November 03, 2009 16:05 ET

TerraVest Income Fund Releases 2009 Q3 Financial Results

VEGREVILLE, ALBERTA--(Marketwire - Nov. 3, 2009) - TerraVest Income Fund (TSX:TI.UN) today released its financial results for the 2009 third quarter.

For the 2009 third quarter, the Fund reported revenue of $54.3 million and net earnings of $507 thousand, or $0.03 per Unit, compared with revenue of $60.6 million and a net loss of $686 thousand, or $0.04 per Unit, for the 2008 third quarter. Year to date the Fund reported revenue of $165.3 million and net earnings of $6.7 million, or $0.34 per Unit, compared to revenue of $173.7 million and net earnings of $7.5 million, or $0.41 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 third quarter of 2009 compared to the third quarter of 2008 as a result of the continuing weakness in the economic environment and the impact it had on the operating results of each of the Fund's portfolio businesses in the quarter.

On the energy side of the Fund's portfolio, low levels of natural gas drilling activity in Alberta had a significant impact on the results of RJV and Diamond's Coiled Tubing unit. At the same time, the lower price of oil in the third quarter of 2009, as compared to 2008, had a negative impact on the utilization rates of Diamond's service rigs. While there is little visibility on a turnaround in natural gas drilling levels and, by extension, RJV's business, management of Diamond is beginning to see some stability in activity levels for its service rigs at the current price level for oil.

On the non-energy side of the portfolio, Ezee - On's sales volume was down relative to 2008 as a result of supply chain delays, but the business' backlog for the balance of 2009 remains strong despite the correction in agricultural commodity prices. Don Park's revenue for the quarter was flat relative to 2008 as the downward pressure from reduced residential and commercial real estate activity in Ontario was offset by increased volume on resale residential HVAC products being driven by government incentive and rebate programs. Beco's sales volumes were lower for the quarter as compared to 2008, as retail level sales of the business' products did not meet anticipated volumes and supply chain delays caused product shortages. The restructuring of the Beco's business away from being a North American manufacturer to a direct importer is on track. Finally, Stylus' sales volumes were lower than 2008 for manufacturing, import and contract businesses, as the slowdown in North American consumer spending along with the reduced capital spending levels of the hospitality industry continues to take its toll on the business.

In light of these various challenges across the portfolio, the Fund will maintain its focus on cost control, operational efficiency, and prudent working capital management.

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

(000's except per unit amounts) Three months ended Nine months ended
September 30 September 30
Sales 2009 2008 2009 2008
RJV $ 2,661 $ 4,788 $ 14,425 $ 19,792
Ezee-On 2,708 3,227 10,631 10,058
Stylus 6,542 7,547 19,467 22,827
Don Park 24,553 24,497 64,237 69,008
Diamond 4,983 6,753 13,898 18,944
Beco 12,835 13,828 42,649 33,105
54,282 60,640 165,307 173,734
Cost of sales 42,839 46,055 133,178 131,771
Gross profit 11,443 14,585 32,129 41,963
Selling, general and
administrative expenses 8,738 9,672 24,834 25,983
Earnings before the undernoted 2,705 4,913 7,295 15,980
Amortization 1,363 1,552 4,156 4,952
Interest expense 336 595 1,047 2,162
Foreign exchange loss (gains) 235 (123) 729 (370)
Loss on disposal of property,
plant and equipment 4 3 26 8
1,938 2,027 5,958 6,752
Earnings from operations 767 2,886 1,337 9,228
Impairment losses - 4,934 - 4,934
Gain on acquisition of partnership
units for nil consideration - - (3,748) (2,505)
Retractable non-controlling
interest 189 (497) (897) 111
189 4,437 (4,645) 2,540
Earnings (loss) before income
taxes and non-controlling interest 578 (1,551) 5,982 6,688
Current and future income tax
(recovery) 71 (935) (697) (1,939)
Earnings before non-controlling
interest 507 (616) 6,679 8,627
Non-controlling interest - 70 - 1,132
Net earnings (loss) for the period $ 507 $ (686) $ 6,679 $ 7,495
Earnings (loss) per Unit (basic
and diluted) $ 0.03 $ (0.04) $ 0.34 $ 0.41
Adjusted distributable cash for
the period $ 2,383 $ 4,655 $ 6,082 $ 11,953
Distributions declared - 3,228 5,409 7,635
Adjusted distributable cash
surplus for the period $ 2,383 $ 1,427 $ 673 $ 4,318
Adjusted distributable cash payout
ratio 0% 69% 89% 64%

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 presence in southeastern 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 Nine months ended
September 30 September 30
2009 2008 2009 2008
Cash flow from operating activities $ 8,729 $ (7,312) $ 17,246 $ 11,067
Net capital expenditures (258) (403) (1,917) (1,547)
Cash portion of retractable
non-controlling interest - - - -
Standardized distributable cash $ 8,471 $ (7,715) $ 15,329 $ 9,520
Change in non-cash operating
working capital (6,170) 12,084 (10,363) (3,874)
Net capital expenditures 258 403 1,917 1,547
Maintenance capital expenditures (176) (117) (801) (1,045)
MSA termination fee - - - (1,943)
Adjusted distributable cash $ 2,383 $ 4,655 $ 6,082 $ 11,953
Distributions declared $ - $ 3,228 $ 5,409 $ 7,635
Adjusted payout ratio 0% 69% 89% 64%
Standardized distributable cash and adjusted distributable cash are
discussed in the Fund's MD&A.

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