TERRAVEST INCOME FUND
TSX : TI.UN

TERRAVEST INCOME FUND

November 11, 2010 21:41 ET

TerraVest Income Fund Releases 2010 Third Quarter Financial Results

VEGREVILLE, ALBERTA--(Marketwire - Nov. 11, 2010) - TerraVest Income Fund (TSX:TI.UN) today released its financial results for the 2010 third quarter.

For the 2010 third quarter the Fund reported:

(in thousands of dollars, except per Unit amounts)   Three months ended   Nine months ended  
    September 30   September 30  
      2010     2009     2010     2009  
Sales from continuing operations   $ 46,925   $ 47,740   $ 143,913   $ 145,840  
Earnings from continuing operations   $ 212   $ 470   $ 3,325   $ 6,400  
Earnings from discontinued operations   $ -   $ 37   $ 1,501   $ 279  
Adjusted distributable cash before                          
 credit agreement restrictions   $ 309   $ 1,506   $ 3,178   $ 5,264  
   
PER UNIT AMOUNTS                          
Earnings from continuing operations   $ 0.01   $ 0.03   $ 0.17   $ 0.33  
Earnings from discontinued operations   $ -   $ -   $ 0.08   $ 0.01  
Adjusted distributable cash before                          
 credit agreement restrictions   $ 0.02   $ 0.08   $ 0.16   $ 0.27  

The third quarter of 2010 saw mixed results for the Fund's portfolio businesses. Don Park saw improvements in its operating results as the overall economy in Ontario continued to show improvement. Beco's restructuring efforts resulted in improved operating results in the quarter, whereas the strengthening Canadian dollar, weak industry fundamentals for natural gas and unseasonably wet weather in southern Saskatchewan hampered results for Ezee-On, RJV and Diamond, respectively. As a result, the Fund realized a reduction in adjusted distributable cash, before credit agreement restrictions, in the three and nine month periods ended September 30, 2010 when compared to the same periods in 2009. Distributions were suspended in July 2009. As a result of the amendments made to the credit agreement in the second quarter of 2009, the Fund requires approval from its lenders before reinstating distributions.

STANDARDIZED DISTRIBUTABLE CASH AND ADJUSTEDDISTRIBUTABLE CASH  
  Three months ended   Nine months ended   Cumulative  
  September 30   September 30   since  
    2010     2009     2010   2009   inception  
Cash flow provided by operating activities $ 2,001   $ 8,701   $ 323   $ 17,218   $ 113,697  
Adjustments:                              
Net capital expenditures   (1,047 )   (258 )   (1,756 )   (1,917 )   (20,441 )
Cash portion of RNCI   -     -     -     -     (2,893 )
Standardized distributable cash before credit agreement restrictions   954     8,443     (1,433 )   15,301     90,363  
Adjustment for credit agreement restrictions   (954 )   (8,443 )   -     (9,892 )   (22,666 )
Standardized distributable cash available for distribution   -     -     NIL     5,409     67,697  
Distributions declared   -     -     -     5,409     71,330  
Standardized distributable cash deficit $ -   $ -     NIL   $ -   $ (3,633 )
Standardized distributable cash per Unit before credit agreement restrictions $ 0.08     0.43     NM1   $ 0.78   $ 4.78  
Distributions declared per Unit $ -     -   $ -   $ 0.28   $ 4.86  
Standardized payout ratio   NM1     NM1     NM1     35 %   103 %
   

 

Adjusted Distributable Cash                              
  Three months ended   Nine months ended   Cumulative  
  September 30   September 30   since  
    2010     2009     2010     2009   inception  
Standardized distributable cash before credit agreement restrictions $ 954   $ 8,443   $ (1,433 ) $ 15,301   $ 90,363  
Adjustments:                              
  Change in non-cash operating working capital   (701 )   (7,019 )   4,238     (11,153 )   (17,790 )
  Net capital expenditures   1,047     258     1,756     1,917     20,441  
  Maintenance capital expenditures   (991 )   (176 )   (1,383 )   (801 )   (12,552 )
Adjusted distributable cash before credit agreement restrictions   309     1,506     3,178     5,264     80,462  
Credit agreement restrictions   (309 )   (1,506 )   (3,178 )   -     (3,672 )
Adjusted distributable cash available for distribution   -     -     -     5,264     76,790  
Distributions declared   -     -     -     5,409     71,330  
Adjusted distributable cash surplus (deficit) $ -   $ -   $ -   $ (145 ) $ 5,460  
Adjusted distributable cash per Unit before credit agreement restrictions $ 0.02     0.08   $ 0.16   $ 0.27   $ 5.30  
Distributions declared per Unit $ -     0   $ -   $ 0.28   $ 4.86  
Adjusted payout ratio   NM 1     NM 1     NM 1     103 %   92 %
1 Not measurable                              

On October 7, 2010, the Fund entered into a definitive agreement to sell to RONA Inc. the assets and operations of Don Park's Canadian business ("Don Park Canada"). The transaction is expected to close before December 31, 2010 and is subject to approval of the Competition Bureau of Canada.

Total proceeds from the sale of Don Park Canada are expected to be $25.9 million in cash, subject to a hold-back and final adjustments. The Fund is required to apply a minimum of 80% of the proceeds from the sale of Don Park Canada to reduce the amount outstanding under the Fund's credit facility.

The Fund will retain its 80% interest in Don Park (USA) Limited Partnership, a local supplier of heating, ventilation and air conditioning (HVAC) products in the southeastern United States ("Don Park USA"). Don Park USA comprises a minor and discrete portion of the Fund's combined Don Park business and, accordingly, the sale is not expected to affect the Don Park USA operations.

The Fund's consolidated 2010 third quarter 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 investments in five businesses:

  • RJV is one of the largest providers of wellhead processing equipment for the natural gas industry in western Canada.
  • Ezee-On manufactures heavy-duty equipment for large acreage grain farms and livestock operations.
  • Diamond is a market leader in providing well servicing to the oil and natural gas sector in south-western Saskatchewan.
  • Beco is one of the largest Canadian designers and importers of home textile products.
  • Don Park is one of Canada's largest manufacturers and suppliers of heating, ventilation and air conditioning (HVAC) products.

Caution Regarding Forward-Looking Statements

The public communications of the Fund often include written or oral forward-looking statements. Statements of this type are included in this news release and may be included in filings with Canadian securities regulators, or in other communications. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives for 2010 and beyond, our strategies or future actions, and our targets or expectations for our financial performance and condition. 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, tax horizon, business strategy, including strategies for maximizing the value of our investments, the sale of Don Park Canada, 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; the markets in which the portfolio businesses compete and the values of the portfolio businesses 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, tax horizon, business strategy, 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 (the "AIF") of the Fund dated March 23, 2010 and under "Risk Factors" and "Financial Instruments" in the Fund's 2010 third quarter MD&A (the "MD&A") identifies risk factors that could affect the operating results and performance of the Fund and its portfolio businesses and the values of the 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 AIF and under "Risk Factors" and "Financial Instruments" in the MD&A 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.

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 provided by operating activities (after change in non- cash working capital), 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 retractable non-controlling interest. "Net capital expenditures" represent all purchases of properly plant and equipment incurred during the reporting period less proceeds of disposition of property, plant and equipment received during the period.

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 (including discontinued operations) 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. 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.

Standardized distributable cash and adjusted distributable cash are discussed in the MD&A.

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