May 15, 2009 17:00 ET

TerraVest Income Fund Releases 2009 Q1 Financial Results, Announces Amended Credit Facility and May Distribution

VEGREVILLE, ALBERTA--(Marketwire - May 15, 2009) - TerraVest Income Fund (TSX:TI.UN) today released its financial results for the 2009 first quarter.

For the 2009 first quarter, the Fund reported revenue of $55.3 million and net earnings of $5.6 million or $0.28 per Unit, compared with revenue of $57.2 million and net earnings of $5.7 million or $0.33 per Unit for the 2008 first quarter.

During the quarter, the Fund exercised its right to acquire for nil consideration 7% of Don Park Limited Partnership and 13.5% of Beco Industries Limited Partnership, with aggregate carrying values totaling $3.7 million resulting in a gain on acquisition of $3.7 million. The acquisition of these interests increased the Funds ownership in Don Park Limited Partnership to 94% and in Beco Industries Limited Partnership to 100%.

The Fund's payout ratio, which is defined as the percentage of Adjusted Distributable Cash that is paid as distributions to Unitholders, was 171% for the 2009 first quarter, compared with 41% for the first quarter of 2008. (See discussion below concerning Adjusted Distributable Cash.)

The Fund realized a significant reduction in earnings before interest, taxes, depreciation and amortization ("EBITDA")(1) in the first quarter of 2009 compared to the first quarter of 2008 due to the recession and the impact it had on the operating results of the Fund's portfolio businesses in the quarter. As a result of the magnitude of the reduction in EBITDA, the Fund was in violation of one of the financial covenants contained in its credit agreement. Subsequent to March 31, 2009, the Fund obtained from its lenders a waiver for the covenant breach and negotiated an amended credit agreement retroactively effective to the March 31, 2009 reporting period. The amended credit facility reduces the operating loan to a maximum level of $45,000 and provides a term portion of $5,000 for a total credit facility of $50,000. The term loan is amortized over seven years with interest payable monthly and principal payments quarterly.

As a result of the amendment, the interest rates are set quarterly and range from bank prime plus 0.50% to bank prime plus 1.25% on the operating loan and from bank prime plus 0.75% to bank prime plus 1.50% on the term loan. The amended credit facility also modified the calculation of the fixed charge coverage ratio to include EBITDA on an annualized basis as opposed to a TTM basis, commencing with the three months ended June 30, 2009 and distributions on an annualized basis as opposed to a TTM basis, commencing with distribution declared for May 2009. Under the terms of the amended credit facility, at March 31, 2009, the Fund was in compliance with all covenants, including the fixed charge coverage ratio covenant. As a result of the changes to the credit agreement, Management does not anticipate being in default of any of the financial covenants contained in the amended credit facility within the next twelve months.

As a result of discussions with the Fund's lenders and given the difficult economic conditions that each of the Fund's businesses face from the recession and with the prospect of reduced gross margins and cash flows for the balance of 2009, the Fund has reduced its monthly distribution by 50% from $0.055 ($0.66 annualized) per Unit to $0.0275 ($0.33 annualized), per Unit commencing with the distribution declared on May 15, 2009 payable on June 15, 2009 to Unitholders of record on May 29, 2009. The ex-distribution date is May 27, 2009.

"The Trustees reviewed Management's forecast for the balance of 2009 and took appropriate action in light of the recessionary environment," said Dale Laniuk, President and Chief Executive Officer.

Highlights from the Fund's 2009 first quarter are as follows:
(000's except per unit amounts) Three months ended
March 31
Sales 2009 2008
RJV $ 8,021 $ 10,506
Ezee-On 3,563 2,862
Stylus 6,561 7,537
Don Park 17,845 19,581
Diamond 4,606 6,661
Beco 14,697 10,051
$ 55,293 $ 57,198
Cost of sales 44,744 43,294

Gross profit 10,549 13,904
Selling, general and administrative expenses 8,059 7,775

Earnings before the undernoted 2,490 6,129
Amortization 1,511 1,864
Interest expense 378 871
Foreign exchange loss (gains) 102 (215)
Loss on disposal of property, plant and equipment 5 2
Gain on acquisition of partnership units for nil
consideration (3,748) (2,505)
Retractable non-controlling interest (989) 305

Earnings before income taxes and non-controlling
interest 5,231 5,807
Current and future income tax (recovery) (372) (673)

Earnings before non-controlling interest 5,603 6,480
Non-controlling interest - 740

Net eanings for the period $ 5,603 $ 5,740

Earnings per Unit (basic and diluted) $ 0.28 $ 0.33

Adjusted distributable cash $ 1,900 $ 5,389
Distributions declared 3,250 2,203
Adjusted distributable cash (deficit) surplus for
the period $ (1,350) $ 3,186
Adjusted distributable cash pay out ratio 171% 41%

During the quarter the Fund acquired 144,100 Units under its normal course issuer bid (NCIB) at an average cost of $2.64. Since the inception of the NCIB on October 1, 2008, the Fund has acquired and cancelled 330,900 of its outstanding Units.

As of May 15, 2009 there are 19,620,466 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 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 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 press release 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, 2008 and the annual information form of the Fund dated March 24, 2009, 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,
2009 2008
Cash flows from operating activities $ (934) $ 4,245
Net capital expenditures (994) (572)
Cash portion of retractable non-controlling
interest - -
Standardized distributable cash $ (1,928) $ 3,673
Change in non-cash working capital 3,144 1,632
Net capital expenditures 994 572
Maintenance capital expenditures (310) (488)
Adjusted distributable cash 1,900 5,389
Distributions declared 3,250 2,203
Adjusted payout ratio 171% 41%
Standardized distributable cash and adjusted distributable cash are
discussed in the Fund's MD&A.

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