TERRAVEST INCOME FUND
TSX : TI.UN

TERRAVEST INCOME FUND

May 14, 2008 09:01 ET

TerraVest Income Fund Releases 2008 Q1 Financial Results

EDMONTON, ALBERTA--(Marketwire - May 14, 2008) - TerraVest Income Fund (TSX:TI.UN) today released its financial results for the 2008 first quarter.

For the 2008 first quarter, the Fund reported revenue of $57.2 million and net earnings of $5.7 million or $0.33 per Unit, compared with revenue of $64.2 million and net earnings of $3.7 million or $0.21 per Unit for the 2007 first quarter.

During the quarter, the Fund exercised its right to acquire for nil consideration 7% of Don Park Limited Partnership and 6.5% of Beco Industries Limited Partnership, with aggregate carrying values totaling $2.5 million resulting in a gain on acquisition of $2.5 million. The acquisition of these interests increased the Funds ownership in Don Park Limited Partnership to 87% and in Beco Industries Limited Partnership to 86.5%.

The Fund's payout ratio, which is defined as the percentage of Adjusted Distributable Cash that is paid as distributions to Unitholders, was 41% for the 2008 first quarter, compared with 73% for the first quarter of 2007. (See discussion below concerning Adjusted Distributable Cash.)



Highlights from the Fund's 2008 first quarter are as follows:

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(000's except per unit amounts) Three months ended
March 31
Sales 2008 2007
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RJV $ 10,506 $ 20,466
Ezee-On 2,862 2,387
Stylus 7,537 8,313
Don Park 19,581 17,886
Diamond 6,661 6,548
Beco 10,051 8,627
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$ 57,198 $ 64,227
Cost of sales 43,294 46,869
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Gross profit 13,904 17,358
Selling, general and administrative expenses 7,775 9,722
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Earnings before the undernoted 6,129 7,636
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Amortization 1,864 2,061
Interest expense 871 892
Foreign exchange (gains) and losses (215) 180
Loss on disposal of property, plant and equipment 2 84
Gain on acquisition of partnership units for nil
consideration (2,505) -
Retractable non-controlling interest 305 (227)
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Earnings before income taxes and non-controlling
interest 5,807 4,646
Current and future income tax (recovery) (673) 477
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Earnings before non-controlling interest 6,480 4,169
Non-controlling interest 740 422
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Net eanings for the period $ 5,740 $ 3,747
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Earnings per Unit (basic and diluted) $ 0.33 $ 0.21
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Adjusted distributable cash $ 5,389 $ 6,006
Distributions declared 2,203 4,406
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Adjusted distributable cash surplus for the period $ 3,186 $ 1,600
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Adjusted distributable cash pay out ratio 41% 73%
Proforma adjusted distributable cash pay out ratio 46% 81%
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As of May 14, there are 17,626,498 Units and 1,410,642 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 south-western 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 after non-cash working capital items, 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 March 31,
2008 2007
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Cash flows from operating activities $ 4,245 $ 8,963
Adjustments:
Net capital expenditures (572) (359)
Cash portion of retractable non-controlling interest - (150)
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Standardized distributable cash $ 3,673 $ 8,454
Adjustments:
Change in non-cash working capital 1,632 (2,457)
Net capital expenditures 572 359
Maintenance capital expenditures (488) (350)
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Adjusted distributable cash 5,389 6,006
Distributions declared 2,203 4,406
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Adjusted payout ratio 41% 73%
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Standardized distributable cash and adjusted distributable cash are
discussed in the Fund's MD&A.

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