Badger Income Fund announces results for the year ended December 31, 2006



    TSX-BAD.UN

    CALGARY, March 22 /CNW/ - Badger Income Fund ("Badger" or the "Fund") is
pleased to announce its results for the year and three months ended
December 31, 2006.

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

                             Three        Three
                             Months       Months        Year         Year
                             Ended        Ended        Ended        Ended
                          December 31  December 31  December 31  December 31
                              2006         2005         2006         2005
                         ----------------------------------------------------

    Revenue                    25,622       23,094       98,371       83,332

    EBITDA(1)                   7,307        6,845       28,895       24,794

    Earnings before
     income taxes               4,845        4,670       19,832       16,980

    Taxes
      Current                     183           92          687          173
      Future                        3        1,110        2,648        2,026

    Net earnings                4,659        3,468       16,497       14,781

    Net earnings per unit
     - diluted                   0.43         0.32         1.53         1.38

    Funds generated from
     operations(2)              6,820        6,890       27,855       24,534

    Funds generated from
     operations per unit
     - diluted                   0.63         0.64         2.59         2.30


    Maintenance capital
     expenditures(3)                -          978        3,170        1,955

    Long-term debt
     repayments                    27          201          109        1,274

    Cash available for
     growth and
     distribution(4)            6,794        6,108       25,291       21,778

    Cash distributions
     declared                   3,389        3,144       13,246       11,166

    Growth capital
     expenditures(3)            8,650        4,252       19,304       11,776

    Total units
     outstanding           10,758,618   10,738,820   10,758,618   10,738,820


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

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

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

    (3) Maintenance capital expenditures is defined as the amount incurred
        during the period to keep the daylighting fleet at the same number of
        units, plus any other capital expenditures required to maintain the
        existing business. It also includes any costs incurred to enhance the
        operational life of a daylighting unit. This amount will fluctuate
        from period-to-period depending on the number of units retired from
        the fleet. During the three-month period ended December 31, 2006
        Badger added 13 units to the fleet and did not remove any from
        service. As a result, all of the units added during the three months
        ended December 31, 2006 represent growth capital expenditures, while
        none of the units represent maintenance capital expenditures.
        Included in growth capital expenditures is approximately $3.7 million
        worth of cabs and chassis acquired prior to the end of December.
        During the year ended December 31, 2006 Badger added 54 units to the
        fleet, of which 10 are reflected as maintenance capital expenditures.
        The economic life of a Badger hydrovac is approximately 10 years. The
        average age of the fleet is approximately four and a half years.

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

    Overview

    Highlights for the year are as follows:

    -   The Fund generated improved operating and financial results for the
        twelve month period ended December 31, 2006 versus the twelve month
        period ended December 31, 2005. Revenues increased to $98.4 million
        in 2006 from $83.3 million in 2005, while EBITDA increased to
        $28.9 million in 2006 compared to $24.8 million in 2005.

    -   Cash available for growth and distributions increased 16 percent to
        $25.3 million compared to $21.8 million in 2005. The Fund increased
        distributions during 2006 to $1.260 per unit on an annualized basis,
        versus $1.176 per unit on an annualized basis at year-end 2005.

    -   The Fund put in place a $20 million extendable, revolving credit
        facility, which replaced the existing $12 million demand operating
        facility. The facility was used to repay existing demand operating
        line advances and will assist in financing Badger's capital
        expenditure program as well as general corporate activities.

    -   The Fund added 54 new hydrovac units in 2006 and removed 10 from
        service, exiting the year at 285 hydrovac units. Of the total, 198
        units are operating in Canada and 87 in the United States. The growth
        in hydrovac units was financed from cash generated from operations
        and existing credit facilities.

    -   On October 31, 2006 the federal Minister of Finance announced a new
        tax plan that will affect the future level of taxation of income
        trusts and corporations. One element of the proposed plan is a tax on
        non-capital distributions from publicly-traded income trusts, which
        would make their income tax treatment more like corporations. For
        existing publicly-traded income trusts, the federal government has
        proposed a four-year transitional delay in implementing the new
        rules. The application of the proposed new tax plan would reduce the
        tax efficiency of publicly-traded income trusts such as Badger. Since
        the announcement, the federal government has clarified certain
        matters related to growth and conversion guidelines for income
        trusts. Badger will continue to monitor these proposed changes to
        ensure its structure protects the long-term interest of its
        unitholders. The proposed new tax measures will require in-depth
        review, examination and assessment pending enactment into tax law.


    Selected Annual Financial Information

    -------------------------------------------------------------------------
                                                    Period Ended
                                       --------------------------------------
                                          2006(1)      2005(1)      2004(1)
    -------------------------------------------------------------------------
    Revenue ($)                         98,370,896   83,331,679   78,696,706
    -------------------------------------------------------------------------
    Net earnings ($)                    16,496,455   14,780,994   13,711,874
    -------------------------------------------------------------------------
    Net earnings per unit -  basic ($)        1.53         1.39         1.31
    -------------------------------------------------------------------------
    Net earnings per unit - diluted ($)       1.53         1.38         1.30
    -------------------------------------------------------------------------
    Total assets ($)                    90,192,248   74,551,335   67,751,424
    -------------------------------------------------------------------------
    Total long-term debt ($)(2)          8,625,052    1,114,843    2,388,801
    -------------------------------------------------------------------------
    Distributions declared ($)          13,246,474   11,165,792    8,356,386
    -------------------------------------------------------------------------

    (1) The 2004 period reflects results for the 13 months ended December 31,
        2004.

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


    Overall Performance for the Year Ended December 31, 2006 Compared to the
    Year Ended December 31, 2005

    Results of Operations

    Revenues
    --------
    Revenues were $98.4 million for the year ended December 31, 2006 compared
to $83.3 million for the year ended December 31, 2005. The increase is
attributable to the following:

    -   The majority of the increase in Canadian revenues occurred in Eastern
        Canada where we expanded our customer base, added locations to
        provide better services and increased spending on construction
        projects.

    -   United States revenues increased to $29.4 million in 2006 from
        $18.6 million in 2005. Revenue growth reflects the Fund's continued
        focus on certain geographical areas and market segments, which
        resulted in an increased customer base and higher 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 revenue per truck per month for 2006 was $29,600 an
increase of four percent from the $28,500 generated during 2005.
    Included in revenues is $1.8 million of truck placement and franchise
fees for 2006, versus $2.2 million for 2005.

    Direct Costs
    ------------
    Direct costs were $62.0 million in 2006, an increase of $9.6 million from
the $52.4 million recorded in 2005. This is consistent with the increase in
revenues.

    Gross Margin
    ------------
    Gross margin for 2006 was 37 percent, which is consistent with 2005.

    Amortization
    ------------
    Amortization of capital assets was $8.6 million in 2006 or $1.3 million
higher than the $7.3 million in 2005. The increase reflects a larger number of
hydrovac units in the fleet.

    Interest Expense
    ----------------
    Interest expense was $0.4 million in 2006 versus $0.3 million in 2005.
The higher interest expense is attributable to maintaining a higher balance of
debt throughout 2006 compared to 2005. The increased debt was used for growth
capital expenditures. The higher interest expense also reflects increased
interest rates.

    Selling, General and Administrative Expenses
    --------------------------------------------
    Selling, general and administrative expenses were $1.5 million higher at
$7.6 million in 2006 compared to $6.1 million in 2005. As a percentage of
revenues, selling, general and administrative expenses were 7.7 percent in
2006 versus 7.4 percent in 2005. The increased expenses are due to the
following:

    
    -   Badger hired additional personnel to support the growth of the
        business, including a Vice President of Operations in July 2006 who
        is responsible for all of Badger's regional operations;
    -   Badger increased compensation in order to retain quality personnel in
        a competitive labour environment;
    -   The Fund added professional fees due to the announced internal
        reorganization, which was postponed due to the government's
        announcement; and,
    -   Badger had higher general office costs.
    

    Selling, general and administrative expenses include salaries and
benefits for office, field, safety and sales staff, as well as rent,
utilities, and communications. These expenses also include costs to maintain
the Fund's public listing and professional fees.

    Foreign Exchange Loss (Gain)
    ----------------------------
    The minor foreign exchange loss/gain results from converting the balance
sheet and earnings statement related to United States operations into Canadian
currency.

    Income Taxes
    ------------
    The effective tax rate for 2006 was 17 percent versus 13 percent for
2005. The increase resulted from not recognizing the accounting benefit of
using certain United States tax losses during all of 2006 versus only part of
2005, although these losses were used to reduce cash taxes which would have
been payable in the United States. The increase in current taxes is due to the
increase in Canadian pre-tax income, which is only partially offset by
available tax deductions at the operating company level.
    The minimal effective tax rate overall is due to the trust structure,
which results in tax deductible distributions being made to unitholders.

    Liquidity

    Funds generated from operations in 2006 increased to $27.9 million from
$24.5 million in 2005, reflecting increased activity levels in Eastern Canada
and the United States. The Fund uses its cash to make distributions to
unitholders, build additional hydrovac units, invest in maintenance capital
expenditures and repay long-term debt.
    The Fund had working capital of $9.4 million at December 31, 2006
compared to $8.2 million at December 31, 2005. The increase in working capital
is primarily attributable to putting in place a $20 million extendable,
revolving credit facility, which replaced the demand operating facility. A
portion of the funds received from the extendable, revolving credit facility
were used to pay off the balance of the demand operating facility. The
increase in accounts payable and accrued liabilities of $5.5 million was the
result of acquiring cabs and chassis before year-end 2006, which were valued
at approximately $3.7 million. This is further discussed under the heading
capital resources - contractual obligations and committed capital investment.
    The following table outlines the cash available to fund growth and pay
distributions to unitholders in 2006 compared to 2005:

    
                                                     Year Ended   Year Ended
                                                    December 31, December 31,
                                                        2006         2005
                                                          $            $

    Cash provided by operating activities            27,393,449   26,017,210
    Add (deduct): net change in non-cash
     working capital                                    461,313   (1,483,193)
                                                     -----------  -----------
    Funds generated from operations                  27,854,762   24,534,017
    Add: proceeds on disposal of property,
     plant and equipment                                714,615      473,515
    Deduct: required repayments of long-term debt      (108,702)  (1,273,958)
    Deduct: maintenance capital expenditures         (3,169,728)  (1,955,340)
                                                     -----------  -----------
    Cash available for growth capital
     expenditures and distributions                  25,290,947   21,778,234
                                                    ------------ ------------
                                                    ------------ ------------

    Growth capital expenditures                      19,303,939   11,776,259
                                                    ------------ ------------
                                                    ------------ ------------

    Cash distributions declared                      13,246,474   11,165,792
                                                    ------------ ------------
                                                    ------------ ------------
    

    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 above chart, cash which was not distributed
to unitholders was used to finance growth capital expenditures.
    If maintenance capital expenditures levels increase in future periods,
our cash available for growth capital expenditures and distribution will be
negatively affected. Due to Badger's growth rate in recent years, the majority
of our hydrovac units are relatively new, with an average age of approximately
four and a half years. As a result, Badger is currently experiencing
relatively low levels of maintenance capital expenditures. Over time, Badger
would expect to incur annual maintenance capital expenditures in an amount
that approximates the amortization expense reported in the year. Badger
expects continued increases in cash provided by operations and cash available
for growth capital expenditures and distributions will be sufficient to fund
the maintenance capital expenditures in the future.
    Badger is restricted from declaring distributions and distributing cash
if it is in breach of the covenants under its credit facility. As at the date
of this press release the Fund is in material compliance with all debt
covenants and is able to fully utilize all existing credit facilities. Badger
does not have a stability rating.
    Currently the Fund has a $20 million extendable, revolving facility to
fund working capital requirements and finance capital expenditures of which
$7.6 million was used at December 31, 2006. The Fund will maintain an
appropriate mix of flexible debt and equity to finance its maintenance capital
expenditures and growth initiatives.

    Capital Resources

    Investing
    ---------
    In 2006 the Fund spent $22.5 million on property, plant and equipment
compared to $12.6 million for 2005. Included in the $22.5 million is the
$3.7 million worth of cabs and chassis acquired in December. During 2006, the
Fund built 54 new hydrovac units compared to 35 in 2005. The 2006 capital
expenditures figure includes maintenance capital expenditures of $3.2 million.
Generally speaking, maintenance capital expenditures are incurred during a
period to keep the hydrovac fleet at the same number of units, which was 10
for 2006, plus any other capital expenditures required to maintain the
existing business.

    Financing
    ---------
    During 2006 Badger put in place a $20 million extendable, revolving
credit facility to replace its existing $12.0 million demand operating
facility. The facility was used to repay existing demand operating line
advances and on a go-forward basis will assist in financing Badger's capital
expenditure program and general corporate activities. The facility has no
required principal repayments. It expires on June 30, 2007 and is renewable at
Badger's option for an additional 364-day period. If not renewed, interest is
payable on the facility for 364 days, after which the entire amount must be
repaid. The facility bears interest at the bank's prime rate or banker's
acceptance rate plus 1.00 percent plus 0 to 200 basis points depending on
Badger's ratio of funded debt-to-EBITDA.
    During 2006 Badger repaid $0.1 million of long-term debt pursuant to
regularly scheduled repayments. As a result of these principal payments and
the establishment of the $20 million revolving credit facility, the Fund's
long-term debt, including the current portion, was $8.6 million at year-end
2006.
    At December 31, 2006 the Fund had a long-term, debt-to-equity ratio of
0.16:1 and a long-term, debt-to-trailing-funds-generated-from-operations of
0.30:1. Management believes that the Fund's healthy balance sheet and
unutilized borrowing capacity, combined with funds generated from operations,
will provide sufficient capital to fund ongoing operations, make distributions
to unitholders, finance future capital expenditures and execute its strategic
plan for the foreseeable future.

    Contractual Obligations and Committed Capital Investment
    --------------------------------------------------------
    The Fund intends to meet its contractual obligations through funds
generated by operating activities. The Fund's contractual obligations for the
next five years relating to repayment of long-term debt are as follows
(assuming the extendable revolving credit facility is not renewed on June 30,
2007):

    
    2007                                 $  108,768
    2008                                  7,727,679
    2009                                    108,768
    2010                                    108,768
    2011                                    108,768
    Thereafter                              462,301
                                           ---------

    Total                                $8,625,052
                                        ------------
                                        ------------
    

    In addition to the contractual obligations above, at year-end 2006 the
Fund had committed to certain capital expenditures totalling approximately
$1.8 million. These capital expenditures will be financed with existing credit
facilities and funds generated from operations. There are no set terms for
remitting payment for these financial obligations.
    Due to uncertainty in truck engine and chassis configurations available
to Badger in early 2007 as a result of the U.S. Environmental Protection
Agency's (EPA) regulations, the Fund committed to purchase a number of chassis
with current engines and configurations for production of daylighting units in
early 2007. This purchase commitment amounts to approximately $3.7 million and
is in the accounts payable and accrued liabilities figure as at December 31,
2006.

    Unitholders' Capital

    Unitholders' capital increased by $234,000 to $43.5 million at
December 31, 2006. This was the result of issuing the following units:

    
    -   10,660 fund units from the long-term incentive plan as payment for
        2005 management performance bonuses;
    -   3,250 fund units from the long-term incentive plan as partial payment
        of 2006 fees to non-management trustees; and
    -   5,888 fund units pursuant to the exercise of exchange rights.
    

    Units outstanding at December 31, 2006 were 10,758,618. There was no
change to the balance as of March 20, 2007.

    Off-Balance Sheet Arrangements

    At December 31, 2006 and 2005, the Fund had no off-balance sheet
arrangements.

    Transactions with Related Parties

    Shea Nerland Calnan LLP provides legal services to Badger at market
rates. David Calnan, a Trustee and Corporate Secretary of the Fund, is a
partner in the law firm of Shea Nerland Calnan LLP and is involved in
providing and managing Badger's legal services. The total cost of these legal
services in 2006 was $240,000 compared to $261,000 for 2005.

    
    Selected Quarterly Financial Information

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


    -------------------------------------------------------------------------
                                             Quarter Ended
                          ---------------------------------------------------
                                                  2005
                          ---------------------------------------------------
                             Dec. 31     Sept. 30      June 30      Mar. 31
    -------------------------------------------------------------------------
    Revenues ($)           23,093,735   20,471,322   18,923,312   20,843,310
    -------------------------------------------------------------------------
    Net earnings ($)        3,468,113    3,547,545    3,629,935    4,135,401
    -------------------------------------------------------------------------
    Net earnings per unit
     - basic ($)                 0.32         0.33         0.34         0.39
    -------------------------------------------------------------------------
    Net earnings per unit
     - diluted ($)               0.32         0.33         0.34         0.39
    -------------------------------------------------------------------------


    Fourth Quarter Highlights

    -   As a result of increased activity in the United States, revenue
        increased to $25.6 million from $23.1 million comparing the
        three months ended December 31, 2006 to three months ended
        December 31, 2005. Badger's United States revenue increased to
        $8.5 million from $5.6 million quarter-over-quarter due to increased
        activity related to oil field services. Although revenue increased,
        the average revenue per truck per month during the fourth quarter was
        $29,000 which was a reduction from the $30,300 per month for the same
        period in 2005. The Canadian revenues remained relatively unchanged
        due to several factors which slowed growth in the quarter. These
        factors included unseasonably warm weather in north eastern British
        Columbia, northern Alberta and Ontario and a slowing in the oil and
        natural gas industry in Western Canada.

    -   With the increase in revenues, earnings before income taxes increased
        by four percent for the quarter.

    -   The Fund added 13 hydrovac units to the fleet and did not remove any
        from service.

    -   In December, the Fund put in place a $20 million extendable,
        revolving credit facility, which replaced the existing $12 million
        demand operating facility. The facility was used to repay existing
        demand operating line advances and will assist in financing Badger's
        capital expenditure program as well as general corporate activities.

    -   On October 26, 2006 Badger announced it was undergoing an internal
        reorganization to convert the organizational structure of the Fund to
        a more modern trust-on-partnership structure. As a result of the
        federal government's October 31, 2006 announcement the process was
        put on hold. Badger has received a satisfactory advance tax ruling
        from the Canada Revenue Agency allowing it to proceed with the
        internal reorganization. The Fund will continue to monitor these
        proposed changes and determine if the trust-on-partnership structure
        is the most appropriate for maximizing unitholder value and
        accommodating future expansion opportunities.

    -   Due to uncertainty in truck engine and chassis configurations
        available to Badger in early 2007 as a result of EPA regulations, the
        Fund committed to purchase a number of chassis with current engines
        and configurations for production of daylighting units in early 2007.
        This amounted to approximately $3.7 million and is in the accounts
        payable and accrued liabilities figure as at December 31, 2006.
    

    New Accounting Pronouncements

    CICA Handbook Section 3855 and Section 3861 - Financial Instruments
standards will be effective for the Fund's 2007 reporting period and are not
expected to have a significant impact on the Fund. These standards address the
requirement to record financial instruments at fair value in the financial
statements unless certain criteria are met allowing them to be recorded at
cost or amortized cost.

    Critical Accounting Estimates

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

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

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

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

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

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

    Financial and Other Instruments

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

    Foreign Currency Risk
    ---------------------
    In the normal course of operations the Fund is exposed to movements in
the United States dollar exchange rate relative to the Canadian dollar. Badger
has United States operations and purchases certain items in United States
dollars. Badger does not utilize hedging instruments but chooses to be exposed
to current United States exchange rates as increases or decreases in exchange
rates are not considered to have a significant effect on its business.

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

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

    Disclosure Controls and Procedures Related to Financial Reporting

    Disclosure controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported to senior
management on a timely basis, including the President and Chief Executive
Officer (CEO) and the Vice President Finance and Chief Financial Officer
(CFO). This allows appropriate decisions to be made regarding public
disclosure. As of December 31, 2006 both the CEO and the CFO have evaluated
the effectiveness of Badger's disclosure controls and procedures as defined in
Multilateral Instrument 52-109 of the Canadian Securities Administrators. They
have concluded that such disclosure controls and procedures are effective.

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

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

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

    United States Operations
    ------------------------
    Badger also faces risks associated with doing business in the United
States. The Fund has made a significant investment in the United States to
develop the hydrovac market. To date, the market for Badger's hydrovac service
business remains mostly undeveloped. The growth rate of the United States
market is not determinable.

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

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

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

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

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

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

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

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

    Self-Insurance
    --------------
    Due to the significant increase in insurance premiums, the Fund decided
to self-insure against any physical damage it could incur on the Canadian
hydrovac units. This decision will be re-evaluated periodically as
circumstances change.

    Outlook

    Badger is optimistic that it will continue to grow in 2007. Actual growth
amounts are difficult to predict due to uncertainty in the oil and natural gas
sector and the weather. Lack of a good level of frozen ground and the timing
of spring break-up in Western Canada will have an effect on first-quarter
results in Canada. Badger has strengthened its Canadian management team to
provide more focus on developing future hydrovac business. The United States
business will continue to grow given good economic indicators and an active
oil and gas segment.


    
    BADGER INCOME FUND
    Consolidated balance sheets

                                                    December 31, December 31,
                                                        2006         2005
                                                          $            $
                                                   --------------------------
    ASSETS
      Current
      Cash                                            1,319,912    1,190,398
      Accounts receivable                            22,873,841   19,552,905
      Inventories                                     1,399,661    1,180,291
      Prepaid expenses                                  679,675      504,365
                                                   --------------------------
                                                     26,273,089   22,427,959

      Property, plant and equipment                  62,367,823   49,389,459

      Intangible assets                               1,551,336    1,401,336

      Future income taxes                                     -    1,332,581

                                                   --------------------------
                                                     90,192,248   74,551,335
                                                   --------------------------
                                                   --------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
      Current
      Bank indebtedness                                       -    3,497,348
      Accounts payable and accrued liabilities       14,951,723    9,457,926
      Income taxes payable                              671,544       86,505
      Distributions payable                           1,129,655    1,052,404
      Current portion of long-term debt                 108,768      108,768
                                                   --------------------------
                                                     16,861,690   14,202,951

      Long-term debt                                  8,516,284    1,006,075

      Future income taxes                            10,259,536    8,418,801

                                                   --------------------------
                                                     35,637,510   23,627,827
                                                   --------------------------

      Unitholders' equity
      Unitholders' capital                           43,488,255   43,254,606
      Contributed surplus                               973,600      826,000
      Retained earnings                              10,092,883    6,842,902
                                                   --------------------------
                                                     54,554,738   50,923,508

                                                   --------------------------
                                                     90,192,248   74,551,335
                                                   --------------------------
                                                   --------------------------



    BADGER INCOME FUND
    Consolidated statements of earnings and retained earnings

                                                     Dec. 31/06   Dec. 31/05
                                                          $            $
                                                   --------------------------

    Revenue                                          98,370,896   83,331,679
    Direct costs                                     61,987,817   52,383,444
                                                   --------------------------
                                                   --------------------------

    Gross margin                                     36,383,079   30,948,235
                                                   --------------------------

    Expenses
      Amortization                                    8,636,268    7,313,090
      Loss (gain) on sale of property,
       plant and equipment                               (5,580)     226,072
      Interest
        Long-term                                        68,525       85,746
        Current                                         363,882      188,724
      Selling, general and administrative             7,613,620    6,142,778
      Foreign exchange loss (gain)                     (126,004)      11,745
                                                   --------------------------
                                                     16,550,711   13,968,155
                                                   --------------------------

    Earnings before income taxes                     19,832,368   16,980,080
                                                   --------------------------

    Income taxes
      Current                                           687,480      172,970
      Future                                          2,648,433    2,026,116
                                                   --------------------------
                                                      3,335,913    2,199,086
                                                   --------------------------

    Net earnings for the year                        16,496,455   14,780,994

    Retained earnings, beginning of year              6,842,902    3,227,700

    Cash distributions                              (13,246,474) (11,165,792)
                                                   --------------------------
                                                   --------------------------

    Retained earnings, end of year                   10,092,883    6,842,902
                                                   --------------------------
                                                   --------------------------

    Net earnings per unit

    Basic                                                  1.53         1.39
                                                   --------------------------
                                                   --------------------------

    Diluted                                                1.53         1.38
                                                   --------------------------
                                                   --------------------------



    BADGER INCOME FUND
    Consolidated statements of cash flows

                                                     Dec. 31/06   Dec. 31/05
                                                          $            $
                                                   --------------------------

    Operating activities
    Net earnings for the year                        16,496,455   14,780,994
    Non-cash items:
      Amortization                                    8,636,268    7,313,090
      Future income taxes                             2,648,433    2,026,116
      Unit-based compensation                           205,190      176,000
      Foreign exchange loss (gain)                     (126,004)      11,745
      Loss (gain) on sale of property,
       plant and equipment                               (5,580)     226,072
                                                   --------------------------
                                                     27,854,762   24,534,017
    Net change in non-cash working capital             (461,313)   1,483,193
                                                   --------------------------
                                                     27,393,449   26,017,210
                                                   --------------------------

    Financing activities
    Proceeds from units issued                               59           89
    Proceeds from long-term debt                      7,618,911            -
    Repayment of long-term debt                        (108,702)  (1,273,958)
    Distributions to unitholders                    (13,169,223) (12,599,901)
    Increase (decrease) in bank indebtedness         (3,497,348)     676,025
                                                   --------------------------
                                                     (9,156,303) (13,197,745)
                                                   --------------------------
    Investing activities
    Purchase of property, plant and equipment       (22,323,667) (11,230,263)
    Purchase of intangible assets                      (150,000)  (1,401,336)
    Proceeds on disposal of property,
     plant and equipment                                714,615      473,515
    Net change in non-cash working capital            3,651,420            -
                                                   --------------------------
                                                    (18,107,632) (12,158,084)
                                                   --------------------------

    Increase in cash during the year                    129,514      661,381
    Cash, beginning of year                           1,190,398      529,017
                                                   --------------------------
    Cash, end of year                                 1,319,912    1,190,398
                                                   --------------------------
                                                   --------------------------

    Interest paid                                       411,383      274,470
                                                   --------------------------
                                                   --------------------------
    Income taxes paid (received)                       (421,349)  (1,689,581)
                                                   --------------------------
                                                   --------------------------


    GEOGRAPHIC SEGMENTED INFORMATION
    The Fund operates in two geographic/reportable segments providing
daylighting services to each of these segments. The following is selected
information for the year and three months ended December 31, 2006 and
December 31, 2005 based on these geographic segments:


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

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

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

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

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

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

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

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


                                          Three months ended Dec. 31, 2005
                                       --------------------------------------
                                        Canada ($)     USA ($)     Total ($)

    Revenue                             17,489,671    5,604,064   23,093,735

    Direct costs                        10,888,311    3,759,363   14,647,674

    Selling, general and
     administrative                      1,068,407      519,880    1,588,287

    EBITDA((*))                          5,548,913    1,295,695    6,844,608

    Amortization                         1,462,500      444,817    1,907,317

    Earnings before income taxes         3,807,918      861,780    4,669,698

    Capital expenditures                 4,506,282      723,614    5,229,896



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

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

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

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

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

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

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

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

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

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

    Capital expenditures                11,722,715   10,750,952   22,473,667


                                          Twelve months ended Dec. 31, 2005
                                       --------------------------------------
                                        Canada ($)     USA ($)     Total ($)

    Revenue                             64,732,824   18,598,855   83,331,679

    Direct costs                        40,157,585   12,225,859   52,383,444

    Selling, general and
     administrative                      4,109,154    2,033,624    6,142,778

    EBITDA((*))                         20,520,034    4,273,678   24,793,712

    Amortization                         5,680,863    1,632,227    7,313,090

    Earnings before income taxes        14,337,818    2,642,262   16,980,080

    Property, plant and equipment       39,399,044    9,990,415   49,389,459

    Intangible assets                    1,401,336            -    1,401,336

    Total assets                        58,593,631   15,957,704   74,551,335

    Capital expenditures                10,853,981    2,877,618   13,731,599
    

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


    Forward-Looking Statements

    Certain statements contained in the press release constitute
forward-looking statements. These statements relate to future events or
Badger's future performance. All statements other than statements of
historical fact may be forward-looking statements. These statements involve
known and unknown risks, uncertainties and other factors that may cause actual
results or events to differ materially from those anticipated in such
forward-looking statements. Other factors include, but are not limited to: the
future tax treatment of income trusts; supply-demand fluctuations for oil and
natural gas and related products and services; political and economic
conditions; the demand for services provided by the Fund; industry
competition; and Badger's ability to attract and retain key personnel. The
Fund believes that the expectations reflected in these forward-looking
statements are reasonable; however, no assurance can be given that these
expectations will prove to be correct and such forward-looking statements
included in this press release 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.

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

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BADGER INCOME FUND

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