarter which
related to the build of the units in the third quarter of 2007. 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 and distributions to
unitholders.

    Number of Daylighting Units

    During the three-month period ended September 30, 2007 Badger added four
units to the Canadian fleet and removed one from service, bringing the total
to 213 units operating in Canada at September 30, 2007. In the United States,
Badger added eight units and removed one from service, bringing the total to
110 units in the United States at September 30, 2007.

    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, are as follows
(assuming the extendable revolving credit facility is not renewed on June 30,
2008):

    
    October 1, 2007 to December 31, 2007                             $27,192
    2008                                                             108,768
    2009                                                          22,425,881
    2010                                                             108,768
    2011                                                             108,768
    Thereafter                                                       571,066
                                                                -------------
    Total                                                        $23,350,443
                                                                -------------
                                                                -------------
    

    In addition to the contractual obligations above, at September 30, 2007
the Fund had committed to certain capital expenditures totalling approximately
$5.7 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 payments for
these financial obligations.

    Unitholders' Capital

    The total units outstanding at September 30, 2007 were 10,761,668. There
was no subsequent change to the balance as of November 12, 2007.

    
    Selected Quarterly Financial Information

    -------------------------------------------------
                            Quarter Ended
                  -----------------------------------
                                 2007
                  -----------------------------------
                   Sept. 30     June 30     Mar. 31
    -------------------------------------------------

    Revenues ($)  31,741,950  25,015,707  27,574,051
    -------------------------------------------------
    Net earnings
     ($)           5,136,223   1,539,755   4,229,918
    -------------------------------------------------
    Net earnings
     per unit -
     basic ($)          0.48        0.14        0.39
    -------------------------------------------------
    Net earnings per
     unit -
     diluted ($)        0.48        0.14        0.39
    -------------------------------------------------


    -------------------------------------------------------------------------
                                     Quarter Ended
                  -----------------------------------------------------------
                                        2006                          2005
                  -----------------------------------------------------------
                    Dec. 31    Sept. 30     June 30     Mar. 31     Dec. 31
    -------------------------------------------------------------------------
    Revenues ($)  25,621,658  25,324,030  21,696,318  25,728,890  23,093,735
    -------------------------------------------------------------------------
    Net earnings
     ($)           4,659,784   3,974,958   2,841,459   5,020,254   3,468,113
    -------------------------------------------------------------------------
    Net earnings
     per unit -
     basic ($)          0.43        0.37        0.26        0.47        0.32
    -------------------------------------------------------------------------
    Net earnings
     per unit -
     diluted ($)        0.43        0.37        0.26        0.47        0.32
    -------------------------------------------------------------------------
    

    Change in Accounting Policies

    As of January 1, 2007, the Fund prospectively adopted the Canadian
Institute of Chartered Accountants' (CICA ) Section 1530 "Comprehensive
Income", Section 3251 "Equity", Section 3855 "Financial Instruments -
Recognition and Measurement", Section 3861 "Financial Instruments - Disclosure
and Presentation" and Section 3865 "Hedges". Under the new standards a new
financial statement, the Consolidated Statement of Comprehensive Income, has
been introduced that provides for certain gains and losses and other amounts
arising from changes in fair value, to be temporarily recorded outside the
income statement. In addition, all financial instruments, including
derivatives, are to be included in the Fund's Consolidated Balance Sheets and
measured, in most cases, at fair values, and requirements for hedge accounting
have been further clarified. There is no material impact to the Fund's
consolidated financial statements as a result of implementing the new
standards. As required by the new standards, prior periods have not been
restated.
    As of January 1, 2007 the Fund adopted revised CICA Section 1506
"Accounting Changes", which provides expanded disclosures for changes in
accounting policies, accounting estimates and corrections of errors. Under the
new standard, accounting changes should be applied retrospectively unless
otherwise permitted or where impracticable to determine. As well, voluntary
changes in accounting policy are made only when required by a primary source
of GAAP or when the change results in more relevant and reliable information.
There is no material impact to the Fund's consolidated financial statements as
a result of implementing this new standard.
    For a detailed discussion about the accounting policies adopted, please
refer to note 2 of the interim consolidated financial statements for the nine-
and three-month periods ended September 30, 2007.

    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
September 30, 2007 that have materially affected or are reasonably likely to
materially affect the ICFR. No such changes were identified through their
evaluation.

    Business Risks

    The Management's Discussion and Analysis for the year ended December 31,
2006, which is included in the Fund's 2006 Annual Report, includes an overview
of business risks associated with the Fund. Those business risks remain in
effect and readers are referred to this document. Reference should also be
made to Badger's 2006 Annual Information Form.

    OUTLOOK

    Badger expects revenue growth to continue in the fourth quarter of 2007.
This is based on a good level of infrastructure activity in Western Canada, an
expected strong finish to the construction season in Ontario, a large number
of projects in the Eastern United States requiring Badger's service and a
continued good level of activity in the oil field service sector in the
Western United States.

    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

                                                 September 30,  December 31,
                                                     2007          2006
                                                      $             $
                                                -----------------------------
    ASSETS
      Current
      Cash                                           1,662,308     1,319,912
      Accounts receivable                           27,694,112    22,873,841
      Inventories                                    1,707,490     1,399,661
      Prepaid expenses                               1,128,360       679,675
                                                -----------------------------
                                                    32,192,270    26,273,089

      Property, plant and equipment                 68,020,775    62,367,823

      Intangible assets (note 3)                     3,907,344     1,551,336

      Goodwill (note 3)                              1,621,000             -

                                                -----------------------------
                                                   105,741,389    90,192,248
                                                -----------------------------
                                                -----------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
      Current
      Accounts payable and accrued liabilities      11,558,470    14,951,723
      Income taxes payable                             173,725       671,544
      Distributions payable                          1,129,975     1,129,655
      Current portion of long-term debt                108,768       108,768
                                                -----------------------------
                                                    12,970,938    16,861,690

      Long-term debt                                23,241,675     8,516,284

      Future income taxes (note 7)                  13,754,936    10,259,536

                                                -----------------------------
                                                    49,967,549    35,637,510
                                                -----------------------------

      Unitholders' equity
      Unitholders' capital (note 4)                 43,538,255    43,488,255
      Contributed surplus (note 5)                   1,405,300       973,600
      Retained earnings                             10,830,285    10,092,883
                                                -----------------------------
                                                    55,773,840    54,554,738

                                                -----------------------------
                                                   105,741,389    90,192,248
                                                -----------------------------
                                                -----------------------------

    See accompanying notes


    BADGER INCOME FUND
    unaudited consolidated statements of earnings and comprehensive income
    and retained earnings

                         Three Months  Three Months  Nine Months  Nine Months
                             Ended         Ended        Ended        Ended
                          Sept. 30/07   Sept. 30/06  Sept. 30/07  Sept. 30/06
                               $             $            $            $
                         ----------------------------------------------------

    Revenues               31,741,950   25,324,030   84,331,708   72,749,238
    Direct costs           19,628,697   15,998,845   53,049,127   45,746,720
                         ----------------------------------------------------
    Gross margin           12,113,253    9,325,185   31,282,581   27,002,518
                         ----------------------------------------------------
    Expenses
      Amortization          2,647,386    2,186,232    7,603,382    6,325,107
      Loss (gain) on sale
       of property, plant
       and equipment           44,456      (71,021)      40,636         (319)
      Interest
        Long-term             284,692       17,766      728,671       51,411
        Current                     -       89,939            -      225,675
      Selling, general
       and administrative   2,544,677    1,812,901    7,104,631    5,328,671
      Foreign exchange
       loss (gain)            366,390        8,532      785,026       84,960
                         ----------------------------------------------------
                            5,887,601    4,044,349   16,262,346   12,015,505
                         ----------------------------------------------------

    Earnings before
     income taxes           6,225,652    5,280,836   15,020,235   14,987,013
                         ----------------------------------------------------

    Income taxes
      Current                 296,029      194,158      618,939      504,442
      Future (note 7)         793,400    1,111,720    3,495,400    2,645,900
                         ----------------------------------------------------
                            1,089,429    1,305,878    4,114,339    3,150,342
                         ----------------------------------------------------
                         ----------------------------------------------------

    Net earnings and
     comprehensive
     income for the
     period                 5,136,223    3,974,958   10,905,896   11,836,671

    Retained earnings,
     beginning of period    9,083,988    8,234,834   10,092,883    6,842,902

    Cash distributions     (3,389,926)  (3,387,728) (10,168,494)  (9,857,509)
                         ----------------------------------------------------

    Retained earnings,
     end of period         10,830,285    8,822,064   10,830,285    8,822,064
                         ----------------------------------------------------
                         ----------------------------------------------------

    Net earnings per
     unit (note 6)

    Basic                        0.48         0.37         1.01         1.10
                         ----------------------------------------------------
                         ----------------------------------------------------
    Diluted                      0.48         0.37         1.01         1.10
                         ----------------------------------------------------
                         ----------------------------------------------------

    See accompanying notes



    BADGER INCOME FUND
    unaudited consolidated statements of cash flows

                         Three Months  Three Months  Nine Months  Nine Months
                             Ended         Ended        Ended        Ended
                          Sept. 30/07   Sept. 30/06  Sept. 30/07  Sept. 30/06
                               $             $            $            $
                         ----------------------------------------------------
    Operating
     activities
    Net earnings for the
     period                 5,136,223    3,974,958   10,905,896    11,836,671
    Non-cash items:
      Amortization          2,647,386    2,186,232    7,603,382     6,325,107
      Future income taxes     793,400    1,111,720    3,495,400     2,645,900
      Unit-based
       compensation           230,700       58,200      481,700       142,790
      Foreign exchange
       loss (gain)            366,390        8,532      785,026        84,960
      Loss (gain) on sale
       of property, plant
       and equipment           44,456      (71,021)      40,636         (319)
                         ----------------------------------------------------
                            9,218,555    7,268,621   23,312,040   21,035,109

    Net change in
     non-cash working
     capital relating to
     operating activities  (6,158,569)  (3,118,390)  (6,601,463)  (1,318,715)
                         ----------------------------------------------------
                            3,059,986    4,150,231   16,710,577   19,716,394
                         ----------------------------------------------------

    Financing activities
    Proceeds from units
     issued                         -           59            -           59
    Proceeds from long-
     term debt              2,783,986            -   14,806,967            -
    Repayment of long-
     term debt                (27,192)     (27,192)     (81,576)     (81,509)
    Distributions to
     unitholders           (3,389,926)  (3,387,110) (10,168,174)  (9,780,258)
    Increase (decrease)
     in bank indebtedness           -    3,057,855            -    3,279,512
                         ----------------------------------------------------
                         ----------------------------------------------------
                             (633,132)    (356,388)   4,557,217   (6,582,196)
                         ----------------------------------------------------
    Investing activities
    Purchase of Benko
     Sewer Service
     (note 3)                       -            -   (4,101,000)           -
    Purchase of service
     rights (note 3)                -            -   (3,994,007)           -
    Purchase of property,
     plant and equipment   (2,743,835)  (4,142,223)  (9,439,610) (13,823,485)
    Proceeds on disposal
     of property, plant
     and equipment                  -      183,765      260,639      713,377
    Net change in non-
     cash working capital
     relating to
     investing activities           -            -   (3,651,420)           -
                         ----------------------------------------------------
                           (2,743,835)  (3,958,458) (20,925,398) (13,110,108)
                         ----------------------------------------------------

    Increase (decrease)
     in cash during the
     period                  (316,981)    (164,615)     342,396       24,090
    Cash, beginning of
     period                 1,979,289    1,379,103    1,319,912    1,190,398
                         ----------------------------------------------------
    Cash, end of period     1,662,308    1,214,488    1,662,308    1,214,488
                         ----------------------------------------------------
                         ----------------------------------------------------

    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 ("Badger" or the "Fund") 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 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, 2006, 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,
    2006.

    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 nine months and three months ended
    September 30, 2007 and 2006.

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

    2.  Changes in Accounting Policies

    a) Goodwill represents the excess of the purchase price over fair value
    of net assets acquired and liabilities assumed. Goodwill is not subject
    to amortization, but is tested for impairment on an annual basis, or more
    frequently if events or circumstances indicate the asset may be impaired.
    The impairment test for goodwill includes the application of a fair value
    test, with an impairment loss recognized as an expense where the carrying
    amount of the asset exceeds its fair value. The Fund utilizes the
    capitalized maintainable earnings in application of the fair value test.
    Any goodwill impairment will be recognized as an expense in the period
    the impairment is determined.

    b) As of January 1, 2007 the Fund adopted the Canadian Institute of
    Chartered Accountants' (CICA) Handbook Section 1530 "Comprehensive
    Income", Section 3251 "Equity", Section 3855 "Financial Instruments -
    Recognition and Measurement", Section 3861 "Financial Instruments -
    Disclosure and Presentation" and Section 3865 "Hedges". 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.

    Comprehensive Income
    --------------------
    The new standards introduce comprehensive income, which consists of net
    earnings and other comprehensive income (OCI). Upon adoption of
    Section 1530, the Fund revised its Consolidated Statements of Earnings
    and Accumulated Earnings to include the newly required statement of
    comprehensive income by creating a combined statement.

    The adoption of comprehensive income has been made in accordance with the
    applicable transitional provisions and no amounts have been reclassified
    to accumulated other comprehensive income.

    Financial Instruments
    ---------------------
    The financial instruments standard establishes the recognition and
    measurement criteria for financial assets, financial liabilities and
    derivatives. All financial instruments are required to be measured at
    fair value on initial recognition of the instrument, except for certain
    related-party transactions. Measurement in subsequent periods depends on
    whether the financial instrument has been classified as "held-for-
    trading", "available-for-sale", "held-to-maturity", "loans and
    receivables", or "other financial liabilities" as defined by the
    standard.

    Financial assets and financial liabilities "held-for-trading" are
    measured at fair value with changes in those fair values recognized in
    net earnings. Financial assets "available-for-sale" are measured at fair
    value, with changes in those fair values recognized in OCI. Financial
    assets "held-t o-maturity", "loans and receivables" and "other financial
    liabilities" are measured at amortized cost using the effective interest
    method of amortization. The methods used by the Fund in determining fair
    value of financial instruments are unchanged as a result of implementing
    the new standard.

    Accounts receivable are designated as "loans and receivables". Accounts
    payable and accrued liabilities, cash distributions payable and long-term
    debt are designated as "other liabilities". Risk management assets and
    liabilities are derivative financial instruments classified as "held-for-
    trading".

    Accounting Changes
    ------------------
    As of January 1, 2007, the Fund adopted revised CICA Section 1506
    "Accounting Changes", which provides expanded disclosures for changes in
    accounting policies, accounting estimates and corrections of errors.
    Under the new standard, accounting changes should be applied
    retrospectively unless otherwise permitted or where impracticable to
    determine. As well, voluntary changes in accounting policy are made only
    when required by a primary source of GAAP or when the change results in
    more relevant and reliable information. There is no material impact to
    the Fund's consolidated financial statements as a result of implementing
    this new standard.

    3.  Acquisitions

    a)  Benko Sewer Service

    On April 1, 2007 the Fund acquired all of the operating assets and
    business of Benko Sewer Service for cash consideration of $4.1 million.
    Benko Sewer Service is an Ontario-based hydrovac excavation and sewer
    maintenance service provider.

    The purchase price was allocated as follows:

                                                                          ($)
                                                                  -----------
    Property, plant and equipment                                  1,500,000
    Intangible assets                                                980,000
    Goodwill                                                       1,621,000
                                                                  -----------

                                                                   4,101,000
                                                                  -----------
                                                                  -----------

    Intangible assets acquired consist of customer relationships, the trade
    name and a non-compete agreement, all of which will be amortized
    straight-line over their estimated useful lives of five years.

    b)  Service Rights Acquired

    During the quarter the Fund acquired the service rights and operating
    assets from three of its Canadian agents for cash consideration of
    $4.0 million.

    The purchase price was allocated as follows:

                                                                          ($)
                                                                  -----------
    Property, plant and equipment                                  2,520,000
    Intangible assets (service rights)                             1,474,007
                                                                  -----------

                                                                   3,994,007
                                                                  -----------
                                                                  -----------

     Intangible assets acquired consist of service rights, which management
    determined have an indefinite life and therefore are not amortized.

    4.  Unitholders' Capital

                                                       Units       Amount ($)
                                                    -------------------------
    December 31, 2006                                10,758,618   43,488,255

    Units issued to non-management trustees               3,050       50,000
                                                    -------------------------
    September 30, 2007                               10,761,668   43,538,255
                                                    -------------------------
                                                    -------------------------

    The Fund declared distributions of $0.105 per unit for each of the months
    of January through September for a total of $10,168,494 million.

    5.  Unit-Based Compensation

    A summary of the unit option transactions for the nine months ended
    September 30, 2007 is as follows:

                                                                 Nine months
                                                                       ended
                                                                   September
                                                                    30, 2007
                                                                    Weighted
                                                                     average
                                                                    exercise
                                                                       price
                                                          Units            $
    -------------------------------------------------------------------------
    Outstanding at
     beginning of
     period                                             345,000        17.49
    Granted                                             295,000        16.41
    Exercised                                                 -            -
    Forfeited                                          (135,000)       17.50
    -------------------------------------------------------------------------
    Outstanding at
     end of period                                      505,000        16.86
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
            Options Outstanding                     Options Exercisable
                                Weighted
                                 average  Weighted         Number   Weighted
             Outstanding at    remaining   average exercisable at    average
    Range of   September 30, contractual  exercise   September 30,  exercise
    Prices             2007         life     price           2007      price
    -------------------------------------------------------------------------
    $17.50          160,000          3.6    $17.50              -          -
    -------------------------------------------------------------------------
    $17.45           50,000          3.8    $17.45              -          -
    -------------------------------------------------------------------------
    $16.41          295,000          4.6    $16.41              -          -
    -------------------------------------------------------------------------

    In May 2007 the Fund granted 295,000 fund unit options at an exercise
    price of $16.41 per unit.

    The Fund recorded compensation expense, included as part of selling,
    general and administrative expenses, of $431,700 with an offsetting
    increase to contributed surplus for the nine months ended September 30,
    2007.

    The weighted average estimated fair value at the date of the grant for
    fund unit options granted for the nine months ended September 30, 2007
    was $7.66 per unit option. The fair value of each unit option grant was
    estimated on the date of the grant using the Black-Scholes option-pricing
    model with the following assumptions:

                                                           Nine Months Ended
    Weighted average assumptions                          September 30, 2007
    -------------------------------------------------------------------------
    Dividend yield                                                     7.60%
    Discount for forfeiture                                                0
    Risk-free interest rate                                            3.75%
    Expected life of options                                         5 years
    Expected volatility factor of the future expected
     market price of fund units                                      101.00%
    -------------------------------------------------------------------------

    6.  Net Earnings per Unit

    Basic per unit calculations for the nine and three months ended
    September 30, 2007 were based on the weighted average number of units
    outstanding of 10,760,070 and 10,761,668, respectively. Basic per unit
    calculations for the nine and three months ended September 30, 2006 were
    based on the weighted average units outstanding of 10,748,796 and
    10,754,138, respectively. Diluted per unit calculations for the nine and
    three months ended September 30, 2007 were based on the weighted average
    number of units outstanding of 10,760,070 and 10,761,668, respectively.
    Diluted per unit calculations for the nine and three months ended
    September 30, 2006 were based on the weighted average number of units
    outstanding of 10,748,796 and 10,754,138, respectively. The difference
    between the basic and diluted units was attributable to the dilutive
    effect of the unit options outstanding.

    7.  Future Income Taxes

    On June 12, 2007, Bill C-52, the Budget Implementation Act, 2007 was
    substantively enacted by the Canadian federal government. The act
    contains legislation to tax publicly traded trusts in Canada. As a
    result, a new 31.5 percent tax will be applied to distributions from
    Canadian public income trusts. The new tax is not expected to apply to
    Badger until 2011 as a transition period applies to publicly traded
    trusts that existed prior to November 1, 2006. As a result of this
    substantive enactment of trust taxation, Badger recorded an additional
    $1.6 million in future income tax expense and increased its future income
    tax liability in the second quarter of 2007. The future income tax
    adjustment represents the taxable temporary differences of Badger's Fund
    tax-effected at 31.5 percent, which is the rate that will be applicable
    in 2011 under the current legislation and Badger's current corporate
    structure.

    8.  Subsequent Event

    On October 1, 2007 Badger completed the acquisition of service rights
    from one of its Canadian Operating Partners for cash consideration of
    $1.3 million.

    9.  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 nine and three months ended September 30, 2007 and
    2006 based on these geographic segments.

                                       Three months ended September 30, 2007
                                       --------------------------------------
                                           Canada ($)     USA ($)   Total ($)

    Revenues                              21,867,718   9,874,232  31,741,950

    Direct costs                          13,333,755   6,294,942  19,628,697

    Selling, general and administrative    1,834,458     710,219   2,544,677

    EBITDA((*))                            6,735,632   2,466,554   9,202,186

    Amortization                           1,771,835     875,551   2,647,386

    Earnings before income taxes           4,632,137   1,593,515   6,225,652

    Capital expenditures                     393,689   2,350,146   2,743,835


                                       Three months ended September 30, 2006
                                       --------------------------------------
                                           Canada ($)     USA ($)   Total ($)

    Revenues                              16,973,396   8,350,634  25,324,030

    Direct costs                          10,719,691   5,279,154  15,998,845

    Selling, general and administrative    1,160,183     652,718   1,812,901

    EBITDA((*))                            5,097,027   2,406,725   7,503,752

    Amortization                           1,567,359     618,873   2,186,232

    Earnings before income taxes           3,493,290   1,787,546   5,280,836

    Capital expenditures                   1,469,128   2,673,095   4,142,223



                                        Nine months ended September 30, 2007
                                       --------------------------------------
                                           Canada ($)     USA ($)   Total ($)

    Revenues                              56,158,754  28,172,954  84,331,708

    Direct costs                          35,179,411  17,869,716  53,049,127

    Selling, general and administrative    4,595,462   2,509,169   7,104,631

    EBITDA ((*))                          16,483,125   6,909,799  23,392,924

    Amortization                           5,190,685   2,412,697   7,603,382

    Earnings before income taxes          10,524,429   4,495,806  15,020,235

    Property, plant and equipment         45,180,970  22,839,805  68,020,775

    Intangible assets                      3,907,344           -   3,907,344

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

    Total assets                          72,498,000  33,243,389 105,741,389

    Capital expenditures                   2,204,595   7,235,015   9,439,610


                                        Nine months ended September 30, 2006
                                       --------------------------------------
                                           Canada ($)     USA ($)   Total ($)

    Revenues                              51,815,467  20,933,771  72,749,238

    Direct costs                          32,177,762  13,568,958  45,746,720

    Selling, general and administrative    3,589,626   1,739,045   5,328,671

    EBITDA ((*))                          16,092,796   5,496,091  21,588,887

    Amortization                           4,658,883   1,666,224   6,325,107

    Earnings before income taxes          11,209,563   3,777,450  14,987,013

    Property, plant and equipment         41,400,653  16,175,462  57,576,115

    Intangible assets                              -           -           -

    Goodwill                                       -           -           -

    Total assets                          60,422,543  24,251,330  84,673,873

    Capital expenditures                   5,405,014   8,418,471  13,823,485

    ((*)) 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 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 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 limited 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: 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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