TERRAVEST INCOME FUND
TSX : TI.UN

TERRAVEST INCOME FUND

November 12, 2008 09:00 ET

TerraVest Income Fund Releases 2008 Q3 Financial Results

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

For the 2008 third quarter, the Fund reported revenue of $60.6 million and a net loss of $0.7 million or $0.04 per Unit, which included goodwill and intangible asset impairment charges, compared with revenue of $54.9 million and a net loss of $0.4 million, or $0.03 per Unit, for the 2007 third quarter. Excluding the net impact of the goodwill and intangible asset impairment charges, the Fund had net earnings of $2,470, or $0.13 per Unit.

For the nine month period ended September 30, 2008, the Fund reported revenue of $173.7 million and net earnings of $7.5 million, including gain on acquisition of retractable non-controlling interest and goodwill and intangible asset impairment charges, or $0.41 per Unit, compared to revenue of $169.6 million and net earnings of $3.2 million, or $0.18 per Unit, for the comparative nine month period for. Excluding the net impact of the gain on acquisition of RNCI and goodwill and intangible asset impairment charges, the Fund had net earnings of $8.1 million, or $0.45 per Unit.

The Fund's payout ratio, which is defined as the percentage of Adjusted Distributable Cash that is paid as distributions to Unitholders, was 69% for the 2008 third quarter, compared with 70% for the third quarter of 2007. For the nine months ended September 30, 2008, the Fund's payout ratio was 55%, compared to 100% for the nine months ended September 30, 2007 (See discussion below concerning Adjusted Distributable Cash).

Highlights from the three and nine month periods ended September 30, 2008, are as follows:



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Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
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Sales $ 60,640 $ 54,928 $173,734 $169,598
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Net (loss) earnings $ (686) $ (445) $ 7,495 $ 3,223
Gain on acquisition of RNCI - - (2,505) -
Impairment of indefinite life
intangible assets 692 - 692 -
Impairment of goodwill 4,242 - 4,242 -
RNCI recovery related to
impairment charges (967) - (967) -
Future income tax recovery
related to impairment charges (811) - (811) -
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Earnings (loss) before gain on
RNCI and impairment charges 2,470 (445) 8,146 3,223
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During the quarter ended June 30, 2008, the Fund issued redemption notices to holders of the Exchangeable shares. As a result of election notices subsequently filed by holders thereof, during the third quarter ended September 30, 2008, 1,402,000 Exchangeable Shares were converted for 2,324,868 Units (1,155,924 Units on July 21, 2008; 123,562 Units on August 8, 2008; and 1,045,382 Units on August 12, 2008). In addition, and as a result of the redemption notice, 8,642 Exchangeable Shares were redeemed for $76 in cash. As a result of these exchanges and redemptions, there are no Exchangeable Shares outstanding.

On October 2, 2008, the Fund initiated a Normal Course Issuer Bid ("NCIB") through the Toronto Stock Exchange under which up to 1,005,454 of its outstanding Units may be purchased for cancellation. This bid will terminate on October 1, 2009. Subsequent to September 30, 2008, 53,400 Units were purchased under the NCIB at an average cost of $3.68 per Unit, including commissions. As at November 12, 2008, there are 19,897,966 Units issued and outstanding.

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 one of the largest Canadian designers, manufacturers and importers 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.



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Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
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Cash flow from operating
activities $ (7,312) $ 485 $ 11,067 $ 18,738
Adjustments:
Net capital expenditures (403) (517) (1,547) (1,695)
Cash portion of RNCI - 187 - (10)
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Standardized distributable cash (7,715) 155 9,520 17,033
Adjustments:
Change in non-cash working
capital 12,084 1,901 3,874 (7,625)
Net capital expenditures 403 517 1,547 1,695
Maintenance capital
expenditures (117) (305) (1,045) (1,279)
MSA termination fees - 1,943 - 1,943
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Adjusted distributable cash 4,655 4,211 13,896 11,767
Distributions declared 3,228 2,938 7,635 11,751
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Adjusted distributable cash
surplus $ 1,427 $ 1,273 $ 6,261 $ 16
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Adjusted payout ratio 69% 70% 55% 100%
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Standardized distributable cash and adjusted distributable cash are
discussed in the Fund's MD&A


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