Badger Income Fund Announces Second Quarter 2007 Results and Completion of Acquisitions



    TSX-BAD.UN

    CALGARY, Aug. 14 /CNW/ - Badger Income Fund (the "Fund" or "Badger") is
pleased to announce its results for the second quarter of 2007. Overall
revenues increased by approximately 15 percent to $25.0 million for the three
months ended June 30, 2007 from $21.7 million for the same period in 2006, due
to a 7 percent increase in Canadian revenues and a 34 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 $6.3 million in the second quarter from
$6.1 million in the same quarter of 2006.
    Growth of the Fund's EBITDA was negatively impacted by increases in
corporate selling, general and administrative expenses and by
lower-than-expected margins in Canadian corporate operations during the
quarter. Net earnings decreased to $1.5 million or $0.14 per unit in the
second quarter of 2007 from $2.8 million or $0.26 per unit in the same period
of 2006. The main reason for the reduction was the substantive enactment of
Bill C-52, the Budget Implementation Act, 2007, which contains legislative
provisions to tax publicly traded income trusts in Canada. The financial
effect on Badger of recording the impact of this legislation was an increase
in future income tax expense of $1.6 million or a decrease in net earnings of
$0.15 per unit. Also during the second quarter Badger completed the
acquisition of service rights from three of its Canadian Operating Partners
for cash consideration of $4.0 million and finalized the acquisition of Benko
Sewer Service effective April 1, 2007 for cash consideration of $4.1 million.

    
    FINANCIAL HIGHLIGHTS

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

                                Three Months Ended        Six Months Ended
                                     June 30                   June 30
                                2007         2006         2007         2006
                              -----------------------------------------------
    Revenues                   25,016       21,696       52,590       47,425
    EBITDA(1)                   6,342        6,054       14,191       14,085
    Earnings before
     income taxes               3,577        3,790        8,795        9,706
    Taxes
      Current                     136          126          323          310
      Future                    1,901          823        2,702        1,534
    Net earnings                1,540        2,841        5,770        7,862
    Net earnings per unit -
     diluted ($)                 0.14         0.26         0.54         0.73
    Funds generated
     from operations(2)         6,509        6,027       14,093       13,777
    Funds generated from
     operations per unit -
     diluted ($)                 0.60         0.56         1.31         1.28
    Maintenance capital
     expenditures(3)              964        1,263        1,631        1,898
    Long-term debt repayments      27           27           54           54
    Cash available for growth
     and distribution(4)        5,679        5,164       12,694       12,355
    Cash distributions
     declared                   3,390        3,312        6,779        6,470
    Growth capital
     expenditures(3)            2,937        2,908        5,090        7,783
    Total units outstanding,
     end of period         10,761,668   10,752,730   10,761,668   10,752,730

    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 June 30, 2007, Badger added 18 units
    to the fleet and removed three from service. As a result, 15 of the units
    added during the three months ended June 30, 2007 represent growth
    capital expenditures, while three of the units added represent
    maintenance capital expenditures. During the six months ended June 30,
    2007 Badger added 33 units to the fleet, of which five 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 - SECOND QUARTER 2007

    1.  Badger's Western Canada operations managed to grow revenue in the
        quarter despite difficulties from road weight restrictions caused by
        wet weather during spring break-up. Corporate operations have now
        been organized under one manager who will focus on future growth and
        cost control, which was weak in the past.

    2.  In Eastern Canada the results indicated overall growth although there
        was some negative impact due to a strike hitting part of the
        construction sector. Badger now has very good market coverage in
        Ontario.

    3.  The United States operations achieved very good results with the
        trucks delivered last year contributing to revenue growth in the
        second quarter. Badger has continued to add trucks and franchises in
        2007.

    4.  Effective April 1, 2007 Badger purchased Benko Sewer Service for
        $4.1 million cash. Benko Sewer Service is a well-managed company in
        Eastern Canada that provides sewer maintenance and hydrovac services.
        The 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.

    5.  During the second quarter Badger acquired the service rights and
        certain tangible assets from three of its Operating Partners in
        Canada for $4.0 million cash. 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 operations in certain
        geographic areas where it makes sense for market, development or
        other business reasons.

    6.  Revenue per hydrovac truck per month was $25,200 in the second
        quarter of 2007, compared to $26,200 for the same period of 2006.
        Badger budgets an overall fleet average of $25,000 per truck per
        month.

    7.  Badger had 313 daylighting units at the end of the second quarter of
        2007, reflecting the addition of 33 units to the fleet to date in
        2007 and the retirement of five 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 second
quarter. However, unless otherwise indicated, year-over-year variances for the
six months ended June 30, 2007 and 2006 are explained by the same general
factors, which contributed to the second quarter variance.
    This Management's Discussion and Analysis has been prepared taking into
consideration information available to August 13, 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.

    Business Acquisitions

    During the quarter Badger acquired the service rights and tangible assets
including land and buildings along with certain other equipment from three of
its Canadian Operating Partners for approximately $4.0 million.
    Effective April 1, 2007 Badger purchased Benko Sewer Service for
$4.1 million cash. The tangible assets acquired included three hydrovac units,
four sewer maintenance vehicles, three camera units and other equipment.

    Results of Operations

    Revenues

    Revenues of $25.0 million for the three months ended June 30, 2007 were
15 percent higher than the $21.7 million in revenues generated during the
comparable period of 2006. This increase is primarily attributable to the
United States business segment where revenues increased to $8.9 million from
$6.6 million period-over-period. This 34 percent increase is due to Badger's
continued focus in certain geographical areas and market segments, which has
resulted in an increased customer base and demand for hydrovac services. The
other major contributing factor was the increased activity related to oil
field service in the United States.
    Badger's average monthly revenue per hydrovac truck during the three
months ended June 30, 2007 was $25,200 versus $26,200 for the three months
ended June 30, 2006. This brings the average revenue per truck per month to
$27,500 for the six months ended June 30, 2007 versus $29,500 for the six
months ended June 30, 2006.
    Included in revenues is approximately $390,000 of truck placement and
franchise fees for the three months ended June 30, 2007, versus $400,000 of
such fees for the three months ended June 30, 2006.

    Direct Costs

    Direct costs for the quarter ended June 30, 2007 were $16.1 million
compared to $13.7 million for the quarter ended June 30, 2006. This is an
increase of 18 percent versus the 15 percent increase in revenues. The main
reason direct costs increased in greater proportion than the increase in
revenues was due to added costs incurred in running certain of the Canadian
areas as corporate locations.

    Gross Margin

    Gross margin was 35.7 percent for the quarter ended June 30, 2007 versus
36.9 percent for the quarter ended June 30, 2006. The main reason for the
reduction in gross margin is the added costs incurred in running certain of
the Canadian areas as corporate locations.

    Amortization

    Amortization of property, plant and equipment was $2.6 million for the
three months ended June 30, 2007, or $0.5 million higher than the $2.1 million
for the three months ended June 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 $217,000 for the quarter ended June 30, 2007 versus
$102,000 for the quarter ended June 30, 2006. The higher interest expense is
attributable to maintaining a higher balance of debt during the second quarter
of 2007 than in the second 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 $2.3 million for the
quarter ended June 30, 2007 compared to $1.8 million for the quarter ended
June 30, 2006. As a percentage of revenues, selling, general and
administrative expenses were 9.0 percent for the second quarter of 2007 versus
8.5 percent for the second quarter of 2006. The increase is 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 June 30, 2007 also includes a $138,000
charge for non-cash compensation expense related to unit options granted
versus $27,000 for the comparable period in 2006.

    Foreign Exchange Loss (Gain)

    The foreign exchange loss results from converting the balance sheet and
earnings statement related to United States operations into Canadian currency.
The foreign exchange loss was $331,000 in the second quarter of 2007 versus
$116,000 in the same period of 2006. The main reason for the
period-over-period increase was the appreciation of the Canadian dollar, which
was greater in the second quarter of 2007 compared with the comparable period
in 2006.

    Income Taxes

    Badger recorded a future income tax expense of $1.9 million in the second
quarter of 2007. The second quarter expense reflects the impact of the trust
tax legislation (also discussed above).
    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, 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.

    Liquidity

    Funds generated from operations for the quarter ended June 30, 2007
increased to $6.5 million from $6.0 million for the comparable period in 2006
due to stronger United States activity levels.
    The Fund had working capital of $13.7 million at June 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 six months ended June 30, 2007:

    
                                                   Three Months  Six Months
                                                       Ended        Ended
                                                       ------------------
                                                      June 30,     June 30,
                                                        2007         2007
    -------------------------------------------------------------------------
                                                          $            $

    Cash provided by operating activities             8,022,908   13,650,591
    Add (deduct): net change in non-cash
     working capital                                 (1,514,048)     442,894
                                                     ------------------------
    Funds generated from operations                   6,508,860   14,093,485
    Add: proceeds on disposal of property,
     plant and equipment                                160,697      285,442
    Less: required repayments of long-term debt         (27,192)     (54,384)
    Less: maintenance capital expenditures(*)          (963,508)  (1,630,900)
                                                     ------------------------
    Cash available for growth capital
     expenditures and distributions                   5,678,857   12,693,643
                                                     ------------------------
                                                     ------------------------
    Growth capital expenditures(*)                    2,937,086    5,089,678
                                                     ------------------------
                                                     ------------------------
    Cash distributions declared                       3,389,604    6,778,568
                                                     ------------------------
                                                     ------------------------

    (*) Total maintenance and growth capital expenditures for the three and
        six months ended June 30, 2007 were $3,900,594 and $6,720,578,
        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 which was 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 distribution will be
negatively affected. Due to Badger's growth rate in recent years, the majority
of the Fund's hydrovac units are relatively new, with an average age of
approximately four years. As a result, Badger is currently experiencing
relatively low levels of maintenance capital expenditures. Over time, Badger
would expect to incur annual maintenance capital expenditures in an amount
that approximates the amortization expense reported in the year. Badger
expects that continued cash provided by operations 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 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.
    In June, the Fund's extendable, revolving facility was amended to
increase the maximum principal amount to $30 million from $20 million. This
facility is used to fund working capital requirements and finance capital
expenditures, of which $19.6 million was used at June 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 $3.9 million on property, plant and equipment for the
three months ended June 30, 2007 compared to $4.2 million for the three months
ended June 30, 2006. The Fund added 15 hydrovac units to the fleet in the
second quarter of 2007 (excluding the three acquired on the acquisition of
Benko Sewer Service), compared to 14 units in the second quarter of 2006.
    During the second quarter Badger also spent $8.1 million in cash on two
business acquisitions.
    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 June 30, 2007 Badger added 11 units
to the Canadian fleet and removed three from service, bringing the total to
210 units operating in Canada as at June 30, 2007. In the United States,
Badger added seven units, bringing the total to 103 units in the United States
at June 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):

    
    July 1, 2007 to December 31, 2007                                $54,384
    2008                                                             108,768
    2009                                                          19,641,894
    2010                                                             108,768
    2011                                                             108,768
    Thereafter                                                       571,067
                                                                -------------
    Total                                                        $20,593,649
                                                                -------------
                                                                -------------
    

    In addition to the contractual obligations above, as at June 30, 2007 the
Fund had committed to certain capital expenditures totalling approximately
$4.2 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

    Unitholders' capital increased due to the issue of 3,050 units to the
non-management trustees as partial payment for 2007 trustee fees.
    The total units outstanding at June 30, 2007 were 10,761,668. There was
no subsequent change to the balance as of August 13, 2007.

    
    Selected Quarterly Financial Information

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


    -------------------------------------------------------------------------
                                               Quarter Ended
                            -------------------------------------------------
                                       2006                    2005
                            -------------------------------------------------
                             June 30      Mar. 31      Dec. 31     Sept. 30
    -------------------------------------------------------------------------
    Revenues ($)           21,696,318   25,728,890   23,093,735   20,471,322
    -------------------------------------------------------------------------
    Net earnings ($)        2,841,459    5,020,254    3,468,113    3,547,545
    -------------------------------------------------------------------------
    Net earnings per unit -
     basic ($)                   0.26         0.47         0.32         0.33
    -------------------------------------------------------------------------
    Net earnings per unit -
     diluted ($)                 0.26         0.47         0.32         0.33
    -------------------------------------------------------------------------
    

    Change in Accounting Policies

    As of January 1, 2007, the Fund prospectively adopted 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 six-
and three-month periods ended June 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 June 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.
    As with the previous fiscal period Badger has decided to continue with
self-insuring against any physical damage it might incur to its Canadian
hydrovac units, due to the high cost of insurance premiums. This decision will
be re-evaluated in 2008 as part of the insurance renewal process.

    OUTLOOK

    With the improved weather in Western Canada, less slowdown due to strikes
in Eastern Canada and improved management of corporate operations in Western
Canada Badger expects results in Canada to improve over the most recent
quarter. The United States regions are operating in a favourable business
environment and results there should continue to be strong. The challenge in
the United States is to find additional new franchises and corporate locations
so growth can continue.

    REVIEW OF INTERIM FINANCIAL STATEMENTS

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


    
    BADGER INCOME FUND
    unaudited consolidated balance sheets

                                                      June 30,   December 31,
                                                        2007         2006
                                                  ---------------------------
                                                          $            $

    ASSETS
      Current
      Cash                                            1,979,289    1,319,912
      Accounts receivable                            23,147,103   22,873,841
      Inventories                                     1,978,540    1,399,661
      Prepaid expenses                                  815,575      679,675
                                                  ---------------------------
                                                     27,920,507   26,273,089

      Property, plant and equipment                  67,919,783   62,367,823

      Intangible assets (note 3)                      3,956,343    1,551,336

      Goodwill (note 3)                               1,621,000            -

                                                  ---------------------------
                                                    101,417,633   90,192,248
                                                  ---------------------------
                                                  ---------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
      Current
      Accounts payable and accrued liabilities       12,892,479   14,951,723
      Income taxes payable                               43,151      671,544
      Distributions payable                           1,129,975    1,129,655
      Current portion of long-term debt                 108,768      108,768
                                                  ---------------------------
                                                     14,174,373   16,861,690

      Long-term debt                                 20,484,881    8,516,284

      Future income taxes (note 7)                   12,961,536   10,259,536

                                                  ---------------------------
                                                     47,620,790   35,637,510
                                                  ---------------------------

    Unitholders' equity
    Unitholders' capital (note 4)                    43,538,255   43,488,255
    Contributed surplus (note 5)                      1,174,600      973,600
    Retained earnings                                 9,083,988   10,092,883
                                                  ---------------------------
                                                     53,796,843   54,554,738

                                                  ---------------------------
                                                    101,417,633   90,192,248
                                                  ---------------------------
    See accompanying notes




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

                                 Three       Three        Six         Six
                                Months      Months      Months      Months
                                 Ended       Ended       Ended       Ended
                              June 30/07  June 30/06  June 30/07  June 30/06
                                   $           $           $           $
                            -------------------------------------------------

    Revenues                  25,015,707  21,696,318  52,589,758  47,425,208
    Direct costs              16,078,059  13,680,773  33,420,430  29,747,874
                            -------------------------------------------------

    Gross margin               8,937,648   8,015,545  19,169,328  17,677,334
                            -------------------------------------------------

    Expenses
      Amortization             2,564,165   2,135,229   4,955,996   4,138,875
      Loss (gain) on sale of
       property, plant and
       equipment                 (16,939)     26,378      (3,820)     70,702
      Interest
        Long-term                217,029      17,486     443,979      33,645
        Current                        -      84,327           -     135,736
      Selling, general and
       administrative          2,264,099   1,845,846   4,559,954   3,504,929
      Foreign exchange
       loss (gain)               331,929     116,175     418,636      87,270
                            -------------------------------------------------
                               5,360,283   4,225,441  10,374,745   7,971,157
                            -------------------------------------------------

    Earnings before
     income taxes              3,577,365   3,790,104   8,794,583   9,706,177
                            -------------------------------------------------

    Income taxes
      Current                    136,260     125,565     322,910     310,284
      Future (note 7)          1,901,350     823,080   2,702,000   1,534,180
                            -------------------------------------------------
                               2,037,610     948,645   3,024,910   1,844,464
                            -------------------------------------------------

    Net earnings and
     comprehensive income
     for the period            1,539,755   2,841,459   5,769,673   7,861,713

    Retained earnings,
     beginning of period      10,933,837   8,704,898  10,092,883   6,842,902

    Cash distributions        (3,389,604) (3,311,523) (6,778,568) (6,469,781)
                            -------------------------------------------------

    Retained earnings,
     end of period             9,083,988   8,234,834   9,083,988   8,234,834
                            -------------------------------------------------

    Net earnings per unit
     (note 6)

    Basic                           0.14        0.26        0.54        0.73
                            -------------------------------------------------

    Diluted                         0.14        0.26        0.54        0.73
                            -------------------------------------------------

    See accompanying notes



    BADGER INCOME FUND
    unaudited consolidated statements of cash flows

                              Three        Three         Six          Six
                             Months       Months       Months       Months
                              Ended        Ended        Ended        Ended
                           June 30/07   June 30/06   June 30/07   June 30/06
                                $            $            $            $

    Operating activities
    Net earnings for
     the period             1,539,755    2,841,459    5,769,673    7,861,713
    Non-cash items:
      Amortization          2,564,165    2,135,229    4,955,996    4,138,875
      Future income taxes   1,901,350      823,080    2,702,000    1,534,180
      Unit-based
       compensation           188,600       84,590      251,000       84,590
      Foreign exchange
       loss (gain)            331,929      116,175      418,636       87,270
      Loss (gain) on sale of
       property, plant and
       equipment              (16,939)      26,378       (3,820)      70,702
                          ---------------------------------------------------
                            6,508,860    6,026,911   14,093,485   13,777,330
    Net change in non-cash
     working capital
     relating to operating
     activities             1,514,048    1,577,129     (442,894)   1,788,833
                          ---------------------------------------------------
                            8,022,908    7,604,040   13,650,591   15,566,163
                          ---------------------------------------------------


    Financing activities
    Proceeds from
     long-term debt        10,161,810            -   12,022,981            -
    Repayment of
     long-term debt           (27,192)     (27,193)     (54,384)     (54,317)
    Distributions to
     unitholders           (3,389,284)  (3,235,935)  (6,778,248)  (6,393,148)
    Increase (decrease)
     in bank indebtedness           -       91,721            -      221,657
                          ---------------------------------------------------
                            6,745,334   (3,171,407)   5,190,349   (6,225,808)
                          ---------------------------------------------------
    Investing activities
    Purchase of Benko
     Sewer Service
     (note 3)              (4,101,000)           -   (4,101,000)           -
    Purchase of service
     rights (note 3)       (3,994,007)           -   (3,994,007)           -
    Purchase of property,
     plant and equipment   (3,900,594)  (4,171,197)  (6,720,578)  (9,681,262)
    Proceeds on disposal of
     property, plant and
     equipment                160,697      427,764      285,442      529,612
    Net change in non-cash
     working capital
     relating to investing
     activities            (2,712,986)           -   (3,651,420)           -
                          ---------------------------------------------------
                          (14,547,890)  (3,743,433) (18,181,563)  (9,151,650)
                          ---------------------------------------------------

    Increase (decrease)
     in cash during
     the period               220,352      689,200      659,377      188,705
    Cash, beginning
     of period              1,758,937      689,903    1,319,912    1,190,398
                          ---------------------------------------------------
    Cash, end of period     1,979,289    1,379,103    1,979,289    1,379,103
                          ---------------------------------------------------

    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 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 six and three months ended June 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-to-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 is 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 has been 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 has been 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
    has 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
                                                     ------------------------
    June 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 June for a total of $6,778,568 million.

    5.  Unit-Based Compensation

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

    -------------------------------------------------------------------------
                                                                  Six months
                                                                       ended
                                                                     June 30,
                                                                        2007
    -------------------------------------------------------------------------
                                                                    Weighted
                                                                     average
                                                                    exercise
                                                                       price
                                                          Units            $
    -------------------------------------------------------------------------
    Outstanding at beginning of period                  345,000        17.49
    Granted                                             295,000        16.41
    Exercised                                                 -            -
    Forfeited                                           (45,000)       17.50
    -------------------------------------------------------------------------
    Outstanding at end of period                        595,000        16.86
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                 Options Outstanding                   Options Exercisable
    -------------------------------------------------------------------------
                              Weighted
                               average    Weighted       Number     Weighted
              Outstanding    remaining     average  exercisable      average
    Range of  at June 30,  contractual    exercise   at June 30,    exercise
    prices          2007         life        price         2007        price
    -------------------------------------------------------------------------
    $17.50       250,000          3.9       $17.50            -            -
    -------------------------------------------------------------------------
    $17.45        50,000          4.1       $17.45            -            -
    -------------------------------------------------------------------------
    $16.41       295,000          4.9       $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 $201,000 with an offsetting
    increase to contributed surplus for the six months ended June 30, 2007.

    The weighted average estimated fair value at the date of the grant for
    fund unit options granted for the six months ended June 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:


    -------------------------------------------------------------------------
                                                    Six Months Ended June 30,
    -------------------------------------------------------------------------
    Weighted average assumptions                                        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 six and three months ended June 30,
    2007 were based on the weighted average number of units outstanding of
    10,759,258 and 10,759,892, respectively. Basic per unit calculations for
    the six and three months ended June 30, 2006 were based on the weighted
    average units outstanding of 10,746,081 and 10,751,623, respectively.
    Diluted per unit calculations for the six and three months ended June 30,
    2007 were based on the weighted average number of units outstanding of
    10,759,258 and 10,759,892, respectively. Diluted per unit calculations
    for the six and three months ended June 30, 2006 were based on the
    weighted average number of units outstanding of 10,754,913 and
    10,760,455, 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.  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 six and three months ended June 30, 2007 and 2006
    based on these geographic segments.

    GEOGRAPHICALLY SEGMENTED INFORMATION


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

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

    Direct costs                        10,542,604    5,535,455   16,078,059

    Selling, general and administrative  1,357,547      906,552    2,264,099

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

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

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

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


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

    Revenue                             15,067,376    6,628,942   21,696,318

    Direct costs                         9,196,411    4,484,362   13,680,773

    Selling, general and administrative  1,305,178      540,668    1,845,846

    EBITDA((*))                          4,593,385    1,460,139    6,053,524

    Amortization                         1,571,068      564,161    2,135,229

    Earnings before income taxes         2,945,325      844,779    3,790,104

    Capital expenditures                   446,110    3,725,087    4,171,197



                                            Six months ended June 30, 2007
                                        -------------------------------------
                                        Canada ($)     USA ($)     Total ($)

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

    Direct costs                        21,845,656   11,574,774   33,420,430

    Selling, general and administrative  2,761,004    1,798,950    4,559,954

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

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

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

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

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

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

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

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


                                            Six months ended June 30, 2006
                                        -------------------------------------
                                        Canada ($)     USA ($)     Total ($)

    Revenue                             34,842,071   12,583,137   47,425,208

    Direct costs                        21,458,070    8,289,804   29,747,874

    Selling, general and administrative  2,418,602    1,086,327    3,504,929

    EBITDA((*))                         10,995,769    3,089,366   14,085,135

    Amortization                         3,091,524    1,047,351    4,138,875

    Earnings before income taxes         7,716,273    1,989,904    9,706,177

    Property, plant and equipment       41,344,913   14,387,955   55,732,868

    Intangible assets                            -            -            -

    Goodwill                                     -            -            -

    Total assets                        56,900,314   20,733,661   77,633,975

    Capital expenditures                 3,935,886    5,745,376    9,681,262


    ((*)) 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).
    

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

    Badger Income Fund's business model involves the provision of excavating
services through two distinct entities: the Operating Partners (franchisees in
the United States and agents in Canada), and Badger Corporate. Badger
Corporate works with its Operating Partners to provided hydrovac service to
the end user. In this partnership, Badger provides the expertise, the trucks,
and North American marketing and administration support. The Operating
Partners deliver the service by operating the equipment and developing their
local markets. All work is invoiced by Badger and then shared with the
Operating Partner based upon a revenue sharing formula. In 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: regarding the Press Release, please contact:
Tor Wilson, President and CEO, 2820, 715 - 5th Avenue SW, Calgary, Alberta,
T2P 2X6; Greg Kelly, CA, Vice-President Finance and CFO, Phone (403) 264-8500,
Fax (403) 228-9773

Organization Profile

BADGER INCOME FUND

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890