August 12, 2008 16:00 ET

TerraVest Income Fund Releases Improved 2008 Q2 Financial Results

VEGREVILLE, ALBERTA--(Marketwire - Aug. 12, 2008) - TerraVest Income Fund (TSX:TI.UN) today released its financial results for the 2008 second quarter.

For the 2008 second quarter, the Fund reported revenue of $55.6 million and net earnings of $2.4 million, or $0.14 per Unit, compared with revenue of $50.4 million and a net loss of $0.08 million, or $0.01 per Unit, for the 2007 second quarter.

For the six month period ended June 30, 2008, the Fund reported revenue of $113.1 million and net earnings of $8.2 million, or $0.46 per Unit, compared to revenue of $114.7 million and net earnings of $3.7 million, or $0.21 per Unit, for the comparative six month period.

"The Fund's energy operations for the second quarter were affected by the normal seasonality and cyclical nature of oil and gas operations due to spring break-up. Although our results were in line with the second quarter of the previous year, some encouraging signs of increased activity are beginning to emerge." said Dale Laniuk, Chief Executive Officer of the Fund.

"The Fund's results in the second quarter on the non-energy side of our portfolio marked an improvement over the previous year as we continue to make progress in strengthening our market position, particularly at Ezee-On, Don Park and Beco." said Raffi Sethian, Chief Operating Officer. "As a result of these improvements, we expect a higher contribution from these businesses for the balance of 2008 as compared to last year."

The Fund's payout ratio, which is defined as the percentage of Adjusted Distributable Cash that is paid as distributions to Unitholders, was 57% for the 2008 second quarter, compared with 273% for the second quarter of 2007. For the six months ended June 30, 2008, the Fund's payout ratio was 48%, compared to 116% for the six months ended June 30, 2007 (See discussion below concerning Adjusted Distributable Cash.)

Highlights from the three and six month periods ended June 30, 2008, are as follows:

Three months ended Six months ended
June 30 June 30
Sales 2008 2007 2008 2007
RJV $ 4,498 $ 5,044 $ 15,004 $ 25,510
Ezee-On 3,969 2,337 6,831 4,724
Stylus 7,743 8,372 15,280 16,685
Don Park 24,930 21,455 44,511 39,341
Diamond 5,530 5,113 12,191 11,661
Beco 9,226 8,122 19,277 16,749
Total sales 55,896 50,443 113,094 114,670
Cost of sales 42,422 38,157 85,716 85,026
Gross profit 13,474 12,286 27,378 29,644
Selling, general and administrative
expenses 8,536 9,485 16,311 19,207
Earnings before the undernoted 4,938 2,801 11,067 10,437
Amortization 1,535 2,169 3,399 4,230
Interest 696 815 1,567 1,707
Foreign exchange (gains) and losses (32) 832 (247) 1,012
Loss on disposal of property, plant
and equipment 3 9 5 93
Gain on acquisition of RNCI for nil
consideration - - (2,505) -
Retractable non-controlling interest 304 (322) 609 (549)
Earnings before income tax and
non-controlling interest 2,432 (702) 8,239 3,944
Current and future income tax
recovery 331 610 1,004 133
Earnings (loss) before
non-controlling interest 2,763 (92) 9,243 4,077
Non-controlling interest 322 (13) 1,062 409
Net earnings (loss) for the period $ 2,441 $ (79) $ 8,181 $ 3,668
Earnings (loss) per Unit (basic and
diluted) $ 0.14 $ (0.01) $ 0.46 $ 0.21
Adjusted distributable cash for the
period $ 3,852 $ 1,617 $ 9,242 $ 7,556
Distributions declared 2,204 4,407 4,407 8,813
Adjusted distributable cash surplus
(deficit) for the period $ 1,648 $ (2,790) $ 4,835 $ (1,257)
Adjusted distributable cash per unit $ 0.22 $ 0.09 $ 0.52 $ 0.43
Proforma adjusted distributable cash
per Unit $ 0.19 $ 0.08 $ 0.46 $ 0.39
Distributions declared per Unit $ 0.13 $ 0.25 $ 0.25 $ 0.50
Adjusted payout ratio 57% 273% 48% 116%
Proforma adjusted payout ratio 64% 302% 54% 128%

As a result of the improved performance of the Fund's portfolio businesses, the Fund increased its monthly per Unit distribution by 32% from $0.04167 per Unit ($0.50 annualized) to $0.055 per Unit ($0.66 annualized) commencing with the distribution payable August 15, 2008, to Unitholders of record on July 31, 2008.

During the quarter ended June 30, 2008, the Fund issued redemption notices to the Exchangeable shareholders. Under the terms of the redemption notice, the Fund will redeem the Exchangeable Shares for cash on August 31, 2008 based on the twenty day weighted average trading price for the twenty day period ended immediately before August 31, 2008, multiplied by the number of Exchangeable Shares, multiplied by the exchange ratio. The Exchangeable shareholders may, at any time prior to August 31, 2008, present their Exchangeable Shares to the Fund and receive Units of the Fund in exchange. On August 31, 2008, any then outstanding Exchangeable Shares will be redeemed for cash.

Subsequent to the end of the quarter, Dale Laniuk, the Fund's President and Chief Executive Officer exchanged 700,000 Exchangeable Shares for 1,155,924 Units of the Fund. In addition, other exchangeable shareholders exchanged 702,000 Exchangeable Shares for 1,168,943 Units of the Fund.

As of August 12, 2008, there are 19,911,365 Units and 8,642 Exchangeable Shares issued and outstanding. The Exchangeable Shares are not listed on an exchange, but are exchangeable at the option of the holder for Units or are callable by the Fund at any time on 90 days written notice.

The Fund's interim financial statements and MD&A are available on SEDAR at www.sedar.com and on the Fund's website at www.terravestincomefund.com.

About TerraVest Income Fund

The Fund has invested in six portfolio businesses:

- RJV is one of the largest providers of wellhead processing equipment for the natural gas industry in western Canada.

- Diamond is a market leader in providing well servicing to the oil and natural gas sector in southwestern Saskatchewan, with a growing presence in Alberta.

- Don Park is one of Canada's largest manufacturers and suppliers of heating, ventilation and air conditioning (HVAC) products.

- Stylus is one of Canada's leading made-to-order upholstered furniture manufacturers.

- Beco is the largest Canadian designer, manufacturer and importer of home textile products.

- Ezee-On manufactures heavy-duty equipment for large acreage grain farms and livestock operations.

Caution Regarding Forward-Looking Statements

All statements other than statements of historical fact contained in this press release are forward-looking statements, including, without limitation, statements regarding the future financial position and operations, business strategy, proposed acquisitions, budgets, distributions, projected costs and plans and objectives of or involving the Fund. Readers can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" and similar words or the negative thereof. Although Management believes that the expectations represented in such forward looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers of this MD&A not to place undue reliance on our forward-looking statements because a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Assumptions and analysis about the performance of the Fund, as a whole, and the Fund's portfolio businesses and the markets in which they compete are considered in setting the business plan for the Fund, in forecasting the Fund's expected financial results and the Fund's ability to pay distributions, in setting financial targets for the Fund and in making related forward-looking statements. The key assumption in respect of the Fund's level of distributions is that the cumulative distributable cash will be able to support the Fund's current level of distributions. The Fund receives distributable cash from its portfolio businesses. In respect of the portfolio businesses, key assumptions include those relating to the demand for products and services of the portfolio businesses and in respect of the Canadian and other markets in which the Fund's businesses are active (and in particular, the Canadian oil and natural gas industry in western Canada and the markets for household materials and household goods). Should any of these factors or assumptions vary, actual results may differ materially from the forward-looking statements.

The information set forth in the MD&A of the Fund for the year ended December 31, 2007 and the annual information form of the Fund dated March 14, 2008, identifies additional factors that could affect the operating results and performance of the Fund and its portfolio businesses. We caution that these discussions of factors are not exhaustive and that, when relying on forward-looking statements to make decisions with respect to the Fund, investors and others should carefully consider the factors discussed, as well as other uncertainties and potential events.

Standardized and Adjusted Distributable Cash

The calculation of standardized distributable cash is, in all material respects, in accordance with the recommendations provided in the CICA publication Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities: Guidance on Preparation and Disclosure. Standardized distributable cash is not a defined term under Canadian generally accepted accounting principles ("GAAP") and does not have a standardized meaning prescribed by GAAP. Standardized distributable cash is defined as cash flow from operations less: net capital expenditures; restrictions on distributions arising from compliance with financial covenants restrictive at the time of reporting; and limitations arising from the existence of a minority interest. Net capital expenditures represent all capital expenditures incurred during the reporting period.

Management believes that the standardized distributable cash calculation does not accurately reflect the Fund's quarter-to-quarter distributable cash as the Fund's earnings are influenced significantly by seasonal activity in certain of the Fund's portfolio businesses resulting in increased investments in working capital to meet operational needs. Therefore, the independent Trustees make distribution decisions based on an alternative measure referred to as adjusted distributable cash. Adjusted distributable cash is also the base for determining distributable cash for purposes of certain covenant calculations within the Fund's credit facility. Management believes that working capital will fluctuate due to seasonal needs and, as such, have excluded it from the calculation of adjusted distributable cash. Adjusted distributable cash is not a defined term under GAAP and does not have a standardized meaning. Adjusted distributable cash is defined as standardized distributable cash adjusted for changes in non-cash working capital, items that may be of a non-recurring nature and reflecting only maintenance capital expenditures and not growth-related capital expenditures.

Management believes that adjusted distributable cash as a liquidity measure is a useful supplemental measure as it provides the independent Trustees with an indication of the amount of cash available for distribution to Unitholders before the effects of seasonal fluctuations in working capital. Investors are cautioned, however, that adjusted distributable cash should not be construed as an alternative to using net earnings as a measure of profitability or to using information contained in the unaudited interim Consolidated Statements of Cash Flows as a measure of liquidity. Further, the Fund's method of calculating adjusted distributable cash may not be comparable to measures used by other entities.

Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
Cash flows from operating activities $ 13,919 $ 9,290 $ 18,164 $ 18,253
Net capital expenditures (572) (819) (1,144) (1,178)
Cash portion of retractable
non-controlling interest - (47) - (197)
Standardized distributable cash 13,347 8,424 17,020 16,878
Change in non-cash working capital (9,627) (7,002) (7,994) (9,526)
Net capital expenditures 572 819 1,144 1,178
Maintenance capital expenditures (440) (624) (928) (974)
Adjusted distributable cash 3,852 1,617 9,242 7,556
Distributions declared $ 2,204 $ 4,407 $ 4,407 $ 8,813
Adjusted payout ratio 57% 273% 48% 116%
Standardized distributable cash and adjusted distributable cash are
discussed in the Fund's MD&A

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