August 14, 2009 16:01 ET

TerraVest Income Fund Releases 2009 Q2 Financial Results

VEGREVILLE, ALBERTA--(Marketwire - Aug. 14, 2009) - TerraVest Income Fund (TSX:TI.UN) today released its financial results for the 2009 second quarter.

For the 2009 second quarter, the Fund reported revenue of $55.7 million and net earnings of $569 thousand, or $0.03 per Unit, compared with revenue of $55.9 million and net earnings of $2.4 million, or $0.14 per Unit, for the 2008 second quarter. Year to date the Fund reported revenue of $111.0 million and net earnings of $6.2 million, or $0.31 per Unit compared to revenue of $113.1 million and net earnings of $8.2 million, or $0.46 per Unit, for the comparative period in 2008.

The Fund realized a significant reduction in earnings before interest, taxes, depreciation and amortization ("EBITDA")(1) in the second quarter of 2009 compared to the second 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. Given the difficult economic conditions that each of the Fund's businesses face from the economic environment and with the prospect of reduced gross margins and cash flows for the balance of 2009, the Fund 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. Subsequent to that decision, when it became clear that the economic situation in North America was having a greater impact on our portfolio businesses than we originally expected, The Trustees decided on July 22, 2009 to suspend distributions in their entirety and focus on cash preservation and debt reduction.

Highlights from the Fund's 2009 second quarter are as follows:

(000's except per unit amounts) Three months ended Six months ended
June 30 June 30
Sales 2009 2008 2009 2008
RJV $ 3,743 $ 4,498 $ 11,764 $ 15,004
Ezee-On 4,360 3,969 7,923 6,831
Stylus 6,364 7,743 12,925 15,280
Don Park 21,839 24,930 39,684 44,511
Diamond 4,309 5,530 8,915 12,191
Beco 15,117 9,226 29,814 19,277
55,732 55,896 111,025 113,094
Cost of sales 45,595 42,422 90,339 85,716

Gross profit 10,137 13,474 20,686 27,378
Selling, general and
administrative expenses 8,037 8,536 16,096 16,311

Earnings before the undernoted 2,100 4,938 4,590 11,067
Amortization 1,282 1,535 2,793 3,399
Interest expense 333 696 711 1,567
Foreign exchange loss (gains) 392 (32) 494 (247)
Loss on disposal of property,
plant and equipment 17 3 22 5
Gain on acquisition of partnership
units for nil consideration - - (3,748 ) (2,505)
Retractable non-controlling interest (97) 304 (1,086) 609

Earnings before income taxes and
non-controlling interest 173 2,432 5,404 8,239
Current and future income tax
(recovery) (396) (331) (768) (1,004)

Earnings before non-controlling
interest 569 2,763 6,172 9,243
Non-controlling interest - 322 - 1,062

Net eanings for the period $ 569 $ 2,441 $ 6,172 $ 8,181

Earnings per Unit (basic and
diluted) $ 0.03 $ 0.14 $ 0.31 $ 0.46

Since the inception of the Fund's NCIB on October 1, 2008, the Fund has acquired and cancelled 330,900 of its outstanding Units.

As of August 14, 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.

(1) EBITDA is calculated as net earnings plus interest and depreciation and
adjusted for other non-cash expenses. EBITDA is not a defined term
under GAAP and does not have a standardized meaning.

Caution Regarding Forward-Looking Statements

All statements other than statements of historical fact contained in this news release are forward-looking statements, including, without limitation, statements regarding the future financial position and results, the availability of credit and other resources, cash flow, operations, business strategy, proposed acquisitions, budgets, distributions, projected costs, 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 the forward-looking statements will not prove to be accurate. We caution readers of this news 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 and the assumptions underlying 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 future financial position and results, resources, cash flow, operations, business strategy, proposed acquisitions, budgets, distributions, projected costs, plans and objectives of or involving the Fund and in making related forward-looking statements. Should any of these factors or assumptions vary, actual results may differ materially from the forward-looking statements.

The information set forth under "Risk Factors" in the annual information form of the Fund dated March 24, 2009 and this news release, identifies risk factors that could affect the operating results and performance of the Fund and its portfolio businesses. The forward-looking statements herein are made based on the assumption that the Fund will not be affected by such risks, but that, if the Fund is affected by such risks, the forward-looking statements may become inaccurate. We caution that the lists of factors discussed under "Risk Factors" in the annual information form of the Fund dated March 24, 2009, and this news release 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, and the inherent risks and uncertainties of forward-looking statements.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this news release are made as of the date of this news release. Except as required by applicable securities laws, the Fund does not undertake to update any forward-looking statement, whether written or oral, that it may make or that may be made, from time to time, on its behalf.

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 Six months ended
June 30 June 30
2009 2008 2009 2008
Cash flow from operating
activities $ 9,451 $ 14,134 $ 8,517 $ 18,379
Net capital expenditures (665) (572) (1,659) (1,144)
Cash portion of retractable
non-controlling interest - - - -
Standardized distributable
cash $ 8,786 $ 13,562 $ 6,858 $ 17,235
Change in non-cash operating
working capital (7,439) (9,842) (4,193) (8,209)
Net capital expenditures 665 572 1,659 1,144
Maintenance capital expenditures (315) (440) (625) (928)
Adjusted distributable cash $ 1,697 $ 3,852 $ 3,699 $ 9,242
Distributions declared $ 2,159 $ 2,204 $ 5,409 $ 4,408
Adjusted payout ratio 127% 64% 146% 48%
Standardized distributable cash and adjusted distributable cash are
discussed in the Fund's MD&A.

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